Majority
p. 211GALWEY a. THE UNITED STATES STEAM SUGAR REFINING COMPANY. Supreme Court, First District ; At Chambers, July, 1861.
Headnote
Transfer of Property by Insolvent Corporation.—Authority to appoint Receiver.Where an insolvent corporation was suffering creditors of a certain class to obtain judgment to an amount greater than one half the value of its property, with the view to give such creditors a preference;—Held, in an action by a creditor at large to dissolve the company and distribute its assets, that such course on the part of the trustees wais illegal, and that the creditors so proposing to take judgment should be enjoined from further proceeding in their actions, with the exception of entering judgment to stand as security for their respective claims.
In an action against a manufacturing corporation by a creditor at large, to enjoin certain creditors of the corporation from 'obtaining a preference, and for a dissolution of the corporation and the distribution of its assets, the court has no authority to appoint a receiver of the property of the corporation.
p. 212
Motion for an injunction and the appointment of a receiver.
The plaintiffs’ creditors at large of the IT. S. Steam Sugar Refining Company, a corporation created under the general law, authorizing the formation of corporations for manufacturing, mining, mechanical, and chemical purposes, passed February 17, 1848, commenced this action for themselves and all other creditors who should come in, &c., to procure the dissolution of the company, and the appointment of a receiver for the sequestration and distribution of its assets; on the grounds—1. That the company was insolvent, and its property, consisting of real estate for the most part, was not worth more than fifty per cent, of its unsecured debt; and 2. That its trustees, who were made defendants, ought to take proceedings for the dissolution of the corporation and the equal distribution of its property among the creditors; but that, instead of doing so, they intended to facilitate the recovery of judgments against the company to an amount exceeding half the value of its assets, and thus by the priority of lien to give preferences, and, by suffering the judgments tobe executed, to effect alienations of the property of the company contrary to law.
Upon the application for the continuance of an injunction temporarily obtained, and for the appointment of a receiver, defendants’ affidavits denied the inadequacy of the property of the company to satisfy all its debts, unless it should be sacrificed by a forced sequestration; they denied any intent or act to facilitate, by confession or otherwise, the recovery of judgments against the company; they exhibited the solid and valuable character of the company’s property, and its condition of debt; they showed that a portion of its debts matured earlier than other portions, and claimed that no defence, legal or equitable, existed in favor of the company against the recovery of judg- _ ment on these debts; that these earlier maturing debts were for money advanced to the company for the purpose of making a pro-rata payment upon the general debts, and that the money was so employed; and that the legal priority to be gained from the earlier maturity of these debts was equitable, and was an understood consideration, with.the knowledge and assent of the general creditors, upon which the money was supplied, which went to the reduction of the general debts.
p. 213—I. Whenever a corporation becomes unable to pay all the demands against it, the directors may apply for a dissolution. (3 Rev. Stat., 768, § 69.) This proceeding contemplates an equal pro-rata distribution among all creditors (Ib., 771, § 90) ; and it is not merely within the power of the directors, but it is their duty to take measures for such distribution. (Innes a. Lansing, 7 Paige, 583 ; 2 Rev. Stat., 600, § 4 ; Ib., 658, § 20.) II. Either the attorney-general or any creditor may, by action against the corporation and its directors, compel an account of the management of the property, and restrain any threatened or apprehended alienation of the property of the corporation or other mismanagement. (3 Rev. Stat., 762, §§ 41, 43, 45.) III. Whenever such action is brought, the court will restrain any creditor from proceeding to obtain a preference at law. (3 Rev. Stat., 767, § 65 ; Ib., 763, § 45.) 3 Rev. Stat., 764, § 50, recognizes the authority to appoint receiver, under the visitorial jurisdiction. (Code, § 244, subd. 4.) IV. The appointment of a receiver is necessarily a part of the relief to which the plaintiffs will be finally entitled, if the action is properly brought. • If a prima-facie case is made out in favor of the plaintiffs, a receiver should be provisionally appointed. —I. A court of equity, in this State, has no general jurisdiction over corporations, to restrain or correct their action, or to dissolve them and wind up their affairs, but in all these respects the statutes are the source and the measure of the jurisdiction in equffy. (Atty. Gen. a. Utica Ins. Co., 2 Johns. Ch., 370 ; Atty. Gen. a. Bank of Niagara, Hopk., 354.) II. The plaintiffs’ case does not fall within any of the statutory provisions giving or regulating procedures for the dissolution of a corporation, or the sequestration of its property through a receiver. Proceedings are authorized in but three cases. 1. Upon the application of a creditor by judgment or decree, on the return of an execution unsatisfied. (2 Rev. Stat., 463, § 36 ; 3 Ib., 5 ed., 763, § 44.) 2. Upon the fact of insolvency continued for a year, or of the payment of debts neglected or refused for a year, or of suspension of its business for a year.
