798

92 FEDElRAL REPORTER.

RICHARDS v. HALIDAY

et

a1.

(Circuit Court, D. New Jersey.

1.

March 6, 1899.)

CORPORATTONS-INSOLVENGY-FRAUDUI,ENT COKVEYAl\CE.

Where a corpora tion was a going concern at the time it execl1ted a conveyance to secure certain creditors, evidence that at that time it had not sufficient to meet its matured obligations is not sufficient to show that it was insolvent, so as to render the conveyance fraudulent as to creditors. Directors of an insolvent corporation are trustees for its general creditors,and hence a mortgage by a corporation to directors by which a preference would be created in their favor over general creditors is invalid.

2.

SAME-DIRECTORS-TRUSTEES FOR' CREDITORS.

S.

SAME-MoRTGAGE TO DIRECTOR-RECEIVER'S SALE-EFFECT.

·Where a receiver of an insolvent corporation took no steps to have a .mortgage of its assets to a director declared void as an illegal preference, but sold such assets subject theret.o, the lien of the mortgage is not devested by the sale. ·Where, by a receiver's sale ofa corporation's assets subject to a mortof the corporation were degage in favor of a director, prived of their right to receive any part of the fund which wouIeI follow t.heinvalidating of such mortgage as a preferential conveyance in fraud of creditors, the purchaser at a sale who was also an officer of the corporation has no standing in equity to maintain a suit to set it aside. receiver's sale of fraudulent preferrights, as against be subrogated un-

4.

SAME-PURCHASEU'S RIGHT TO VACATE.

5.

SAME-JUDGMENT CREDITOUS-SUBROGATTON.

·Where judgment creditors of a corporation permit a .its assets subjeet to a mortgage to a direct'll'. creating ences, to be confirmed without objection, they have no the mortgagee, to which the purchaser at the sale could der an assignment of their claims.

Joseph D. Gallagher, for complainant. Frederick W. Ward, for defendants. KIRKPATRICK, District Judge. In April, 1893, the National T'ime-Stamp Company was, under proceedings begun in the court of chancery of New Jersey, declared to be insolvent, and Chauncey G. Parker, Esq., was appointed receiver. He duly qualified, and entered upon the duties of his office. lBy a decree of the said court of chancery, the said receiver sold, at public sale, all of the assets of the said company, "subject to all chattel mortgages, judgments, and other liens thereon, subject to confirmation by the chancellor." At such sale, Willard Richards, the complainant herein, was the purchaser, for the sum of $1,000. The sale was reported to the chancellor, and by him confirmed. It appears, from the agreed state of the case, that the said Richards, at and before the time of said sale, had actual notice of the existence of the mortgage given by said company to Frank H. Haliday, recorded in the office of the register of the county of Essex on October 22, 1892, and that said mortgage was claimed to be a lien on said property, and that, at the time of its execution, Haliday was anofficel' and director in the company. It also appears, from the record, that in August, 1892, the National Time·Stamp Company made its certain promissory notes, which were indorsed by the complainant, Richards, and discounted by certain banks, for the purposeof raising funds with which to pay creditors of the corporation. .and among them the complainant, Richards, who was then the pres-

RICHARDS V. HALIDAY.

