Summary
In Couse v. Columbia, supra, plaintiff, an attaching creditor of Columbia, brought an order to show cause why a conveyance of all the stock and assets of Columbia to Maxim Corp. should not be set aside as a fraudulent conveyance.
Summary of this case from Jackson v. Diamond T. Trucking Co.Opinion
11-11-1895
COUSE et al. v. COLUMBIA POWDER MANUF'G CO. et al.
Aaron E. Johnston, for complainants. Warren Dixon, for defendant Smith.
Bill by Emily Couse and another against the Columbia Powder Manufacturing Company and others to set aside fraudulent conveyances, and for a receiver. Heard on demurrer to bill. Overruled.
Aaron E. Johnston, for complainants.
Warren Dixon, for defendant Smith.
EMERY, V. C. The bill in this case is filed by the complainants in their right as attaching creditors of the Columbia Powder Manufacturing Company, a nonresident corporation, in aid of their lien under the attachment upon the real and personal property of that company. The bill alleges that the property attached as the property of the Columbia Company under the writ had been conveyed by that company to another nonresident corporation, called the Maxim Powder Manufacturing Company, previous to the issuance and execution of the writ. On the 23d day of December, 1893, the stockholders and incorporators of the Columbia Companypassed a resolution directing the sale of all the property, real and personal, of the Columbia Company to the Maxim Powder Company, upon the terms that the Maxim Company should assume and pay all debts and liabilities of the Columbia Company, guarantying in writing to save the latter harmless from all liability by reason thereof, and as further payment or consideration for the transfer should issue and deliver to the stockholders and certificate holders of the Columbia Company one share of stock in the Maxim Company for each share of stock in the Columbia Company. The officers of the company were directed to make the transfer, and Nathan Kellogg and John Claffy were appointed, as trustees for the stockholders of the Columbia Company, to exchange the stock on the deposit of all the shares of stock and the execution of the agreements of sale. The bill further shows that on the same day and at the same place the Maxim Company, which is alleged to be composed in the main part of the same officers, stockholders, and incorporators as the Columbia Company, passed resolutions on its part for the purpose of carrying out the sale. The resolutions of the Maxim Company, set out in full in the bill, substantially provide as follows: After reciting that the Columbia Company is willing to sell all its property and assets, including patent rights, to the Maxim Company, and to receive in full consideration therefor $250,000 of the capital stock of the Maxim Company, provided the Maxim Company guaranties and saves harmless the Columbia Company from all indebtedness of every kind, and further reciting that the value of the property so purchased, in actual cash value, after deducting the said indebtedness, largely exceeds the sum of $250,000, then directs the issue of $250,000 full-paid capital stock of the Maxim Company to Nathan Kellogg and John Claffy, who are appointed trustees for the purpose, "to be delivered to the Columbia Company, or such certificate holders or stockholders as they may direct, in exchange for the stock of the Columbia Company to the amount of $250,000, to be canceled, and upon the delivery to this [the Maxim] company of proper transfers of all the assets, property, and patent rights of the Columbia Company." The resolution authorized the proper officers to execute the necessary papers, particularly the written guaranty. The bill then further alleges that on or about the 23d day of December the Columbia Company, by deeds of that date, transferred its lands and personal property (being the property afterwards attached) to the Maxim Company, and that on that day the Maxim Company executed an agreement (set out in the bill) by which the Maxim Company "hereby agrees to assume, and does hereby assume and agree to pay, any and all debts or liabilities lawfully existing against the said the Columbia Company, and hereby agrees to indemnify and save harmless the said Columbia Company of and from all costs and liability therefor or thereunder." On or about the 23d day of December, as appears by the bill, the Columbia Company also conveyed to the Maxim Company certain patent rights and interests to which the Columbia Company were entitled under an agreement with one Hudson Maxim, dated January 14, 1892, and which agreement is set out in full in the bill. On December 27, 1893, Maxim confirmed these rights so assigned to the Maxim Company, and gave additional rights by an agreement of that date also set out in the bill. The bill further charges as matter of fact that no consideration was paid for these conveyances and transfers by the Columbia Company, except the issuing of stock to the stockholders of the Columbia Company under the agreement, and also charges that by reason of these conveyances it is unable to obtain the benefit of the attachment, or enforce it against the property attached. As to the intent with which the conveyances were made, the bill alleges that they were made "either for the purpose of conveying said lands and transferring said personal property in trust for the payment of the debts of the said Columbia," etc., "Company, and in particular for the payment of said debts of your orators, or for the purpose of defrauding their creditors and your orators in particular, and delaying them in collecting their debts," etc. Having stated these substantial facts as to the transfer, the complainants make their statement of their legal effect, and in this statement of the legal effect they present them in an alternative aspect, and base their right to relief either upon one ground or the other. The transfer to the Maxim Company, say complainants in the first place, was upon the trust to pay the debts of the Columbia Company, including complainants' debts, and the Maxim Company should be decreed to hold the property in trust for that purpose, and, if not held on that trust, then the conveyances are alleged to be fraudulent against the creditors of the Columbia Company. Discovery is asked as to the terms of the transfer, the debts are prayed to be charged on the property, and, on allegations of insolvency of the Columbia Company, and the perilous condition of the property, a receiver is prayed for the property conveyed by the Columbia to the Maxim Company.
