First Nat. Bank of Lyndhurst v. Bianchi & Smith, Inc.

• Decision Date: 06 June 1930
• Citation: 150 A. 774
• Parties: FIRST NAT. BANK OF LYNDHURST v. BIANCHI & SMITH, Inc., et al.
• Court: New Jersey Court of Chancery

150 A. 774

FIRST NAT. BANK OF LYNDHURST

v. BIANCHI & SMITH, Inc., et al.

Court of Chancery of New Jersey.

June 6, 1930.

Syllabus by the Court.

Under section 64 of "An Act Concerning Corporations" (2 Comp. St. 1910, p. 1638) a conveyance by an insolvent corporation to secure an antecedent debt is null and void as against creditors irrespective of notice to the grantee of such insolvency.

Syllabus by the Court.

Section 64 of "An Act Concerning Corporations" (2 Comp. St. 1910, p. 1638) is not modified by the "Uniform Fraudulent Conveyance Act" (P. L. 1919, p. 500).

Syllabus by the Court.

In construing state statutes our courts are not bound by the decisions of federal or other foreign jurisdictions. Syllabus by the Court.

Repealers by implication are not favored, and a later statute will not be held to repeal a prior one by implication unless the later statute is clearly intended to prescribe the only rule which should govern the case provided for, and the repugnancy between the two statutes is reasonably plain.

Syllabus by the Court.

Section 64 of the Corporation Act (2 Comp. St. 1910, p. 1638), is restrictive of the powers of a corporation with respect to conveyances of its property. The restrictions therein contained were imposed by the Legislature in pursuance of a state policy designed to protect persons dealing with a debtor of limited liability.

Additional Syllabus by Editorial Staff.

[Ed. Note.—For other definitions of "Insolvency; Insolvent," see Words and Phrases.]

Suit by the First National Bank of Lyndhurst to foreclose a mortgage opposed by Bianchi and Smith, Inc., and others.

Decree dismissing bill of complaint.

McCarter & English, of Newark, for complainant.

Breslin & Breslin, of Lyndhurst, for defendant Walter G. Winne.

BERRY, Vice Chancellor.

This is an action to foreclose a mortgage made by the defendant company to the complainant. After the bill was filed a receiver was appointed for the defendant company in insolvency proceedings. The receiver was made a party to this suit and defends on the ground that the mortgage is void as against creditors under the provisions of section 64 of the Corporation Act (2 Compiled Statutes 1910, p. 1638). It is undisputed that the consideration for the mortgage in question was an antecedent debt. Antecedent debts do not constitute a valuable consideration within the meaning of this section of the Corporation Act Miller v. Gourley, 65 N. J. Eq. 237, 55 A. 1083; Regina Music Box Co. v. F. G. Otto & Sons, 65 N. J. Eq. 582, 56 A. 715; Empire State Trust Co. v. Trustees of William F. Fisher & Co., 67 N. J. Eq. 602, 60 A. 940, 3 Ann. Cas. 393; Agnew Co. v. Paterson Board of Education, 83 N. J. Eq. 59, 89 A. 1046; Hoover Steel Ball Co. v. Schafer Ball Bearings Co., 89 N. J. Eq. 436, 105 A. 500; Evans v. Stanwood Rubber Co., 94 N. J. Eq. 630, 121 A. 2; Turp v. Dickinson, 100 N. J. Eq. 41, 134 A. 888; Unger v. Mayer, 100 N. J. Eq. 253, 147 A. 509.

The word "insolvent" as used in section 64 of the Corporation Act must be defined the same as "insolvent" as used in section 65 (2 Comp. St 1910, p. 1640); that is, a corporation is insolvent when there is a general inability to meet pecuniary liabilities as they mature by means of either available assets or an honest use of credit. Hoover Steel Ball Co. v. Schafer Ball Bearings Co., supra; Skirm v. Eastern Rubber Manufacturing Co., 57 N. J. Eq. 179, 40 A. 769. At the final hearing the proof showed conclusively that the defendant corporation was insolvent at the time the mortgage was executed (January 3, 1929) and had suspended its ordinary business for want of funds; in fact, the company had practically suspended all business, except for the completion of certain municipal contracts, in November preceding the date of the mortgage, and at the time the mortgage was made the corporation owed upwards of $50,000 for materials and supplies delivered to it and had no available assets to pay these claims, all of which were past due. It did not seek any new business after November, 1928, because it did not have funds either to make bid deposits or finance the work, and a customer's note of $8,000, indorsed by the defendant company, which was discounted at the complainant bank, was protested in November and remained unpaid until it was taken up by a new note secured by the present mortgage. It may be conceded for the purpose of this decision that the bank did not have actual notice of the insolvency of the defendant corporation. Such notice is not necessary under section 64 of the Corporation Act, except where a valuable consideration is given for the mortgage, but the circumstances of which the complainant did have knowledge were at least sufficient to excite suspicion, and the bank may, therefore, have been charged with notice. Horton v. Bamford, 79 N. J. Eq. 356, 81 A. 761.

On behalf of the complainant it is urged that section 64 of the Corporation Act has been modified by the Uniform Fraudulent Conveyance Act (chapter 213, P. L. 1919, page 500) because under that act a conveyance by an insolvent person is good against creditors, provided there is a fair consideration for such conveyance and an antecedent debt constitutes such fair consideration, citing in support of this contention Morrisville Trust Co. v. Moon (C. C. A.) 21 F.(2d) 716. It was there held...