799

ident of the corporation, and the defendant Haliday, its treasure I'. \Vhen these notes matured, they were paid by the complainant. Richards, and afterwards suit was brought against the company in the name of the banks by whom they had been discounted, and judgment entered thereon. To these suits the complainant was not it purty. The sale of the company's property by the receiver was made expressly subject to the lien of these judgments, as has been stated. Thl' bill of complaint in this cause is now filed by Willard Richards, purchaser at the receiver's sale, to set aside, upon the grounds that, at the time of its execution, the em'poration was insolwnt; that it was given to Haliday, who was a director in the eompany, for the purpose of seeming an anteeedent debt. The questions for the determination of the eourt are whether. under the cireumstances, as shown by the record. the eomplainant, Riehards, either as the purehaser at the receiver's sale or as the indorser of the eompany's notes, upon whieh judgment has been obtained by the banks. is entitled to have the Haliday mortgage declared void as against him, and Haliday and his assigns enjoined from taking possession of the goods desedbed therein. or interfering with Richards' possession of same on account of said mortgage. The evidenee in the case fails to satisfy me that, at the time of the authorization and execution o[ the nlortgage, the company was insolvent; that its assets were not equal in value to the amount of its debts. True, it had not in hand sufficient cash to meet its matured obligations, but that by no means dC'monstrates that, to a going concern, its assets would not have lwen worth mueh more than its debts. The witness on the part of the eomplainant who testifies to the insolvency of the eornoration as of Kovember 14, 1892, admits that he took no account of the value of the maehinery belonging to the company, nor of its tools. fixtures, stock on hand and in proeess of manufacture, nor of its book aceounts or patents. All of these were entiHed to be eonsidered in determining the solvency of the corporation. Atlantic 'rl'llst Co. v. Consolidated Electric Storage Co., 4H N. J. Eq. 402, 23 Atl. 934. The book accounts alone amounted to upward of $3,000. 'I.'hat nothing was collected from them by the receiver months afterwards, when the company was known to have suspended business, is no index of their value to a going coneern. It may, however, be admitted that the company was inSOlvent, and that the purpose of the directors in authorizing the execution of the Haliday mortgage was to prefer the claim of Haliday,-one of themselves; but it does not necessarilv follow that the effeet of sueh intent was to render the mortgage void. Savage v. Miller, 56 N. J. Eq. 432, 39 Atl. 665. As between the director who took, and the company which gave, it, the mortgage was undoubtedly void. Jones, Mortg. § 630. It is well settled that directors of a corporation are trustees for the gen· eral creditors, in cases of insolvency, and mav not prefer one above another, nor be permitted to make any disposition of the company's property by which a preferenee would be created in their own favor or for their own benefit, as against the general creditors. A court of equity will not suffer them to take advantage of their positions as trustees, to so manage the corporate property as to secure for them-

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92FED:ERAL REPORT:ER.

selV'es a personal advantage, to the damage of the general creditors. but will see to it that tM assets shall be distributed ratably among them all. This right of all the creditors to an equal distribution of the corporate assets is the underlying principle actuating the courts in setting aside preferences obtained by those whose position of trust required that they should not "convert their powers of management, and their intimate knowledge of corporate affairs. into means to the harm of the other creditors." Equal disof tribution of assets among all the creditors is the result sought to be accomplished in all the cases, whether it be Rickerson R,oUingMill Co. v. Farrell Foundry & Mach. Co., 230. O. A. 302, 75 Fed. 554, where the right of the directors to prefer their own debt is recognized, but where, under the circumstances of the case, the deed was set aside for fraud, or whether it be Consolidated Tank-Line Co. v. Kansas City Varnish 00., 45 Fed. 7, where tlJe right t0 give preference was denied, and in which, on a bill filed in behalf of all tne creditors, the decree directed that a deed of trust, which had been executed for the benefit of creditors who had been acting in a fiduciary capacity, be set aside, and the proceeds of the property paid a receiver, in order that they might be distributed ratably among all creditors. The case at bar does not embody this principle of equal distribution among all the creditors. The bill is filed for the benefit of the complainant alone, and not on behalf of the general creditors of the company. They can derive no benefit therefrom. All of the corporate property covered by defendants' mortgage has been sold by the receiver, and the proceeds distributed. The receiver took title subject to all the equities which rested upon th ' property in the hands of the debtor (Kane v. Lodor [N. J. Oh.] 38 Atl. 966), and sold only the interest he had in it (Beach, Rec. § 783); and While, as the representative of the general creditors, he might have applied to a court of equity to declare the Haliday mortgage invalid as against those whom he represented, he did not do so, and the lien of the mortgage was not devested by the receiver's sale. this sale, made expressly subject to the Raliday mortgage, the general creditors of the corporation, for whose benefit alone the could be called upon to interfere, were deprived of their right tv receive that equal distribution of the property of the corporation which would follow the setting aside of the preferential mortgage. 'rhe value of the property offered for sale, expressly subject to the lic·n of the mortgage, was depreciated by the amount of the same. Intending purchasers were deterred fl'om bidding at the sale, and, in consequence, the property realized a less sum to the receiver. 'fhen, too, the purchaser, the complainant herein, bought expressly subject to the defendants' mortgage. He acquired no better title to the property than the corporation itself possessed, and is therefol'(' no more entitled to set aside the mortgage than the company itself would be. In buying subject to the mortgage, the complainant got the property for so much less ,that he would have been obliged to pay had it been sold freed from the incumbrance; and, for the same reason, the receiver of the corporation obtained a smaller sum for distribution among the creditors. If this mortgage be now