Majority
p. 499In the Matter of Proceedings for the Voluntary Dissolution of the Wendler Machine Company. (Supreme Court, Appellate Division, Fourth Department, Filed February 7, 1896.)
Headnote
1. Appeal—Order confirming sale.An appellate court has power to vacate or reverse an order made to confirm a sale made by the receiver of a corporation appointed in dissolution . proceedings, and an appeal is allowable by creditors who have an interest in the assets affected by the order confirming the sale.
2. Corporations—Mortgages.
In order to have a mortgage given by a corporation valid, It is essential that the stockholders holding two-thirds of the stock of the corporation shall give their- consent to the mortgage and such consent should be filed in the proper clerk’s office.
p. 500
3. Same.
Where, upon application, in dissolution proceedings, for the confirmation of a sale of the property of the corporation, made “ subject to all legal liens,” by the receiver, the creditors appear in opposition to the motion to confirm on the ground that the mortgage is invalid because the consent of the stockholders was not given and filed as required by law, the receiver, who petitions for confirmation, must before the creditor’s objection to the confirmation is overruled, furnish evidence that the mortgage lien is valid.
Appeal from an order, ratifying and confirming a sale of the real and personal property of the corporation.
The property was struck off to the highest bidder, “ subject to all legal liens thereon, for the sum of $125.00.” Notice of the application'to confirm the sale was given to. the attorney general, and to the attorney for Rogers & Co. and others, creditors, and to Rich ten and others, stockholders, who were heard in opposition. The parties opposing the motion raised the preliminary objection that “ the order for sale was granted without notice ” to them. That objection was overruled and the order of confirmation was made, after reading the petition and the affidavits of Jones, Yan Allen, and B. J. Mullin, verified September 7, 1895. The petitioner states that he exposed the property of the corporation for sale, “ except bonds held by said company and accounts receivable, * *. * subject to all legal liens thereon ; subject to the approval of the court upon terms of sale,” which are stated. It appears, by the affidavit of the attorney who opposed the motion, that on the 17th day of June, 1895, prior to the close of the hearing of the application to dissolve the company, he filed in the office of the clerk of Jefferson county a notice of appearance for creditors, and also served a copy thereof upon the attorney for the petitioner, and that no notice of the'application for an. order authorizing the receiver to sell was served upon-the attorney so appearing for the creditors. The affidavit of Mr. Yan Allen, sworn to September 7, 1895, states that he has searched the records of the county clerk’s office of Jefferson county, “ and has been unable to find any consent of stockholders, or certificate of meeting of stockholders, of said company, to issue any mortgage on said property, filed or recorded.” The affidavit of Jones states that he is a stockholder and director of the company, and that the company was organized in September, 1894, “ and that $50,000 in bonds were issued by said Wendler Machine Company October 1, 1894, and that a iportgage was executed upon its real estate, and also a chattel mortgage executed upon its personal property to secure the said bonds; that none of the said bonds have been sold by the said company or any of its officers.” It appears by his affidavit that the bonds were issued, “ and allowed to remain at the First National Bank of Cartilage as collateral security for the sum of $24,400, except $9,000, which were turned over to Pat Phillips as security for an indebtedness to him from the company, leaving$41,000 in bonds at said First National of Carthage”; and that the bank “ claims to hold said bonds to secure between $28,000 and $30,000.” Jones’ affidavit further states “ that the property sold was, in deponent’s judgment, worth $100,000, and
p. 501
ought to sell at forced sale, and deponent believes could be sold, for from $65,000 to $70,000 It appears that in January, 1895, an appraisal of the property of the company was made, in which the total value of it. was stated to be $107,000. It appears in the affidavit of B. J. Mullin that he, on several occasions, had conversations with Phillips, the receiver, who stated “ that the company was to be reorganized, with C. H. Remington at the head, and that the property was to be sold, and Remington to be the buyer, or do the bidding, and that the Carthage creditors were to be paid in full ” ; and that the adjournment was had from the 15 of August to the 22d of August on the ground “ that said Remington was not quite ready, and asked for postponement for one, week.” The affidavit further states that the receiver had told the affiant “ that the property was worth $75,000,” and “ receiver also told deponent that he [Phillips] did not want said sale confirmed, and did not think it would be.” He also states in his affidavit “ that negotiations had been and are pending to reorganize said company, and take said property, and pay the debts, but that sufficient time has not existed since it was known that Remington was not going to complete the arrangements of the purchase of the property to effect such reorganization.” In the teestirnony given by Phillips before Judge Emerson June 18, 1895, he states, viz.: “ I think the property will sell for from $60,000 to $70,000 * * * The indebtedness of company amounts to about $70,000.”
