Opinion
07-24-1891
ZINN et al. v. BRINKERHOFF et al.
Edward A. Day and Milton Demarest, for complainants. Luther Shafer and William Brinkerboff, for defendants Abraham S. Brinkerhoff and James Dowling.
(Syllabus by the Court.)
On bill, answers, replication, and proofs taken in open court.
Edward A. Day and Milton Demarest, for complainants.
Luther Shafer and William Brinkerboff, for defendants Abraham S. Brinkerhoff and James Dowling.
GREEN, V. C. The bill in this cause was filed by Charles A. Zinn and George W. Albere, partners under the firm name of Charles A. Zinn & Co. It is a creditors' bill in aid of execution issued on a judgment obtained by them December 27, 1889, in the circuit court of Bergen county against one James D. Brinkerhoff for $797.81 damages and costs, which execution had been levied by the sheriff of Bergen county December 27, 1889, on certain goods and chattels in the possession of the defendant, and on his interest in four tracts of land. The object of the suit, as gathered from the prayer for relief, is to set aside as fraudulent and void as against the complainants a mortgage given by James I). Brinkerhoff to Abraham S. Brinkerhoff on the real estate levied on, dated September 16, 1889, to secure the sum of $4,500, as well as an alleged chattel mortgage of the same date on certain personal property levied on, said to have been given by the said James D. Brinkerhoff to the said Abraham S. Brinkeroff to secure the said sum of $4,500, and also a chattel mortgage given by the same to the same, for the same amount, on the same property, dated December 13, 1889, and recorded in Bergen county clerk's office December 16, 1889, and to postpone in favor of complainants' judgment a judgment obtained against James D. Brinkerhoff and Abraham S. Brinkerhoff by Charles Burkhalter and John H. Burkhalter, recovered in the Bergen county circuit court December 23, 1889, for $738.59, under which there had been a levy made by the sheriff prior to the levy under complainants' judgment, and which it was alleged had been paid by James Dowling, one of the defendants to this suit, and kept on foot for the purpose of defrauding the complainants. The real-estate mortgage and the chattel mortgage of December 13, 1889, had been assigned by Abraham S. Brinkerhoff to James Dowling, who also held the assignment of the Burkhalter judgment. James D. Brinkerhoff, Abraham S. Brinkerhoff, James Dowling, and numerous judgment creditors of James D. Brinkerhoff, and two judgment creditors of James D. and Abraham S. Brinkerhoff, partners, on whose several judgments execution had been issued, and levies made on the property involved in the suit, were made parties defendant. The bill prayed that the several mortgages be declared fraudulent and void, and set aside, and that complainants' lien be preferred to the Burkhalter judgment, and for an account of property sold by the defendants, and that a receiver be appointed to take possession and sell, and from the money arising from such sale to pay complainants' judgment and the other valid judgments against James D. Brinkerhoff and Abraham S. Brinkerhoff, according to their legal priority, and for an injunction against Abraham S. Brinkerhoff and James Dowling from taking possession of the goods and chattels by virtue of the said chattel mortgage, and from selling and disposing of the same,and restraining the sheriff from selling by virtue of the execution issued on the Burkhalter judgment, or any other execution, until the further order of the court. On filing the bill on January 2, 1890, an order was made by the chancellor, directing the defendant to show cause why an injunction should not issue, and a receiver be appointed, according to the prayer of the bill, with a restraining order in the meanwhile. Application was made by counsel for the defendants Brinkerhoff and Dowling for the immediate sale of perishable property,—all parties being represented on the motion. The chancellor, on January 6, 1890, appointed Thomas W. Alyea receiver in the cause, to take possession of the goods, fixtures, horses, wagons, coal-yard, and all the goods and chattels of James D. Brinkerhoff, and all his books of account, including the books of account of the old firm of Brinkerhoff Bros., and the real estate of James D. Brinkerhoff; and to sell and dispose of the personal property in the best manner, and for the best price he could obtain, either at private or public sale; and also to collect all moneys due and to grow due on the book-accounts of James D. Brinkerhoff and Brinkerhoff Bros. Under this order the receiver took possession of and sold the personal property, and mads certain collections of the debts on the books. Answers were filed by the defendants Abraham S. Brinkerhoff, James Dowling, James D. Brinkerhoff, and Abraham D. Campbell. The receiver filed his report on the 28th day of July, 1890, which was referred to George W. Cassedy, Esq., for audit and report thereon.
