testimony" and "competent proof" of the liabilities and assets of an alleged insolvent. Dunham v. Cades, supra at 293-294. It has been said that "Fraud will not be presumed and circumstances that merely arouse suspicions will not support an inference of fraud." Glasser v. Feller, 141 N.J. Eq. 90, 91, 56 A.2d 137 (Ch.1947). Moreover, it is incumbent on one who seeks to set aside a transfer to disclose that, at the time of the transfer, the transferor was insolvent or was thereby rendered insolvent. It will not suffice to disclose that at some subsequent time the transferor was or became insolvent. Id.6
MHT is also correct in arguing that insolvency is a question of fact that cannot lightly be taken from the jury. Kaufman v. Tredway, 195 U.S. 271, 273, 49 L. Ed. 190, 25 S. Ct. 33 (1904); In re Roco Corp., 701 F.2d 978, 981 (1st Cir. 1983); See also Constructora Maza, Inc. v. Banco de Ponce, 616 F.2d 573, 576 (1st Cir. 1980); Klein v. Tabatchnick, 610 F.2d 1043, 1048 (2d Cir. 1979); Braunstein v. Massachusetts Bank & Trust, 443 F.2d 1281, 1284 (1st Cir. 1971). This is particularly true where, despite some indicia of insolvency, the transferor continues its business, see Freehling v. Michigan Repacking and Produce Company, 426 F.2d 989 (5th Cir. 1970), because the circumstance that liabilities exceed assets does not necessarily lead to the conclusion of insolvency if a corporation is actively pursuing its regular business with a reasonable expectation that business conditions will improve and that it will be re-established on a sound financial basis. Hersh v. Levinson, 117 N.J. Eq. 131, 137, 174 A. 736 (1934).
It is readily apparent then that TeleFest has a heavy burden to show insolvency as the first step in proving a fraudulent conveyance. It has gone some distance in meeting that burden, but hardly far enough to warrant the conclusion that no reasonable jury could find other than that VU-TV was insolvent on May 6, 1983. MHT's characterization of many of the statements in the affidavits presented by TeleFest as hearsay is an accurate one, and it is far from obvious that the material obtained "is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts." Fed.R.Evid. 803(24)(B).
There is simply not the abundant clarity, provided through a balancing of available assets and expected liabilities, that on the date of the transfer the grantor of the conveyance was unable to pay its debts as they became due. The most that can be said is that there is evidence that VU-TV may have been paying some debts, e.g. those to the bank, but not others, e.g. rent and wages, as they became due. I cannot say that, as a matter of law, that the state of VU-TV's finances amounted to insolvency for the purpose of determining that there was a fraudulent conveyance.
Not only is the question of insolvency one of fact, but whether "fair consideration" inhered in a conveyance is also generally a question of fact, In re Roco Corp., supra, at 981-982; Klein v. Tabatchnick, supra at 1047-1048; 4 Collier on Bankruptcy (15th Ed. 1982) para. 548.09 at 548-96 to 97. Since insolvency has not been established, the court need not reach the question of fair consideration, but because the parties have forcefully argued their respective views in regard thereto, it will be discussed.
Where a conveyance is supported by an antecedent debt, a grantee of that conveyance may support it when it is attacked as fraudulent by merely pointing to the antecedent debt as the consideration, provided the grantee acted in good faith in accepting it. Johnson v. Lentini, 66 N.J. Super. 398, 406, 169 A.2d 208 (Ch. 1961); Hersh v. Levinson Bros., Inc., supra at 133; Riverside Trust Co v. Dietrich, 112 N.J. Eq. 43, 45, 163 A. 275 (1932). It is a different case, however, where there is an antecedent debt owed by someone other than the grantor. See Annotation, Transaction in consideration of discharge of antecedent debt owed by one other than grantor as based on "fair consideration" under Uniform Fraudulent Conveyance Act, 30 ALR2d 1209. It is there stated, at 1210, that
No case within the scope of this annotation has been discovered wherein the court has upheld a transaction, the consideration for which was the discharge of an antecedent debt owed by one other than the grantor, as based on "fair consideration" under the Uniform Fraudulent Conveyance Act.
