Opinion
02-07-1900
MULFORD v. DOREMUS.
James E. Howell, for petitioner. J. J. Joyce, for receiver.
In the matter of the insolvent proceedings of the International Baking Company, William V. Mulford petitions that Benjamin G. Doremus, receiver of the company, deliver to him certain property. Granted.
Mr. Doremus is the receiver appointed by this court in insolvent proceedings of the International Baking Company. The petitioner complains that as such receiver he has in possession certain goods and chattels which belong to the petitioner, and prays that he may be directed by this court to deliver the same to him. The chattels consist of the machinery, implements, etc., constituting a bakery plant, which were in the possession of the insolvent corporation at the time of the appointment of the receiver, but were at that time subject to the levy of an execution in the hands of a constable, founded on a judgment in favor of a firm composed of Smith and Morehouse, doing business under the name of C. Smith & Co., against a firm of Walker & Strachan, who, it is admitted, were once the owners of the plant, and transferred it to the baking company after the accrual of the debt which was the basis of the judgment, and before the recovery of the judgment The petitioner, who purchased the goods at constable'ssale under the judgment asserts that the transfer from Walker & Strachan to the baking company was made after Smith & Co.'s debt accrued, and without any valuable consideration, and was fraudulent and void as against the judgment creditors, O. Smith & Co., because it tended to hinder and delay them in the recovery of their debt; and that was the point litigated. No question was made as to the power and propriety of the court proceeding in this manner to determine the question.
James E. Howell, for petitioner.
J. J. Joyce, for receiver.
PITNEY, V. C. (after stating the facts). At and before the 20th of March, 1899, Walker & Strachan, were partners engaged in the business of baking, and were the owners of the plant here in controversy. Between March 20 and May 24, 1899, they became Indebted to C. Smith & Co. in the sum of about $170. About the 20th of May, Mr. Strachan sold out his interest in the firm to a Mr. Germer for $2,000, and took his promissory note for the same. The business continued as before, and part of the terms of the sale was that the new concern was to assume all the existing debts. Mr. Germer apparently soon perceived that the business was a losing one, and his interest in it of no value, and sold out that Interest to a Mr. Sullivan. Sullivan never paid Germer anything, for the reason that he found that Germer had not paid Strachan, and was not likely to do so. The fair inference from the facts and circumstances is that Germer was a man of no pecuniary responsibility. The object of bringing Sullivan in was to increase the business of the plant, so that it might make a profit, instead of being conducted at a loss, as it was at that time; and Sullivan interested himself in the direction of increasing the business. The concern at that time was indebted in the sum of $4,600, in which was included, with C. Smith & Co.'s claim, a debt of $1,000 for borrowed money, which it had just procured, on the note of the Arm, from a Mr. Steenburg. That $1,000 was placed in bank to the credit of the firm, and was expended in part payment of its floating indebtedness. The probable motive on the part of Steenburg in making the loan was that his son might be employed by the concern. Then, on the 29th of May, the International Baking Company was formed by Walker. Steenburg, Jr., and Sullivan; and afterwards, on July 26th, it purchased the plant from the firm, at an expressed price of 250 shares in the corporation, and issued shares of stock therefor to Walker and Sullivan. Not a dollar in cash was paid for the stock 90 issued. One thousand dollars of additional stock was divided among Walker, Sullivan, and young Steenburg on the strength of the $1,000 which the elder Steenburg had loaned to the firm of Walker & Germer; and the plant and other assets and good will were transferred to the corporation by a bill of sale dated July 26, 1899, which expressly assumed all the debts of the partnership. Not a dollar in money was paid for the transfer. When Mr. Sullivan looked Into the finances of the corporation, he found a sum of money in the treasury, of less than $50, which came from the firm. The business had been previously, and continued to be. conducted at a loss until the 27th of September, when the bill praying for the appointment of a receiver was filed. In the meantime suit was brought by C. Smith & Co., on their demand, against the firm of Walker & Strachan. Judgment was recovered September 19th, and levy made before the bill for the receiver was filed. The property was properly advertised for sale, and sold by the constable October 2d for $460, and purchased by Mr. Mulford. The receiver was appointed the same day. The bid was paid by Mulford to the constable in cash, and C. Smith & Co.'s execution was paid out of it, and the balance retained by the constable to answer any demand for arrears of rent which were then due.
If the transfer to the corporation had been made directly by the original defendants in execution, Walker & Strachan, I should say the case was not debatable. The circumstances satisfy me that the firm was substantially insolvent at the time of the transfer, and, as I have stated, no consideration was paid. The Issuing of shares of stock to the members of the firm was not a valuable consideration, for the reason, among others, that it had no intrinsic value, and was with the exception of the shares issued to Steenburg, issued to the very Individuals who owed the debts of the firm. The effect was simply to put the title of the property and assets of the partnership in a corporation which assumed the payment of the debts of the partnership, including those of C. Smith & Co., without the least pecuniary ability to pay them. The result was unlawfully to hinder and delay the creditors in the enforcement of their claims against the partnership property. The only question is whether the withdrawal of Strachan, and the substitution in his place of Germer, and afterwards of Sullivan, changed the character of the transaction. I am of the opinion that it did not. Germer never paid Strachan anything, and Sullivan never paid Germer anything; but, in point of fact, the shell of an indebtedness from Sullivan to Germer, and Germer to Strachan, was later on settled by a transfer of shares of stock in the corporation from Sullivan to Strachan. But, further, the debt from Walker and Strachan to Smith & Co. became by assumption, and was in equity, the debt of the partnership, which was constituted at the moment of the transfer to the corporation. So that the change in the personality of the composition of the firm becomes quite immaterial. No new rights were acquired by any person by the transfer to the corporation, and,so far as appeared at the hearing, by any of its business operations during its short life, —two months. It collected some of the dues to the partnership, bought its supplies for cash, and incurred no new indebtedness. I will advise a decree accordingly.