## Facts

- A Delaware corporation, licensed to do business in New York, became the subject of an involuntary bankruptcy petition filed on October 13, 1932; it was adjudicated bankrupt, and Irving Trust Company was appointed trustee.
- On January 6, 1932, while indebted to four surety companies, the corporation contracted to transfer substantial real and personal property to the sureties or their nominees in payment of antecedent debts, and to procure related transfers by three subsidiaries.
- The transferred assets included New York real property and additional parcels (with chattels) in Missouri, Florida, and New Jersey, plus personalty such as mortgages, mortgage bonds, insurance policies, rent assignments, accounts receivable, and cash.
- The trustee alleged the corporation was insolvent or in imminent danger of insolvency when it entered the contracts; the transfers were intended to prefer the sureties over other creditors; and the sureties knew or had reason to know of the insolvency and preferential intent.
- Because the transfers occurred more than four months before the bankruptcy filing, federal preference avoidance was unavailable under then-applicable bankruptcy law; the trustee sued under New York Stock Corporation Law § 114.
- The district court dismissed the equity bill for lack of equity, reading § 114 as imposing only personal liability on officers, directors, and shareholders of foreign corporations, not making the transfers themselves unlawful or voidable.

## Issues

1. Whether New York Stock Corporation Law § 114 makes preferential transfers by a foreign corporation doing business in New York unlawful and therefore recoverable by a bankruptcy trustee.
2. Whether § 114 can support recovery when the transferred property is located outside New York, given situs-based rules governing conveyances of real property.

## Decision

- The Second Circuit reversed and remanded.
- The court held that § 114 renders such preferential transfers by a foreign corporation doing business in New York unlawful to the same extent as for domestic corporations, permitting a trustee to seek recovery.
- The court held that New York may impose in personam liability on transferees who received an unlawful preference, even when the assets include out-of-state property, notwithstanding that situs law governs the formal validity of the conveyance.

## Legal Principles

- A state statute extending domestic corporate preference restrictions to foreign corporations doing business in the state may be construed to reach the transfers themselves, not merely impose insider liability, when the statutory purpose is parity between domestic and foreign corporations.
- When federal bankruptcy avoidance provisions do not reach a transaction because of timing limits, a bankruptcy trustee may proceed under applicable state law causes of action available to creditors.
- The law of the situs governs the formal validity of a conveyance of real property, but the forum may impose personal liability on recipients for receiving property under a transaction the forum treats as an unlawful corporate preference.
- In personam remedies can allow recovery of value from transferees even if title passed effectively under the situs law.

## Conclusion

The Second Circuit held that New York’s statutory ban on insolvent corporate preferences applies to foreign corporations doing business in New York and authorizes a trustee to pursue transferees for the property or its value, including through in personam liability for transfers involving out-of-state assets.


Irving Tr. Co. v. Maryland Cas. Co., 83 F.2d 168 (2d Cir. 1936)