King v. Barnes — 22 N.Y. St. Rep. 47

Majority

p. 47

Thomas M. King et al., Resp’ts, v. Rean Barnes et al., App’lts.

(Supreme Court, General Term, Second Department,

Filed February 11, 1889.)

Headnote

1. Receiver—Jurisdiction op the court to appoint.

Where, in. an action brought to establish and enforce the rights of parties who have advanced money and incurred liabilities upon an agreement for a joint enterprise, an order was made appointing a receiver of all the franchises and property of the defendant corporation, and directing the holding of a corporate ‘ election for directors under the control of a referee, and enjoining the defendants irom making any disposition of or interfering with the property of the corporation in any manner, the order was made after the entry of final judgment: Held, that as the parties appeared and were fully heard, the court acquired jurisdiction and possessed suficient power to grant all appropriate relief so far as the same was germain to the subject involved.

■3. Same—When appointment legal and proper—Code Crv. Pro.,' § 713.

Held, that as tho action was all peculiarly and indisputably within the jurisdiction of a court of equity, and that as the remedies of injunction and receivership are incident and necessary to the final and complete relief sought, the appointment of a receiver is not antagonistic to the powers vested in courts of equity to execute their judgments.

3. Same—Rules op law available to corporations.

Held, that as the defendants occupy the position of contumacious usurpers and have no right to represent the corporation, they can claim no immunity, under that organization, nor defend themselves against the charge of fraud by setting up rules of law available to corporations.

Appeal from an order appointing a receiver of the New York Transit and Terminal Company (limited) and providing for the election of directors of said company and granting an injunction.

William B. Hornblower and James McNamee, for app’lts; MacFarland, Boardman & Platt, for resp’ts.

—The litigation in this case has been severe, -and the matters involved were complicated and unusual; but the defense has been found destitute of merit, and all the questions presented have been decided adversely to the ■contention of the defendants.

Under the decision of the court of last resort, the plaintiffs became entitled to full relief, and the execution of that judgment has now devoled upon the supreme court.

p. 48

Upon the failure of the defendants to comply with the-requirements of the judgment, an application to the court-for the enforcement of such compliance became neceesary, and in obedience to such necessity, an order was made by a-justice of the supreme court, requiring the defendant to show-cause at a special term, why an order should not be entered at the foot of the final judgment in this action, and, in order to carry the same into effect, directing and providing for the holding of a meeting for the election of directors of the-defendant, The New York Transit Terminal Company, Limited.

And, also, why a receiver should not be appointed of the-franchises, property, records and papers of the said defendant company, in order to carry the judgment into effect.

The motion came on and was heard, and all the matter» stated in the moving papers were found to be true, and a receiver of all the' franchises, the property, and of the seal of the corporation was thereupon appointed, and all persons in possession of such property, franchises and seal, were ordered to surrender the same to the receiver.

A referee was also appointed to hold and conduct the meeting for the election of new directors for the New York: Transit and Terminal Company, Limited.

The defendants have appealed from the last recited order, and the sole question presented or argued by the appellants, as stated by their counsel, is this:

“ Did the court below have jurisdiction to make the order-appealed from, and is it in accordance with-law, and a proper exercise of judicial power?”

The appellants maintain the negative of their proposition, and make a preliminary challenge to the order, because it transcends the relief sought for by the preliminary order to show cause. There was in that order no prayer or notice, for an injunction, or for any direction to the referee to take charge of the election, and no prayer for other or further relief, but the moving paper sought all the relief granted, and laid the foundation for its bestowment, and. the parties appeared, and were fully heard, and the court-therefore acquired jurisdiction, and possessed sufficient power to grant all appropriate relief, so far as the same was germain to the subject involved. -

Upon the merits, we think the appointment of the receiver was authorized by section 713 of the Code of Civil Procedure, which is as follows: “ In addition to the cases,, where the appointment of a receiver is specially provided! for by law, a receiver of property, which is the subject of an action in the supreme court, a superior city court, or a-county court, may be appointed by the court in either of the following cases.” * * * “By or after the final, judgment, to carry the judgment into effect, or to dispose of the property according to its directions.”

