Case ID: misc_15/html/0385-01.html
Source: Caselaw Access Project
Author: {"author": "Beekman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Peter B. Olney, as Receiver, Plaintiff, v. Matthew Baird et al., Defendants.
    (Supreme Court—New York Special Term,
    December, 1895.)
    1. Corporations — Transfers by insolvent.
    The statute forbidding transfers of its property by a corporation in contemplation of insolvency applies where there is a condition of present insolvency.
    2. Same.
    The word “insolvency” as used in the statute imports a general inability to pay obligations as they mature in the regular course of business. .
    3. Same—Judgment. ,
    The suffering of a judgment by an insolvent corporation, with the intent of giving a preference, is within the statute.
    
      -4. Same.
    The facts that the creditor,' although not a trustee, substantially , "■ controlled the proceedings of the board; that at his request and expense the secretary went to another state to be served with process in the action against the company and left the papers with "an attorney. tó whom he was introduced by the creditor’s .attorney, are suffi.- . . cient to show that the.judgment was' suffered with intent to give a preference. • ; '
    5. Same—Party obtaining illegal preference may be compelled ■ TO ACCOUNT.
    ■ Where a creditor of a corporation has, by means of a judgment recovered in a foreign state, obtained a preference forbidden by our statutes, the property thus' acquired is affected with a trust, ánd the creditor may be compelled to account therefor although the judgment is not set aside. . ,
    Action by receiver to recover property of the corporation acquired by defendants under a judgment, recovered against such corporation. . '
    
      Samuel A. Noyes and George C. Comstock, for plaintiff.
    
      Joseph Fettretch, for defendants.
   Beekman, J.

The .Sargent Granite Company, a business corporation, duly organized and incorporated under the laws til the state of New York, having become insolvent, an fiction 'was instituted against, it on behalf of. certain.of its judgment creditors for a sequestration of its property, and in that suit the plaintiff has been appointed .receiver. No assets' have .come into .his hands, and he now brings this action against the defendants for the purpose of -recovering the property of the •corporation, of-which the defendant Matthew - Baird claims Ownership under the -following state.of facts:

On 'or about April 1, 1890, the Sargent Granite Company ;was organized as a- corporation, under the General'Maiiufac- ' turing Act. (Laws of' 1848) -of the state.’ of New York'. Its capital was fixed at $20,000, represented by .200. shar.es, of .•which all-but five were issued for property .which w;as transferred to it; In .order, to. obtain money with which to carry on its operations, the company borrowed from one 0. F. Schramme the sum of $10,000, and for the purpose of securing him gave him a bill of sale of all its property, which bill of sale, although absolute in form, was. intended by the parties to operate only as a chattel mortgage. Mr. Schramme also held about 100 shares, or onef half of the capital stock of the company. Being desirous of severing his relations with the company, he entered into negotiations with the defendant Matthew Baird, and it was finally - agreed between them that Baird should take a transfer and assignment from Schramme of his stock and the indebtedness of the corporation to him upon payment' of the amount of sai'd indebtedness, which was then about $9,900." The understanding was that Mr. Baird should take the position of Mr. Schramme in the company, with all the rights as against it- which the latter then enjoyed. This transaction was consummated about the 57th day of August, 1890, and the stock in question was transferred to Baird, and the bill of sale was also delivered to him at the same time. FTo formal assignment of the latter was ever executed, and whatever view may be taken in-respect to its validity in law as a 'chattel mortgage, it was sufficient in the hands of Mr. Schramme, and, under the arrangement between himself and Mr. Baird, also in the hands of the latter, to constitute at. least a preferential equitable charge upon the assets of the corporation in favor of the holder. At that time the corporation was not insolvent, nor had it refused to pay its notes or other obligations when due. The determination of the effect of this bill of sale, however, is not within the issues of this action. The transaction was the outcome of an understanding which had been arrived at between Mr. Baird and Frank T. Sargent, who was then the president of the corporation. The understanding was that Mr. Baird should acquire Mr. Schramme’s interest, as above stated; that he would also from time to time advance such money as might be needed for the operations of the company ; that all of the products of the company should be consigned to him; that the proceeds of the sale of such products should be collected by him, and that interest on balances should be credited or allowed, as the case might be, at the rate of six per cent per annum.. It is claimed by Hr. Baird that in addition to this it was also understood and agreed that the company, for the pui.pose of securing his advances, would from time to time1 give him bills of sale of everything it had, and assignments of all moneys due it upon contracts. This, however, is denied by Hr. Sargent. I feel constrained to accept his version of the 'matter; among other reasons,-because it seems more in accord with the probabilities of the case, as well as with the subsequent conduct of the parties. Although Hr. Baird, during a period of some twenty months after he came into .the company, had made advances which brought the company into his debt to the extent of something over $100,000, no bills- of sale were ever made to him, nor apparently did he request that they . should be given, and subsequently, when such transfers were made, in some cases, under resolutions passed by the trustees reciting the reasons for their action in that regard, no reference of any kind was inade to any previous understanding or agreement, such as the defendant Baird claims to have existed. It is not-necessary for me, therefore, to consider whether such an agreement, which it is conceded never received any formal sanction by vote of the trustees, would have been valid.

