Meding v. Roe

• Decision Date: 07 November 1894
• Citation: 30 A. 587
• Parties: MEDING v. ROE et al.
• Court: New Jersey Court of Chancery

30 A. 587

MEDING

v. ROE et al.

Court of Chancery of New Jersey.

Nov. 7, 1894

(Syllabus by the Court.)

Bill by Charles E. Meding, as receiver of the Butler Silk Manufacturing Company, an insolvent corporation, to declare void a chattel mortgage upon its plant held by Madeline A. Roe and one Todd. Decree granted.

This bill is filed by a receiver of an insolvent corporation, appointed by this court, against a party holding a mortgage upon the chattels of the corporation. Its object is to obtain a decree of this court declaring the mortgage void. The complainant bases his equity on four grounds: First, that the mortgage was not executed in pursuance of authority for that purpose given by the board of directors; second, that it was purposely withheld from the records for several months after it was executed, and, indeed, until the day before the application for the appointment of a receiver was made to a judge of this court; third, that such withholding from the records was done by virtue of an agreement between the parties for the purpose of defrauding creditors; and, fourth, that the affidavit was insufficient.

There is no dispute as to the facts. They are as follows: The insolvent corporation, the Butler Silk Manufacturing Company, was organized under the general corporation act on the 14th of February, 1889, by Richard V. Butler, Abram Fardon, and James H. Huntoon, all of Paterson. Its object was the manufacturing of silk, and its place of business was Paterson. Huntoon was merely a nominal stockholder, and never took any part in the affairs of the company. They were managed, as long as it existed, by Butler and Fardon. Butler was president, and attended to the manufacturing department, and Fardon was secretary and treasurer, and attended to the financial department. He was also teller in a national bank at Paterson. In the latter part of the year 1892 the corporation was largely in debt, and in fact insolvent its financial condition in this respect was concealed from its creditors, and statements made and exhibited to them showing that it had a large surplus. About that time the defendant Miss Madeline Roe and her brother, Augustus C. Roe, who were cousins of both Butler and Fardon, became entitled to a considerable sum of money— nearly $10,000—by the death of their mother; and Augustus, who seemed to be somewhat helpless, was thrown out of a home and employment. In this situation of affairs the defendant Madeline Roe applied to her cousin Butler to give a position to her brother, as employe, in the Butler silk mill. He agreed to do so provided she and her brother would loan the corporation the small fortune which they were about to receive, to enable it to increase its machinery and plant, and thereby create a need of an additional man in the works, and proposed to give them a chattel mortgage to secure them. Under this arrangement, Miss Roe began paying the money that she received from her mother's estate over to the corporation as fast as it came in to her, and also borrowed from her brother's trustee his share, and paid that over to it, upon the understanding that she was to have a chattel mortgage upon the plant for the whole. In fact, that mortgage was prepared in December, but was not executed until after the last payment was made, which was some time in April, 1893, when Miss Roe, by adding her own savings from her labor for years to the money she received from her mother's estate on her own and her brother's account made up the sum to an even $10,000. To secure this sum the chattel mortgage in question was executed. It bears date on the 9th of May, 1893, and was executed on that day by Butler, as president of the company. Miss Roe made the necessary affidavit on the 18th of May, 1893. The mortgage was prepared and the business transacted by Mr. J. H. B., a real-estate agent and conveyancer in Paterson, who occupied confidential relations towards Mr. Butler. Neither Butler nor Fardon was present when Miss Roe made the affidavit. After it was made, Miss Roe said to J. H. B., "You understand, Mr. B., that this mortgage is not to be recorded until I send you word myself?" And she says that he (B.) answered, "I think so, Miss Roe." And she says that she gave this direction to Mr. B. because Mr. Butler had said to her, when the mortgage was ready for execution, that he would prefer, for business reasons, that she would not record it; but that, as she was a woman, if at any time she grew nervous she might record it without any further conversation with either Butler or Fardon. Mr. J. H. B. placed the mortgage in his safe, and kept it there until Monday, the 31st day of July, 1893. On Saturday, the 29th of July, Mr. Fardon was arrested for a criminal breach of the federal banking laws, and lodged in jail. Miss Roe saw him on Sunday, and, at his suggestion, immediately sent word to Mr. J. H. B. to put her mortgage on record; and he swears, and he is probably right, that he lodged it for record on Monday morning, July 31st, but the clerk's certificate is that it was so lodged at 4 o'clock in the afternoon. In the meantime, during the business hours of July 31st, counsel for Mr J. H. B. was engaged in preparing a bill for him, asking for the appointment of a receiver of the corporation, and Mr. J. H. B. made an affidavit to it on the 31st of July. Counsel presented it to a vice chancellor on the next day, August 1st, and it resulted a few days later in the appointment of the complainant receiver. The property subject to the mortgage was sold free and clear of it by order of the court, and the proceeds are in court, subject to its disposition. Between the time of the giving of the mortgage and its tiling for record, the corporation continued its business, and incurred large liabilities for materials purchased of divers dealers in raw silk in New York City. Several of these parties or their agents were sworn, and declared that they had no suspicion of any mortgage or lien, and, further, that they had, before selling the goods, made special inquiries of Mr. Butler as to whether there were any liens of any kind upon the plant of the corporation, and were assured by him that there were none. One other creditor examined the records for such liens. The proofs show that the giving of a chattel mortgage by a manufacturer tends to seriously injure his credit, and that if, in this case, the mortgage had been filed as soon as given, it is probable that none of the credits which were extended by the various dealers to this corporation after that date would have been given. The proofs further show Miss Roe to have been entirely inexperienced in business, and innocent of any intention to defraud, and quite ignorant that such might be the effect of her holding her mortgage off the record. She had no notion what the "business reason" was that Mr. Butler referred to when he asked her not to record the mortgage. In December, 1892, Miss Roe had indorsed a note made by the company, for its accommodation, to the defendant Todd, its landlord. That note was renewed when due, with a like indorsement, and Miss Roe became charged as indorser; and after her mortgage was recorded she assigned a half interest in it to Mr. Todd, to secure him for her indorsement, and he was made a party defendant by reason of such assignment.

