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Deerhurst Estates v. Meadow

Decided: November 20, 1961.

DEERHURST ESTATES, A CORPORATION OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
M. MICHAEL MEADOW AND MEADOW HOMES, INC., A CORPORATION OF NEW JERSEY, DEFENDANTS-RESPONDENTS



Gaulkin, Kilkenny and Herbert. The opinion of the court was delivered by Kilkenny, J.A.D.

Kilkenny

[70 NJSuper Page 405] On defendants' motion before trial, the Superior Court, Chancery Division, Middlesex County, dismissed plaintiff's complaint to set aside allegedly fraudulent conveyances from the corporate defendant to the individual defendant and ordered its notice of lis pendens to be

discharged. This was done solely because the plaintiff was not then the holder of a judgment or other lien against the defendants.

The Chancery Division then stayed its judgment of dismissal pending the prosecution of this appeal by the plaintiff.

The issue before us is whether one who asserts a claim at law for money damages must have first reduced that claim to a judgment or other lien before he may file an action to set aside a fraudulent conveyance.

The facts before the court on the motion to dismiss were not in dispute. Plaintiff sued the corporate defendant in the Superior Court, Law Division, to recover money damages for an alleged breach of warranty arising out of a contract between the parties for the sale of realty. This complaint was filed on January 18, 1957 and resulted in a judgment in plaintiff's favor on the issue of liability on May 13, 1958, and thereafter, on November 19, 1959, a judgment with respect to damages was entered. The opinion is reported in 50 N.J. Super. 140 (Law Div. 1958).

On August 4, 1959 plaintiff filed its separate fraudulent conveyance suit in the Chancery Division, designating Middlesex County as the venue because the lands were in that county, referred to the aforesaid liability judgment in the Law Division and the pending determination of damages, and asserted that the corporate defendant had conveyed certain lands to the individual defendant, without consideration and in fraud of creditors, by two deeds dated December 18, 1956, but allegedly executed and recorded on October 21, 1957.

While the Chancery Division suit was awaiting trial, the Law Division judgment was reversed on appeal to the Appellate Division and remanded for a new trial solely on the issue of liability. 64 N.J. Super. 134 (App. Div. 1960), certif. den. 34 N.J. 66 (1961). The Appellate Division determined that no error had been committed in calculating the damages, so that it would not be necessary to retry that phase of the case. If liability were properly re-established on the remand, the damages would stand, subject only to

modification in the mathematically computable provisions with respect to interest. If the retrial resulted in a judgment of no liability, then "the damage judgment of November 19, 1959 shall be in all things reversed, set aside and for nothing holden."

It was while the litigation was in that posture, and before the retrial of the Law Division suit, that defendants moved successfully for the dismissal of the fraudulent conveyance complaint in the Chancery Division, which action gives rise to this appeal. Meanwhile, as we are advised, the Law Division issue of liability has been recently retried and a decision is expected soon.

Prior to our present 1947 Constitution, with its new judicial system and the new rules of practice effective thereunder, it was deemed necessary, in order to satisfy constitutional requirements, for a creditor to have a judgment or lien before he could have a conveyance set aside as fraudulent by the old Court of Chancery. Thus, as stated in Hussong v. Fox , 2 N.J. 209, 211 (1949), in referring to the practice before September 15, 1948:

"In order to invoke the aid of Chancery in setting aside a fraudulent conveyance a creditor must hold either a judgment or other lien against the property transferred. F.W. Horstmann Co. v. Rothfuss, Err. & App. 1940, 128 N.J. Eq. 168, 170; Gross v. ...


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