Immediately upon Hr, Baird’s becoming a stockholder of the corporation, he vva's elected a trustee and also treasurer. Ho bank account, however, was opened in the natne of the .company, but all of its moneys, from whatever source, -were received by him .and deposited to his individual account. A ledger account was kept by him with the company, in Which' he charged it with the moneys which were advanced by him, ■and which were from time to time paid out to meet thecurrent expenses of the corporation, and credited it with the moneys collected by him on its account. It may be said in. . passing that Baird had peculiar facilities for handling the product of the company, in view of the fact that he' was a contractor doing a very extensive .business'in this city with the different departments of the city government, which required the use of granite either for the paving of streets dr the construction of piers and bulkheads on the water front.

In the month of March or April, 1882, he seems to have become alarmed about the financial condition of the company, and requested Mr. Frank T. Sargent, who was still its president, to execute to him a bill of sale of its property, to be held by him as security for his debt. .Mr. Sargent testifies that at first he refused to do so, claiming that it would be unfair to the other creditors, but that upon threat being made by Mr. Baird to wind the company up, he yielded, and the paper was accordingly executed and delivered, and on or about the 9th day of May, 1892, was recorded in the clérk’s office in the city of Belfast, in the state of Maine. Mr. Baird denies, that he made any such threats. Some three days prior to the date of this bill of sale a special meeting of the-trustees of the company was held, at which the resignation of Mr. Baird as treasurer and trustee was received and accepted, but no other action of any kind was taken, nor was any authority whatsoever given to the president to make the bill of sale in question. The. resignation of Mr. Baird was obviously prompted by prudential motives, in view of the fact that his security under the bill of sale would have been very much impaired, if not entirely destroyed, by the fact of his being an officer of the company at the' time of its execution and delivery.

On the eighteenth day of May following, and for the same reason, lie. took the further step of divesting himself of all of his stock in the company, which he transferred to one George L. Harrington. During all the time that Mr. Baird was connected with the company, either as stockholder or creditor, Mr. Harrington was his superintendent in his personal business, and when the stock was so transferred to hinrlie was told by Baird that he could have whatever there was of it after the indebtedness of the company to him (Baird) had been paid, and at the same time he directed him, out of the shares so transferred,' to give nineteen shares to William J. 'Clark, twenty shares to one William H. Keyes, and ten shares to one Babcock. Clark was Baird’s confidential clerk and bookkeeper, and Keyes was a superintendent i-n- the employ of James Baird, who was a brother of the defendant Matthew Baird'. According to Mr.. Baird’s statement, the understanding between them was that they were to become absolute owners of the stock in question, and were entitled, to get out of it whatever might be coming to the stockholders. Ho consideration of any kind passed upon the transfer, nor ¡is ft claimed that it was anything- more than an absolute gift of • the stock in. question to these persons. I shall have occasion hereafter to refer to this transaction as somewhat persuasive evidence of a conviction on the part of Baird that the company was hopelessly embarrassed at the.time.

On the day following this transfer Mr. Harrington was ■ elected a trustee to fill the vacancy created by Baird’s-resignation. At the same meeting a resolution was adopted that all" moneys due or to become due. the company from Mr. G. II. Mitchell, 'of Chicago, be assigned to the defendant Matthew Baird, and also that all moneys due or to become due from one Gallagher should’also be. assigned to him.

