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RUDIN v. STEINBUGLER

July 1, 1938

RUDIN
v.
STEINBUGLER et al.



The opinion of the court was delivered by: BYERS

BYERS, District Judge.

This is a suit in equity by the trustee of the above-named bankrupt, having for its object the setting aside of a conveyance made by the bankrupt on or about December 20, 1936, alleged to be in fraud of his creditors, of all of the capital stock of the corporate defendant then said to have been owned by the bankrupt; and the subsequent alleged transfer of the property of the corporation to the wife of the bankrupt; and it is sought to have the decree adjudge that a certain license issued to the wife of the bankrupt by the Commissioner of the Park Department be declared to be held in trust for the plaintiff; also a money judgment is sought against each of the defendants for the value of the capital stock and license.

The plaintiff is acting pursuant to the provisions of § 70 of the Bankruptcy Act, paragraph a, subdivision (4), 11 U.S.C.A. § 110(a) (4), and a brief recital of facts is requisite.

 George E. Steinbugler, the bankrupt, was so adjudicated in this court on January 31, 1938.

 He testified that he was admitted to the Bar in 1917 in the Second Depatment, and during the years 1935, 1936 and 1937 was a practicing attorney.

 In 1935, in addition to his professional activities, he cause to be organized the corporate defendant, for the purpose of operating ponies for children to ride upon, in Prospect Park, Brooklyn.

 One hundred shares of capital stock were issued, of which fifty were the property of his cousin, Edward Steinbugler. About December 8 or 9, 1935, the bankrupt purchased the latter's stock for $850.00, thus becoming the owner of the entire capital stock of the corporation.

 It was a money-making enterprise; that is to say, for the years 1936 and 1937 an excess of above $3,000.00 of receipts over disbursements was shown.

 The corporate property consisted of ten or twelve ponies, saddles, bridles, blankets, etc., and the bankrupt said that the cost thereof was in the neighborhood of $1,450.00.

 No corporate books, records or papers whatever were offered in evidence, save minutes of a meeting of directors said to have been held on January 10, 1938, and two diaries containing entries of cash receipts, and therefore the figures above stated are lacking in precision.

 The purchase of Edward Steinbugler's stock was accomplished in part through the appropriation by the bankrupt of $1,500.00 belonging to his client, Mrs. Hittel; he collected a $1,500.00 mortgage of hers, which was in his custody as her attorney, in two instalments; namely, $1,000.00 in November of 1935, and $500.00 in November of 1936. He used this sum to pay $850.00 to his cousin, and the balance for bills of the corporation, and in November of 1936 was unable to turn over this $1,500.00 to his client. Instead, he gave her six notes for $250.00 each, and paid but one of them.

 He says that he transferred and delivered the entire one hundred shares of the corporate stock as a gift to his wife on or about December 20, 1936, and it is that transaction which lies at the base of the plaintiff's cause; if the bankrupt was insolvent at the time, the conveyance was fraudulent as to creditors (N.Y.Debtor and Creditor Law, Consol.Laws, c. 12, § 273, in effect April 1, 1925). That section reads:

 "§ 273. Conveyances by insolvent. Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made ...


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