Court Opinion

ID: 9443851
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:32:16.603273+00
Date Added: 2024-06-11T17:25:09.736742
License: Public Domain

CHASE, Circuit Judge
(dissenting in part).
The majority of the court affirmed the order below on the ground that the appellant had failed to show, at least prima facie, that the partnership, as distinguished from DeAngelis individually, “intentionally and unjustifiably induced the corporation to break its contracts with the plaintiff.” The ground for reversal now emphasized by the appellant is the effect of the clause in the contract the partnership made with Gobel which provided that DeAngelis would cause the corporation to be dissolved. It contends that the dissolution, so induced by the partnership, disabled it as a matter of law from performing its executory contracts with the plaintiff. We did not before deal with this question and will do so now, having had the benefit of additional briefs on that point.
In New Jersey, under whose laws the corporation was organized, the dissolution of a corporation is treated as a breach of its executory contracts because the corporation then lacks the ability to perform. It is equivalent to a breach by refusal of further performance. Bijur v. Standard Distilling & Distributing Co., 74 N.J.Eq. 546, 559, 70 A. 934, affirmed 78 N.J.Eq. 582, 81 A. 1132. In many other states the same view is taken of the effect of dissolution. See 16 Fletcher Corporations (Perm.Ed.) Sec. 8120, page 862 and cases there cited.
It is true, as the appellees have pointed out, that under the statutes of New Jersey corporations continue to exist for certain limited purposes and their directors, as trustees, are authorized “to settle the affairs, collect the outstanding debts, sell and convey the property”, and perform “such other acts as shall be necessary to carry out the provisions of this title relative to the winding up of the affairs of the corporation and the distribution of its assets.” N.J.S.A. 14:13-5.
Such continued existence of corporations, *133however, is for winding up purposes “hut not for the purpose of continuing the business for which they were established.” N.J. S.A. 14:13-4. We fail to find in the statutes of New Jersey anything to empower the dissolution trustee of this corporation legally to perform in its behalf its executory contracts with the plaintiff. On the contrary, upon the dissolution of the corporation its assets became a trust fund for the benefit of creditors and stockholders and the continuance by the trustees of the corporation’s business would have been a fraud on the statute for which they might have been held personally accountable. Matawan Bank v. Matawan Tile Co., 2 N.J. 116, 65 A.2d 729.
Nor could they have performed the contracts merely by the delivery of tallow the corporation had on hand for that purpose. It did not have it. They would have had to purchase it on the market and either to have depleted a fund held in trust or to have created additional indebtedness so to get it. To do either would have been to act in excess of their powers. See 16 Fletcher Cyclopedia Corporations (Perm. Ed.) Sec. 8118. We are now satisfied that, for the reasons above stated, the appellant did make a prima facie showing that the partnership induced the corporation to breach its executory contracts with the appellant.
It may be, of course, that the dissolution of the corporation so induced was not an actionable tortious interference by the partnership with the appellant’s contract relationship to the corporation. The appellee has argued that it was not because there was ample time for performance by the corporation before it was to be dissolved in compliance with the promise of DeAngelis in tile partnership’s agreement with Gobel; and also because any resulting interference was privileged in that it was but incidental to the bona fide acts of the partnership for the protection of its property rights. But, though justification may eventually be shown, it is a defense which the partnership must prove. Aikens v. Wisconsin, 195 U.S. 194, 25 S.Ct. 3, 49 L.Ed. 154; Advance Music Corp. v. American Tobacco Co., 296 N.Y. 79, 70 N.E.2d 401. For the foregoing reasons we have now concluded that as the papers on which the attachment were based do not show that the plaintiff “must ultimately fail” to establish its cause of action as alleged they are sufficient for present purposes. See Bernstein v. Van Heyghen Freres Societe Anonyme, 2 Cir., 163 F.2d 246, certiorari denied, 332 U.S. 772, 68 S.Ct. 88, 92 L.Ed. 357.
This brings us to the additional questions which we did not reach before. They are whether the attachment is sustainable under Section 278(1)(b) of the New York Debtor and Creditor Law and whether the appellant’s moving papers, having shown prima facie a cause of action for money damages only, also show that the partnership assigned, disposed of or secreted partnership property with that kind of intent which will justify the granting of an attachment under § 903(3) of the New York Civil Practice Act.
Tn denying the motion on the ground that no cause of action against the partnership had been shown, the District Judge did not have occasion to deal with these questions either; but as the facts appear exclusively from the moving papers without the testimony of witnesses who were seen and heard by him we are in as good a position as he to determine what they are.
On such a motion like this, the papers on which the attachment was allowed are to be liberally construed and all fair inferences from the facts as stated are to be drawn in support of the attachment. United States v. Brown, 247 N.Y. 211, 160 N.E. 13; Stewart v. Lyman, 62 App.Div. 182, 70 N.Y.S. 936.
The pertinent facts thus shown are that after the sale of the North Bergen plant to Gobel, 75,000 shares of the Gobel stock which were part of the purchase price received by the partnership were pledged as collateral security for the payments of the debts of the DeAngelis corporation which DeAngelis and his wife had previously guaranteed individually but for which the partnership had not been a guarantor. This was a voluntary pledge without consideration.
*134The partnership had given a bank a continuing and unlimited guarantee on all the obligations of DeAngelis individually with, however, the reserved right to terminate it by notice so as to cut off any liability for obligations incurred after the- notice was given. On October 30, 1950 DeAngelis gave the bank his own unlimited and continuing guarantee of Gobel’s debts to the bank which later came to be in excess of $800,-000. No notice of the termination of the guarantee by the partnership of the obligations of DeAngelis was given before Gobel’s obligations were thus guaranteed by DeAngelis.
