Blake v. Domestic Manuf'g Co.

• Decision Date: 02 September 1897
• Parties: BLAKE v. DOMESTIC MANUF'G CO. BLAKE et al. v. DOMESTIC SEWINGMACH. CO. et al.
• Court: New Jersey Court of Chancery

38 A. 241

64 N.J.E. 480

BLAKE

v. DOMESTIC MANUF'G CO.

BLAKE et al.

v. DOMESTIC SEWINGMACH. CO. et al.

Court of Chancery of New Jersey.

Sept. 2, 1897.

Separate bills by David Blake against the Domestic Manufacturing Company and by Eliza A. Blake and others against the Domestic Sewing-Machine Company and others to secure the payment of bonds and preserve the rights of complainants as creditors. Andrew Kirkpatrick was appointed receiver in both actions. Eliza A. Blake and others, bondholders of the Domestic Sewing-Machine Company, appealed from the determination of the receiver allowing the claims of six banks, to wit, the Phœnix National, the Garfield National, the National Broadway, the National Park, the Chemical National, and the First National, against the Domestic Manufacturing Company. Heard on bill, cross bill, answers, and replications, and on said appeals, proof being taken orally. Appeals dismissed, except that as to the claim of the First National Bank, and the rights of complainants determined.

Charles L. Corbin, S. B. Brownell, and Rush Taggert, for complainants.

T. N. McCarter, Mr. Doyle, and Mr. Reeve, for National Park Bank and others.

R. V. Lindabury and J. C. O'Connor, for Garfield Nat.

Bank and others. J. E. Howell, for Andrew Kirkpatrick, receiver.

EMERY, V. C. The litigation in these cases arises out of the failure of two corporations of this state, the Domestic Sewing-Machine Company and the Domestic Manufacturing Company, which were declared insolvent on June 2, 1893, on separate bills, the defendant Hon. Andrew Kirkpatrick being appointed the receiver of each corporation. These two companies had been connected in the manufacture and sale of sewing machines on a large scale since the organization of the sewing-machine company in April, 1891. Previous to this date, and since the organization of the manufacturing company, in 1881, a similar business connection existed between the manufacturing company and the Domestic Sewing-Machine Company, a corporation organized in 1870, under the laws of the state of Ohio. The sewing-machine company of New Jersey was organized to take over the assets and continue the business of the Ohio company, and by deed dated April 22, 1891, the New Jersey company purchased the assets of the Ohio company, and assumed its indebtedness, and also that of the Domestic Manufacturing Company, and to carry out and fulfill all existing obligations and contracts. The deed further declared that the New Jersey company "hereby pledges all the property and assets above conveyed and transferred to it for the payment of the obligations so assumed." At the time of this transfer of its assets from the Ohio company to the New Jersey company the Ohio company had an outstanding bonded indebtedness of about $300,000, which remained unpaid at the failure of the company. This same bonded indebtedness also existed on the part of the Ohio company in 1881 at the time of the organization of the manufacturing company, having been created as early as 1875. The Ohio company owned 1,980 shares of the entire 2,000 shares of the capital stock of the manufacturing company, and upon the organization of the latter company, in 1881, and by deed of trust dated April 21, 1881, the Ohio company conveyed to Eli J. Blake and John Dane, Jr., as trustees, this 1,980 shares of stock to secure these bonds and other obligations specified. The disputes now to be settled arise out of a twofold claim made by the complainants, who are the holders of $291,000 of these bonds. Their first claim is based upon the pledge of the manufacturing company stock to secure their bonds, and also upon their rights as creditors of the sewing-machine company, which is the owner of the stock, subject to the pledge for their benefit. The receiver has allowed or approved claims to the extent of about $300,000, which have been proved against the Domestic Manufacturing Company, by six banks holding notes indorsed, or purporting to be indorsed, by the manufacturing company. The complainants, as such creditors of the sewing-machine company, appeal to this court under the statute— "Corporations," § 82 (1 Gen. St. p. 923)—from the determination of the receiver allowing these claims. The ground of appeal is that the indorsement of the manufacturing company made on these notes was an indorsement by David Blake, the treasurer of the company, without authority, and that the indorsements are not binding upon the company. So far as relates to this dispute, the formal proceeding is that of separate appeals by the complainants from the allowance of the claim of each bank.

