Caesar v. Bernard

Lehman, J. The plaintiffs, judgment creditors of the -' Wyclcoff Trading Company, have brought' an action against [225] directors of that corporation for alleged violations of section 66 of the Stock Corporation Law in that they made conveyances, assignments and transfers of property of the corporation while it was insolvent or its insolvency was imminent with intent to prefer particulars creditors. Three of the defendants moved for judgment on the pleadings. The plaintiffs appeal from the orders granting these motions. The complaint fails to allege and the plaintiffs do not claim that at the time of the alleged preferences the corporation had refused to pay any of its notes or other obligations, but they rely upon the' second sentence of section 66 of the Stock Corporation Law which provides that “ 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 of the corporation shall be valid,” etc. It is the contention of the plaintiffs that a violation of this sentence occurs whenever a preference is given when a stock corporation is insolvent or its insolvency is imminent regardless of whether the corporation had refused to pay any of its notes when due. The difficulty with plaintiffs’ contention is that this sentence does not provide that no corporation or its officers may give a preference to particular creditors but provides only that no “ such ” corporation or its officers may do so. The word “ such ” can refer only to corporations of the class previously referred to and the only class of coiporations previously referred to is corporations which shall have refused to pay any of their notes or other obligations when due. Consequently, we can give the statute the construction placed upon it by the plaintiffs only if we entirely disregard the word “ such.” The plaintiffs argue that we have a right to disregard this word because the Stock Corporation Law was not intended to change the general policy of the state which by earlier statutes had provided against any insolvent corporation making any assign [226] ment with intent to prefer particular creditors. It is true that the statutes of this state since the enactment of chapter 325 of the "Laws of 1825 had provided against such preferences. The earlier statutes, however, differed in a material point from the statute under consideration. They merely provide a convenient means to enforce the rule recognized in equity that the capital of a corporation is a trust fund for all its creditors, hut they did not provide for a personal liability on the part of officers or stockholders concerned in such illegal transactions. Moreover, though the courts found it necessary to give a liberal construction to the language of the earlier statutes in order to effectuate what they conceived was the purpose of the legislature, such construction did not violate the language of the statute. In this case if we seek to effectuate what was perhaps the intent of the "legislature, we must construe a statute which provides for a liability not recognized by the common law, not only liberally but in disregard of all rules of grammatical construction. It is time that in the case of O’Brien v. East River Bridge Co., 36 App. Div. 17, the Appellate Division of this Department, Ingraham, J., dissenting, held that the word “ such ” could be disregarded. That case was, however, reversed by the Court of Appeals (161 N. Y. 539), and, though the reversal was placed squarely upon other grounds, still the majority opinion stated that: “ The statute in terms seems to apply only to corporations ‘ which shall have refused to pay any of its notes or other obligations when due, in lawful money of the -United States,’ ” and that without a finding of such a fact there is much difficulty in applying this statute even to a case where the payment was made to an officer or director. Since the Oourt of Appeals rendered that decision, I have been unable to find a case where any appellate court has granted relief under the statute without a finding that the corporation had refused to pay any of its notes or other obligations. I think, therefore, that regardless of our own views as to the probable legislative intent we must hold that the statute applies only to “ such ” corporations as have failed to pay their notes or other obligations. [227] The orders should he affirmed, with ten dollars costs and disbursements, with leave to appeal to the Appellate Division. Seabury and Page, JJ., concur. Orders affirmed, with ten dollars costs and disbursements, with leave to appeal to Appellate Division.