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de Stefano v. Am. Chocolate Almond Co.

COURT OF CHANCERY OF NEW JERSEY
Nov 5, 1930
152 A. 2 (Ch. Div. 1930)

Opinion

11-05-1930

DE STEFANO et al. v. AMERICAN CHOCOLATE ALMOND CO.

Milberg & Milberg, of Jersey City, for receiver. J. Raymond Tiffany, of Hoboken, for Panayiotis D. Panoulias.


Syllabus by the Court.

If a corporation be in fact insolvent, or if it contemplates insolvency, it cannot secure a pre-existing debt, whether or not the creditor has notice of its financial condition.

Syllabus by the Court.

A receiver of an insolvent corporation may recover preferential payments made by a corporation to its officers, stockholders, or creditors, on an antecedent indebtedness, when payments are made while the corporation is insolvent.

Syllabus by the Court.

The receiver of the insolvent corporation herein may recover unlawful preferential payments made from the corporation's funds to the president and principal stockholder of the corporation, as a creditor thereof, on an antecedent indebtedness, after the filing of the bill herein. The receiver may also recover from said officer and stockholder an unlawful preferential payment which he caused to be paid after the filing of the bill herein to a banking institution, from the funds of the corporation, upon promissory notes of the corporation upon which he was an indorser.

Syllabus by the Court.

Under P. L 1919, p. 456, § 4, supplementing the Corporation Act of 1896, the title and right of the receiver, for the purpose of avoiding liens and preferences, relates back to the time of the filing of the bill.

Syllabus by the Court.

There can be no doubt under our law of the right of the receiver of an insolvent corporation to recover preferential payments made by a corporation to its officers, stockholders, or creditors, on an antecedent indebtedness, when payments are made while the corporation is insolvent; and particularly in the case sub judice asto the preferred creditor Panoulias, president and controlling stockholder of the corporation, having entire management of its business, who, being fully aware of the insolvency of the corporation, preferred himself and a trust company as creditors of the corporation in contemplation of its collapse.

Suit by Massimilano de Stefano and others, doing business and trading under the name of Keystone Iron & Wire Works, against the American Chocolate Almond Company. On petition of Henry Frank, Jr., as receiver of defendant corporation, for an order requiring Panayiotis D. Panoulias to turn over to him a certain sum.

Order granting receiver's petition advised.

Milberg & Milberg, of Jersey City, for receiver.

J. Raymond Tiffany, of Hoboken, for Panayiotis D. Panoulias.

FALLON, Vice Chancellor.