A preliminary motion to dismiss the appeals was made upon the ground that the complainants had no interest in the allowance of the claims. This was overruled on the ground that, as the complainants were certainly creditors of the sewing-machine company, even if their claim to a lien was invalid, and the sewing-machine company, as part of its assets, owned the manufacturing company stock, the complainants were directly interested in protecting this latter company against unfounded claims; and, inasmuch as the same receiver represented both companies, and had allowed the claims, the equitable situation was one where the greatest possible latitude should be given to the other creditors of either company in contesting claims against the manufacturing company, supposed to be invalid. The other claim of the complainants is the one upon which their bill in equity is based, and, briefly stated, the nature of this claim is that at the time of the transfer by the Ohio company of its assets to the New Jersey company the Ohio company was insolvent; that the transfer to the New Jersey company was void under the laws of Ohio, and that it was in fraud of the complainants as creditors of the Ohio company, and that complainants have a lien upon all the real and personal assets of the Ohio company existing at the time of the transfer prior to the claim of the creditors of either of the New Jersey companies. If, however, the transfer of its assets by the Ohio company to the New Jersey company should be held valid, then complainants claim that by virtue of the pledge of the existing assets made by the New Jersey company upon the transfer to pay the debts of the Ohio company the complainants, as creditors of the Ohio company, have a lien on this property in the receiver's hands superior to any claim of any creditor of the New Jersey Sewing-Machine Company. The complainants also claim that the patents and trade-marks originally belonging to the Ohio company and assigned to the New Jersey company were specially pledged to secure their bonds, and are so applicable in the receiver's hands to their claims. The bill further specially attacks the validity of the indorsement of the manufacturing company's notes by David Blake, and the allowance by the receiver of the claims of the banks founded thereon, and states that appeals are pending from these determinations, and the receiver and the banks were made defendants to the bill. The claims presented and allowed against the sewing-machine company amount to about $1,500,000, while the claims allowed against the manufacturing company are mainly the claims on the notes held by the banks. The principal asset of the sewing-machine company in the hands of the receiver is the stock of the manufacturing company, and the main dispute between the bondholders, the receiver, and the banks, both in the equity case and on the appeals, is as to the liability of the manufacturing company on the notes indorsed by David Blake as its treasurer. The equity cases and the appeals were therefore heard together, and in the disposition of the cases I will first take up the question of the validity of notes proved against the manufacturing company, leaving certain features of the equity case, not directly connected with this main question (including the matters set up in the answer and cross bill of the receiver) for a further separate statement and conclusion after disposing of the question which is the substantial one in both proceedings.

All of the notes in question purporting to bear the indorsements of the manufacturing company are similar in character, and are notes made by persons who were selling agents of the Domestic Sewing-Machine Company (of New Jersey), and are made payable to the order of the sewing-machine company at its place of business in New York City. They are all indorsed, in the first place, by the Domestic Sewing-Machine Company, by David Blake, vice president; his authority to indorse for this company not being called in question. They are then (with three exceptions, which I will be specially noted hereafter) indorsed in the following form: "Domestic Mfg. Co., David Blake, Treas." Thus indorsed, the notes were received by five of the banks, the Phoenix National, the Garfield National, the National Broadway, the National Park, and the Chemical National, for discount to the credit of the manufacturing company in its account with these banks respectively, and the proceeds of the discounts were by these banks respectively passed to the credit of the manufacturing company. The Second National Bank of Cooperstown purchased in the open market two of the notes, similarly made and indorsed, for full value, before maturity. The First National Bank holds five of the notes (similar in form), amounting to $29,714, as collateral to demand notes of the sewing-machine company, and these notes held by the First National Bank appear to have been so received as collateral in substitution for other notes to which the manufacturing company were not parties, and which were held as collateral to this loan made by the First National Bank to the sewing-machine company. The original loan by the First National Bank to the sewing-machine company of Ohio was made in 1890, and the notes indorsed by the manufacturing company were received by it in substitution for the other...