On the twenty-fourth, day óf June, at a meeting of the trustees, a motion was -made by Mr. Harrington, ■ which" was unanimously carried, “to transfer the lease of the Mount Haegen granite quarry to Matthew Baird as collateral security for money due him by the Sargent Granite ■ Company, said - lease tó be transferred back to the company .on their paying off said indebtedness.”

Again, on the twenty-eighth day of July a further meeting' of the trustees of the company was held, at which a motion was made by Mr. Harrington, which was carried, apparently without opposition, “ that the president be authorized to give a bill of sale covering all stone, manufactured and unmanufactured, and any personal property not already covered by previous bill of sale, to Matthew Baird, "as security for moneys advanced to the company.”

Ho other meeting seems to have been held until- the 39th day of August, 18-92. In the meantime, and on the 3oth day - of August, 1892, a meeting of the stockholders of the company was held, at which the following trustees were elected: Francis T. Sargent, W. Otis Sargent, William J. Clark, William H: Iieyes and George L. Harrington, and on the twenty-ninth day of August the trustees thus chosen met and elected George L. Harrington president of the company, William II. Keyes vice-president, and William J. 01 ark secretary and treasurer. At the same time a resolution was passed which, after reciting that the Sargent Granite Company was indebted to Matthew Baird in a sum exceeding $50,000 for moneys paid by him to the company and for its account and benefit, and that the company, for the better securing of such indebtedness, had, through its president and secretary, made and delivered to Baird the bill of sale above referred to, bearing date on the 19th day of April, 1892, ratified and Confirmed the action of said officers, and declared that such paper should have the same effect as if said officers had been authorized by the board of trustees to execute and deliver the same. A further resolution was also passed, which, after reciting that since the 19 th day of April, 1892, Baird had paid out large sums of money on account of the company, for which the company was still indebted to him, provided that for the better ■ securing of the entire indebtedness the company should make, execute and deliver to him “ full and complete bills of sale of all its personal property, goods and merchandise, wherever situated, including that described in the bill of salé aforesaid of April 19, 1892, as well as such ás has come into its ownership since that date,” and the president of the company was directed to execute and deliver the same to him.

On the 23d day of September, 1892, the trustees again met, and a resolution, was passed which recited that the company had entered into a" contract with one Patrick Gallagher, and that in the performance of said contract by the company Matthew Baird had advanced and loaned moneys to said, company, and also that the company was indebted to Baird in large sums of money, and it was thereupon resolved that all moneys then due or thereafter to become due to the company Under said contract should be assigned and transferred t.o Baird as jjayment on account .of the indebtedness of the compariy to him, and the president of the company was authorized ■ and directed-to execute and deliver such- an assignment. Af the same meeting another preamble and resolution was also adopted, under which the lease-to the company,, made on the 6th day of June, 1891, of certain -real estate, which will be. referred to hereafter as the Mount Haegen quarry, was, surrendered and canceled. This resolution recites that it I was deemed for the best interests of the company that such action should be taken, and the treasurer of the company, Mr. Clark, was authorized and empowered to cause the necessary instru-. ment of cancellation to be made, executed .and delivered to the lessors. A further .resolution was also adopted which-recited a contract between the company and one G. II. Mitchell for furnishing him with certain granite; that in the performance of said contract by said company Matthew Baird had advanced and loaned and was about to advance and, loan-moneys to said company ; and' it was thereupon resolved -that all'moneys due or to become due- under said contract’ should be assigned and transferred to said Baird on account arid in part payment of what was then ¡’due from said company, to him, and the usual direction was given to the officers of the company .to carry the resolution into effect. - i

The’next and the last meeting of the .board.of trustees of which any record is found in the minute book was held on the "9tli day of November, 1892-, and the following business was'transacted- at' -that meeting : The resignation of Francis T. Sargent as trustee was presented and accepted, arid one George. E; Babcock was elected to fill' his place. A resolution was; passed under which, after reciting -that numerous actions had-been brought against the co nip any, both in this, state and in the state of Maine, it was resolved that Messrs'. Harfiman and Fessenden be retained to act for and on behalf of the. company in all of said actions, with full power to act in such manner as they might deem best for the interests of the company. Two other resolutions were ’ passed, one forbidding Francis T. Bar-gent, and the other forbidding Winthrop 0. Sargent, from interfering or intermeddling with the business or affairs of the company.