On October 25, 1950, $200,000 of the cash received on the sale of the plant was used to reduce a debt DeAngelis personally owed the bank. Then, or at least before December 1, 1950, all of the remainder of the proceeds of the sale, except $25,000, were pledged to the bank as additional security for its before mentioned guarantee of the obligations of DeAngelis.
These dispositions of the partnership property which were made when there were partnership creditors, were all voluntary, and in the absence of some proof to the contrary it is to be presumed, under New York law, that the transferor was insolvent. Cole v. Tyler, 65 N.Y. 73; Kerker v. Levy, 206 N.Y. 109, 99 N.E. 181; Ga Nun v. Palmer, 216 N.Y. 603, 111 N.E. 223. In this way the moving papers sufficiently show that conveyances as defined in Section 270 were made which were fraudulent as to partnership creditors under Section 277 of the New York Debtor and Creditor Law. The appellant insists that such conveyances were also made fraudulent by sections 273 and 275 of that statute, but if so their fraudulent character arose by virtue of a presumption of law just as in section 277 and fraudulent conveyances under section 277 will serve present purposes as well as would those under the other two sections.
I am not satisfied, however, that the attachment can be supported under Section 278(1) (b). That did not add a new ground for attachment to those in the Civil Practice Act. This subsection is concerned with the rights of creditors whose claims have matured and gives such a creditor “as against any person except a purchaser for fair' consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser” a choice of remedies.
Where a conveyance or obligation is fraudulent as to him he may proceed in equity to have it set aside or annulled to the extent necessary to satisfy his claim or disregard the conveyance and sue at law. If he sues at law, by hypothesis, there has been no conveyance and he has the same right to attachment or levy of execution that he would have had, but for the conveyance, on the property in the hands of his creditor. Cf. American Surety Co. v. Conner, 251 N.Y. 1, 166 N.E. 783, 65 A.L.R. 244.
Nor do I think that the weight of authority in New York is to the effect that the attachment was authorized by section 903 (3) of the Civil Practice Act. Its predecessor was section 636(2) of the Code. The intent to defraud creditors which must be shown to support an attachment under this section is one characterized by mala fides. As was said in J. H. Mohlman Co. v. Landwehr, 87 App.Div. 83, 86, 83 N.Y.S. 1073, 1075, “The weight of authority in this state is to the effect that the provisions of the Code [§ 636] in this regard relate to a moral, rather than to a constructive, fraud. Belmont v. Lane, 22 How.Prac. 365; Milliken v. Dart, 26 Hun 24; Casola v. Vasquez, 147 N.Y. 258, 41 N.E. 517. In other words, there must be an actual or intended fraud in order to authorize an attachment, and not merely one declared to be such by statute because of the omission of certain specified formalities.” And in Casola v. Vasquez, supra, 147 N.Y. at page 260, 41 N.E. at page 518, the statement of what is required is that “to authorize an attachment under subdivision 2 of section 636 of the Code, there must be actual or intended fraud upon creditors; such fraud as was contemplated by the statute of Elizabeth and similar statutes.”
The appellant relies on cases, of which Vietor v. Henlein, 34 Hun 562; Citizens Bank v. Williams, 59 Hun 617, 12 N.Y.S. *135678; Luckens Iron & Steel Co. v. Payne, 13 App.Div. 11, 43 N.Y.S. 376, and Schumann v. Davis, Com.PL, General Term, 14 N.Y.S. 284, are examples, in which motions to vacate attachments based on the fraudulent transfer section of the attachment statute were denied. Tn some the circumstances shown justified an inference that the transfers were made with actual intent to defraud and in so far as they indicate that only intent to defraud based on a presumption of law is enough I do not think they accord with the weight of authority in New York. Cf. V. G. Piluke Co. v. Papulias, 42 Misc. 15, 85 N.Y.S. 541.
We have already held that the moving papers do not show that DeAngelis was acting on behalf of the partners in the procurement of the tallow contracts. Its part in the events which led up to the breach of the contracts was a sale of the partnership plant to Gobcl for a fair consideration, the contract for that sale providing for the dissolution of the DeAngelis Corporation. If actual fraud by the partnership is shown by the papers it is in that tile proceeds of the sale were used to reduce a debt of one partner of which the partnership was already the guarantor, to add to the collateral security it had already pledged on its guaranty of that partner’s personal obligations and, by failing to give notice to prevent it, to permit him to increase his personal obligations by becoming the guarantor of the obligations of Gobel, a corporation in which the partnership was a substantial stockholder. At tile time the proceeds were so used there had been no default oil the tallow contracts and there was nothing due and owing by tile partnership to the appellant and that there ever would be lay in the uncertain lap of the future as, indeed, it still does.
In the circumstances here shown the use of the proceeds of the sale to reduce a debt the payment of which it had already guaranteed and to aid a corporation in which it had a substantial stock interest are too indicative of an intent to take advantage of a proper business opportunity to support an inference that they were prompted by an evil purpose to defraud the appellant.
“The burden of proving a fraudulent intent is with the parly applying for the writ [of attachment], and circumstances which may create a strong suspicion, but yet fall short of prima facie proof, are not sufficient. Thompson v. Dater, [57 Hun 316] 10 N.Y.S. 613, [32 N.Y.St.Repr. 361]; Bump v. Daheny, [59 Hun 619] 12 N.Y.S. 901 [36 N.Y.St.Rep. 114].” J. H. Mohlman Co. v. Landwehr, supra.
For the same reasons, the papers fail to show a cause of action under Section 276 of tile Debtor and Creditor Law.
I would deny the petition for rehearing.