In re Murray Hill Bank

On the 11th of August, 1896, the bank superintendent, claiming to act under the authority of the statute, closed

So far as the law is concerned, it must be deemed to be settled that the action of the people for the dissolution of this coloration, and the voluntary proceeding of the directors, having the same end in view, may be carried on together. People v. Seneca Lake Grape & Wine Co., 52 Hun, 174 , 5 N. Y. Supp. 136 ; In re Murray Hill Bank, 9 App. Div. 546 , 41 N. Y. Supp. 914 . It must also be deemed to be settled that this proceeding for the voluntary dissolution of a banking corporation was properly commenced by a majority of the directors, and the court has jurisdiction to entertain it, although it was begun after the attorney general had sequestrated the assets of the corporation, under the statute, on account of its insolvency. Cases cited supra. But the fact that those propositions of law are settled does not enable us to dispose of the questions presented by this appeal, because those questions do not involve the status of the respondents as receivers under this voluntary proceeding during the pendency of the action and the proceeding which had thus far run along pari passu, but they must be decided upon a consideration of the condition of these two proceedings after judgment of dissolution had been entered in the action of People v. Murray Hill Bank, and while no further action had been taken in this proceeding except to make the order appealed from.

It is claimed by the appellant that as the result of the judgment in the action in the Second district, which adjudged that the corporation was dissolved, all proceedings to that end pending in this district came to an end, and any step which was attempted to be taken in those proceedings after that time was void, and the court had no jurisdiction to take it, whereas it is claimed on the other hand, by the respondents, that the proceeding taken here, having for its object the dissolution of the corporation and the distribution of its funds, might continue to a final order, in which the fact of the dissolution should be adjudged again, and steps taken, by the appointment of permanent receivers, for the distribution of the assets of the corporation, in spite of the fact that a judgment of dissolution had already been entered. It is claimed by the respondent that such a condition of affairs was provided for by the judgment of dissolution entered in the Second district, but we are of the opinion that in that claim the respondents are mistaken. That judgment does not in any way indicate the opinion of the court there that the assets should be distributed in this proceeding. On the contrary, so far as it indicates any opinion on the subject, it would seem to be that the court supposed that this proceeding would be discontinued or dismissed upon application, and thereupon the attorney general was given leave to apply at the foot of that judgment for the appointment of permanent receivers. The provision of the judgment is that such leave should be given to the plaintiff in that action, or to the attorney general, to apply for the appointment of permanent receivers in that action, when by an order made in the First district these proceedings should be adjudged to be discontinued and dismissed;

It is well-settled law in this state that the dissolution of a corporation, by judgment to that effect entered in an action against it, terminates any action or proceeding then pending by or against it, and that all subsequent steps taken in such action or proceeding are void. McCulloch v. Norwood, 58 N. Y. 562 ; Sturges v. Vanderbilt, 73 N. Y. 384 . If this proceeding for a voluntary dissolution can be said, in any just sense, to be a proceeding by or against' a corporation, then we think it comes within the rule stated in the cases just cited, and that no further steps can be taken in it, but that it is abated without any further order of the court. Whether it is or-not a proceeding by or against a corporation, so that this principle applies, is the matter to be discussed. It is apparent at first blush that while the corporation is not a party, eo nomine, to proceedings taken for its voluntary dissolution, so that it is rightfully entitled-to notice of every step that shall be taken in those proceedings, yet that the corporation, considered as an entity, is directly interested' in the effect of those proceedings. They are taken for the express purpose of putting an end to its corporate existence, and to distribute its assets. They are begun by persons acting in the interests-of the corporation. Drew v. Longwell, 81 Hun, 144 , 146, 30 N. Y. Supp. 733 . And, except in one particular instance, they can only be taken by the action of a majority of the directors, who must act in this case as in every other case where steps are taken in behalf of the corporation. Notice of them is required to be given to every stockholder and creditor of the corporation. Upon the filing of the petition, any transfer by the corporation of its property in payment of, or as security for, a debt or a judgment confessed by it, is void as against the creditors of the corporation. If the corporation is-claimed to be insolvent, the attorney general may apply to the court for the appointment of a receiver in these proceedings, but, by the-express provision of the statute, this application can be made only upon notice to the corporation. In all these proceedings the corporation is directly interested, and the necessary effect of the proceedings is to put an end, if successful, to its existence. It must be, therefore, that the proceeding is one which, taken by a majority of' its directors, is directed against the corporation, and that it comes within the principle stated above as to actions of proceedings of that nature. The object of the proceeding is to dissolve the corporation. The only question to be considered upon the hearing before the referee is whether, for any reason, the corporation should be dissolved; and the only order that can be made, if the proceeding is-well taken, is a final order dissolving the corporation and appointing receivers. Oode Civ. Proc. § 2429. If a judgment dissolving the corporation has already been entered, the object of this proceeding is-certainly accomplished, and no reason is apparent why it should

