26 Del. Ch. 113 | New York Court of Chancery | 1941
The questions are whether a transfer of assets of George W. McCaulley & Son, Inc., to Clarence W. McCaulley was fraudulent as to the creditors of the corporation; and, if so, whether the complainant may, as a creditor, enforce its claim against the transferee.
For some time prior to January 1, 1938, George W. McCaulley & Son, Inc., conducted a business in Wilmington, which, although not definitely described, appears to be that of a contractor for electrical equipment, plastering and tile. Clarence W. McCaulley was a director and officer of the
Complainant asserts that the old corporation became liable to it, under the Unemployment Compensation Law, 41 Laws of Delaware, Chap. 258, p. 742, for “contributions,” as defined in the act, for the year ending December 31, 1937, in the aggregate amount $690.07, of which only $172.91 was paid. Complainant asks to be paid the balance, $517.16, with interest at the rate of one-half per centum per month from November 30, 1937, on $345.52, and from January 31, 1938, on $171.64, the dates when the respective sums became payable. Complainant alleges, among other things, that the old corporation transferred to McCaulley, without consideration, its cash, accounts receivable, its interest and equity in unfinished contracts, and other property; that when the transfers were made the corporation was insolvent; that the effect was to hinder and delay the corporation’s creditors and that, therefore, the transfers were fraudulent as to the creditors, including complainant; that McCaulley is personally liable to the creditors to the extent of the value of the property transferred.
Complainant called for the production at the hearing
Although the evidence leaves unexplained many details, certain fundamental facts are clearly established. On November 4, 1937, by execution process under a judgment against the old corporation, a levy was made upon its physical property. McCaulley testified that this property included the entire inventory of the corporation, the machinery, automobiles and trucks, office furniture and equipment ; that these items are those shown on a financial statement of the corporation dated December 31, 1937; that they were subsequently sold at public sale for the sum of $442, which was less than the amount of the judgment.
After the levy, the corporation assigned to Clarence W. McCaulley, without consideration, accounts receivable in the aggregate face amount of $12,036.84, and its interest and equity in unfinished contracts, the total amount of the
On January 1, 1938, McCaulley took over the corporation’s cash in the amount of $539.09. He used its furniture, which wás then subject to the levy, until it was sold at the execution sale, and then bought it back from purchasers at the sale.
On January 1, 1938, the only.assets of the corporation not covered by the levy or assigned to McCaulley appear, in both audits introduced, under the caption “Other Assets” having a book value of $58,688.89. Of this sum, $37,977.78 represents notes of McCaulley stated to have been issued between December 31, 1925, and December 31, 1931, on which nothing had been paid. The remainder of the sum consists for the most part of accounts in which the last transactions were prior to December 31, 1934. When the transfers were made, the total indebtedness of the corporation appears from the books to have been $68,933.97, and thus exceeded the book value of the “Other Assets” mentioned above. The result would be the same if the item of liabilities appearing on the books as due to McCaulley, in the amount of $30,653.95, be subtracted from the “Notes
It is true that the items of property subject to the levy were shown in the sheriff’s inventory (as well as on the corporate books) as having values substantially in excess of what was ultimately realized from them at- the sale, and indeed in excess of the judgment under which they were sold. But McCaulley testified that no appraisal was made at the time of the levy and that the values stated in the inventory were furnished by a former employee who, Mc-Caulley’s testimony seems to imply, was dishonest. In any event, the property was not, on January 1, 1938, free to be applied to the payment of corporate debts, and the corporation never realized anything from the actual proceeds of their sale. Accordingly, it is reasonable -to treat the amount of such proceeds as the value of the property, for the purpose of determining the assets available for the payment of debts of the corporation at the time of the transfer without consideration to McCaulley. Assigning that value to the property subject to the levy, the result of the transfer to McCaulley was that the corporation was thereby deprived of sufficient property to pay its indebtedness in full. In consequence, the transfer was fraudulent as to creditors of the corporation, and the property transferred may be pursued, or the transferee held liable to creditors to the full extent of the value of such property. Compare McKee v. Standard Minerals Corp., 18 Del. Ch. 97, 156 A. 193; Berwick v. Associated Gas & Electric Co., et al., 20 Del. Ch. 265, 174 A. 122; 15A Fletcher Cyclopedia of Corporations, Sec. 7378.
The proofs as to the application of the proceeds are likewise unsatisfactory. For example, a number of invoices were introduced and represented as “receipted bills” aggregating $3,618.76, paid by McCaulley from the assets of the corporation, “everyone” of which “is dated prior to December 31, 1937, and the date of payment is subsequent to December 31, 1937.” In point of fact, a number of the invoices totaling $530.41 are marked paid during 1937; others totaling $733.96 are dated, as well as paid, and are
Respondents contend that liability may not be asserted against the transferee by this complainant because the latter has not obtained a judgment upon which there has been an unsatisfied execution. Complainant’s claim was computed at the rate provided by the statute, upon the basis of the corporation’s own report of wages paid. The exact amount of the claim was set up on the corporate books, and appears in the financial statement as of December 31, 1937. McCaulley testified that he had not disputed the claim. Thus, the validity and amount of the claim are established. In Berwick v. Associated Gas & Electric Co., et al., 20 Del. Ch. 265, 174 A. 122, 124, Chancellor Wolcott, after stating the proposition that if all of a corporation’s assets be disposed of without consideration, or distributed among its stockholders, a creditor of the corporation may pursue those assets on the theory that in equity they are burdened with a lien in his favor, said:
“Nor is it required in such cases that the creditor shall have first reduced his claim to judgment, for the right to relief in those cases does not depend upon a showing that the creditor has exhausted his remedies at law and is without remedy save in equity. He does not seek a remedy in aid of law. He seeks relief grounded upon an equity distinct in itself. When that is so, a judgment at law and a return on execution of nulla bona is not required as a condition precedent to equitable relief. Cobb v. Interstate Mortgage Corp., [4 Cir.], 20 F.(2d) 786.”
In addition to other prayers, complainant has asked for a decree directing McCaulley to pay complainant’s demand against the old corporation. This form of relief has not been put in question and appears appropriate under the facts of the case.
A decree accordingly will be advised.