105 N.J. Eq. 373 | N.J. Ct. of Ch. | 1929
The Savoy Silk Mills, a corporation, was declared insolvent March 9th, 1925, and the complainant was appointed receiver. The bill is filed to compel the defendant, Hamilton Trust Company, to account for property transferred to it by the corporation while insolvent, in violation of section 64 of the Corporation act.
In the year before, April 1st, the Savoy Silk Mills called a meeting of creditors and made a settlement with all but five at twenty cents on the dollar. The Hamilton Trust Company, a heavy creditor, not included in the settlement, advanced the necessary funds, $20,400, and took a chattel mortgage, June 25th, 1924, as security. The mortgaged property included, among other things, seventy Providence looms, upon which the trust company then held a conditional bill of sale for the balance of the purchase price, $10,000. The looms were later sold, fetching $9,294.60. The receiver claims the money on the theory that the chattel mortgage having been taken during insolvency, with notice of insolvency, it is void under the statute. The proposition is well founded in fact and law. Turp v. Dickinson,
The trust company held four notes of the Savoy company aggregating $27,250, secured by the debtor's trust receipts for raw silk in the debtor's possession, held in trust for the trust company. On March 5th, 1924, the debt of the four notes was reduced to one note of $27,250, and the trust company surrendered the trust receipts, releasing the raw silk, and took in exchange and as substituted security four hundred and one shares of stock of the Union Realty Company. This stock originally belonged to the Foxes, father and son, incorporators of the Savoy company and its managing directors. They had previously pledged it with the trust company as early as September, 1923. For the purpose of a better showing in the financial statement of the Savoy company, to increase *375
its line of credit, the Foxes assigned the stock to the Savoy company subject to the lien of the trust company and it was then formally and documentarily repledged. For present purposes it is sufficient to deal with the pledge by the Savoy company. The receiver claims that this was without consideration other than to secure the antecedent debt of $27,250; that at that time the Savoy company was insolvent, and the pledge in violation of the statute. Agnew Co. v. Board of Education,
The exchange of the stock for the receipts was not void because made after insolvency. There can be no doubt that the liabilities of the Savoy company exceeded its assets and that it was in fact insolvent when the exchange was made. *376
Calling the creditors together shortly thereafter indicates that; but that it was at the time insolvent in the statutory sense,i.e., "a general inability to meet pecuniary liabilities as they matured, by means of either available assets or an honest use of credit," is by no means established. It was functioning normally. It had not actually suspended its ordinary business. Its mill was in full operation, and the exchange was in the regular course of business. Hoover Steel Ball Co. v. SchaferB.B. Co.,
On June 18th, 1924, the trust company, with notice of the insolvency, discounted a note of the Olympic Silk Company and placed the amount to the credit of the Savoy company, $5,891. A few checks against the account were honored and the balance, $5,657.28, was appropriated by the trust company by draft of June 21st when it closed the account. This was in violation of the statute. The trust company must account for the money. Counsel for the trust company made no defense of the transaction in his brief, and it is to be assumed he had none. If it escaped his attention he may be heard on the settlement of the decree.
The bank is a heavy creditor of the Savoy company. Leave will be given to prove its claim before the receiver. In the meantime it will be relieved from the payment of the amount *377 with which it stands charged and execution of the decree stayed until and upon payment of the administration expenses and the allotment to other creditors under an order of distribution in the insolvency suit.