Full opinion text
OPINION AND ORDER OWEN, District Judge. This opinion addresses itself to various recent attempts by the Clarkson Company Limited (“Clarkson”) to realize on a $50 million judgment awarded by a jury in this Court in July of 1980 against John M. Shaheen and certain of his various corporations, including Shaheen Natural Resources Co., Inc., (“SNR”), and Founders Corporation (“Founders”). That judgment essentially was founded on frauds of Shaheen and his corporate associates and has been affirmed on appeal. The Clarkson Company Limited, etc. v. Shaheen, et al., 660 F.2d 506 (2d Cir. 1981). The assets sought in the instant proceedings are the following: 1) various stock owned by John M. Shaheen, which allegedly was pledged in 1977 to guarantee the debts of several Shaheen corporations to another corporation which Shaheen controls and of which he is president and chief executive officer; 2) debts owed by one Shaheen corporation to Shaheen individually and to another of his corporations; 3) certain allegedly fraudulent conveyances among three Shaheen corporations; 4) Shaheen’s half ownership of his Park Avenue cooperative apartment and 5) Shaheen’s half ownership of his summer estate in Southampton, Long Island. I observe at the outset that Macmillan Ring-Free Oil Company, Inc. (“Macmillan”), SNR, and Founders, the three principal corporate actors in these supplementary proceedings, are affiliated corporations operating out of the same offices in New York City and are all elements of Shaheen’s empire. The boards of directors of Macmillan, Founders, and SNR interlock extensively. Messrs. Peter Caras, Robert Collier, Milton Hibdon, Paul Rishell, Jesse Taub, Homer White, and Shaheen, all directors of Macmillan, are also directors of SNR. Messrs. Collier, Hibdon, Shaheen, and Taub, are four of the six directors of Founders. At all relevant times, Shaheen owned all of the shares of SNR and fifty-five percent of the shares of Founders. He also owned 1,421 shares of Macmillan common stock, which, combined with the substantial ownership of Macmillan stock by SNR and Founders, gave Shaheen control of more than forty percent of the outstanding Macmillan common stock. In opposition to certain of Clarkson’s instant turnover demands, Shaheen and his corporations assert various old and recent, allegedly bona fide transfers and pledges of all of these assets to others, which they claim place the assets beyond Clarkson’s reach. Those are as follows: 1. In April 1977 Shaheen placed all of his personal stock holdings in an escrow account, allegedly as a pledge to Macmillan; 2. Shaheen’s right to $173,873 from Founders was allegedly pledged to Macmillan; 3. In October 1979 Shaheen transferred his interest in the Southampton estate to his wife; 4. Although in an 1980 affidavit Shaheen acknowledged half ownership of his New York City cooperative apartment, he later asserted, in response to Clarkson’s turnover petition, that in 1965 he and his wife had in fact transferred the coop shares to their then-infant sons; and 5. Shaheen’s claim on Founders for $360,420 to reimburse him for his liability to a third person, Harry Dean, was purportedly extinguished and turned into an obligation by Founders to pay Dean $75,-000. In response to other collection efforts by Clarkson before me, Shaheen and others assert that the “facts” defeat such efforts. Those are: 1) as to SNR’s right to 23,517 shares of Macmillan preferred stock, issued as a stock dividend, worth $1,060,875, Macmillan claims to have seized this stock dividend as a setoff against SNR’s unpaid debt to Macmillan, which Macmillan claims to be about $4 million; 2) as to three obligations of Founders to SNR aggregating more than $2 million, SNR and Founders claim that certain letters indefinitely extended the due dates of the loans if Founders was unable to pay at the time the loans otherwise came due; 3) as to a demand obligation to Shaheen, Founders and Shaheen claim that the statute of limitations bars the claim. THE RUBIN ESCROW Turning first to Shaheen’s alleged pledge of stock to guarantee the debts of his various companies to Macmillan, I find as follows: After entry of judgment, Clarkson served information subpoenas on Shaheen in an effort to locate his assets. In response thereto Shaheen stated that he owned stock in various companies, but that the stock certificates were in the custody of one Martin Rubin, a New York lawyer, who was holding the stock as an escrowee. On about September 18, 1980, the Sheriff served an execution with notice of levy on Rubin with respect to that stock. The execution was not satisfied. Accordingly, on October 21, 1980, Clarkson petitioned for a turnover order, pursuant to Fed.R.Civ.P. 69(a) and C.P.L.R. § 5225(b) and (c), against Shaheen and Rubin directing that Shaheen’s stock be turned over to Clarkson. Shaheen answered the Rubin turnover petition on October 24, 1980, alleging that the stock had been pledged to Macmillan. On October 30, 1980, Rubin filed an inter-pleader complaint bringing Macmillan in as a potential claimant. Macmillan thereafter answered and cross-claimed against Clarkson, alleging that Rubin was holding the stock as an escrow agent under an instrument dated March 29, 1977, pursuant to which the subject stock had been pledged by Shaheen in his individual capacity as collateral for loans made by Macmillan to various Shaheen corporations whose debts were guaranteed by Shaheen. Macmillan therefore claimed that it had a security interest in the stock “prior in time and senior to any interest of Clarkson and the Sheriff . . . . ” Clarkson’s answer to Macmillan’s counterclaim denied any interest of Macmillan in the stock and alleged that any pledge to Macmillan by Shaheen was a fraudulent conveyance. I find that the guaranty arose in the following manner. Over the years, Macmillan and the other Shaheen companies engaged in a continuous practice of paying each other’s expenses. Ordinarily, they contend, accounts were settled at the close of each year. In 1975 and 1976, Macmillan made advances to and/or paid certain operating expenses of six Shaheen companies. These expenditures, totalling nearly $4.1 million and extending over two years, however, were not repaid by the end of 1976 because the Newfoundland Refining Company, the Shaheen company which had been providing the other companies with cash, went bankrupt, leaving the others unable to cover their debts to Macmillan. Macmillan, a public company, was thus faced with having to disclose publicly that several separate corporations owned or controlled by Shaheen, Macmillan’s president and controlling shareholder, owed at least $4 million to Macmillan, which those companies could not pay. Because it did not want to make such a disclosure, Macmillan delayed filing with the Securities and Exchange Commission (“SEC”) its annual report on Form 10-K and its quarterly reports on Form 10-Q for the fiscal quarters ending March 31, June 30, and September 30, 1976. Instead, in July of 1976, Phillip Gandert, a Macmillan director, wrote to the SEC that the delay was the result of problems with the intercompany receivables, stating that “the manner of liquidating that indebtedness to [Macmillan] has not yet been determined.” By February, 1977, however, the SEC had become so impatient that it commenced an action against Macmillan to compel it to file its long-overdue financial statements. Irving Galpeer, Esq., a former attorney