Mallory v. Kirkpatrick

• Decision Date: 15 October 1895
• Citation: 33 A. 205,54 N.J.E. 50
• Parties: MALLORY v. KIRKPATRICK.
• Court: New Jersey Court of Chancery

33 A. 205

54 N.J.E. 50

MALLORY

v. KIRKPATRICK.

Court of Chancery of New Jersey.

Oct. 15, 1895.

(Syllabus by the Court.)

Bill by Philander J. Mallory against Andrew Kirkpatrick to declare a judgment fraudulent as against complainant. Conditional decree for complainant.

This is a contest between two judgment creditors of the Newark Bark Company, a private corporation, organized under the general act. The judgment of the defendant was entered on the 13th day of June, 1894, for upward of $15,000. Upon it execution was promptly issued, and all the property of the defendant corporation levied upon, sold, and purchased by the defendant. The sale was made not only under the defendant's judgment, but also under two other judgments previously recovered against the corporation, and the property produced a sufficient amount to pay the previous judgments and several hundred dollars on that of the defendant About the time that the sale took place, complainant brought an action upon his claim against the corporation, and obtained judgment by default on the 3d of October, 1894, for $005.85. The prayer of the bill is that the judgment recovered by the defendant may be declared to be fraudulent and void as against the complainant, and that the property, real and personal, sold under it to the defendant, may be decreed to be subject to the lien of the complainant's execution, and the sale under the previous judgment set aside, or, in the alternative, that the defendant pay the complainant's judgment out of the proceeds of the sale, which would otherwise go to satisfy his own judgment. The defendant was from the organization of the corporation, and up to the 12th of June, 1894, one of its directors and its president On the day last named, it was indebted to him in about the sum of $1,500 for money advanced to it, and he was an indorser on its notes for about $7,500 more. The company was hopelessly insolvent, and two judgments, amounting to about $3,000, had already been recovered against it. On the 11th of June, he commenced suit against the company, and on the 12th he resigned as president and director. At a meeting of the remaining directors held on the 13th, his resignation was accepted, and his son, Andrew Kirkpatrick, Jr., was elected a director in his place; and then, by a resolution of the board, an attorney of the supreme court, who was present, was authorized and directed to consent to a judgment in favor of the defendant in his suit just commenced. Immediately after receiving this authority, the attorney signed a cognovit actionem, and judgment was at once entered in the defendant's favor against the company for $15,000 and upward. There is no dispute but that the whole amount was due.

T. N. McCarter, Jr., for complainant.

P. Woodruff, for defendant.

PITNEY, V. C. The complainant attacks the defendant's judgment on two grounds:

First, he alleges and proves that his claim was due and should have been paid in the fall of 1893, and that it was placed by him in the hands of an attorney for collection, who called upon the defendant and upon one of the directors, who appeared to be active in managing the financial affairs of the company, and demanded payment; that they both told him that the company was in financial difficulties, and that it was trying to pay its debts, and they thought it would be able to do so if the creditors gave them time. The defendant also stated to complainant's attorney that the corporation was largely indebted to him, and, if the creditors attempted to force payment, he should attempt to secure himself. On the strength of this statement, complainant's attorney accepted part payments on the amount due, and took notes of the company for the balance. This was done on one or two occasions before the final collapse, part of the amount due being paid in each instance. The precise point made by the complainant is than there was what amounted to a contract between him and the defendant, as president of the company, that, so long as the complainant granted renewals in part payment of his debt, the defendant would not take measures to secure himself. I think the evidence entirely fails to sustain the point. What the defendant promised was that, if all the creditors forebore to sue, the company would try to pay them all. This condition was not fulfilled. Two of them did sue, and obtained judgment and execution.

The second point relied upon by the complainant requires more careful consideration. It is that the corporation, being insolvent, bad no right to prefer the defendant, who was its president, as its creditor; and he relies upon the very recent case of Montgomery v. Phillips, decided by the court of errors and appeals on the 20th of March, 1895, reported in 31 Atl. 622, and upon Manufacturing Co. v. Hutchinson, 11 C. C. A. 320, 63 Fed. 496. Against this, complainant relies upon Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. 514, and takes the additional ground that complainant has no standing in court to attack the judgment of defendant for his own benefit alone, but that it can only be done either by a receiver in insolvency, as in Montgomery v. Phillips, or by a bill in which complainant asks relief for himself and all other creditors who may come in and ask a benefit under the decree.

Before considering this question, It is proper to notice a further technical objection made by the defendant, viz. that the corporation should have been made a party. It seems to me that the point is well taken, and that, without the corporation in court, the complainant's proceedings are defective. But, as that is a matter which may be remedied by amendment, I will proceed to consider the merits.

I am unable to reconcile the case of Wilkinson v. Bauerle with that of Montgomery v. Phillips. The former case distinctly avows the doctrine (41 N. J. Eq. 643, 644, 7 Atl. 514) that an insolvent incorporated company may prefer its creditors generally, not excluding its president or other officers; and in that case one of the creditors preferred was the president of the company. In Montgomery v. Phillips, as I read it, the contrary doctrine is established; and it was distinctly held, upon review of all the authorities, that a corporation in an insolvent condition could not prefer one of its creditors who was an officer of the company, and a chattel mortgage given for that purpose was set aside at the suit of a receiver appointed by this court. At the same time an assignment of choses in action to a creditor at large, not an officer or stockholder, was sustained, though made when the company was insolvent. The bill in Wilkinson v. Bauerle was exhibited by a creditor who sued for himself and all others who might come in (41 N. J. Eq. 638, near bottom, 7 Atl. 514) that in Montgomery v. Phillips was exhibited by a receiver appointed by this court. This difference is not material, because the object of the bill in both cases was precisely the same, viz. to bring about an equal distribution of the assets of the corporation among its creditors.

In addition to the direct bearing upon this case of the decision of the court of errors and appeals in Montgomery v. Phillips, there is the eightieth section of the corporation act, which declares that the funds of a corporation "shall be distributed among the creditors proportionally to the amount of their respective debts, excepting mortgage and judgment creditors when the judgment has not been by confession for the purpose of preferring creditors." A judgment by confession for the purpose of preferring a creditor is expressly excepted by Justice Magie in his opinion in Wilkinson v. Bauerle.

It is urged by the counsel for the defendant that his is not a judgment by confession, but I cannot adopt that view. The suit was commenced by a summons and declaration on the 11th of June. The...