text:
    William H. Clark and Charles H. Brewster v. Painted Post Lumber Company.
    [Decided August 19th, 1918.]
    1. Where a receiver is appointed in this state for a foreign corporation, creditors in this state are not entitled to preference in the funds collected by him.
    2. Under such receivership, to the extent that there are assets in this state, domestic creditors are entitled ordinarily to have their rights settled by the judicial tribunals of this state.
    3. Under such receivership, the proper course of procedure is for the receiver to act upon the claims filed in Ms jurisdiction, and to present those claims which he allows to the foreign receiver for action thereon. The assets in New Jersey may then be paid over to the foreign receiver upon his giving bond that he will repay to the New Jersey receiver the amount of the assets then turned over to him unless within a reasonable time there be paid to the New Jersey creditors, whose claims are filed with the New Jersey receiver, their fair distributive share of all the assets of the corporation.
    4. Atwater v. Baskerville, ante p. 121, and Dolan v. Universal Fire Brick Co., ante p. 138, followed. McDermott v. Woodhouse, 87 N. J. Eq. 615. distinguished.
    On bill, &e.

      Mr. Robert M. Boyd, Jr., for the New Jersey receiver.

      Mr. Lloyd Thompson, for the foreign creditors.

      Mr. Marie Townsend, for Omer G. Russell, a domestic creditor.
   Lane, V. C.

Painted Post Lumber Company is an insolvent corporation of the State of New York. After a receiver had been appointed in Few'York, application was made to this court under the provisions of the Corporation act, section 65, as amended (P. L. 1912 p. 535). for the appointment of a receiver in this jurisdiction. Such receiver was appointed. He gathered in all the assets in this state and now has in his hands as the proceeds thereof some $6,000. An order was made on June 12th, 1917, requiring creditors to file their claims within two months of the date thereof. Claims of domestic creditors as filed with him aggregate some $2,000; claims of foreign creditors as filed with him aggregate approximately $10,000.

The receiver now seeks to settle his accounts as receiver under appointment by this court and prays for an order that he may pay the balance over to himself in his capacity as receiver appointed in New York. The New Jersey creditors object, insisting, first, that they are entitled, so far as the assets in this state are concerned, to a preference, and second, that if not this court should so control the- assets within this state as that domestic creditors will not be forced into another jurisdiction to obtain payment of the amounts to which they may be entitled from the' assets of the estate upon a general distribution.

First. Domestic creditors are not entitled to a preference. The policy of this state expressed in its statute law is not to prefer domestic creditors over foreign creditors in any case of dissolution or insolvency. Section 58, act concerning corporations, Revision of 1896, 2 Comp. Stat. p. 1637; sections 85 and 86, same act, 2 Comp. Stat. p. 1652.

The New Jersey creditors rely , upon the language of Chief-Justice Beasley in Hurd v. Elizabeth, 41 N. J. Law 1 (at p. 3), in which ease the chief-justice, speaking of the power of a receiver to sue in a foreign jurisdiction, said: “It (the power) could not be exercised in a foreign jurisdiction to the disadvantage of creditors resident there, because it is the policy of every government to retain in its own hands the property of a debtor until all domestic claims against it have been satisfied.” But the chief-justice, I think,, did not mean by “satisfied” “paid in full.” What he meant was that the court would not permit the exercise of power by a foreign receiver unless it were certain that the legal rights of domestic creditors would be protected. In Irwin v. Granite State Provident Association, 56 N. J. Eq. 244, Vice-Chancellor Reed held that the assets within this state did not change in the least the proportion to which the New Jersey shareholders would be entitled; that the assets here were to be taken into' account as a part of the fund to be distributed. In Stone v. New Jersey and Hudson River Railway Co., 75 N. J. Law 172, the supreme court, through Mr. Justice Swayze, said:“It is urged, however, that the present plaintiff is a foreign receiver and the defendant a New Jersey corporation. We are unable to see why these facts should be allowed to give the New Jersey creditor an advantage over other creditors. We do not allow a foreign receiver to exercise his powers in our jurisdiction to the disadvantage of creditors resident here, but subject to this restraint comity requires that he should be acknowledged and aided. Hurd v. Elizabeth, supra. Where it is necessary our courts will appoint an ancillary receiver, but the assets will be so administered that creditors in this state and in the foreign jurisdiction shall fare alike. Irwin v. Granite State Provident Association, supra.

Second. While the receiver was appointed here after the appointment of the receiver in New York, he was appointed under the provisions of the statute, section 65, as amended, laws of 1912, page 535. The statutory procedure was followed. Under the provisions of section 75 of the Corporation act (2 Comp. Stat. p. 1648) an order was made directing creditors to bring in their claims within two months of the date of the order. Notice of such order in pursuance thereof was mailed to all of the credi tors of the company. In speaking of such an order the court of errors and appeals, in McDermott v. Woodhouse, 101 Atl. Rep. 376, 87 N. J. Eq. 615, said, arguendo: “As far as we know, the only authority for such a proceeding is section 75' of the Corporation act (Comp. Stat. p. 1648); but this can only apply to a New Jersey corporation; our courts cannot force a New York creditor of a New York corporation to submit his claim to our tribunals under penalty of losing all right to participate in the distribution of the assets.” It was not necessary for the determination of the cause then before the court that the point should be determined, and I think it must be considered dictum. It has been contended that the effect of the decision in McDermott v. Wood- house is that this court cannot appoint a receiver of a foreign corporation under the statute, and that any receiver appointed of the assets of a foreign corporation within this jurisdiction under the general equity power of the court is merely ancillary, and that his sole duty is to gather in the assets and turn the proceeds over to the receiver appointed in the place of the domicile of the corporation, assuming that such a receiver has been appointed, and that if no such receiver has been appointed the court is powerless to act. The result would be either that before a receiver had been appointed by the courts in the domicile of the corporation, the courts of this jurisdiction would be powerless to act, and the creditors would be left to their'legal remedies, . and the assets would be subject to seizure and distribution among those who acted first (there would be no way of preventing preferences), or if the court might apiooint a receiver, then after gathering in the assets, there could be no distribution until a receiver had been appointed in the jurisdiction of the domicile of the corporation which might be never. The courts of this state certainly would not force its citizens to apply to a foreign tribunal which might have control of nothing but the corporate entity, to set in motion a proceeding, to the end that a decree might be made directing the method of distribution of assets within this jurisdiction. Indeed, a situation is not hard to imagine in such event where the creditors would be absolutely powerless. The jurisdiction of the domicile might not have a procedure which could be set in motion by creditors. My understanding of the New York law is that no receivership of a corporation is possible except at the instance of the attorney-general. I have two cases now before me — Dolan v. Universal Fire Brick Co. and Cross v. Printing Company, one Involving a Delaware and the other- a Maryland corporation. All the assets of both were here. Receivers were appointed here. They have gathered in the assets and are ready to distribute. No receivers have been appointed in the places of the domiciles. Must this court wait until such receivers are appointed? I think not.

