Dalziel v. Orsenfeld

• Decision Date: 03 July 1934
• Citation: 265 N.Y. 76,191 N.E. 841
• Parties: DALZIEL v. ORSENFELD.
• Court: New York Court of Appeals Court of Appeals

265 N.Y. 76

191 N.E. 841

DALZIEL

v.ORSENFELD.

Court of Appeals of New York.

July 3, 1934.

Action by Arthur Y. Dalziel, as trustee in bankruptcy of the Selznick Distribution Corporation, against William I. Rosenfeld. From a judgment entered pursuant to an order of the Appellate Division (240 App. Div. 1025, 268 N. Y. S. 928), unanimously affirming a judgment of the Supreme Court dismissing the complaint, plaintiff appeals by leave of the Court of Appeals.

Reversed, and new trial granted.

Appeal from Supreme Court, Appellate Division, First department.

Sam L. Cohen and Felix A. Fishman, both of New York City, for appellant.

Harris Berlack, Stanley H. Fuld, and Frank Aranow, all of New York City, for respondent.

CROUCH, Judge.

The plaintiff sued under section 15 of the Stock Corporation Law (Consol. Laws, c. 59) to recover the amount of alleged preferential payments made by the bankrupt to the defendant.

At the close of the plaintiff's case the complaint was dismissed upon the ground that the plaintiff had failed to make prima facie proof: (1) Upon the issue of notice or belief on the part of the defendant that the payments would effect a preference; and (2) upon the issue of plaintiff's intent to give a preference to defendant.

The payments in question were made in 1924. As section 15 of the Stock Corporation Law then stood, recovery could be had when it was shown that the prohibited act occurred while the debtor corporation was insolvent or its insolvency was imminent; and that there was an intent thereby to give a preference. No proof of the creditor's knowledge or state of mind was necessary.

In 1929 the section was amended (Laws of 1929, c. 653) so as to protect the rights or interests of creditors acquired without notice or reasonable cause to believe that the act of the debtor would effect a preference.

In ruling on the first issue the courts below have held that the amendment of 1929 was retroactive and hence that the failure of the plaintiff to show notice or reasonable cause to believe on the part of the defendant that the payments would effect a preference was fatal.

We find no satisfactory legal reason to supportthat holding. ‘The general rule is that statute are to be construed as prospective only. * * * It takes a clear expression of the legislative purpose to justify a retroactive application.’ Jacobus v Colgate, 217 N. Y. 235, 240,111 N. E. 837, 838, Ann. Cas. 1917E, 369.

If we look to the literal language of the amendment, we find reference only to ‘rights or interest which may be acquired’-words importing futurity as unmistakably as ‘shall be’ (Sanford v. Bennett, 24 N. Y. 20) or as ‘shall hereafter.’ Matter of President, etc., of Delaware & H. Canal Co., 129 N. Y. 105, 113,29 N. E. 237. If, going beyond the language used, we seek a reason for it, a consideration of the effect of retroactive operation furnishes such reason.

The purpose of section 15 as it stood prior to the amendment was to secure equality in the distribution of the assets of a failing corporation. Hilton v. Ernst, 38 App. Div. 94, 57 N. Y. S. 908, affirmed 161 N. Y. 226, 55 N. E. 1056. That purpose seemed to require that no account be taken of the honesty or good faith of the creditor preferred; no transfer, except to a bona fide purchaser, was to be protected. It must be assumed that all creditors. dealt with corporations upon the faith of that equality. To the extent that they acted upon that faith they acquired vested rights. If the amendment were to be construed retroactively, such rights would be impaired. Entirely apart from any question of constitutionality, no intent with such consequences will be imputed to the Legislature. Addiss v. Selig, 264 N. Y. 274, 190 N. E. 490. The purpose of the amendment, prospective merely, was to conform the statute ‘to the conceptions underlying the Bankruptcy Act, better adapted no doubt...