Croll v. Empire State Knitting Co. — 17 A.D. 282

Majority

p. 282

Albert Ivins Croll, Appellant, v. Empire State Knitting Company, Respondent.

Headnote

An insolvent corporation may malee a general assignment without preferences —right of a judgment creditor both to contest its validity. and tó prove Ms claim before the assignee—motion after a change of venue to. open a default occurring before the change.

The inference to be drawn from the fact that. 1 Revised Statutes, 603; section 4, which in effect forbade insolvent corporations malting assignments for the benefit of creditors, was repealed by section 48 of the Stock Corporation Law (Chap. 564, • Laws of 1890), and that the latter section, as amended by section 48 of chapter 688 of the Laws of 1892, provides that “ No corporation which shall have refused to pay any of its notes or other obligations when due "* * * shall transfer any of its property * * * for the payment Of any debt Or upon any other consideration than the full value of the property paid in cash. No conveyance,, assignment or transfer of any property of any such corporation by it *> * .* . when thecorporationds insolvent, or its insolvency isimminent, with the intent .of giving a preference to any particular creditor'over other creditors of the corporation, shall be valid,” is that the common-law right of an insolvent corporation to make a general assignment for the benefit of its cred- . itofs is restored, subject to the condition that the assignment must be without preferences. .

The fact' that a judgment creditor of a corporation which has made a general assignment without preferences for the. benefit of its creditors, files with the general assignee a claim for the amount of his- judgments, and at the.same time ■ serves- notice that' while he ,demands his proportionate’ share of the assets he assails the validity and legality of the proceedings taken by the assignee for their distribution, does not estop him from contesting the validity of the assignment, hor from attempting to secure the removal of the assignee upon charges of misconduct, nor from appealing from an order previously made in a sequestration action brought by him against the corporation, vacating, the appointment óf a temporary receiver..

Where an action to sequestrate the- property of -a corporation whose legal rest-. dence is in the county of Schenectady, is brought in the county of New York, and the plaintiff there obtains upon the defendant’s default an order appointing a temporary receiver of ithe -property of the corporation, and'the place of trial is subsequently changed by order to the. county of Schenectady, a Special Term in the judicial district comprising the latter county has jurisdiction to grant a motion made by the corporation to have its default opened and to obtain. leave to oppose the motion for the appointment of the receiver.

Appeal by the plaintiff, Albert' Ivins Crol!, from an order of the , Supreme Court, made at the Montgomery Special Term and entered

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in the office of the cleric of the county of Schenectady on the 5th day of December, 1896, vacating an order appointing a temporary receiver of the defendant in an action brought by the plaintiff, a judgment creditor of the defendant, with executions returned unsatisfied, for the sequestration of the property of the defendant, and for its distribution.

Also, a motion by the defendant to dismiss the above appeal.

Benno Loewy, for the appellant.

Benjarwm N. Oardoza and A. J. Simpson, for the respondent.

Pending the actions in which plaintiff recovered his judgments, the defendant corporation made á general assignment for the benefit of its creditors without preferences. Having perfected his judgments, and issued executions thereon which were returned unsatisfied, the plaintiff commenced this action in New York county, and procured in that county a short order to show cause why a temporary receiver should not be appointed. The defendant’s legal residence is in the county of Schenectady, its principal office being located there. The defendant not appearing upon the motion, a temporary receiver was appointed as upon default November 2, 1896. On November 19, 1896, the place of trial of this action was "changed by an order duly made, from the county of New York to the county of Schenectady. Thereupon 'the defendant, upon affidavits excusing its default and showing the facts above stated, moved at a Special Term in the fourth judicial district, which embraces, the. county of Schenectady, to open its default, and for leave to oppose the motion for the appointment of a temporary receiver. The plaintiff in opposition read an affidavit, charging the general assignee of the defendant with misconduct in disposing of the property of the corporation, and also an order granting leave to the temporary receiver to bring actions against the defendant and its general assignee to set aside .the assignment as invalid on its face, and without authority under the law, and also to remove the assignee for misconduct. The Special Term, November 28, 1896, granted the motion from which this appeal is taken. On December 1, 1896, the plaintiff filed with the assignee a claim

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for. the ■amount due him upon his judgments against the defendant, at the same time giving notice that while he demanded his proportionate share of the assets, he assailed the validity and legality ■ of • the proceedings taken by the assignee for their distribution, ' The ■defendant moves to vacate this appeal, alleging that by presenting his claim to the assignee, the plaintiff has recognized the validity of the assignment.

•We think the motion to dismiss the appeal should be, denied.

If the-general assignment is good, the plaintiff is entitled to his distributive share under it; if it is bad, he is entitled to have a receiver appointed, and thus, obtain his distributive share. As a judgment creditor .he should be permitted to resort to whoever, for the time being, is charged with the administration of the estate of his debtor, without thereby foreclosing ■ any right he ■ may have to object to the misconduct of the assignee or to secure a more satisfactory-administrator, whether assignee or receiver. ■ ■ '

But we think the corporation defendant' had the' right to make a general assignment for the benefit, of creditors without preferences. At common law tins right existed. (Vanderpoel v. Gorman, 140 N. Y. 568 .) It was in effect forbidden by the Revised Statutes prohibiting transfers of its property by the insolvent corporation, or its officers in contemplation of insolvency. , (1 R. S. 603, § 4.) This provision was repealed' by the Stock Corporation Law of 1890 (Chap. 564, § 48), and the- latter act w;as amended by chapter 688, section 48, Laws of 1892, which provides

“Eo corporation which shall have refused to pay any of its notes or other obligations when due * * * ■ shall transfer any of its ■property * * * for the payment of any debt: or upon any • other consideration than the full value of the property paid in cash. Wo conveyance, assignment or ira/nsfer of am/y property of a/ny sioch . corporation Toy it * * * when the corporation is i/nsolment, or its i/nsolvency is 'imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation shall Toe vaTÁdP ' .

Thus - the inference is that the cpmmon-law right to make an assignment is restored, subject to the condition that the assignment must be without preferences. (Home Bank v. Brewster & Co., 17 Misc. Rep. 442 ; S. C., 15 App. Div. 338 ; Bishop on Insolvent

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Debtors [3d ed.], § 119.) Such being the case, there is no occasion to appoint a receiver in sequestration proceedings, since the title to the property of the corporation is vested in its assignee and should not be divested by the appointment of a receiver except upon cause-shown. The statutory provisions for the appointment of a receiver, in an action for the sequestration of the property of a corporation, are not repealed, and, assuming that charges of misconduct against the assignee would, if established, justify the appointment of a receiver in a sequestration action, the answer here is that, upon the conflicting affidavits submitted, the Special Term did not find the charges established. These charges are not made in the complaint in the sequestration action and the assignee is not a party.

We think the change of the place of trial from New York to Schenectady county gave to the Special Term in the fourth district jurisdiction of the motion. Whether the appointment of the temporary receiver in a district other than that of the principal office of the corporation was void or voidable as an irregularity we need not decide.

The motion to dismiss appeal is denied, with ten dollars costs against the respondent, and the order is affirmed, with ten dollars costs and disbursements against the appellant.

All concur, except Parker, P. J., not sitting.

Motion to dismiss appeal denied, with ten dollars costs, and order appealed from affirmed, with ten dollars costs and disbursements.

Cases cited

Home Bank v. J. B. Brewster & Co. 17 Misc. Rep. 442 N.Y. Sup. Ct. p. 284
Home Bank v. J. B. Brewster Co. 15 App. Div. 338 N.Y. App. Div. 1897-03-05 p. 284