Savage v. Miller

• Decision Date: 28 February 1898
• Citation: Savage v. Miller, 39 A. 665, 56 N.J.E. 432 (N.J. 1898)
• Court: New Jersey Supreme Court
• Parties: EDWARD I. SAVAGE, receiver of the Johnson Railway Signal Company, appellant, v. GEORGE MILLER, trustee, et al., respondents

39 A. 665

56 N.J.E. 432

SAVAGE

v. MILLER et al.

Court of Errors and Appeals of New Jersey.

Feb. 28, 1898.

(Syllabus by the Court.)

Appeal from court of chancery; Reed, Vice Chancellor.

Bill in equity by Edward I. Savage, receiver of the Johnson Railway Signal Company, against George W. Miller, trustee, and others, attacking a mortgage.From a decree in favor of plaintiff, defendant Miller appeals.Reversed.

George W. Miller(Corbin & Ocrbin, of counsel), pro se.

John Griffin, for appellee.

GARRISON, J.The question to be decided upon this appeal is whether the claims of certain creditors of the Johnson Railway Signal Company were lawfully preferred by a mortgage given by its directors to George W. Miller, trustee, in the month of January, 1895, at which time the corporation was insolvent.The bill which is filed by Edward I. Savage, receiver, attacks the mortgage as a preference upon the ground that George W. Miller, to whom it was made, was a director of the insolvent company.It may be well to note here that the statute of this state that, prior to the revision of 1875, rendered void as against creditors the transfer of its property by any insolvent corporation, or by a corporation in contemplation of insolvency, was dropped by the legislature from the revision of that year (1875), but was re-enacted on the 5th day of March, 1895, which, it will be observed is after the giving of the present mortgage.During the 20 years this statute was off the books, this court decided Wilkinson v. Bauerle(1886)41 N. J. Eq. 635, 7 Atl. 514;Vail v. Jameson(1886)41 N. J. Eq. 648, 7 Atl. 520;Bergen v. Fishing Co.(1887)42 N. J. Eq. 395, 8 Atl. 523, andMontgomery v. Phillips(1895)53 N. J. Eq. 203, 31 Atl. 622.

The necessity for these decisions may, in the future, cause perplexity, unless the fact with respect to the statutory law be borne in mind.

The mortgage in question, having been given during this interval, is to be tested by these authorities, especially by that last cited.

The creditors preferred are five in number, whose claims may be thus epitomized:

(1)Mrs. Georgina M. Johnson, a daughter of George W. Miller, to whom he had passed a note of the company for $2,500, made to its own order and delivered to Miller for past services.

(2) The Union County Bank, which had loaned to the corporation $5,000, for which it held its note, indorsed by George W. Miller and two other directors.

(3)Georgina M. Johnson, who, as executrix of her husband, held the company's note for $6,143, loaned to it by her husband.

(4) A note for $29,205.53, held by the same executrix, for money due to her husband from the Hall Signal Company, that, by an agree ment between it and the present company, before insolvency, was assumed by the latter upon a good consideration.

(5) A note for $8,600 to Frederick Kernochan, administrator.

Applying to these creditors the doctrine of Montgomery v. Phillips, the learned vice chancellor who heard the cause set aside all of the claims, with the single exception of that of Frederick Kernochan.In reaching this result in the case of the Union Bank and of the two claims of Georgina M. Johnson, executrix, a meaning and an effect was given to the prior decision of this court that goes beyond what it decided, and extends the doctrine of that case beyond the ground on which it rests; for, clearly, the decision of the lower court is that any application of the property of an insolvent company to the payment of its debts, made by its directors from personal motives, or the desire to benefit friends or kindred at the expense of the general creditors, is void.In effect and in terms the directors are treated as powerless to make a preference in favor of creditors to whom they are related by consanguinity, affection, or even professional relationship.

This is practically to re-enact the statute against preferences; for every preference is the expression of a motive or desire on the part of the directors to favor some creditors over others,—to put them, as the word implies, ahead in the race for assets.This the legislature may forbid, but this court may not....