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Creteau v. Foote & Thorne Glass Co.

FREDERICK A. CRETEAU, RESPONDENT, v. FOOTE & THORNE GLASS CO., JOHN V. B. CLARKSON, AS ASSIGNEE FOR THE BENEFIT OF CREDITORS OF FOOTE & THORNE GLASS CO., ET AL., APPELLANTS, AND OTHERS,

DEFENDANTS.

SUPREME COURT-APPELLATE DIVISION.-FIRST DEPARTMENT-OCTOBER TERM, 1900.

§ 1879.

Construction Section 48 Stock corporation law. General assignments by corporation, without preferences, for benefit of creditors.

A payment made by the officers of a corporation to creditors thereof in violation of section 48 of the Stock Corporation Law, does not invalidate an assignment, without preference, subsequently made by the corporation for the benefit of its creditors. A distinction must be made between a judgment creditor's action and an action brought by a judgment creditor in aid of an execution outstanding, to remove some obstacle to its enforcement. The latter action can be maintained where an execution is outstanding against the corporation, and where it by assignments or transfers of its property, has placed an obstacle in the way of the creditor enforcing the execution, and is not governed by the provisions of the Code relating to judgment creditors' actions.

(Decided October, 1900.)

Appeal from judgment entered upon decision of the court at Special Term.

J. K. Long for appellant.

Herbert Noble for respondent.

INGRAHAM, J.-The plaintiff in this action seeks to have set aside an assignment made by the Foote & Thorne Glass Company, a domestic corporation, for the benefit of creditors. The complaint alleges the recovery by the

Creteau v. Foote & Thorne Glass Co.

plaintiff of a judgment against the corporation; that execution was issued therein and returned unsatisfied, and at the time the execution was issued the corporation would have had within the County of New York sufficient property to pay and satisfy said execution, except for the wrongful and fraudulent acts interposed by it to prevent such or any payment or satisfaction of said judgment. The wrongful acts alleged were the appropriation of various sums of money by the president and vicepresident of the company and the payment of $1000 each to the other defendants who were relatives of the president and vice-president. The court found that on the 10th of December, 1897, a resolution of the directors was passed declaring that the corporation was unable to meet its debts and obligations, and that the said corporation was at that date and at all subsequent times insolvent; that a meeting of the creditors of the corporation. held on the 21st of December, 1897, at which the defendants Hislop and Colby, president and vice-president of the corporation, were represented by counsel, it was stated that if an extension of time was granted to the corporation they would secure additional capital with which to carry on the business of the company, and payment of all moneys due from the company to them would be deferred until such time as the creditors of said company who consented to said extension should be paid in full; that the said representations were relied upon and believed by a large number of the creditors of said company, including the plaintiff's assignor, and that in consideration thereof the said creditors accepted in payment of the moneys due them notes of said company indorsed by the defendants Hislop and Colby; that between the 8th of January, 1898, and the 18th of March, 1898, the corporation paid to the defendant Hislop various sums of money aggregating $3,296.62; and to the defendant Colby various sums of money aggregating $1,978.91, and

Creteau v. Foote & Thorne Glass Co.

that the said payments were made in violation of the said agreement; that the said company also paid to the defendant Elizabeth Hislop $1,000, and to the defendant Mary J. Colby $1,000; and that all of said payments were made at a time when the said corporation was insolvent, when it refused and was unable to pay its notes and other obligations when due, and were made with intent to hinder, delay and defraud the just creditors, including this plaintiff; that on the 18th day of March, 1898, said corporation executed an instrument in writing purporting to be a general assignment of all its property to the defendant Clarkson for the benefit of its creditors; that the said assignment was made by the corporation with intent to hinder, delay and defraud certain of its creditors, including the plaintiff, and that the said payments made by the said corporation to the defendants Thomas W. Hislop and Mary J. Colby constituted a collusive and fraudulent scheme or plan to so delay, defeat and defraud the just creditors of the said corporation, including the plaintiff; that the action was not brought under the provisions of the Code of Civil Procedure relating to judgment creditors' actions, but under "the established rules of equity"; and the judgment was entered declaring the assignment void, requiring the assignee to account for and deliver to a receiver therein appointed all property and proceeds of property and money received by him as assignee; and that the assignee account before a referee appointed by the judg ment; that the defendants to whom the various sums of money had been paid repay the same to a receiver and that the receiver pay the plaintiff's judgments in full, and hold the balance of the property coming in his hands subject to the further order of the court.

It appeared from the evidence, and was not contradicted, that the corporation was indebted to the various persons named the sums that were paid to them that

Creteau v. Foote & Thorne Glass Co.

as to the defendants Elizabeth Hislop and Mary J. Colby such indebtedness arose from loans made to the company after the meeting of the creditors before referred to. The assignment was without preference, and the assignee was required to distribute the property of the corporation coming into his hands among the creditors of the corporation equally. We will assume that the payments made to the various creditors of this corporation were void under section 48 of the Stock Corporation Law. The question is then presented whether a payment made by the officers of a corporation in violation of this statute invalidates an assignment without preferences subsequently made by the corporation for the benefit of its creditors. By this action the plaintiff attempts to obtain a preference in the payment of its debts over that of the other creditors of the corporation. By section 48 of the Stock Corporation Law a corporation and its officers are expressly prohibited from suffering a judgment to be ob tained against it or from giving a lien or security with intent to give such a preference, and the whole policy of the law relating to insolvent corporations is to prevent one creditor from obtaining any preference as against the other creditors. To sustain this judgment would thus violate this provision of law relating to domestic corporations. It has been settled that this statute does not prevent a general assignment for the benefit of creditors by a corporation without preference (O'Brien v. East River Bridge Co., 161 N. Y., 549), and it cannot be said that such a general assignment, without preference, made by a corporation is void because the officers of the cor poration prior to the assignment have made payments in violation of the provision of the Stock Corporation Law to which attention has been called, but for which law the payments would have been valid. They were made to discharge existing obligations of the assignor, and there was nothing fraudulent in the corporation paying its

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Creteau v. Foote & Thorne Glass Co.

debts. There is no allegation or finding that the corporation itself authorized these payments. To justify a court in setting aside a general assignment on the ground that it was fraudulent and void as against creditors there must be proof that the intent with which the instrument was executed by the assignor was fraudulent. Where the corporation is an assignor, such fraudulent intent cannot be predicted solely upon unauthorized and illegal acts of its officers where the act is not for its benefit, or in the transaction of its business, or under authority from the corporation, and where the act complained of is a direct violation of the duty of the officers and prohibited by law. Here the corporation did no act which would indicate an intent to hinder, delay and defraud creditors; and there was nothing to show that the official act of the corporation in making an assignment had any relation to the unlawful appropriation by the officers of the corporate property. The Code expressly provides that the article in relation to judgment creditors' actions shall not apply to a case where a judgment debtor is a corporation created by or under the laws of this State (sec. 1879); and it would be, I think, a violation of the spirit of the law, if not its express provision, to allow a judg ment creditor's action to be maintained so as to appropriate all the property of the corporation to pay the indebtedness of one particular creditor, and thus create the very preference that the statute expressly prohibits. The provision of section 48 of the Stock Corporation Law requiring every person receiving any property of the corporation by means of any act there prohibited to account therefor to its creditors or stockholders or other trustees does not justify a particular creditor in commencing an action by which he can appropriate such payments to the discharge of his individual debt in preference to the other creditors. The evident intent of this statute was for the benefit of all the creditors and to be

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