McGLINCHEY v. McGLINCHEY, N.Y. Misc., Judgment, Law, casemine.com

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Attorney(S)

Julius P. Fischler for plaintiff. C. Gordon Lamude for defendant.

Judges

HALLINAN, J.

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Smart Summary

Factual and Procedural Background

The plaintiff, Mary McGlinchey, brought an action seeking a declaration that she was the owner of certain shares of stock and requesting the defendant, Anna McGlinchey, to retransmit the shares and account for all earnings and dividends. The shares had been pledged to a bank as security for a loan. Following an automobile accident involving the plaintiff's husband (in a car registered in her name), the plaintiff feared a lawsuit and potential loss of the shares. To protect the shares, the plaintiff and defendant agreed that the defendant would pay off the loan to release the shares and have them transferred to her name, with the understanding that the plaintiff retained true ownership and that the stock was held only as collateral for the loan. Despite this, the defendant refused to return the shares or account for dividends, claiming absolute ownership. The defendant moved to dismiss the amended complaint on the ground that it failed to state a cause of action.

Legal Issues Presented

Whether the plaintiff’s amended complaint states facts sufficient to constitute a cause of action for the return of the shares of stock and accounting of dividends.
Whether the plaintiff, having transferred the shares to hinder or delay a potential creditor, can obtain equitable relief for their return.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Holman v. Johnson, 1 Cowp. 341, 343	Equity will not assist a plaintiff whose cause of action arises from an immoral or illegal act (ex turpi causa).	The court relied on this principle to deny relief to the plaintiff who sought to recover property transferred to hinder a creditor.
Pierce v. Pierce, 253 A.D. 445; affd., 280 N.Y. 562	Refusal to direct return of securities transferred to defeat a deficiency judgment.	Applied as a controlling precedent to deny the plaintiff’s claim where the transfer was made to frustrate a creditor’s claim.
Bostwick v. Menck, 40 N.Y. 383	Defendant acquires good title against fraudulent transferor except as to creditors entitled to the property.	Supported the conclusion that the defendant held good title against the plaintiff, barring claims by creditors.

Court's Reasoning and Analysis

The court examined the plaintiff's verified amended complaint, which admitted that the stock shares were transferred without consideration and without fraud, solely to protect the shares from a potential claim arising from an automobile accident. The plaintiff’s intent was to hinder or defraud a possible creditor by making herself "judgment proof." Under the principle that courts will not assist a plaintiff whose cause arises from an illegal or immoral act (ex turpi causa), the court found no equitable basis to order the return of the shares or accounting for dividends. The court further relied on established precedent from Pierce v. Pierce, which refused relief in similar circumstances, and Bostwick v. Menck, which confirmed that a transferee acquires good title against a fraudulent transferor except as to creditors.

Holding and Implications

The court granted the defendant’s motion to dismiss the amended complaint.

The direct effect of this decision is that the plaintiff is denied recovery of the shares and dividends, as the transfer was made with the intent to hinder a creditor and thus barred by the doctrine of ex turpi causa. No new legal precedent was established; the ruling reaffirms existing principles that courts will not aid plaintiffs who base their claims on immoral or illegal transactions.

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MARY McGLINCHEY, Plaintiff, v. ANNA McGLINCHEY, Defendant.

HALLINAN, J.

In an action brought to declare the plaintiff to be the owner of certain shares of stock and directing the defendant to retransfer them to her and to account for all earnings and dividends therefrom, the defendant moves to dismiss the amended complaint upon the ground that upon the face thereof the same does not state facts sufficient to constitute a cause of action.

It appears upon the face of the amended complaint that the plaintiff was the owner of certain shares of stock which were pledged with a certain bank as security for a loan; that plaintiff's husband, while operating an automobile registered in her name, became involved in an accident, as a result of which she was threatened with a law suit demanding damages; that in great fear and distress because of the threatened law suit and "the possible loss of the said shares of stock that might result," the plaintiff consulted the defendant herein, with whom she had a close relationship, as a result of which they agreed that "in order to protect the said asset * * *" the defendant would pay the loan to the bank so that the shares of stock would be released and the stock thereupon transferred to the defendant's name, "with the express understanding, however, that the true ownership remain in the plaintiff, and that the said stock be held as collateral only for the purpose of securing the loan * * *." The terms of this agreement were carried out, but the defendant has refused to return the shares of stock and to account for the dividends therefrom, asserting that she is the absolute owner thereof.

It thus appears from the plaintiff's own mouth, as frankly set forth in her verified amended complaint, that she transferred the shares of stock to the defendant without consideration, without fraudulently being induced to do so, and for the express purpose of protecting the same from the claim of a third person for damages resulting from an accident in which an automobile registered in her name was involved. Clearly the plaintiff intended to hinder and delay, if not to defraud, such person, that is, to make herself "judgment proof." She is in no position to invoke the aid of this court of equity in securing the return of the stock thus transferred. It is ancient learning that "No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff." (Lord Mansfield in Holman v. Johnson, 1 Cowp. 341, 343.)

The latest expression of this principle is found in Pierce v. Pierce ( 253 A.D. 445; affd., 280 N.Y. 562) where the Appellate Division of this Department refused to direct the return to the plaintiff of certain securities which were transferred for the admitted purpose of defeating a deficiency judgment in an existing or impending action for the foreclosure of a mortgage made by the plaintiff and for which debt he was liable on the bond.

Under the circumstances presented here, the defendant acquired a good title against the fraudulent transferor, except as to the latter's creditors entitled to said property. ( Bostwick v. Menck, 40 N.Y. 383.)

The motion is accordingly granted.

McGLINCHEY v. McGLINCHEY