Throop v. Hatch Lithographic Co. — 11 N.Y.S. 532

Majority

p. 532

Throop v. Hatch Lithographic Co.

(Supreme Court, General Term, First Department.

October 24, 1890.)

Headnote

Corporations—Officers—Rights against Company. .

Under 1 Rev. St. N. Y. c. 18, tit. 4, § 4, forbidding a corporation or its officers, when it has refused payment of its debts, “to assign or transfer any of the property or choses in action of such company to any officer or stockholder of such company, directly or indirectly for the payment of any debt, ” a trustee of such a corporation cannot, as a creditor, maintain an attachment against its property, even though he has not been active as a trustee, and his co-trustees have conspired to defraud him and other creditors. Following Kingsley v. Bank, 31 Hun, 329 .

Appeal from special term, Hew York county.

Action by Enos T. Throop against the Hatcli Lithographic Company. From an order vacating a warrant of attachment obtained by plaintiff against defendant’s property, plaintiff appeals. Rev. St. N. Y. pt. 1, c. 18, tit. 4, § 4, (volume 2, 7th Ed., p. 1534,) provides as follows: “ Whenever any incorporated company shall have refused the payment of any of its notes, or other evidence of debt, in specie, or lawful money of the United States, it shall not be lawful for such company, or any of its oilicers, to assign or transfer any of the property or choses in action of such company to any officer or stockholder of such company, directly or indirectly for the payment of any debt; and it shall not be lawful to make any transfer or assignment in contemplation of the insolvency of such company, to any person or persons whatever; and every such transfer and assignment to such officer, stockholder, or other person, or in trust for them or their, benefit, shall be utterly void. ”

Argued before Van Brunt, P. J., and Brady and Daniels, JJ.

Page & Taft, for appellant. J. H. Rogan and H. F. Lawrence, for respondent.

The plaintiff was a trustee and stockholder of the defendant company, which, for many months prior to the application for the attachment in question, was hopelessly insolvent, and, being a creditor of the corporation, commenced this action, and obtained an attachment against the defendant upon the ground that it had unlawfully assigned, disposed of, and secreted its property, and was about to unlawfully assign, dispose of, and secrete its property, with intent to defraud its creditors. A motion was made to vacate this attachment upon the ground that the plaintiff, being a stockholder and trustee of the company, could not secure a preference over the other creditors in the payment of his debt; which motion being granted, from the order thereupon entered this appeal is taken.

The question involved in this appeal was clearly decided in Kingsley v. Bank, 31 Hun, 329 . It is urged that the language of the court in that case was more sweeping than was necessary to dispose of the questions there involved, and that it cannot be regarded as controlling the decision herein, because Riggs was a director and stockholder, and presumably an active one, and that it did not appear that he had any opposition in the board of directors, and that no defense was interposed to his suit, and judgment was entered by default. In the case at bar, it is claimed that the plaintiff was not' an active trustee, and had no influence with the other trustees; that three months before he obtained his attachment he urged his co-trustees to take steps to put the company in the hands of a receiver; that during this time he did nothing to secure his debt, and in the mean time the other trustees were conspiring to defraud him and the other creditors, the company being at the time entirely insolvent, having refused the payment of its debts; and finally, the plaintiff having brought suit and obtained his attachment, the trustees put in an answer, although they allowed all other, suits to go by default. The claim of the counsel therefore seems to be that, because a trustee is not active in the management of the company, therefore the disabilities attach

p. 533

ing to his office do not prevail, and also, because his co-trustees are committing frauds upon the creditors in violation of the provisions of the statute, that the statute becomes inoperative as to him. We fail to see that this condition of affairs makes any difference between the position of the plaintiff in this action, and the plaintiff in the case cited. That the mere fact of acquiescence upon the part of directors in allowing judgments to be taken by default is not a fraud under the statute is,distinctly determined by the court of appeals in the case of Varnum v. Hart, 119 N. Y. 101 , 23 N. E. Rep. 183 . The disability to seize upon the assets of a corporation attaches upon the office of trustees or officers of the corporation; and, while an officer may bring his action against the corporation for the purpose of securing an equal division of the assets among the creditors of the corporation, he cannot use any judgment obtained by him in such an action for the purpose of obtaining a preference in the payment of his own debt. The courts have construed the provisions of the statute according to the intention of the legislature, and not according to its strict language. It seems to have been the intention of the legislature to prevent persons occupying confidential relations towards corporations from either directly or indirectly profiting by the information which they may have acquired because of their relation to the corporation, and which information they could use to the detriment of the general creditors of the corporation. Therefore-, it has been provided that, where a corporation is insolvent, an officer of such corporation shall be unable to take any of the property of the corporation to pay his particular debt. The malfeasance of his co-trustees does not remove the disability under which he rested because of being a trustee, nor does it repeal the statute; and, whatever hardships the plaintiff may have been compelled to submit to, they afford no ground for the violation of the salutary rule which has so long prevailed. The order should be affirmed, with costs. All concur.

Cases cited

Varnum v. Hart 119 N. Y. 101 N.Y. 1890-01-14 p. 533