on the staff of the SEC, was retained to deal with this problem. He advised the Macmillan directors that they might be personally liable for the unpaid advances. Gal-peer recommended that Shaheen give a guaranty collateralized by his personal assets in an effort to prevent potential investigations and litigation involving Shaheen and Macmillan and, perhaps, the entire board of Macmillan. As Homer White, Macmillan’s executive vice president and a board member directly involved in consideration of the guaranty at the time it was entered into, testified, the guaranty “had to be done because we couldn’t go out and report to the public that we had taken no action.” Shaheen himself agreed to enter into the proposed guaranty agreement only reluctantly; he testified that he did so only because of the fear of action by the SEC. By the terms of the guaranty, John M. Shaheen as “Guarantor” guaranteed the debts of certain corporations to Macmillan. The guaranty provides: “Guarantor hereby guarantees the Indebtedness owed by each Debtor to Macmillan totaling $4,086,206 as of December 31, 1976, as set forth on annexed Schedule A, together with any additional Indebtedness of such Debtors to Macmillan thereafter incurred.” Schedule A of the guaranty lists the “Debtors” and the amounts owing by them: Amounts Due Debtors December 31,1976 Shaheen Natural Resources Co., Inc. $2,054,656 Newfoundland Refining Co., Limited 114,943 Founders Corporation 26,212 New York Press Publishing Co., Inc. 1,530,351 Provincial Refining Co., Limited 28,113 Syracuse T.V. 331,931 Total $4,086,206 These debtors were all corporations controlled by Shaheen. Shaheen owned 100 percent of SNR and, through it, 100 percent of New York Press, and he owned directly or indirectly at least a controlling share of the other corporate debtors. The guaranty also provided: To further secure payment of the obligations herein referred to, Guarantor has deposited, pledged, given a security interest in and delivered to Macmillan the property set forth on annexed Schedule B, hereinafter called the “Collateral”, to be held by the Escrowee as more fully set forth hereinafter. The collateral was set forth on a Schedule B in a curious manner for a purportedly binding legal instrument memoralizing over $4,000,000 of assets supposedly pledged to Macmillan for its protection. The exact form of the said schedule — minus the red and blue inks — is as follows: The guaranty was signed by Shaheen on March 29, 1979 and recited that the stock already had been deposited and delivered to Macmillan. The testimony of Macmillan attorney Galpeer, however, made it clear that this declaration in the guaranty was false, for nothing was given to Rubin until a month later. Macmillan’s willingness to accept the guaranty, despite this false statement about a critical fact — the deposit of the pledged collateral — is further substantial evidence of the lack of seriousness with which the parties regarded the guaranty. In addition, approximately a month after the purported pledge, Shaheen, in an affidavit stated that his 100 shares of SNR, which were all the outstanding shares, was not pledged to anyone. Shaheen upon being confronted with this before me testified that at the time of the affidavit, he did not have the fact that he had just pledged his 100% ownership in SNR “in mind.” The conclusion is inescapable, therefore, that the guaranty was designed only to placate the SEC and enable Shaheen to remain president of Macmillan and to continue pursuing his various efforts to secure financing for not only Macmillan but also his other corporations. Indeed, Homer White, a Macmillan director, testified that, although the agreement was silent on this point, everyone involved understood that Macmillan would continue to finance Shaheen’s operations. Milton Hibdon, a director of both Macmillan and SNR and president and a director of Founders, testified that it was the consistent goal of all the transfers challenged in these proceedings to keep control of Macmillan in Shaheen’s hands. I credit Mr. Hibdon’s testimony in this respect. Indeed, I find as a fact that, although the guaranty is made to appear to be for the benefit of Macmillan, it was intended to, and it did operate for the benefit of John M. Shaheen. I find it was not intended to, and did not make Macmillan any more secure as a creditor of the indebted companies. This latter finding is clear from the following. Shaheen has been completely in control of Macmillan since at least 1974, directly and indirectly holding a controlling block of between forty-two percent and forty-seven percent of the common stock of Macmillan. In addition to being the corporation’s controlling shareholder, Shaheen has served as president and chief executive officer of Macmillan and has been a member of its board of directors from some time before 1977 until today. This has enabled him, as detailed below, to use the assets of Macmillan and all the related companies as he chose at any time regardless of pledges, escrows, public stockholders, or fellow directors. Macmillan’s Annual Report for 1979 explains Shaheen’s relationship with Macmillan and describes the interlocking nature of the boards of Macmillan and other Shaheen companies. It states that Shaheen “may be deemed to be in control of the Company.” Similar statements are found in the Macmillan annual reports for the years 1976, 1977, and 1978. Of the ten directors who served on the board of Macmillan in early 1977, seven were also on the boards of other Shaheen companies, including SNR, Founders, and NRC. Macmillan identified only three of its eleven directors as “outside directors,” Messrs. Collier, Thomas Chuhak and J. Raymond Bell. Of these three “outside directors,” however, Collier clearly was under Shaheen’s control, and Chuhak was heavily influenced by Shaheen. Indeed, Collier, the chairman of the Macmillan board, was a member of numerous other Shaheen company boards, including SNR and Founders. Moreover, Collier described himself at trial as “working for” Shaheen. Thus it is beyond question that Shaheen controls Macmillan, that his control arose before March 29,1977 (the date the guaranty was signed), and that his control of the company has continued to date. Further evidence of this abounds. For example, as stated earlier, one result of the NRC bankruptcy was that NRC was no longer able to funnel cash to SNR. This made it difficult for SNR to pay Shaheen’s salary. Accordingly, Shaheen testified, in 1976 Macmillan more than doubled his salary, raising it from $53,000 to $114,000. In his own words, “. . . I was deliberately bumped up [by Macmillan] because SNR was cramped.” Macmillan essentially assumed an expense of another Shaheen company for no reason other than the other company’s, inability to pay. Macmillan again raised Shaheen’s salary in March, 1980, from $114,000 to $164,000 per year, retroactive to July 1979. The purpose of this was to enable Shaheen to liquidate an outstanding “debt” for unsubstantiated expenses which Macmillan had earlier paid for him. Had Macmillan not engineered this so-called repayment to itself by raising Shaheen’s salary by $50,000, it would have had to disclose the payment of the unsupported expenses in its financial statement. Evidence of Shaheen’s control of Macmillan can also be found in Macmillan’s willingness to fund Shaheen’s continuing business activities for other corporations, an activity which, arguably, amounts