Atl. Ref. Co. v. Stokes

• Decision Date: 09 February 1910
• Citation: 75 A. 445,77 N.J.E. 119
• Parties: ATLANTIC REFINING CO. v. STOKES et al.
• Court: New Jersey Court of Chancery

75 A. 445

77 N.J.E. 119

ATLANTIC REFINING CO.

v. STOKES et al.

Court of Chancery of New Jersey.

Feb. 9, 1910.

Suit by the Atlantic Refining Company against Josiah Stokes and others to set aside a conveyance as in fraud of creditors. Conclusions stated.

French & Richards, for complainant.

Wilson & Carr, for defendants.

LEAMING, V. C. The single question presented is whether Mr. Stokes in fact owed Mr. Tatem on July 28, 1908, approximately $1,200, and received the conveyance in question in good faith and without any fraudulent or improper purpose. If the indebtedness existed to the amount named and the conveyance was in good faith, it is immaterial, so far as the subsequent judgment creditor of Mr. Stokes is concerned, whether the conveyance was absolute or as security, for the surplus money, which now stands in the place of the property conveyed, is only about $500.

The law controlling controversies of this nature is well defined. So far as the powers of this court extend, it is the right of an individual who is in failing circumstances or insolvent to prefer one of his creditors; and it is also the right of any creditor of such an Individual, acting honestly and in good faith, to obtain security from his debtor to secure the debt or to extinguish the debt by purchasing property of the debtor which is of the same value as the credits surrendered. The limitations upon these rights are to be found in a want of integrity of purpose upon the part of the preferred creditor. There must be no combination between him and his debtor to hinder, delay, or defraud other creditors of the debtor. It is not sufficient for the purpose of setting aside such a conveyance that the object of the grantor was fraudulent. It must be shown that the grantee participated in that intent, or had knowledge of the object of the grantee, or of such facts as should have put him upon inquiry as to the object. Roe v. Moore, 35 N. J. Eq. 526; Muirheid v. Smith, 35 N. J. Eq. 303, 308; Merchants' National Bank v. Northrup, 22 N. J. Eq. 58, 60. And, when the conveyance is made to secure an antecedent debt or to discharge such a debt, it has been frequently held that even knowledge upon the part of the grantee that his grantor's purpose is to defeat other creditors will not be operative to vitiate the conveyance, providing the grantee did not actually participate in that purpose by making a reservation in favor of the grantor or in some other manner combining with the grantor to enable him to defeat his creditors. The reasons underlying the distinction between a present consideration and a preexisting consideration are well expressed in a note to 20 Cyc. p. 472, as follows:

"The reasons that have been assigned for the distinction between one who purchases for a present consideration and one who purchased in satisfaction of a pre-existing debt are sound and unassailable. The former is in every sense a volunteer. He has nothing at stake—no self-interests...