People v. Seneca Lake Grape & Wine Co. — 23 N.Y. St. Rep. 346

Majority

p. 346

The People of the State of New York, Resp’ts, v. The Seneca Lake Grape and Wine Co., App’lt.

(Supreme Court, General Term, Fifth Department,

Filed April 12, 1889.)

Headnote

1. Corporations—Action to dissolve — Proceedings by directors — When answer frivolous—Laws 1848, chap. 40—Code Civ. Pro., §§ 1785, 2419.

In an action by the people to dissolve a corporation created under the Laws of New York (Laws 1848, chap. 40), and declare a forfeiture of its corporate rights as provided by Code Civil Procedure, § 1785, on the ground that it had suspended its ordinary and lawful business for the period of one year, the defendant pleaded, in bar of further prosecution of the action, the precc lency of other proceedings instituted prior to the commencement of the action, by the directors of the corporation, as provided in Code Civ. Pro., § 8419. The answer alleged that the petitioners had caused the order therein required to be sent to the proper newspapers for publication, but failed to allege that any other or further proceedings were had in pursuance of such order, or that the proceedings were instituted in good faith, and for the purpose of procuring the relief demanded, nor did it appear that the court had acquired complete jurisdiction over the subject matter. Seld, that the answer was frivolous and properly stricken out.

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2. Same—Power of court to grant injunction—Receiver—Code Civ. Pro., §§ 1787, 1788.

In an action prosecuted by the people, the court has power, upon prooí oí the facts authorizing the action to be maintained, to grant an injunction order, restraining the corporation and its trustees from collecting' or receiving any debt or demand, or from paying out or in any way transferring or delivering to any person, any money, property or effects of the corporation during the pendency of the action, without the express direction of the court, and restraining its trustees, directors and managers from exercising any of its corporate rights, and may appoint a receiver to act until final judgment.

3. Same—Voluntary proceedings—Do not preclude action by people —Code Orv. Pro., § 1785

Voluntary proceedings by the directors for a dissolution, do not preclude the people from commencing an action for any of the frauds stated in section 1785, Code Civil Procedure.

4. Same—Who can institute proceedings to enforce forfeiture.

As a general rule, the government creating the corporation can alone institute proceedings to enforce a forfeiture.

5. Same—Plea of former action.

To sustain a plea of a former action pending, the rule is that it must appear to the court that the first action was for the same cause as the second, and it will be strictly enforced; it is not enough that the property in controversy is the same.

6. Same—Order must comply strictly with statute—Code Civ. Pro., § 2433—(Laws 1883, chap. 378, § 8).

Unless the order granted on the presentation of the petition by the directors to procure a disssolution, is in strict compliance with the statute, it is void, and complete jurisdiction is not acquired over the subject matter.

Appeal from a judgment entered on the 6th day of September, 1888, dissolving the defendant corporation, created by and under the laws of this state (chapter 40, Laws 1848), for the cultivation, raising and selling grapes, and the manufacture of wines and brandies therefrom, and also from an order made at chambers, by a justice of this court, striking out the defendant’s answer as frivolous, and ordering judgment for plaintiff for the relief demanded in the complaint.

The judgment appointed a receiver of the assets.of the corporation, and it also contained the usual and customary directions to receivers, as to the mode and manner in which they should proceed in the discharge of their duties, and the judgment provided for the distribution of the assets among the creditors of the corporation. This action was commenced in June, 1888.

Bumsey Miller, for app’lt; William S. Oliver, for resp’ts.

The attorney-general instituted this action for the purpose of procuring, by the judgment of this court, a dissolution of the defendant corporation. The complaint alleges, as grounds for the judgment demanded, that the

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company did, in June, 1882, sell and dispose of all its lands and real estate, and has since that time ceased to exercise its corporate privileges and suspended its ordinary and lawful business. It is not alleged in the complaint that the corporation was insolvent, nor is it so determined by the judgment. The facts averred, if true, worked a forfeiture of the defendant’s franchise, and the state • had a right to demand its surrender. The attorney-general could not prosecute an action or institute other proceedings for the purpose of extinguishing the corporate life of the defendant without the sanction and authority of the legislature. Such authorization was given him by the provisions of article 3, title 2, chapter 15, of the Code of Civil Procedure.

By section 1785, an action to procure the dissolution of a corporation and a forfeiture of its corporate rights, privileges and franchises may be maintained whenever it has suspended its ordinary and lawful business for at least one year. The attorney-general proceeds upon this one ground alone. The defendant appeared in the action and by its answer, and pleaded in bar of a further prosecution of this action the pendency of other proceedings instituted prior to-the commencement of this action, by the directors of the corporation for the purpose of procuring a dissolution of the corporation as provided in title 11, article 4, chapter 17, of the Code of Civil Procedure.

For the purposes of this appeal, the answer will be construed as containing the following averments: That prior to the commencement of this action, the board of directors presented a petition to this court at special term, in the proper county, praying for a dissolution of the defendant corporation and for the appointment of a receiver of its property, and that the said company should be dissolved, setting forth in such petition the .reasons'why the directors deemed it beneficial to the interests of the stockholders that the said corporation should be dissolved, and that the facts alleged made a case for a dissolution within the provisions of section 2419; that the form of the petition was in full compliance with the statute on that subject and the rules of practice of the court; and that there was attached to such petition, which was made a part thereof, the schedule provided by section 2421.

The petition was duly verified and presented to the court on the 31st day of May, 1888, which was before the commencement of this action, and thereupon the court appointed a referee, and in such order all persons interested in the corporation were requested to show cause before the referee, on or before the day named therein, why the prayer of the petition should not be granted.

