Whitehead v. Hamilton Rubber Company

• Citation: Whitehead v. Hamilton Rubber Company, 27 A. 897, 52 N.J.Eq. 78 (N.J. Ch. 1893)
• Decision Date: 01 October 1893
• Court: New Jersey Court of Chancery
• Parties: JOSEPH WHITEHEAD et al. v. HAMILTON RUBBER COMPANY

27 A. 897

52 N.J.E. 78

WHITEHEAD

v. HAMILTON RUBBER CO.

Court of Chancery of New Jersey.

Oct. 20, 1893.

Bill by Joseph Whitehead against the Hamilton Rubber Company, an insolvent corporation. The Danbury National Bank presented a claim to the receiver of the company, and from the refusal of the receiver to allow the claim the bank appeals. Confirmed.

Wm. M. Lanning, for petitioner Danbury Bank.

W. D. Holt for First Nat. Bank of Trenton and Mrs. Whitehead, executrix of Joseph Whitehead, deceased.

G. D. W. Vroom, for receiver and complainants. E. R. Walker, for Anna W. Bayard.

James Buchanan, for Western Nat Bank and others.

BIRD, V. C. The defendant is an insolvent corporation, and its assets are in the hands of a receiver. While it was in active business it gave several promissory notes, one of which was to the Danbury National Bank. All of these notes were indorsed by Joseph Whitehead, president of the corporation, and the holder of nearly all of its stock. After the giving of these notes and before maturity, and within about 10 days of the application for the appointment of a receiver, and undoubtedly with full knowledge of the insolvency of the institution, it executed to Mr. Whitehead an assignment of a very large number of its accounts due from solvent debtors, in all amounting to over $20,000, which was nearly the entire value of its book accounts. After stating the various notes so indorsed by him, and the amount of each, the assignment recites that the object was to secure said Whitehead for not only the money due him on account of salary, and the money due him for cash loaned as aforesaid, but also to secure him against loss for and on account of said accommodation indorsements, by assigning unto him a portion of the book accounts, and the said debts due thereon to said company. This was followed by an orderly assignment of said accounts with full power to collect the same, and to apply the moneys so collected in discharge of said obligations. The Danbury Bank, to whom one of the said notes was made payable, presented its claim to the receiver for the amount due thereon. Besides its claim at the hands of the receiver for the amount due, it also presented a statement in connection therewith of the fact of said assignment to Mr. Whitehead, and claimed the benefit of any rights which he enjoyed under said assignment. The receiver, as he had a right to do by virtue of the statute, inquired into the merits of said claim, and rejected the claim upon the part of the Danbury Bank to any preference by virtue of said assignment. Prom the decision of the receiver so made the Danbury Bank took its appeal. The question, therefore, for consideration is whether or not the Danbury Bank is in a position to claim any preference over the general creditors by virtue of the assignment of the said accounts so made to Mr. Whitehead. In answer to the claim of the bank it was insisted that the facts presented by the testimony made it very clear that this transaction, together with others, was undertaken solely with a view of preferring creditors, and was consequently fraudulent. This view, however, I think was not earnestly pressed. Whatever a full development of the case may present, I am very clear that, so far as the case stands revealed, there is nothing whatever to take it out of the cases of Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. Rep. 514, and Bergen v. Fishing Co., 42 N. J. Eq. 397, 8 Atl. Rep. 523, decided in the court of errors and appeals, and the more recent case of Boehme v. Rail, (N. J. Ch.) 26 Atl. Rep. 832, decided by Vice Chancellor Green.

The second objection to the claim of the bank rested upon the allegation that the assignment to Mr. Whitehead was for his personal benefit, or as a personal indemnity, of which he alone could avail himself; in other words, that the transaction did not contemplate a mere collateral security, of which the receiver could avail himself by way of subrogation, but was subject only to the action or control of the person indemnified. There is nothing in the instrument itself to lead to any such conclusion, supposing it were possible under the law to make such an assignment. The general doctrine of subrogation is defined in Shinn v. Budd, 14 X. J. Eq. 234. In Maure v. Harrison, 1 Eq. Cas. Abr. 93, this doctrine is applied and is distinctly illustrated, and, as it was quoted at length and approved in the United States supreme court, I will be justified in giving it in detail, as found in Hampton v. Phipps, 108 U. S. 263. 2 Sup. Ct. Rep. 622: "'A bond creditor shall, in this court, have the benefit of all counter bonds or collateral security given by the principal to the surety; as, if A. owes B. money, and he and C. are bound for it, A. gives C. a mortgage or bond to indemnify him, B. shall have the benefit of it to recover his debt.'" The supreme court further says: "And the converse of the rule was stated by Sir William Grant, in Wright v. Morley, 11 Ves. 12, where he said: I conceive that, as the creditor is entitled to the benefit of all the securities the principal debtor has given to his surety, the surety has full as good an equity to the benefit of all the securities the principal gives to the creditor.'" These general principles thus broadly stated seem by their clear and definite use of words to conclusively comprehend the very point raised in the present controversy; and I find these general principles to be sustained by every court which has had the precise question under consideration. In Vail v. Foster, 4 N. Y. 312, it is laid down that "a creditor is entitled in equity to the benefit of all collateral securities which the debtor has given to the surety or person standing in the situation of surety." Curtis v. Tyler, 9 Paige, 432; Eastman v. Foster, 8 Metc. (Mass.) 19; Ten Eyck v. Holmes, 3 Sandf. Ch. 469. This case also decides that the creditor in such case is entitled to the benefit of any such collateral security in preference to general creditors in case of assignment for the benefit of creditors.

Another point taken by way of resistance to the claim of the bank was that, while there was a form of a transfer, it was not in reality...