Court Opinion

ID: 5318538
Source: CourtListenerOpinion
Date Created: 2022-01-08 04:21:34.967944+00
Date Added: 2024-06-11T08:29:18.101446
License: Public Domain

Sherman, J.
(dissenting). The finding below that the transfer on February 5, 1929, of the 450,000 shares of Falcon Oil Company stock to respondent was for a “ fair consideration ” within the meaning of the provisions of the Debtor and Creditor Law (§ 272) is, as I view the testimony, well supported in the evidence.
The fairness of the consideration must be judged in the light of the surrounding conditions, then present, and is not to be tested by a subsequent happening, which could not then have been forecast.
The consolidated loan of $2,600,000 and interest, held by respondent, against which the shares had been pledged, was long overdue and Winant had unavailingly attempted to sell the collateral. He was vitally interested in so doing in order to avert a deficiency judgment.'
Respondent did not seek to acquire these shares. It had rejected Winant’s offer to transfer them in satisfaction of the debt and had advertised the shares for public sale. Plaintiffs prevented that sale by their threat to proclaim that the purchaser could not obtain a valid title — conduct found to be wrongful and without justification. Having carried the loan for a long period of time, respondent requested plaintiffs and other known creditors of Winant to take the whole or any part of its position offering to lend the money to plaintiffs to the extent required to make the purchase. Plaintiffs, however, stated that they already had all the Falcon stock that they wished. They do not deny that they were acquainted with the assets of the corporation and were in a position to know their value. They did nothing beyond instituting this action based, at its start, upon the unfounded claim, still pressed upon our attention, that the loan was usurious and should be held void. They, not Winant, the borrower, pursued this course whereby they sought to put all the stock in such position that they could satisfy their claim out of the shares, freed from the lien of the indebtedness due to Harriman. If, as now contended, that stock *116was then actually worth seven dollars and fifty cents per share, appellants were strangely blind to that fact when they refused to participate at the lower price.
W. A. Harriman & Co. was in a difficult position. It made the loan in good faith to aid the enterprise and dealt fairly. As found by the court, it followed no fraudulent course. Then, to protect itself, it took over the shares against the debt.
Was there any market for the stock at which it could have been sold at a better price than Hariman paid for it? Neither plaintiffs nor other shareholders were willing to take any part of these shares at the price that Harriman paid. The purchase was made at a figure slightly under six dollars per share. There is no proof that the shares ever sold above six dollars per share. Book values are referred to, as though they constituted a guide. But they are of no consequence here, because they had been written up in the company’s books by mere bookkeeping entries to enormously exaggerated figures. Whether or not the Falcon Oil Corporation had operated at a profit during the brief period of nineteen months, with oil selling at a fairly high price, is extremely doubtful and depends upon the proper allowance to be made for depreciation and depletion. The option prices, mentioned in the borrowing agreement, reveal the early hopes of the parties engaged in this speculative operation. No one at any time considered exercising them. The opinion of experts as to how much oil there might be underground and its possible worth were mere guesses.
The important factor is that there was no one prior to, or at that time, who would buy these shares, in whole or in part, at the price paid by W. A. Harriman & Co. How then can it be held that the consideration of approximately $5.95 per share (the loan with interest then aggregating about $2,675,000) was actually unfair, unless this court, knowing that no one would, holds that some one should, have paid more?
Harriman & Co. had a hen on the shares pledged for the loan. It had been unable to persuade plaintiffs or any creditor of Winant, to take over any part of the loan, because these creditors evidently did not regard the hen as being sufficiently secured by the then value of the stock and deemed the options worthless.
Several months passed during which these shares were offered for sale with no purchaser. Respondent negotiated for and obtained a change in the long term oil contract, which was Falcon Corporation’s most valuable asset, at an added cost to it of $200,000. Then, only, was it fortunate enough to find a purchaser. Without this change procured by the further investment of $200,000, none could be found. Respondent might have lost its entire investment. *117It took all the risk. Fair consideration is not synonymous with the highest price. Consideration may be fair even if somewhat less than full value. Here, it measured the full value.
Under the circumstances, the transfer of these shares in satisfaction of the antecedent debt, with a release to Winant and forbearance to sue him for a deficiency was upon an adequate consideration which was " fair ” under section 272 of the Debtor and Creditor Law.
The judgment appealed from should be affirmed, with costs.
O’Malley, J., concurs.
Judgment reversed, with costs and disbursements, and judgment directed for the plaintiffs for $306,021.86, with interest and costs. The findings inconsistent with this determination should be reversed and such new findings made of facts proved upon the trial as are necessary to sustain the judgment hereby awarded. Settle order on notice.