All of the transfers' seem to have been executed in conformity with these various resolutions, except that instead of the lease of the Mount Haegen quarry being assigned as authorized at the meeting of June 24,1892, it was surrendered under the resolution of September 23, 1892. The motive of the company in surrendering this lease becomes apparent when we consider the action taken by Mr. Baird in the matter. On or about the 27th day of September, 1892, some four days after the- meeting of the trustees at which the resolution was passed canceling the lease, Mr. Baird went to Bangor and had an interview with Capt. Goodwill, who was one of the lessors. Frank T. Sargent was present at the time, and at that interview Mr. Baird requested Capt. Goodwin to accept the surrender of the lease and to make out a new lease of the property, upon substantially the same terms, to him individually. There was some objection made to this on the ground that Mr. Frank T. Sargent held an option for the purchase of the fee .of the property, but this difficulty Avas disposed of by a cancellation of the option, and the surrender of the lease was accepted and a new' lease made to Baird in conformity with his request, the latter at the same time paying to. Capt. Goodwin the rent under the old lease, which was Arery much in arrears, and' also an additional sum representing-another indebtedness of the company to him. At the same time, and apparently as an inducement to Mr. Sargent to AvithdraAV his opposition to the transaction, a-letter was then and there written to him by Mr. Baird, which he dated September 27, 1892, and which contains the following statement: Being about to take possession of the quarry at Mount Haegen mine, and having expended considerable moneys for tools, derricks, horses, cattle, machinery, boilers, railroads, &c., I will agree with you, if you want to work with me in the same, under niy direction from this date to January 1st, 1894, and if the quarry will by that date" be able to earn money enough to pay up to me all the moneys with interest and expenses expended by me before this date and up to the date of January 1st, 1894, I will! then agree to transfer to you one-third interest I have in the above quarry, tools, machinery, &c.” Mr. Sargent’s explanation of this is that he intended to- make this arrangement for the benefit of the stockholders. Whether this explanation be true or not, it is not relevant to the decision of the case. Its value is found chiefly in its bearing upon the intent of the defendant Matthew Baird in securing the lease in question- in his own name. ■ ■ :

Down to this point it will be apparent from the facts which I have stated that, commencing with the 19th day of April, ■ 1892, and ending with the 27th day of September, 1892, the defendant Matthew Baird had acquired complete control and ■ dominion over every asset belonging, to the company, tlié only other property which had belonged to it being a quarry known as the Oak Hill quarry, which, according to .Mr. Baird’s statement, proving to be unprofitable, the company had virtually abandoned. During all of this time, then, the situation was this:. Every dollar of money which came in on account of contracts which the company had, or on" account of its, pro•ducts, was received by Mr. Bail’d, who charged himself with jt in his account with the company, all products of the company were consigned to him, and wrere under his complete control, and all other property of the company had been placed Under his dominion by the action of the trustees in. sanctioning the various papers which had been executed for the purpose of vesting him with the title to the property of the company. There was no further possibility of .free agency on the part of ■ the trustees, and the corporate functions of the company were virtually in a condition of utter'paralysis. The majority of the ■ trustees were either-in his employment' or otherwise under his influence; and the fact that they officially existed simply for recording his will, protecting his interests and serving'his purposes, abundantly appears from the fact that no business, with one or two trifling-exceptions, was transacted- at any of their meetings, except the diligent divesting of the corporation of its property, in order to promote his interests.' Although from the sixteenth day of April he had ceased to be a trustee of the. corporation, and from the eighteenth day of May had also ceased to be a stockholder in the same, he stood for the company in all of the transactions which were had in the line of its business, gave directions in regard to its work,- communicated instructions for the reduction of its working force, and,, in short, managed and controlled its business, financially and otherwise, as if he had been an officer of the corporation vested with plenary powers to do as he pleased in the direction of its affairs. It is not difficult, in view of all this, to come to the conclusion that Mr. Baird, as far back as the month of March or April, 1892, was aware that the company was insolvent. That such insolvency existed at that time and at all times subsequent, thereto is, I think, plainly apparent upon the proofs. The-indebtedness of the company to Mr. Baird in April exceeded $100,000, and apparently rapidly increased from that time on until the judgment hereinafter referred to was recovered by him against the company in the Supreme Judicial Court of Maine. Both Frank T. Sargent and Winthrop O. Sargent, swear that during this period Mr. Baird stated to them that the company was insolvent. They also stated that bills, had been incurred in connection' with -the equipment and operation of the quarries which had not been paid, and which were being demanded by the creditors, and that in some instances suits had been brought for the purpose'of enforcing these claims. Some of these charges were ultimately paid by Baird, and no doubt augmented the rapidly' increasing indebtedness of the company to him. According to the estimate given by the Sargents, the assets of the company during this period were worth about' $55,000 or $60,000, while, its indebtedness, including Baird’s claim, amounted to-between $125,000 and $150,000 ; and of this sum $10,000 or $12,000-were represented by book accounts due by the company and "by arrears of rent under the leases of both quarries amounting to $5,000 or $6,000. ■