By reason of this double—or, as he claims, triple—aspect of the bill, the defendant Arthur H. Smith demurs specially for multifariousness, as well as generally for want of equity. Smith's status on the record is as follows: Previous to August 27, 1894 (the date of the attachment upon which the complainant's liens are based), and on August 7, 1894 (wrongly stated in the bill as 1893, by a clerical error), the defendant Arthur H. Smith recovered a judgment againstthe Maxim Company, the alleged fraudulent grantee, upon which execution has been issued and levied on the lands afterwards attached as the property of the Columbia Company. The bill alleges that Smith "knew of the said transfer and conveyance of said lands and premises and personal property by the said Columbia," etc., "Company to the said Maxim," etc., "Company, as above set forth, at the time thereof; also, knew of the said resolution, propositions, and agreements of the respective companies above set forth, at the time of making the same, and knew at that time of the terms and conditions of said transfers and conveyances." Upon the facts above stated and appearing by the bill, my conclusion is that the demurrer must be overruled. So far as relates to the general demurrer for want of equity, my opinion is that the facts stated show a basis for equitable relief against the defendant Smith. As against creditors of the Columbia Company who were such at the time of the conveyance, the transfer to the Maxim Company, under the circumstances stated, was, prima facie at least, fraudulent. The whole consideration of the conveyance (outside of the guaranty of debts), which was declared to be fully $250,000 in cash value, was by the arrangement between the companies and their stockholders delivered, not to the vendor, the Columbia Company, as its assets for the payment of its debts, but to the individual stockholders of the Columbia Company, and was practically a division among the stockholders of that company of all of its assets, without paying a dollar of its debts. By arranging with the vendor company to pay the consideration for the transfer in such form that the whole assets of the company were placed beyond the reach of its creditors, the Maxim Company is not a purchaser in good faith, so far as the creditors of the Columbia Company then existing were concerned, but must, as to them, be considered a fraudulent grantee. The case in this respect stands much worse for the purchaser than the case of Owen v. Arvis, 26 N. J. Law, 22, where the fact that the consideration was left subject to some extent to the control of the vendor against his creditors was held to make the transfer fraudulent. The agreement, under the circumstances here alleged, to assume all the liabilities of the vendor, made by a purchaser on securing a transfer of all his property, manifestly cannot, of itself, constitute a purchase for good consideration, and bona fide, under the fifteenth section of the statute of frauds. Revision, p. 447. Prima facie, this agreement, under the circumstances here stated, shows a transfer of all the property of the company without paying or securing any part of the consideration, in such manner that it was available to the existing creditors of the vendor company; and, if any circumstances can make such an agreement valid against creditors, they must be shown by the vendee by its answer or otherwise.
