French v. Andrews

Judgment appealed from affirmed with costs, on the opinion of Yeoman, J., at special term.

The opinion of Mr. Justice Yeoman at special term is as follows :

Upon September 17, 1891, this defendant recovered judgments against James Vick, Seedsman, a business corporation of this city, located at Eochester.' The same day the sheriff levied under executions issued upon these judgments upon the personal property of the corporation. Upon the next day this plaintiff was

. This statute is substantially the same as the one for which it was substituted. 1 Bev. St. p. 603, § 4. There are two things essential in order to make it operative,—there must be a transfer or assignment of property, and this must be done in contemplation of the insolvency of the corporation.- “Insolvency” has been differently defined in different courts. By some it is said to be a condition in which the value of the assets is less than the amount of liabilities. By others it is said to be a general inability to pay obligations as they became due in the regular course of business. Many a business is at times insolvent according to the first of these uses of the word, although it is prosperous, and no one thinks for a moment that any necessity will arise for applying its property to the payment of its liabilities by process of law. There is no necessity for the law to interpose in behalf of its creditors so long as the corporation is able to meet its obligations promptly. The use of this word in the-statute under consideration is the latter use. Brouwer v. Harbeck,, 9 N. Y. 589 ; People v. Excelsior Gaslight Co., 3 How. Pr. (N. S.) 137. The statute is meant to apply when it becomes apparent to those assigning or transferring its property that the corporation is in the

It follows, therefore, that, if what was done was a transfer or assignment of the property of the corporation, these judgments are void. The doctrine that the assets of an insolvent corporation are a trust fund for creditors, and that all should share ratably therein, is not the law of this state. In this state an insolvent corporation may, if not restrained by its charter or by statute, apply its assets to the payment of its creditors, so as to prefer some to others. Coats v. Donnell, 94 N. Y. 168 . Equitable considerations, based upon the principle of equality among creditors in such a case,, cannot, therefore, be invoked to supplement the statute under consideration. The statute must operate according to its provisions, when, construed in the light of the legislative intent. The act prohibited is “any transferor assignment” of the corporate property, and, to' make these judgments void, the acts of the treasurer must be a, transfer or assignment of the property. Creditors of such corporations are not discouraged by the courts from obtaining such preferences as they may by diligence. Their right to do so, and the propriety of their doing so, are fully recognized. The- attempt by this statute was to limit the aid which the officers of a corporation might give to the same end. It is plain that this provision of the law was not intended to prohibit every act on the part of officers of such corporations which might enable, or tend to enable, a creditor to obtain a "preference. The words are not apt words for such a purpose. They are quite limited in their application. Moneyed corporations were not subject (1 Rev. St. p. 605, § 11) to this provision of law to which business corporations were subjected. But other concurrent statutes (Id. p. 591, §§ 8, 9) provide a similar restriction as to them, and, in addition thereto, that, in a like case, “ any payment made, judgment suffered, lien created or security given,” with intent to give a preference to a creditor, should be void. This must have been intended to restrict and control the action of such corporations to a greater extent, where preferences came in question, than business corporations were restrained or controlled under like circumstances. It is, however, equally plain that the restriction which was placed upon business corporations was, so far as it went, intended to restrict the giving of preferences by insolvent corporations. The question is, what is a “transfer” or “assignment” within the meaning of the act? In Kingsley v. First Nat. Bank, 31 Hun, 329 , it was held, where judgments were obtained against an insolvent corporation upon offers of judgment made by it to enable the creditor to obtain a preference, that the judgments and executions issued upon them were void. In this case the lien was acquired by the execution. There was no real estate upon which the judgment

Where, then, is the line to which the statute reaches, but beyond which it does not go ? The only one that it is practicable to establish is the one that the terms of the statute provides. The prohibited act must itself accomplish, or at least enter into, the actual transfer or assignment of the property. This view is sustained in the Varnum Case. In that case a creditor was enabled to obtain a preference by judgment and execution. This was accomplished by the officer of the corporation upon whom the execution was served, keeping, by agreement with the plaintiff, the fact of the pendency of the action from the knowledge of all others, including the other officers of the corporation. If this had not been done, the preference would have been prevented.

It follows that the judgments are valid.