Eugene Stevenson, for complainant.

John W. Griggs, for defendants.

PITNEY, V. C.. (after stating the facts). The ground principally relied upon by the complainant is the withholding the mortgage from record from May 18 until July 31, 1893, during which period the corporation had the benefit of the credit of owning this silk plant free and clear of incumbrance, and thereby acquired a mercantile credit to which it was not entitled; resulting in the incurring of very considerable indebtedness to persons who are now the creditors of the corporation, and are represented by the receiver. The right of the receiver to attack this mortgage, as a representative of creditors, cannot be disputed, since the de cision of the case of Button Co. v. Spielmann, 50 N. J. Eq. 120, 24 Atl. 571, which was affirmed by the court of errors and appeals, 50 N. J. Eq. 796, 27 Atl. 1033. The question to be decided depends upon the true construction of the chattel mortgage act of May 2, 1885 (Supp. Revision, p. 491). The fourth section of that act provides "that every mortgage or conveyance Intended to operate as a mortgage of goods and chattels hereafter made, which shall not be accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith, unless the mortgage, having annexed thereto an affidavit or affirmation made and subscribed by the holder or holders of said mortgage, his, her or their agent or attorney, stating the consideration of said mortgage and as nearly as possible the amount due and to grow due thereon, be recorded as directed in the succeeding section of this act" This section had its origin in the act of March 24, 1864 (P. L. 493; Nixon, Dig. 1868, p. 613). That act provided for the filing of a mortgage, instead of its record, and did not require an affidavit. The words requiring an affidavit were inserted by the act of March 19, 1878 (P. L. 139). The act of March 12, 1880 (P. L. 266), provided merely for the recording of chattel mortgages. It seems to have left it optional with the mortgagee whether he would record or file, making either sufficient The act of March 25, 1881 (P. L. 226), was a revision of all the legislation on that subject. So held by Vice Chancellor Van Fleet in Bracher v. Smith, 8 N. J. Law J. 16. That act omitted the clause requiring an affidavit, but required the Instrument to be recorded. That was followed by the act of 1885, in which the requisition of an affidavit was again inserted.

The verbiage of ...