I considered the situation in Atwater v. Baskerville, 89 N. J. Eq. 121, and Dolan v. Universal Fire Brick Co., 89 N. J. Eq. 138, and held that the court might appoint a receiver under the statute and that the procedure would be as nearly as practicable the same as if the corporation were domestic. If I am wrong in this, and if the receiver must be considered as appointed under the general equity power of the court, still I think the situation will not be changed, for under such a proceeding the assets within this jurisdiction may be gathered in and their proceeds distributed. The court would adopt a course which would be fair to all creditors and would follow the statutory procedure by analogy as nearly as practicable. The contention referred to above ignores the following. As stated by Chief-Justice Beasley in Hurd v. Elizabeth: “That the officer of a foreign court should not be permitted, as against the claims of creditors resident here, to remove from this state the assets of the debtor, is a proposition that appears to be asserted by all the decisions * * * .” This remark of the chief-justice was quoted by Vice-Chancellor Green in Falk v. Janes, N. J. Eq. 484 (at p. 489). At p. 490 the vice-chancellor said: “Such limitation is based, then, on the principle that the first duty of the state is to its own citizens.” Vice-Chancellor Reed, in Irwin v. Granite State Provident Association, 56 N. J. Eq. 244 (at p. 250), said that the citizens of this state should not be driven into the courts of another state to obtain their distributive shares.

To the extent that there are assets within this state domestic creditors are entitled ordinarily to have their rights settled by the judicial tribunals of this state. I do not mean to infer that there may not be cases, where the claims of creditors here have arisen under such circumstances, as that, in cases of insolvency, they will be remitted to the foreign jurisdiction. I am now considering the ordinary relationship of debtor and creditor created under such circumstances as that the law of this state would apply in the determination of their legal rights. Were it not for the appointment of a receiver in this jurisdiction domestic creditors might, if the corporation were a foreign corporation, not recognized under the laws of this state, have proceeded by attachment. If the corporation was one recognized by the laws of this state, and authorized to do business here, they might sue at law. By the intervention of this court the creditors have been deprived of their ordinary legal remedies. For the remedies of which they have been deprived, there must be substituted, so far as assets within this state are concerned, another remedy. If section 75 of the Corporation act does not apply, then there is no doubt in my mind but that the court, before it permitted the assets gathered in by an ancillary receiver to be paid over to a foreign receiver,- would devise a procedure by which domestic creditors would be notified of the situation and permitted to assert their claims in this jurisdiction. In no other way could the duty of the state toward its oven citizens, which has been repeatedly held to be to retain within its own hands property of a debtor until domestic claims against it have been satisfied and to refrain from driving its citizens into- the courts of another state to litigate claims with respect to assets within this state, be subserved. But I think there is adequate provision made in the statute. It is indeed true that our courts cannot force a New York creditor of a' New York corporation to submit his claims to our tribunals under penalty of losing the right to- a participation in the distribution of the assets, but neither should our courts force our own citizens into a foreign tribunal to litigate their claims with respect to assets within this jurisdiction, and our courts cm force foreign creditors to submit their claims to our tribunals under penalty of losing the right to participate in assets within this state. I am speaking now of abstract power.

The policy of this state is well stated by the supreme court in Stone v. New Jersey and Hudson River Railway Co., 75 N. J. Law 174, to be to see to it that the assets here are so administered as that creditors in this state and in the foreign jurisdiction shall fare alike. If the sole duty of an ancillary receiver appointed in this state is to gather in assets and to remit to a foreign jurisdiction the proceeds thereof, as it is claimed is intimated by the following language of the court of errors and appeals in McDermott v. Woodhouse: “It is manifestly quite as necessary to ascertain the total assets of the corporation as its total liabilities in order to fisc the amount needed to pay creditors, and these assets can only be finally ascertained in the courts of the domicile to which assets may be remitted by courts of other forums acting through ancillary receivers,” then the reasoning indulged in by the courts in Hurd v. Elizabeth. Stone v. New Jersey and Hudson River Railway Co. and Irwin v. Granite State Provident Association was unnecessary, for, if the duty of an ancillary receiver is thus limited, the foreign receiver himself might as well be permitted to act. The question is one of far-reaching importance. In the instant case, the domicile of the corporation is in New York, and the policy of its law is similar to that of ours with respect to a ratable distribution among creditors. But it is not beyond the range of possibility that in some of the other states there may be laws with respect to priorities quite opposed to the policy of our law, and it seems to me to be inconceivable that this court, having control of assets within this state, would remit its citizens to a foreign tribunal which might have control only of the entity of the corporation and compel them to submit themselves to a method of distribution, in conflict with the policy of this state, under laws having no extraterritorial force. Comity does not extend so far. Hurd v. Elizabeth, supra (at pp. 4, 5), and cases cited; and see Catlen v. Wilcox Silver Plate Co. (Ind.), 24 N. E. Rep. 250. If domestic creditors must be forced to litigate in New York, they must also be forced to litigate in Texas. And it may be contended that the effect of such a determination does not stop here. The foreign corporations which may be authorized to do business in this state are not only those incorporated under the laws of a sister state, but also those incorporated under the laws of any foreign state, kingdom or government. Can it be thought possible that the courts of this state will, as against the protests of domestic creditors, direct its receiver to transmit the proceeds of assets to the foreign jurisdiction which happens to be that in which the corporation was created and remit its citizens to their remedies there ? And yet it may be so contended.

It seems to me to be clear that the creditors who have filed claims in this jurisdiction are entitled to have the validity of their claims settled here. That this court must retain control of the assets until it is assured that the validity of the claims as settled here will be recognized by the foreign tribunal, and the creditors paid their ratable proportion of all the assets. Hpon the court being so assured, the assets may be removed to the foreign tribunal for distribution there. It is conceivable, if the assets were to be directed to be turned over without condition, that the domestic creditors would never be paid. There may be a settlement and the company permitted to resume its business. In the meantime, the assets in New Jersey will have been removed and the New Jersey creditors left helpless, unless they actively intervene in New York and subject themselves to the provisions of the New York law. Vice-Chancellor Reed, in Irwin v. Granite State Provident Association, 56 N. J. Eq. (at p. 251), pointed out that either of two courses might be pursued in a similar case, that the assets might be paid over to the foreign receiver upon his giving a bond in this state to pay the New Jersey shareholders their distributive shares, or the order might be that sufficient assets be retained here to be distributed through the hands of the receiver in this state, but according to the proportion fixed by the decree of the foreign court.

