111 N.Y.S. 514 | N.Y. App. Div. | 1908
This suit is brought under sections 1781 et seq. of the Code of Civil Procedure by a judgment creditor of the Brooklyn and \Hew York Ferry Company against its managing directors-to reco,ver the value of property of said corporation transferred by them in violation of their duties. The plaintiff’s judgment was recovered for personal injuries, and was founded upon a cause of action which arose July 2, 1897. On the 22d day' of August, 1898, the defendants transferred all of the property of the said corporation to the Brooklyn Ferry Company of Hew Y ork, in consideration whereof
The transaction was, in effect, a dissolution of said judgment debtor corporation and the distribution of its assets among its stockholders without making any provision whatever for the payment of its debts, at least so far as the plaintiff was concerned. The said H. B. Hollins & Co. and the Brooklyn Ferry Company of Hew York agreed to assume the debts of the old company, but of course its creditors could not be compelled to accept a substituted debtor. . Said agreement operated to afford a measure of protection' to the directors, who could thus compel the new company to pay the debts of the old, but said directors could not thus discharge their obligation to the creditors of the old company. Before distributing the assets of their corporation to its stockholders, they were required to pay its creditors, and that duty could not be discharged by getting an agreement from someone else to discharge it for them.
There is no question of fraud or bad faith in the case, and the appellants contend that for that reason the judgment Cannot- be supported. The cases cited on that head have no application. This case does not involve the right of a creditor to set aside a transfer for fraud, nor, indeed, the right of a creditor to enforce an equitable lien on the property of the corporation in the hands of third parties. The action is in equity against trustees to compel them to account for a breach of duty, and their motives and intent are wholly immaterial. The action could be maintained independently of the statute.
That the property of a corporation is a trust fund in the hands of its directors for the payment of its debts has long been settled. (Bartlett v. Drew, 57 N. Y. 587; Hastings v. Drew, 76 id. 9 ; Cole v. M. I. Co., 133 id. 164; Hurd v. N. Y. & C. Steam Laundry Co., 167 id. 89.) Trustees may not transfer the funds in their hands in disregard of the rights of their cestuis gue trustent, no matter how honest their motive.
It is found that at the time of the transfer of said property the defendants did not know of the plaintiff’s claim; nevertheless something should have been done to provide for unknown claims. We do not need to say in this case precisely what the defendants should
It is urged that the plaintiff has been guilty of such laches as to defeat the action; that he should have proceeded against the new' company on its agreement to assume the debts of the old company, and that not having done so he should not now be permitted, after the insolvency of the new company, to recover of the defendants. There is no evidence that the plaintiff had knowledge of said agreement, and in any event he was not bound.to look to the new company. The plea of laches made by a trustee against his cestui que trust cannot be regarded with favor. The defendants, not the ■plaintiff, incurred the hazard of the insolvency of the new company, and cannot complain because the plaintiff did not proceed against them until he ascertained what they had done.
The judgment should be affirmed.
Woodward, Jenks, Gaynor and Rich, JJ., concurred.
Judgment affirmed, with costs.
8ince atad, by Laws of 1900, chap. 760.— [Rep..