Morgan v. New-York & Albany Rail Road — 10 Paige Ch. 290

Majority

p. 290

Morgan vs The New-York and Albany Rail Road Company and Coddington.

Headnote

A judgment creditor of a corporation, who files a bill to obtain satisfaction of his debt, out of the property and effects of the corporation, after the return of an executionat law unsatisfied, must proceed according to the provisions of the article of the revised statutes relative to proceedings against corporations in equity. And he does not obtain a preference in payment; but the whole property and effects of the corporation must be sequestered for the benefit of all its creditors rateably, except as to preferences created by the laws of the United States, or where liens upon the real estate of the corporation have been obtained by judgment or decree.

The decree obtained upon a creditor’s bill filed against a corporation, and founded upon the return of an execution unsatisfied, is a decree not only for the benefit of the complainant in such bill, but also for the benefit of all other creditors of the corporation who may come in and establish their debts under such decree; or under an order of the court made previous to such decree, as authorized by the statute.

A judgment creditor of a corporation, upon the return of his execution unsatisfied, may proceed either by bill or by petition, at his election, under the provisions of the 36th section of the article of the revised statutes relative to proceedings against corporations in equity. But a proceeding by bill, instead of petition, is the most proper course for commencing the suit, against the corporation, where the complainant also intends to proceed against the directors, or stockholders, to charge them personally, in case of a deficiency of the corporate property to pay the debts of the corporation.

The stockholders of an insolvent corporation, who have not paid the full amount of their stock, are liable to the creditors of the corporation to the extent of what remains unpaid, upon their several shares of such stock; or of so much thereof as may be necessary to supply the deficiency in the assets of the corporation to pay its debts.

Where the creditor of an insolvent corporation, whose execution against the corporate property has been returned unsatisfied, is ignorant of the names of the stockholders, whose shares of the capital stock have not been paid in full, he may pray for a discovery of their names; and after he has obtained such discovery, may amend his bill and make them parties, for the purpose of charging them personally for the deficiency, to the extent of their liability. Or he may wait until a final decree against the corporation has been made, and its effects have been distributed among the creditors, and may then file a supplemental bill, for the purpose of charging the stockholders personally for the deficiency to the extent of their statutory liability.

An injunction which is to deprive the officers of a corporation of the control of the whole of the corporate property, cannot be allowed ex parte, upon the certificate of a vice chancellor or injunction master, out of court.

But upon the appointment of a receiver of all the property and effects of a corporation, for the purpose of closing up its affairs, it is proper to restrain its

p. 291

directors and officers from collecting debts and demands due to the corporation, and from paying out, assigning or delivering any of its property, money ■or effects to any other person, or from encumbering such property.

1843. May 2.

This was an appeal from an order of the vice chancellor of the first circuit, appointing a receiver of so much of the property and effects of the New-York and Albany Rail Road Company as might be necessary to satisfy the complainant’s debt and costs. The complainant was a judgment creditor of the corporation, and his execution had been issued to the sheriff of the city and county of New-York, where the office or place of business of the company was kept, and such execution had been returned unsatisfied. The bill was in the usual form of creditors’ bills, but it also contained an allegation that there were many stockholders <of the company who had not paid up their stock in full, from whom balances still remained due ; which balances the complainant insisted should be applied to the payment of his judgment. He also alleged that he had applied to the defendant Coddington, the president of the company, for a list of such stockholders, but he could not obtain the same, and therefore was not able to set forth the names of such stockholders in his bill. And he prayed a discovery, from the defendant Coddington, of the names of all the stockholders of the company who had not paid up in full for their stock, and the amount of the deficiency due thereon.

J. V. L. Pruyn, for the appellants.

D. D. Field, for the respondent.

The counsel for the complainant is in an error in supposing that this is a case in which a judgment creditor can obtain a preference in payment, out of the effects of an insolvent corporation, under the provisions of the revised statutes. The word defendant in the thirty-eighth section of the title relative to the court of chancery, (2 R. S. 173,) would undoubtedly include a corporation as

p. 292

well as an individual, if the rights of creditors as against corporations, upon the return of an execution unsatisfied, were not otherwise provided for in the revised statutes. But the legislature, in the act of April, 1825, to prevent fraudulent bankruptcies by incorporated companies, to facilitate proceedings against them, and for other purposes, (Laws of 1825, p. 449, § 5.,) adopted the principle, as to insolvent corporations, that equality among creditors is equity ; and directed that upon the return of an execution unsatisfied, the property and effects of the corporation should be sequestered and distributed equally, and in a just proportion, among all the creditors of the company. And this provision of the act of 1825 was re-enacted, substantially in the same form, in the thirty-sixth and thirty-seventh sections of the article of the revised statutes relative to proceedings against corporations in equity. (2 R. S. 463.) The manner in which the effects of the corporation are to be distributed, after a decree in the suit, is the same as is prescribed by the seventy-ninth section of the article relative to the voluntary dissolution of incorporations, (2 R. S. 471 ;) that is, by giving no preferences, except such as are created by the laws of the United States, and such as have been acquired by the docketing of a judgment, or decree, so as to create a lien upon the real estate of the corporation.