The petitioner, as receiver of American Chocolate Almond Company, an insolvent corporation, prays an order requiring Panayiotis D. Panoulias to turn over to him $3,395.25. The receiver's petition was filed July 1, 1930. An order was made thereon returnable July 7, 1930, requiring Panoulias to show cause why he should not turn over to the receiver the sum of $3,395.25 received by him as a preference. The answer of Panoulias, filed September 3, 1930, does not deny the allegations of the petition, but disclaims his liability to the receiver. On April 16, 1930, a bill was filed in the above-stated cause alleging the insolvency of the defendant corporation. On said date an order was made returnable April 21, 1930, requiring the corporation to show cause why, inter alia, a receiver should not be appointed. Upon request of the solicitor of the corporation the hearing on said order was continued to May 8, 1930, when said solicitor admitted the allegations of the bill, and consented to the appointment of a receiver. Between the date of the filing of the bill and service of the order to show cause, and the date of the appointment of the receiver, the corporation's funds were augmented by moneys deposited to its credit with the Trust Company of New Jersey. Within the same period Panoulias, president and controlling stockholder of the corporation, having entire management of its business, withdrew $1,345 from the funds of the corporation by checks which he caused to be drawn on the Trust Company of New Jersey, payable to his own order, as payment on account of an indebtedness of upwards of $30,000, alleged to be owing to him; and he paused to be paid to said trust company from the funds of the corporation, by checks of the corporation, the sum of $2,050 in part payment of promissory notes of the corporation upon which he was indorser. In consequence of the withdrawals and payments aforesaid, the corporation, on May 8, 1930, the date when the receiver was appointed, had a bank balance of only $53.19. It is urged in behalf of the receiver that the withdrawals and payments aforesaid were unlawful preferences to creditors within the purview of section 64 of the Corporation Act, and were fraudulently intended to defeat the rights of other creditors of the corporation. Such appears to be the fact. The proofs herein evidence that Panoulias was aware of the insolvency of the corporation when he effected the withdrawals and payments in question. The proofs evidence also that Panoulias was aware prior to the filing of the bill herein that the corporation contemplated insolvency. In a memorandum submitted by the solicitor for Panoulias it is said, "He was the corporation, in fact." The continuances on the order to show cause why a receiver should not be appointed were ostensibly to enable the receipt of the moneys utilized by Panoulias for the purposes aforesaid. It is significant that the payments in question were made subsequent to the filing of the bill and the service of the order to show cause why a receiver should not be appointed for the corporation. It was conceded that the payments to Panoulias and the Trust Company of New Jersey were for antecedent indebtedness of the corporation. Section 64 of the Corporation Act (2 Comp. St. 1910, p. 1638, § 64), provides, inter alia, that when a corporation becomes insolvent neither the directors nor any officer or agent of the corporation shall in any wise transfer or dispose of any of its property or rights or credits; nor shall they or either of them make any transfer or disposal of property or rights or credits in contemplation of insolvency; and every such transfer or disposal shall be utterly null and void as against creditors. Under P. L. 1919, p. 456, § 4, supplementing the Corporation Act of 1896 (2 Comp. St. 1910, p. 1595 et seq., § 1 et seq.), the title and right of the receiver, for the purpose of avoiding liens and preferences, relates back to the time of the filing of the bill upon which the corporation is adjudged insolvent and receiver appointed. The receiver represents all creditors, stockholders, and other parties in interest. It has been held if a corporation be in fact insolvent, or if it contemplate insolvency, it cannot secure a pre-existing debt, whether or not the creditor has notice of its financial condition. Regina Music Box Co. v. Otto & Sons, 65 N. J. Eq. 582, at page 586, 56 A. 715, affirmed 68 N. J. Eq. 801, 64 A. 1134; Smathers v. Leith, 92 N. J. Eq. 165.at page 168, 111 A. 406. There can be no doubt under our law of the right of a receiver of an insolvent corporation to recover preferential payments made by a corporation to its officers, stockholders, or creditors, on an antecedent indebtedness, when payments are made while the corporation is insolvent; and particularly in the case sub judice as to the preferred creditor Panoulias, president and controlling stockholder of the corporation, having entire management of its business, who, being fully aware of the insolvency of the corporation, preferred himself and the Trust Company of New Jersey as creditors of the corporation in contemplation of its collapse. Jessup v. Thomason, 68 N. J. Eq. 443, 59 A. 226. The proofs herein manifest that Panoulias sought to exonerate himself from liability as indorser on promissory notes of the corporation held by the Trust Company of New Jersey, and to prefer the trust company and himself as creditors of the corporation. He cannot thus exonerate himself. He is liable to the petitioner-receiver for the amount of the unlawful preferences thus created by him. Savage v. Miller, 56 N. J. Eq. 432, 36 A. 578, 39 A. 665; Taylor v. Gray, 59 N. J. Eq. 621, 44 A. 668; Jessup v. Thomason, supra; Woods v. Metropolitan National Bank, 126 Wash. 346, 218 P. 266, 4 A. B. R. (N. S.) 1191. "

I will advise an order requiring Panayiotis D. Panoulias to forthwith pay over to the petitioner-receiver, Henry Frank, Jr., the several sums of money hereinabove mentioned, aggregating $3,395.25, with lawful interest thereon from the respective dates when such moneys were paid from the funds of the insolvent corporation. The Trust Company of New Jersey has not been made a party to this proceeding; therefore the right of the receiver to recover from said company the amount paid to it under the circumstances stated hereinabove is not before the court for determination.


Summaries of

de Stefano v. Am. Chocolate Almond Co.

COURT OF CHANCERY OF NEW JERSEY
Nov 5, 1930
152 A. 2 (Ch. Div. 1930)
Case details for

de Stefano v. Am. Chocolate Almond Co.

Case Details

Full title:DE STEFANO et al. v. AMERICAN CHOCOLATE ALMOND CO.

Court:COURT OF CHANCERY OF NEW JERSEY

Date published: Nov 5, 1930

Citations

152 A. 2 (Ch. Div. 1930)