Summary
In Lopez v. Merchants Farmers' Nat. Bank (18 App. Div. 433) the evidence disclosed "that a scheme existed to facilitate, as well as effectuate, a desire on the part of the corporation favorable to giving preferences to Campbell on the indebtedness held by him against the corporation."
Summary of this case from Spellman v. LooschenOpinion
June Term, 1897.
Rose Putzel and David Hays, for the plaintiffs.
John F. Parkhurst, for the defendant Campbell.
Doubtless the decision filed was in virtue of section 1022 of the Code of Civil Procedure, which authorizes the court to "state separately the facts found and the conclusions of law, and direct the judgment to be entered thereon, or the court or referee may file a decision stating concisely the grounds upon which the issues have been decided, and direct the judgment to be entered thereon, which decision so filed shall form part of the judgment roll." It seems that the trial judge assumed to follow the second provision of this section of the Code. However, an inspection of the decision does not reveal that the court stated "concisely the grounds upon which the issues" were decided as to Campbell and Rowe. There are only the general words found in the decision to the effect that the complaint as to them be dismissed. In the absence of the grounds being stated, as to them we have looked into the evidence and find considerable evidence that would have sustained the plaintiffs' complaint against Campbell and Rowe.
Rowe was the attorney who obtained the judgment in behalf of the two banks, who have discontinued their appeal, and apparently he had the same information that the banks had at the time they secured their judgments, which, upon the findings made by the trial judge, have been declared to be unlawful preferences. The evidence disclosed that when the settlement in August, 1894, of the Lighton claim, on which the company only received $2,300, was known, the fact was communicated to Campbell, and thereupon he began to press for the payment of his claims.
Reynolds, one of the directors, and its secretary and treasurer, testified that, when the settlement with Lighton was made, the condition of the company appeared to be hopeless, and that it would be unable to go on in business unless it could raise some additional capital. The same fact seemed to have been known to all the directors, and several steps were taken with a view of protecting some of the favorite creditors by sales of property in an unusual manner; and the acts, doings and desires of the company were so conspicuous in that direction that the knowledge thereof must have been possessed by the defendant Campbell prior to commencing the actions in which he recovered judgments. The notes of the company, some of them, had gone to protest, and several notes in renewal or extension were issued by the company after they had been sued, with a view of keeping in abeyance the creditors to whom they were delivered. At the time of the settlement of the Lighton claim, and thereafter, Campbell held notes indorsed by the directors of the company; and there is some evidence tending to show that he was co-operating with the other banks in efforts to obtain advantages in respect to the assets of the insolvent corporation. Reynolds, the director, secretary and treasurer of the corporation, went to Bath, and while he was there he was served with summons and complaint in one of Campbell's suits, though his testimony is somewhat vague as to whether he went to Bath for the purpose of being served or not; and, during the month of November, he arranged to give a chattel mortgage to Campbell on his property and to have it foreclosed and the property turned over to Reynolds' wife. About the same time Reynolds arranged to transfer his real estate to his wife, and at that time he testifies that Campbell was suffering an overdraft, and that the company had overdrafts at Campbell's and the Dansville banks in 1894.
Considering all the circumstances disclosed in the testimony, it is quite apparent that the company and its directors were willing to facilitate Campbell's obtaining judgments upon debts for which the several directors were liable to him as indorsers, and that a scheme existed to facilitate, as well as effectuate, a desire on the part of the corporation favorable to giving preferences to Campbell on the indebtedness held by him against the corporation.
It appears by the judgment roll in Rowe's case that his claim, upon which he recovered, was for services rendered "at the request of the said defendant (corporation) within two years last past." The defendants Campbell and Rowe were in the attitude of insisting that they had liens upon the goods of the corporation in virtue of their judgments at the time this action was commenced. To test the validity of such liens it was appropriate that they should be made defendants in this action to the end that the claim which they set up to the goods might be adjudicated.
Inasmuch as the trial judge has made no findings of fact relating to them, we have looked into the evidence and come to the conclusion that the judgment dismissing the plaintiff's complaint as to Rowe and Campbell, with costs, should be reversed.
There is no express finding that the judgments in favor of Campbell and Rowe were valid, nor that their several executions created a lien upon the fund in the hands of the sheriff as against the plaintiffs.
(2) This action was brought by the plaintiffs after they had secured a lien in virtue of their attachment upon the property of the corporation, and to prevent the property from being applied upon judgments, as to them, fraudulent. The plaintiffs had become, "in a certain sense, invested with the privileges of a creditor whose debt has been adjudged valid, and who finds himself embarrassed in its collection by the fraudulent conduct of the debtor."
In the case of People ex rel. Cauffman v. Van Buren ( 136 N.Y. 260) the point presented was "of the right of an attaching creditor to prevent the application of the attached property to the payment of a prior lien." And it was said in that case "it must be apparent that, unless such a right exists, the remedy by attachment will be lost in many cases. The sheriff must sell the property under the prior executions and apply the proceeds to their payment, and the plaintiff would be in no better condition than if his attachment had not issued. It would seem to be illogical to accord to the plaintiff the right to attach property fraudulently transferred, as he concededly may, under the decisions in Hall v. Stryker and the other cases cited above, and yet deny him the right to have the lien preserved until he can merge his claim in a judgment and issue final process for its collection. No adequate remedy at law can be suggested in such a case. The jurisdiction of a court of equity to reach the property of a debtor justly applicable to the payment of his debts, even where there is no specific lien, is undoubted. It is a very ancient jurisdiction, but will be exercised only when special circumstances exist, requiring the interposition of the court to obtain possession of and apply the property. Such circumstances, we think, are shown to exist here. The case would be different if executions had not been issued upon the fraudulent judgments. The mere existence of a fraudulent transfer would not be sufficient to authorize a court of equity to entertain an action at the suit of an attaching creditor to set it aside. But when it is sought to make use of such a transfer for the purpose of removing the attached property from the jurisdiction of the officer who has it in his custody, it is evident that nothing but the equitable arm of the court can prevent the consummation of the wrong."
