
    MILBANK v. WELCH et al.
    (Supreme Court, General Term, First Department.
    December 15, 1893.)
    1. Corporations—'Transfer of Property to Officers.
    The directors of a corporation loaned it money, taking the transfer of certain accounts as security, under an agreement that until default the company might, from time to time, substitute other accounts in the place of those so transferred. The directors collected the accounts, and paid the proceeds to the company. After the debt had become due, other accounts were transferred in place of those which had been collected. Held, that the last transfer, not being within the terms of the contract, was void, under Laws 1892, c. 688, § 48, which forbids a corporation, after refusal to pay any of its obligations, to transfer any of its property to any of its officers or directors on any other consideration than full value paid in cash.
    8. Same—Transfer to Former Directors.
    A transfer of property by a corporation to secure a debt to the transferee, incurred while he was a director, he having ceased to be such at the time of the transfer, is not a violation of such statute.
    
      8. Same—Proof of Insolvency.
    In an action by a receiver to set aside a transfer of corporate property on the ground that it was made when the corporation was insolvent, proof that the corporation, at the time of the transfer, had failed to pay one or more of its obligations at maturity, is not sufficient to show insolvency.
    Submission of controversy between Samuel W. Milbank against John W. Welch and Luke A. Burke, as trustees, on an agreed statement of facts, pursuant to Code Civil Proc. § 1279. Judgment for plaintiff.
    Argued before VAN BRUNT, P. J., and FOLLETT and PARKER, JJ.
    Smith & Perkins, (Geo. Putnam Smith, of counsel,) for plaintiff.
    Otterbourg, Jenks & Springs, for defendants.
   PARKER, J.

Plaintiff, as receiver of the property of Alexander, Burney & Chapin, a corporation organized under the laws of the state of New York, demands judgment that an assignment of accounts made by it September 1, 1893, be adjudged invalid, because in violation of section 48, c. 688, Laws 1892, which reads as follows:

“No corporation which shall have refused to pay any of its notes or other obligations when due, in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, directors, or' stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash. 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 solvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation shall be valid.”

On the 16th day of July, 1891, the corporation being in need of funds, five of its stockholders and directors—P. H. Alexander, C. E. Chapin, A. A. Patton, John W. Welch, and Luke A. Burke—entered into an agreement to loan it the sum of $10,000 in cash, each of said directors furnishing $2,000 of the money loaned. An agreement in writing was executed by the corporation, reciting its intention to borrow the money; to give therefor its promissory notes payable on the 16th day of July, 1892, with interest payable semiannually; to secure the payment of the notes by an assignment and transfer to Welch and Burke, as trustees, of certain accounts, amounting in the aggregate to not less than $15,000; and providing that the trustees should have the right to receive any and all moneys paid or collected upon said accounts at any time, and to hold the moneys as part security for the notes, or apply the same from time to time in payment thereof; "it being agreed, however, that the company may from time to time, there being no default on the notes, or any of them, substitute other accounts in the place of any accounts so transferred and assigned." On the same day, and after the execution of the agreement, the directors loaned to the corporation the sum of $10,000 in cash, and received its notes executed in conformity with the agreement. At the same time the corporation assigned to Burke and Welch, the trustees named in the agreement, accounts amounting to $15,000, in accordance with the stipulation contained in the •contract The trustees never applied any of the money received from the accounts in payment of the notes, but, instead, it was turned over to the corporation, which, from time to time, made new assignments of accounts to take the place of those which had been collected, and applied to the use of the corporation. The last assignment was made September 1, 1893, at which time the corporation had refused, to pay certain of its matured obligations. The notes to the directors became due July 15, 1892, more than a year prior to the last assignment of accounts of which plaintiff complains, at which, according to the express provisions of the agreement, it was the duty of the trustees to apply the moneys in their hands to the payment, pro rata, of said notes. This, as we have observed, they did not do, but, instead, turned over the moneys to the corporation, and took new assignments of accounts in place thereof. For this there was no authority in the agreement, which only provided for the substitution of other accounts while the corporation was not in default on the notes. The situation in which the parties found themselves on the 1st day of September, 1893, was that the •defendants were the holders of past-due notes, which the trustees, by virtue of the agreement and transfer of accounts, had had an opportunity to secure the payment of, but had not availed themselves of it. So a further transfer of accounts was made, and thus they attempted to bring about that which seemed to them equitable and just, because merely a transfer of accounts to take the place of those which had been collected and applied to the use of the corporation, but was nevertheless in violation of that provision of the •statute which forbids a transfer of any of the corporate property to any of its officers, directors, or stockholders, directly or indirectly, for the payment of any debt, when, at the time of doing it, the corporation shall have refused to pay any of its matured obligations. A very different question would be presented if the agreement, instead of limiting the period within which substitution of accounts could be made to the time when the corporation should be in default on the notes, and providing that at maturity the trustees should at. once apply the money in their hands towards their payment, had provided that such substitution should continue from time to time until the notes were actually paid. Were such the case, the ques-. tian would be presented whether a transfer of the property of a corporation to one of its directors or stockholders after its refusal to pay any of its notes or other obligations when due, if done in pursuance of a previous agreement, is in violation of the statute. But, as we have already observed, at the date of the transfer made there was no agreement under which the parties could enforce further transfer of accounts. The one made was therefore voluntary, and, in so far as it was made for the benefit of directors and stockholders of the corporation, it was in violation of the statute.

Three of the directors, Alexander, Patton, and Chapin, prior to the maturity of the notes, and on February 16, 1893, ceased to be either directors or stockholders in such corporation. The provision •of the statute last above referred to does not, therefore, apply to them. The statute distinguishes between a transfer to an officer or stockholder, and one to a person holding neither of such positions. To a stockholder or director, a transfer of corporate property is forbidden, if the corporation shall have refused to pay any of its notes- or obligations when due; but to other creditors a transfer of corporate property in payment of its debts is only prohibited “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.”

In the latter case the plaintiff does not sustain the burden of proof résting upon him by merely showing a transfer of property to a creditor in payment of a just debt, after it has failed to meet at maturity one or more of its obligations. It is necessary for him to go further and show facts from which the inference is required that the officers of the corporation making the transfer of the property did so-with the intent of giving the creditor a preference at a time when the corporation was insolvent, or its insolvency imminent. It is obvious-from the agreement, and the conduct of the parties under it, that the transfer of accounts was the natural result of a legitimate effort, to secure payment of a debt contracted under an agreement that it should be secured, but which failed of its purpose, owing to the neglect of the parties to strictly conform to its provisions. Under tbesecircumstances, it is not unlikely that the officers of the corporation regarded themselves as bound in equity, if not in law, to make such a transfer of accounts as would comply with the conditions on which the money was originally loaned. If such were the case, the inference would not necessarily be required that the intent with which the act was done was that of giving preference to particular creditors over other creditors, within the meaning of the statute. If the views expressed are corred:, it follows that upon the facts, as here presented, the plaintiff is entitled to a judgment directing a reassignment to him of such accounts, or the proceeds thereof, as shall remain after a sufficient sum shall have been collected to pay the sums due, with principal and interest on the notes belonging to Alexander, Chapin, and Patton. In determining the amount due on the Chapin note, there should be first credited thereon $1,176.69, the-value of certain goods for which he is indebted to the corporation.. Judgment is directed accordingly, without costs. All concur.  