California Civil Code section 3432 says: A debtor may pay one creditor in preference to another, or he may give a creditor a guarantee for the payment of his claim in preference to another.
One of the many articles of judgment: I am not a lawyer, and this article is my opinion based on my experience, consult an attorney if you need legal advice.
For post-trial recovery attempts in California, what happens if the court approves your proposed impeachment order (or some other type of order) and then a debtor (individual or entity) tries to claim that CCP 3432 and their financial situation alone allow some of your creditors to pay, but not you?
If the California debtor wins your CCP 3432 argument that you cannot pay all of your debts, are you allowed to pay off some creditors and leave you and your other creditors hanging?
What if the California debtor is a company that uses CCP 3432 to argue that it must pay dividends to its investors, but cannot pay its creditors? Would that argument fail because dividends paid to investors are not considered debt and are supposed to come from earnings? And if you haven’t paid your debts, do you really have no earnings to distribute?
Logically, an obligation to pay dividends would be considered a debt, however, that obligation would not actually arise until there are actual earnings to distribute.
If your California business debtor tries to use CCP 3432, what section (s) of the CCP code could you use to try to stop them? Of course, in the case of a company that pays dividends but no creditors, it could be considered a fraudulent transfer, because even if you call the transfers “earnings”, they were distributed without fair market value in exchange and left the company powerless. pay off your regular creditors.
In the case of fraud of a debtor, one could look for jurisprudence that mentions both 3432 and fraudulent transfers. Investors in stocks are not creditors, although bondholders are. The debt has to be legitimate, otherwise the payment could be considered a fraudulent transfer.
If you are not a commercial debtor, or it is not a fraudulent transfer situation; A CCP 3432 argument will probably be difficult to fight, hopefully your judgment debtor never brings it up. I am not a lawyer, and my opinion to counter a CCP 3432 argument is to suggest a reimbursement agreement over time. If the debtor claims that they cannot pay you because they are paying someone else, suggest that they pay a little each month and try to turn it into a stipulated order supported by the court.
