Law School Case Brief
Irving Tr. Co. v. Md. Cas. Co - 83 F.2d 168 (2d Cir. 1936)
The Stock Corporation Law § 114, N.Y. Consol. Laws ch. 59, provides as follows: Liabilities of Officers, Directors and Stockholders. Except as otherwise provided in this chapter, the officers, directors and stockholders of a foreign stock corporation transacting business in this state, except a moneyed or a railroad corporation, shall be liable under the provisions of this chapter, in the same manner and to the same extent as the officers, directors and stockholders of a domestic corporation, for the making of (1) Unauthorized dividends; (2) Unlawful loans to stockholders; (3) False certificates, reports or public notices; (4) Illegal transfers of the stock and property of such corporation, when it is insolvent or its insolvency is threatened. Such liabilities may be enforced in the courts of New York, in the same manner as similar liabilities imposed by law upon the officers, directors and stockholders of domestic corporations.
Plaintiff trustee in bankruptcy filed a bill in equity against defendants, grantees and transferees, claiming the bankrupt was insolvent at the time of the contracts and the transfers were intended to prefer the companies. Several months before the bankruptcy petition was filed, the bankrupt entered into contracts to transfer property to several surety companies in payment of its debts. Plaintiff claimed transfers made shortly before bankruptcy was filed were unlawful preferences, but the district court held the statute did not make the transfers unlawful. Plaintiff appealed.
Was the transfer of property prior to bankruptcy an unlawful preferential transfer?
The court held that the term "illegal" in the statute did not just identify the type of transfer that an officer's liability depended on, it also declared such transfers to be illegal. The court found that the New York court could not void the transfers of property outside New York, but it could direct defendants to reconvey the property transferred.
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