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Bliven v. Peru Steel & Iron Co.

9 Abb. N. Cas. 205 Court N. Y. Supreme Court; Special Term and Chambers, English

Delivered by Barrett, J.

Contents

Majority

p. 205
BLIVEN v. PERU STEEL AND IRON CO.
N. Y. Supreme Court; Special Term and Chambers,
January, 1881.

Headnote

Dissolution of Corporation.—Who may bring Suit for Dissolution.—Grounds for Decreeing Dissolution.—Consent of Corporation to its Dissolution.—Judgment of Dissolution and Appointing-Beceiver, when not retained for a New Purpose.
A court of equity has not, by virtue of its general or inherent powers, the right to dissolve a corporation, but such right is entirely statutory.
A stockholder is not entitléd to a decree, winding up the affairs of the corporation and appointing a permanent receiver.
p. 206
Whether a stockholder could, proceed under the law (2 R. S. 463, § 38) providing for the dissolution of a corporation when for a year it has been insolvent or neglected to pay its debts or suspended its business,—qucsre.[1]
In an action under that law averments in the complaint that part of the debt has been due for a year; that the entire debt is now due; and that payment has been demanded and refused on the ground of lack of assets, are not sufficient, as they show neither insolvency, for a year, nor neglect of payment for a year, for the reason that it does not appear when the demand was made.
To authorize the dissolution of a corporation on the ground that it has suspended its business for a year, there must be more than a partial suspension; hence an allegation of “ a practical suspension to a great extent for the whole or greater part of the year ” is insufficient.
It is only a judgment creditor who can apply for sequestration under 2R S. 463, §36.[2]
A decree for the dissolution of a corporation, in an action by a stockholder or creditor who is also the president, and in a case not authorized by statute, cannot be sustained, although consented to by the president and by one or more of the trustees individually; for an application for a voluntary dissolution must proceed from the company or its board of trustees.[3]
In an action by a creditor a judgment was entered, in a case not authorized by law, dissolving the corporation and appointing a permanent receiver. All the unsecured indebtedness was subsequently paid off. Held, that neither the plaintiff nor any other creditor could retain the unauthorized and really spent judgment for
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the benefit of a secured indebtedness which was neither due when the action was commenced nor mentioned in the complaint, especially when another action has been begun by the holders of such indebtedness, in which their rights could be fully protected.
Motion to vacate final decree adjudging the defendant to be insolvent, that its affairs be wound up, and appointing a receiver.
After the entry of the final decree, Charles Bliven, the plaintiff, died. The petitioners pray that his personal representatives be brought in as parties plaintiff, or the action be revived, if necessary.
The defendant is a manufacturing corporation organized under the act of 1848 of this State.
About January 17, 1879, Charles Bliven, the plaintiff, then being the president of said corporation, commenced this action on behalf, as recited in the complaint, of himself and other stockholders, trustees or officers of the defendant. He alleged that the corporation was indebted to him in the sum of $6,950; that he had duly demanded payment of his claim; and charging that the corporation had stopped payment, was insolvent, and unable to pay its pecuniary liabilities as they became due, and that its property would be lost, materially injured or destroyed, and praying :
I. An injunction restraining the corporation from exercising any of its corporate rights, franchises and functions, and transferring any of its property.
II. A receiver to take charge of the property and business of the defendant, and to perform all the duties of receivers in equity.
III. General relief.
The claim of the plaintiff was unsecured, not reduced to payment, and, so far as appears, not represented by any evidences of debt. The plaintiff had no lien upon the defendant’s property.
It appears that the corporation is now solvent, and
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all unsecured claims (including plaintiff’s) have been fully paid.
Final decree was entered May 27, 1879, by default.
Ho proof was given as to the truth of the allegations set forth in the complaint.
By the final decree it was adjudged :
I. “That the prayer ,of the complaint be granted.”
II. “That the defendant is insolvent, and that its affairs and business should be wound up.”
III. “That the defendant, its officers, &c., be enjoined from exercising any of the rights and franchises of said corporation, and from generally disposing of its property.”
IV. “ That the appointment of Francis J. Dominick as receiver in equity of all the property of the defendant be finally confirmed, and is constituted the receiver in equity of said corporation, for the purpose of winding up its affairs.”
This motion is based upon the petition of the defendant corporation, and of all its present trustees. The latter were not parties to the suit. They file the said petition both as trustees and as stockholders.
They ask, among other things, for the following relief:
I. That the decree in the above action be vacated and set aside.
II. That the action be then revived.
III. That the permanent receiver be reinstated as temporary receiver.
IV. That the petitioners be then allowed to come in and defend the said action, if the;'- should be so advised, &c., and apply for an order discharging the receiver after he shall have accounted, &c.
V. That they have general relief.
Theodore M. Morgan, for petitioners and motion.
The court had no jurisdiction ; the action could only
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be brought by the attorney-general. A court of equity has no inherent power to dissolve a corporation (Latimer v. Eddy, 46 Barb. 61 ; Denike v. N. Y. & R. Lime, &c., Co., 80 N. Y. 599 ). The statute did not authorize it (Denike v. N. Y. & R. Lime, &c., Co., 80 N. Y. 599 ; Gilman v. Greenpoint Sugar Co., 61 Barb. 1 , 17; S. C., 4 Lans. 482 , 483; Commonwealth v. Union F. & M. Ins. Co., 5 Mass. 230 ; Galway v. United States Steam Sugar Refining Co., 36 Barb. 260 ; Wilmersdoerffer v. Lake Mahopac Imp. Co., 18 Hun, 387 ). No creditor can have a receiver until he has obtained judgment and execution has been returned unsatisfied (People v. Erie R. R. Co., 36 How. Pr. 129 ). There is no sufficient allegation of suspension of business for a year (McMasters v. Pres., &c., of Ins. Co. of N. A., 55 N. Y. 233 ). To work a dissolution of a corporation there must be a surrender of the charter or a judgment of dissolution (Allen v. New Jersey Southern R. R. Co., 49 How. Pr. 17 ; Ormsby v. Vermont Copper Mining Co., 65 Barb. 364 ; Nimmons v. Tappan, 2 Sweeny, 659 ; Cary v. Schoharie Valley Mach. Co., 2 Hun, 110 ). The decree should be set aside (Verplanck v. Mercantile Ins. Co., 2 Paige, 438; City Bank, 6 Paige, 497). Vacating the decree will not revive the order appointing the temporary receiver (People v. Bowe, 8 Abb. N. C. 234 ).
Manley A. Raymond and Algernon 8. Sullivan, opposed.

