Darcy v. Brooklyn & N.Y. Ferry Co.

• Decision Date: 19 October 1909
• Citation: 196 N.Y. 99,89 N.E. 461
• Parties: DARCY v. BROOKLYN & N. Y. FERRY CO. et al.
• Court: New York Court of Appeals Court of Appeals

196 N.Y. 99

89 N.E. 461

DARCY

v.BROOKLYN & N. Y. FERRY CO. et al.

Court of Appeals of New York.

Oct. 19, 1909.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by William H. Darcy against the Brooklyn & New York Ferry Company, Joseph J. O'Donohue, and others. From a judgment for plaintiff, affirmed by the Appellate Division (127 App. Div. 167,111 N. Y. Supp. 514), defendants O'Donohue and others appeal. Affirmed.

John Delahunty, for appellants.

James C. Cropsey, for respondent.

WILLARD BARTLETT, J.

On November 15, 1900, the plaintiff duly recovered a judgment against the Brooklyn & New York Ferry Company upon a cause of action which had accrued on the 2d day of July, 1897. The execution upon this judgment was returned unsatisfied. The plaintiff found himself unable to enforce it because the defendant corporation on the 22d of August, 1898, had through its board of Directors assumed to sell, assign, and transfer the entire corporate property to another corporation known as the Brooklyn Ferry Company of New York for $6,000,000. The present suit was instituted on the theory that the directors had violated their duties in making the transfer in the manner in which they made it and hence could be compelled to satisfy the plaintiff's claim. The consideration for the transfer did not pass from the purchasing corporation to the Brooklyn & New York Ferry Company or its directors, but was turned over directly to the stockholders of the selling corporation and distributed among them. The Brooklyn & New York Ferry Company thereupon immediately ceased doing business, having thus parted with all its franchises, although no proceedings were ever taken to effect a dissolution of the corporation according to law. No notice of the transfer was given to creditors nor was any property retained by the directors with which to meet the plaintiff's claim or any other indebtedness which might legally be established against the corporation. At the time of the transfer, however, the purchasing corporation did agree to assume all the then existing debts and liabilities of the selling corporation. This agreement was the sole provisionmade by the directors for the payment of the creditors of the corporation which they represented.

The narrative of the transaction leaves no doubt that what the directors of the Brooklyn & New York Ferry Company sought to bring about was a voluntary dissolution of the corporation and the distribution of its assets without taking the steps to that end which are prescribed by law. Notwithstanding their failure to proceed under the statute, they contend that a creditor of a corporation has no standing to compel them to pay a claim of which they were ignorant at the time of the transfer of the corporate property, in the absence of proof of actual fraud on their part. It is true that there is no allegation or finding of fraud; but there is evidence that the officers of the company had knowledge of the injury to the plaintiff which was the basis of his claim. The liability of the directors is predicated, not on the ground that their action in making the transfer was fraudulent, but upon the proposition that it is a violation of duty on the part of the directors of a corporation to divest it of all its property without affording a reasonable opportunity to its creditors to present and enforce their claims before the transfer shall become effective. This is the proposition involved in the judgment in this case which we are asked to reverse. We think it is sound in law, and should be upheld.

There is express statutory authority for the maintenance of an action by a creditor of a corporation against its directors to compel them to pay the value of any property which they have transferred to others by a violation of their duties. Code Civ. Proc. §§ 1781, 1782, substantially re-enacted in 1909 as sections 90 and 91 of the general corporation law (...