Holshouser v. . Copper Co.

This is a proceeding under Laws 1901, ch. 2, sec. 73, instituted by the plaintiffs as creditors of the Gold Hill Copper Company to have a receiver appointed to take charge of its assets and apply them under the orders and directions of the court to the payment of its debts. It is alleged in the complaint that the company has suspended its ordinary business for want of funds to carry it on; that attachments have been *Page 179 levied upon its property, and sundry judgments have been (249) docketed against it, some of which are alleged to have been satisfied, though the fact does not appear upon the record; and that owing to the different dates and priorities of the liens and to the mixed character of the company's assets and the contest as to the payment of some of the aforesaid judgments, and generally to the complicated condition of its affairs, and the consequent difficulty of ascertaining the rights and preferences of creditors, it is necessary that a receiver should be appointed to preserve the property and save it from sacrifice by forced sale under executions. The answer denied some of the allegations of the complaint, but it is not necessary at present to do more than make a passing reference to the fact, as it does not affect the matter in dispute. The court appointed a receiver, and he has taken possession of the assets of the company, and, under an order of the court requiring him to do so, he has notified all creditors to come in and prove their claims, to the end that they may be passed upon and scheduled and then reported to the court. Numerous claims were presented and proved, and among others one in behalf of the State of New Jersey for the sum of $12,000 for what is called in its statute "a franchise or annual license fee" due for each of the years 1901, 1902, and 1903, that is, $4,000 annually. The defendant company was incorporated by the State of New Jersey, though it seems to have transacted all of its business in this State, where its assets are situated. A statute of New Jersey requires a corporation, receiving its charter from that State, to pay annually a license fee or franchise tax of a certain per centum on its capital stock, the amount in each case to be ascertained in the manner therein prescribed. It is further provided as follows: "Such tax, when determined, shall be a debt due from such company to the State, for which an action at law may be maintained after the same shall have been in arrears for the period of one month; such tax shall also be a preferred debt in case of insolvency." The receiver refused to (250) allow this claim of the State of New Jersey, upon the ground that "as a matter of law the claim of said State for $12,000 and interest, imposed for taxes upon the Gold Hill Copper Company for the years 1901, 1902, and 1903, is not provable in this jurisdiction." Counsel for the State of New Jersey excepted. This exception came on to be heard by Judge Cooke, who reversed the decision of the receiver in principle and made the following ruling: "The court finds that the State of New Jersey is entitled to prove a claim of $8,000, with interest from the date of this judgment, and it is so ordered and adjudged, and this claim has no priority over other claims proved against this corporation." The defendant, the Gold Hill Copper Company, and two of its unsecured creditors, James Phillips and Walter G. Newman, excepted to *Page 180 this judgment upon the ground that the claim is not provable in this proceeding, it being a claim of a foreign creditor or nonresident against a foreign or nonresident corporation, and the court has no jurisdiction, as the cause of action did not arise and the subject of the action is not situated in this State, within the meaning of section 194 of The Code, forbidding such actions to be brought in the courts of this State. The State of New Jersey excepted to the judgment, upon the ground that it was entitled not only to prove its claim and have it paid in this proceeding, but was also entitled to priority in payment out of the assets of the company over all of its creditors, whether holding liens by attachment, judgment, or otherwise, it being by the very terms of the statute a preferred debt. Having thus excepted, the said parties appealed to this Court, the Copper Company and its two creditors above named uniting in their appeal. APPEAL OF NEWMAN AND PHILLIPS. After stating the facts in both appeals: The Copper Company and the two creditors who have appealed contend that the claim of the State of New Jersey is not provable in this suit, as its cause of action did not arise in this State and the subject of its action is not situated here, and they rely on the provision of section 194 of The Code. We do not think that section applies in the way indicated by the appellants. The cause of action in this proceeding is that of the creditors of the Copper Company, and consists not only in the failure of the company to meet its obligations, but in the suspension of its ordinary business, which entitled the creditors to have its assets placed in the hands of a receiver for the purpose of being applied to the payment of its debts. This proceeding is equitable in its nature, and the jurisdiction of the court in respect to the claims of the creditors of the corporation must be determined, not by regarding it as a suit by each one of them for the purpose of recovering his debt, as if he had brought an ordinary civil action wherein