to corporate waste. For example, at the close of 1975, Shaheen companies owed Macmillan $1,399,421. Despite the fact that this sum was not paid up at year’s end, as had been the prior practice of the parties, Macmillan advanced an additional $2.6 million in 1976 and $368,000 in 1977. Macmillan admitted in its 1979 Annual Report that it continued to advance hundreds of thousands of dollars for-Shaheen’s other companies in 1977, 1978, and 1979. That report states, during the years 1977 and 1978, the Company [Macmillan] paid approximately $300,000 and $465,000, respectively, to cover the cost of certain travel expenses for Shaheen and others and to cover various consulting fees. In addition, officers and employees of the Company performed services for and used the premises and facilities of the Company for related companies of Shaheen. The value of such services and use, estimated at the rate of approximately $350,000 per year, has not been allocated to such companies .... The travel expenses and consulting fees approximated $351,000 from January 1 through September 29, 1979 .... The services of officers and employees and use of premises has continued and is continuing .... at the rate of approximately $350,000 per annum. It is undisputed that this sum of $1,050,-000 spent in 1977, 1978 and 1979, and the continuing expenditures in 1980 were not for Macmillan functions, and were not even treated on Macmillan’s books as advances to Shaheen’s various companies. Coopers & Lybrand, the public accounting firm, reviewed the expenditures for Shaheen’s and others’ travel expenses and consulting fees which aggregated about $1,116,000 for 1977 through 1979 and determined that a large percentage of those amounts “related directly to Mr. Shaheen’s efforts to secure financing for non-Macmillan ventures.” (emphasis supplied). Of the $1.1 million paid to cover Shaheen’s expenses in 1977, 1978, and 1979, Coopers and Lybrand found that 75% could not be shown to benefit Macmillan in any way and that, therefore, they could not be recognized as deductible expenses from Macmillan’s income. Macmillan nonetheless continued to .pay expenditures for travel expenses after September 1979 in connection with Shaheen’s other ventures. Macmillan attempted to explain to the Court that the expenditures for Shaheen’s non-Macmillan activities were “necessary and advisable” to protect the value of the Shaheen collateral and to enable the debtor companies to repay their debts to Macmillan. I do not credit this. It seems hardly advisable for a company with an aggregate net income for 1977,1978 and 1979 of some $6 million to spend close to $2 million to protect repayment of some $4 million from insolvent affiliates. Moreover, in light of the affiliates’ desperate financial condition, these expenditures of $2 million for their benefit was no more than a gamble that Shaheen, in the words of Macmillan’s attorney Galpeer, could try to “pull a rabbit out of the hat . .. . ” Macmillan contends further that the expenditures were necessary to obtain financing for Macmillan’s proposed West Coast refinery because Macmillan could obtain its financing only as part of a greater package which might be negotiated by John M. Shaheen. Valtec Associates, however, the consulting firm which the Macmillan Board retained for advice about the Company’s relationship with Shaheen, saw no link between the financing of the proposed Macmillan refinery and Shaheen’s other ventures. Indeed, Valtec expressed concern that Shaheen would succeed in obtaining financing only for his own projects and none for the refinery. Similarly, Hibdon testified that the efforts to obtain financing for the refinery and for Shaheen’s other projects were entirely independent. The lack of serious value to Macmillan of Shaheen’s activities may also be revealed by the fact that despite Macmillan’s expenditure of nearly $2,000,000, or roughly 30% of its net income for 1977-1979, to support Shaheen’s efforts to secure such financing, as of the date of trial, Collier, the chairman of the Macmillan board, did not even know whether Macmillan had obtained any commitments. Shaheen, himself, in describing his efforts to secure $280 million in financing for Macmillan, a company with a book value of only $10 million, blithely testified that if he were successful, he would have accomplished an “act of levitation” and “a feat somewhat superior to anything Houdini ever achieved.” It is clear, furthermore, from the minutes of the Macmillan board meetings that the board was prepared to advance Shaheen substantial expense money whenever he asked for it and on the apparently unsupported representation by Shaheen that although “nothing tangible” had come of his efforts to secure financing for Macmillan’s proposed refinery, those efforts “seem[ed] to have a chance of coming through.” I find, therefore, that Macmillan’s continued willingness to fund Shaheen’s activities and its implausible explanations therefor serve clearly to demonstrate Shaheen’s control and domination of the Macmillan board and corporate conduct. Interestingly, Macmillan’s contention that its retention of Valtec was proof that Shaheen did not control the board, on closer examination demonstrates the contrary. Val tec’s report on the debt was based on no independent investigation. Rather, Valtec merely interviewed Shaheen, his lawyer, and some company personnel and reviewed company documents. And even given the limited nature of this so-called investigation, Valtec nevertheless advised Macmillan to seize the collateral in Rubin’s escrow pursuant to the guaranty unless Shaheen corrected the delinquencies within six months, i.e., by the end of September 1979. Shaheen’s corporations did not pay by that date, yet Macmillan ignored this advice and made no effort to foreclose on Shaheen’s assets to satisfy the debt. Valtec was not the only Macmillan advis- or to recommend that Macmillan declare Shaheen to be in default. In February 1980, Irving Galpeer, Macmillan’s outside counsel for SEC matters, “strongly urged” the Macmillan board to give notice of default so that the company could terminate the escrow and apply the stock against the unpaid debt. The board rejected Galpeer’s advice so that Shaheen could continue his activities. I note further in this connection that Galpeer testified that on more than one occasion Shaheen told the board that taking any action under the guaranty would harm his reputation, thereby impairing his ability to raise funds. In other words Shaheen informed the board of directors of the corporation of which he was president and controlling shareholder, that he opposed taking any action to enforce the guaranty agreement which he himself had made for the corporation’s benefit. This advice to the board, quite obviously, was a directive that Macmillan act as though the guaranty never had been executed. In response to their president’s “suggestion” that they not take any action that he thought would be injurious to his personal interests, the Macmillan board members in fact took no action. Macmillan, of course, had to act in order for Shaheen to be in default under the guaranty agreement and for Macmillan to be able to seize the es-crowed stock and apply it against the unpaid debt. Specifically, Macmillan had to notify Shaheen in writing that he was in breach of the agreement. Default then occurred only if Shaheen failed to cure within thirty days. In fact, Shaheen had been