I think that the jjroper course of procedure in the instant case is to require the receiver to act upon the claims filed with him in this jurisdiction, either to allow or disallow them, to present these claims in the New York receivership and to secure the action of the New York court upon them. The assets may then be turned over to-the New York receiver upon his giving bond that he will repay to the New Jersey receiver the amount of tire assets now turned over to the New York receiver unless within a reasonable time there be paid to the claimants whose claims are filed with the New Jersey receiver their fair distributive share of all the assets of the corporation.

The form of the bond is not settled definitely. I will hear counsel. It is not the policy of the court to interfere to any greater extent than necessary in the winding up proceedings pending in a foreign jurisdiction. The result to be accomplished is to protect the domestic creditors to the extent of the assets within the jurisdiction so that they may not be obliged to submit to the foreign jurisdiction the question of the validity of their claims, and so that they may not be driven into a court of another state to obtain their distributive shares. Of course, if the domestic creditors desire to share in the general distribution, the foreign court may compel them to come within the foreign jurisdiction. If so compelled, the creditors may elect to take whatever they can get from a distribution of the assets within this jurisdiction. If they so elect, I think there is nothing that this court can do but to distribute the assets here unless it can be assured that the claimants here will be permitted to share in the general distribution without being obliged to litigate in the foreign tribunal.

Settle order on live days’ notice.


source: Caselaw Access Project

author: Lane, V. C. (orally).

license: Public Domain

text:
    Philip Hilton v. Joseph Hilton.
    [Decided October 7th, 1918.]
    1. Ignorance of the law, or acting upon the advice of counsel, is no excuse for commission of a contempt, so far as the adjudication itself goes.
    2. The excuse that a defendant gave orders immediately to change his signs and the labels for his goods, but has not yet substituted new labels on account of labor shortage, cannot be accepted as an excuse for disobedience of an order of this court. No excuse will be accepted except a physical impossibility to comply with the order of the court.
    3. If, as a means of purging himself of his contempt, the defendant offers to change his practice in such a manner as will appear to the court to be in accordance with the injunction, this will be considered by the court.
    4. In proceedings to punish for contempt for violation of an injunction restraining the use of a name in a certain manner, no greater proof is necessary to establish a violation than was necessary to warrant the injunction in the first instance.
    On bill, &c.

      Messrs. Pitney, Hardin & Skinner (Mr. Hardin and Mr. Stanley), for the complainant.

      Mr. Selick J. Mindes and Mr. Robert H. McCarter, for the defendant.
   Lane, V. C. (orally).

The final injunctive order came to the knowledge of defendant on or about the 29th day of July, 1918. His counsel had had notice of it prior to that time and there had been several conferences following the handing down of the opinion of the court of errors and appeals on June 17th, 1918, with a view to ascertaining a method by which the decree of the court, which would be. entered on that opinion, could be complied with. The injunction forbids defendant from using the name Hilton or Hilton’s alone or in such manner as to lead or induce the public to believe that the goods sold and manufactured by him are manufactured and sold by complainant, and that the business conducted by defendant is the same as or part of the business conducted by complainant and “from using any emblem or device resembling the trade emblem of complainant in airy way in his business and from conducting his business so as to deceive the public and induce it to believe that the goods manufactured or sold by defendant were manufactured or sold by complainant, and that the business conducted by defendant is the same as or a part of the business conducted by complainant.”

The original decree followed a long hearing at the conclusion of which it had been adjudged by this court, which judgment was affirmed by the court of errors and appeals, that the method in which the defendant was then using the name Hilton or Hilton’s was such as to bring it within the bar of the injunction. It was the duty of defendant, therefore, immediately upon being served with the injunctive order to stop the use of the names, labels and symbols in the manner in which he was using them. His continuance in the use of them after service of the injunction for any length of time was a contempt of this court. If bona file he had desired to change his practice so as to operate his business in a manner which would be in accordance with the decree of the court, and desired a reasonable opportunity to make the change, his right was to have applied to this court for a stay of the injunctive order, and no doubt if this court had been satisfied that he was acting bona fide it would have granted the stay, and might have gone further and advised him, or modified the decree to such an extent as to indicate more clearly than did the final decree, just exactly what he might do or might not do. He did not do this. For a considerable length of time he continued his business in the manner which had been denounced by both this court and the court of errors and appeals. His excuse that he gave orders immediately for a change, and that because of labor conditions, it was not possible for him to have the words “J. Hilton, Prop.” put on the signs within a short space of time; that he had not yet substituted new labels, but has still continued the use of the old labels because of labor shortage, cannot be accepted for a disobedience of an order of this court. Ho excuse will be accepted except a physical impossibility to comply with the order of the court. There was no physical impossibility in this case. The defendant might have, and he was obliged to, if necessary to comply with the order of the court, closed his entire business. What' punishment may be meted out to him for his disobedience of the order of the court will, of course, depend to a large extent upon his knowledge of the law, upon his knowledge of the situation, upon the question as to whether he was acting under advice of counsel or not. But, as I said in the case of In re Bowers, 89 N. J. Eq. 307, advice of counsel, or ignorance of the law, is no excuse for the commission of a contempt, so far as the adjudication itself goes. The defendant, therefore, will be adjudged guilty of a contempt of court. The adjudication may rest entirely upon the actions which were committed after the service of the injunction and before the placing of the words “J. Hilton, Prop.” on the signs. Whether the contempt was continued down to the present time is another question.

