Supreme Court, Appellate Division, Second Department, New York.
FARM STORES, INC., Respondent-Appellant,
v.
SCHOOL FEEDING CORP., et al., Appellants-Respondents, et al., Respondents.
June 11, 1984.
 Creditor of corporation brought action to set aside transfer of money from 
corporation to shareholders as a fraudulent conveyance.   The Supreme Court, 
Nassau County, George A. Murphy, J., entered judgment which set aside transfer, 
ordered corporation and shareholders to pay amount owed to creditor, and, in 
event money was not paid, directed that personal money judgment be entered 
against shareholders for unpaid amount.   Corporation and shareholders appealed 
and creditor cross-appealed.   The Supreme Court, Appellate Division, Weinstein, 
J., held that:  (1) transfer was a fraudulent conveyance;  (2) one of the 
shareholders was not a general creditor of the corporation;  (3) evidence was 
insufficient to establish that shareholders engaged in conspiracy and actually 
intended to defraud creditors;  thus, they could not be held jointly and 
severally liable;  (4) creditor was not entitled to punitive damages;  and (5) 
creditor was not entitled to counsel fees.
 Affirmed.
West Headnotes
[1] Corporations  542(3)
101k542(3) Most Cited Cases
Where, after corporation transferred money to shareholders, fair salable value 
of its assets was less than amount that would be required to pay the probable 
liability on its existing debts as they became absolute and matured, corporation 
underestimated its liabilities to creditors, overestimated value of accounts 
receivable, and its effort to collect overdue account offered little promise of 
probable or timely success, corporation was insolvent at time of transfer to 
shareholders for purposes of determining whether transfer was a fraudulent 
conveyance.  McKinney's Debtor and Creditor Law §  271, subd. 1.
[2] Corporations  542(3)
101k542(3) Most Cited Cases
Shareholders' allegations that money they received from corporation after it had 
become insolvent represented repayment of alleged loans and services rendered on 
behalf of the corporation failed to establish that transfer was made for fair 
consideration, and even if shareholders were able to establish equivalent value, 
transfers were not in good faith and were in derogation of rights of general 
creditors;  thus, transfer represented a fraudulent conveyance.  McKinney's 
Debtor and Creditor Law §  272.
[3] Corporations  542(3)
101k542(3) Most Cited Cases
Where shareholder exercised his influence as a shareholder in decisions which 
directly affected his investment in corporation, gave his consent to all 
distributions of corporate funds, and was present at meeting when decision was 
made to transfer funds to shareholders after corporation was insolvent, transfer 
of funds to shareholder was unconscionable advantage of a corporate fiduciary 
over rights of general creditors, despite fact that shareholder did not 
participate in day-to-day business affairs of corporation and alleged that he 
was primarily an outside lender to corporation who exerted no control over its 
business affairs.
[4] Corporations  542(3)
101k542(3) Most Cited Cases
Where corporation transferred money to shareholders at time that action for 
money damages was pending against it and ensuing judgment against it was never 
satisfied, transfer was a fraudulent conveyance.  McKinney's Debtor and Creditor 
Law §  273-a.
[5] Corporations  542(3)
101k542(3) Most Cited Cases
Where shareholders were aware that they were receiving money from corporation 
when claims of general creditors had not been completely paid and had consented 
to such distribution of corporate funds, shareholders could not be considered 
bona fide purchasers for fair considerations;  thus, shareholders were not 
immune from liability as transferees of fraudulently conveyed property.
[6] Corporations  542(3)
101k542(3) Most Cited Cases
Where shareholders who had received fraudulent conveyance from corporation were 
not bona fide purchasers for fair consideration, but had not engaged in a 
conspiracy and had not actually intended to defraud trade creditors, 
shareholders could not be held jointly and severally liable for conveyance; 
rather, liability of each shareholder was limited to amount he wrongfully 
received.
[7] Corporations  542(3)
101k542(3) Most Cited Cases
Creditor of corporation was not entitled to punitive damages in action to set 
aside a transfer from corporation to shareholders as a fraudulent conveyance in 
which creditor was unable to establish that shareholders acted with actual 
intent to defraud creditors, notwithstanding fact that transfers of corporate 
funds were properly invalidated pursuant to constructive fraud provisions of 
Debtor and Creditor Law;  creditor had to show that corporation or its 
shareholders acted with high degree of moral culpability to justify award of 
such damages.  McKinney's Debtor and Creditor Law §  276.
[8] Fraudulent Conveyances  319
186k319 Most Cited Cases
Section of Debtor and Creditor Law which permits attorney's fees to be awarded 
to party who has brought successful action to set aside fraudulent conveyance is 
inapplicable where subject conveyance is invalid under constructive fraud 
provisions of Debtor and Creditor Law as opposed to actual fraud provisions 
thereof.  McKinney's Debtor and Creditor Law §  276-a.
[9] Corporations  548(11)
101k548(11) Most Cited Cases
Creditor of corporation which had successfully set aside transfer of money from 
corporation to shareholders could not recover attorney's fees from shareholders 
under provision of original contract with corporation;  corporations contract 
did not impose liability upon shareholders for fees where they would not 
otherwise be liable under Debtor and Creditor Law.  McKinney's Debtor and 
Creditor Law §  276-a.
 **376 *250 Seavey, Fingerit, Vogel & Oziel, New York City (Irwin K. Fingerit, 
New York City, of counsel), for appellants-respondents School Feeding Corp., 
Lichtman and Sandler.
 Thomas J. Nerangis, New York City, for appellant-respondent Venia.
