Court Opinion

ID: 5185219
Source: CourtListenerOpinion
Date Created: 2022-01-06 04:47:27.58053+00
Date Added: 2024-06-11T08:26:40.813905
License: Public Domain

McLaughlin, J. (concurring) :
I concur in the opinion of Mr. Justice Patterson. The statute under consideration is a beneficial one and its effect should not be *24destroyed by a narrow, technical or forced construction. The object to be accomplished by it is to secure equality among all the creditors of a corporation and to prevent fraudulent transfers in derogation or in fraud of their rights. To that end the statute provides that “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.” (Laws of 3890, chap. 564, § 48, as amended by Laws of 1892, chap. 688.) ■ The act of. Frederick Uhlman in procuring the payment of the check in question to the defendant was prohibited both by the letter and spirit of the statute. This was the situation. He was one of the directors of the Madison Square Bank.- He was also president of the defendant and owned or controlled one-tenth of its entire capital stock. On the evening of August 8, 1893, he went to the bank and there had a consultation with the officers and certain of the directors, the result of which was that he then became informed that the bank was insolvent or its insolvency imminent, and that there was little or no probability of its-resuming business on the following morning. He left the bank and immediately took advantage of the knowledge which he had thus acquired, as such director, for the benefit of the defendant, and to. the prejudice of the' other creditors -of the bank, by procuring the payment of the check in the manner described in the prevailing opinion. This lie had ho right to do. As a director of the' bank he occupied a trust relation to its creditors, and it was his duty, the insolvency of the bank being at least imminent, to preserve all the' assets so far as he could for the benefit of all the creditors. The intent of the Legislature, as clearly manifest in this statute, is to prevent persons occupying a confidential relation, which Uhlman did to the bank, from either directly or indirectly profiting by information acquiredbecause of that, relation, to the detriment of the general creditors of the corporation. (Throop v. Hatch Lithographic Co., 58 Hun, 149; S. C., 125 N. Y. 530.).
It has, however, been suggested, not by the learned referee or the counsel for the respondent, but in the dissenting opinion, that the *25provisions of the 48th section of the Stock Corporation Law of 1892 have made a radical change in the statute relating to transfers or assignments of property by corporations when insolvent, or when insolvency is imminent. That suggestion is based upon the use of the word “ such ” in the second prohibition of the 48th section of the statute; and it is sought to be inferred from the use of that word that the policy of the State with reference to insolvent corporations, as it had been declared by statute from the year 1825, has, in effect, been annulled. It is true that a change has been made which authorizes a corporation to make an assignment for the benefit of creditors without preferences, but until the act of 1892 was passed no doubt existed as to the policy of the statute or the construction of section 4 of the “ Special Provisions Relating to Certain Corporations ” (1 R. S. 603), which was a re-enactment of the 6th section of chapter • 325 of the Laws of 1825. The provisions of the Revised Statutes were construed in Harris v. Thompson (15 Barb. 62), and it was there declared that the provision which enacted that any corporation which shall have refused to pay any of its notes or other obligations should not assign any of its property to its officers or directors for the payment of any debt, related to one prohibition only, and that the provision which enacted that it should not be lawful to make any assignment in contemplation of insolvency of “ such company ” to any person or persons whatever, and declaring a transfer so made to any officer, stockholder or other person to be utterly void, related to an entirely different state of circumstances. In the cases first provided for, evidence of the refusal to pay notes or current obligations was required to establish a cause of action, whereas, in the cases provided for in the second clause, no such evidence was required. (See, also, Sibell v. Remsen, 33 N. Y. 95.) In the construction given to that statute, it has always been assumed by the courts that this provision' was to prevent unjust discrimination among creditors of any insolvent corporation making preferential-payments when it was insolvent, or its insolvency imminent. ( Varnum v. Hart, 119 N. Y. 101.) It has always been understood, so far as I am aware, since the enactment of- the Revised Statutes, that this provision applied to any insolvent corporation. In Coats v. Donnell (94 N. Y. 168) the Court of Appeals so held, saying : *26“ The Revised Statutes prohibit preferences by insolvent corporations.” ' 1 find nothing in the statute under consideration to indicate that the policy of the law has been changed by the use of the word “ such,” or that the condition of insolvency, or the imminency of insolvency, which would make a preferential transfer invalid, relates" only to those corporations which have failed to pay their current obligations on demand or when due. Such construction would takeout of the operation of the 48th section of the statute every corporation which did not issue negotiable paper, but continued' to pay its current obligations, notwithstanding the fact that it might be. hopelessly insolvent, and thus all its property might be exhausted in payment of a creditor in which the directors, or ¡some of -them,, were personally interested. I cannot believe that the Legislature ever intended simply by the use of an adjective to accomplish such result. ■
It is also • said that the act prohibited by the statute is the act of the corporation itself, or of some one acting for or on its behalf. To give the statute this construction is to take out of it words contained therein and thereby destroy one of the purposes sought to be-accomplished by it. But this question seems to have been settled by the Court of Appeals in Throop v. Hatch Lithographic Co. (125 N. Y. 530). There the plaintiff, a trustee of the corporation,, acting, not in collusion with, but in hostility to, the corporation, and the other trustees, in an a-ction to recover money loaned, procured an attachment, which was thereafter vacated, and the Court of .Appeals,, in affirming the order vacating the attachment, said, “the plaintiff,, in commencing this action and 'procuring his attachment, was not acting in collusion with the trustees, but distinctly in hostility to the-board of directors and the other officers of the company. * * *■ It is true that the plaintiff, as director only, had no power over the corporate assets. He could neither assign nor transfer them to himself, or any one else, by his own act. But the plaintiff, in place of procuring an assignment or transfer by the voluntary action of the corporation, procured what is equivalent by legal process issued on his application. Construing the language of the statute in connection with its obvious policy, we think a construction which disables-an- officer- of an- insolvent corporation from acquiring a-.preferential lien on the corporate assets by legal process is justified.”
*27For tiiese reasons I concur with Mr. Justice Patterson that the judgment should be reversed.
Van Brunt, P. J., Patterson and O’Brien, JJ., concurred.