The final decree, which is to be obtained upon a bill filed by a judgment creditor of the corporation, under this thirty-sixth section of the article relative to proceedings against corporations in equity, is therefore a decree not only for the benefit of the complainant in the suit, but also for the benefit of all other creditors of the corporation who may come in and prove their debts, under such decree, or under an order of the court made previous to such decree, as authorized by the fifty-sixth section of the same title. (2 R. S. 466.) And the order appealed from should have extended the receivership to all the property and effects of the corporation, instead of limiting it to so much of such,property and effects as would be sufficient to pay the debt and costs of the complainant merely.

p. 293

In all other respects, however, I do not perceive why the order appealed from is not a good appointment of a receiver, for the purpose of sequestering the property of the corporation, under this thirty-sixth section of the article relative,to proceedings against corporations in equity. The hill, it is true, contains some allegations which were not necessary to lie stated therein under this section ; and which are only required by the 189th rule of this court. But the provisions of that rule, although they were only intended to cover the case of an ordinary creditor’s bill against natural persons, are broad enough to reach -the case of a bill filed by a creditor of a corporation, under this 36th section, after the return of an execution unsatisfied. And there is nothing in that, or "in the three succeeding rules, which is inapplicable to a creditor’s bill filed against a corporation, after the return of an execution unsatisfied, where the final decree upon such bill is to be for the benefit of other creditors of the corporation, as well as of the complainant.

The word petition only is used in the 36th section. But every bill in chancery is in fact a petition to the court for relief. In the recent case of Judson v. The Rossie Galena Company and others, (9 Paige’s Rep. 598,) I came to the conclusion that a suit might properly be commenced against a corporation, under that section of the revised statutes, by bill as well as by petition ; and that a proceeding by bill is the most proper mode of commencing the suit, where the complainant intends to proceed against the directors or stockholders of the corporation, to charge them personally,in case the corporate property and effects should be found to be insufficient to pay all of the debts and liabilities of the corporation. Indeed the 45th section of that article of the revised statutes expressly recognizes the filing of a bill, against the directors or stockholders, as well as against the corporation, whenever the creditor whose execution has been returned unsatisfied seeks to charge such directors, or stockholders, on account of any liability created by law.

In the case under consideration it is expressly charged,

p. 294

in the bill, that there are stockholders of the corporation who have not paid in the full amount of their stock, but whose names are unknown to the complainant; and he prays for a discovery of the names of such stockholders and the amount due upon their stock.

The 5th section of the title of the revised statutes relative to the powers, privileges, and liabilities of corporations, (1 R. S. 600,) renders such stockholders liable to the creditors of the corporation, to the extent of what remains unpaid upon their respective shares of the capital stock of the company, or of such proportions thereof as may be required to satisfy the debts of the corporation. The complainant, therefore, when he shall have obtained a-discovery of the names of the stockholders who have not paid in the whole nominal amount of their respective shares of the stock of the corporation, as fixed by the charter of the company, will have the right to amend his bill; for the purpose of making them parties, to enforce their liability for the deficiency, to the extent, prescribed by the statute, if the property and effects of the corporation shall not be sufficient to pay and discharge all its debts. Or he may wait until a final decree has been rendered against the corporation, and the corporate effects have been distributed according to law, and may then file a supplemental bill, against such stockholders, to compel them to pay in the amount due upon their respective shares of the capital stock, or so much thereof as may be necessary to satisfy the residue of the debts of the company. (2 R. S. 465, § 9.)

9.) In this case the order for the appointment of a receiver was properly granted; but it was erroneous not to extend the receivership to all the corporate property and effects. It does not appear, however, from any of the papers which were before the vice chancellor, that the company owed any other debts except the complainant’s judgment. The appellants cannot complain, therefore, that the whole property has not been taken from the corporation and placed in the hands of a receiver. The order appealed from must be affirmed with costs.

p. 295

It was suggested upon the argument that an injunction had been granted, by which the officers of the corporation were deprived of the control of the whole property. Such an injunction should not be issued ex parte, on the certificate of a vice chancellor or injunction master out of court. But upon the appointment of a receiver of all the property and effects of a corporation, for the purpose of closing up its affairs, it is proper that the court should make it a part of the order, that the directors and officers of the corporation be restrained from collecting any debts or demands due to the company, and from paying out, assigning, or delivering any of the property, moneys, or effects of the corporation to any other person, and from incumbering the same. The affirmance of the order, therefore, is to be without prejudice to the right of either party to apply, to the vice chancellor, to have the receivership extended to all the property and effects of the corporation ; and to have an injunction granted in the proper form, if it has not already been regularly issued.

Order accordingly.