Munson v. Genesee Iron & Brass Works

WARD, J. The learned counsel for the appellants present the question upon this review whether the plaintiff acquired such an interest her in the tort action, which was rendered aftei [147] the execution of the chattel mortgages, as will entitle her to participate in the fund that resulted from the sale of the mortgaged property, and which the judgment in this action directs should be recovered from the defendants. It is contended that she was not a creditor of the Genesee Iron & Brass Works at the time of the execution and delivery of the mortgages, and consequently has no standing whereby she can participate in the fund. This case must be governed by section 48 of the general corporation law (chapter 564, Laws 1890), which is 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 assign any of its property to any of its officers, directors, or stock-holders, directly or indirectly, for the payment of any debt; and no officer, director or stock-holder thereof shall make any transfer or assignment of its property or of any stock therein to any person in contemplation of its insolvency. And every such transfer or assignment to such officer, director or other person or in trust for them or their benefit shall be void.” The condemnation of this statute which reaches this case consists in making void any transfer or assignment of its property, or of any stock therein, to any person in contemplation of its insolvency. The statute is silent as to who can attack this transfer. It is fundamental that the plaintiff must have some right or interest in the property which he seeks to recover in an action. He may be a contract creditor, and if his claim is founded on a tort, and its amount was undetermined at the time of the transfer, he is in a position, after having obtained judgment for the damages resulting from the tort, to attack the transfer, and share in the property of the corporation. Kain v. Larkin, 4 App. Div. 209, 210, 38 N. Y. Supp. 546, and cases there cited; Olney v. Land Co., 16 R. I. 597, 18 Atl. 181. In the last case cited, A. brought an action against the corporation for injuries resulting from the negligence of the corporation. Pending the action, the corporation, then insolvent, mortgaged its property to its directors for moneys advanced. A., after having recovered judgment, levied on the corporate property, and filed a bill in equity to set aside the mortgage. Held, that A. was entitled to have the mortgage declared void, as against him. Speaking of the company’s liability for tort, the court says: ‘We fail to see that it was any less the duty of the directors to protect these liabilities of the company than those arising upon contract.” In Marstaller v. Mills, 143 N. Y. 398, 38 N. E. 370, it was held that a cause of action against a domestic business corporation, created by its negligence, could be maintained against the trustees holding corporate property for the purpose of distribution, and that the word “creditors” include all those to whom the corporation was under any enforceable obligation at the time of its dissolution as well as those to whom it was indebted. It follows, therefore, that, assuming that the statute cited is to be construed only as applying to creditors of the corporation, the plaintiff comes within that description. The learned counsel for the appellants cite Esmond v. Bullard, 16 Hun, 65, Crouch v. Gridley, 6 Hill, 250, Campbell v. Perkins, 8 N. Y. 438, and kindred cases, as sustaining their contention. These cases [148] arose under bankruptcy acts or other statutes which expressly relate to the proving or payment of debts; and the courts held that a claim in tort was not, strictly speaking, a “debt,” within the purview of those statutes. The Esmond Case was affirmed in the court of appeals (79 N. Y. 404), but upon other grounds; that court declining to decide this question. The assets of a corporation are a trust fund for the payment of its debts and obligations, upon which its creditors have an equitable lien, both as against the stockholders and all transferees except those purchasing in good faith and for value. Cole v. Iron Co., 133 N. Y. 164, 30 N. E. 847. This case answers the contention of the banks and of Mr. Stull that they should be permitted to hold the funds received by them because their claims were founded upon contracts entered into before the transfers or mortgages were executed, and were just and equitable. They were not mortgagees in good faith; that is, they knew that the corporation was insolvent, and that it was making the transfer of its property to them in contemplation of its insolvency. Salt v. Ensign, 79 Hun, 107, 29 N. Y. Supp. 659; Bank v. Townley, 92 Hun, 172, 38 N. Y. Supp. 584; Cole v. Iron Co., supra. But it is said that the statute does not apply unless the transfer is fraudulent as to creditors, which the referee has not found nor the proofs disclosed; that the creditors were simply seeking to recover just debts, which they were entitled to do as vigilant creditors. This -contention is answered in Kingsley v. Bank, 31 Hun, 335, where Judge Barker says: “The statute declares the assignment or transfer void in case the same is -made in contemplation of Insolvency. The question to be determined is not •one of fraud, or of any intent on the part of the creditor to obtain a prefer•ence in the payment of his debt; but the simple inquiry is, was there actual •or contemplative insolvency and a transfer of property for the benefit of •creditors? If both these facts are established, then the transaction is void,” —citing many cases. And Judge Finch says in Cole v. Iron Co., supra, at page 168, 133 N. Y., and page 848, 30 N. E.: “The transfer was illegal, also, because made in contemplation of insolvency. Those who accomplished it knew that its necessary and inevitable effect would be to make the corporation unable to pay its debts, and must be held to have intended that consequence by their acts. I do not agree to that reading of the statute which limits its prohibition to cases in which payment of some note or obligation has been previously refused. An interpretation so narrow would seriously maim and distort the obvious purpose of the statute, and make a transfer in contemplation of insolvency good the day before a note matured and bad the day after.” It is further claimed that the statute itself does not apply; that it only relates to a transfer made by an officer, director, or stockholder of the corporation, and not the corporation itself. This view is too narrow (as Judge Finch said in construing another part of this same section), and is not warranted by the purposes of the statute or the evils it sought to remedy. A transfer of corporate property is never made, strictly, by that intangible thing, the corporation, but must, of necessity, be made by its officers and its agents, executed under the forms of law, as was done in this case. Manufacturing Co. [149] v. Harrison, 73 Hun, 528, 26 N. Y. Supp. 109; Harris v. Thompson, 15 Barb. 64. . An exhaustive and learned opinion by the referee, reviewing the facts and the law in this case, has afforded us great assistance in reaching our conclusion, and we concur in that opinion, except we should say that, in the record before us, section 48 of the corporation law is not correctly .quoted in that opinion, probably an inadvertence. The judgment appealed from should be affirmed, with costs. All concur.