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Washington National Bank v. Beatty.

77 Eq.

The bank, which was not organized until five years after the conveyance by Beatty, obtained a judgment against him on an accommodation note twelve years after the transfer, and to collect this judgment it now seeks to set aside the deed.

The vice-chancellor below dismissed the bill, holding: First, that, under the evidence, the commission merchants whose threat to bring suit induced the transfers were, within the meaning of the statute of frauds, creditors at the time the transfers were made, and that the deeds were fraudulent as to them; second, that a conveyance made for the purpose of defrauding a single existing creditor is not void as against subsequent creditors, the incurring of the debts to whom was not within the contemplation of the debtor at the time when the conveyance was made.

We concur in the action of the vice-chancellor in dismissing the bill, but not with his conclusions of law.

Taking them in their inverse order, the first legal question is whether a creditor whose debt is contracted subsequent to the execution of a deed, which is fraudulent as against a single existing creditor, in order to have such deed set aside, must show not only that the deed was fraudulent as to such existing creditor, but also that it was made with intent to defraud such persons as should, subsequent to its date, become creditors of the grantor. The vice-chancellor held to the affirmative of this proposition, relying to some extent upon the statement of ViceChancellor Pitney in Gray v. Folwell, 57 N. J. Eq. (12 Dick.) 446 (at p. 456), and following the rule laid down by ViceChancellor Van Fleet in Gardner v. Kleinke, 46 N. J. Eq. (1 Dick.) 90.

In our judgment the rule laid down by Vice-Chancellor Van Fleet in Gardner v. Kleinke, supra, and the holding of the vicechancellor in this case below, in accordance therewith, were erroneous.

The effect of the statute is to make a voluntary deed fraudulent as against existing creditors, without regard to the intention with which it was executed. It is fraudulent in law. This was settled in 1879 by this court in Ilaston 1. Castner, 31 N. J. Eq. (4 Stew.) 697.

7 Buch.

Washington National Bank v. Beatty.

The effect of a voluntary conveyance upon the rights of subsequent creditors was decided by us in 1889. Hagerman v. Buchanan, 45 V.J. Eq. (18 Stew.) 292.

It is true that it was considered by the court of chancery in Gardner v. Kleinke, supra, that lagerman v. Buchanan established the principle that a subsequent creditor was not entitled to have a voluntary conveyance set aside unless he could show that it was made with intent to defraud such persons as should, subsequent to its date, become creditors of the grantor.

The following language of Mr. Justice Reed, in the opinion, was cited by Vice-Chancellor Van Fleet as requiring that conclusion: "A voluntary settlement can be attacked by a subsequent creditor only upon the ground of the existence of an actual intent in the mind of the parties, at the time of the execution of the conveyance to hinder, delay or defraud creditors by means of the deed.” But the citation does not justify the conclusion. In fact, it declares that the test is an actual intent in the mind of the grantor to defraud creditors not subsequent creditors alone, but any creditors; and that this is the principle intended to be established by that decision is made plain by the subsequent language of the opinion where Mr. Justice Reed, speaking of subsequent creditors, says: "An actual fraudulent intent to defraud some creditors must be proved.”

The true rule is that when a conveyance is attacked by a subsequent creditor, the question to be determined is whether the conveyance was fraudulent.

The question is the same when attacked by an existing creditor; the only difference is the method of proof. When an existing creditor attacks the conveyance, and shows that his debt was incurred before, and was existing at the time when the conveyance was made, the law, without further proof, raises a conclusive presumption of fraud so far as that creditor is concerned.

When, however, the conveyance is attacked by a subsequent creditor, he must prove fraud as a fact—that is, "an actual fraudulent intent to defraud some creditor.” By some creditor is meant any creditor, either existing at the time when the conveyance is made or subsequently. If this be shown, the conveyance is proven to be fraudulent, and it may be set aside at the

Washington National Bank v. Beatty.

77 Eq.

instance of any class of creditors, without regard to the time when the debt came into existence.

The next question is whether, under the evidence, the commission merchants, who asserted the claim for damages upon an alleged liability, were proven to be existing lawful creditors or other persons named in the statute entitled to set aside the conveyance as fraudulent against them.

