Shalek v. Jetter

Appellate Division of the Supreme Court of New York

Shalek v. Jetter

171 A.D. 364, 155 N.Y.S. 975, 1915 N.Y. App. Div. LEXIS 5131

Appellate Division of the Supreme Court of the State of New York·Decided November 19, 1915·Published·Cited by 2 cases

Opinion

The following is the opinion of the court below:

Shearn, J.:

It has already been held that this action “ is in the nature of a creditor’s bill, a search and trace by a diligent judgment creditor for and the enforcement of an equitable lien upon the assets of the corporation that have been distributed by the trustees in violation of law.” (N. Y. L. J., April 5, 1915.) The complaint alleged that of this illegal distribution a sum

[365]*365sufficient to satisfy plaintiff’s judgment remains in the hands of the directors, and it is upon such funds that the action seeks to enforce a lien. It is now alleged as a defense by the defendant Jetter, one of the directors, that at the time of the transfer by the corporation of all of its assets a fund amounting to $10,000 was set aside and specially deposited as a trust fund for the purpose of paying debts of and claims against the corporation, and for a long time thereafter sufficient funds remained of such amount, more than enough to cover the claim of the plaintiff, but that during all of said time the plaintiff failed to present his claim although he was aware of the creation and the existence of the fund, and that by this alleged negligence and these alleged laches plaintiff has lost his rights. It is not alleged that the vendee assumed payment of the debt or that it set aside the alleged fund. The directors could not relieve themselves of personal liability by going through the form of “setting aside a fund.” What constituted the alleged “setting aside ” of a fund ? Where was it deposited and with whom and under what conditions ? What became of the fund ? It is not alleged that the so-called fund was withdrawn from deposit only after notice to the creditors. If the creation of such a fund amounted to anything, it could only be by making the deposit under such terms as precluded the withdrawal of the fund except upon notice to all creditors. To set aside a fund for the purpose of paying debts hut without paying them is no defense against a creditor whose judgment has been made worthless by the sale of all of the .debtor’s property without notice and the division of the proceeds among the stockholders and directors. The case of Darcy v. Brooklyn & N. Y. Ferry Co. (196 N. Y. 99) makes it clear that directors who sell and transfer the assets of their company without taking the steps provided by the General Corporation Law and the Stock Corporation Law do so at their peril.

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The following is the opinion of the court below:

Shearn, J.:

It has already been held that this action “ is in the nature of a creditor’s bill, a search and trace by a diligent judgment creditor for and the enforcement of an equitable lien upon the assets of the corporation that have been distributed by the trustees in violation of law.” (N. Y. L. J., April 5, 1915.) The complaint alleged that of this illegal distribution a sum

[365]*365sufficient to satisfy plaintiff’s judgment remains in the hands of the directors, and it is upon such funds that the action seeks to enforce a lien. It is now alleged as a defense by the defendant Jetter, one of the directors, that at the time of the transfer by the corporation of all of its assets a fund amounting to $10,000 was set aside and specially deposited as a trust fund for the purpose of paying debts of and claims against the corporation, and for a long time thereafter sufficient funds remained of such amount, more than enough to cover the claim of the plaintiff, but that during all of said time the plaintiff failed to present his claim although he was aware of the creation and the existence of the fund, and that by this alleged negligence and these alleged laches plaintiff has lost his rights. It is not alleged that the vendee assumed payment of the debt or that it set aside the alleged fund. The directors could not relieve themselves of personal liability by going through the form of “setting aside a fund.” What constituted the alleged “setting aside ” of a fund ? Where was it deposited and with whom and under what conditions ? What became of the fund ? It is not alleged that the so-called fund was withdrawn from deposit only after notice to the creditors. If the creation of such a fund amounted to anything, it could only be by making the deposit under such terms as precluded the withdrawal of the fund except upon notice to all creditors. To set aside a fund for the purpose of paying debts hut without paying them is no defense against a creditor whose judgment has been made worthless by the sale of all of the .debtor’s property without notice and the division of the proceeds among the stockholders and directors. The case of Darcy v. Brooklyn & N. Y. Ferry Co. (196 N. Y. 99) makes it clear that directors who sell and transfer the assets of their company without taking the steps provided by the General Corporation Law and the Stock Corporation Law do so at their peril.

Shalek v. Jetter, 171 A.D. 364, 155 N.Y.S. 975, 1915 N.Y. App. Div. LEXIS 5131 (N.Y. Ct. App. 1915).

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Opinion

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