Trachman v. Trugman

• Decision Date: 20 October 1934
• Citation: 175 A. 147
• Parties: TRACHMAN v. TRUGMAN et al.
• Court: New Jersey Court of Chancery

175 A. 147

TRACHMAN

v. TRUGMAN et al.

Court of Chancery of New Jersey.

Oct. 20, 1934.

Syllabus by the Court.

1. Conveyance made by a person who is or will be thereby rendered insolvent is fraudulent as to creditors if made without a fair consideration.

2. Where the corporate form is used by an individual for the purpose of evading the law, or for the perpetration of fraud, courts will not permit the legal entity to be interposed so as to defeat justice.

Suit by Philip Trachman against Sam Trugman and others.

Decree in accordance with opinion.

Henry M. Grosman, of Newark, for complainant.

Michael Breitkopf, of Newark, for defendants S. Trugman, Inc., Bessie Trugman, Jacob Parent, and Lena Leibowitz.

Joseph Bohrer, of Newark, for defendant Sam Trugman.

STEIN, Vice Chancellor.

The bill of complaint is brought by Philip Trachman, who recovered a judgment on May 9, 1933, in the Essex county circuit court against Sam Trugman for $1,035.17 damages and $90.72 costs of suit, and prays discovery.

Sam Trugman had been in the wholesale produce business individually for twenty years, up to August, 1932. On July 9th of that year he gave a promissory note to the complainant, Philip Trachman, for $1,000. This was reduced to judgment May 9, 1933, for a total, including costs, of $1,125.89.

In August, 1932, he formed a corporation consisting of himself one share, his wife four shares, and his aunt five shares. About the same time he transferred a property on Osborne Terrace, Newark, which he and his wife owned jointly, to his wife. He now claims he is without funds to pay the judgment. If this be true, the incorporation and the transfer were fraudulent. Ulicsnik et al. v. Dalrymple et al., 102 N. J. Eq. 136, 140 A. 19, affirmed 103 N. J. Eq. 407, 140 A. 19, 143 A. 920; First National Bank of Belleville v. Merrick et al., 103 N. J. Eq. 63, 142 A. 243; Krause v. Rollar et al., 112 N. J. Eq. 337, 164 A. 456. In Terhune et al. v. Hackensack Savings Bank, 45 N. J. Eq. 344, 19 A. 377, the Court of Errors and Appeals held that to organize a corporation and convey to it all one's assets is a fraud against creditors.

The conveyance of the real estate is not directly under attack in this proceeding. However, it indicates deliberate intention to escape responsibility for the judgment by divesting himself of his business and his real estate holdings as well. Therefore, if his own statement is correct, he formed the corporation to defraud his creditors.

On August 31, 1932, his balance in the Rutherford National Bank was $1,423.99. His average monthly balances were $1,000. He did $1,500 to $1,600 worth of business weekly. His profits were from 8 to 10 per cent., or about $128 to $160 weekly. He says he deposited all his collections in the bank, but when his attention was called to the fact that he deposited nothing from August 31 to September 9, 1932, he "could not remember." When asked what he did with a withdrawal of $261 on September 9, 1932, "he could not remember." He was the president of the corporation; did the buying and selling, retained to himself the good will, works the same route as before, and serves the same customers. He drew money whenever he pleased for his own use from the corporation to buy furniture, pay personal notes, and household expenses. The corporation did not hold regular meetings nor keep any minutes. Trugman's testimony was frequently contradicted, sometimes by himself, sometimes by his own witnesses. For instance, when he was asked if he had ever told his accountant what to put in the books or if the accountant had ever asked him what to put in the books, he answered, "No." The accountant, on the other hand, testified he put in the books only what the defendant Trugman...