W. B. Van Allen, for app’lt; George S. Hooker, for resp't.
—It seems that Rogers & Co., who were creditors of the Wendler Machine Company, made themselves parties to the proceeding: and after becoming such parties to the proceeding, they were entitled to notice of application subsequently made therein. Code Civ. Proc. §§ 2428 and 799. It seems, by the affidavits, that the receiver was interested, as he held some $9,000 of the bonds secured by a mortgage. Although it is stated in the terms of sale, issued by the receiver, that the sale would be made subject to the approval of the court, there is nothing in the terms prescribed by the receiver requiring the purchaser to pay the antecedent liens upon the property; nor does the record before us show any undertaking on the part of the purchaser to pay the antecedent liens. Good faith was due from the receiver to all parties interested in the corporation, and he ought not to be allowed, in any way, by statements or by his conduct, to mislead interested parties to further his own private interests. He had, undoubtedly, power to contest the bonds and the mortgage. Vail v. Hamilton, 85 N. Y. 453 ; Carbon Co. v. McMillin, 119 N. Y. 46 . However, it is not necessary at this time to determine that the receiver acted in bad faith and in collusion with parties in interest- It seems to be well settled that the appellate court has power to vacate or reverse an order made to confirm a sale (Syracuse Sav. Bank v. Syracuse, C. & N. Y. R. Co., 88 N. Y. 110 ), and that an appeal is allowable by creditors who have an interest in the assets by. the order confirming the sale.
p. 502
The learned counsel for the respondent, in his points, states that, prior to the execution of the mortgage, “ a consent to mortgage was properly executed and acknowledged by the owners of all but twenty of the fifteen hundred shares of the capital stock. The consent was not filed, however, till after the property of said company was sold by its receiver, in August, 1895. The mortgage was recorded immediately after its execution, and before the indebtedness of the company to appellants was incurred.” We find in the appeal book no proof of this statement. We therefore have before us an order which confirms a sale presumptively made subject to the mortgage, without any evidence before the special term' that the mortgrge for $50,000 was valid. While it does not clearly appear under what statute the corporation was organized,1 it is inferable from the appeal papers that it was organized under the statutes relating to manufacturing corporations. Therefore, in order to have the mortgage valid it was essential that the stockholders owning two-thirds of the stock of the corporation should have given their consent to the mortgage, and that such consent should be filed in the proper clerk’s office. Vail v. Hamilton, 85 N. Y. 456 ; Rochester Sav. Bank v. Averill, 96 N. Y. 467 ; 26 Hun, 643 ; Martin v. Niagara Falls Paper Manufacturing Co., 122 N. Y. 165 ; 33 St. Rep. 318 . Manifestly, the object of the legislature in requiring such an assent was the protection of stockholders against improvident, collusive, and unwise acts of trustees in incumbering the corporate property. Sugar Co. v. Whitin, 69 N. Y. 333 . Although it has been held, as was intimated in Paulding v. Steel Co., 94 N. Y. 334 , that none but stockholders can complain that the statutory consent was not given, yet. in the proceedings now brought in review, it appears the creditors appeared in opposition to the motion to confirm ; and before- their objection to the confirmation was overruled, it was incumbent upon the receiver, who petitioned for confirmation, to furnish evidence that the mortgage lieu was valid, as it manifestly would affect the bidders at the sale. While the order, in some sense, was addressed to the discretion of the court (White v. Coulter, 1 Hun, 357 ; Kellogg v. Howell, 62 Barb. 280 ), we think, upon the papers presented in the appeal book, the learned special term judge fell into an error in confirming the sale, and that the order made at special term should be reversed,—without prejudice, however, to a new application, if the petitioners shall be so ad-' vised upon additional proofs.
Order reversed, with $10 costs- and disbursements, payable out of the fund, without prejudice to a new application.
All concuT.
Cases cited
- Vail v. Hamilton 85 N. Y. 453 p. 501
- Pittsburg Carbon Co. v. McMillin 119 N. Y. 46 p. 501
- Syracuse Savings Bank v. Syracuse, Chenango & New York Railroad 88 N. Y. 110 p. 501
- Rochester Savings Bank v. Averell 96 N. Y. 467 p. 502
- Martin v. Niagara Falls Paper Manufacturing Co. 122 N. Y. 165 p. 502
- Paulding v. Chrome Steel Co. 94 N. Y. 334 p. 502
- Kellogg v. Howell 62 Barb. 280 p. 502