Jefferson County National Bank v. Townley — 38 N.Y.S. 584

Majority

p. 584

(92 Hun, 172.)

JEFFERSON COUNTY NAT. BANK v. TOWNLEY et al.

(Supreme Court, General Term, Fourth Department.

December 26, 1895.)

Headnote

Corporations—Judgment against by Officer’s Wife—Yaridity.

Under 3 Rev. St. (8th Ed.) p. 1729, § 4, forbidding any corporation which has refused payment of its notes or debts, or its officers, to assign or transfer property or choses in action of such company to any officer or stockholder, directly or indirectly, for any debt; and forbidding any transfer or assignment in contemplation of insolvency to any person or persons, judgments obtained by the wife of an officer of a corporation on claims of his against it, assigned to her by him at a time when its insolvency was known to both, are void.

The decision made at special term set aside a judgment in favor of Margaret A. Townley against the Eureka Chemical Company, recovered on the 8th of November, 1889, and another judgment, by the same party against the same

Appeal from special term, Onondaga county.

Action by the Jefferson County National Bank against Margaret A. Townley and Hugh C. Townley, impleaded with the Eureka Chemical Company, to set aside certain judgments obtained by defendant Mary A. Townley against the Eureka Chemical Company. There was a judgment in favor of plaintiff, and defendants appeal.

Affirmed.

p. 585

defendant, entered on the 29th of November, 1889, “and the executions issued upon said judgments, and the levies made thereunder by the sheriff of Onondaga county,” and awarded to the plaintiff the sum of $2,576, in the hands of the sheriff of Onondaga county, to be applied upon the judgment recovered by the plaintiff entered in Jefferson county September 2, 1892. The appellants were and are husband and wife, and each became a stockholder in the defendant corporation. On the 12th day of March, 1888, the female appellant executed a formal assignment of her 30 shares of stock to her husband. The full transfer of the stock on the books, and the issuance of the scrip therefor, were not completed. On March 21, 1888, the husband, in a letter to F. 0. Eddy, giving a list of the stockholders in the corporation, enumerated Mrs. H. 0. Townley as the owner of 30 shares of stock. On the 17th day of September, 1889, and subsequently Hugh C. Townley was a stockholder of the defendant corporation, and was secretary, treasurer, and manager of the company, and held claims for services and an indebtedness against the corporation, as well as for advances made; and the evidence seems to indicate that, after he and his wife knew of the insolvency of the corporation, they entered into a scheme to circumvent the provisions of the statute which prohibited him from acquiring, by transfer or otherwise, any of the assets in payment of his indebtedness by way of preference; and in consummation of that scheme formal assignments of his indebtedness to his wife were made, and actions were brought in her name upon the indebtedness against the corporation. The papers were served upon him as an officer of the corporation, and the fact of such service was kept secret until judgments were entered by default upon which executions were issued and levies made by the sheriff. The trial judge found, viz.: “The assignments of the claims against the Eureka Chemical Company made by the defendant Hugh C. Townley to the defendant Margaret A. Townley were made by the said Hugh C. Townley and received by the said Margaret A. Townley, having full knowledge of the insolvency of the Eureka Chemical Company, for the purpose of enabling the said Margaret A. Townley to obtain a judgment and lien upon the property of the Eureka Chemical Company, and for the purpose of avoiding and evading the statute providing that, whenever an incorporated company shall have refused the payment of any of its notes or other evidences of debt in specie or lawful money of the United States, it shall not be lawful for such company, or any of its officers, 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 to avoid the decisions of the courts under-such statute, and to create and obtain an illegal preference over the plaintiff and other creditors of the said defendant the Eureka Chemical Company." The evidence seems to support the findings of fact made by the trial judge.

Argued before HARDIN, P. J., and MERWIN and PARKER, JJ.

Louis Marshall, for appellants.

A. H. Sawyer, for respondent.

Plaintiff, having recovered a judgment against the Eureka Chemical Company, brings this action on the equity side of the court to obtain relief. The plaintiff alleges the invalidity of the judgments recovered by Margáret Townley, and asks the intervention of the court through the instrumentality of its equity powers. Braem v. Bank, 127 N. Y. 509 , 28 N. E. 597 . Section 4, tit. 4, c. 18, pt. 1, Rev. St. (8th Ed., vol. 3, p. 1729), was in force at the time of the occurrence of the transactions that are the subject of inquiry in this action. The evidence indicates that the corporation had refused payment of its notes or debts prior to the commencement of the actions by Margaret Townley, and therefore the prohibiting parts of the section were applicable to the corporation. That section of the Revised Statutes provides:

p. 586

“It shall not be lawful for such company or any of its officers to assign or transfer any of the property or dioses 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 insolvency to any person or persons whatever; and any such transfer or assignment to such officer, stockholder or other person, or in trust for them or their benefit, shall be void.”

The evidence makes quite manifest the scheme of Hugh Townley to so transfer his indebtedness against the company to his wife as to enable her to obtain a preference which he could not by the letter of the statute have or receive. We are called upon to determine whether such scheme can be successful or not. We think, under the construction that has authoritatively been given to the statute, that the efforts on the part of Hugh Townley and Margaret Townley to gain a preference over the other creditors by the means adopted should fail. Kingsley v. Bank, 31 Hun, 329 ; Throop v. Lithographing Co., 58 Hun, 149 , 11 N. Y. Supp. 532 , affirmed 125 N. Y. 530 , 26 N. E. 742 . While that case was under consideration in the general term of the First department, it was said:

“It seems to have been the intention of the legislature to prevent persons occupying confidential relations 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.”

In National Broadway Bank v. Wessell Metal Co., 59 Hun, 477 , 13 N. Y. Supp. 744 , the scheme pursued was condemned on the ground that unlawful means were used to effect a forbidden end. The means adopted in that case which were condemned consisted of a collusively confessed judgment, and a collusive execution “issued as a sham and returned as a sham, followed by sequestration proceedings founded upon these shams, instituted by the defendant company against itself, through its own counsel, all to effect the end of a practical transfer by the directors themselves.” In the course of the opinion delivered in Throop v. Lithographing Co., 125 N. Y. 531 , 26 N. E. 742 , Andrews, J., said:

“The construction given below is salutary, and in many cases will prevent frauds upon the statute which could not be proved.”

He then adverts to the question as it was presented and discussed in Kingsley v. Bank, 31 Hun, 329 , and approves the conclusion there reached. He further adds:

“We think a construction which disables an officer of an insolvent corporation from acquiring a preferential lien on the corporate assets by legal process is justified.”

In the case in hand we have the effort on the part of an officer, who had full knowledge of the insolvency of the corporation, to so transfer his claims to his wife, who is found to have had equal knowledge of the insolvency of the corporation, in order to circumvent the letter of the statute. The scheme was condemned by the special term, and the trial judge expressed his views in respect to the same in an opinion which is found in the appeal book in language which

p. 587

meets with our approval. The force of the opinion of the special term, and the views already expressed, lead to the conclusion that the judgment should be affirmed.

Judgment affirmed, with costs.

Cases cited

Throop v. Hatch Lithographic Co. 125 N. Y. 530 N.Y. 1891-02-24 p. 586