I recognize that a layman is put by an injunctive order such as has been made in this case in a very unfortunate position. He is directed to refrain from doing something which may tend to deceive the public. How, whether a thing tends to deceive the public or not is a matter of fact and inference. Acting bona fide he may do certain things which he does not believe tends to deceive the public, and yet the court may differ with him, and, because the court differs with him, although he had acted in a manner which he had thought proper, he may be guilty of contempt. I endeavored‘to avoid such an effect in the original decree because I could not conceive at the time that that decree was made that the word “Hilton” or “Hilton’s” could be used in such a manner as that the public would not be deceived — that is, in such a manner in a competitive business, and I therefore enjoined defendant 'from using the name Hilton or Hilton’s in any manner whatever in the competitive business. I suppose I should have (it might have made some difference in the court of errors and appeals) reserved to the defendant the right to apply to this court to use the name in a certain specified manner, in which event the court might then have permitted him to have used the name in a manner which the court would then find, in advance, would not tend to deceive or defraud the public. The court of errors and appeals took a different view from me and .must have assumed that the name Hilton or Hilton’s might possibly be used in some manner or other in such a way as not to deceive the public in a- competitive business. It has put the burden, in the first instance, upon the defendant to experiment and make himself liable,-if his.experiment does not work out. As I presently view it, I think the addition of the .words “J. Hilton” to the sign, and the change in the label which has been made, is not a sufficient change in the method of operating the business to relieve it of the criticism I made of it in the original case. It seems to me, as was said by the court of errors and appeals in the case of Roger v. International Silver Co. or International Silver Co. v. Rogers, 72 N. J. Eq. 933 (at p. 938), in reference to the use of the name Rogers, that the addition of the words “J. Hilton,” far from tending to remove the confusion, may tend to increase it. The public does not know generally who the proprietor of the Hilton Company is. J. Hilton may be the proprietor of both the Hilton Company and Hilton’s, so far as the general public are concerned. There is nothing to indicate to the public mind that the Hilton business, which is owned by J. Hilton, is not that of the original Hilton Company. In the Rogers Case, Rogers was forced to stamp upon his goods, and put upon his signs a statement that the business was not connected in anywise with the original Rogers; in other words, I think upon the defendant was put the burden of indicating to the public that his business was not the business, not only not the business of another competitor known as the Hilton Company, but not the business of another competitor known as the Hilton Company, which was the Hilton Company prior to his entering the field. I do not think that if the defendant should add to his sign “not connected with the Hilton' Company,” it would save the situation.

I express no opinion at this time upon the question as to whether the use of the words “J. Hilton & Co.” will be permitted because, for one reason, I cannot conceive, unless both sides agree, that I have any authority to pass upon such a question at this' time. The way the decree is now left by the court of errors and appeals, the only authority now left to this court, is to determine whether or not a contempt has been committed. If the defendant desires to make a record, I suppose he can apply to this court for permission to modify this decree in some way and to permit him to use the word “Hilton” in a certain manner to be prescribed by the court. Whether that can be done after the decree of the court of errors and appeals I do not now determine.

Yice-Chancellor Howell, in the case I referred to during the argument, reported in 81 N. J. Eq. 416, approved by the court of errors and appeals (81 N. J. Eq. 513), held that in cases such as this in order to warrant the court in issuing an injunction, it is not necessary there be proof of actual confusion. I reiterated that in the Hilton Case originally and the court of errors and appeals did not see fit to dissent from it or overrule it. I think that no greater proof is necessary in an application to punish for contempt than is necessary to secure an injunction in the first instance. Considering the entire case, the facts and circumstances surrounding it, and whatever proof actually there is in the case, I am bound to conclude that the use of the word “Hilton’s,” in the manner that it is now being used, with the addition of the words “J. Hilton, Prop.,” leads to confusion, that it is bound to.

I will, as above indicated, adjudge the respondent guilty of a contempt of this court and will not at this moment pass upon the question as to whether I think the use of the term “J. Hilton & Co.” would be proper. The matter is not now squarely presented to me. I will hear counsel as to what punishment ought to be imposed.

If, as a means of purging himself of his contempt, the respondent offers to change his practice in such a manner as will appear to me to be in accordance with the injunction, it may be that I will permit him to purge himself.


author: Lane, V. C.

text:
    Philip Hilton v. Joseph Hilton.
    [Decided October 18th, 1918.]
    1. In proceedings for contempt counsel fees may be allowed as part of the costs, and imposed upon a respondent found guilty by virtue of 1 Comp. Stat. p. 445 § 91; P. L. 1910 p. 427.

      2. O’Rourke v. Cleveland, ¡¡9 N. J. Eq. 577, distinguished.
    On bill, &c. On proceedings for contempt.

      Messrs. Pitney, Hardin & Skinner (Mr. Stanley and Mr. Skinner), for the complainant.

      Mr. Selick J. Mindes and Mr. Robert H. McCarter, for the defendant.
   Lane, V. C.

Upon proceedings instituted by complainant respondent was adjudged guilty of a contempt for his failure to obey an injunction requiring him to desist from using the name “Hilton's,” &c., in such manner as to deceive the public and injure the business of complainant.

Upon respondent making substantial changes in his method, of conducting business the court concluded not to impose any punishment other than to compel him to pay costs.

Application is now made to include in the costs an allowance for counsel fees. In O’Rourke v. Cleveland, 49 N. J. Eq. 577, the court of errors and appeals held that this court could not impose a counsel fee upon a party held in contempt as a punishment. It rested its determination upon the absence in this state of legislative authority to award counsel fees in such cases indicating that the power to award a counsel fee is purely statutory. Subsequent to ihe determination of that case (1892), section 91 of an act concerning the court of chancery (1 Comp. Stat. p. 445) was amended to read as follows:

“In any cause, matter or proceeding in the court of chancery the chancellor may make such allowances by way of counsel fee to the party or parties obtaining the order or decree as shall seem to him to be reasonable and proper, and shall direct which of the parties shall pay such allowances.” P. L. 1910 p. 427.

Considering this legislation as contrasted with the legislation as it previously existed, it seems to me to be clear that the clear intent was to vest the chancellor with jurisdiction to allow counsel fees in every proceeding of every kind and description that might be brought in the court of chancery. In the Matter of Frankish, 86 N. J. Eq. 280, the present chancellor held that the act applied to proceedings in lunacy. The court of errors and appeals, in the O’Rourke Case, expressly determined that the award of costs, at the discretion of the court, is the settled practice in courts of equity in contempt proceedings, and I can see no reason why there may not be included in the costs, by virtue of section 91, a reasonable counsel fee. The statute with respect to the allowance of costs in existence at the time of the determination in the O’Rourke Case was, as indicated in the opinion of the court of errors and appeals, essential^ different from the statute as it now exists.

In the instant case the proceedings to punish for contempt were not only to vindicate the dignity of the court, but also to sequre the private rights of the complainant.

I conclude, therefore, that counsel fees may be allowed against a respondent adjudged guilty of a contempt and included in the costs.

Whether they should be allowed or not is a matter of discretion.

I conclude in this case that they ought to be.

The method in which the respondent conducted his business had been condemned by both this court and the court of errors and appeals. For some time after service upon the respondent of the decree as modified by the court of errors and appeals he continued to conduct his business in the condemned manner. His excuse was that by reason of labor shortage, &c., he could not change his signs and labels. It was, of course, his duty to instantly comply with the order of the court, even if it necessitated closing his business. His remedy was to apply to this court for a stay of the operation of the injunctive decree. Because of the substantial change which he has now made, and the fact that lie acted in a mistaken idea as to his rights, or as to his duly, 1 have been induced not to impose any punishment other than as above indicated, but I can see no good reason why the complainant, forced to come into this court to assert Ms legal rights under a decree of this court, should be obliged to bear the entire expense of the proceeding.