Without going into details, it is sufficient to say that the proofs, taken as a whole, including the correspondence which passed between Mr. Baird and others in reference to the affairs of the corporation, satisfy my mind not only that the company was insolvent at the time these various, transfers were made, but that the fact was known to the officers of the company as well as to Mr. Baird, and that the transfers in question were made in contemplation of insolvency, and with the intent to give Baird a preference over the other creditors of the cor- • poration. Not the least significant fact tending to show; what was in his mind as early as May, 1892, is the transaction by which he gave away his ninety-nine shares — nearly one-half of the capital stock of the corporation. No explanation of this is afforded beyond his desire to divest himself of. his relation as. stockholder to the company. No reason is given why he should have been so benevolent to those to whom the stock was transferred, nor is there any other explanation of his act Worthy of acceptance; except that he knew the stock was worthless, owing to the financial' condition of the company, and that his surrender of it, for the purpose of relieving his efforts' to secure himself from a well-founded ground of attack, involved no sacrifice of anything substantial on his part. In reference to the transaction by which the company surrendered the Mount Haegen lease and a new lease was taken by Baird in his own name, it is fair to say that on the 8th. day of September, 1892, prior to the adoption of the resolution in question by the company and the surrender of the 'lease pursuant thereto, Mr. Baird wrote a.letter to Frank T. Sargent; in which, among other things, he says: In making out the lease of Mount Ilaegen,' have Capt. Goodwin make it out to me, and I will settle up liis account to date with you, and will file with the Sargent Granite Company writings; when the debt of the Sargent Granite Company is paid I will transfer the lease over to the company. This, I think, I am. entitled to receive as collateral security, with any other things the company have to secure me for money advanced by me to' said company.” While this letter shows that the purpose of the" transaction was through this means, if possible, to secure the ultimate payment of his debt, and thus in a sense not to misapply or embezzle its property, at the same time it gives emphasis to the complete and exclusive dominion which he had assumed over the property of the corporation, of which the quarry and its appurtenances substantially constituted all that was left.

About the 10th day of November, 1892, Mr. Baird determined to take actual possession of the Mount Haegen property .and to deprive the'company of whatever semblance of control .over or management of its property had remained to it. lie went to the quarry, accompanied by his attorney, who announced to the assembled workmen, in Mr. Baird’s presence and as his spokesman, that for all practical purposes" the Sargent Granite Company had ceased to exist; that Mr. Baird had the lease of the quarry, and that from that day on the men would be in his employ and that he would be responsible for their wages. From that time forward the business which had formerly been transacted by the Sargent Granite Company or in its name was transacted by and in the name of Matthew Baird. Shortly after this actions were commenced against the company by other creditors, attachments were procured in the state of Maine, and the workmen, whose pay had been largely ■ in arrears, commenced lien suits for its recovery, some 120 proceedings having been instituted for this purpose. Doubts having been expressed as to the validity of the various bills of sale and assignments which had been made by the company to 1 him, Mr. Baird was advised for his protection to institute an action against the company to recover the amount of his debt, and this was brought about and accomplished in the following manner:

