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Gilman v. Green Point Sugar Co.

61 Barb. 9 Court N.Y. Sup. Ct. Decision date 1871-11-07 English

Delivered by Ingraham, P. J.

Contents

Majority

p. 9
Cornelia Gilman vs. The Green Point Sugar Company.

Headnote

An action cannot be maintained against a corporation, by a stockholder, to effect a forfeiture of the charter, for non-user within a year. And in any case, even when the action is brought by the Attorney General, a receiver cannot be appointed until judgment in the action.
APPEAL by the defendant from an order appointing a receiver, before answer or judgment.
The action was commenced by the plaintiff as a stockholder of the above company, to procure a dissolution, on the ground that the corporation had suspended its ordinary and lawful business for one year. (2 B. S. 464, § 38. Id. 706, § 46,4i/t ed.) The capital of the company is $150,000, divided into 1500 shares, of which the plaintiff claims to own 447; and the application was resisted on behalf of all
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the other stockholders. The allegations in the complaint to prove the suspension of business, were, that before January 1868, the business became unprofitable; that in October 1869 the company sold its stock of sugar and molasses, and ceased to purchase any more, and has not since procured any new material or machinery. That in June 1870, the com'pany sold its sugar house, buildings and appliances. That the sugar house constituted one-third of the real estate, and the rest consists of á waterfront. That its assets are bonds and mortgages. A particular statement of the assets was set forth in the affidavit" of Wm. J. Emmet.
The circumstances of the company were fully stated in the affidavits in opposition to the motion, from which it appeared that the business was, owing to the revolution in Cuba, suspended' temporarily, in 1869, and until the causes which produced the depressed state of business were removed. That the house was constantly kept in working order, ready to resume the manufacture of sugar, until July or August' 1870; and if opportunities had offered, business would have been.resumed. That no sale of the sugar house was determined on until June 1870, and then in consequence of an offer to purchase the premises and old machinery, which the company intended to replace by new. That the stock of sugars was not disposed of until August 1870; and until that time the company was engaged in its legitimate business of selling off its stock in the same way as before. The affidavits of P. H. Brown and Henry H. Eurbich corroborated the statements in Emmet’s affidavit, and showed that all that had been done was done with the consent of all the stockholders of the company.
On motion, before answer, a receiver was appointed; and from the order by which he was so appointed the defendant appealed.
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John E. Burrill, for the appellant.
I. The affidavits used on the motion did not show that the corporation had suspended its' ordinary and lawful business for one year. The affidavits show that there, was no intention, prior to-June 1870, to' abandon the business. Prior to that, the suspension was temporary, and it was the intention to resume when the causes which led to such temporary suspension should be removed.
II. The plaintiff, as a stockholder of the corporation, was not authorized to institute proceedings for the dissolution of the company, under the section of the statute. The statute is as follows: “Whenever any incorporated company * * * for one year shall have suspended the ordinary and lawful business of such corporation, it shall be deemed to have surrendered the rights, privileges and franchises granted, and shall be adjudged to be dissolved.” (2 R. S. 464, § 38. Id. 706, § 46, 4th ed) 1. The suspension of business does not, ipso facto, work a forfeiture, but is merely a ground upon which a forfeiture may be adjudged ; and the statute contemplates and requires an adjudication of dissolution, which can only be had in proceedings instituted for that purpose. (Bank of Niagara v. Johnson, 8 Wend. 645 .) 2. In "the absence of a statute which expressly authorizes some particular individual or class of persons to institute proceedings to obtain a judgment of forfeiture,. such proceedings can be instituted only by the people. This is in harmony with the decisions that' the fact of forfeiture cannot be investigated collaterally ; that such fact of forfeiture cannot be set up as a cause of action or defense in collateral proceedings ; and that until the government sees fit to interfere, no one can take advantage of the forfeiture. (Trustees of Vernon v. Hills, 6 Cowen; 23.) The principle upon which the forfeiture of corporate franchises rests is, that the contract between the State and the corporation has been broken, or that there has been a failure to peform some of its stip
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ulations, by reason of which the corporation should be decreed to surrender its franchises and privileges. And it is reasonable that such a failure or breach can be set up only by one of the parties to the contract, and that the surrender should be made, to the government, which granted the privileges. 3. 2Sfon-user is a ground of forfeiture, because it raises the presumption of a surrender to the State. To effect a dissolution by surrender, the surrender must be accepted, or the default must be judicially ascertained and declared; and this cannot be determined without fhe presence of the people. (2 Kent’s Com. 374, 310, 11th ed. In re Presbyterian Church, 7 How. Pr. 476 .)
III. Proceedings to enforce the forfeiture claimed to have been incurred in this case, should have been brought in the name of the people, and under sections 430 and 431 of the Code. 1. Before the statutes, proceedings to enforce forfeitures were always instituted at common law by quo warranto and other common law writs. 2. Sections 430, 431 and 444 of the Code are substantially the same as sections 49, 50 and 51 of the original Revised Statutes. (2 R. S. 606, §§ 49, 50, Edm. ed. Id. 586 , §§ 49, 50, marg. paging, 3d. ed.) 3. Under the old statutes and the provisions of the Code referred to, no injunction could issue, nor receiver be appointed, until after judgment in the proceedings instituted by the people to obtain a forfeiture. (Code, § 444. 2 R. S. supra, § 51.) 4. The section of the statute, under which this action is brought, is the same as the section in the old Revised Statutes. 5. There is nothing in the section referred to that will, warrant the conclusion that the proceedings mentioned in the section are to be brought in a court of equity; nor is there anything to exclude the inference that the forfeiture was to be enforced by the ordinary common law proceedings. (2 R. S. 464, § 38. Id. 706, § 46, 4th ed.) Where it was the intention that such proceedings should be in equity, the sections so expressly provide. (See §§ 31, 33, 35, 36, 39, of the
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old statutes ; and §§ 39, 41, 43, 44, 47 of the new.) 6. This court has no equity jurisdiction over corporations, other than that expressly conferred by these provisions of the statutes; and where the jurisdiction was not conferred upon the court as a court of equity, it has no other jurisdiction than the common law jurisdiction.