the liability would be fixed by judgment and enforced by execution, but the cause of action must be considered as one belonging to the creditors, who have the right under the statute, if not on general principles of equity, to have all the assets of the concern placed in the possession of the court, through its duly appointed officer, to the end that the rights of all parties therein may be ascertained and distribution made accordingly. It has become the settled *Page 181 rule in this country that the assets of an insolvent corporation constitute a trust fund for the payment of its debts, and the remedy of its creditors by action in the nature of a suit in equity, or by what is called a creditor's bill, to have the assets administered for their benefit, is firmly established. Hill v.Lumber Co., 113 N.C. 173; Bank v. Cotton Mills,115 N.C. 507. The cause of action is the right which arises out of the default of the corporation, thus to proceed against it for (252) the purpose of applying its property to the satisfaction of its debts, and the subject of the action is the assets themselves, which are taken into the custody of the court for the purpose of enforcing the equity of the creditors. It is not like an ordinary action for the recovery of a debt, in which the cause of action is the default of the debtor and the subject of the action is the claim or debt for which he sues. The latter cannot be maintained by a nonresident against a foreign corporation, under section 194, unless the cause of action arose in this State or the subject of the action has its situs here. So it has been held that, when an ordinary action for the recovery of a debt is brought by a nonresident against a foreign corporation, and the cause of action did not arise in the State of the forum and the subject of the action is not situated there, the court has no jurisdiction, though property in that State belonging to the debtor is attached, as the attachment is ancillary to the main action and the property upon which it is levied is in no sense the subject of the action. In our case, however, the proceeding is directed against the property as a fund held by the corporation in trust for its creditors, and though they have no lien upon the assets of the corporation, but a right of priority in payment over the stockholders, as explained by MacRae, J., in Bank v. Cotton Mills, supra, their suit to subject the assets to the payment of their claims is somewhat analogous to a suit in which it is sought to impress property with a trust in behalf of a creditor and to enforce payment of his debt out of it, and so far as the question now being considered is concerned, it is not in principle unlike a suit to foreclose a mortgage or to have administered in behalf of creditors any property or fund specially set apart by their debtor as a security for their claims. In all such cases, where the property is situated in this State, suit can be brought here under section 194 of The Code. In the case at bar, when the receiver was appointed and notice was issued under the order of the court to (253) creditors, those who came in and proved their claims joined with those who had originated the suit in one common cause against the defendant, and while in a certain sense the action may be considered as instituted for and in behalf of each of the creditors, it is nevertheless the joint action of all, and it would be strange indeed if the jurisdiction of the court in such a case could be made to depend upon what would *Page 182 have been an inherent defect in the cause of action of any one of the creditors if his action had been prosecuted separately and solely for the recovery of a personal judgment to be enforced by an ordinary execution. We cannot adopt the construction suggested by counsel, but must hold, on the contrary, that in a case like this one the jurisdiction of the court must be determined by the general scope of the relief sought, without reference to the character of any particular debt which may be proved before the referee. In this connection, the language of the Court, speaking by Danforth, J., in McKinney v. Collins, 85 N.Y. 221, and construing similar words in The Code of that State, seems applicable: "It is therefore apparent that the phrases `cause of action' and `subject of action' are not used interchangeably or as synonyms. It is not easy to define their precise meaning, but it seems apparent they relate not to an action at law, though to one which formerly would have proceeded in equity; the object being to give some specific relief rather than a simple judgment against a person, as in an action to cancel a mortgage upon the ground of usury, or to enforce specific performance, or to attain such relief as by the rules of the common law was denied to the suitor in its forum — certainly not an action where the only relief sought was a judgment upon contract for the payment of money." We are not required to assent to the view that the words of the statute should be confined strictly to suits cognizable formerly by courts of Equity, as it is sufficient for our purpose that, in the case cited, the (254) jurisdiction of the court is conceded where a fund is brought under its control to be administered for the benefit of creditors, even if some of the plaintiffs are nonresidents. The ruling of the court that the claim of the State of New Jersey is provable in this case was, in our opinion, correct. No error. APPEAL OF THE STATE OF NEW JERSEY.