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finding a “triable issue of fact as to the benefit [the judgment debtor] received” as a result of property he transferred to a bank as additional security on an outstanding loan the bank had made to a corporation of which the debtor was president and majority stockholder which the debtor had personally guaranteed and which was in default
Summary of this case from Axginc Corp. v. Plaza Automall, Ltd.Opinion
March 29, 1993
Appeal from the Supreme Court, Westchester County (Ruskin, J.).
Ordered that the judgment is reversed, on the law, with costs, so much of the order dated January 31, 1991, as granted the petitioner's cross motion for summary judgment is vacated, and the petitioner's cross motion for summary judgment is denied.
This proceeding arises out of a conveyance by Curtis J. Sittenfeld to Marine Midland Bank of 88 shares of stock in Riverside Towers Corporation and the proprietary lease of Apartment 2G, 263 West End Avenue, New York, New York. The transfer was made in 1985 in order to provide the appellant with additional security for a prior loan that it had made to the IRAS Development Corporation (hereinafter IRAS), of which Sittenfeld was the president and majority stockholder. Sittenfeld had personally guaranteed the earlier loan to IRAS. When IRAS defaulted on the loan, the appellant had agreed to forbear from demanding immediate payment in full in return for the additional security posted by Sittenfeld.
The petitioner, who obtained a judgment against Sittenfeld and his brother due to their default on a loan it had extended to them in November 1987 commenced this proceeding to invalidate the appellant's security interest in the stock shares and the proprietary lease pursuant to Debtor and Creditor Law article 10. The Supreme Court granted summary judgment to the petitioner on the basis that the petitioner had established a fraudulent conveyance pursuant to Debtor and Creditor Law § 273 as a matter of law. We disagree and now reverse.
Under Debtor and Creditor Law § 273, "[e]very conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration". As is evident from the statute, "[b]oth insolvency and inadequacy of consideration are prerequisite to a finding of constructive fraud" (Huit Corp. v. Siskind, 30 Misc.2d 598, 599; see also, Schmitt v. Morgan, 98 A.D.2d 934; 30 N.Y. Jur 2d, Creditor's Rights and Remedies, § 262, at 178-179). The burden of proving both insolvency and the lack of fair consideration is upon the party challenging the conveyance (see, Commercial Trading Co. v Potter Sec. Corp., 26 A.D.2d 761; Marine Midland Bank v. Murkoff, 120 A.D.2d 122), and the determination of insolvency or what constitutes fair consideration is generally one of fact to be determined under the circumstances of the particular case (see, Wagman v. Lagno, 141 A.D.2d 720; Farmers Prod. Credit Assn. v Taub, 121 A.D.2d 681; 30 N.Y. Jur 2d, Creditor's Rights and Remedies, § 260, at 176-177).
In the instant case, there exists a triable issue of fact as to whether Curtis Sittenfeld received fair consideration for transferring the stock and lease to the appellant to secure the antecedent debt of IRAS. It is clear that an antecedent debt can constitute fair consideration within the meaning of the statute (see, Ronga v. Chiusano, 97 A.D.2d 753; Debtor and Creditor Law § 272), and that the "[b]enefit to a debtor need not be direct; it may come indirectly through benefit to a third person" (Klein v Tabatchnick, 610 F.2d 1043, 1047; Rubin v. Manufacturers Hanover Trust, 661 F.2d 979; Republic Natl. Bank v. Greenwald, 132 A.D.2d 540). Here, Sittenfeld pledged stocks and a lease to the appellant in order to secure a loan, which he had personally guaranteed, made to IRAS, a business of which he was the majority shareholder. There is, therefore, a triable issue as to the benefit Sittenfeld received as a result of the transaction.
Moreover, we find that the petitioner's reliance upon an April 1987 financial statement was insufficient to establish that Sittenfeld was insolvent in 1985 (see, e.g., Wilks v. Greacen, 155 App. Div. 623; Park v. Cowan, 102 Misc. 392, 399). Further, since there is a triable issue as to whether Sittenfeld received fair consideration for the transfer of the stock and lease, the petitioner is not entitled to summary judgment on the basis of any presumption of insolvency (see, Ga Nun v. Palmer, 216 N.Y. 603, 611; Cohen v. Benjamin, 246 App. Div. 866; cf., Marine Midland Bank v. Murkoff, supra). Sullivan, J.P., Balletta, Eiber and Santucci, JJ., concur.