The answer alleged that the petitioners had caused such order to be sent to the newspapers mentioned therein, with direction to have the same published according to the terms

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thereof. But the answer does not allege that any other or further proceedings have been had in pursuance of the provisions of such order. It does allege that the proceedings were instituted in good faith and for the purpose of procuring the relief demanded by said petitioner. Upon the plaintiff’s motion the answer was adjudged frivolous, and judgment ordered for the plaintiff.

Although the proceedings instituted by the directors were regular up to the time of the presentation of the petition to the court, which was prior in point of time to the commencement of this action, they do not constitute a bar to the prosecution of the same by the attorney-general in the name of the people.

The facts alleged in the plaintiff’s complaint are not the same as those set forth in the director’s petition, as grounds for the dissolution of the corporation, and the aims and purposes of the action are in some respects different from those which might be accomplished in the proceedings instituted by the board of directors. The people prosecute their action because of the default of the corporation to perform and accomplish the end and object for which it was created. It is a tacit condition of a grant of a corporation that it shall accomplish the purposes for which it was created. Proceedings for the voluntary dissolution of a. corporation may be instituted by the board of directors on. the ground of its insolvency. Section 2419.

The powers of the court in an action prosecuted by the-people are greater than those conferred upon the court in proceedings founded on the petition of the board of directors. In the former, the court has the power, upon proof of the facts authorizing the action to be maintained, to grant an injunction order restraining the corporation and. its trustees from collecting or receiving any debt or demand, or from paying out or in any way transferring or delivering to any person, any money, property or effects-of the corporation during the pendency of the action, without the express permission of the court.

And where the action is brought to procure the dissolution of the corporation, the injunction may also restrain it, and its trustees, directors and managers, from exercising-any of its corporate rights, privileges, or franchises pending the action.

The court may also, at any stage of the proceedings, appoint a temporary receiver to act until final judgment is awarded. Sections 1787 and 1788.

In such action, where the stock holders, directors, trustees or other officers of the corporation are made liable in any event or contingency, for the payment of a debt, they may be made parties to the action, and their liability may

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be declared and enforced by the judgment in the action. Sections 1791,1792. In voluntary proceedings, no receiver of the property and effects of the corporation can be appointed until the final order is granted decreeing its dissolution, nor is any provision made in the statute restraining the officers of the corporation from exercising many of their ordinary functions and powers prior to making the final order of dissolution.

We think it obvious that it was not intended by the legislature that the voluntary proceedings for the dissolution of the corporation should preclude the people, by the attorney-general, from commencing an action to procure a dissolution of a corporation for any of the grounds stated in section 1785. As a general rule, a cause of forfeiture cannot be taken advantage of and enforced against a corporation, except by the government creating the corporation, which alone can institute such a proceeding, as it may waive a broken condition, express or implied in the act of incorporation.

The sole ground for demanding a dissolution of the corporation in this action, is non-usery. For that reason it may be dissolved, although it is solvent. The only ground assigned by the directors in their petition, is the insolvency of the company. The proofs which would support the proceedings instituted by the board of director's, would not support this action, for the complaint alleges another distinct ground for the relief demanded.

To sustain a plea of a former action pending, the rule is that it must appear to the court that the first action was for the same cause as the second, and it will be strictly enforced. It is not enough that the property in controversy is the same. Dawley v. Brown, 79 N. Y., 390 .

We think it also appears by the defendant’s answer, that at the time this action was commenced, the court had not acquired complete jurisdiction over the proceedings sought to be instituted by the board of directors, and for that reason the answer was properly held to be frivolous. On presentation of the petition, the statute directs that the court may make an order requiring all persons interested in the corporation to show cause before it, for before a referee designated in the order, at a time and place to be herein specified, why the corporation should not be dissolved. Section 2423. The answer sets forth an order which was granted on the presentation of the petition, but it does not contain a provision requiring the parties interested to show cause why the corporation should not be dissolved, but the provision inserted is, that they should show cause why the prayer of the petition should not be granted. The order as granted is to be published, and a copy served

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on the creditors and other parties. There is no provision that a copy of the petition shall be served therewith. By a perusal of the order, neither the creditors or the stockholders would be informed that a dissolution of the corporation was demanded or contemplated by the proceedings. In the Matter of the Manganese Company ( 29 Hun, 430 ), the order was in the same form as the one granted in a voluntary proceeding, and it was there held that such an order failed to comply with the statute, and for that reason the proceedings were not legally commenced, that the order was in that nature of a process for bringing persons interested before the court, and unless its provisions were in strict compliance with the statute, it was void.

We also think that the court failed to acquire complete jurisdiction over the subject matter, and that the order was void for the reason that the requirements of section 8, chap. 378, of the Laws of 1883, were not observed. The act is entitled: 6‘An act in relation to receivers of corporations.” The eighth section requires that a copy of all motions and all motion papers, and a copy of any other application to the court, together with a copy of the order or judgment, to be proposed thereon, to the court, in every action for the dissolution of a corporation shall, in all cases, be served on the attorney-general, in the same manner as provided by law for the service of papers on attorneys who have appeared in actions, whether the application be ex parte or upon notice, and any order or judgment granted in any such action or proceeding, without service of the papers on the attorney-general, shall be void. It is plain that this requirement applies to proceedings for the voluntary dissolution of corporations, and the purpose of the statute is to require notice to be given to the attorney-general of the time and place when the petition will be presented to the court, that he may be present and bel heard upon the initiatory application as well as all the other proceedings to be had in the matter, and unless served, such notice is waived, and the court has no jurisdiction to entertain the proceedings, and, as the statute has declared, the order is void.

For these reasons we think the answer, upon its face, appeared to be frivolous, and was properly stricken out, and judgment awarded in the plaintiff’s favor for the relief demanded.

The judgment and order are both affirmed, with costs.

All concur.