The claim of the original complainants having been satisfied, Abraham S. Swords and Joseph B. Dixon, partners, and "The Lehigh Valley Coal Company," who were judgment creditors of James D. Brinkerhoff, and defendants in the suit, were, on application, order to show cause, and hearing, admitted as parties complainant, and allowed to prosecute the same in their own behalf, on indemnifying the original complainants against all costs. The receiver was also continued, and directed to continue in possession, and to pay interest falling due, as well as taxes, and further proceedings before the master on the receiver's report were stayed. The cause was regularly set down for hearing, and was tried in the presence of counsel of Swords and Dixon, the Lehigh Valley Coal Company, and Abraham S. Brinkerhoff and James Dowling. James D. Brinkerhoff and Abraham S. Brinkerhoff are brothers, and were formerly in partnership, and carried on a general store business at Rutherford for some nine years. James D. was sheriff of the county of Bergen at one time. His public duties requiring his absence from the business, led to a re-adjustment of their interests in the profits, on an unequal basis, and produced, as it would seem, dissatisfaction on the part of his brother, Abraham, to continue in business with him, and ultimately brought about a dissolution of the copartnership on the 16th of September, 1889. This was effected by James buying the interest of Abraham in the concern for the consideration of $4,500, and assuming the payment of the debts of the firm. No money was paid, but the notes of James for the full amount of the purchase, each of $300, and maturing at periods of three months from each other, were given. James and his wife gave to Abraham a mortgage on his real estate, to secure the payment of these notes, which mortgage is dated of the 16th of September, 1889, and was immediately put upon the record. He also agreed to give to his brother a chattel mortgage upon the personal property. There is some question as to whether such a chattel mortgage was executed at that time. One or more appear to have been drawn, but the witnesses are not in accord on the point as to whether these chattel mortgages, or either of them, were then executed by James or delivered to Abraham. The point of the matter rests in the allegation made by James, that it was a part of the agreement to give this chattel mortgage that it should not be put upon the record, but should be held by his brother, to be used only incase James' creditors pressed him. That any such agreement was made is expressly denied by Abraham and. by his counsel. James, immediately on the dissolution, took possession of the store and premises and stock of goods, and continued the business in his own name, purchased other goods of firms they had formerly dealt with, until about the commencement of December, when suits were threatened and commenced by the creditors, and by creditors of the former firm. Abraham then demanded a chattel mortgage from James, and the chattel mortgage of December 13, 1889, was given. It is on condition to pay the sum of $4,500, with interest, according to the tenor and true intent of 15 certain promissory notes of $300 each, which were the notes given by James to his brother for the purchase of his interest in the business. The mortgage contained a clause that it should become due on the failure to pay one of the notes, and embraced the goods and chattels and the book-accounts of James D. Brinkerhoff. This mortgage was as soon as possible, and on December 16, 1880, put upon the record. The transaction is attacked, first, on the ground that on the 16th of September, 1889, when the firm was dissolved, and Abraham transferred his interest in the property to James D. and James D. incumbered his estate, the firm of Brinkerhoff Bros, was insolvent, and that the transfer for no other consideration than the notes of one of the parties was a voluntary transfer, and as such void as to creditors. It may, for the purposes of this point, be conceded that the firm was insolvent, as that term is defined in equity, and that the transfer of all the assets by the one partner to the other, the firm being insolvent, taking therefor nothing but the purchasing partner's notes, is a voluntary transfer, and as such void as against existing creditors of the firm; but neither the original complainant nor the two prosecuting complainants, Swords and Dixon, and the Lehigh Valley Coal Company, are creditors of the firm of Brinkerhoff Bros.Their judgments are against James D. Brinkerhoff. That the transaction was invalid against the creditors of the firm of Brinkerhoff Bros. does not establish the contention that it was not good as against the creditors of James D. Brinkerhoff.
