Case Name: In the Matter of the Voluntary Dissolution of The Rogers Construction Company. John F. Burke, Receiver of The Rogers Construction Company, Appellant; German-American Bank of Tonawanda, N. Y., Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1903
Citations: 79 A.D. 419
Docket Number: 
Parties: In the Matter of the Voluntary Dissolution of The Rogers Construction Company; John F. Burke, Receiver of The Rogers Construction Company, Appellant; German-American Bank of Tonawanda, N. Y., Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 79
Pages: 419–426

Head Matter:
In the Matter of the Voluntary Dissolution of The Rogers Construction Company; John F. Burke, Receiver of The Rogers Construction Company, Appellant; German-American Bank of Tonawanda, N. Y., Respondent.
Transfer of a claim by an insolvent corporation to secure a prior indebtedness — it is not a violation of section 48 of the Stock Corporation Law when made pursuant to an oral agreement entered into when the corporation was solvent—the secretary of the company map make the oral agreement.
A written assignment of a judgment, executed by a construction company to a bank as collateral security for the construction company’s then existing indebtedness to the bank, at a time when the corporation was insolvent, is not within the condemnation of section 48 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws .of 1892, chap. 688), prohibiting transfers “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,” when it appears that the written assignment was executed in pursuance of an oral agreement made at a time when the construction company was not insolvent, by which the bank, in consideration of the construction company’s verbal promise to execute the assignment, agreed to and did extend the construction company’s existing line of credit and make an additional loan to it.
The fact that the oral agreement was made by the secretary of the construction company does not impair the validity of the written assignment, where it appears that the construction company received the benefit of the Oral agreement and that the formal assignment was executed pursuant to a resolution of its board of directors.
McLennan, J., dissented.
Appeal by John F. Burke, receiver of The Rogers Construction Company, from an order of the Supreme Court, made at the Erie Special Term and entered in the office of the clerk of the county of Erie on the 10th day of February, 1902, confirming the 'report of a referee awarding to the respondent certain moneys in the hands of the receiver. -
Frank F. Williams and P. F. King, for the appellant.
Norman D. Fish, for the respondent.

Opinion:
Spring, J.:
If I appreciate correctly the situation in this- case it involves •simply a question of fact. In 1895 and 1896 the Rogers Construction Company was engaged quite extensively in carrying out certain contracts in building an armory, doing construction work for a railroad company and in street paving, etc. It did its banking business with the German-American Bank of' Tonawanda, and on the 4th of December, 1895, it was owing that bank $8,500 on promissory notes 'which fell due upon that date. The secretary of the construction company applied to the bank for an additional loan and it -was declined unless security was given as collateral for the existing indebtedness as well as the new loan. A verbal agreement was thereupon made with the bank whereby the construction company agreed to transfer to the bank as general collateral for its indebtedness a claim amounting to about $7,000 against the Buffalo, Kenmore and Tonawanda Railroad. Company which was for work which had been performéd by the construction company. In consideration of this assignment the bank then loaned to the company $2,000, taking its note therefor and renewed the other indebtedness of $8,500. Subsequently the $2,000 note was paid and additional credit upon its notes was given to the construction company, some of which were paid, but the $8,500 with considerable other indebtedness has never been paid. On April 3,\ 1896, judgment was recovered by the construction company against the railroad company for $7,538.21 besides costs, and this was subsequently compromised pursuant to an order of the court at the sum of $4,500. In the month of June, 1896, the board of directors of the construction company by formal resolution directed the assignment of the judgment recovered by it against the railroad company, and on the twelfth of September following the written assignment was made. Prior to the recovery of the judgment the claim was left with Cunneen & Coatsworth, a law firm of the city of Buffalo, for collection, and the transfer of the judgment was made subject to the lien of said firm for services, which has been adjusted by the referee at $1,000, and no appeal is taken from the order entered confirming that part of his report. On the 30th of September, 1896, the appellant was appointed receiver of said construction company as it was then insolvent, its liabilities largely exceeding its assets. The bank applied to the Special Term of the Supreme Court by petition, asking that the validity of said assignment be adjudged and that the receiver be directed to pay the balance of the said sum of $4,500 remaining unpaid after the lien of said law firm and the expenses properly chargeable to said fund were deducted. The receiver appeared and contested the claim of the petitioner. The matter was referred to a referee who reported in favor of the claim, which report was confirmed by the order appealed from.
With the evidence of the oral agreement before him, the referee, after-reciting the formal assignment of this judgment, found: " That said assignment was so made, executed and delivered in pursuance of an oral agreement entered into between the said The Rogers Construction Co. and the said German-American Bank of Tonawanda, N. Y., about the month of December, 1895, and for the purpose of carrying out and rendering effectual said agreement and not otherwise."
The evidence fully sustains this conclusion of the referee. The secretary of the company, the teller of the bank and Riesterer, its cashier, testified as to this agreement, and Mr. Cunneen testified that he was advised by the officers of the company, before there was any apprehension of its insolvency, that the bank held this claim or judgment by virtue of an oral agreement.
It is the claim of the defendant that this transfer operated as a preferential assignment, and is consequently within the condemnation of section 48 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1892, chap. 688) prohibiting such a transfer " 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.?' It will be observed .that the two essentials which vitiate an assignment of this kind are the insolvency or pending insolvency of the corporation and the intent to create a preference.
There is no suggestion that on the 4th day of December, 1895, when this agreement was made, the construction company was in bad straits financially. It was then carrying out its contracts, each of which proved disastrous and resulted in its insolvency during the year 1896, although it continued employing men and paying them into the month of September of that year. That an oral assignment founded on an adequate consideration will be upheld is too well settled to be gainsaid. (Risley v. Phenix Bank of City of New York, 83 N. Y. 318; First National Bank v. Clark, 134 id. 368, 373; Hooker v. Eagle Bank of Rochester, 30 id. 83.)
The fact that the original agreement was made by the secretary of the company is not in this case a defense which can be used to impeach the validity of this transfer. The- construction company received the benefit of the agreement by the extension of its credit and the additional loan, the avails of which went into its business. Beyond that, the action of the secretary was ratified by the directors in June following and by the formal assignment, both of which were in recognition of the conduct of the secretary in making the oral agreement referred to.
While transactions of this kind should always be subjected to careful scrutiny, yet they are peculiarly questions of fact. ' The evidence bearing upon this oral agreement depended not entirely upon the officers of the bank and the construction company, but, as already suggested, it was corroborated by other proof which tended' to show quite clearly that the agreement was not made in contemplation of the insolvency of the company nor with any design or intent to secure a preference over other creditors, which is the vice rendering such an agreement invalid. (Paulding v. Chrome Steel Company, 94 N. Y. 334.)
The order should be affirmed, with costs.
Adams, P. J., Williams and Hiscock, JJ.,, concurred; McLennan, J., dissented in an opinion.