It seems to me to be very clear that this application should be granted. Neither a stockholder nor a creditor had a right thus virtually to dissolve the corporation. It is well settled that such a decree is not warranted by the general or inherent powers of a court of equity. The statute .is the sole guide in such matters.

The plaintiff, Bliven, filed his bill as a stockholder,

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although it is averred that he was a creditor as well. As a stockholder, he was not entitled to a decree, winding up the affairs of the corporation, and for that purpose appointing a permanent receiver (Howe v. Deuel, 43 Barb. 505 ; Ramsey v. Erie Railway Co., 7 Abb. Pr. N. S. 181; Gilman v. Greenpoint Sugar Co., 4 Bans. 483 ; Galvey v. United States Steam Refining Co., 36 Barb. 256 ; Denike v. New York & Rosendale Lime & Cement Co., 80 N. Y. 599 ). That was said in Verplanck v. Mercantile Ins. Co., 2 Paige, 438, to be a virtual dissolution of the corporation. So, in Gilman v. Greenpoint Sugar Co., supra, Ingraham, J., referred to Howe v. Deuel, supra, as holding that in no case could a stockholder, except of a moneyed corporation, have a receiver appointed to take possession oí the property of a corporation, “and thereby cause a forfeiture of the charter.”

If a stockholder may proceed under that branch of the statute (2 R. S. 463, § 38), which provides for dis solution when the corporation has been insolvent for a year, or has neglected or refused for a year the payment of its debts, or has suspended its business for a year, as to which we need express no opinion, still it is, to say the least, exceedingly doubtful whether the plaintiff made out such a case. He says, in his complaint, that a part of the indebtedness has been dua for a year, but that is not the averment of insolvency for a year. He also says, that his entire debt of $6,950 is now (that is, at the time of filing the bill) due, and that payment of the same has been demanded, and refused upon the ground of a lack of sufficient pecuniary assets. But he does not state when the demand was made, non constat it was within the year, perhaps the day before the filing of the bill. As to the suspension of business, the complaint falls far short of what the statute requires. A partial suspension will not do, nor, to quote the substance of the complaint “ a practical

p. 211
suspension to a great extent for the whole or greater part of the year.” Even the then present insolvency of the company was only in the sense of inability to pay its debts as they matured.