IV. Even assuming that the proceedings under the old 38th, now 46th section, are to be instituted on the equity side of the court, still they cannot be taken by a stockholder, but should be taken by the Attorney General, in the name of the people. (Ballou v. Eddy, Barnard, J. Howe v. Deuel, 43 Barb. 504 . Smith v. Gas Co., 12 How. Pr. 188 . Belmont v. Erie Co., 52 Barb. 637 , 668. People v. Northern R. R. Co., 53 id. 98. People v. Erie Co.,"36 Now. Pr. 130.)
V. Under no circumstances, however, was the court authorized to grant the Injunction or appoint the receiver, which could only be based on a judgment of dissolution, until such judgment had been rendered. (People v. Wash. Ice Co., Ingraham, J. Code, §§ 430, 444. People v. Northern R. R. Co., 53 Barb. 98 .)
A: Prentice, for the respondent.
I. The plaintiff’s.rights are given by statute. The Court of Appeals say that statute is but an enlargement of the common law. The defendant places its main defense, that as a stockholder the plaintiff cannot maintain this, case. Such, we submit, is not the law. (Ward v. Sea Ins. Co., 7 Paige, 294, 297.) Mickles v. The Rochester City Bank, (11 Paige, 118,) was a contest over the corporation known as “ The Genesee Cotton Mills,” a manufacturing corporation created under the laws of this State. Exactly the same point was raised in that case as is raised in this. The appeal came up before Chancellor Walworth, and in the decision of the appeal, on page 126, he says: “ The object of introducing this 38th section into the article rel
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ative to proceedings against corporations in equity, when the same provision, in terms, was contained in the last clause of the fourth section of the title containing special provisions relative to certain corporations, (1 R. S. 603,) could have been for no other purpose, however, than to give this court the power to decree and declare the surrender of the corporate rights and franchises, and to decree the dissolution of corporations which were not moneyed corporations, in cases coming within the provisions of this 38th section. When any corporation, therefore, other than those mentioned in the last section of that article, has remained insolvent for a year, or has neglected or refused for that length of time to pay its ordinary and undisputed evidences of debt, or has for one whole year suspended the ordinary and lawful business for which the corporation was created, I think, any creditor or stockholder who has an interest in closing up its .affairs, and having its effects applied to the payment of its debts, or distributed among its stockholders, may file a bill in this court, against the corporation, to have its dissolution judicially declared, and its concerns wound up, under the direction of the court.” This case, as appears by a note at the bottom of the decision, was affirmed by the court, of errors. I am unable to find that the decision in the court of errors is reported. This case has never been overruled or criticised, and stands as the law of this State. The eases cited by our opponent rest upon an entirely different ground. His cases rest upon the power of the court to examine into the affairs of existing corporations— ours upon the power of the court to wind up dissolved corporations. Howe v. Deuel ( 43 Barb. 504 ) is not an authority for my opponent, but, on the contrary, is an authority for my position. (See bottom of page 507, and top of page 508.) It is clear that Judge Ingbaham viewed the law, in such a case as this, as I contend it is. (Lawrence
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v. Greenwich Fire Ins. Co., 1 Paige, 587. Briggs v. Penniman, 8 Cowen, 387. Ward v. Sea Ins. Co., 7 Paige 294 .)
II. It is submitted that this statute is mandatory, and gives the plaintiff an absolute and vested right, on the happening of the conditions mentioned in the statute, to have the corporation dissolved. Most motions are in their very nature, as well as in the law upon which they are based, subject to the discretion of the court. This case is different. The statute gives the plaintiff an absolute right. That right goes to the extent of not only dissolving the corporation, but to the further and, to the plaintiff) more important point of having her share of the assets of the corporation. And still further, of having the amount of those assets fixed by a decree of this court. This statute has been construed in this district, as I read the cases, as giving this absolute right. (Galwey v. U. S. Steam Sugar Refining Co., 36 Barb. 256 , and cases cited. Slee v. Bloom, 19 John. 456 . Code, § 244.)
III. The question of intent has nothing to do with either the suit or this motion. It has been intimated that the position would be taken that the "defendant could at any time, on its own volition, have resumed business, and that it was only in those cases where the defendant had put it out of its power to renew its business, that the corporation would be dissolved. I submit the question of dissolution is, solely and exclusively, one of fact, and not of intent. If the fact is that the corporation has for one year suspended its ordinary and lawful business, it must be dissolved. It is immaterial what the intent of the defendant may have been. Bradt v. Benedict, ( 17 N. Y. 93 ,) is a case of suspension less than one year. (Briggs v. Penniman, 8 Cowen, 387. Ward v. Sea Ins. Co., 7 Paige, 294.)
IV. If the question of intent was a subject of consideration, it could not aid the defendant in this case. All the acts of the defendant show that as soon as it suspended business it commenced to sell and dispose of its machinery
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and 'tools, used and absolutely necessary for the prosecution of its business, and those sales were .followed by a sale of all its buildings, factory, &e., leaving the corporation no possible means for the carrying on of its business. The intent is therefore clear, that the defendant has at all times since its stoppage, meant to cease business and close up its affairs. This position "is confirmed by the further fact, as charged in the complaint, that the business of the defendant has become unprofitable, by reason of new inventions, which have superseded the manner of making sugar as carried on by. the defendant.
V. It may be claimed that inasmuch as the corporation is not insolvent, or its officers insolvent, no receiver should be appointed. The best answer that can be given are the words of Justice Allen, in 12 Barbour, page 60, where he says: “ The Revised Statutes treat the funds of a corporation, whether insolvent or not, which has surrendered its rights, privileges and franchises by suspending for one year, its lawful and ordinary business, as a trust fund for the payment of its debts, and constitute its directors the trustees thereof, and give the court of fehancery jurisdiction.” Every court of equity is specially charged with'the duty of protecting trust funds. The common law and the statute'make the assets of corporations that have forfeited their corporate rights, trust funds, and as such the court is bound to appoint a 'receiver to protect the same for the benefit of all persons interested therein.
VI. The, plaintiff is an undisputed stockholder to the extent of $47,500. Her property, to that extent, is trust property, in the hands of the court, and she asks for the interposition of a receiver, and is entitled to such protection.

