Opinion
02-13-1903
RICHARDSON v. GERLI et al.
Corbin & Corbin, for receiver. Mr. Carrick, for judgment creditors.
Suit by Britton Richardson, assignee, etc., against Charles Gerli and others. Heard on bill, cross-bill, answer, replication, and proofs. Decree for complainant.
Corbin & Corbin, for receiver.
Mr. Carrick, for judgment creditors.
EMERY, V. C. The question now to be decided arises on a cross-bill filed by defendant Kellogg, as receiver of an insolvent corporation, the National Silk Label Company. This company, on April 25, 1806, conveyed all its property to the firm of William MacFarlane & Co. On April 27, 1896, this firm made an assignment for the benefit of its creditors, and the assignee took possession of the property, which comprised also other property than the property conveyed by the silk company. Subsequently defendant Gerli, a creditor of the firm of MacFarlane & Co., obtained a judgment against the firm, and levied on the property in the possession of their assignee, including the property conveyed by the silk company. As to the property levied on as the firm property, the execution has been held valid as against the assignment. The property conveyed by the silk company has been separately sold by the receiver appointed for all the property of MacFarlane & Co., and after the payment of a mortgage given by the silk company prior to the conveyance, which was prior to the unsecured creditors of the silk company, and also to the Gerli judgment, a surplus of about $3,000 remains in court Claims against the silk company, more than sufficient to exhaust the sum, and which existed at the time of the bill of sale, have been proved against the receiver, and the receiver files this cross-bill to have the transfer by the silk company to MacFarlane declared fraudulent and void, and to have the surplus paid over to him for the creditors of the silk company.
The receiver, in a bill of this character, represents, as is well settled, the creditors of the silk company, and is entitled to set aside conveyances in fraud of the company's creditors. On the evidence there can be no question, I think, that the conveyance was in fact fraudulent against the company's creditors. The grantees paid nothing for the conveyance. They were themselves insolvent, and at the time they contemplated an immediate assignment for the benefit of their creditors. This assignment was made, and the real object of the conveyance in question seems to have been, to save the expense of a double assignment, and to settle the affairs of both the company and firm in a single insolvency proceeding. One of the two members of the firm of MacFarlane & Co. was treasurer of the silk company, and executed the bill of sale on its behalf. The conveyance was clearly made in contemplation of insolvency, and, as both grantor and grantee participated in the fraud, the conveyance was fraudulent against the creditors of the silk company under the statute of frauds. It was also a violation of the provisions of the Corporation Act, § 64 (Gen. St. p. 919), forbidding transfers in contemplation of insolvency.
The only question is whether a judgment creditor of a fraudulent grantee, who has levied upon the goods fraudulently conveyed prior to the appointment of a receiver, has a title or lien prior to that of the judgment creditors of the fraudulent grantor, whose debts existed at the time of the fraudulent transfer, or the receiver, who stands in their rights. I considered this question in Couse v. Columbia, etc., Co. (N.J.Ch. 1895) 33 Atl. 297, 299, reaching the conclusion, upon the authorities there cited, that the judgment creditor of the fraudulent grantee was not a bona fide purchaser for a good consideration within the saving provision of the fifteenth section of the statute. Gen. St. p. 1605. The following additional authorities also support this view denying the right of the judgment creditor of the fraudulent grantee to be considered a bona fide purchaser for good consideration under the statute: Mingus v. Condit (Zabriskie, Ch., 1873) 23 N.J.Eq. 313, 315, approved in Knowles Loom Works v. Vacher (Sup. Ct. 1895) 57 N.J.Law, 490, 496, 31 Atl. 306, 33 L. R. A. 305, affirmed on error, 59 N.J.Law, 586, 39 Atl. 1114; 14 A. & E Ency. Law (2d Ed.) 287, note 1.
The judgment creditor, not being a bona fide purchaser for good consideration, is therefore not protected by the statute of frauds. The same consequences follow if the bill of sale is void as a conveyance in contemplation of insolvency, and, in either aspect of the transfer, it is void as against the existing creditors of the silk company and its receiver as representing them.
I will advise a decree that the money in court be paid to the receiver.