 Dreyer & Traub, New York City (Samuel Kirschenbaum and Hannah K. Flamenbaum, 
New York City, of counsel), for appellant-respondent Lifton.
 Irving Levine, Great Neck, for respondent-appellant.
 Before GIBBONS, J.P., and THOMPSON, WEINSTEIN and BROWN, JJ.
 WEINSTEIN, Justice.
 *251 SFC is a New York corporation formed in 1974 for the purpose of supplying 
meals to nonprofit organizations serving as sponsors of the Summer Food Service 
Program for Children (SFSP), which was funded by the United States Department of 
Agriculture (USDA) through the New York State Education Department.   The SFSP 
was administered by the State Education Department and USDA funds for such 
administration were advanced to, held and paid out by the State Comptroller.   
In connection with this program, the State contracted with numerous service 
institutions to serve as sponsors for the actual feeding of the children in the 
program.   The program sponsors, in turn, had the option to contract with food 
service management companies or vendors, of which SFC was one, to undertake the 
responsibility of preparing the meals for the children. Farm Stores, Inc. 
supplied fruit and juices to SFC during the summer of 1976.
 When Federal funds for the program were cut off pending USDA investigations of 
abuses, the nonprofit sponsors were unable to pay their debts to vendors such as 
SFC, which was, in turn, unable to pay its debts to suppliers like Farm Stores, 
Inc.   These appeals concern the lengthy and complex litigation undertaken by 
Farm Stores to collect debts owed by SFC for goods supplied in the wake of that 
corporation's financial collapse following the termination of Federal funding 
during the summer of 1976.   At issue is the propriety of the transfer by SFC to 
the four respondent shareholders of a portion of the sum it collected from the 
New York State Education Department in January, 1980.
 **377 SFC's shareholders deny that they knowingly attempted to defraud anyone 
and specifically dispute any wrongdoing vis-a-vis Farm Stores.   They maintain 
that the transfers from SFC to themselves were made in good faith to satisfy 
their legitimate claims as creditors and that there was absolutely no conspiracy 
to defraud trade creditors.   Furthermore, the shareholders contend that SFC was 
not insolvent inasmuch as SFC's claims were, in their opinion, viable and would 
ultimately be recovered.   They contend that because the corporation was not 
insolvent, payment to *252 them was justified on the grounds that they were 
secured investing or lending shareholder-creditors, and trade creditors had 
previously benefited more than they had.
 We conclude that the trial court correctly held that the conveyance to the four 
shareholders of $99,868.65 of the $126,550.05, which constitutes the sum 
collected by SFC from the State Education Department in January, 1980 for its 
part in the SFSP, must be set aside as fraudulent pursuant to section 273 of the 
Debtor and Creditor Law.
 Section 273 of the Debtor and Creditor Law provides as follows: 
"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 or the obligation is incurred 
without a fair consideration".
 [1] It is evident from the record that the transfers to the shareholders in 
late January, 1980, when SFC was virtually defunct, rendered SFC insolvent 
inasmuch as the fair salable value of its assets after the transfers was less 
than the amount that would be required to pay the probable liability on its 
existing debts as they became absolute and matured (Debtor and Creditor Law, §  
271, subd. 1).   At the time the subject money was transferred to the 
shareholders, the only other assets of the corporation were in the form of 
accounts receivable from federally funded nonprofit sponsors.   There is 
evidence that SFC underestimated its liabilities to creditors, some of whom had 
outstanding judgments against SFC.   SFC's ultimate liability to its creditors 
was substantially increased by interest and other fees accruing to judgment 
creditors such as Farm Stores.   By way of illustration, the money owned by SFC 
to Farm Stores, which had been estimated by the parties at $40,000 at the time 
of a settlement attempt in October, 1979, had more than doubled to over $95,000 
as of October, 1982 when Farm Stores entered personal money judgments against 
the shareholders pursuant to the judgment of September 28, 1982.
 Moreover, there are strong indications that SFC vastly overestimated the value 
of the accounts receivable it stood to collect in the future from sponsors. Said 
money was *253 subject to ongoing contested litigation with the Federal and 
State governments, the proceeds of which could be substantially reduced by 
compromise settlements, splitting arrangements with nonprofit sponsors and 
attorney's fees.   The amount claimed to be due SFC from sponsors is $980,000. 
Despite efforts to employ collection attorneys to obtain moneys owed to sponsors 
by the State and Federal governments, at the time of trial in May, 1982, SFC had 
only collected approximately $340,000 of the accounts receivable.   The only 
money actually collected by SFC on an outstanding account between the time of 
the trial and Lifton's March, 1983 motion to vacate the September 28, 1982 
judgment on the ground of newly discovered evidence was $27,500 on behalf of the 
Ebenezer Baptist Church.   Of this sum, $19,258 was remitted to Farm Stores.   
With respect to an action against the State to recover a sum in excess of 
$238,000 on behalf of a nonprofit sponsor, an order of the Court of Claims 
granting leave to file a late notice of claim acknowledged the validity of the 
claim only to the extent of $15,919.20.   The record reveals that the 
collectability of several default judgments as well as the claim against the 
State in the Court of Claims was uncertain at best.   It is thus evident **378 
that the effort to collect overdue accounts offered little promise of probable 
or timely success.   In this regard, Glenmore Distilleries Co. v. Seideman, 267 
F.Supp. 915 is instructive.   SFC's accounts receivable were analogous to the 
claim of the debtor corporation in that case against its judgment creditor for 
damages in quantum meruit, which claim was pending at the time certain payments 
to the debtor corporation's shareholders and directors were invalidated as 
fraudulent.   Inasmuch as SFC's accounts receivable were so inchoate, uncertain 
and contingent in nature, they lacked present fair salable value within the 
meaning of the Debtor and Creditor Law. By definition, SFC was insolvent at the 
time of the January, 1980 transfers to the shareholders (Debtor and Creditor 
Law, §  271, subd. 1).
