Can a Landlord Challenge the Transfer of Assets of a Defaulting Tenant ?
In American Metal Finishers v. Palleschi (55 AD2d 499 [2d Dept 1977], Palleschi was a landlord who brought a summary proceeding against his tenant, Crown-Bastell, Inc.
The tenant defaulted and Palleschi recovered a warrant of eviction and a money judgment.
Before the Sheriff could levy upon the judgment, the tenant, Crown-Bastell, transferred all its assets to American Metal Finishers in exchange for American Metal Finishers' assumption of a loan obligation to Chase Manhattan Bank in the sum of $ 205,735.38, as well as the assumption of other obligations including past due wages, public utility debts and payroll taxes owed to the Internal Revenue Service.
While the decision does not state whether Crown-Bastell's debt to Chase Manhattan secured by the perfected security was in default, "The nonpayment of payroll taxes had resulted in the placement by the Internal Revenue Service of a lien on Crown's property ... and in the padlocking of the warehouse and Crown's manufacturing facility." (Supra, at 500.)
Palleschi challenged the transfer to American Metal Finishers citing the Bulk Transfers Act.