O'Brien v. East River Bridge Co.

Patterson, J.: This- action was brought by the receivers of the Madison. Square Bank to recover from the defendant a sum of money to which they claimed they- were entitled under the provisions of section 48 of the Stock Corporation Law (Laws of 1890, chap. 564, as .amended by •Laws of 1892, chap. 688), which reads as follows : “No corporation which shall have refused to pay any of its notes or other -obligations when due in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, ■ directors or stockholders, directly or indirectly, for the payment of •any debt, or upon any Other consideration than the full value of the-property paid in cash No conveyance, assignment or transfer of any property of any such corporation, by it, or by any 'officer, .director, or stockholder thereof, nor any payment made, judgment ■suffered, lien created or security given by it or. by any officer, director Or stockholder, when the corporation is insolvent or its — 19 — insolvency is imminent, with the intent of giving a preference to ¡any particular creditor over other creditors "of the corporation, shall ■be valid. Every person receiving, by means of any such prohibited .act or deed, any property of the corporation, shall be bound to account therefor to its creditors or stockholders, or other trustees. No stockholder of any such corporation shall make any transfer or .assignment of his stock therein to any person in contemplation of its insolvency. Every transfer or assignment, or other act done in violation of the foregoing provisions of this section, shall be void.” The material facts of the case are without dispute. On the 8th ■of August, 1893, the defendant was a depositor in the Madison Square Bank, and it had standing to. its credit on the books of the bank on that day the sum of $50,000. As to that amount, the ordinary relation of debtor and creditor, and no other, existed between the bank and the depositor. Oti the night of the 8th of August, 1893, it became known to Frederick Uhlman, a director of the Madison Square Bank and also .the president of the East River Bridge ■Company, that the bank was insolvent, or in imminent danger of insolvency, and that it would be closed the -.following day. Frederick Uhlman also knew that the S't. Nicholas Bank was the agent .•at the Clearing House of the Madison Square Bank, and that on the ■8th of August, 1893, the' St. Nicholas Bank had in its possession a large amount of securities belonging to the Madison Square Bank, and that it held such securities as collateral for any and all obligations as agent of the Madison Square Bank. He also knew that the ■St. Nicholas Bank had notified the Clearing House that it .would cease to act for the Madison Square Bank,, and that the St. Nicholas Bank, by the rules and regulations of the Clearing House, was responsible for all checks of the Madison Square Bank .that would be presented-at the Clearing House in the exchanges on the morning of the ninth of August. All this knowledge was acquired by Frederick Uhlman as a director of the Madison Square Bank. On.the night of August eighth Simon Uhlman, who was largely interested in the stock of the East River. Bridge Company, learned of the imminency of insolvency of the Madison Square Bank, and that it would probably be closed the following .morning. Thereupon .he caused a check to be filled up, drawn upon the Madison Square Bank for $50,000, and took it to the treasurer pf .the defendant at — 20 — Brooklyn,, where it was signed by such treasurer at about eleven o’clock at night. That being done, Simon Uhlman returned to. New York city with the check and handed it to Frederick Uhlman, who also signed it as president -of the East River Bridge Company, and retained it in his possession over night. Early on the morning of the ninth of August Frederick Uhlman took the check to the Hanover N ational Bank and ■ instructed the authorities of that bank to have it presented at the ClearingHouse that morning, so that it might be paid by the St. Nicholas-Bank in the exchanges -of that morning, and thus be credited to the East River Bridge Company, and a withdrawal effected of so much from the funds and moneys or securities of -the Madison Square Bank under the control of the St.- Nicholas Bank. The check was-.presented at and passed through the Clearing House, The East: River Bridge Company received a credit with the Hanover Bank, and thus the transfer of $50,000' was completely made from the-Madison Square Bank to the defendant: The Madison Square Bank was closed on the morning of the ninth of August, or, more properly speaking, 'was never opened for business after the eighth, and, went into insolvency. Under those circumstances, the receivers claim that' there was transferred by a director of the Madison Square Bank funds and moneys of that bank to a creditor, with the intent on the part of the director to give such creditor a preference, contrary to. the provisions of the statute such transfer being made when the bank was insolvent or its insolvency was imminent, and that the transfer was void and the defendant liable to account for the money. The issues in the action were referred to a referee to hear, try and determine. He decided that the complaint should be dismissed upon the merits. Upon such decision, judgment was rendered in favor of the defendant, and from that judgment the plaintiffs appeal. If the construction given by the learned.referee to section-48 of the Stock Corporation Law is the correct one, no other course could have- been justified underthe proofs than was taken by him in directing judgment for- the defendant, for, as he very properly states, if the transaction, the subject of inquiry in this case, amounted to an illegal preference, it must be solely because of the part taken by Frederick Uhlman in that, transaction. But we are not able to-adopt the referee’s interpretation of the statute. While it is one — 21 — that may be said' to be in derogation of the common law — for at the common law preferences were not illegal — yet it must be so construed that its purpose shall be attained and not subverted or thwarted. Statutes, like contracts, are to be construed ut res magis valeat quam jgereat, for that interpretation “ furnishes matter for every clause (and requirement) of the statute to work and operate upon.” The learned referee has considered that the interdiction of the statute