 [2] The second element of a fraudulent conveyance pursuant to section 273 of 
the Debtor and Creditor Law is the lack of fair consideration.   Fair 
consideration exists when, in exchange for property or an obligation, "as a fair 
equivalent *254 therefor, and in good faith, property is conveyed or an 
antecedent debt is satisfied" (Debtor and Creditor Law, §  272, subd. a). The 
shareholders failed to adequately substantiate their claim that the antecedent 
debt represented by their alleged loans to and services rendered on behalf of 
the corporation constituted a fair equivalent for the moneys they received from 
SFC in January, 1980.   Assuming, arguendo, that the shareholders were able to 
establish that the funds they received from SFC were equivalent to the value of 
the loans and services they had previously advanced, the transfers to them were 
still invalid inasmuch as they were not made in good faith within the meaning of 
section 272 of the Debtor and Creditor Law.   It has been held that preferential 
transfers to directors, officers and shareholders of insolvent corporations in 
derogation of the rights of general creditors do not fulfill the good faith 
requirement of the Debtor and Creditor Law. 
"Whether it be upon the theory that directors of insolvent corporations are 
trustees for the benefit of all creditors, or upon the theory that it would be 
inequitable to allow directors to use inside information and their controlling 
voice in corporate affairs to benefit themselves over the claims of others, the 
common law forbids preferences to directors of insolvent corporations as being 
contrary to principles of fair, honest and open dealing * * *  Accordingly, the 
transfer in this case is void because, although made for a fair consideration, 
it was not made in good faith" (Southern Inds. v. Jeremias, 66 A.D.2d 178, 185, 
411 N.Y.S.2d 945, accord Julien J. Studley, Inc. v. Lefrak, 66 A.D.2d 208, 215, 
412 N.Y.S.2d 901, affd 48 N.Y.2d 954, 425 N.Y.S.2d 65, 401 N.E.2d 187).
 [3] There is no merit to the contention of shareholder Lifton that the 
repayment of his alleged loans to SFC cannot be considered an unconscionable 
advantage of a corporate fiduciary over the rights of general creditors because 
he functioned primarily as an outside lender to the corporation and exerted no 
control over its business affairs.   Although Lifton may not have participated 
in the day-to-day business affairs of SFC, he exercised his influence as a 
shareholder in decisions which directly affected his investments.   It is 
undisputed that Lifton gave his consent to all distributions of funds collected 
by SFC in 1979 and 1980, including those distributions challenged as fraudulent 
in *255 this action.   Moreover, Lifton admitted having been present at the 
meeting when the decision relating to the distribution of the subject money 
among the shareholders was made.
 [4] The transfer of the funds collected on behalf of SFC to the shareholders is 
also invalid pursuant to 273-a of the Debtor and Creditor Law, which provides as 
follows: 
"Every conveyance made without fair consideration when the person making it is a 
defendant in an action for money damages or a judgment in such an action has 
been docketed against him, is fraudulent **379 as to the plaintiff in that 
action without regard to the actual intent of the defendant if, after final 
judgment for the plaintiff, the defendant fails to satisfy the judgment".
 It is undisputed that SFC was a defendant in an action brought by Farm Stores 
in the Supreme Court, New York County, for money damages based upon breach of 
contract when the subject transfer to the shareholders was made.   Judgment was 
entered against SFC in that action in 1980.   The amount of the judgment was 
later increased on appeal (Farm Stores v. School Feeding Corp., 79 A.D.2d 504, 
433 N.Y.S.2d 453, affd 53 N.Y.2d 910, 440 N.Y.S.2d 633, 423 N.E.2d 56).   
Inasmuch as SFC failed to satisfy the judgment in favor of Farm Stores prior to 
the entry of judgment in the instant turnover proceeding, the transfer to the 
shareholders comes within the purview of section 273-a of the Debtor and 
Creditor Law and must be invalidated (see Community Nat. Bank & Trust Co. of 
N.Y. v. Statile, 94 A.D.2d 754, 462 N.Y.S.2d 693;  Merman v. Miller, 82 A.D.2d 
826, 439 N.Y.S.2d 428;  Schoenberg v. Schoenberg, 113 Misc.2d 356, 449 N.Y.S.2d 
137, mod. on other grounds 90 A.D.2d 827, 456 N.Y.S.2d 14).
 [5][6] It has been held that where a fraudulent conveyance has been 
established, each transferee who was not a bona fide purchaser for fair 
consideration (see Debtor and Creditor Law, §  278, subd. 1) is liable to the 
creditor to the extent of the value of the money or property he or she 
wrongfully received (see DeWest Realty Corp. v. Internal Revenue Serv., 418 
F.Supp. 1274, 1279;  United States v. 58th Street Plaza Theatre, 287 F.Supp. 
