Matter of Dissolution of 1621, Inc., 648 N.E.2d 912 (N.Y. 1995)

A landlord can enforce a claim for unpaid rent against the assets of a dissolved corporation when the lease was identified as an asset to be sold and the landlord properly asserted their creditor status during the dissolution proceedings.

Summary

Following the dissolution of 1621, Inc. and a court-ordered public sale of its assets, including the lease of its business premises, a dispute arose regarding unpaid rent. The landlord, having notified the referee of its claim for the outstanding rent, sought payment from the sale proceeds. A former shareholder attempted to vacate the sale and designate the buyer as an assignee of the lease. The New York Court of Appeals held that the landlord was entitled to enforce its claim against the dissolved corporation’s assets and that the referee properly ordered the claim’s satisfaction from the sale proceeds.

Facts

1621, Inc. was dissolved, and a judgment ordered a public sale of its assets. The “Terms of Sale” listed the business premises’ lease as a corporate asset. At the time of the sale, 1621, Inc. was in default on rent payments. The landlord informed the court-appointed referee that it was a creditor of the corporation for the unpaid rent. Harwood, the highest bidder, purchased all corporate assets at the auction.

Procedural History

A former 50% shareholder of 1621, Inc. moved to vacate the sale and declare Harwood an assignee of the lease. The landlord then filed a motion under Business Corporation Law § 1007, claiming the balance due under the lease. The lower courts denied the shareholder’s motion and granted the landlord’s motion, directing the referee to pay the landlord $209,846.80 from the sale proceeds to settle the claim. The New York Court of Appeals affirmed this decision.

Issue(s)

Whether the landlord, as a creditor of a dissolved corporation with a claim for unpaid rent, is entitled to enforce its claim against the assets of the dissolved corporation when those assets were sold pursuant to a court order?

Holding

Yes, because under the circumstances, the landlord was entitled to enforce its claim as creditor against the assets of the dissolved corporation, and the Referee properly ordered satisfaction of this claim from the sale proceeds.

Court’s Reasoning

The Court of Appeals concisely affirmed the lower court’s decision, emphasizing the landlord’s right to assert a claim against the dissolved corporation’s assets. The court highlighted that the lease was explicitly identified as an asset to be sold. Furthermore, the landlord properly notified the referee of its creditor status and the outstanding rent owed. By filing a motion pursuant to Business Corporation Law § 1007, the landlord followed the proper procedure for asserting claims against a dissolved corporation. The court’s decision reflects the policy of ensuring that creditors of a dissolved corporation are able to recover valid debts from the corporation’s remaining assets before those assets are distributed to shareholders or other parties. The court found no reason to disturb the lower court’s ruling that the sale proceeds should be used to satisfy the landlord’s claim. There were no dissenting or concurring opinions published.