Lodi Chemical Co. v. Charles H. Pleasants Co.

Cohen, J. The defendant, the Charles H. Pleasants Company, was, in the year 1896, engaged in business in the city of New York and amongst its creditors, at that time, was the defendant, the National Lead Company. On the fifth day of August in that year the Pleasants company made its promissory note for $4,50-0', payable on demand to the defendant, the National Lead Company, which note was signed by Charles H. Pleasants, president, and by Charles E. Meek, treasurer, the latter being also the credit clerk in the employ of the lead company. On the same day payment of the note was demanded and refused and an action was then commenced, on the note, in the Supreme Court in the county of Rockland, and therein judgment was taken by default on the 27th day of August, 1896. At the time the note was delivered it was agreed that the judgment should be entered in Rockland county so that other creditors of the Pleasants company should be kept in ignorance of the judgment; it was also understood that the lead company should have a preference over other.creditors. The Pleasants company with the financial assistance of the lead company continued in active business until April, 1897, when the creditor company, being unwilling to advance any more funds, filed a transcript of the judgment in this county. The execution, thereupon issued, was in part returned unsatisfied and then the lead company brought an action for the sequestration [99] of the property of the Pleasants company, in which action the defendant Nelson was appointed receiver of all the property of the judgment debtor. The plaintiff, a judgment creditor of the Pleasants company at the time of the commencement of this action, asks that the judgment of the 27th of August, 1896, be set aside and the order appointing a receiver be vacated, that another receiver be appointed and that the lead company, as well as the receiver, account for the property of the Pleasants company which came into their possession. The plaintiff bases its cause of action on a violation of that part of section 48 of the Stock Corporation Law which reads as follows: “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 insolvency is imminent with the intent of giving a preference to any particular creditor over other creditors shall be valid.” From the facts already recited (and hereby found) it is established that a judgment was suffered by the Pleasants company with an intent to give a preference to the lead company. The only other element necessary to the establishment of the plaintiff’s cause of action is the actual or imminent insolvency of the Pleasants company,-on the 27th of August, 1896, when the judgment was entered. At the last-mentioned date the Pleasants company was insolvent or its insolvency was imminent, within the legal definitions of the term insolvency. The authorities both in the United States courts and the courts of this state have declared insolvency under the bankruptcy laws and acts of like character to be a “ present inability to pay current obligations as they mature.” Hayden v. Chemical National Bank, 84 Fed. Repr. 874; Ferry v. Bank of Central New York, 15 How. Pr. 445, at p. 451. One of the current obligations of the Pleasants company was the note of $4,500, payable on demand on the 5th day of August, which was not paid and upon which judgment was entered; and from the evidence it is clear that other obligations were due on or before that date which were not then or ever subsequently paid; its bank account was overdrawn both before and after the day when the note was given; on that very day the lead company loaned the Pleasants company $1,000, and on many occasions during the years [100] 1896 and 1897, loans were made to the Pleasants company for which it assigned outstanding accounts as security of the face value, in some.instances, of 33 1/3 per cent, over and above the amount of the loan. It is contended by the lead company that under section 48 of the Stock Corporation Law the term insolvency means the inadequacy of the property of the Pleasants company to pay its debts. Curtis v. Leavitt, 15 N. Y. 9, at p. 140, where a similarly worded statute was under consideration; Van Riper v. Poppenhausen, 43 N. Y. 68, at p. 75; Baily v. Hornthal, 154 id. 648, at p. 659. In this sense it seems the term is used when the validity of the debtor’s transfers is vested by the law governing fraudulent conveyances. Within either definition, the testimony produced before me at the trial, some of which has been summarized, is sufficient to warrant a finding of insolvency. In support of the proof of solvency as last defined the defendant, the lead company, claims that the sworn reports made by the Pleasants company in January, 1896, and 1897, show the assets to be in excess of the liabilities. This is true, but the entire testimony of the witness Pleasants, the president of the company, who made these reports tends, to show that he was himself deluded as to the value of the company’s assets. Heliance is also placed on the fact that eight months elapsed between the date of the judgment and the issuance of execution, during which time the debtor paid some of its current obligations; but it appears that no unexpected and unforeseen contingencies arose in the interim; indeed it is expressly proven that there was no material change in the assets of the company from August, 1896, to April, 1897, when the sale under the execution realized $2,819.75. This sum, coupled with the value of the assets in the hands of the defendant-receiver, was wholly inadequate to pay the liabilities as they existed on that day or in' the preceding August, when they were in excess of $21,000. Some time after the case was closed the plaintiff asked leave to introduce evidence from the books of the Pleasants company; such leave was granted and testimony was offered by both parties as to the contents of these books. The proof thus attempted to be made was unsatisfactory and unconvincing. If any weight is given to it, it only serves to confirm the views expressed. The plaintiff is entitled to the relief sought. Judgment for plaintiff.