475).   The shareholders cannot be considered bona fide purchasers for fair 
consideration who are immune from liability as transferees of fraudulently 
conveyed property, as the record reveals that they were aware that they were 
receiving money from SFC *256 when the claims of the general creditors had not 
been completely paid and, in fact, they consented to such a distribution of the 
corporate funds.   Therefore, each shareholder has some liability to the trade 
creditors.   There is insufficient evidence, however, to support a conclusion 
that the shareholders engaged in a conspiracy and actually intended to defraud 
the trade creditors.   Thus, they may not be held jointly and severally liable 
(cf. Nederlandsche Handel-Maatschappii N.V. v. Schreiber, 17 A.D.2d 783, 232 
N.Y.S.2d 644).   Rather, the liability of each SFC shareholder must be limited 
to the amount he wrongfully received.
 As respects Farm Stores' challenge to the trial court's denial of its 
application for punitive damages and attorney's fees, we conclude that that 
determination must be upheld.   The standard for an award of punitive damages in 
an action to recover damages for fraud is a stringent one.   Courts have 
authorized punitive damages in cases involving fraud aimed against private 
parties rather than the general public only where "the defendant's conduct 
evinced a high degree of moral turpitude and demonstrated such wanton dishonesty 
as to imply a criminal indifference to civil obligations" (Walker v. Sheldon, 10 
N.Y.2d 401, 405, 223 N.Y.S.2d 488, 179 N.E.2d 497;  accord Chase Manhattan Bank, 
N.A. v. Perla, 65 A.D.2d 207, 211, 411 N.Y.S.2d 66).
 [7] At bar, Farm Stores was unable to establish that the shareholders acted 
with actual intent to defraud creditors in order to justify setting aside the 
transfers pursuant to section 276 of the Debtor and Creditor Law. 
Notwithstanding the fact that the transfers of the corporate funds were properly 
invalidated pursuant to the constructive fraud provisions of the Debtor and 
Creditor Law, there was no evidence that SFC or its shareholders acted with the 
high degree of moral culpability required to justify an award of punitive 
damages (see Borkowski v. Borkowski, 39 N.Y.2d 982, 983, 387 N.Y.S.2d 233, 355 
N.E.2d 287;  J.G.S., Inc. v. Lifetime Cutlery Corp., 87 A.D.2d 810, 448 N.Y.S.2d 
780).
 [8] The trial court was also correct in holding that Farm Stores' attorney was 
not entitled to fees under section 276-a of the Debtor and Creditor Law in view 
of the absence of satisfactory proof of actual intent **380 to defraud creditors 
(seeSchoenberg v. Schoenberg, 90 A.D.2d 827, 456 N.Y.S.2d 14, supra).   The 
attorney's fees provision of section 276-a is inapplicable where *257 the 
subject conveyance is invalid under the constructive fraud provisions of the 
Debtor and Creditor Law as opposed to the actual fraud provisions thereof 
(Southern Inds. v. Jeremias, 66 A.D.2d 178, 411 N.Y.S.2d 945, supra).
 [9] Nor is Farm Stores entitled to counsel fees by virtue of paragraph 4 of the 
order form utilized by SFC, which form contains the terms of the contract of 
sale with the suppliers.   Said paragraph provides, in pertinent part, that 
"Buyer also agrees to pay reasonable attorney fees and other costs incurred at 
collection".   This provision imposes an obligation with respect to attorney's 
fees only upon SFC, rather than the individual shareholders who are the parties 
in interest in this proceeding.   Under these circumstances, we do not interpret 
this contractual provision as imposing a liability upon the shareholders for 
attorney's fees where they would not otherwise be liable pursuant to section 
276-a of the Debtor and Creditor Law.
 We have considered the parties' other contentions and find them to be without 
merit.
 In a proceeding, inter alia, pursuant to CPLR 5225 (subd. b) and 5227 to set 
aside a transfer of money by appellant-respondent School Feeding Corp. (SFC) to 
its shareholders as fraudulent against the corporation's creditors, SFC, Martin 
Lifton, Norman Lichtman, Irwin Sandler, and James J. Venia appeal, as limited by 
their briefs, from stated portions of a judgment of the Supreme Court, Nassau 
County, entered September 28, 1982, which, inter alia, (1) set aside a transfer 
of $99,868.65 by SFC to its shareholders (appellants- respondents Lichtman, 
Sandler, Venia and Lifton) in January, 1980 as fraudulent against Farm Stores, 
Inc. a judgment creditor of SFC;  (2) ordered SFC and its shareholders to pay 
the sum of $82,765.54, together with interest and poundage fees, if any, owed by 
SFC to Farm Stores pursuant to a judgment in another action, within 30 days 
after the entry of the judgment;  and (3) in the event Lichtman, Sandler, Venia 
and Lifton failed to pay Farm Stores the above sum within the prescribed time 
period, directed the Clerk of the Court to enter a personal money judgment for 
the unpaid sum against them, and petitioner Farm Stores, Inc. cross-appeals from 
so much of the judgment entered September 28, 1982 as dismissed the claims for 
punitive damages, counsel fees and expenses, and from so much of an order of the 
same court, entered January 18, 1983, as (1) granted that branch of Lifton's 
motion as sought to vacate a money judgment entered against him personally and 
(2) denied its cross motion, inter alia, for an order directing Lifton to file a 
new undertaking pursuant to CPLR 5519 (subd. [a], par. 2) and for an award of 
counsel fees.   SFC, Lichtman, Sandler, and Lifton further appeal from so much 
of an order of the same court, dated May 16, 1983, as denied a motion to vacate 
the judgment entered September 28, 1982, on the ground of newly discovered 
evidence.
