
    John H. Spellman, as Temporary Receiver of the Muehlfeld & Haynes Piano Company, Respondent, v. Jared J. Looschen, Appellant.
    
      Insolvent corporation—judgment taken against it by default not a violation of section 48 of the Stock Corporation Law.
    
    Where, in an action to recover for goods sold for cash, the summons is served upon the president of a defendant corporation, -which is at the time insolvent, and no answer is interposed and judgment is taken by default, the judgment so entered should not be set aside as having been “suffered" to be taken, with intent to give a preference, in violation of section 48 of chapter 688 of the Laws of 1893 (the Stock Corporation Law).
    Neither a corporation nor its officers are bound to interpose an answer to a verified complaint to prevent a judgment from being obtained thereon against the corporation, although it is insolvent, when an answer so interposed would be false.
    Appeal by the defendant, Jared J. Looschen, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 28th day of June, 1897, upon the decision of the court rendered after a trial at the New York Special Term.
    
      Herbert II. Walker, for the appellant.
    
      John Helalmnty, for the respondent.
   Ingraham, J.:

The action was commenced to set aside a judgment obtained by the defendant against the Muehlfeld & Haynes Piano Company on June 9, 1894. The summons in the action in which the judgment was obtained was served on June 4, 1896, upon the president" of the plaintiff corporation. No answer was interposed by the defendant, and judgment was taken by default. The plaintiff, as receiver of the judgment debtor, seeks to have this judgment declared void, under the provisions of section 48 of the Stock Corporation Law of 1892 (Chap. 688), which provides that “No * * * judgment suffered 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.” To make a judgment obtained against a corporation by a creditor invalid under the provisions of this section it must be shown that such a judgment was suffered by an officer, director or stockholder of the corporation, with the intent of giving a preference to a particular creditor over other creditors of the corporation. In case of a bona fide creditor this statute evidently contemplates some affirmative action by an officer, director or stockholder of a corporation by which a creditor is allowed to obtain a judgment, and the act of such officer, director or stockholder must be with the intent to give the judgment creditor a preference over the other creditors of the corporation. It would bo undoubtedly within the prohibition of this statute for the officers of a corporation to allow a creditor whose debt was not due to obtain a judgment which would enable him to obtain a preference; or to refuse to interpose a defense on behalf of the corporation when one existed ; or to fail to protect the corporation against a judgment when such a protection was possible and when it appeared that such action was within the intent mentioned. But as was said by Mr. Justice Rumsey in The Matter of Muehlfeld & Haynes Piano Company (12 App. Div. 492), “ Where a just debt exists against a corporation, upon which an action has been brought, the statute does not require the corporation to attempt to defend the action if it has no legal defense, and a judgment entered upon such an action is valid. * * * It is true that an insolvent corporation is forbidden to suffer a judgment against it with intent to give a preference to any creditor; * * * but where the corporation merely fails to put in a defense to a just debt, it is not to be inferred from that fact alone that the judgment was suffered with intent to give a preference, and the judgment thus entered is not invalid.” (See, also, French v. Andrews, 145 N. Y. 441.) In Lopez v. Merchants & Farmers' Nat. Bank (18 App. Div. 433) the evidence disclosed “ that a scheme existed to facilitate, as well as effectuate, a desire on the part of the corporation favorable to giving preferences to Campbell on the indebtedness held by him against the corporation.” In Varnum v. Hart (119 N. Y. 101) it appeared that the director of the corporation upon whom the summons and complaint were served, acting in concert with the creditor, knowing the company to be insolvent, and meaning to permit the creditor to obtain a preference in payment of his claim over other creditors, kept the fact of the service of the papers upon himself concealed from the other officers of the company, and a judgment by default was granted. The Court of Appeals held that the statute was not violated; that neither the creditor nor the director was under any statutory restraint, and that there was no violation of the statute by the failure of the director to disclose the fact of the service of the papers on him, whereby a debt really existing and honestly due obtained a preference; that neither the director who was served, nor the other officers, if they had known of the service of papers, were bound to interpose a defense, and that, whatever was done, or authorized to be done or omitted, the fact remained that there was no assignment or transfer of property, and hence no violation of the statute. And in the case of French v. Andrews (supra) it was held that the conduct of the treasurer in giving notes which split up the creditor’s demand, so that it might be sued by the creditor in the Municipal Court, did not so far alter the facts as to call for a different decision from that in the Yarnmn case. In that case the officers of the corporation gave to the creditor notes which might be sued on in a Municipal Court which would enable him' to obtain judgment in very much less time than if the notes had not been given, and that was held not to avoid the judgment.

Applying this principle to the case at bar, it would seem that there was no evidence here to show that the officers of this corporation suffered this judgment to be obtained within the prohibition of the statute. The evidence is clear that the whole amount sued for was due. The defendant who sold the goods, and the president of the corporation who purchased them, testified that the goods, for the sale and delivery of which the plaintiff sought to recover as one of his causes of action, were sold for cash, or for customers3’ approved notes, to be delivered within a week. The sale was made on May thirteenth, and more than a week had passed before the action was commenced. There .was not even a suspicion that that testimony was not true, as the mere fact that the defendant had sold goods to the corporation prior to this time upon a two or four months’ credit would not affect this particular sale, which, by agreement between the parties, ivas for cash. The testimony is explicit that the defendant, being applied to by the president of the corporation for these goods, refused to sell them, and finally was induced to make the sale upon the express agreement for payment in cash. It being, therefore, an honest debt for which the defendant had a right to sue, he was informed that another person had obtained a judgment against the company, and that the company was in trouble, and he commenced his action at once. Assuming that he also understood that proceedings were about to be instituted for a dissolution of the corporation, he was not bound to wait until such proceedings eventuated in the appointment of a receiver, and thus lose his right to enforce his claim against the corporation. For does the fact that he employed as an attorney a gentleman who had hired a part of the offices of the attorney for this corporation tend to show that the officers of this corporation were doing anything to facilitate his obtaining the judgment. He had a right to employ this attorney to bring his suit. He had a right to sue and obtain judgment. Feither of these officers could have verified an answer to this claim without committing perjury, and all that the officers of this company could have done to prevent a judgment from being obtained would be to interpose an answer which, upon the evidence, would have been false. Certainly, it was never contemplated that this statute would impose a duty upon the officers of the corporation of interposing a false answer, in an action brought against the corporation, which would subject the person verifying it to the penalty for perjury. The mere failure of an officer of a corporation to interpose such an answer would not be suffering a creditor to obtain a judgment with intent to give such creditor a preference.

We think, therefore, that there was no evidence to justify the court in finding that the amount of $411, which constitutes one of the causes of action, was not due at the time the action was commenced, or that this corporation, of which the plaintiff was receiver, suffered a judgment to be taken against it, within the meaning of section 48 of the Stock Corporation Law of 1892. For this reason the judgment should be reversed and a new trial ordered, with costs to the appellant to abide the event.

Van Brcjnt, P. J., and Patterson, J., concurred; Rumsey, J., dissented.

Judgment reversed, new trial ordered, costs to appellant to abide .event.  