in default on his obligations to make or cause to be made semi-annual payments under the guaranty since March 29, 1978. Yet, despite the advice of Galpeer and Valtec, the Macmillan board did not take the first step to enforce its “rights” under the guaranty agreement until September 30, 1980, two and one half months after the entry of Clarkson’s multimillion dollar judgment against Shaheen and SNR and eleven days after Clarkson attempted to levy on the shares which were the res of the putative escrow. Indeed, as both Galpeer and Collier testified, the only reason Macmillan declared a default even on that late date, after two and a half years of delinquency by Shaheen, was that Clark-son had obtained its judgment. On the whole, it could fairly and accurately be said, and I find as a fact, that Shaheen knew of and was in control of all decisions made by the Macmillan board, including decisions about what actions to take or not to take with respect to his own guaranty. He has not only at all times maintained complete control over the collateral he supposedly pledged, but he has continued to date to have absolute dominion over the companies and the assets of the companies whose stock was supposedly pledged as security for the delinquent debts. In this regard it is significant that members of the board recognized in testimony before me the necessity of restricting Shaheen’s control of the companies whose stock was pledged and his freedom to use and dispose of those companies’ assets. Yet, absolutely no such restriction was either written into the Guaranty agreement or even suggested at a board meeting. The testimony is clear that the board never considered including in the agreement a provision such as a voting trust or a covenant against the transfer of assets to protect Macmillan’s interest in those assets. The absence of such protective clauses is all the more striking in light of attorney Galpeer’s testimony that the agreement was the product of careful negotiations over a period of a month and the fact that the agreement did contain important features for Shaheen’s protection. See note 9, supra. While certain of Macmillan’s directors testified that Shaheen promised orally to use the assets of the companies only in the ordinary course of business, it is clear that this promise, even if it were made — and I find that it was not — was of no effect, for Shaheen, in one glaring incident, unrestrained by any pledge agreement, transferred to a Canadian lawyer without consideration and without informing Macmillan, most of the principal asset of SNR, one hundred percent of whose stock he had pledged to Macmillan. See note 2, supra. Indeed, Shaheen testified that, although the stock in question was SNR’s “last bucket of stock,” he felt he was under no obligation— because he was under no obligation — to seek the permission of or inform his fellow officers and directors before acting to cause the SNR stock in the alleged escrow account to become virtually worthless. In addition to the obvious control he enjoyed over the assets of the pledged companies, it is undisputed that Shaheen also continued to control the companies themselves. Altogether unimpeded by the guaranty, he continued to vote the shares and manage the various corporations. On September 30, 1980, after Shaheen had been in breach of the guaranty agreement for two and a half years, Macmillan finally sent a notice of noncompliance to Shaheen stating that “payments required under the Guaranty have not been made” and- that failure to cure within 30 days would result in a “default” under the guaranty. This was, as noted earlier, two and a half months after the entry of judgment against Shaheen, and just eleven days after Clarkson attempted to levy on the shares. Then, on November 13, 1980, Macmillan finally declared a default and asserted its right to possession of the collateral. At trial, Macmillan claimed that it refrained from foreclosing on the pledged collateral both because it wanted to protect Shaheen’s reputation in the financial community and, as it argued in its post-trial brief, because it was unaware of the enormous personal liability Shaheen faced in the Clarkson lawsuit. The second contention, I find, is absurd and contradicted by the evidence. I credit, however, the testimony that Macmillan refrained from foreclosing to protect Shaheen. Undoubtedly, this, combined with the desire to avoid public disclosure of the financial machinations at Macmillan, is so. I conclude that the primary reason for deferring the foreclosure was that Shaheen did not want it to occur until.it became a question of losing the res to Clarkson, at which point he chose to keep it for Macmillan and thus for himself. Shaheen’s own counsel on these hearings — not Macmillan’s — revealed Shaheen’s motivation in attempting to explain Macmillan’s rationale for declaring a default after Clarkson’s levy by stating that Shaheen had a “[personal] preference and intention that the stock go to Macmillan . . . rather than [to] Clarkson.” Obviously, Shaheen’s personal preference would have been irrelevant were the pledge a valid pledge, rather than a sham which left him in complete control of the collateral. Faced with the choice between Clarkson and Macmillan taking title to his various corporations, Shaheen utilized the alleged pledge to turn the stock over to Macmillan, where he, Shaheen, was in control. In sum, I find that Shaheen controlled Macmillan from before the time of the alleged pledge, through the declaration of default, to this very day; that Shaheen at all times controlled the companies and the assets of the companies whose stock was supposedly pledged; and that he controlled the decision of whether and when to call the “pledge.” In short, I find that neither Shaheen nor Macmillan ever intended that a valid pledge be created and that, in fact, none was. I turn now to the legal effect of the foregoing facts. I conclude that, whether viewed from the perspective of Macmillan or that of Shaheen, the alleged pledge conveyed no security interest in the res of the escrow. Viewed from the perspective of the pledgee, Macmillan’s possession was, in fact, Shaheen’s possession. Viewed from the perspective of the pledgor, the fact that Shaheen was permitted to and did exercise full control and dominion over the assets and the companies represented by the pledged certificates rendered ineffective the purported agreement to pledge the stock, thereby precluding the creation of a security interest. Corporate securities are “instruments” under the definitions contained in §§ 8— 102(l)(a) and 9-105(l)(g) (now 9-105(l)(i)) of the Uniform Commercial Code (the “UCC”). Section 9-304(1) of the UCC provides that a security interest in a corporate security arises only when the party to be secured takes possession of the instrument or instruments. The UCC enlarges the conventional meaning of possession to include possession by an agent acting on behalf of the party to be secured. Thus, viewed in strict isolation, the fact that the stock was delivered to an escrowee, Martin Rubin— whom I conclude was independent of John M. Shaheen — rather than to Macmillan directly, would be the equivalent of Macmillan’s perfection by possession of a security interest in the stock. There is no question that an escrow agent may serve as the secured party’s agent in possession of the instruments, so long as the agent is not controlled by the debtor. In the Matter