It is said, however, that a hearing has been had in this proceeding and a motion for final order made therein, and this final order-is relied upon as an adjudication that these proceedings were not abated by the judgment of dissolution entered in the Second district. In answer to this claim, it must be said that there is nothing in the-papers in this case to show that any such proceeding has been taken, or any such final order has been made. If it should be made to-appear subsequently that any such thing has been done, it will then-be our duty to decide as to the effect of it, but, in the absence of any such proof, the question now presented must be decided upon principle only. We conclude, therefore, .that the voluntary proceedings abated by the entry of judgment of dissolution in the action pending in the Second district. Tie persons appointed as receivers in this proceeding did not, because it had abated, cease to be receivers of the bank, as to the assets which they had already received, so far as it was necessary for them, in that capacity, to protect those assets, or so far as to make them accountable for what they might do in regard to them. High, Eec. § 833. But we do not think that their powers continued to' such an extent as to gire them the right to take away from other persons, who had lawfully come into' the possession of the assets of the bank, the property which they had received in that relation. It appears that Messrs. Hobbes and Odell, who had been appointed receivers in the people's action in the Second district, had received, as such, assets of the corporation which were still in their hands. While these gentlemen had ceased to be receivers, because the order appointing them had been reversed, they stood in relation to such assets in precisely the same situation as the respondents were standing in relation to any assets they may receive. They are no longer active receivers for the purpose of procuring other assets, but they are bound to protect the assets which they already have until they shall be taken out of their possession by an order of the court, and given to some person who has a better right than they to hold them. That better right can only exist in connection with some valid appointment in a pending proceeding. After the judgment of dissolution had been entered,

The result of our examination is that this order must be reversed, but, under the circumstances, without costs.

VAN BRUNT, P. J., and BARRETT, J., concur.

(dissenting). Without determining the question whether the abatement of the voluntary proceedings could be raised on the motion resulting in the order appealed from, or whether the attorney general is in such sense a party to the proceeding that he has the right to appeal, I think, in view of the interests affected, that the merits Should be disposed of. It has been decided by this appellate division ( 41 N. Y. Supp. 914 ) that the voluntary proceedings were properly instituted, and that the court had jurisdiction to entertain them and to appoint receivers. This decision was followed by the appellate division in the Second department, and an order appointing different receivers in the people’s suit was reversed. 41 N. Y. Supp. 804 . The effect, therefore, of this decision, was to vest the title and the right of possession of all the assets of the bank in the receivers appointed in the voluntary proceeding in the First department; and, though they were but temporary receivers, they could take possession of the assets, and compel others who had property of the corporation to deliver it over to them, or maintain an action for its recovery. It is insisted, however, that the effect of the judgment of dissolution in the people’s action was to abate the voluntary proceedings, "and to strip the receivers of all power, except to hold such assets as they then had. But this judgment, as modified, is expressly limited to providing for the dissolution of the bank, and it is therein declared “that no receivers of said corporation, or of the property thereof [shall] be appointed in or by this judgment.” Recognizing the possibility that the voluntary proceedings pending in this district might be discontinued or dismissed upon the final hearing, the judgment further directed that in that event the attorney general might apply at the foot of the judgment for the appointment of permanent receivers. In the people’s action, as in the voluntary proceeding, the purpose sought was double relief: First, a dissolution of the corporation; and, second, a distribution of its assets. In the judgment of dissolution, as we have seen, the court, having notice, and prior to that time having held, that the same court in this district had first acquired jurisdiction in the voluntary proceeding over the assets, and was engaged in administering upon them, left to the receivers therein appointed the possession and the right of distribution of the assets, while according the other relief by dissolving the corporation. I think the rule with respect to the abatement of all actions and proceedings against a dissolved corporation is subject to the limita