Counsel for complainant asks for an allowance of $300. 1 think the amount asked for is modest and it will be allowed.


text:
    Henry Brimberg v. Hartenfeld Bag Company, a corporation, et al.
    [Decided October 5th, 1918.]
    1. Where non-resident defendants, on return of order to show cause in chancery, file special appearance for the purpose of contesting jurisdiction. but make no motion to set aside service of process or to dismiss bill, they cannot question the court’s jurisdiction of the subject-matter or its authority to make the order asked for; their right to be heard, if any they have, is as to whether they can be required to respond to the order.
    2. Goods in possession of a common carrier upon which there has been issued a negotiable order bill cannot, in view of the act of congress and the statute of this state, be attached unless the bill has been surrendered to the carrier or negotiation has been enjoined, by which is meant effective restraint, the bill being the res rather than the goods.
    3. A railroad will not be enjoined from delivering possession of goods in its possession upon which a negotiable order bill has been issued, and which have been attached where the bill and its holder are out of the court’s jurisdiction; the effective restraint of the bill’s negotiation being necessary to make the goods subject to attachment.
    On bill, &C.

      Mr. David H. Bilder, lor the complainant.

      Mr. Samuel F. Leber, for the respondents Hartenfeld Bag Co., Michael Gesas and Isaac Steinhaus.

      Mr. Walter J. Larrabee, for the respondent Delaware, Lackawanna and Western Railroad Company.
   Lane, V. C.

This is a hearing on return of an order to show cause why, pending the suit, defendant railroad should not be restrained from delivering possession of certain goods in its possession as common carrier, and why defendant Gesas should not be restrained from demanding possession of the goods and from negotiating a negotiable order bill alleged to be in his hands.

The bill sets out that defendant Hartenfeld Bag Company, a foreign corporation, not authorized to do business in this state, is a debtor of complainant; that to secure his debt complainant caused a writ of attachment to be issued, under which the sheriff took possession of goods in possession of the railroad, property of the Hartenfeld company; that it was claimed that the Hartenfeld company had negotiated an order bill covering the goods to one Michael Gesas, a resident of Illinois; that the bill was in the actual possession of defendant Isaac Steinhaus, an attorney-at-law, resident in New York; that said Steinhaus, as attorney for Gesas, had presented the bill to the railroad company and demanded possession of the goods; that a motion urns about to be made in the supreme court to set aside the execution of the writ of attachment upon the ground that defendant railroad was a common carrier and the goods were, while in its possession, protected from attachment by virtue of the act of congress, August 29th, 1916, section 23, Comp. Stat. 1916, p. 9316; section 8604, as well as by section 24 of chapter 156, N. J. Law 1913; P. L. 1913, p. 244. Complainant alleges that Gesas is not a bona fide holder for value of the bill and that the goods are really the property of the Hartenfeld Bag Company, and prays that it may be so adjudged and that the negotiation of the bill may be enjoined.

Respondents Hartenfeld Bag Company, Gesas and Steinhaus, on the return of the order attempted to appear specially for the purpose of contesting the jurisdiction of the court. All that they have attempted to file is a special appearance. No motion has been made on their behalf to set aside service of process or to dismiss the bill. The sole question upon wdrich they would be entitled to be heard under a special appearance, if they are entitled to be so heard, is whether they are required to respond to the order. This is in harmony with the view of the chancellor in Allman v. United Brotherhood of Carpenter. &c., 19 N. J. Eq. 150; affirmed on his opinion, Ib. 641. There is nothing in the Allman Case which suggests that the same sort of litigation may not be had over the defendant’s liability to respond to an order to show cause as on a subpoena or other process in the main cause. They are not entitled to be heard on the return of the order to show cause, under such a special appearance, upon the question as to whether the court has jurisdiction of the subject-matter, or whether the court has authority to make the order asked for by complainant. In the present state of the pleadings I will decline to consider the rights of the non-resident respondents except so far as necessary to dispose of the objection of the railroad company.

Prior to the passage of the Chancery act of 1915 it had been held by the court of errors and appeals in Wilson v. American Palace Car Co., 65 N. J. Eq. 730, and Puster v. Parker Mercantile Co., 70 N. J. Eq. 771, that a plea to the jurisdiction of the court might be filed by a foreign corporation which could not be served with process within this state and that such a defendant might demand in limine the judgment of the court whether it should answer the bill. Vice-Chancellor Garrison, in Groel v. United Electric Co. of N. J., 69 N. J. Eq. 397, was constrained by the authority of the Wilson Case to uphold a plea to the jurisdiction filed by a foreign corporation alleging that service had not been effectively made upon it, although attempted to be made in this state, and it was not subject to service within the jurisdiction. Since the determination of these eases pleas have been abolished, and those matters which formerly could be taken advantage of by plea must now be taken advantage of by motion. Vice-Chancellor Garrison, in Ewald v. Ortynsky, 77 N. J. Eq. (at p. 76), again examined the subject-matter, which he had previously examined to a considerable extent in the Groel Case, with great care and held that the decided cases did not apply to the case of a domestic corporation so as to warrant it in setting up defective service of process by a plea to the jurisdiction. On page 88 of the report he expresses his difference from the determination off the court of errors and appeals in Wilson v. American Palace Car Co. The court of errors and appeals affirmed his determination (78 N. J. Eq. 527), and while not referring to the language of Vice-Chancellor Garrison, yet I think, by the language of the chief-justice (at p. 529), it must be considered as having approved its prior determination and the language used is broad enough to include non-resident individual defendants as well as foreign corporations.

Reeling as I do, that the observations of Vice-Chancellor Garrison in the Groel and Ewald Cases were justified and that the proper practice would be as pointed out by him, and that a non-resident defendant, who does not desire to submit to -the jurisdiction, should not be entitled to have a bill dismissed as to him, but only to have improper methods which may have been attempted to be used to subject him to the jurisdiction set aside, and at the most to secure the judgment of the court whether he must answer the bill in response to any process then served, or attempted to be served, and that to secure such judgment he must come in under a conditional as distinguished from a special appearance, I am unwilling, pleas to the jurisdiction having been abolished, to indicate what I consider the proper practice and the proper form of motion, until I am obliged to, and I am not obliged to now, no formal motion having been made by the non-resident respondents. The individual nonresident defendant may be at the present time not subject to service of process; non-oonsial, that to-morrow he will not come within the jurisdiction. The bill will have been dismissed as to him. Before a new one can be filed and process issued he may have again departed the jurisdiction. In view of our rule that a suit is hot commenced (except for certain purposes not necessary to be here considered) and therefore process cannot issue and be served until the bill is actually filed in Trenton, I can conceive that by proper diligence of counsel, a resident of New York or Pennsylvania may be in New Jersey almost daily, and yet not subject himself to service of process, except theoretically.