 Judgment modified, on the law, by deleting therefrom the second and seventh 
decretal paragraphs holding all officers and shareholders jointly and severally 
liable for the sum $82,765.54 and substituting therefor a provision authorizing 
the entry of money judgments against each individual shareholder personally only 
for the money he wrongfully received from SFC on January 25, 1980, viz., 
$29,467.15 against Norman Lichtman, $9,467.15 against Irwin Sandler, $24,467.20 
against Martin Lifton and $36,467.15 against James J. Venia.   As so modified, 
judgment affirmed insofar as appealed from, without costs or disbursements.
 Order entered January 18, 1983 affirmed insofar as appealed from, without costs 
or disbursements.
 Order dated May 16, 1983 affirmed insofar as appealed from, without costs or 
disbursements.
 GIBBONS, J.P., and THOMPSON and BROWN, JJ., concur in the opinion of WEINSTEIN, 
J.
477 N.Y.S.2d 374, 102 A.D.2d 249
END OF DOCUMENT
Supreme Court, Appellate Division, Second Department, New York.
FARM STORES, INC., Respondent-Appellant,v.SCHOOL FEEDING CORP., et al., Appellants-Respondents, et al., Respondents.

June 11, 1984.

 Creditor of corporation brought action to set aside transfer of money from corporation to shareholders as a fraudulent conveyance.   The Supreme Court, Nassau County, George A. Murphy, J., entered judgment which set aside transfer, ordered corporation and shareholders to pay amount owed to creditor, and, in event money was not paid, directed that personal money judgment be entered against shareholders for unpaid amount.   Corporation and shareholders appealed and creditor cross-appealed.   The Supreme Court, Appellate Division, Weinstein, J., held that:  (1) transfer was a fraudulent conveyance;  (2) one of the shareholders was not a general creditor of the corporation;  (3) evidence was insufficient to establish that shareholders engaged in conspiracy and actually intended to defraud creditors;  thus, they could not be held jointly and severally liable;  (4) creditor was not entitled to punitive damages;  and (5) creditor was not entitled to counsel fees.
 Affirmed.

West Headnotes
[1] Corporations  542(3)101k542(3) Most Cited Cases
Where, after corporation transferred money to shareholders, fair salable value of its assets was less than amount that would be required to pay the probable liability on its existing debts as they became absolute and matured, corporation underestimated its liabilities to creditors, overestimated value of accounts receivable, and its effort to collect overdue account offered little promise of probable or timely success, corporation was insolvent at time of transfer to shareholders for purposes of determining whether transfer was a fraudulent conveyance.  McKinney's Debtor and Creditor Law §  271, subd. 1.
[2] Corporations  542(3)101k542(3) Most Cited Cases
Shareholders' allegations that money they received from corporation after it had become insolvent represented repayment of alleged loans and services rendered on behalf of the corporation failed to establish that transfer was made for fair consideration, and even if shareholders were able to establish equivalent value, transfers were not in good faith and were in derogation of rights of general creditors;  thus, transfer represented a fraudulent conveyance.  McKinney's Debtor and Creditor Law §  272.
[3] Corporations  542(3)101k542(3) Most Cited Cases
Where shareholder exercised his influence as a shareholder in decisions which directly affected his investment in corporation, gave his consent to all distributions of corporate funds, and was present at meeting when decision was made to transfer funds to shareholders after corporation was insolvent, transfer of funds to shareholder was unconscionable advantage of a corporate fiduciary over rights of general creditors, despite fact that shareholder did not participate in day-to-day business affairs of corporation and alleged that he was primarily an outside lender to corporation who exerted no control over its business affairs.
[4] Corporations  542(3)101k542(3) Most Cited Cases
Where corporation transferred money to shareholders at time that action for money damages was pending against it and ensuing judgment against it was never satisfied, transfer was a fraudulent conveyance.  McKinney's Debtor and Creditor Law §  273-a.
[5] Corporations  542(3)101k542(3) Most Cited Cases
Where shareholders were aware that they were receiving money from corporation when claims of general creditors had not been completely paid and had consented to such distribution of corporate funds, shareholders could not be considered bona fide purchasers for fair considerations;  thus, shareholders were not immune from liability as transferees of fraudulently conveyed property.
[6] Corporations  542(3)101k542(3) Most Cited Cases
Where shareholders who had received fraudulent conveyance from corporation were not bona fide purchasers for fair consideration, but had not engaged in a conspiracy and had not actually intended to defraud trade creditors, shareholders could not be held jointly and severally liable for conveyance; rather, liability of each shareholder was limited to amount he wrongfully received.
[7] Corporations  542(3)101k542(3) Most Cited Cases
Creditor of corporation was not entitled to punitive damages in action to set aside a transfer from corporation to shareholders as a fraudulent conveyance in which creditor was unable to establish that shareholders acted with actual intent to defraud creditors, notwithstanding fact that transfers of corporate funds were properly invalidated pursuant to constructive fraud provisions of Debtor and Creditor Law;  creditor had to show that corporation or its shareholders acted with high degree of moral culpability to justify award of such damages.  McKinney's Debtor and Creditor Law §  276.
[8] Fraudulent Conveyances  319186k319 Most Cited Cases
Section of Debtor and Creditor Law which permits attorney's fees to be awarded to party who has brought successful action to set aside fraudulent conveyance is inapplicable where subject conveyance is invalid under constructive fraud provisions of Debtor and Creditor Law as opposed to actual fraud provisions thereof.  McKinney's Debtor and Creditor Law §  276-a.