applies only to ■ the corporation, or to the officers or directors acting.officially or as officers or directors. We do not think that is the proper construction, but, on the contrary, that the prohibition of the statute applies to individuals who stand in the various relationships mentioned to the corporation, and that no act of theirs or either of them shall be valid when it effects, directly or indirectly, a transfer of corporate property against the terms of the statute. The preposition “by,” as used in the 48th section of the statute in this connection, is equivalent to the phrase “ through the means, act or instrumentality of,” and that section may well be paraphrased so as to read: “ No conveyance, assignment or transfer of any property of any such corporation by it, or effected through the means, act or instrumentality of any one who is an officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it, or through the means, act or instrumentality of any one who is such officer, director or stockholder, when the corporation is insolvent or its insolvency is imminent, with the intent of giving preference to any particular creditor over other creditors of the corporation, shall be valid.” We do not think it is an essential condition that the director shall be acting officially as a director in making the transfer. An individual director cannot make an official transfer of assets of a corporation by any inherent authority derived from the mere fact of his being a director. The statute refers to a person being a director — (its words mean “ any one who is ”); and to hold otherwise would be merely saying that the words “officer” .or “director” are.utterly meaningless in the connection in which they are used. What the statute condemns is a conveyance or transfer effected in a particular way and with" a certain intent; not necessarily a corporate intent, but an intent of a person being an officer, director or stockholder to give a preference to any particular creditor over other creditors. It contemplates the — 22 — situation of officers, directors or stockholders having, by reason of their relation to the corporation, opportunities of transferring or assigning its property and assets in some way by which a preference-may be obtained by a creditor; and whether the acts are official or unofficial, it is the purpose of the statute to make them invalid., As'was said in Throop v. Hatch Lithographic Co. (58 Hun, 149), referring-'to one purpose of this section of the statute, “ It seems to have been-the intention of the Legislature to prevent persons occupying confidential relations towards corporations from either directly or indi-' rectly 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 corporatiorj to pay his particular debt.” That was said in a case in which a director of a corporation endeav-' ored to secure a preference to himself; but the same reasoning-applies, so far as the disability of the officer or director is concerned-He may not use the information or knowledge he acquires by reason of his confidential relation for his own benefit. By parity of rea-' soning, he may not use the knowledge or information he derives, from his confidential relationship for any purpose forbidden by the;' statute. Preferences to or by officers, directors or stockholders fall under the same condemnation. _ The ultimate purpose of the section is to secure the assets of the corporation for equality of distribution among its creditors; and to accomplish that object, any disposition of -those assets, or any part of them, made with the intent and under the circumstances mentioned in the statute, by any of the individuals standing in the relation to the corporation of those named in the; statute, is declared void. It remains to consider whether the acts of Frederick Uhlman were of such a character as to bring them within the operation of' section 48 of the Stock Corporation Law. It is urged in this, connection that the section does not apply to a banking corporation.. But that question was settled in this court by what was decided in' Hirshfeld v. Bopp (27 App. Div. 180). Frederick Uhlman’s dealing with the check after it was drawn establishes the intent. His; active agency in getting it paid from the funds of the bank in which — 23 — he was a director, by the unusual method of taking it on the ninth of August to the Hanover National Bank and inducing them to pass it through the exchanges, connects him with the transfer of the Madison Square Bank’s funds to jiay a creditor preferentially within the meaning of the statute. Whether it was his scheme or not he executed it. He caused the transfer of those moneys to be made. It is entirely immaterial by what method the transfer was effected, if it were such as matter of fact. The act took so much of the Madison Square Bank’s money and passed it over to a simple creditor — and that was done by a person who was a director of the Madison Square Bank, knowing of the insolvency of the bank and with the intent to give a preference. That act defines itself. Here, then, was the case of a director of the Madison Square Bank using his knowledge (not only of the actual or impending insolvency of that bank, but of the fact that the St. Nicholas Bank had a large amount of the securities of the Madison Square Bank; of the fact that whatever checks drawn on the Madson Square Bank should go through the Clearing House on the morning of the ninth of August would be paid ; of the fact that the St. Nicholas Bank could indemnify itself for the payment of those checks, and of the fact that the $50,000 check thus drawn and presented out of the due course of business would be paid) in such manner as to secure a preference to the East River Bridge Company, and intending that the assets of the Madison Square Bank should be proportionally depleted. This result would not have been accomplished but for the acts of a director of the Madison Square Bank. Frederick Uhlman obtained his knowledge as a director of the Madison Square Bank, and unless we are altogether wrong in the interpretation of the statute, and in our understanding of what its purpose is, the East River Bridge Company is not entitled to hold the money as against, the plaintiffs. The judgment must, therefore, be reversed and a new trial ordered, with costs to the appellants to abide the event. Van Brunt, P. J., O’Brien and McLaughlin, JJ., concurred; Ingraham, J., dissented.