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October 29, 1973

Jane U. ELLIOTT, Plaintiff,
Robert B. ELLIOTT et al., Defendants

Robert J. Ward, District Judge.

The opinion of the court was delivered by: WARD

ROBERT J. WARD, District Judge.

This is an action to impose constructive trusts upon the "fee title" to a town house located at 121 East 64th Street, New York, New York, owned by defendant Colony Land Corp. (hereinafter "Colony"), and upon the stock of Colony, all of which is owned by defendant Lee K. Elliott. Plaintiff claims that the town house was purchased by defendant Robert B. Elliott (hereinafter "Elliott"), in the name of Colony; that his gift of shares in Colony to his second wife, defendant Lee K. Elliott, and to her as custodian for their minor children at the time of his initial purchase was intended to defraud his creditors including plaintiff; that he later fraudulently transferred his interest in Colony to Lee K. Elliott for an inadequate consideration; and that a later cancellation of the shares held by Lee K. Elliott as custodian and their reissuance to her individually was also fraudulent. Plaintiff contends that unless these constructive trusts are imposed, she will be unable to collect the judgment entered in her favor in her alimony action against Elliott (68 Civ. 2900).

 Such constructive trusts will be imposed if defendant Elliott was insolvent at the times of the transfers and if they were made without adequate consideration *fn1" or if the transfers were made with the intent to hinder, delay, or defraud creditors. *fn2"

 The general outline of the facts of the various transactions is substantially undisputed. Colony was organized under the laws of the State of New York on October 10, 1956 by defendants Elliott and Lee K. Elliott. The original directors named in its Certificate of Incorporation were Elliott, Lee K. Elliott, and Gail B. Elliott. On October 15, 1956, Colony held its first meeting of Incorporators. At that meeting Elliott, Lee K. Elliott, and Gail B. Elliott were selected as directors. Elliott was elected President and Vice-President and Lee K. Elliott was elected Secretary and Treasurer. Colony was capitalized at 500 shares of no par value common stock of which 250 shares were issued on October 16, 1956. Elliott subscribed for these shares at $36.00 per share, a total of $9,000, which he paid Colony. He retained 50 shares, made a gift of 50 shares to Lee K. Elliott individually, and a gift of 50 shares each to their three minor children naming Lee K. Elliott as custodian. Elliott received no consideration for these transfers to his wife and children. At that time, Elliott also loaned Colony the sum of $26,800.

 In October, 1956, Colony acquired title to a town house at 126 East 79th Street, New York, New York, using the said $9,000 and $26,800 as the cash payment. From 1956 through the end of 1960 the individual defendants, together with their children, resided in a portion of these premises; the balance of the premises was rented to other tenants. Lee K. Elliott made no contribution to the purchase price at the time of the closing.

 On about November 18, 1960, Colony contracted to purchase the premises at 121 East 64th Street, New York, New York, and acquired title on or about December 11, 1960. The cost of the property was $145,000, of which $45,000 was paid in cash and the balance was financed by a purchase money mortgage. The cash paid was provided by a loan from Elliott to Colony. Provision was made in the purchase money mortgage which was personally guaranteed by Elliott, for its acceleration in the event of Elliott's death, and Elliott provided a life insurance policy in the amount of $100,000 to secure payment thereof. Lee K. Elliott made no contribution to the purchase price at the time of the closing.

 From on or about January 1, 1961, to the present the individual defendants have resided, with their children, at 121 East 64th Street pursuant to a written lease between Colony and Elliott for the first ten years and without a lease, but on the same terms and conditions as contained in that lease, thereafter.

 On about March 1, 1961, Colony sold the premises at 126 East 79th Street for $97,000 receiving $37,000 in cash which it transferred to Elliott.

 A Special Combined Meeting of Stockholders and Directors of Colony was held on or about December 14, 1961 at which a resolution was passed adding a by-law providing that Colony might sign no lease for the occupancy of any premises owned by it except with persons who are stockholders.

 Prior to August, 1962, Lee K. Elliott received an inter vivos gift of stock worth $22,000 to $25,000 from Gail B. Elliott, her mother-in-law. From the proceeds of the sale of a portion of this stock, Lee K. Elliott purchased from Elliott for $5,855.03 on about September 30, 1963 the 50 shares of Colony stock that Elliott owned. The property had been valued at $147,000 as of October 4, 1963, by the real estate firm of Douglas Gibbons Hollyday & Ives, Inc. Having divested himself of ownership, Elliott, on or about October 22, 1963, resigned as an officer and director of Colony and has not at any time since served as either an officer or director.

 On about October 24, 1964, Colony refinanced the purchase money mortgage on 121 East 64th Street with a new first mortgage from the Chase Manhattan Bank in the amount of $105,000; and the original purchase money mortgage was paid off from the proceeds of the refinancing. At the time it approved the new mortgage, the Chase Manhattan Bank valued the property at $195,000.

 Between 1956 and 1966, at about the times of the birth of two of their children born after the formation of Colony, 50 shares of Colony stock for each were issued to Lee K. Elliott as custodian, increasing the number of shares which she held as custodian to 250.

 In November, 1966, the 250 shares of stock held by Lee K. Elliott as custodian for her children were cancelled and the shares were reissued to Lee K. Elliott individually.

 The Court finds that in 1956, at the time of the formation of Colony, Elliott was in arrears on his alimony payments to plaintiff pursuant to their Separation Agreement, although the precise amount of arrearages is unclear and unnecessary to the determination of this action; therefore, plaintiff was a creditor of Elliott within the meaning of N.Y. Debtor and Creditor Law § 270 et seq. (McKinney 1945 and 1973). Tuitt v. Tuitt, 36 Misc. 2d 418, 232 N.Y.S. 2d 973, 977 (Sup. Ct. N.Y. Co. 1962). As a creditor, she can seek to set aside an allegedly fraudulent conveyance. ...

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