I will consider the matter from the standpoint of the railroad company.

The federal statute provides inter alia that goods in the possession of a carrier upon which there has been issued negotiable order bill may not be attached -by garnishment or otherwise or be levied upon under an execution unless the bill be first surrendered to the carrier or its negotiation enjoined; that the carrier shall in no case be compelled to deliver the actual possession of the goods until the bill is surrendered to it or impounded by the court; that a creditor whose debtor is the owner of an order bill shall be entitled to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such bill or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by ordinary legal process. The provisions of the New Jersey statute are similar. The purpose of the legislation undoubtedly is to protect goods in transit' and in possession of a carrier against seizure until the carrier should be first liberated from liability and attack by the surrender of the order bill. The legislature has made thé bill the res rather than the goods. The term “enjoined” used by the legislature must imply effective restraint.

It appears that the holders of the bill and the bill itself are without the jurisdiction of this court so that this court is without power to effectively enjoin negotiation. Application for such relief will have to be made either in the jurisdiction where the bill or the holder is. If it appeared that attempts were being made in other jurisdictions to enjoin the negotiation of this bill, and application were made to this court for relief in aid of such proceedings, for instance, to enjoin the railroad company from delivering the goods except upon presentation and surrender of the order bill or to compel the railroad company to hold the goods a reasonable time to permit application to be made to the proper tribunals for relief, a different situation would be.presented, and I express no opinion as to how it should be determined. While the paramount purpose of the provisions of the act referred to is to protect carriers and bona fide holders for value of order hills, yet the rights of creditors to relief against fraudulent practices is not to be overlooked. Where, as in this case, the goods are in one state, the order bill in another and the alleged holder of the order hill in still another, it may well be that courts of equity acting in the three jurisdictions will simultaneously go so far as each may in protecting the rights of creditors, although no one court may be able, without the aid of the others, to make a decree which will he effective as against all parties. 'The legislation is new, is an innovation upon the common law, and I think the court should go slow in construing it. In the ease at bar, ample opportunity has been given to complainant to institute proceedings in either the jurisdiction where the alleged holder of the order bill is, the bill itself is, and no such proceedings have been instituted.

The order to show cause will be discharged. Settle order on twenty-four hours’ notice.


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    Margaret Berger, petitioner, v. Leon Berger.
    [Decided October 25th, 1918.]
    1. Where the desertion took place in New York and at the time of the expiration of the two years the husband was and had been for some time a resident of this state and continued to be down to the time of the filing of the petition, and had been for two years next preceding the filing of the petition and was personally served with process, the jurisdiction of the court is complete to grant a divorce upon the ground of desertion, although the petitioner never was a resident of this state.
    2. A mere suspicion that a deserting spouse might have been justified in leaving, it not appearing that petitioner had committed a matrimonial offence which would justify defendant leaving and staying away, is not sufficient to justify denial of decree.
    On exceptions to master’s report.

      Mr. S. Sidney Silver, for the petitioner.
   Lane, V. C.

The suit is for actual desertion. At the time the desertion commenced the parties were resident in New York. The defendant husband, almost immediately after the desertion, removed to New Jersey and has since that time continuously resided within this state. The petitioner is not and never has been a resident of this state. At the time the cause of action accrued, to wit, two years after the initial desertion, the defendant was a resident of this state and he had been a resident of this state for the two years next preceding the filing of the petition. The special master reported adversely to a decree upon the ground “that tlie cause of action arose in the State of New York, a jurisdiction in which the cause of action for which this suit is .brought, namely, desertion, is not recognized as a ground for the same relief (absolute divorce) sought in this suit in New Jersey. Section 6, of subdivision (b) of the Divorce act of 1907, therefore forbids the granting of a divorce here.”

Section 6 of the Divorce act, revision of 1907 (2 Comp. Stat, p. 2021), vests jurisdiction in this court to grant decrees where personal service of process is obtained upon the defendant yithin the state, “(a) When, at the time the cause of action arose, either party was a bona fide resident of this state, and has continued so to be down to the time of the commencement of the action, except that no action for absolute divorce shall be commenced for any cause other than adultery, unless one of the parties has been for the two years next preceding the commencement of the action a bona fide resident of this state.” “(b) When, since the cause of action arose, either party has become, and for at least two years next preceding the commencement of the action has continued to be, a bona ficle resident of this state; provided the cause of action alleged was recognized in the jurisdiction in which such party resided at the time the cause of action arose, as a ground for the same relief asked for in the action in this state.” If the cause of action arose at a time when the defendant was a resident in this state, then subdivision “a” applies and the jurisdiction is complete.

In Koch v. Koch, 79 N. J. Eq. 24 Vice-Chancellor Emery held that a cause of action for divorce upon the ground of desertion did not accrue until after tlie expiration of two years after the initial desertion. This was followed in Getz v. Getz, 81 N. J. Eq. 465, and approved by the court of errors and appeals in Flynn v. Flynn, 83 N. J. Eq. 690; Orens v. Orens, 102 Atl. Rep. 436; 88 N. J. Eq. 29.

The cause of action, therefore, arose at a time when one of the parties was a bona fide resident of this state and the case is within subdivision a.

The master makes no specific finding upon whether the evidence that the defendant has been guilty of willful, continued and obstinate desertion for the statutory period, has been sufficiently corroborated, although he expresses doubt, and expresses an idea that the testimony shows that the defendant was justified in leaving the petitioner..

I have examined the testimony and am of the opinion that willful, continued and obstinate desertion has been shown by corroborated testimony. The defendant, immediately after leaving his wife, visited the mother of the witness Munier, who testified that defendant stated that he had left his wife and that he did not intend to live with her again; that his mother endeavored to get him to make up, but that he refused; that he (Munier) has continued to visit the defendant in New Jersey, and it is apparent from his testimony that the attitude of the defendant did not change; that on one occasion defendant wrote the mother of the witness a letter, in which defendant stated that he was going to get a divorce. The wife’s testimony is to the effect that after the desertion she wrote letters to her husband asking him to come back, and that in each instance he declined, and finally wrote her that she need not write again, as her letters would be returned unopened. It seems to me that the testimony of Munier, considered as a whole, sufficiently corroborates the testimony of petitioner. With respect to. the justification for defendant leaving, the opinion of the master is based upon a statement made by petitioner that at the time the husband left he did so because he objected to petitioner's intimacy with a boarder. There is no evidence whatever from which the court can find that the defendant was, in fact, justified in leaving, and the mere suspicion that he might have been is not, I think, sufficient to justify denial of a decree. There is nothing shown or intimated that would lead to the conclusion that petitioner had committed a matrimonial offence which would justify defendant leaving and staying away.