of Copeland, 531 F.2d 1195, 1204 (3d Cir. 1976). Where a security interest can arise only by the pledgee’s possession, however, that possession must be such as to prevent the debtor from having control of or access to the res of the pledge. Thus, even assuming that, contrary to the facts here, Macmillan was truly in possession of the pledged stock by virtue of the. Rubin escrow, if Shaheen were permitted to control the collateral, the security interest would be destroyed. As official Comment 6 of § 9-205 explains: the holder of an unfiled security interest, whose perfection depends on possession of the collateral by the secured party or by a bailee . . ., can[not] allow the debtor access to and control over the goods without thereby losing his perfected interest. The common law rules on the degree and extent of possession which are necessary to perfect a pledge interest . .. are not relaxed by this or any other section of this Article. (Emphasis supplied). The Historical Note to the New York Annotations to UCC § 9-205 explains further that “where the security interest is perfected by filing, the secured party may allow the debtor to use, commingle, or dispose of collateral without invalidating the security interest .... But in a pledge . .., similar freedom would negate the requisite actual and exclusive possession of the secured party or bailee." (Emphasis supplied.) Law Revision Commission, 1956 Recommendations, at 269-70. The foregoing makes it clear that unless a putative secured party’s possession of pledged instruments rises to the level of “actual and exclusive possession” as required at common law, his security interest has not been perfected. The law has two requirements in this regard. First, “the pledgor [must] surrender his dominion over the property, and .. . [second] any semblance of ostensible ownership in the pledgor [must] be negatived.” 4B Collier, Bankruptcy, ¶ 70.86 at 982 (14th ed. 1978). This circuit has recognized and adopted these requirements. Gins v. Mauser Plumbing Supply Co., Inc., 148 F.2d 974 (2d Cir. 1945); Sammet v. Mayer, 108 F.2d 337 (2d Cir. 1939); In re Merz, 37 F.2d 1 (2d Cir.), cert. denied, 281 U.S. 738, 50 S.Ct. 333, 74 L.Ed. 1152 (1930). Macmillan’s contention that the requirements for the perfection of its security interest were satisfied by the mere delivery of the stock to Rubin, the escrowee, must fall in the face of the totality of the surrounding facts as I have found them. The alleged pledge was a sham. It was never intended to give Macmillan any rights in the collateral, and it was pressed into service only as a last resort to maintain Shaheen’s control over his assets by keeping them in the hands of Macmillan, which Shaheen controlled. Shaheen not only never relinquished his dominion over the collateral herein; he exercised that dominion whenever he saw fit, and, thus, at all times was both the ostensible and actual owner of the stock he had supposedly pledged under the Guaranty. Given the foregoing, I conclude as a matter of law that Macmillan never took possession of Shaheen’s stock within the meaning of § 9-304(1) of the UCC and, consequently, never perfected its alleged security interest in the stock held by Martin Rubin. There was, therefore, no valid pledge. Clarkson, therefore, is entitled to a judgment directing Martin Rubin to deliver to the Sheriff of the City of New York, New York County Division, for the benefit of Clarkson, all property in his possession or control as escrow agent herein. It is appropriate at this point to consider stakeholder Martin Rubin’s proposed order discharging him from the proceedings and awarding him costs and attorneys’ fees. His motion seeking this relief was granted on December 22, 1980. All parties have responded to the proposed order by written submissions to the Court. As outlined earlier, in 1977, Rubin agreed to serve as escrowee in possession of the stock supposedly pledged by Shaheen to Macmillan to guarantee the intercompany debt. Rubin performed his duties professionally and in good faith. He was not aware that the pledge agreement executed by Shaheen for Macmillan’s benefit was, as I found above, a sham. Rubin has no interest in the res he holds, beyond his interest in recovering his costs and attorneys’ fees, and he has no personal stake in the outcome of the dispute. On September 19, 1980, Clarkson caused the sheriff to attempt to levy on the shares by serving a copy of an execution on Rubin. Macmillan sought to protect its claim to the property by bringing suit against Clarkson, Rubin, Shaheen, and the sheriff in state court. Fearing the possibility of inconsistent judgments in state and federal court, Rubin commenced this federal interpleader action on October 31, 1980, naming the sheriff and Macmillan as additional claimants of the res, and sought and obtained an injunction against Macmillan’s state court action. During the course of this proceeding, Rubin, by counsel, has been obliged to answer Clarkson’s turnover petition and order to show cause, prepare and file an interpleader complaint, reply to Macmillan’s counterclaim, prepare and obtain an order to show cause why Macmillan’s state action should not be stayed, secure an injunction staying that action, participate in discovery and pre-trial conferences, appear in the Court of Appeals upon Shaheen’s unsuccessful petition for mandamus, prepare for trial, and appear at many court sessions. I find Rubin’s request for $10,000 in attorneys’ fees for 110 hours at $90.00 per hour, to be reasonable and necessary in the circumstances of this case. The Court has wide discretion to award costs and attorneys’ fees, when such an award would be fair and equitable, to the stakeholder who commences an inter-pleader action. E.g., A/S Krediit Pank v. Chase Manhattan Bank, 303 F.2d 648 (2d Cir. 1962). This discretion is properly invoked when, as here, the stakeholder has acted in good faith, has claimed no interest in the res, and has acted to promote the resolution of the dispute as to entitlement to the property he holds. 3A J. Moore, Federal Practice § 22,16[2] (2d ed. 1981); 7 Wright and Miller, Federal Practice and Procedure § 1719. Accordingly, Rubin is hereby awarded his costs in this action, and reasonable attorneys’ fees and disbursements in the amount of $10,000. In view of the circumstances of this proceeding, however, the award to Rubin is not to be charged against the stake he holds. Rather, the award is to be borne jointly and severally by Macmillan Ring-Free Oil Co., Inc. and John M. Shaheen. The conduct of Macmillan and Shaheen, first involving Rubin in the sham pledge, and second, generally prolonging and complicating his involvement in the case, combined with the fact that the guaranty agreement provides that “all fees and expenses of Escrowee shall be shared equally by Macmillan and [Shaheen],” compels the conclusion that they, not the res to which I have held they are not entitled, should bear the costs incurred by Rubin. See Schirmer Stevedoring Co. Ltd. v. Seaboard Stevedoring Corp., 306 F.2d 188 (9th Cir. 1962) (dictum ); Brisacher v. Tracy-Collins Trust Co., 277 F.2d 519 (10th Cir. 1960). Accordingly, Macmillan and/or Shaheen are directed to pay Rubin the foregoing costs and attorneys’ fees within thirty days of the date hereof, less $500 already paid by Macmillan as a retainer. SHAHEEN’S COOPERATIVE APARTMENT Next, I turn to Clarkson’s petition for an order requiring Shaheen to turn