Heisler v. Halberstam

• Decision Date: 23 February 1973
• Citation: 74 Misc.2d 394,343 N.Y.S.2d 809
• Parties: Solomon HEISLER, Petitioner, v. Baruch David HALBERSTAM, Respondent.
• Court: New York City Court

Page 809

343 N.Y.S.2d 809

74 Misc.2d 394

Solomon HEISLER, Petitioner, v. Baruch David HALBERSTAM, Respondent.

Civil Court of City of New York, Trial Term, New York

County, Part 28.

Feb. 23, 1973.

Irving Heisler, New York City, for petitioner.

Koenigsberg, Norman & Drangel, New York City, for respondent.

SHANLEY N. EGETH, Judge.

Petitioner, a judgment creditor of B.D.H. Development Corp. in the sum of.$2223.25, has instituted this proceeding against the respondent, the sole stockholder and principal officer of the judgment debtor, to procure a determination pursuant to Sec. 5225(b), C.P.L.R., that respondent is in possession of or the transferee of certain monies belonging to the corporate debtor, and that said sums should be turned over to petitioner to satisfy his judgment aforedescribed.

The testimony adduced in the hearing held before this court was so undisputed as to constitute stipulated facts.

On April 14, 1970, the respondent, Halberstam, executed a contract to purchase certain real property from a seller, Tivon Investors, Incorporated, and posted a down payment of $7,500 thereunder. Thereafter respondent sought to sell his interest therein. Thereafter, respondent caused his attorney to form B.D.H. Development Corporation. All stock was issued to Halberstam as the sole stockholder.

Respondent then renegotiated his original purchase agreement with Tivon Investors, Incorporated. On December 8, 1970, a new contract for the purchase of the same property was executed by the same vendor with B.D.H. Development Corporation. Said contract was originally prepared in the name of the respondent. Subsequent thereto his name was lined out, and the corporation's name was typed in as the purchaser, and respondent then executed the contract for the corporate debtor. Under this second contract the purchase price was increased $5,000, the down payment was decreased from $7,500 to $1,500, and the purchaser posted the sum of $4,500 thereunder, as an additional option payment to the vendor for its agreement to delay the closing date until August 16, 1971. In so doing, the respondent applied $6,000 of the original purchase price to the new corporate contract, and the remaining $1,500 was returned to the respondent.

The corporate purchase contract recited the posting of the monies required thereunder. There were no other written agreements between the respondent and the corporate judgment debtor defining the relationship of the parties to the monies posted under the purchase contract. Nor were there any written agreements between them concerning the issuance of stock to respondent, the capitalization of the corporation, or the making of any loans by respondent to the corporate debtor, although respondent claims the money was so loaned.

The corporate debtor entered into a contract with the petitioner on December 17, 1970 for the sale of its contract rights, or the property which was the subject thereof. Petitioner posted a $15,000 down payment thereunder following his demand that the entire down payment be held in escrow by the attorney for the corporate debtor. The corporate debtor agreed that $13,000 would be escrowed, but refused to so do for the remaining $2,000, claiming it was needed to pay a down payment on its brokerage commission. Ultimately, petitioner withdrew his demand to escrow this $2,000 following the express representation that the corporate judgment debtor possessed sufficient substantial assets to enable the return of the $2,000, including all of the monies it paid in under its purchase agreement.

Subsequent to the execution of these agreements, the property which was the subject of all three contracts was condemned by the City of New York. Thereafter, demand was made upon Tivon Investors, Incorporated for the return of all monies paid to it under the contract of December 8, 1970. At their request, the $1,500 deposit was returned to the attorneys who represented both the judgment debtor and the respondent. One thousand dollars of said sum was retained by the attorneys as payment for outstanding fees, and the remaining $500 was paid over by them to Halberstam. They also requested the vendor to return the $4,500 option money to the respondent, rather than the corporate debtor, and a substantial portion thereof was so paid over. They anticipate that the remainder will also be paid to Halberstam.

Upon the basis thereof this Court is now confronted with a single question for determination: whether the corporate judgment debtor B.D.H. Development Corporation, or the respondent, Halberstam owned, or had a right to receive the monies returned or due under the December 8, 1970 purchase contract.

There can be no question that the monies received by this respondent did not belong to him and did not represent a proper repayment of any loan made by him. There is no legal or equitable principle available to justify respondent's act of divesting his corporation of the money returned under the contract, and converting it to his own personal use to the detriment of the rights of an existing creditor. No Court would or should provide any judicial sanction for this respondent's bold act of stripping his corporation of the assets which it required to satisfy an existing creditor by means of act of self dealing with himself which resulted in the diversion of corporate assets to his personal account.

If there were no other course open to this Court, it could avail itself of its inherent equity power to provide redress from the acts of an officer, director or stockholder of one man or family corporation who used the corporation '. . . merely as a corporate pocket of the dominant (in this case, sole) stockholder, who, with disregard of the substance or form of corporate management, has treated its affairs as his own. And so-called loans or advances by the dominant or controlling stockholder will be subordinated to the claims of other creditors and thus treated in effect as capital contributions by the stockholder . . . but also where the paid-in capital is purely nominal, (and) the capital necessary for the scope and magnitude of the operations of the company (is) being furnished by the stockholder as a loan.' (Pepper v. Litton, 308 U.S. 295, 309, 310, 60 S.Ct. 238, 246, 84 L.Ed. 281 (1939)). On page 311, 60 S.Ct. on page 247 of the Pepper Case, Justice Douglas further stated that a stockholder 'cannot by the intervention of a corporate entity violate the ancient precept against serving two masters . . . He cannot violate the rules of fair play by doing indirectly through the corporation what he could not do directly . . . no matter how meticulous he is to satisfy technical requirements.' (See, e.g. Lowendahl v. Baltimore & Ohio R.R. Co., 247 App.Div. 144, 287 N.Y.S. 62, affd. 272 N.Y. 360, 6 N.E.2d 56; Rapid T. Subway Const. Co. v. City of New York, 259 N.Y. 472, 182 N.E. 145; Berkey v. Third Ave. Railway Co., 244 N.Y. 84, 155 N.E. 58).

If it were necessary to determine the rights of these parties solely by application of the standards of Mr. Justice Douglas, this Court would so do. This Court however is prepared to utilize the common law principles of examining all of the facts, conduct and surrounding circumstances to evidence a clear manifestation of intention by this respondent in creating his corporation and entering into a corporate contract which recites corporate...