[9] Corporations  548(11)101k548(11) Most Cited Cases
Creditor of corporation which had successfully set aside transfer of money from corporation to shareholders could not recover attorney's fees from shareholders under provision of original contract with corporation;  corporations contract did not impose liability upon shareholders for fees where they would not otherwise be liable under Debtor and Creditor Law.  McKinney's Debtor and Creditor Law §  276-a. **376 *250 Seavey, Fingerit, Vogel & Oziel, New York City (Irwin K. Fingerit, New York City, of counsel), for appellants-respondents School Feeding Corp., Lichtman and Sandler.
 Thomas J. Nerangis, New York City, for appellant-respondent Venia.
 Dreyer & Traub, New York City (Samuel Kirschenbaum and Hannah K. Flamenbaum, New York City, of counsel), for appellant-respondent Lifton.
 Irving Levine, Great Neck, for respondent-appellant.

 Before GIBBONS, J.P., and THOMPSON, WEINSTEIN and BROWN, JJ.


 WEINSTEIN, Justice.
 *251 SFC is a New York corporation formed in 1974 for the purpose of supplying meals to nonprofit organizations serving as sponsors of the Summer Food Service Program for Children (SFSP), which was funded by the United States Department of Agriculture (USDA) through the New York State Education Department.   The SFSP was administered by the State Education Department and USDA funds for such administration were advanced to, held and paid out by the State Comptroller.   In connection with this program, the State contracted with numerous service institutions to serve as sponsors for the actual feeding of the children in the program.   The program sponsors, in turn, had the option to contract with food service management companies or vendors, of which SFC was one, to undertake the responsibility of preparing the meals for the children. Farm Stores, Inc. supplied fruit and juices to SFC during the summer of 1976.
 When Federal funds for the program were cut off pending USDA investigations of abuses, the nonprofit sponsors were unable to pay their debts to vendors such as SFC, which was, in turn, unable to pay its debts to suppliers like Farm Stores, Inc.   These appeals concern the lengthy and complex litigation undertaken by Farm Stores to collect debts owed by SFC for goods supplied in the wake of that corporation's financial collapse following the termination of Federal funding during the summer of 1976.   At issue is the propriety of the transfer by SFC to the four respondent shareholders of a portion of the sum it collected from the New York State Education Department in January, 1980.
 **377 SFC's shareholders deny that they knowingly attempted to defraud anyone and specifically dispute any wrongdoing vis-a-vis Farm Stores.   They maintain that the transfers from SFC to themselves were made in good faith to satisfy their legitimate claims as creditors and that there was absolutely no conspiracy to defraud trade creditors.   Furthermore, the shareholders contend that SFC was not insolvent inasmuch as SFC's claims were, in their opinion, viable and would ultimately be recovered.   They contend that because the corporation was not insolvent, payment to *252 them was justified on the grounds that they were secured investing or lending shareholder-creditors, and trade creditors had previously benefited more than they had.
 We conclude that the trial court correctly held that the conveyance to the four shareholders of $99,868.65 of the $126,550.05, which constitutes the sum collected by SFC from the State Education Department in January, 1980 for its part in the SFSP, must be set aside as fraudulent pursuant to section 273 of the Debtor and Creditor Law.
 Section 273 of the Debtor and Creditor Law provides as follows: "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 or the obligation is incurred without a fair consideration".
 [1] It is evident from the record that the transfers to the shareholders in late January, 1980, when SFC was virtually defunct, rendered SFC insolvent inasmuch as the fair salable value of its assets after the transfers was less than the amount that would be required to pay the probable liability on its existing debts as they became absolute and matured (Debtor and Creditor Law, §  271, subd. 1).   At the time the subject money was transferred to the shareholders, the only other assets of the corporation were in the form of accounts receivable from federally funded nonprofit sponsors.   There is evidence that SFC underestimated its liabilities to creditors, some of whom had outstanding judgments against SFC.   SFC's ultimate liability to its creditors was substantially increased by interest and other fees accruing to judgment creditors such as Farm Stores.   By way of illustration, the money owned by SFC to Farm Stores, which had been estimated by the parties at $40,000 at the time of a settlement attempt in October, 1979, had more than doubled to over $95,000 as of October, 1982 when Farm Stores entered personal money judgments against the shareholders pursuant to the judgment of September 28, 1982.
 Moreover, there are strong indications that SFC vastly overestimated the value of the accounts receivable it stood to collect in the future from sponsors. Said money was *253 subject to ongoing contested litigation with the Federal and State governments, the proceeds of which could be substantially reduced by compromise settlements, splitting arrangements with nonprofit sponsors and attorney's fees.   The amount claimed to be due SFC from sponsors is $980,000. Despite efforts to employ collection attorneys to obtain moneys owed to sponsors by the State and Federal governments, at the time of trial in May, 1982, SFC had only collected approximately $340,000 of the accounts receivable.   The only money actually collected by SFC on an outstanding account between the time of the trial and Lifton's March, 1983 motion to vacate the September 28, 1982 judgment on the ground of newly discovered evidence was $27,500 on behalf of the Ebenezer Baptist Church.   Of this sum, $19,258 was remitted to Farm Stores.   With respect to an action against the State to recover a sum in excess of $238,000 on behalf of a nonprofit sponsor, an order of the Court of Claims granting leave to file a late notice of claim acknowledged the validity of the claim only to the extent of $15,919.20.   The record reveals that the collectability of several default judgments as well as the claim against the State in the Court of Claims was uncertain at best.   It is thus evident **378 that the effort to collect overdue accounts offered little promise of probable or timely success.   In this regard, Glenmore Distilleries Co. v. Seideman, 267 F.Supp. 915 is instructive.   SFC's accounts receivable were analogous to the claim of the debtor corporation in that case against its judgment creditor for damages in quantum meruit, which claim was pending at the time certain payments to the debtor corporation's shareholders and directors were invalidated as fraudulent.   Inasmuch as SFC's accounts receivable were so inchoate, uncertain and contingent in nature, they lacked present fair salable value within the meaning of the Debtor and Creditor Law. By definition, SFC was insolvent at the time of the January, 1980 transfers to the shareholders (Debtor and Creditor Law, §  271, subd. 1).