The question therefore remains as to whether, under section 1793 of the Code, the court, in the people’s action, was obliged to provide for distribution by appointing receivers. That question was before the appellate division, and was directly passed upon, as shown by the opinion and by the form of the judgment; and I agree with the cqnstruction given to the section, viz. that the word “must,” as employed in the section of the Code, is mot imperative, but, as applicable to the facts here, must be construed as directory. What undoubtedly was meant by the provision of the Code is that distrk bution had to be made, and in such manner as the court thought proper. And, the court having already in mind that the assets had been taken possession of by its receivers in another proceeding, all that was necessary to be done was to dissolve the corporation, and leave to such receivers the distribution. I think, therefore, as the assets were already sequestered for distribution in another proceeding, that it was entirely proper to refuse to insert an additional provision for distribution in the judgment in the people’s action, it appearing that the court that made the judgment was already administering the fund in such other proceeding. What the Code requires is that after dissolution the property of a corporation shall be distributed among its creditors, but it can make no difference whether that takes place in one proceeding or another, especially where both proceedings are in the same court. Nor does the section referred to enact that the final judgment in the action brought against the corporation shall provide for the distribution of the property in that action. The effect of reversing the order appealed from here is to permit that to be done which has been expressly disapproved of by the appellate division in both the First and Second departments, and, in a collateral way, to construe the judgment of dissolution—which has already been construed by the court that made it—contrary to the intent and purpose of that court. The delay, uncertainty, and expense to depositors that will result from retracing the steps already taken, and submitting new receivers for those already appointed and acting, should be avoided; and I think this can be done, consonant both with reason and authority. But, even if it be assumed that these proceedings abated, then, for the reasons given by Mr. Justice INGRAHAM, in which I concur, I think the order appealed from should be affirmed.

(dissenting). I concur with Mr. Justice RUMSEY in his conclusion that by the entry of the judgment in the attorney general’s suit, by which the corporation was dissolved, this

“And it was the duty of its temporary receiver, who was vested with all its property, to sue, recover the money, if possible, and to hold it subject to the further order of the court. It is the evident policy of the statute to vest in the temporary receiver many of the important powers that are exercised by a permanent receiver, and this for the very obvious reason that, before final judgment in an action to procure the dissolution of a corporation, it is of vital importance that the title of the corporate property should be vested in an officer of the court who has full authority to reduce it to possession wherever found, and to maintain any action or special proceeding necessary in the premises. In such an action it would be not only an empty form to make the insolvent corporation a defendant, but would be inconsistent with the appointment of the temporary receiver, who, for the purposes of holding, protecting, and reducing to possession the property and assets of the company, is vested with title, and represents the corporation and its creditors, as fully as a permanent receiver after final judgment of dissolution.”

Thus, by the entry of this order appointing them, these temporary receivers, by virtue of their appointment, became vested with the title of the property, for the purpose of holding, protecting, and reducing it to possession; and for that purpose such receivers are vested with the title, and represent the corporation and its creditors, as fully as a permanent receiver. Now, the abatement of this proceeding does not vacate this order, nor does it, in my opinion,

The provision as to the property vesting in the trustees of a dissolved corporation, where no receivers are appointed to distribute it, does not apply when the title to such property had vested in ¡other receivers appointed by the court prior to the dissolution, of •the corporation. It is well settled that valid contracts made by