over for Clarkson’s benefit his alleged interest in a cooperative apartment in New York City. In post-judgment answers to Clarkson’s information subpoena dated October 20, 1980, Shaheen stated under oath that he owned an interest in the cooperative apartment in which he lived at 640 Park Avenue, and that legal and equitable title to the apartment was in the name of John M. and Barbara T. Shaheen. Clarkson, by petition dated October 17, 1980, had just sought an order, pursuant to Fed.R.Civ.P. 60(a) and CPLR § 5225(a) and (c), requiring Shaheen to deliver to it that very interest. However, in his subsequent answer to the petition and affidavit in opposition to the motion Shaheen suddenly changed position, and stated for the first time that his previous answer to the information subpoena was incorrect and that on July 26, 1965,— fifteen years earlier — Shaheen and his wife had in fact conveyed the apartment to their then-infant sons, Michael and Bradford Shaheen and that he, Shaheen, has had no proprietary interest in the coop since then. In March, 1981, Barbara Shaheen and Bradford Shaheen were granted leave to intervene as respondents. The facts are as follows. John and Barbara Shaheen bought the cooperative apartment in August 1960 and entered into a proprietary lease with 642 Park Avenue Corporation. The certificate of stock of 642 Park Avenue Corporation was issued to John M. Shaheen and Barbara T. Shaheen on August 4, 1960, and was then placed in a locked strong box in a file cabinet in the SNR office and more particularly, in the office of Mr. Shaheen’s executive secretary. The secretary was an employee of SNR and had the only key to the strong box. On July 26,1965, the certificate may have been removed from the strong box, the form “assignment” on the back filled out by Mr. Shaheen and signed by John and Barbara Shaheen at Mr. Shaheen’s office, and the certificate returned to the strong box. The donees, Michael and Bradford, were then thirteen and ten years old, respectively. By their own testimony, even assuming their signing of the certificate, John and Barbara Shaheen did nothing further to complete the gift. Neither recalls ever having told Michael or Bradford that they had given the boys the cooperative apartment. Bradford testified that he first learned that the shares had been transferred to him in the latter part of 1980 and that other than some vague references, his parents never told him directly that he owned the shares. The proprietary lease severely restricts the alienability of the coop shares by requiring the following: 1) The assignee of the lease (and transferee of the shares) must execute as part of the assignment a covenant to perform and comply with all obligations of the lease and deliver the assignment to the coop corporation (the “lessor”). 2) The accompanying stock must be transferred to the assignee. 3) The legal expenses of the lessor and any sums due from the assignor must be paid to the lessor. 4) The assignment must be approved in writing by the board of directors of the coop corporation or by shareholders holding two-thirds of the corporation’s capital stock, and the writing must be delivered to the lessor. Not only did the Shaheens fail to comply with these clearly articulated prerequisites to transfer, but they also did not inform the board of directors of the corporation that they had endorsed the coop stock certificates. Significantly, the Shaheens executed, in their own names, a renewal of the proprietary lease on August 8, 1966, just twelve and a half months after they allegedly transferred the coop to their sons. John and Barbara Shaheen have lived in the coop continuously since 1960; both Bradford and Michael moved out some years ago. In addition, neither Barbara nor John Shaheen reported to any taxing authority any gift of the coop stock certificate to Bradford or Michael. Mabel Geiger, Shaheen’s current executive secretary, testified that for at least five years there has been nothing in the box except Shaheen’s possessions. The box, of course, contained the coop stock certificate. Prior to that time, certain shares of stock of other corporations held under the endorsed title “John Shaheen, custodian under the Uniform Gift to Minors Act, ...” for Bradford and Michael Shaheen, which had been kept in the box, were removed to be held by a bank custodian on behalf of the sons. The coop certificate was never removed. John Shaheen has paid for the maintenance of the 640 Park Avenue coop apartment since at least 1967. Bradford Shaheen stated that he never made a maintenance payment to Brown Harris Stevens, Inc., the managing agent. Ms. Geiger testified that she attended to the payment of the maintenance of the coop and that since 1967 John Shaheen had paid all of the maintenance. In his 1976 federal income tax return, John Shaheen claimed a deduction for interest payments to Brown Harris. While there was testimony that funds of Bradford and Michael Shaheen were, in recent years, the source of some payments by Shaheen of the maintenance charges on the apartment, Ms. Geiger testified that these monies were loans from Bradford and Michael to their father, not gifts, and that some of the money lent was used for other purposes. On at least three recent occasions, Shaheen has described himself as the owner of the apartment. At a meeting of the board of directors of Macmillan on March 10, 1977, Shaheen told the board that he and his wife jointly owned a cooperative apartment in New York City. More recently, in answering Clarkson’s October 1980 information subpoena, Shaheen swore that he and his wife owned the apartment. Finally, in an attempt to use the apartment as collateral for a bank loan, Shaheen stated he owned the apartment. Shaheen now contends that these claims of ownership were “pure errors.” Under New York law, the burden of proving the existence of a valid inter vivos gift is on the party asserting that the gift was made. First National Bank of Lockhaven v. FitzPatrick, 29 A.D.2d 450, 289 N.Y.S.2d 314, 320 (4th Dep’t 1968), aff’d, 26 N.Y.2d 792, 309 N.Y.S.2d 219, 257 N.E.2d 663 (1970). That proof must be by a fair preponderance of the clear and convincing evidence. Id. The elements of a gift which must be established under the above standard are (1) intent of the donor to give the gift, (2) delivery of the property intended to be given, and (3) acceptance of the property by the donee. In re Estate of Szabo, 10 N.Y.2d 94, 217 N.Y.S.2d 593, 176 N.E.2d 395 (1961). I focus only on the elements of intent and delivery, because, I conclude, the Shaheens and their sons have failed to prove either. Turning first to the element of intent to make the gift, I find that there was no intent on the part of Mr. and Mrs. Shaheen to make a gift to their sons. At most, it appears that the certificate may have been written upon, endorsing it to Michael and Bradford on July 26, 1965. With the exception of this piece of evidence, however, the overwhelming weight of the objective evidence recited above demonstrates continuing ownership in John and Barbara Shaheen. Thus, one cannot but conclude that John, Barbara, Michael, and Bradford Shaheen have utterly failed to sustain their burden of proving that the parents intended to give their two sons the apartment at any relevant time. In addition, I conclude that the four Shaheens also have utterly failed to sustain their burden of proving the delivery required to make a valid inter vivos