At that time Mr. George F. Harriman, as a member of the firm of Harriman & Fessenden, was the attorney for both the Sargent Granite Company and Mr. Baird. Acting upon his instructions, his brother, Mr. James Harriman, an attorney residing in Belfast, in Maine, commenced an action in that state against the company in the name .of Matthew Baird, and caused an attachment to be issued therein and levied upon all of' the. property in the state which had belonged to the-company and which had been included in the bills o’f sale, which had heen given to. Mr. Baird. It was a matter of considerable importance" to thé latter that personal service of process-should be made upon an officer of the corporation in time to have the case heard at the January term-of the Supreme Court of 'Maine. To that end Clark,, the secretary of the company, was . instructed by ME Harriman and Mr. Baird to go from the city ■of New York to'Belfast for the purpose .of having the-summons'in the action served upon, him as an officer of the company, and Mr. Baird gave him the money for the expenses of the .trip. Following the directions which 'had been so' given, Mr.. Clark went to Belfast, and immediately upon liis arrival waited upon Mr: James.Harriman, who was the attorney for Baird in the suit, and was informed by him that the sheriff ■would shortly call' and -make the service, which was': done, ;and he returned to New York and reported to¡ Mr. George" Harriman and to Mr. Baird what had ¡taken place. Before he left Belfast, however, he placed the papers which had. been served upon him in the hands ¡of an attorney hy the name of Thompson, and told him to take charge of them for the company. He had never met Thompson before, but was introduced to him upon that occasion by Mr. Janies Harriman. ’ Thompson appeared in the action for the company; there Was no contest, however, of the claim, and it appears that he was paid for his services by. Mr. George Harriman, who in turn collected the amount from.Mr. Baird.’.

•On the opening of the January term there was formal, proof made" by Baird before an auditor, who reported as 'due. the full amount of the claim, but, upon the intervention' of One or more creditors of the company, the court sent the report back ; to the auditor, who again made a report differing but little, if any, from the first. Whereupon judgment was entered on . the 21st day of January, 1893, in favor of Matthew Baird and ' against the company for the sum of .$1.46,.618.65 and the' tax-. "■ able' costs, amounting to- $145.66. . This recovery simply intensifies the conviction that during the year 1892 the company was utterly and hopelessly insolvent. On the 25th day of January, 1893, execution was issued upon the judgment, and the attached property was sold to the defendant William P. Baird for a sum not exceeding in all about $2,000. It was sold subject to the lien attachments, amounting to about $20,000, which it appears were subsequently paid off by Matthew Baird. It was also sold subject to attachments which were obtained in other suits. The proofs are silent as to what became of these other attachments. The sheriff testifies that, he was indemnified upon the sale, and that he had been advised by competent counsel that the attachments were invalid. At all events, we find as the crowning act of this series of transactions between the company and Baird a sale of all of its property for a sum of money which seems absurdly inadequate, which was applied exclusively upon its indebtedness to Baird, who was the actual purchaser at the sale and who now claims absolute title to all of the property so sold. William P. Baird is the son of Matthew Baird, and although title to the property so sold was taken in his name, it appears, and in fact is admitted by the father, that he is the real owner of the property arid responsible for its appropriation and use.

The companydraving been thus stripped of all its property, and being unable to pay any of its creditors, has passed into the hands of a receiver, and this action has been brought for the purpose of setting aside said Transfers so made to Baird, compelling him-and William P. Baird to deliver over to the receiver all of the property obtained by them under the execution sale, and to account for such property and the profits arising, therefrom. Section 48, chapter 564 of the Laws of 1890, known as the Stock Corporation Law, provides among other things in reference to such a corporation, that “ no 'officer, director or - stockholder 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 for their benefit, shall he void:” The courts have construed similar words in another statute to . import not only insolvency that was imminent or that was expected to arise at some future period, but also a condition of present insolvency. Robinson v. Bank of Attica, 21 N. Y. 406; Paulding v. Chrome Steel Co., 94 id. 334. In order that . a cause of action may arise under this statute, .two things are essential: “ There must be a transfer or assignment of property, and this must be done in contemplation of the insolvency of the .corporation. Insolvency has been differently defined in different courts. By some it is said to be .a condition in which the value of the assets is' less than 'the amount of liabilities.' By others it is said to be a general inability to pay obligations as they become due in the regular course of business. Many a business is at times insolvent, according to the first of these 'uses of the word, although it is prosperous and no one thinks , for a moment that any necessity will arise for applying its property to. the payment of its liabilities by process of law, There is no necessity for the law to. interpose in behalf of its creditors so long a£ the corporation is able to meet its obligations promptly. The use of this word, in the statute under Consideration, is the latter use. Brouwer v. Harbeck, 9 N. Y. 589 ; People v. Excelsior Gas Light Co., 3 How. Pr. (N. S.) 137. The statute is meant to apply when it becomes apparent to those assigning or transferring its property that the corporation is in the condition described in the latter of these 'definitions, so that the question confronts them: How are the assets of the corporation to be used, not in carrying on its business, but in meeting .its obligations ? ” French v. Andrews, 81 Hun, 272.