We think that, under the principles laid down in the case to which we have just adverted, the plaintiffs were authorized to maintain this action with the view of removing the fraudulent obstructions upon the property of the corporation which would prevent their realizing upon their attachment. ( Home Bank v. Brewster Co., 15 App. Div. 342. )
Section 48 of the Stock Corporation Law (Chap. 564 of 1890, as amended by chap. 688 of 1892) applies to The Cohocton Valley Cigar Company (Limited). In that section it is provided, viz.: "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 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."
We think the section was properly applied by the trial judge in condemnation of the judgments recovered by the defendant banks.
In French v. Andrews ( 145 N.Y. 445) reference was made to the statute which we have quoted, and it was said: "The statute has now been changed so that it is no longer permissible to suffer a judgment to be recovered against a corporation of this kind."
The statute has received a judicial construction in numerous cases, and we think the authorities now fully sustain the conclusion reached by the trial judge in condemning the judgments which he declared to be fraudulent. ( Baker v. Emerson, 4 App. Div. 348; Olney v. Baird, 7 id. 96; Milbank v. de Riesthal, 82 Hun, 537; Illinois Watch Co. v. Payne, 11 N Y Supp. 408; Braem v. M.N. Bank, 127 N.Y. 508.)
The statute expressly authorizes an accounting to be had in favor of the corporation's creditors by every person who received any property of the corporation "by means of any such prohibited act." ( McQueen v. New, 87 Hun, 206.) The adjudication is, that the judgments condemned were fraudulent and void as against the plaintiffs, and that the filing of the plaintiffs' bill gave them a lien upon the property superior to those judgments.
There is no adjudication that the judgments condemned, as against the judgment of Campbell, were void or ineffectual. So far as Campbell's judgments are concerned, they may be said to remain in force, and that being so, there was not money enough realized by the sale, nor does there money enough remain from the proceeds of the sale, to inure to the benefit of Campbell's judgments. His judgment and execution failed to secure to him a lien upon the property, inasmuch as the prior liens which were valid as to him, he having joined in an answer asserting their validity, were more than sufficient to absorb the property, or the proceeds thereof.
The plaintiffs occupy very much the situation they would if the moneys had been paid over to the condemned banks, and their action was for the recovery of the money. ( Jefferson County Nat. Bank v. Townley, 92 Hun, 172; Braem v. M.N. Bank, 127 N.Y. 508. )
The plaintiffs are authorized to maintain this action in their own behalf, and by their diligence to receive the fruit thereof without joining other creditors. ( Bartlett v. Drew, 57 N.Y. 587. ) If this action had not been brought, the sheriff would have been under obligation to pay over the proceeds of the sale in the order of the priority of the executions in his hands. Under such circumstances, no moneys would have remained for the defendant Campbell.
The rule laid down in section 1406 of the Code of Civil Procedure does not, therefore, come in to aid him in reaching the moneys which have been decreed to be subject to the lien of the plaintiffs. Campbell's execution has become ineffectual to create a lien upon the property in his behalf as against the plaintiffs. ( Cudahy v. Rhinehart, 133 N.Y. 253; Robertson v. Lawton, 91 Hun, 67.)
The judgments in favor of the banks, with their executions, were sufficient to exhaust the personal property, or the proceeds thereof, without reaching his judgment or execution. By force of the decree herein the money is to be distributed to the plaintiffs whose diligence has been the means of setting aside, as to them, the judgments in behalf of the banks. ( Henriques v. Hone, 2 Edw. Ch. 123.)
The executions in favor of Campbell were returned by the sheriff on the 7th of December, 1894, nulla bona; and subsequently, by an order of the Special Term, made in 1896, upon allegations that they were returned inadvertently without the direction of the plaintiff or his attorney, the return was superseded and the executions were restored to the sheriff. The questions made in regard to the effect of such returns have not been considered, inasmuch as the views already expressed render it unnecessary that the questions relating thereto should be examined.
The foregoing views lead to the conclusion that the following results should be declared:
(1) That the appeal from the judgment taken by the defendants The Merchants and Farmers' National Bank of Dansville and The Manufacturers and Traders' Bank of Buffalo should be dismissed, with costs to the plaintiffs to the 25th day of March, 1897.
(2) That part of the judgment entered in favor of the defendants Frank Campbell and Charles H. Rowe reversed, with costs.
(3) That "so much of the decree * * * as directs that out of the moneys in the sheriff's hands he, the said sheriff, pay to plaintiffs the sum of $2,730.68, with interest and costs, as in said decree stated," is affirmed, with costs to the plaintiffs against the appellant Campbell.
All concurred.
1. Appeal from the judgment taken by defendants The Merchants and Farmers' National Bank of Dansville and The Manufacturers' Bank of Buffalo, dismissed, with costs to the plaintiffs to the 25th day of March, 1897. 2. That part of the judgment entered in favor of the defendants Frank Campbell and Charles H. Rowe, reversed, with costs. 3. "So much of the decree * * * as directs that out of the moneys in the sheriff's hands he, the said sheriff, pay to the plaintiffs the sum of $2,730.68, with interest and costs, as in said decree stated," affirmed, with costs to the plaintiff against the appellant Campbell.