gift. The certificate was never out of the possession and control of John Shaheen. At any time, Mr. Shaheen could have crossed out the endorsement to his sons; the transfer was not registered and he possessed the certificate. Delivery of property which the owner intends to give must be such as to vest the donee with control and dominion over the property.... “The delivery necessary to consummate a gift must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit; there must be a change of dominion and ownership; intention or mere words cannot supply the place of an actual surrender of control and authority over the thing intended to be given.” (citation omitted). In re Estate of Szabo, supra, 10 N.Y.2d at 98, 217 N.Y.S.2d at 595, 176 N.E.2d at 396. Because neither the requisite intent nor delivery has been proven in this case, I conclude that the allegation of a gift of the apartment fails. Accordingly, John M. Shaheen’s interest in the coop shares was and is unaffected by the endorsement on the back of the certificate. Any other result would sanction an arrangement by which Mr. Shaheen could suddenly reveal the purported assignment at such time as creditors asserted claims against the property, but could, otherwise, for the entire sixteen years, enjoy the benefits of unfettered ownership, including living in the apartment and attempting to use the shares as collateral for a personal loan. Such an arrangement is inherently fraudulent, see Takacs v. Kapela, 264 A.D. 871, 35 N.Y.S.2d 502 (2d Dep’t 1942), and must be set aside as a transfer effected with the intent to defraud creditors. N.Y.Debt. & Cred.Law § 276 (McKinney). Mrs. Shaheen and her sons contend that even if the gift of the shares fails to survive the Court’s judicial scrutiny, Clarkson still may not look to John Shaheen’s interest to satisfy its judgment against him because of the nature of the Shaheen’s ownership of the shares. I reject this argument. John and Barbara Shaheen own the shares as tenants in common. A tenant in common may sell or assign his or her interest in a tenancy in common without the consent of the other tenant or tenants in common, Warren v. Hoch, 276 A.D. 607, 96 N.Y.S.2d 832 (2d Dep’t), app. denied, 277 A.D. 879, 98 N.Y.S.2d 220 (2d Dep’t 1950), and, logically, a judgment creditor of one tenant in common may levy on that tenant’s interest in order to satisfy the judgment. E.g., Hohenrath v. Wallach, 37 A.D.2d 248, 323 N.Y.S.2d 560, 562 (2d Dep’t 1971), appeal dismissed, 30 N.Y.2d 674, 332 N.Y.S.2d 106, 282 N.E.2d 891 (1972). The purchaser at execution sale of Shaheen’s interest in the coop shares would become, by operation of law, a tenant in common with Mrs. Shaheen. Id. Such new tenant could institute an action in equity for partition of the interests. See Levine v. Carr, 33 Misc.2d 425, 215 N.Y.S.2d 402, (Sup.Ct.Nassau Co. 1961). Thus, the form of the Shaheens’ ownership of the shares does not prevent this Court from ordering the sale of John Shaheen’s interest in the apartment for the benefit of Clarkson. The remaining defenses asserted by Mrs. Shaheen and her two sons are so devoid of merit as not to require discussion. Accordingly, Shaheen is directed to deliver to or for the benefit of Clarkson, all his right, title, and interest in the cooperative apartment in which he resides at 640 Park Avenue, New York, New York and to execute and deliver all documents necessary to effect such delivery. Shaheen’s motion to amend his earlier sworn answers to certain questions in Clarkson’s information subpoena, in which he admitted ownership, in order now to deny ownership of the coop is denied. In view of the overwhelming objective evidence recited above, such a motion is an affront to the Court. SHAHEEN’S ESTATE IN SOUTHAMPTON, LONG ISLAND I turn next to Clarkson’s petition concerning Shaheen’s alleged interest in an estate in Southampton, Long Island, called “Old Trees.” Until at least October 1,1979, Shaheen owned “Old Trees” with his wife as tenants by the entirety. The estate consists of ten acres on eastern Long Island with a large main house, a garage, a separate, single-family house, and a cottage. The property contains or fronts on a lake. The Shaheens use the main house primarily in the summers; Mrs. Shaheen spends much of her time between Memorial Day and October there, and Mr. Shaheen commutes between Southampton and Manhattan on weekends while his wife is in residence on Long Island. In his answers to Clarkson’s information subpoena, sworn to on October 20, 1980, Shaheen stated that a year before, on October 1, 1979, he gave his one-half interest in the estate to his wife as a gift. Subsequently, on March 17, 1981, Clarkson filed an amended petition seeking an order pursuant to CPLR § 5225 annulling this alleged conveyance and directing that Shaheen’s interest in “Old Trees” be turned over to or for the benefit of Clarkson. In addition to Shaheen’s sworn response to Clarkson’s information subpoena, Clarkson also developed further confirmatory evidence that this transaction was a mere gift by Shaheen to his wife. This included the fact that Shaheen, in his federal gift tax return for 1979, signed on April 14, 1980, reported that he gave his one-half interest in the estate to his wife and estimated the value of the gift at $215,000, or half the value of the estate on the date of the conveyance as evidenced by an appraisal of the property attached to the return. Because of what Shaheen now asserts, I note specifically that the return clearly claims that the entire $215,000 transfer was in the form of a gift; it does not indicate that any part of the transfer was for consideration. Clarkson attacks the conveyance as fraudulent on two grounds. First, Clarkson alleges that the transfer was a fraud under New York Debtor and Creditor Law § 273-a because the conveyance was made without fair consideration at a time when Shaheen was a defendant in an action for money damages and Shaheen has since failed to satisfy the judgment in that action. Second, Clarkson contends that the gift violated section 276 of the law because it was a conveyance made with intent to defraud creditors. At the hearing on these issues, Barbara Shaheen, in testimony before me, attempted to defend against these allegations by claiming, for the first time, that the conveyance was not a gift after all, but was a sale from her husband to her for fair consideration. In brief, Mrs. Shaheen testified that the United States Internal Revenue Service had placed a mortgage of approximately $175,000 on the Southampton property to secure an existing personal income tax liability of Mrs. Shaheen; that Mr. Shaheen allegedly satisfied this personal debt with monies Mrs. Shaheen raised by selling some of her own stock; and that in consideration of Mrs. Shaheen using her own money to satisfy what was alleged to be Mr. Shaheen’s debt, Mr. Shaheen allegedly agreed to transfer his interest in the Southampton estate to her. At the hearing, Mr. Shaheen also adopted this characterization of the transaction, describing the conveyance of his interest in the estate as a sale in consideration of his wife’s providing him with funds necessary to satisfy his personal tax liability to the United States. I find this asserted defense to Clarkson’s petition to be utterly false. To begin with the Shaheens at all times publicly denominated the transfer a gift. In addition, the Shaheens produced no writing of any kind supporting this