This principle applies not only with regard to a spouse's "conveyance" in consideration of the release of another spouse's debt, see, for example, Hollander v. Gautier, 114 N.J.E. 485, 489, 168 A. 860 (Ch.1933), and the mortgage of partnership property to pay a partner's debts; 30 ALR2d at 1212, but also with regard to a corporation paying the debt of another corporation. Although the case law in this area is sparse, it is more plentiful than the one case cited in the Annotation, supra, i.e. Bennett v. Rodman & English, 2 F. Supp. 355 (S.D.N.Y.) aff'd without opinion, 62 F.2d 1064 (2d Cir. 1932). There have been at least three more recent cases that stand for the proposition that a transaction, the consideration for which was an antecedent debt of a corporation owed by one other than the corporate grantor, was not supported by "fair consideration" under the Uniform Fraudulent Conveyance Act.
In In Re B-F Building Corporation, 312 F.2d 691 (6th Cir. 1963), an insolvent company named B-F owned certain real property, which it leased to Baird-Foerst, also bankrupt and a distributor of General Electric appliances. An individual named Baird was president of and held a controlling interest in both corporations. B-F owned premises occupied by Baird Foerst, but purchased a new site. Its checks in payment for the land were returned for insufficient funds. Baird-Foerst borrowed money from the Central National Bank and B-F defaulted on the land contract. Both companies became financially strapped and B-F decided to assist Baird Foerst by giving the bank from which the latter had borrowed a demand cognovit note for the sum borrowed. The note was endorsed by Baird and indicated that it was secured by the sale of B-F property. The District Court found, after both companies petitioned for bankruptcy, that the execution of the demand cognovit note was fraudulent because unsupported by consideration. B-F was found to owe a considerable sum to General Electric, which argued that payment of another's debt is a transfer without fair consideration. The Sixth Circuit agreed, citing, among other cases, Davis v. Hudson Trust Co., 28 F.2d 740 (3d Cir. 1928), a case involving a husband-wife fraudulent conveyance.
In Re B-F Building Corporation, Bennett, Davis, and Edward Hines W. Pine Co. v. First National Bank, 61 F.2d 503 (7th Cir. 1932), represent a line of cases that support the proposition that, while the agreement of a creditor to extend a debtors time for payment or forbear suing on a claim constitutes a "valuable" consideration for the promise of a third party to pay a debt, such valuable consideration is not synonymous with "fair" consideration under the statute. Rosenberg, supra at 256.
It might well be argued that the case at bar is similar to In Re B-F Building Corporation, supra, in that here VU-TV has attempted to affect a conveyance, consideration for which is not primarily a debt that it already owed MHT but, rather, debts owed by two related companies. The rule in In Re B-F Building Corporation and the other cases cited is a useful one in that it prevents insolvent corporations from preferring one creditor over another to an extent greater than their actual debt to the creditor preferred. This results in a more equitable distribution of the insolvent corporation's assets when creditors knock at the door of the troubled entity and militates against the insolvent corporation using its remaining assets for the benefit of related entities.
MHT distinguishes In Re B-F Building Corporation on two grounds: (1) that the debtor company was demonstrably insolvent at the time of the conveyance and (2) that the court's conclusion that fair consideration had not passed was premised on its finding that "the only thing the bank gave for [the debtor's] demand note . . . was an unsecured and probably worthless note of [debtor's related company]," while here a guarantee was given that cross-collateralized the loan with the corporation's assets. MHT relies upon what it calls the "identity of interest" rule found in In Re Royal Crown Bottlers of North Alabama, 23 B.R. 28 (N.D.Ala. 1982). There, the court held that an insolvent debtor receives "less than a reasonably equivalent value" when it transfers property for a consideration to a third party, but that
A clear distinction from this rule exists, however, if the debtor and the third party are so related or situated that they share an "identity of interests", because what benefits one, will in such case, benefit the other to some degree.