In re Mart — 22 Abb. N. Cas. 227

Majority

p. 227

MATTER OF THE MART^[1]

N. Y. Supreme Court, First District, Special Term and Chambers;

January, 1889.

Headnote

1. Corporation ; dissolution.] Under the Code of Civil Procedure the court has no power to dissolve a corporation and appoint a receiver of its assets, upon petition even of all the stockholders, united in by creditors. The proper remedy is to proceed under the statute,^[2]

'2. The same; by consent.] An order dissolving a corporation and appointing a receiver upon such application, when all parties and the attorney-general were represented in court, and no objection was made,—vacated on motion of the attorney-general, on the ground that the court had no power to make such an order.

Motion to vacate an order.

All the stockholders and some of the creditors of “ The Mart,” a corporation engaged in business, and solvent, presented a petition to this court for dissolution and the appointment of a receiver; and all parties and the attorney-.general being represented upon the application and no ■objection made, an order to that effect was granted, which

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the attorney-general now moved to vacate on the ground that the court was without power to make the order.

William, A Poste and Charles Donohue, for the-motion.

A. P. Whitehead and M. H. Begensburger, for the receivers.

In my opinion, the case of Slee v. Bloom ( 19 Johns. Rep. 456 ), and similar cases, have no application, to this matter. The question whether a court of equity has the inherent power, independently of statutory authority, to dissolve a corporation and to appoint a receiver of it» assets, was not decided, considered, or raised in that case. The fact was that all the. property of a certain corporation, incorporated under the Manufacturing Act of 1811, had been sold under an execution, and that no election of officers had taken place for a long time, and that the corporation was doing no business whatever. The plaintiff sought to-charge stockholders of the corporation with certain liabilities, upon the ground that the corporation was dissolved. Chancellor Kent held, that as the corporation had not been dissolved by legal proceedings, taken on behalf of the State-, by the attorney-general, the corporation could not be considered'as dissolved, and dismissed the bill. Upon appeal to the court of errors, the decision of the chancellor was-reversed, and it was held, that the corporation had ceased to-exist by reason of the facts above set forth.

The facts in the case at' bar -have no resemblance to-those of that case. All the stockholders, and some of the creditors of the Mart, presented a petition, on notice to the attorney-general, praying that the court would dissolve the. corporation and appoint a receiver of its assets. It appeared by the petition that the Mart was actively engaged in. business, having assets of about $100,000, and debts of about $70,000, and a full board of directors. Upon the hearing,.

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some of the creditors were represented by counsel, and a representative of the attorney-general was also in court; and no objection being made by any one, the application was granted and an order signed, purporting to dissolve the corporation and appointing two receivers of its assets.

The case of Slee v. Bloom (supra) and others, in which that case has been approved, are undoubted authority for the position that a corporation may cease to have a corporate existence if it has no assets whatever, and ceases to do business, and there is a failure for a long time to elect directors. In my opinion, however, neither Slee v. Blum nor any other -case furnishes any authority for the application which was made in this case.

The attorney-general moves to vacate the order dissolving the corporation and appointing a receiver, upon the ground that the court' had no power to make such an order, and I think that his motion should be granted.

In the case of United States Trust Company v. N. Y., W. S. & B. R. Co. ( 101 N. Y. 478 ), the court of appeals had occasion to consider the decisions of the courts, and the laws of this State relating to the powers of courts of equity to dissolve corporations and appoint receivers thereof. Andeews, J., speaking for the court, said: “ The power of a court of chancery to appoint a receiver pendente lite, in foreclosure cases, is a part of its incidental jurisdiction, not depending upon any statute, and which it exercises, when-ever by reason of the insufficiency of the security or other reason, equity requires that the rents and profits of the mortgaged property, pending the litigation, should be impounded and retained to be applied upon the debt to be ascertained by the final judgment. . . . This jurisdiction is not affected by the character of the mortgagor, whether an individual or a corporation. It rests upon grounds quite independent of the character of the parties to the instrument, or the nature of the mortgaged property. But it- was held at an early day in this State that the jurisdiction of

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chancery did not extend to the sequestration of the property of a corporation by means of a receiver, or to the winding-up of its affairs, or to control or restrain the usurpation of' franchises by corporate bodies, or by persons claiming without right to exercise corporate powers (Attorney-General v. Utica Insurance Co., 2 Johns. Ch. 371 ; Attorney-General v. Bank of Niagara, Hopkins, 354). The refusal of the court of chancery to entertain jurisdiction of corporate-bodies, at the instance of creditors, or to wind up their affairs in case of insolvency, led to the enactment by the Legislature in 1825, of the act, chapter 325, of the laws of that year, entitled ‘ an act to prevent fraudulent bankruptcies, of incorporated companies, and to facilitate proceedings against them.’ By this act jurisdiction was conferred upon the court of chancery to sequestrate the property of a corporation, upon the application of a judgment creditor, after the-return of an execution unsatisfied, and to appoint .a receiver of its property (§ 15), and in case of an incorporated bank, which had become insolvent, or had violated its charter, it authorized the court of chancery, upon the petition of the-attorney-general, or of a creditor, to proceed by injunction,, and to appoint a receiver of the property of the bank, and to distribute the same among its creditors (§ 17). The provisions of the act of 1825, enlarged and extended, were-incorporated into the Be vised Statutes in the article entitled,. ‘ Of proceedings against corporations in equity ’ (2 R. S. 462), and a complete statutory system was enacted for the-winding up of the affairs of a corporation, against which an execution had been returned unsatisfied, at the instance’ of' the creditor in the execution, and for similar proceedings, against-insolvent banking or other specified corporations, at. the instance of the attorney-general, or any other creditor or stockholder (§§ 36, 39, 40, 41). The court was authorized to appoint receivers of the corporate property. Their-powers and duties are specified in the statute in great detail, and it is declared that receivers so appointed shall be‘ vested with all the estate, real and personal, of such corporation,

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and they are declared to be ‘ trustees of such estate, for the benefit of the creditors of such corporation and its stockholders' (2 R. S. 469, §§ 67 and 68). The system inaugurated by the Act of 1825, and incorporated into the Revised Statutes, has been continued by the Codes, and, for fifty years prior to the Act of 1883, had been the statutory system of procedure for the winding up of the affairs of insolvent corporations, through receivers appointed by the court, not by virtue of its inherent jurisdiction, but under statutory authority; the statute which authorized their appointment also prescribing, with great minuteness, their powers and duties.”

In view of this exposition of the law, I am of the opinion that whenever it is sought to invoke the powers of a court of equity for the purpose of obtaining a judgment or order dissolving a corporation, and appointing a receiver of its assets for the benefit of creditors, .one or the other of the courses prescribed in the present Code of Civil Procedure must be followed ; and that the court has no power, upon a petition of all the stockholders and some, or all, of its creditors, to make an order dissolving the corporation and appointing receivers of its assets.

The motion will be granted, with $10 costs. The order will be settled on notice.

Cases cited

United States Trust Co. v. New York West Shore & Buffalo Railway Co. 101 N. Y. 478 N.Y. 1886-03-02 p. 229