Court Opinion

ID: 5215812
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:22:48.940337+00
Date Added: 2024-06-11T08:27:26.256278
License: Public Domain

Spring, J.
(dissenting):
It seems to me that this judgment ought not to stand. The stock and fixtures of Madoc, who had 'gone into bankruptcy, were *444appraised on the 21st of June, -1906, at the value of about $17,000. On that very day the defendant purchased them from the trustee in bankruptcy for $5,250. He turned the stock over to Wilcox and Pike, and they agreed to pay him $6,750 for the stock, which purchase, price included $1,000 bonus that the defendant was to. receive above his indebtedness.- The defendant took their notes for $5,250 and another note for $1,000... He was to retain title in the stock and fixtures sold until his notes were paid. Apparently he did not believe the security was adequate for his indebtedness, as he took collateral security for a considerable amount, including life insurance policies transferred to him.
On the fourth of August of that year the parties decided to incorporate. The defendant was one of the original subscribers, agreeing to take ninety-eight shares, par value, of the capital stock of $10,000. Wilcox took one share and his wife one share. The defendant was president and one of the directors, and Wilcox and his wife were respectively secretary and treasurer of the company. The ninety-eight shares of stock were issued directly to the defendant, although by a contract between the parties they were to be transferred to' Wilcox when the indebtedness to the plaintiff was paid. The original, notes were not taken up . or the collateral security retransferred to Wilcox.
The corporation commenced business promptly, and out of the gross receipts of the business payments were made from time to time on the indebtedness which the defendant had against Wilcox. A considerable part of the avails of the business were so used, although part, of his indebtedness was paid from other sources than these gross receipts.
' In January,'1907, another contract was made whereby Wilcox agreed to purchase the ninety-eight shares of the capital stock of the company held by the defendant and to pay the balance of his indebtedness, about $3,800, in the manner stipulated in the agree-, inent. This agreement was not fully consummated until June following.
During all the time of the life' of the corporation there was no meeting of the stockholders or directors until the 15th of, June, 1907, when the defendant, on the'assumption that his claim had been paid in'full, resigned the office of president and transferred all *445his stock in said corporation to Wilcox, claiming to act in compliance with the agreements heretofore mentioned. A week later an involuntary petition in bankruptcy was filed against said corporation, and it was finally adjudicated a bankrupt by the United States District Court for the northern district of New York. The trustee took possession of the property, reduced it to possession and realized therefrom only $3,561.43. During the life of the corporation, and while the defendant was president and director, goods were purchased on credit, obligations were incurred, and remain unpaid for the reason, to some extent at least, that the gross receipts were applied in payment of the defendant's original claim.
It seems plain, therefore, that the defendant made this transfer on the twenty-first of June in anticipation of the insolvency of the corporation of which he was then holding ninety-eight shares of the capital stock. He then for the first time claimed that his. indebtedness had been paid in full. As president of the corporation and one of its directors he was chargeable with knowledge of its condition. He must have known, therefore, that the capital stock was being constantly depleted by applying the gross receipts of the business in payment of his .obligations given by Wilcox to him. The stock and fixtures which he sold to the corporation constituted its entire assets. How, the transaction may have been honest enough between the defendant and Wilcox, but the rights of creditors intervened. A president and director of a corporation which has sold a considerable part of the property which constitutes its entire capital ought not to be permitted to have the proceeds of the sale of that property applied toward his own indebtedness, which is not, in form at least, against the corporation, but is against an individual. This appropriation of the avails of the sales of the goods was more pernicious than paying dividends out of the gross receipts of a corporation with inadequate assets to meet its existing obligations.
The referee has found that the assets were worth $17,000. I think this finding is against the weight of the evidence. I do not care so much what witnesses say in fixing the value, but there are a few facts which show the incorrectness of this finding. In the first place, as already adverted to, the defendant purchased the stock for $5,250, and when he sold it to Wilcox and Pike exacted security in addition to holding the title to this stock of goods. Again, the *446referee in bankruptcy has only received a little more than $3,500 from the sale of this property. While this only represented a part of the- original corporate property, for sales had been made and ■ the avails applied in payment of the defendant’s obligations, yet the stock of goods had been replenished from time to time, to some extent, by purchases on credit and not yet paid for.
I think the judgment should be reversed.
Robson, J., concurred.
Judgment affirmed', with costs.