 [2] The second element of a fraudulent conveyance pursuant to section 273 of the Debtor and Creditor Law is the lack of fair consideration.   Fair consideration exists when, in exchange for property or an obligation, "as a fair equivalent *254 therefor, and in good faith, property is conveyed or an antecedent debt is satisfied" (Debtor and Creditor Law, §  272, subd. a). The shareholders failed to adequately substantiate their claim that the antecedent debt represented by their alleged loans to and services rendered on behalf of the corporation constituted a fair equivalent for the moneys they received from SFC in January, 1980.   Assuming, arguendo, that the shareholders were able to establish that the funds they received from SFC were equivalent to the value of the loans and services they had previously advanced, the transfers to them were still invalid inasmuch as they were not made in good faith within the meaning of section 272 of the Debtor and Creditor Law.   It has been held that preferential transfers to directors, officers and shareholders of insolvent corporations in derogation of the rights of general creditors do not fulfill the good faith requirement of the Debtor and Creditor Law. "Whether it be upon the theory that directors of insolvent corporations are trustees for the benefit of all creditors, or upon the theory that it would be inequitable to allow directors to use inside information and their controlling voice in corporate affairs to benefit themselves over the claims of others, the common law forbids preferences to directors of insolvent corporations as being contrary to principles of fair, honest and open dealing * * *  Accordingly, the transfer in this case is void because, although made for a fair consideration, it was not made in good faith" (Southern Inds. v. Jeremias, 66 A.D.2d 178, 185, 411 N.Y.S.2d 945, accord Julien J. Studley, Inc. v. Lefrak, 66 A.D.2d 208, 215, 412 N.Y.S.2d 901, affd 48 N.Y.2d 954, 425 N.Y.S.2d 65, 401 N.E.2d 187).
 [3] There is no merit to the contention of shareholder Lifton that the repayment of his alleged loans to SFC cannot be considered an unconscionable advantage of a corporate fiduciary over the rights of general creditors because he functioned primarily as an outside lender to the corporation and exerted no control over its business affairs.   Although Lifton may not have participated in the day-to-day business affairs of SFC, he exercised his influence as a shareholder in decisions which directly affected his investments.   It is undisputed that Lifton gave his consent to all distributions of funds collected by SFC in 1979 and 1980, including those distributions challenged as fraudulent in *255 this action.   Moreover, Lifton admitted having been present at the meeting when the decision relating to the distribution of the subject money among the shareholders was made.
 [4] The transfer of the funds collected on behalf of SFC to the shareholders is also invalid pursuant to 273-a of the Debtor and Creditor Law, which provides as follows: "Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent **379 as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment".
 It is undisputed that SFC was a defendant in an action brought by Farm Stores in the Supreme Court, New York County, for money damages based upon breach of contract when the subject transfer to the shareholders was made.   Judgment was entered against SFC in that action in 1980.   The amount of the judgment was later increased on appeal (Farm Stores v. School Feeding Corp., 79 A.D.2d 504, 433 N.Y.S.2d 453, affd 53 N.Y.2d 910, 440 N.Y.S.2d 633, 423 N.E.2d 56).   Inasmuch as SFC failed to satisfy the judgment in favor of Farm Stores prior to the entry of judgment in the instant turnover proceeding, the transfer to the shareholders comes within the purview of section 273-a of the Debtor and Creditor Law and must be invalidated (see Community Nat. Bank & Trust Co. of N.Y. v. Statile, 94 A.D.2d 754, 462 N.Y.S.2d 693;  Merman v. Miller, 82 A.D.2d 826, 439 N.Y.S.2d 428;  Schoenberg v. Schoenberg, 113 Misc.2d 356, 449 N.Y.S.2d 137, mod. on other grounds 90 A.D.2d 827, 456 N.Y.S.2d 14).
 [5][6] It has been held that where a fraudulent conveyance has been established, each transferee who was not a bona fide purchaser for fair consideration (see Debtor and Creditor Law, §  278, subd. 1) is liable to the creditor to the extent of the value of the money or property he or she wrongfully received (see DeWest Realty Corp. v. Internal Revenue Serv., 418 F.Supp. 1274, 1279;  United States v. 58th Street Plaza Theatre, 287 F.Supp. 475).   The shareholders cannot be considered bona fide purchasers for fair consideration who are immune from liability as transferees of fraudulently conveyed property, as the record reveals that they were aware that they were receiving money from SFC *256 when the claims of the general creditors had not been completely paid and, in fact, they consented to such a distribution of the corporate funds.   Therefore, each shareholder has some liability to the trade creditors.   There is insufficient evidence, however, to support a conclusion that the shareholders engaged in a conspiracy and actually intended to defraud the trade creditors.   Thus, they may not be held jointly and severally liable (cf. Nederlandsche Handel-Maatschappii N.V. v. Schreiber, 17 A.D.2d 783, 232 N.Y.S.2d 644).   Rather, the liability of each SFC shareholder must be limited to the amount he wrongfully received.
