Bergen v. Porpoise Fishing Co.

• Decision Date: 11 March 1887
• Citation: 42 N.J.E. 397,8 A. 523
• Court: New Jersey Supreme Court
• Parties: BERGEN, Trustee, v. PORPOISE FISHING CO. and others.

8 A. 523

42 N.J.E. 397

BERGEN, Trustee,

v. PORPOISE FISHING CO. and others.

Court of Errors and Appeals of New Jersey.

March 11, 1887.

On appeal from court of chancery. See 3 Atl. Rep. 404.

Samuel D. Bergen, for appellant.

John W. Westcott, for respondents Miller and Cook.

KNAPP, J. The bill was filed by complainant as trustee under two mortgages made by the Porpoise Fishing Company on the first of October, 1884, to secure 60 bonds, of $50 each, also executed by the company. The mortgages so given covered lands and chattels of the company. The bill prayed foreclosure of the mortgage, and sale of the mortgaged premises, and a decree against Jonas S. Miller and John A. Cook for the return of certain of the mortgaged chattels purchased by them at a sale had of such property in virtue of two judgments recovered against the company by said Miller and Cook, respectively. The judgments so recovered were subsequent to the execution of the mortgage. The bill also prayed the appointment of a receiver. The defendants Cook and Miller answered, setting up their several judgments, averring the validity of the sale and purchase by them thereunder, and denied authority in the corporation to make the mortgages, and averred generally that they were made in fraud of creditors. The decree held the mortgages invalid as against the judgments of the defendants, and the title to the property of the company acquired by them thereunder. The fishing company, in February, 1884, filed a certificate of incorporation under the general law. A president and other officers of the corporation were chosen, but not in the mode required by the statute. For above half a year it transacted business through these officers, acquired property, and incurred debts. On the fifteenth of September, 1884, it perfected its corporate organization. On that day, by the assent of all the stockholders present at a meeting called for that purpose, a resolution of the board of directors was passed, authorizing the issue of 60 bonds by the company, of $50 each, and the execution of a mortgage upon its real estate, and a mortgage upon its chattels, to secure the payment of the bonds, with interest. The securities were issued on the first of October following. The bonds were disposed of at par, and principally to the stockholders of the company. A large portion of them were for cash paid to the company on the delivery of the bonds; others were paid to officers and stockholders for money which had already been advanced by them to the company. In a few instances they were used to pay bills due from the company for goods delivered to it, for salaries due to officers, and for moneys which they had advanced to the company for which they held claims against it. The defendants Miller and Cook each, in June, 1885, recovered a judgment against the corporation for debts contracted prior to the execution and recording of the mortgages. Some or all of the stockholders were subject to calls on their stock at the time of the execution of the mortgages and their purchase of bonds. Under those circumstances the court below decreed the rights of the judgment creditors to be superior to the lien of these mortgages, principally upon the ground, as I understand the opinion of the learned vice-chancellor, that the transaction was virtually an assignment for the benefit of creditors in which unlawful preferences were given, or that the execution of these mortgages was intended to delay and hinder creditors. He regards the circumstances under which the property of the corporation was pleaded as establishing a fraud in law against creditors. One circumstance made prominent in the opinion below is the insolvency of the corporation at the time when the mortgages were made.

It is not amiss to say, in regard to this fact, that it is, as I think, made to appear that, when the mortgages were executed and delivered, the assets of the company were in excess of its liabilities, and that, with the aid which the money procured from the sale of those bonds afforded it, it could and did continue to pay its current obligations as they arose. But, conceding the fact of insolvency, is this a ground for invalidating a security thus made for moneys advanced upon it, or for debts in good faith due to the takers of the bonds?

The case of Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. Rep. 514, holds that, under our law as it has stood since the Revision, corporations stand with individuals in respect to the right to pledge their property; so that the objection that an insolvent corporation is incapacitated by express statute to manage its property cannot now be made; and the law is not that a debtor, though insolvent, may not sell or pledge his property for money or in the payment of his debts, or prefer a creditor or creditors over others. Both reason and authority, says Judge Magie, establish the proposition that a corporation may sell and transfer its property, and may prefer its creditors, although it is insolvent, unless such conduct is prohibited by law. National Bank of the Metropolis v. Sprague, 21 N. J. Eq. 530; Wilkinson v. Bauerle, supra; 1 Smith, Lead. Cas. (7th Amer. Ed.) 45.

Stress is also laid upon the circumstance that many of the persons who took and paid for the bonds on delivery to them were stockholders of the company, and as such were liable to calls upon non-paid up stock. Whether such be the fact or not, we...