Francis H. Dykers and Charles O’Conor, for the plaintiffs.
Joseph H. Choate and William, M. Evarts, for the company.
p. 214(Ib., § [38] 46) 3. Upon the application of the directors or trustees, when, in their judgment, the condition of the corporation makes it desirable. (Ib., 467, § 58 ; 3 Ib., 5 ed., 768, § 69.) For a criticism upon these statutory provisions, see Mann a. Pentz ( 2 Sandf. Ch., 257 .) III. These provisions, by a necessary construction, limit the policy and effect of the legislation to these cases; and especially, when we find the policy, and the effect of the same statutes, giving wider scope for these remedies against “ moneyed corporations.” (3 Rev. Stat., 5 ed., 764, §§ 47 [39], 48 [40].) It seems impossible that, upon a" complaint exhibiting the plaintiffs’ standing as that of creditors at large, and the corporation’s defaults or suspensions as quite short of the year of default or suspension, made the condition by the statute, the remedies of the statute can be pursued. IV. If the plaintiffs, as creditors at large, have an equitable action against the trustees of the cempany, or any of them, for their personal defaults, neglects, or misconducts, a sequestration of the corporate property, or a dissolution of the corporation, forms no part of the remedy. V. But the complaint shows no case against the trustees under the statute, or upon general principles. 'The trustees have the management of the corporate interests, and the discretion as to voluntary dissolution of the corporation is wholly reposed in them. The, creditor cannot coerce the discretion of the trustees, or make his interest the sole controlling consideration of their duty. . . VI. The utmost equity that a creditor, or other person, interested to obtain a dissolution of a corporation can claim is, to compel the trustees to set in motion the proceedings for its dissolution, mentioned by the statute. But to give a party this relief, he must have legal right to the only remedy approjuiate to accomplish it—viz., a writ of mandamus. VII. The notion, that a creditor, hot in the predicament to pursue the statutory remedy provided by creditors, can, from the omission,-however wrongful, of the trustees to pursue the course open by the statute to them, invent a remedy more ‘energetic and summary than either, and without the safeguards provided for both, is wholly irrational. The case of Innes a. Lansing (7 Paige, 583), and the principles there established,
p. 215that an extension of equitable remedies on the part of the court, will follow a new equity arising on the frame of a statute, although the statute, in terms, does not provide the specific remedial procedure, cannot help the plaintiffs. —I. James Olwell, a judgment-creditor of the company, is not a party to this action. It was irregular to give an order staying the proceedings of all the creditors, so as to affect his lights. 3 Rev. Stat., 767, § 65, gives no such power, or at most a power to restrain a creditor’s proceedings at law before j udgment, not after. II. This statute certainly cannot apply to any creditor, without giving him notice of the proceedings. III. James Olwell has a legal preference, which the court cannot, devest. (Matter of Waterbury, 8 Paige, 380 ; Fiske a. Keeseville Manufacturing Co., 10 Ib., 592.)[1]
Dennis McMahon for a judgment-creditor of the company.
Henry P. Fessenden, William J. Osborne, and Wright & Merrihew, for other creditors.
—The law forbids transfers of property by incorporations in contemplation of insolvency.
Suffering a creditor to obtain judgment in the manner and to the extent charged in this complaint, while the defendants’ corporation is insolvent, with a view to give such creditor a prefer- ■ ence, is, in my opinion, illegal on the part of the trustees or directors. Such a judgment will result in the transfer of the property of the corporation. ■
The company is wholly unable to pay its debts at present.
Our statutes contemplate an equal division of the property of insolvent corporations among their creditors.
The court are authorized to restrain any creditor from pro- ■ ceeding at law, and obtaining a preference. (3 Rev. Stat., 5 ed., 767, §65.)
The injunction is authorized on behalf of any creditor, (Ib.. 763, § 43.)
The question to be tried is, whether or not the trustees or
p. 216
directors are illegally or fraudulently permitting certain creditors of the corporation, of a favored class, to obtain a preference over other creditors by judgment; or at least that is one inquiry in the case, and certainly it is the question in this case wherein there is the least doubt as to the jurisdiction of this court to interfere or grant relief.
The injunction against the corporation and its trustees or directors must be continued.
As to the creditors of the company the injunction must be so far modified as to permit them to enter judgments, which are to stand as security only, subject to the judgment of this court as to the validity and effect thereof oh the final hearing in this action.
I find no authority for the appointment of a receiver, and the motion in that respect is denied.
Ten dollars costs of the motion to the party finally prevailing.
Order to be settled by the plaintiff's on one day’s notice to defendants’ attorneys.
Injunction continued. Motion for receiver denied.