It was necessary for the bank, as a subsequent creditor, to prove -first, a voluntary conveyance; second, an existing creditor or other person having a lawful claim or debt within the meaning of the statute; third, an actual intent on the part of the defendant by means of the deed to delay or hinder some creditor, existing or subsequent.

Conceding that an actual intent on the part of the defendant to defeat any judgment which the commission merchants might have obtained is proven, the question still remains whether they come within the purview of the statute.

The rule, both in England (Twyne's Case, 3 Coke Se) and in this state, is, that the statute extends its protection to all persons having a valid cause of action arising from torts as well as from contracts. Boid v. Dean, 48 N. J. Eq. (3 Dick.) 193; Post v. Stiger, 29 N. J. Eq. (2 Stew.) 554; Scott v. Hartman, 26 N. J. Eq. (11 C. E. Gr.) 89; Thorp v. Leibrecht, 56 N. J. Eq. (11 Dick.) 499.

Nevertheless, a tort claimant, to place himself in the position of a lawful creditor or person competent under the statute to set aside a voluntary conveyance, must reduce his claim to judgment, and thus establish a legal debt against the fraudulent grantor. When his claim has thus been liquidated and established as a lawful debt, he may attack a voluntary conveyance made after the liability arose and before suit was brought, to defeat his debt, on the theory that such judgment when once obtained relates back and establishes a debt as of the time when the original cause of action accrued.

The complainant failed to bring this case within the rule that if after a person has incurred a liability for a tort, and before suit brought upon it he makes a voluntary conveyance or settlement of his property, and judgment afterwards goes against

7 Buch.

Washington National Bank v. Beatty.

him for the tort, the conveyance is void as against that judgment. See Boid v. Dean, 48 N. J. Eq. (3 Dick.) 193 (at p. 203).

A subsequent creditor who attacks a voluntary conveyance as in fraud of a person at the time of the conveyance claiming damages based on the tort of the grantor, must make legal proof of the verity and legality of the claim. See Baker v. Gilman, 52 Barb. (N. Y.) 26.

A judgment in favor of the claimant and against the tortfeasor would be conclusive evidence. What further or other proof would be equivalent thereto, we are not called upon in this case to decide, for the complainant, upon this point, offered no evidence.

The verity of the claim of the commission merchants has not been established by any judgment or competent proof, and the complainant bank therefore failed to prove that the commission merchants were lawful creditors or other persons within the meaning of the statute, the intent to defraud whom would vitiate the conveyance.

As against claims and demands, the verity of which is never established by any judgment or competent proof, the statute does not forbid conveyances or assignments or declare them to be void.

Therefore, upon the ground stated in this opinion, the judg. ment of the court below dismissing the bill of complaint is affirmed.

For affirmanceTHE CHIEF-JUSTICE, GARRISON, SWAYZE, TRENCHARD, PARKER, BERGEN, VOORHEES, MINTURN, BOGERT, VREDENBURGH, VROOM, GRAY, DILL, Congdon-11.

For reversal-None.

Schlicher v. Trenton, Lakewood and Atlantic Rwy. Co.

77 Eg.

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TRENTON, LAKEWOOD AND ATLANTIC RAILWAY COMPANY, de

fendant, ABEL B. HARING, respondent.

PETER SCHLICHER, complainant, WILLIAM P. SCHMIDT,

appellant,

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TRENTON, LAKEWOOD AND ATLANTIC RAILWAY COMPANY, de

fendant, ABEL B. HARING, respondent.

[Argued November 26th, 1909. Decided March 16th, 1910.]

Rulings of a receiver upon the validity of the claims of creditors submitted may be reviewed by the court which appointed him, although no appeal to the court is taken upon such ruling.

On appeals from a decree of the court of chancery advised by Vice-Chancellor Walker.

Messrs. Alan II. & Theodore Strong, for the appellants.

Messrs. Hagaman & Able, for the respondent.

The opinion of the court was delivered by

DILL, J.

These are two appeals taken respectively by Peter Schlicher and William P. Schmidt from an order advised by Vice-Chancellor Walker, overruling the determination of the receiver of the Trenton, Lakewood and Atlantic Railway Company, an insolvent

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