p. 49

We think the section has a very salutary application here, and was designed to meet an emergency such as has arisen in this case. The judgment cannot be carried into effect, and a disposition made of the property according to its direction, without wresting such property from the fraudulent possession of the defendants, and placing it in the custody of an officer of the court. We are unwilling to confess the inability of the supreme court, with the equity powers of the old court of chancery, to carry into execution the judgment of this action by the employment of all the mysticism known to the law, and ordinarily utilized for such purposes, even without the provision of section 713 of the Code. [Neither do we think the general provision of the Code of Procedure respecting the appointment of receivers of the property of corporations antagonistic to the exercise of the powers vested in the courts of equity to execute their judgments.

These provisions, as well as those of chapter 378 of the Laws of 1883, apply only to the appointment of receivers in cases of insolvency. Application for the appointment of receivers in equity actions in all stages, are by no means uncommon, and they are appointed on general principles of equity, independent of all statutory provisions.

They are common law receivers, and custodians of the-property for its protection, and their appointment may be made without reference to the location of the principal office of the company. U. S. Trust Company v. N. Y. W. S. & B. R. R. Co., 35 Hun, 341 ; Same Case, 101 N. Y., 478 .

Beside all these, under the judgments of the courts, these-defendants now occupy the position of contumacious usurpers.

They have no right to represent this corporation. They have been detected in efforts to prostitute the company to fraudulent purposes, and a solemn adjudication has been made, requiring them to surrender all the property and franchises, to the equitable and lawful owners.

This terminal Company, was formed in pursuance of an. agreement between the plaintiffs and the defendant Barnes, providing for the organization of a corporation under the-Laws of this state, for the purpose of taking title to such property as might be purchased, and for the payment therefor by the issuance of full paid capital stock or otherwise.

The agreement provided, that the parties thereto, the-plaintiffs and the defendant Barnes, should bear equally,, the costs of such property as might be purchased, and all expenses incident to the creation and organization of the-corporation, and of the contemplated enterprise generally,,

p. 50

mid they were to share equally in the profits, benefits and advantages, that might accrue from the execution of the agreement.

It is therefore, the agreement, which is beyond the corporation which controls the rights of these parties in this action, and it is the execution of that agreement which the courts are called upon to enforce, and the profits, benefits and advantages to accrue from the execution of the agreement were to be shared equally by the parties thereto.

By the agreement, the parties entered upon a joint enterprise, for their mutual benefit, and their rights and liabilities rest upon the express terms thereof, and are to be enforced upon the principles applicable to partnership transactions.

_ The action is prosecuted to establish and enforce the rights of the parties who have advanced money and incurred liabilities, in reliance upon the agreement for the joint enterprise, and is therefore, peculiarly and indisputably within the jurisdiction of a court of equity, and the remedies of injunction and receivership, a,re incidental and necessary to the final and complete relief. King v. Barnes, 109 N. Y., 267 ; 15 N. Y. State Rep., 52, 996.

These litigating defendants cannot shroud themselves behind the company. The rights, duties and liabilities of the parties to the agreement, are not to be determined by the rules of law applicable to corporations in actions brought .against them, and these rules of law .cannot be invoked by these defendants in any stage of this litigation. This action is based upon the original agreement, and general principles of equity jurisprudence, and applies to the general jurisdiction of courts of equity, under which those -courts decree the specific performance of agreements, relieve against fraud, marshal property, adjust equities between parties to partnerships and joint-adventures, and vary their .adjustments and operations, so as to meet the very form and pressure of each particular case, in all its complex habitudes. Story’s equity'Jurisprudence, § 439.

These defendants cannot therefore defend themselves .against the charge of fraud made against them by setting up rules of law available to corporations. They are required to defend themselves and answer the charges made against them without regard to the artificial body created under the agreement as a mere instrument to be utilized in the execution of a great scheme.

They can claim no immunity under that organization, neither can they place that body between them and justice; and the plaintiffs cannot be embarrassed in any way by reason of its existence or by reason of any rules of law which it might invoke for its protection in a proper case.

p. 51

The order appealed from should be affirmed, with ten. dollars costs and disbursements.

Pratt, J., concurs; Barnard, P. J., not sitting.