The plaintiff, as a stockholder, sues the defendant, claiming a dissolution of the company, on the ground that- the business of the company had been

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suspended more than a year. There is no difficulty as to all the points raised, except that which relates to the right of the plaintiff, being a mere stockholder, to maintain such an action. At special term a receiver was appointed, and from that order the defendant appeals.

The provisions of the Revised Statutes which allow of proceedings against corporations for not continuing business for a year, evidently contemplate proceedings by the Attorney General, for a forfeiture of the charter; and a reference to the original act, in Session Laws of 1825, will show that no provision was made for any proceeding in such cases to be taken by stockholders. It has been repeatedly held that this court has no jurisdiction over these corporations, except such as is conferred by statute; and unless authority therefor can be found therein, it cannot be exercised. There are various cases in which this question has been examined, and in which it has been expressly held that no such action can be maintained by a stockholder, before judgment. The Code (§ 430) provides for actions to annul the charter of a corporation, by the Attorney General, among other causes, for forfeiture by failure to exercise its powers; but that can only be done upon leave of the court. In Howe v. Deuel, ( 43 Barb. 504 ,) it was held by the general term of this district, that in no case could a stockholder, except of a moneyed corporation, have a receiver appointed to take possession of the property of a corporation, and thereby cause a forfeiture of the charter. And it was also held in that case that the court, as a court of equity, could not exercise such a power not given by the statute. In Belmont v. The Erie Bailway Oo., ( 52 Barb. 637 ,) the same principle was recognized as applicable to a case charging the directors with misconduct in office. In Oalwey v. The U. S. Steam Sugar Befining Co.', ( 36 Barb. 256 ,), it was held that even a creditor at large could not maintain such an action; and Mullir, J.,

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held that the Attorney General, only, could proceed for a forfeiture for not using its powers for the year. There has been, no case cited in which such an action has been sustained, by a stockholder. In Bradt v.' Benedict, ( 17 N. Y. 99 ,) it was also held, that to constitute a forfeiture, the surrender müat be accepted by the government, or judicially declared. And in The People v. The Northern B. B. (Jo., ( 53 Barb. 98 ,) and in the same case, 42 N. Y. 217 , it was held that the receiver could be appointed on rendering judgment.

[First Department, General Term, at New York,

November 7, 1871.

My opinion is, that an action cannot be maintained to effect a forfeiture of the charter for non-user within a year; and that in any. case, even when the action is brought by the Attorney General, the receiver cannot be appointed until judgment in the action.

The order appointing the receiver should, for this reason, be reversed.

Order reversed.

Ingraham, P. J., and Gardozo and Geo.

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