 As respects Farm Stores' challenge to the trial court's denial of its application for punitive damages and attorney's fees, we conclude that that determination must be upheld.   The standard for an award of punitive damages in an action to recover damages for fraud is a stringent one.   Courts have authorized punitive damages in cases involving fraud aimed against private parties rather than the general public only where "the defendant's conduct evinced a high degree of moral turpitude and demonstrated such wanton dishonesty as to imply a criminal indifference to civil obligations" (Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 179 N.E.2d 497;  accord Chase Manhattan Bank, N.A. v. Perla, 65 A.D.2d 207, 211, 411 N.Y.S.2d 66).
 [7] At bar, Farm Stores was unable to establish that the shareholders acted with actual intent to defraud creditors in order to justify setting aside the transfers pursuant to section 276 of the Debtor and Creditor Law. Notwithstanding the fact that the transfers of the corporate funds were properly invalidated pursuant to the constructive fraud provisions of the Debtor and Creditor Law, there was no evidence that SFC or its shareholders acted with the high degree of moral culpability required to justify an award of punitive damages (see Borkowski v. Borkowski, 39 N.Y.2d 982, 983, 387 N.Y.S.2d 233, 355 N.E.2d 287;  J.G.S., Inc. v. Lifetime Cutlery Corp., 87 A.D.2d 810, 448 N.Y.S.2d 780).
 [8] The trial court was also correct in holding that Farm Stores' attorney was not entitled to fees under section 276-a of the Debtor and Creditor Law in view of the absence of satisfactory proof of actual intent **380 to defraud creditors (seeSchoenberg v. Schoenberg, 90 A.D.2d 827, 456 N.Y.S.2d 14, supra).   The attorney's fees provision of section 276-a is inapplicable where *257 the subject conveyance is invalid under the constructive fraud provisions of the Debtor and Creditor Law as opposed to the actual fraud provisions thereof (Southern Inds. v. Jeremias, 66 A.D.2d 178, 411 N.Y.S.2d 945, supra).
 [9] Nor is Farm Stores entitled to counsel fees by virtue of paragraph 4 of the order form utilized by SFC, which form contains the terms of the contract of sale with the suppliers.   Said paragraph provides, in pertinent part, that "Buyer also agrees to pay reasonable attorney fees and other costs incurred at collection".   This provision imposes an obligation with respect to attorney's fees only upon SFC, rather than the individual shareholders who are the parties in interest in this proceeding.   Under these circumstances, we do not interpret this contractual provision as imposing a liability upon the shareholders for attorney's fees where they would not otherwise be liable pursuant to section 276-a of the Debtor and Creditor Law.
 We have considered the parties' other contentions and find them to be without merit.
 In a proceeding, inter alia, pursuant to CPLR 5225 (subd. b) and 5227 to set aside a transfer of money by appellant-respondent School Feeding Corp. (SFC) to its shareholders as fraudulent against the corporation's creditors, SFC, Martin Lifton, Norman Lichtman, Irwin Sandler, and James J. Venia appeal, as limited by their briefs, from stated portions of a judgment of the Supreme Court, Nassau County, entered September 28, 1982, which, inter alia, (1) set aside a transfer of $99,868.65 by SFC to its shareholders (appellants- respondents Lichtman, Sandler, Venia and Lifton) in January, 1980 as fraudulent against Farm Stores, Inc. a judgment creditor of SFC;  (2) ordered SFC and its shareholders to pay the sum of $82,765.54, together with interest and poundage fees, if any, owed by SFC to Farm Stores pursuant to a judgment in another action, within 30 days after the entry of the judgment;  and (3) in the event Lichtman, Sandler, Venia and Lifton failed to pay Farm Stores the above sum within the prescribed time period, directed the Clerk of the Court to enter a personal money judgment for the unpaid sum against them, and petitioner Farm Stores, Inc. cross-appeals from so much of the judgment entered September 28, 1982 as dismissed the claims for punitive damages, counsel fees and expenses, and from so much of an order of the same court, entered January 18, 1983, as (1) granted that branch of Lifton's motion as sought to vacate a money judgment entered against him personally and (2) denied its cross motion, inter alia, for an order directing Lifton to file a new undertaking pursuant to CPLR 5519 (subd. [a], par. 2) and for an award of counsel fees.   SFC, Lichtman, Sandler, and Lifton further appeal from so much of an order of the same court, dated May 16, 1983, as denied a motion to vacate the judgment entered September 28, 1982, on the ground of newly discovered evidence.
 Judgment modified, on the law, by deleting therefrom the second and seventh decretal paragraphs holding all officers and shareholders jointly and severally liable for the sum $82,765.54 and substituting therefor a provision authorizing the entry of money judgments against each individual shareholder personally only for the money he wrongfully received from SFC on January 25, 1980, viz., $29,467.15 against Norman Lichtman, $9,467.15 against Irwin Sandler, $24,467.20 against Martin Lifton and $36,467.15 against James J. Venia.   As so modified, judgment affirmed insofar as appealed from, without costs or disbursements.
 Order entered January 18, 1983 affirmed insofar as appealed from, without costs or disbursements.
 Order dated May 16, 1983 affirmed insofar as appealed from, without costs or disbursements.

 GIBBONS, J.P., and THOMPSON and BROWN, JJ., concur in the opinion of WEINSTEIN, J.
477 N.Y.S.2d 374, 102 A.D.2d 249
END OF DOCUMENT