In re Hamilton Park Co.

O’Brien, J.: This is a proceeding for the voluntary dissolution of a corporation under sections 2419 to 2431 of the Code of Civil Procedure. On the 2d of November, 1895, the court appointed a temporary receiver of the corporation, and enjoined all creditors from commencing or continuing actions against the company. Prior to the [376] commencement of this proceeding the corporation mortgaged all its property to the Union Trust Company as trustee to secure an issue of sixty-five bonds of $1,000 each. The company defaulted in the payment of the principal and interest of such bonds, and more than a year after such default, and in July, 1895, the trust company commenced suit in the Supreme Court to. foreclose the mortgage. The company answered, and the case was placed upon the calendar for trial, and when reached an order of reference was taken by default. Thereafter the trust company received an order entered in this proceeding, restraining it from proceeding with the foreclosure suit. The trust company moved to modify the injunction, which motion was denied, and from that order the trust company appeals. It is insisted that the court had no power to restrain the foreclosure, and if this insistance is sustained a reversal must result. This proceeding is a purely statutory one, and the court’s power and authority to act must be conferred by statute. It is conceded that the only statutory authority is that embodied in section 2423 of the Code of Civil Procedure, which provides: “ If such receiver (referring to a temporary receiver) be appointed, the court may, in its discretion, on like motion and notice, with or without security, at any stage of the proceeding before the final order, grant an injunction restraining the creditors of the corporation from beginning any action against the said corporation for the recovery of a sum of money, or from taking any further proceedings in such an action theretofore commenced.” The question is thus narrowed down to the one as to whether a suit to foreclose a mortgage, wherein a deficiency judgment is asked, is an action for the recovery of a sum of money within the meaning of the statute. This, we think, must be answered in the negative. The words used in this section of the Code, just as does similar language used in other sections (for instance, section 968, providing for issues to be tried by a jury), refer, as the language imports, to the ordinary common-law action brought for the recovery of a sum of money. The foreclosure of a mortgage has always been held to be a suit in equity, and the fact that, as an incident thereto, the court has jurisdiction, where such relief is asked, to award a judgment for deficiency, does not alter the character of the action. We have been referred to some authorities wherein expressions in the opinions might be [377] regarded as intending to convey the idea that courts of general jurisdiction, such as the Supreme Court or the Court of Common Pleas could, in a proceeding of this kind, restrain any action; but here, as in all other cases, the opinions are to be read in the light of the questions in zolved and the facts of the particular case, and then any doubt that might otherwise exist as to the limitations upon the power and authority of the court, is removed. The cases of Walling v. Miller (108 N. Y. 173); Woerishoffer v. N. R. C. Co. (99 id. 398), and Matter of Schuyler's S. T. B. Co. (136 id. 169), relied upon to support the order here made, are authorities for the proposition that a court having power to appoint, and which appoints, a receiver of the assets of an insolvent corporation, may, in aid of that appointment, forbid any after interference, by way of levy and seizure by attachment or execution, with the property in his possession. In the Walling case, where a creditor obtained a lien by execution, the judge writing the opinion in sustaining the power of the court to enjoin proceedings iqion the execution, among other things, said: “ But persons having liens upon the property had no right to interfere with its possession by the receiver, and without any application or adjudication of the court sell and dispose of it, and thus dissipate it and deprive the court of jurisdiction to administer it.” In the Woerishoffer case the court said of a restraining order: “ Its sole effect, as against the appellant, is to prevent a seizure under process issued in its action, of assets already seized by the court, and held as well for the appellant’s benefit as for that of the other creditors.” And in the Matter of Schuyler S. T. B. Co. the court, in confirming an order obtained by a receiver restraining a creditor from enforcing a libel filed against certain vessels in the interim between the appointment of the receiver and the filing of his bond, said: “ Our decision here does not affect the legal rights of the libellants. * * * The receiver will be obliged in this proceeding to distribute the proceeds arising from a sale of the property among the creditors of the corporation as their priority of rights may appear and be held valid.” It will be noticed that in all these cases the purpose sought was to recover a sum of money out of the assets of the corporation which by the order appointing the receiver had passed into the latter’s [378] hands, and it was to prevent the taking of any such assets from him, and to prevent creditors, by running up bills of costs and by multiplying actions, from interfering with the receiver or harassing him in the discharge of his duties, that in such actions the courts interfered. We venture to assert, however, that no authority can be found favoring the view that where, under a contract made with a corporation prior to the appointment of a receiver, a mortgage is given to a trustee to secure bondholders, or collateral security is given for a debt, the exercise of the right of the trustee to foreclose the mortgage, or of the creditor to resort to the collateral or sell the same, has been enjoined. As to the right of the trust company here to foreclose, or as to the propriety of the exercise of such right, there can be no question. By the terms of the mortgage, upon the happening of the contingency provided for therein, namely, the default, the trustee had the absolute right to foreclose the mortgage, either with or without taking possession,, and unless the statute expressly conferred upon the court authority to interfere with the exercise of such right, it could not do so. As we have seen, its power is restricted to actions brought for the recovery of a sum of money, and, as already said, we do not think a foreclosure suit falls within that category. In the latter suit the prayer is not simply for a personal judgment for a sum of money, but for a sale of the mortgaged property ; it is attempting by legal process to do what the trustee had the right to do by taking possession and selling the property without the interposition of a court of equity. Without, however, further discussing the question, we think there is one case which in principle is controlling, that of In re Binghamton Gen. Elec. Co. (143 N. Y. 261), wherein the court construed the statute under consideration. There a trust company loaned money to the electric company, and as collateral security the electric company pledged certain bonds, obligations of that company. The directors of the latter instituted proceedings for its dissolution, and obtained an order restraining the trust company from disposing of the bonds pledged as collateral to the loan. The Special Term granted an order modifying the injunction, which the General Term reversed. The Court of Appeals said: “We are of opinion that the order of the General Term should be reversed. This proceeding is purely statutory, and the terms of the [379] order appointing the temporary receiver and the scope of its injunction clause are defined by section 2423 of the Code of Civil Procedure. The court is empowered to restrain the creditors of the corporation from bringing any action against it for the recovery of a sum of money, or from taking any further proceedings in an action theretofore commenced. There is nothing in the statute under which this proceeding was instituted authorizing the court to restrain the creditors of the corporation from disposing of its bonds held as collateral to loans under lawful contracts empowering them to sell. It has long been the settled law of this State that the jurisdiction of chancery does not extend to the sequestration of the property of a corporation by means of a receiver. * * * It follows that the authority of the court in this proceeding must be found in the statute, and not in its general equitable powers. It is obvious that every lien upon the property of a corporation resting upon valid agreement or process before the appointment of a receiver, the lienor being lawfully in possession, must be preserved with the right of enforcement, unless courts and legislatures are to override the vested rights of creditors. This general principle has been repeatedly recognized and approved by this court. * * * In an early case in this State, Chief Justice Spencer, in discussing the rights of a secured creditor as bearing upon those of junior or unsecured creditors, said: ‘I know of no principle of equity which can take from him any part of his security until he is completely satisfied.’ ” We agree with the appellant that in principle this case is not to be distinguished from the case at bar, and, therefore, is controlling. The order should, therefore, be reversed, with ten dollars costs and disbursements, and the motion to vacate the injunction granted, with ten dollars costs. Van Bbunt, P. J., Rumset, Williams and Patterson, JJ., concurred. Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.