Hubbell v. Syracuse Iron Works — 4 N.Y. St. Rep. 690

Majority

p. 690

Charles E. Hubbell, as Receiver of the Syracuse Iron Works, Resp’t, v. The Syracuse Iron Works, Giles Everson and others, App’lts.

(Supreme Court, General Term,, Fourth Department,

Filed November, 1886.)

Headnote

Action—By receiver of a corporation—When can be maintained to DETERMINE THE VALIDITY OF BONDS CLAIMED TO BE SECURED BY A MORTGAGE ON ITS PROPERTY.

A receiver of a corporation appointed in an action brought for the sequestration of its property under section 1784 of the Code of Civil Procedure, is entitled to bring and maintain an action to determine the validity of bonds claimed to be secured by a mortgage on its property and to have it ascertained and determined to what extent the mortgage and bonds are valí 1 and effectual as a lien upon the properly that came to his hands as receiver.

Appeal by the defendant Everson, from an interloctory judgment entered on an order overruling a demurrer interposed to the complaint herein.

The plaintiff was appointed receiver of the defendant company’s estate in an action to sequestrate its property pursuant to Code Civ. Pro., § 1784. The receiver was directed by an order to commence a suit in equity, to determine what bonds issued by said company, claimed to be secured by a certain mortgage made by said company on their property for $100,000, were so secured. And what, if any of said bonds should be excluded from sharing in the proceeds of the property. This order also directed that in

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said action should be determined how many of said bonds not held by Charles B. Everson, belonged to him, etc. Subsequent to this order the mortgagee commenced an action to foreclose the mortgage, and several of the creditors of said corporation were made parties to such foreclosure action and answered, setting up conflicting claims. Among the claims set up is one that a large amount of the bonds were illegally transferred to the president and officers of the corporation after it was insolvent, and that others had been given to secure debts not existing at the time the mortgage was made, nor within the purposes for which it was made. The amount to which the bonds were illegal could not be stated. Subsequent to said action another action was commenced by Giles Everson, a stockholder, for himself and others to compel certain parties named as defendants therein, to surrender certain of said bonds which Giles Ever-son claimed did not belong to the parties holding them, and said last named suit asked that the indebtedness of the iron works to one Crouse & Company, be paid out of the proceeds of the sale of the mortgaged property.

M. M. Waters, for app’lts; H. A. Maynard, for resp’t.

According to Whitney v. New York and Atlantic Railroad Company ( 32 Hun, 173 ), a receiver appointed of a corporation has “ all the powers and authority conferred, and is subject to all the duties and liabilities imposed upon a receiver appointed (upon) the voluntary dissolution of a corporation.” Code Civ. Pro., § 1788. Such a receiver is entitled to “the property real and personal, things in action, contracts and effects of the corporation so far as they were owned by it at the time of the appointment. • In that case it was said that the receivership could not include that which was legally included in a mortgage, but the creditor’s receivership must be confined to the property not covered by the mortgage. But there was no question about the validity of the mortgage. Not so in the case before us. The extent of the mortgage is disputed, and some of the bonds secured by the mortgage are alleged to be invalid. To the extent that the mortgage and bonds are valid, the owners have the paramount right. Whitney v. N. Y. and Atlantic R. R. Co. (supra), 175 . Indeed, we do not understand the plaintiff to claim to the contrary, but he seeks to have it ascertained and determined to what extent the mortgage and bonds are valid and effectual as a lien upon the property that came to his hands as receiver. The mortgage and bonds were executed to secure or pay debts. It is averred that some of the bonds have been diverted from that purpose and used to pay debts “not existing when said mortgage was made and delivered. ” It is averred

Concurrence

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that the mortgage was made “covering all and singular the franchises, rights, privileges and liabilities, corporate or otherwise, of and belonging to said iron works which then were, or at any time thereafter might be owned, held, possessed, used or enjoyed by it,” and also all and singular its real estate, etc.

We find no averment that any of the mortgaged property has been sold. It is therefore inferable or presumable that all of it remains and was owned by the company when plaintiff was appointed receiver, and that he as such is interested in the proper application and distribution of it, and that he is interested to protect it from invalid liens for the benefit of his cestuis que trust.

It is alleged that the Eversons, who demur and appeal, claim with others to be “the owners and holders of the bonds of said iron works which they severally claim are secured by said mortgage.” It seems to us that they are proper parties to this action, and that the plaintiff cannot have the validity of the mortgage, and the extent of the indebtedness which is valid, ascertained and determined without the presence of all the parties having the bonds issued under the mortgage. It is apparent that the plaintiff has alleged that the mortgagor owned some, if not all of the mortgaged property when the receiver was appointed. Being a corporation it must be assumed, in the light of the averments of the the complaint, that it owned its own “ franchises and right, and property.” The receiver represents the corporation, its stockholders and creditors. Atty. Gen. v. Mut. Ins. Co., 77 N. Y., 275 .

Taking all the facts found in the complaint, it cannot be said that they do not warrant some relief in equity, and in such cases the complaint must be sustained. Brinkerhoff v. Brown, 6 Johns. Ch., 139 ; Prindle v. Caruthers, 15 N. Y., 425 ; Weeks v. Cornwall, 39 Hun, 643 .

It is allowable to a receiver to have an action to set aside illegal transfers or incumbrances created by the officers or by the corporation, and it is proper to stay an action brought by a creditor to enforce such debts or liens as are invalid or illegal. Atty. Gen. v. Mut. Life Ins. Co., 77 N. Y., 272 .

We are of the opinion that the demurrer was properly overruled. Judgment and order affirmed, with costs, and leave given to appellants to answer in twenty days upon payments of the costs of the demurrer and of this appeal.

Follett, J., concurs.

I concur, and would cite the following cases as in my judgment sustaining the decision: Supervisors of Saratoga County v. Deyoe ( 77 N. Y., 219 ), Same v.

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Seabury ( 11 Abb. N. C., 461 ), McHenry v. Hazard ( 45 N. Y., 581 ).

Interlocutory judgment and order affirmed, with costs, and leave given to appellants to answer in twenty days upon the payment of costs and demurrer, and of this appeal.