The conveyances being fraudulent as between the grantor and grantee, as against the grantor's creditors, the next question is whether Smith, a judgment creditor of the fraudulent grantee subsequent to the conveyance, is within the protection of the fifteenth section, as a purchaser for good consideration and bona fide. The bill shows that he is not. His knowledge of the facts constituting the alleged fraud is alleged, and, besides, the doctrine, as settled under similar statutes in other courts, is that a judgment creditor of a fraudulent grantee is not a purchaser at all, within the saving of this section. 2 Bigelow, Frauds, p. 485, § 12; De Voe v. Brandt, 53 N. Y. 462; Beavan v. Oxford, 2 Jur. (N. S.) 121, 25 Law J. Ch. 299. This I think is the status of the complainants, as lien creditors of the Columbia Company, against Smith, upon the facts relating to the transfer set out in the bill, and imputing to the parties the intention as to creditors which the law would imply, at least prima facie, from the facts stated. And so far as the defendant Smith is concerned the question whether the intent of the transfer was to defraud the creditors of the Columbia Company, or to convey the property in trust to pay its debts, can make no difference upon the present record, for the statement in the bill, admitted by the demurrer, that the transfers were made either with one intent or the other, furnishes, as against Smith, sufficient equitable basis for a decree that the lands should be charged with the payment of the complainants' debts. That would be the ultimate decree to be made on the facts stated, if either one intent or the other existed, and the bill therefore shows a right to relief, and is good upon a general demurrer for want of any equity. A defect observable in the bill is the omission of an allegation that the debts of the complainants were created before the transfers in question. The demurrant, however, did not raise this objection at the hearing, and under rule 225, requiring the particular grounds of demurrer to be stated, it is doubtful whether it could be alleged unless specified. Van Houten v. Van Winkle, 46 N. J. Eq. 380, 20 Atl. 34; Essex Paper Co. v. Greacen, 45 N. J. Eq. 504, 19 Atl. 466. And, inasmuch as it appears by the affidavits for injunction annexed to the bill that these debts did in fact exist at the time of the transfer, the complainants may amend the bill in this respect either before or after order overruling demurrer.
The second ground of demurrer is multifariousness, and rests upon the contention that the complainants seek three different and inconsistent remedies: First, the declaration that property conveyed is held upon a trust to pay complainants' debts; second, to set aside the conveyance as a fraud upon complainants; and, third, to have the corporationdeclared insolvent and a receiver appointed. If the trust attempted to be asserted were a trust imposed on the property by express contract of the Maxim Company to that effect, the complainants perhaps might be required to elect whether they accepted or renounced the benefit of the trust, and the bill would probably be defective in not showing the election made; but in this case the conveyance of the property did not in terms impress the property with a trust for the payment of debts, and for this payment of its debts the Columbia Company held only the personal agreement of the Maxim Company. Equity may, under the facts stated in the bill, impress the property with a trust, but, as it seems to me, the trust, if held to arise on the facts stated in the bill, will arise by reason of the fraudulent character of the transaction as to the vendor company, and as arising out of it. The trust, then, if construed so to arise, is not inconsistent with a declaration that the transfer was fraudulent, but would be the equitable method by which the remedy of the creditor against the fraud is worked out. In Belford v. Crane, 16 N. J. Eq. 265, the equity of a creditor was thus worked out, and, where lands conveyed to a wife had been purchased with the husband's property under circumstances rendering the transaction void as against his creditors, the wife was treated as a trustee for the creditors, and the property sold for their benefit. And in other tribunals it is held that a court of equity will follow the assets under such circumstances into the hands of the vendee company, which cannot be considered a bona fide purchaser. 1 Thomp. Corp. §§ 375, 378, and cases cited. The complainants in this case are entitled to relief on the facts stated. Nor can the bill be considered defective, as multifarious, because it states two separate legal theories of relief upon the facts, each resulting in the same decree, viz. charging the debts upon the property conveyed. In Emans v. Emans, 14 N. J. Eq. 114, relied on by counsel, the bill was held multifarious because it involved totally distinct questions, requiring different evidence and leading to different decrees.
As to the objection that the bill is also a proceeding in insolvency against the Columbia Company, and asks a receiver, and is therefore multifarious, the situation is, as I read the bill, that the appointment of a receiver is asked as incidental to the relief prayed by the bill, and for the preservation of the property pendente lite. This is also in the line of the principal relief sought, and if, for this purpose, facts are stated in the bill upon which a decree in insolvency is sought to be made, the bill cannot be considered as a bill in insolvency, nor held multifarious, and that for that reason this relief may not be granted. Besides, this objection, even if valid for the company, is of no avail to the demurrant, Smith, for his judgment under the facts stated is invalid against a receiver as well as against the complainants, and the complainants, therefore, would be entitled to have the sale threatened under his judgment restrained pending the adjudication of insolvency, and the appointment of a receiver, in the interest of all the creditors. Defendant Smith cannot object to multifariousness which exists only as to other defendants. 2 Daniell, Ch. Prac. (6th Ed.) 337, note 3; Olds v. Regan (N. J. Ch.; Aug. 24, 1805) 32 Atl. 827. The demurrer is therefore overruled, with costs.