It is urged that a transfer can be avoided by subsequent creditors on the ground that the conveyance was a voluntary conveyance, if such subsequent creditors show that at the time of the trial the debtors owed debts which existed at the time the voluntary conveyance was made. There are cases which go to this extent. But the contrary must be regarded as the settled law of this state. The court of appeals, in Hagerman v. Buchanan, 45 N. J. Eq. 292, 17 Atl. Rep. 946, held that when a creditor who became such subsequent to the execution of a voluntary conveyance made by his debtor attacks the conveyance as void by the operation of the statute of frauds, the burden is upon him of showing that the actual intent existed in the minds of the parties to the conveyance at the time of its execution to hinder, delay, or defraud creditors. This is followed in this court in Gardner v. Kleinke,46 N. J. Eq. 90, 18 Atl. Rep. 457. It is therefore necessary for these complainants, Swords and Dixon, and the Lehigh Valley Coal Company to prove that there was actual fraud in the transaction, which resulted in the pledge, by James to Abraham, of property which they seek to reach with their execution. The firm of Brinkerhoff Bros. had been formed by these parties to continue a business which had formerly been carried on by Abraham S. in Rutherford; extended, it may be, in its scope and operation, but carried on in the same locality. Abraham alleges that he became dissatisfied with the manner in which his brother, James, conducted himself, and the lack of attention he paid to the affairs of the copartnership; and that he, on various occasions, expressed to his brother this dissatisfaction, and proposed that an amount should be fixed upon for the sale of the business on the principle of give or take. While they seemed to have commenced business on an equal basis it appears by the accounts that their capital accounts as partners on the 1st of January, 1888, stood as follows: To the credit of Abraham S., $7,065.19; to the credit of James D., $4,074.88. Whether or not there was any material change in their relative capital accounts on the 1st of January, 1889, does not appear from the books. It appears that, some statement was made, which is not produced. Abraham explains the failure to produce some papers by the fact that his safe was robbed by an expert burglar, and a great many documents lost at the time. James claims that he should have received credit for two items; but the testimony of Abraham, subsequently given, with reference to the entries in the books, clearly shows that, so far as one item of $1,500 is concerned, the same had been credited to James. It is, however, unnecessary, as between the parties, to fix with accuracy the exact state of capital account in dollars and cents, as the parties proceeded and acted upon the ground that a difference existed on the 1st of January, 1888, of $3,000 in favor of Abraham, which continued up to the 1st of January, 1889. It appears by Abraham's testimony that at that date an account of stock was taken, the items of which appear in one of the books, giving the amount of capital stock, book-accounts, etc. Negotiations were then commenced looking to a purchase or a sale of the interests of one to the other, but nothing definite was settled upon until September, 1889, when Abraham insisted upon some arrangement being made to effect a dissolution. An invsntory was made, showing the amount of stock and book-accounts and liabilities, by which it appeared as follows:
| Book-accounts, including bills receivable, estimated at | $10,262 38 |
| Cash | 145 87 |
| Stock and fixtures, etc | 8,621 00 |
| $19,032 25 | |
| The liabilities were | 9,822 60 |
| Showing an apparent balance to the credit of the partnership of | $9,209 65 |
On this Abraham offered to give his brother $1,500, and assume the payment of the debts, or to take from his brother $4,500, and James to assume the payment of the debts. This offer was made on the basis of there being a balance of $6,000 of good assets over and above liabilities; that Abraham was entitled to $3,000 more than James on capital account, which would leave $3,000 to be divided equally between them, making Abraham's interest $4,500, and James'$1,500. This settlement was accepted by the parties, and was carried out, James D. taking possession, and giving his notes and the mortgage. There is no evidence which seriously impeaches the fairness or accuracy of the figures and estimates which form the basis of the transaction. While it is true that the firm might have been considered insolvent, in the sense that they did not have cash on hand to meet any payment which might be demanded on that day, and which would control if the insolvency involved voluntary transactions injurious to existing creditors, I think in the determination of the question as to the existence of actual fraud, in which the intention of parties figures so largely, if it is not the essential consideration, we are to be guided, as to insolvency, rather by the relative amount of available assets and the amount of liabilities. It being a conclusion of law that a voluntary conveyance is of itself fraudulent as against existing creditors, it is right to prescribe some uniform test as to what constitutes a voluntary conveyance, and establish fixed terms for certain conditions; but such definitions, if different from the usual acceptation, are not necessarily to be applied in other cases, and when it is necessary to prove that actual fraud existed, and the condition of insolvency enters into the question, I think we must be guided by the elements which constitute the condition popularly recognized by the term "insolvent," rather than those which have been adopted by the courts as indicative of insolvency in cases of fraud as a conclusionof law. Taking the word in its ordinary signification, this firm was entirely solvent, if reliance can be placed upon the inventory and estimates which were made with a view to this transaction. After giving a liberal discount of over f3,000 for claims which might not be collected, it left a surplus of $6,000 to the credit of the concern.