The defendant was served personally with process. The exceptions will be sustained and decree nisi advised.


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    Hoover Steel Ball Company v. Schafer Ball Bearings Company.
    [Decided October 25th, 1918.]
    1. The sixty-fourth section of the Corporation act (2 Comp. Stat. p. 1638), forbidding transfers when insolvent, &c., applies to a foreign corporation doing business in this state.
    2. Actual suspension of business as used in section 04 imports more than a mere failure to meet maturing obligations as they accrue; the words contemplate an interruption of ordinary business operations evidenced by some objective features; an interruption of the ordinary course of business other than a mere failure to meet maturing obligations.
    3. “Insolvent,” as used in the sixty-fourth section, must be defined the same as “insolvent,” as used in the sixty-fifth section — that is, a corporation is insolvent when there is a general inability to meet pecuniary liabilities as they mature by means of either available assets or an honest use of credit.
    4. A corporation may, if temporarily in need of funds, pledge its assets if by the pledge of such assets moneys may be raised which will relieve it of its embarrassment and permit it to continue.
    5. Before a corporation insolvent, in the sense of laboring under a general inability to pay maturing obligations, can make, for a present advance, a valid pledge of its assets to a person having knowledge of the condition, it must at least appear that the pledge is in pursuance of some financial scheme which it is reasonable to suppose will result in placing the corporation in a position of solvency as contemplated by the statute.
    6. Distinction between general inability to meet maturing obligations and a temporary embarrassment.
    On bill, &e.

      Messrs. Bilder & Bilder (Mr. David H. Bilder), for the receiver.

      Mr. Benjamin F. Jones and with him Mr. Porter (of the New York bar), for the estate of Daniel H. Tolman.
   Lane, V. C.

Defendant, a New York corporation, on or about August 28th, 1917, made and delivered in New York to one Tolman two sixty-day collateral notes, one for $1,700 and the other for $2,700, payable in New York. At or about the same time it delivered to Tolman, as collateral, two negotiable warehouse receipts covering approximately forty-five thousand pounds of steel. It received from Tolman upon the notes a total of $4,134.65. Shortly thereafter, on or about September 11th, the corporation gave Tolman a sixty-day chattel mortgage for $5,000, on its machinery and equipment at its plant at Hawthorne, N. J., securing a note for $5,000. There was advanced upon this loan approximately $4,300. When the two collateral notes became due, on or about October 27th, 1917, a new note dated October 27th, 1917, for $5,800, payable in ninety days, was made and delivered by the corporation to Tolman, in New York. The two notes made in August were canceled. Three thousand pounds of steel in storage were released. As a part of the same transaction a new chattel mortgage for $6,000 was made and executed by defendant and delivered to Tolman and the chattel mortgage for $5,000 was canceled. This $6,000 chattel mortgage was payable at the rate of $500 per month. Tolman at this time advanced $300 in cash and subsequently a sum which has been stated to be either $500 or $700, making the aggregate additional advance $800 or $1,000. There was endorsed upon the note dated October 27th, 1917, for $5,800, a payment of $420. This payment was, in fact, never made and the reason for the endorsement upon the note is not clear. All of the transactions took place in New York. On the 24th day of May, 1918, in proceedings instituted under the statute, a receiver of defendant was appointed by this court. Both the Tolman estate (Tolman having died) and the receiver claiming the steel, it was sold and the proceeds brought within the control of the court. The insistence of the receiver is that the pledge of the steel is void under the provision of section 64 of an act concerning corporations, revision of 1896 (2 Comp. Stat. p. 1688). He rests his claim upon two propositions — first, that at the time of the pledge the corporation was insolvent within the meaning of the statute to the knowledge of Tolman; second, that tire company had, at the time of the pledge, “actually suspended its ordinary business,” and it appearing that the company was insolvent at the time of the pledge, knowledge to Tolman is immaterial. The Tolman estate insists that the transactions being consummated in New York and the corporation being a New York corporation, the law of New York applies, and it appearing that the pledge was not made for the purpose of preferring an existing creditor, it is valid under the New York law, and that if the New Jersey statute applies, the defendant was not, at the time the pledge was made, insolvent to the knowledge of Tolman.

First. The' sixty-fourth section of the Corporation act (2 Comp. Stat. p. 1638) applies to a foreign corporation doing business in this state. It was so held by Vice-Chancellor Stevenson in Agnew Co. v. Paterson Board of Education, 83 N. J. Eq. 49 (at p. 55), and his determination upon this branch of the case was affirmed by the court of errors and appeals for the reasons he stated in 83 N. J. Eq. (at p. 339). And see Boehme v. Rall, 51 N. J. Eq. 541. All of the assets of the corporation were in this state; its entire business was in this state; the pledge was of property within this state. The fact that the notes were delivered in New York, payable in New York, does not, I think, differentiate this case from those cited.

Second. Had the company actually suspended its ordinary business within the meaning of section 64 so that notice to Tolman is immaterial? At the time of the delivery of the notes and of the pledge, the company was insolvent in the sense that there was' a general inability to meet pecuniary liabilities as they matured by means of either available assets or an honest use of credit (67 N. J. Eq. 602; 84 N. J. Eq. 415; 85 N. J. Eq. 181), as I will hereafter point out. And the company had suspended its business and was not about to resume the same in the sense that it had suspended payment of its pecuniary liabilities and was not about to resume such payment. Fort Wayne Electric Co. v. Franklin Electric Light Co., 57 N. J. Eq. 7; Reinhardt v. Interstate Tel. Co., 71 N. J. Eq. (at p. 70); Catlin v. Vichachi Mining Co., 73 N. J. Eq. 286.

