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Metzger v. Engelhardt Const. Co.

Supreme Court of New York, Appellate Division

April 4, 1912

JOSEPH J. METZGER, as Trustee of ENGELHARDT CONSTRUCTION COMPANY, Bankrupt, Respondent,
v.
ENGELHARDT CONSTRUCTION COMPANY and ENGELHARDT BROTHERS REALTY COMPANY, Appellants.

APPEAL by the defendants, Engelhardt Construction Company and another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Queens on the 15th day of March, 1911, upon the report of a referee.

COUNSEL

Charles J. McDermott [William U. Goodbody with him on the brief], for the appellant Engelhardt Construction Company.

Bartow S. Weeks [Robert B. Austin with him on the brief], for the appellant Engelhardt Brothers Realty Company.

J. Stewart Ross, for the respondent.

OPINION

THOMAS, J.:

The action is to set aside as fraudulent against creditors conveyances made by the construction company to the realty

Page 330

company, and was brought by the trustee in bankruptcy of the first company. The persons affected by the judgment are the stockholders of the realty company and the creditors in bankruptcy of the construction company. Salient facts are that the land was subject to mortgage liens of $78,350; that the value as found was $114,000, leaving an equity of $35,650; that the construction company by the conveyance received therefor stock of the realty company, and was thereby enabled to market $24,400 thereof at par to the Queens Residential Company for cash; that the company thenceforth reduced its unsecured debts; that the estate of the bankrupt through its administrative officer received some of the realty company's stock, and sold it at auction for $7,796 in money. So, the trustee would avail himself of the fruits of the conveyance, as well as of the land conveyed. An examination of the history is necessary. The Engelhardt brothers, Harry, Theobald and Louis, dominated both companies, of which Harry was president. The construction company was incorporated in 1903, among other things, to deal in real estate. The realty company was incorporated in 1908 to deal in real estate with a capital of $50,000, and the brothers became its principal officers. In the interval the construction company had become the owner of and trafficked in land of great value and heavily mortgaged, and the brothers Theobald and Louis furnished to it credit and money, in consideration whereof they severally were by agreement entitled to share in the profits of certain purchases. In 1908 thirty-seven lots, a portion of those purchased in such joint adventure, were conveyed by the construction company to the realty company, in consideration of which stock of the latter company, to the amount of $15,800 par value, was issued to the construction company. The construction company used this stock as follows: It pledged seventy-five shares to the First National Bank of Ozone Park for a loan of $5,000; it transferred thirty shares to Theobald in settlement of his profits, pursuant to an agreement made in 1906; thirty-eight shares, a part of one hundred and twenty-five shares, were pledged to the Queens County Trust Company for $10,000, and fifteen shares were transferred to Louis for his interest in certain profits. We now come to the agreements that resulted in the accused conveyances. The

Page 331

Queens Residential Company entered into two agreements, each dated April 30, 1909--one with the construction company to buy of it at par $24,400 of the realty stock, and one with the realty company to buy at par $6,000 of its stock, both conditioned upon conveyance to the realty company of the land described in the complaint for $54,000 of the stock of the realty company. And so it was done, the stock of the realty company being increased $10,000 for the purpose. This conveyance included the land first conveyed for $15,800 of the stock, leaving as a consideration for the remaining land conveyed pursuant to the agreement of April 30, 1909, stock to the amount of $38,200. So that for the first conveyance $15,800 was issued, and for the second conveyance $38,200, total $54,000, while $6,000 was issued directly to the Queens Residential Company, total $60,000. The following is the disposition of the 382 shares:

244  

 shares sold to Queens Residential Company .......................  

 $24,400

20  

 shares sold to realty company for cash ............................  

 2,000

87  

 shares pledged to Queens Trust Company and sold by receiver by order of court at $85 per share .................................  

 6,525

31  

 shares in treasury sold by order of court, and sold for ...........  

 1,271

----  

  

 -------

382  

  

 $34,196

----  

  

 -------

This accounts for the conveyance attacked. It shows that the trustee in bankruptcy has sold one hundred and eighteen shares of stock arising from that conveyance for $7,796 and vested title in purchasers, and then procured a judgment declaring the agreement, whereof those shares were part consideration, void, and stripped the vendees under the court's order of the property which the stock represents. He sold to the vendees as if the stock validly represented property, took their money and now would take the property. But that is not all that has been done. The construction company had sold $24,400 of the stock for money and used it to reduce its ...


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