There was in reality an excess of assets over liabilities, and the reverse was made out only by the strange process of including the capital in the list of liabilities.

The plaintiff was equally weak as a creditor; for nothing is better settled than this, .that it is only a judgment creditor who can apply for sequestration under 2 R. S; 463, § 36.

It may be said that the. company substantially assented to what was done. Even if that were so, the question of authority remains.

The statute points out the means of effecting the voluntary dissolution of a corporation. Consent to a judgment not authorized by the statute cannot very well be substituted for the methods so prescribed. But, in truth, the company did not so consent.

The proofs would seem to indicate acquiescence, upon the part of some of the trustees, in the appointment of a temporary receiver.

As to the board, however, there is a conflict of evidence. However that may be as to the temporary receivership, it is quite evident that the plaintiff, Bliven, who was president of the company, acted upon his own responsibility in procuring the final decree. He had no authority from the board of trustees to proceed to this grave extremity. The present body would be derelict in its duty if it suffered the company to be thus practically wiped out of existence.

There was, in fact, no necessity for this iron-clad decree. What has been done could as well have been accomplished, certainly without any greater straining of the statute, under orders of the court to the temporary receiver.

p. 212
But even the exigency which undoubtedly prompted the plaintiff’s irregular action has ceased; for it now appears that the entire unsecured indebtedness of the company has been paid, with every reasonable prospect, one would think, from the receiver’s past success, of the payment at no distinct period of the secured indebtedness. Thus, the danger to be apprehended from judgments at law has passed away, and the company is free to put its energies, facilitated by the receiver or other suitable agencies, to the work of complete and perfect rehabilitation. The payment of the unsecured indebtedness is admitted, but the present plaintiffs seek to retain the judgment for their bonds—which is the form of the secured indebtedness. This will not do, for the reason that the complainant was entirely silent as to the' bonds, and naturally so, because no part thereof was due when Bliven exhibited such complaint. He cannot now, nor can other bondholders in a like position, be permitted to uphold this unauthorized and now really spent judgment, by a supplement entirely foreign to the grounds upon which it was obtained, especially as the papers disclose the fact that an original bill in due form has been filed, and is now pending upon behalf of the bondholders ; in which action his and their rights, with respect to the secured indebtedness, will be fully and adequately protected.

That bill proceeds upon a different footing from the present.

The- bondholders have a specified lien, but seemingly no present right to foreclose. Consequently, they have a distinct equity to preserve the subject-matter of the lien, and by the carrying on of the business temporarily through a receiver to conserve that lien, and in due time render it practically available. So that even if the bondholders had become parties to this suit, which, in a legal sense, they have

p. 213
not, the non-sequitur of such a supplement to the original bill herein is apparent.

These conclusions cannot be affected by the individual action of one or more of the trustees. We have not, for instance, overlooked what is said as to Mr. Gunthers general assent as to his agreement with Bliven, and, in fact, as to his course throughout.

But his individual action or non-action could not bind the company, and the essential fact remains that this application proceeds from the company and its board of trustees.

While we have'been compelled to criticize the present action, we have no doubt that it was originally well intended, and indeed that it has served a useful purpose. But the statutes of our State cannot be disregarded, however great or pressing the emergency. Still the receiver has acted in good faith, and he will be protected for whatever he has done under the orders of the court.

We do not now definitely decide that the present action should be dismissed and the receiver directed to account, for such relief is not within the scope of the present application.

But we think, upon a review of the whole case, which is more or less involved in this motion, that the plaintiffs would do well to adopt that course, particularly in view of the satisfaction of the unsecured indebtedness and the pendency of the bondholders’ suit. If, notwithstanding this recommendation, they insist upon proceeding, the company will be permitted to answer or demur. If it answers it should have leave to set up the payment of the unsecured indebtedness and any other matters which have happened since the commencement of this suit by way of supplement, as well, of course, as any proper defense existing at the time of the commencement of this action.

The order will therefore be that the motion papers

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be amended throughout by striking out the name of Charles Bliven as plaintiff, and inserting instead thereof the names of the executors, who it appears have already been brought in as parties plaintiff in place of said Charles Bliven, deceased.

The order will further provide that the final judgment herein be vacated and set aside, and that the company be permitted within twenty days either to demur or to interpose an original and supplemental answer.

And further, with leave to the defendant to move at any time for the discharge of the receivership and for an accounting by Mr. Dominick, and the closing up of his trust—so far as this suit is concerned. No costs of this motion. Let the order be settled upon two days’ notice.

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