I do not think that upon the facts of this case there chin be much doubt that the Sargent Granite Company at the time when these preferential transfers were made was not only insolvent, but was known to be so by its officers, and that it was in view of.that condition and in contemplation of such insolvency, ■within the meaning of'the statute, that the transfers in question were made. But had it not been for an amendment of the statute, a very serious-question would have arisen whether the judgment recovered in the state of Maine by the defendant Matthew Baird against the corporation could have been successfully attacked. Until the .passage of chapter 688 of the Laws of 1892, amending the Stock Corporation Law, the decisions of the courts seemed uniformly to uphold acts on the part of officers of insolvent corporations which were plainly intended to facilitate the efforts of creditors to secure preferential liens by judgment. Varnum v. Hart, 119 N. Y. 101; French v. Andrews, 145 id. 441. But chapter 688 of the Laws of 1892, which took effect on the 18th day of May, 1892, amended section 48 of the Stock Corporation Law above referred to, so that the portion germane to the present discussion was then made to read as follows: “Uo 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.”

It will thus be seen that the suffering of a judgment by an insolvent corporation, with the intent of giving a preference, is brought within the prohibition of the act, the legislature having been doubtless influenced in their action by reason of the decisions to which I have referred. This amendment has undergone judicial construction in the case of Milbank v. De Riesthal, 82 Hun, 537. At page 544, Mr. Justice Parker, delivering the opinion of the court, says;. The mere fact that the officers of the corporation do not oppose the creditor in his effort to get the judgment, but remain passive, is not alone sufficient to require the inference that fhe judgment w.as suffered with the intent of giving such creditor ' a preference. But the inference may be supported on. additional evidence of an affirmative character, tending to show the existence of such a desire on the part of the officers of the corporation having knowledge of the situation. Evidence tending to prove such a desire on the part, of the officers may consist of- acts done, or words spoken, under such circum-' stances as manifest a wish or plan to effectuate a preference in behalf of the prosecuting creditor.”

There-can be no doubt of the fact that there existed the strongest kind of a. desire and purpose on the'part of the officers of this corporation to facilitate the defendant Matthew Baird in prosecuting his action to judgment. On his bidding, and at his expense, the secretary of the company went into the state of Maine, for the purpose of having process served upon the corporation through him. Mot onfy this, but the secretary placed the papers in the hands of an attorney whom he had never met before, who was introduced to him by the attorney- for the plaintiff, and' who was ultimately paid by the latter. There could not well be á -plainer case of suffering a judgment in order to give a preference than this. Ithasbeenargued by the learned counsel for the defendants in this action that because this judgment has' been duly recovered in the courts of the state of Maine, it is beyond the reach .of any attack here. Precisely the same question arose in the cáse of McQueen v. New, 87 Hun, 206, and was decided'adversely to this contention. The defendant, who has profited by the opportunities of the judgment,, is before the court, and can be compelled to account for all that .lie lias-obtained under it. It is not necessary that the judgment should be set aside, which, as it was recovered- in a foreign tribunal, this ’court would have no power to do ; but as the defendant lias, through its agency, acquired a preference forbidden by our statutes, it is to be regarded as a means employed to accomplish a forbidden end, and the property acquired through- the use of such ’means is, by virtue of our statute, affected .with a- trust in the hands of the defendant in favor of those from wliom it lias been unlawfully taken, and this court has abundant power to compel him to account therefor.

It follows, therefore, that there must be judgment in favor of the plaintiff against the defendants, declaring such transfers and acts, intended to give a preference to the defendant Matthew Baird, to be null and void, and requiring the defendants to account to the plaintiff for all of the property of the Sargent Granite Company acquired by them under any of said transfers, or by virtue of proceedings under the execution sale had under the Maine judgment, with costs.

Ordered accordingly.