The complainants on the trial practically abandoned their attack upon the real-estate mortgage given by James to Abraham. It was notice to all the world of the facts recited in it, and it does recite that James was justly indebted to Abraham in the sum of $4,500, secured by a bond conditioned for the payment of that amount, with interest according to the tenor and effect of 15 promissory notes, each bearing even date with said mortgage, and payable at periods running from 8 to 45 months, given by James to Abraham, with the condition that, if default should be made in the payment of any of them, and remain unpaid for 20 days, the whole amount should become due, at the option of Abraham. Any person trusting James after that mortgage went upon the record did so, in the eyes of the law, with full notice of his indebtedness to Abraham of this amount. There was no secrecy, and no attempt to conceal. The mortgage was given on the 16th of September, 1889, rand placed upon the record on the 18th. There is no evidence to show that there was not a complete change of possession, and Abraham states that he ceased his connection with the business, actual as well as legal, on the consummation of this arrangement with his brother. The bill charges, and an attempt was made to prove, that Abraham had secured credit for his brother by representations with reference to his solvency, but no satisfactory proof of such representation was produced, and, so far as these complainants are concerned, there was an entire failure to establish such contention. It is said that the transaction was fraudulent, not only against the creditors of Brinkerhoff Bros., but also as against subsequent creditors of James D., because there was an agreement between these parties that a chattel mortgage should be given by James to Abraham, nominally to secure the payment of the $4,500 of notes, which mortgage was to be kept off of the record until James was pressed by his creditors. As intimated before, there is much dispute as to this point, but we have the fact that no chattel mortgage executed on the 16th of September, 1889, was in fact used by Ahraham or his assignee to interfere with the other creditors. A mortgage was given on the 13th of December, 1889, which covered all of the goods and chattels of James connected with the store, together with the book-accounts. If Abraham was a bona tide creditor of James to the amount of $4,500, James, although in failing circumstances, unquestionably had the right to honestly prefer Abraham over his other creditors. This is well settled in this state. If it be conceded that the mortgage of December 13, 1889, would be fraudulent if given in place of one given September 16. 1889, under an agreement not to put the same on record unless James was pressed by his creditors, the evidence does not satisfactorily establish any such agreement. The burden of proof is on the complainants. Abraham and Mr. Shafer positively deny it, James as positively asserts it. Mr. Van Cleve, while certain that a chattel mortgage was executed September 16, 1889, does not say that it was tainted by any such agreement. It does appear that James, by the terms of the dissolution, was to pay the debts of the partnership, and was to give another real-estate mortgage and another chattel mortgage to secure Abraham against liability for firm debts, the payment of which James so assumed, and that these mortgages were to be held by Mr. Shafer in escrow, but the arrangement was not consummated as Mrs. James Brinkerhoff declined to execute the real-estate mortgage. It is entirely probable that the agreement as to these mortgages has been by mistake applied to the other, which will explain, this discrepancy in the testimony without imputing perjury to any one. This suggestion is strengthened by the fact that the real-estate mortgage of September 16, 1889, was immediately placed on record, and the propriety and fairness of such action is not questioned I am unable to find from the evidence that the mortgage of December 13, 1889, was not honestly given to secure Abraham as a preferred creditor. Abraham had, in his former business, been associated with another gentleman as partner, and had borrowed from his father-in-law, James Dowling, money which he had invested in the business, giving his father-in-law his note therefor, upon which he regularly paid the interest. On his forming a copartnership with his brother he made a further loan from his father-in-law, and gave him therefor another note, upon which he also regularly paid the interest. These two notes were subsequently merged into one of $2,000, and upon the indebtedness interest was paid up to the 1st of October, 1890. There is no evidence whatever to impeach either the amount or the good faith of the claim made by the defendant James Dowling against Abraham S. Brinkerhoff. It appears that the notes and the real estate and chattel mortgages were assigned to James Dowling by Abraham S., as collateral securities for his debt of $2,000; and it further appears that Dowling has received on account of his claim $1,051.89. Part of this amount is money received from certain notes of customers given by James to Abraham, and by him transferred to Dowling. It is insisted that these notes were given to take up the Burkhalter judgment, and that they have been misapplied to the Dowling claim. Dowling holds an assignment of that judgment, as well as of the mortgages, and it is not perceived how the complainants are injured by the application of this amount to the one claim, rather than the other, as both are prior to the judgments of the complainants. Dowling is entitled to hold his collaterals for the settlement of the amount due him, and the difference between that amount and the $4,500 and interest on it would belong to AbrahamS. The latter is liable on judgments obtained against Brinkerhoff Bros., and these judgment creditors would be entitled to be next paid, and any balance remaining of the $4,500 should go to Abraham S. individually. The receiver has collected $6, 192.98, and has disbursed $1,012.73, leaving a balance on hand at the time of his report of $7, 180.25. This would indicate that the personal property covered by the chattel mortgage has been sufficient to discharge the indebtedness of $4,500, and the real-estate mortgage, which was also given to secure the same debt, should, if such is the case, be canceled, and the injunction in this case dissolved, so that the judgment creditors can proceed with their legal remedies unimpeded by such mortgage. Of course, any balance remaining in the hands of a receiver should be appropriated to the payment of the judgments, in the order of their priority. The order staying the further proceedings before the master should be set aside, and he should proceed to state the account as directed.