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Kielb v. Johnson

Decided: December 17, 1956.


On appeal from the Superior Court, Chancery Division.

For affirmance -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Wachenfeld, Burling and Jacobs. For reversal -- None. The opinion of the court was delivered by Oliphant, J.


[23 NJ Page 62] This is an appeal by Franklin W. Kielb, trustee in bankruptcy, from a refusal by the Chancery Division to set aside a transfer of real property from the bankrupt, Frank J. McCloskey, to the defendant, J. Clifford

Johnson, as in fraud of creditors. Since the dispute resolves itself into a challenge of the trial judge's findings of fact, an investigation of the record and a summary account of the evidence presented are necessary.

McCloskey purchased the real estate in question in 1948 for $27,500. A frame building was on the property which was originally used as a gas station and bus depot but converted by the grantors into an automobile agency. The purchase price additionally included some stock in trade and a going gasoline business with its attendant good will.

The subject land has a triangular shape and comprises 4.9 acres in area. It occupies a frontage of approximately 495 feet on the south side of Route 22 in Clinton. In the rear, the land drops rapidly from highway level to the bank of the Raritan River, and the trial judge described the area behind the buildings as having the appearance of "sandy swamp land." There was testimony that despite the erection of a small dike by the bankrupt, the buildings were usually flooded during a rainy period.

After his acquisition, McCloskey used the property for the operation of an automobile dealer agency and an automobile repair business. Apparently his premises were obscured from the view of oncoming motorists by a nearby highway bridge. During the summer of 1951 or 1952 the bankrupt improved his holdings through the addition of a four-bay one-story garage, constructed of cinder block, extending from the original building. Because of the death of the contractor previous to the trial and the destruction of the bankrupt's records by fire, the cost of this extension could not be definitely ascertained, but it was reliably estimated at $22,000.

The court below found that in 1953 the premises in question were listed with various real estate brokers for prices ranging from $45,000 to $75,000. These figures included not only the real estate and attached buildings but also the good will of the bankrupt's business and the personal property used in its pursuit. The bankrupt was never able to secure a purchaser for the prices listed.

McCloskey had placed a first mortgage on the premises in the principal sum of $20,000, which in early 1954 was held by the Somerville Trust Company. In addition, it appears the bankrupt's father-in-law had held a second mortgage for $31,000, but it is conceded this was subsequently lifted and its disposition need not concern us. At this time the bankrupt was obviously financially embarrassed for he sought to refinance by procuring a new mortgage of $25,000. Perhaps because of the uncertain prosperity of his business, the bankrupt was not able to obtain a willing mortgagee. Application was made to the defendant, who refused a mortgage loan but offered to purchase the property.

In May 1954 the Somerville Trust Company instituted an action to foreclose on its first mortgage. Evidently a default judgment was entered, since the sheriff eventually listed the property for sale. The bankrupt once again tried to raise money through the issuance of a new mortgage but was unsuccessful. It was only through the efforts of the bankrupt's attorney that an execution sale was postponed in order to give McCloskey an opportunity to rehabilitate himself financially.

Since other potential investors were notably unenthusiastic, the bankrupt finally accepted the defendant's previous offer of $25,000 for the property. The defendant also agreed to pay taxes and interest in arrears, which amounted to approximately $1,234, and to allow the bankrupt to remain in possession of the property rent free from October of 1954, when conveyance was made, until January 1, 1955.

It was orally agreed between the parties that until the first of the year McCloskey would have the right to repurchase the property at a nominal profit to the defendant upon securing a buyer at a higher price. This eventuality never materialized.

McCloskey testified he was motivated to make the sale only by the thought of restoring his deteriorating financial position. He felt that he "might as well get the best that I could get ...

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