The facts were present which would have warranted the court in appointing a receiver under section 65, but it does not necessarily follow that the words “actually suspended its ordinary business” in section 64 contemplate the same sort of suspension of business as indicated by the words “resumption of business” in section 65. The legislature was dealing in section 64 with the validity of transfers, &c., an entirety different subject-matter than that dealt with in section 65. Transfers, &c., are void if made (a) when the corporation is insolvent, or (b) after it has suspended its ordinary business for want of funds to carry on the same, or (c) if the transfer be made in contemplation of insolvency. A bona fide purchaser for value is saved if the transfer, &c., be made when the corporation be insolvent or if the transfer be made in contemplation of insolvency, if he have no notice, in the first instance, of the insolvency, and in the second instance, of the sale being made in contemplation of insolvency, provided always the sale shall have been made before the company shall have actually suspended its ordinary business. If the sale be made before the company has actually suspended its ordinary business then want of notice is material; if after, want of notice is immaterial. Actual suspension of business as used in this section imports more than a mere failure to meet maturing obligations as they accrue. The reasoning which induced the court to hold that the words “resume its business” in the sixty-fifth section referred to a resumption of meeting maturing obligations does not apply. The statute contemplates an interruption of ordinary business operation evidenced by some objective features. In the case of banks a failure to meet maturing obligations would be an actual suspension of business because it would result in the immediate closing of the doors. In the ease of manufacturing concerns, a cessation of manufacture. In any event there is required an interruption of the ordinary course of business other than a mere failure to meet maturing obligations. A consideration of the following cases leads to this conclusion: Miller v. Gourley, 65 N. J. Eq. 237; Regina Music Box Co. v. Otto & Sons, 65 N. J. Eq. 582: affirmed, 68 N. J. Eq. 802; Reed v. Helois Carbide Specialty Co., 64 N. J. Eq. 231; Bedford v. Newark Machine Co., 16 N. J. Eq. 117; Kinsola’s Administrators v. The Cataract City Bank, 18 N. J. Eq. 158. At the time the pledge was made the corporation had not actually suspended its business within the meaning of the statute.

Third. Was the company insolvent at the time the pledge was given and did Tolman have notice of such insolvency? “Insolvent” as used in the sixty-fourth section must be defined the same as “insolvent” as used in the sixty-fifth section, that is, a corporation is insolvent when there is a general inability to meet pecuniary liabilities as they mature, by means of either available assets or an honest use of credit. Trust Co. v. Trustees of Wm. F. Fisher & Co., 67 N. J. Eq. 602; Wright v. American Finance and Securities Co., 84 N. J. Eq. 415; 85 N. J. Eq. 181. Nevertheless, a corporation may, if temporarily in need of funds, pledge its assets if, by the pledge of such assets, moneys may be raised which will relieve it of its embarrassment and permit it to continue. Reed v. Helois Carbide Specialty Co., 64 N. J. Eq. 231; Miller v. Gourley, 65 N. J. Eq. 237; Regina Music Box Co. v. Otto & Sons, 65 N. J. Eq. 582; affirmed, 68 N. J. Eq. 802. But it seems to me on the authority of Cope v. Walton, 77 N. J. Eq. 512; 79 N. J. Eq. 165, that at least it must appear, before a corporation insolvent, in the sense of laboring under a general inability to pay maturing obligations, can make, for a present advance, a valid pledge of its assets to a person having knowledge of the condition, that the pledge is in pursuance of some financial scheme which it is reasonable to suppose will result in placing the corporation in a position of solvency as contemplated by the statute. And in this connection I point out that there is a great distinction between a general inability to meet maturing obligations and a temporary embarrassment.

At the time of the original transaction with Tolman in August, 1917, the company had past-due indebtedness in excess of $10,000; it actually owed more than $30,000; much of the past-due indebtedness existing in August, September and October, 1917, was in existence at the time of the appointment of the receiver on May '24th, 1918; it was not manufacturing; it was only experimenting; it had exhausted the ordinary means for raising money; its creditors were pressing; it needed money “for working capital.” Through an advertisement through the medium of a broker its officers came in contact with Tolman, a money lender in New York. It arranged with Tolman for an advance of approximately $4,000 upon two sixty-day collateral notes to secure which there was pledged some forty-five thousand pounds of steel. Shortly thereafter it procured another loan from Tolman, approximately $4,300, for which it gave him a chattel mortgage to secure the sum of $5,000 upon its plant and machinery. Both the note and chattel mortgage were payable in sixty days. There was no scheme worked out by which provision was made for the payment either of the past-due indebtedness or of the notes and chattel mortgage when they should become due; there is no evidence that there was any expectation that the company could possibly be put in financial condition where it might meet either the amounts due upon the past-due indebtedness or the amounts due on the chattel mortgage and notes, nor do I think it was contemplated that either should be met. If it was so contemplated, then such contemplation was not based, so far as the evidence is concerned, upon any facts which would appeal to reasonable men. When the notes became due the company was unable to pay and thereupon another transaction took place between the officers of the company and Tolman, by which Tolman advanced an additional $300 and a sum which has been stated to be either $500 or $700, and á new collateral note for $5,800 was delivered; at the same time Tolman released from the storage warehouse three thousand pounds of steel and there was an endorsement made upon the note of a credit of $420; as part and parcel of the same transaction the old chattel mortgage was canceled and a new chattel mortgage executed for $6,000, payable at the rate of ninety days; at the time of this new transaction no plan was proposed by which the company was to be put upon its feet nor was it contemplated that the moneys raised should be used for the purpose of putting the corporation in a position to pay its maturing obligations. The most that can he said is that the officers of the company hoped that the money advanced by Tolman might enable them to complete theii experiments so that they might have something which would put them .in a position to negotiate with creditors. Tolman was, in fact, advancing “capital” at usurious rates, secured by a pledge of all the company’s available assets. The company was not iu need of funds to tide it over a temporary embarrassment. It was in need of working capital. There is no difficulty in this case with respect to notice. The evidence is that Tolman visited the plant, went over the hills and was made fulty familiar with the entire financial situation. As consideration for his advance Tolman was to receive upwards of twenty per cent. In consideration of the advance of some $9,000 the corporation stripped itself of its available means of raising money. The notes and chattel mortgage were for short terms and not given in pursuance of any plan of financial rehabilitation. The case is essentially different from those dealt with in Regina Music Box Co. v. Otto & Sons, Reed v. Helois Carbide Specialty Co. and Miller v. Gourley. In Cope v. Walton, 77 N. J. Eq. 512; 79 N. J. Eq. 165, both this court and the court of errors and appeals, in a case where a present advance had been made and the assignment of a chose in action taken as security, and the moneys used by the corporation in the business of completing a contract, under which contract the moneys in dispute were earned, held that the assignee, having knowledge of the insolvency of the corporation at the time the assignment was made, was barred from asserting his rights by virtue of the provisions of the sixty-fourth section. In that case the receiver was not appointed until- seven months after the making of the assignment.

My conclusion is that the corporation at the time the pledge was made was insolvent to the knowledge of Tolman and that the pledge is void as against the receiver.

I will advise an order so declaring and directing that the moneys be considered as a part of the estate, subject to distribution among creditors.