version of the transaction and the tax liability, which was some $40,-000 less than the value of the alleged consideration, was in fact a liability of both Mr. and Mrs. Shaheen. Moreover, one Martin Gilmartin, Esq., a Southampton attorney who assisted Mrs. Shaheen with the transfer, reminded her, orally and in a letter— which she told him she would discuss with husband — that Mr. Shaheen would have to file a gift tax return reporting the gift and that they should reduce the value of the gift by the amount of any consideration she had actually given in order to preserve, to the maximum extent possible, the exemption from taxation for inter vivos and testamentary gifts from one spouse to the other. Yet, despite this advice, Shaheen and his own lawyer, after telling Gilmartin that they would handle the gift tax return, reported no consideration for the transfer on the return Shaheen ultimately filed. The record in this proceeding, therefore, compels the conclusion that Shaheen’s conveyance to his wife of his one-half interest in the estate was a gift and that the alleged agreement whereby Mrs. Shaheen sold some of her stock to pay the tax liability in consideration of Mr. Shaheen’s transfer to her of his interest in the estate is a recent fabrication supported only by perjury. I conclude, therefore, that the conveyance was without fair consideration. On October 1, 1979, the day of the gift, Shaheen was a defendant in an action before me for money damages. That action went to trial some seven months later, resulting in a judgment against Shaheen personally of $46 million, and there is no dispute that, notwithstanding extensive supplementary proceedings, John M. Shaheen has failed to satisfy any part of the judgment against him. Accordingly, I conclude under section 273-a of the New York Debt- or and Creditor Law that Shaheen’s gift of his one-half interest in the estate known as “Old Trees” to his wife was a fraudulent conveyance. Furthermore, I find that the Shaheens’ belated attempt to convert what was a gift in late 1979 into a sale in 1981 is sufficient evidence to permit me to infer that they intended, by this deceit, to defraud Mr. Shaheen’s creditors, and specifically Clarkson. Accordingly, I conclude further that Shaheen’s conveyance of his interest in the estate, followed by his and Mrs. Shaheen’s subsequent effort to fabricate a more advantageous explanation for it, is also a fraudulent conveyance within the meaning of section 276 of the New York Debtor and Creditor Law. This conveyance is therefore set aside as one in fraud of creditors. Clarkson contends that Shaheen’s fraudulent conveyance has terminated the tenancy by the entirety by which the Shaheens owned “Old Trees” prior to Shaheen’s gift of his interest to his wife and that the Court’s equitable annulment of the gift will leave the Shaheens as tenants in common. Such a result would not follow from John Shaheen’s fraud alone. Orbach v. Pappa, 482 F.Supp. 117, 120-1 (S.D.N.Y.1979); Hohenrath v. Wallach, supra. Here, however, Mrs. Shaheen was a partner in a fraudulent endeavor to retain the entire property for herself and gave false testimony as to consideration in furtherance of that fraud. I conclude that where the transferee tenant participates in the fraud, equity permits her to be stripped of her right of survivorship as against the creditor she tried to defraud. Were it otherwise, then that which she was unable to accomplish by fraud, she would be able to accomplish merely by outliving her husband. Such a result, I conclude, would offend justice. See Van Alstyne v. Tuffy, 103 Misc. 455, 169 N.Y.S. 173 (Sup.Ct.Monroe Co. 1918). This result, of course, permits a sale of Shaheen’s interest for Clarkson’s benefit whereby any purchaser and Mrs. Shaheen would continue as tenants in common. It also increases the value of the interest to be sold for Clarkson’s benefit, thereby maximizing both the return to the judgment creditor and the degree of satisfaction of the judgment debtor’s liability. Accordingly, the tenancy by the entirety is terminated, and Clarkson may deliver to the Sheriff of Suffolk County an execution directing the sale, pursuant to CPLR § 5236, of Shaheen’s interest in the estate for Clarkson’s benefit. THE FOUNDERS PROCEEDING Finally, I turn to Clarkson’s challenges to certain transactions and agreements between Founders and SNR, Shaheen, and Macmillan (the “Founders proceeding”). In this proceeding, Clarkson asks the Court to declare 1) that its rights to a certain block of 23,517 shares of Macmillan preferred stock are superior to the rights of Macmillan; 2) that Founders’ pledge to Macmillan of 343,758 shares of Macmillan common stock was a fraudulent conveyance; and, 3) that Clarkson is entitled to certain monies Founders owes to SNR and Shaheen. As to the Macmillan preferred stock, I find as follows. During the latter part of 1979, the Macmillan board explored the merits of creating a class of preferred stock and then issuing a preferred stock dividend payable to the holders of its common stock. Subsequently, on January 10, 1980, after consultation with two outside advisors, the board approved the issuance of such a class of preferred stock and voted to distribute the 173,092 new shares as a dividend on its common stock. An investment banker estimated the market value of the new stock at $45 per share, or ninety percent of the $50 liquidating preference of the stock. Thus, SNR, with thirteen and a half percent of the outstanding Macmillan common stock, was entitled to 23,517 shares of the new preferred issue, at the time worth approximately $1,060,000. The purpose of issuing the preferred class and distributing it as a common stock dividend was apparently to create what eventually would become a seasoned preferred stock which could be used as a vehicle for raising capital for construction of the proposed West Coast refinery. The fact was that it also gave rise to a liability to SNR at a time when SNR’s debt to Macmillan, by then nearly $4 million plus interest, already had been written off as uncollectible. Whatever the reason for issuing the preferred stock, it is clear that the dividend allocable to SNR’s Macmillan common was not distributed to SNR. Instead, Macmillan retained the 23,517 shares, apparently to apply them against the SNR debt, and instructed Chemical Bank, its stock transfer agent, to issue the shares to Macmillan to be held as treasury shares. The accounting treatment of the alleged setoff posed a problem, however, because, as noted above, Macmillan had already written off the SNR debt, leaving nothing on the balance sheet to be reduced to reflect the setoff. In order to take ownership of the stock, therefore, Macmillan would have had to treat its value as income in 1980. Coopers & Lybrand, however, objected to recognizing the retained stock as income because were SNR to have gone bankrupt within one year of the setoff, the transaction could have been set aside as a voidable preference benefiting an insider. Consequently, Macmillan recorded the stock on its books as an asset and made a corresponding entry in a liability account to reflect a debt to SNR for unpaid dividends. Clarkson’s first objection to this setoff is that it was never completed because of Macmillan’s failure or inability to credit and thereby reduce SNR’s debt account by the value of the preferred stock retained. Clarkson contends that a creditor’s failure to reflect a proposed setof