Savage v. Miller

• Citation: 56 N.J.E. 432,36 A. 578
• Parties: SAVAGE v. MILLER et al.
• Decision Date: 12 January 1897
• Court: New Jersey Court of Chancery

36 A. 578

56 N.J.E. 432

SAVAGE

v. MILLER et al.

Court of Chancery of New Jersey.

Jan. 12, 1897.

Bill by Edward S. Savage, receiver of the Johnson Railroad Signal Company, against George W. Miller, trustee, and others, to test the validity of a mortgage.

This bill is filed by the receiver of an insolvent corporation, to test the validity of certain preferences made by the corporation, by its mortgage to a trustee, to secure the payment of certain of its creditors. The corporation was decreed to be insolvent on February 4, 1895, and the complainant was appointed receiver, and has sold the property of the corporation. The question is whether the assets in his hands should be primarily applied to the liquidation of the debts which were secured by the mortgage mentioned. On January 18, 1895, the Johnson Railroad Signal Company was largely indebted. The affairs of the company had reached a critical stage; so desperate, indeed, that there was no reasonable ground for believing that it could surmount the financial difficulties that threatened it. There was a glimmer of hope that, if the unsecured creditors would extend their credit, the business of the corporation might be tided over its troubles. Those creditors, however, did not take this course; but, instead, one of them, to whom salary was due, promptly filed a bill in the suit in which the corporation was declared insolvent. The events connected with the execution of the mortgage were these: On January 14th a meeting of the board of directors was called to convene on January 16th, and on the 16th the meeting was adjourned to January 18th. At the session held on the last-mentioned date, there were present three persons as directors, namely, George W. Miller, William P. Hall, and Winfield S. Gilmore. They ordered that a mortgage be executed upon all the real and personal property of the corporation to one of themselves, George W. Miller, as trustee, to secure the payment of certain specified debts. The first of these debts was in the shape of a note made by the corporation to the order of itself. It was dated January 18, 1895 (the day of the meeting), and was given for the sum of $2,500, payable on demand. This note was made for, and delivered to, George W. Miller, one of the directors, for past services rendered to the corporation as its legal adviser, and for past disbursements made for the benefit of the company. Mr. Miller delivered this note to Mrs. Georgianna M. Johnson, to pay a debt which he owed to her for moneys which she had advanced to him. Mrs. Georgianna M. Johnson was the daughter of Mr. Miller. The second of these debts was in the shape of a note, dated December 17, 1894, made by the company to the Union County Bank, for $5,000, payable three months after date. This note was given in renewal of another note, which had been made in consideration of money loaned by the bank to the corporation. The existing note was indorsed by William P. Hall, William S. Gilmore, and George S. Miller, each of whom, as already observed, was a director of the corporation, and, apsuch, voted to make the mortgage. The third of these debts was in the shape of a note dated December 7, 1893, by which the corporation promised to pay, one day after date, to the order of Georgianna M. Johnson, the sum of $6,143. The history of this debt seems to be this: Charles R. Johnson, the husband of Georgianna M. Johnson, had beer the promoter and the president, as well as a director, of the Johnson Railway Signal Company, the insolvent corporation. He died, leaving his widow, Georgianna M. Johnson, the executrix of his will. During his lifetime he had advanced cash to the corporation, and, after his death, this note was given to his executrix for such advances. George W. Miller, as already observed, was the father of Mrs. Johnson, and her representative in this transaction, acting in her interest, while he was at the same time the attorney of the corporation. The fourth of these debts was in the shape of a note given by the company, for the sum of $29,205.53. The note is dated January 18, 1895, and is payable on demand, to the order of the company. It was indorsed by the company, and delivered to Mrs. Georgianna M. Johnson, executrix of Charles R. Johnson, deceased. The history of this note was this: Charles R. Johnson, in 1892, had sold 730 shares, which he then owned, of the stock of the Johnson Railway Signal Company, to a corporation known as the Hall Signal Company, for the sum of $110,000. This consideration was still unpaid on January 18, 1895, the date of the meeting of the directors, and the making of the note. The Hall Signal Company, at that time, was a creditor of the Johnson Railway Signal Company, for money which it had advanced to the latter company, to the amount of $29,205.53. At the meeting of the board of directors held on January 18th, William P. Hall, who was the president of the Hall Signal Company, was present as a director of the Johnson Railway Signal Company, of which he was also vice president. By an arrangement then made or then consummated, it was agreed that the amount due from the Johnson Railway Signal Company to the Hall Signal Company should be paid over to Mrs. Georgianna M. Johnson, executrix, in part payment of the amount due by the Hall Signal Company to the estate of C. R. Johnson, for the 730 shares of stock. The note was therefore delivered to Mr. Miller for Mrs. Johnson, and then presumably to her, after its indorsement by the Johnson Railway Signal Company, but not indorsed by the Hall Signal Company. Mr. Miller, the father of Georgianna M. Johnson, also represented her in this transaction. The fifth and last of these debts was in the shape of a note for $8,600, made to one Frederick Kernachan, administrator. Nothing whatever in the testimittee appears to throw any light upon the original of this debt, or the relation of Mr. Kernachan to the corporation.

John Griffin and P. H. Gilhooley, for complainant .

William H. Corbin, for defendants.

REED, V. C. (after stating the facts). The mortgage is attacked by the receiver, upon the ground that the directors of this insolvent company had such an interest in the payment of the debts secured by it that the preferences so created are voidable. The execution of the mortgage was directed by the votes of three directors of a board of five. The votes of all the three, in favor of the mortgage, were essential to a legal expression of the corporate will. If any one of these three directors was disqualified, by reason of his adverse interest, from joining in the action of the board, the execution of...