Opinion
05-14-1923
EVANS v. STANWOOD RUBBER CO.
Foster M. Voorhees, of Elizabeth, for Union Trust Co. August C. Streitwolf. of New Brunswick, for receiver.
In the matter of receivership proceedings against the Stanwood Rubber Company. Appeal from a ruling of the receiver against the Union Trust Company of Elizabeth, complained of by its president, Robert G. Evans. Ruling sustained.
Foster M. Voorhees, of Elizabeth, for Union Trust Co.
August C. Streitwolf. of New Brunswick, for receiver.
BACKES, V. C. Shortly before the defendant company was declared insolvent it overdrew its account with the Union Trust Company, of Elizabeth, to the extent of $10,727.88. It was then hopelessly insolvent, and unable to make restitution. To secure the trust company it executed and delivered to it the following paper writing:
"Know all men by these presents: That, Stanwood Rubber Company, a Delaware corporation, for value received hereby sells, assigns, transfers and sets over unto (sic?) all those automobile tires listed and described in schedule hereto attached.
"This assignment is made as collateral security to a loan of $10,727.88 this day made by (sic?) October 27, 1920, to the said Stanwood Rubber Corporation, it being understood and agreed that the Stanwood Rubber Corporation (sic?) shall have the right to sell any or all of the said tires upon condition that it shall forthwith apply the proceeds of any tires so sold to the reduction of its obligation upon said note.
"Stanwood Rubber Company,
"By Robert G. Evans, President.
"Attest: W. Gderare, Asst. Sec."
The writing was acknowledged but not recorded. The tires mentioned in the schedule remained in the possession of the insolvent company, and the receiver took and sold them for $7,000. The receiver has refused to pay this sum over to the trust company, and his ruling is before me for review.
The instrument upon which the trust company relies was given, as indicated on its face, as collateral security for a preexisting debt, and is, in legal effect, a chattel mortgage, and, as it was not "accompanied by an immediate delivery, and followed by an actual arid continued change of possession of the things mortgaged," it is void, under our Chattel Mortgage Act (Comp. Stat. vol. 1, p. 463, § 4), as against the receiver and the creditors whom he represents. Button Co. v. Spielmann, 50 N. J. Eq. 120, 24 Atl. 571; Hastings v. Fithian, 71 N. J. Law, 311, 60 Atl. 350.
The paper writing as a transfer of property, whether it be regarded as a bill of sale or chattel mortgage, is also void under our Corporation Act, because it was given at a time when the Stanwood Company was insolvent. Section 64 of the act (2 Comp. Stat. p. 1638) provides:
"Whenever any corporation shall become insolvent or shall suspend its ordinary business for want of funds to carry on the same, neither the directors nor any officer or agent of the corporation shall sell, convey, assign or transfer any of its estate, effects, choses in action, goods, chattels, rights or credits, lands or tenements; nor shall they or either of them make any such sale, conveyance, assignment or transfer in contemplation of insolvency, and every such sale, conveyance, assignment or transfer shall be utterly null and void as against creditors; provided, that a bona fide purchase for a valuable consideration, before the corporation shall have actually suspended its ordinary business, by any person without notice of such insolvency or of the sale being made in contemplation of insolvency, shall not be invalidated or impeached."
The trust company does not come within the proviso of the act, because the document was given to secure a pre-existing debt (Trust Co. v. Trustees of William F. Fisher & Co., 67 N. J. Eq. 602, 60 Atl. 940, 3 Ann. Cas. 893; Agnew Co. v. Paterson Board of Education, 83 N. J. Eq. 49, 89 Atl. 1046, affirmed 83 N. J. Eq. 336, 339, 90 Atl. 1135), and also because the trust company had notice of the insolvency. In the agreed state of facts it is stipulated that the Stanwood Company was insolvent but that this was not known to the trustcompany. It may be that the trust company Bad not actual notice of the Insolvency; but it seems to me nothing can be plainer, from the fact that the Stanwood Company's bank account was overdrawn, and it could not make good, than that the trust company had constructive notice.
Inability to meet current obligations as they fall due through lack of cash or credit is insolvency.
The receiver's ruling is sustained.