In re Majority of the Directors of The Murray Hill Bank

Rumset, J.: On the 11th of August, 1896, the Bank Superintendent, claiming to act under the authority of the statute, closed the doors of the Murray Hill Bank, a banking corporation located and doing business in the city of New York, and proceeded to an examination of its property and assets. The result of that examination was that the Superintendent of Banks concluded that the corporation was insolvent, and requested the Attorney-General to commence an action for its dissolution and for a distribution of its assets, in the manner provided by law. For various reasons this action was not — 320 — commenced until about the 31st of August, 1896. Shortly before that date, and on the twenty-eighth of August, a majority of the directors, claiming to act under the authority of. section 2419 of the Code of Oivil Procedure, filed and presented to the court a petition, in the form provided for by that section and the subsequent sections on that subject, seeking to obtain the voluntary dissolution of the corporation. An application was on that day made to the Special Term in the first district, and, it having been made to appear that the corporation was insolvent, Messrs. Trask and , O’Brien were appointed temporary receivers and directed to take possession of its assets. In the suit of the People against the bank, which for some reason was brought in the second district, although the corporation was located and did business in the first district, and all its'assets were situated in .that district, a motion was made by the Attorney-General on the eleventh of • September for an order appointing receivers’ of the bank.' Upon this motion coining on to be heard, it was made to appear to the court that receivers of. the bank had already been appointed, but the court, brushing aside that objection, proceeded to appoint other receivers. The Attorney-General appealed from the order of the Special Term in. this proceeding appointing receivers to the Appellate Division in this department, and the bank appealed from the. order of the Special Term appointing receivers in the Attorney-General’s action to the Appellate Division in the second department. When the appeals came on to be heard, the order of the Special Term appointing receivers in this proceeding was affirmed, and the order of the Special Term appointing receivers in the action brought by the People was reversed, the question presented in each case being substantially the same, and that is, whether this proceeding for the voluntary dissolution of the banking corporation could be taken by the directors after the property and assets of the bank had been sequestrated by the Bank Superintendent, and whether, having been begun, it could be maintained after the People, through the Attorney-General, had brought an action for the dissolution of the corporation. This question was answered in the same way in both departments. (Matter of Murray Hill Bank, 9 App. Div. 546 ; People v. Murray Hill Bank, 10 id., 328.) As a result of the decision the appointment of the receivers in the Attorney-General’s — 321 — action was set aside, and they ceased to have any standing as receivers of this corporation in this court. The appointment of the receivers in these proceedings was affirmed and their authority continued as' such. At this time, therefore, the situation of affairs was that the Attorney-General’s action was pending in the second district, hut there were no receivers who had been appointed in that action. In the first district there was pending this special proceeding, in which receivers had been appointed and had qualified, but the assets of the hank which still remained in the possession of the Banking Superintendent liad not been turned over to them. An answer was then interposed in the People’s action in the .second district, but upon motion it was adjudged frivolous, and judgment was ordered on account of the frivolousness of the answer, dissolving the corporation and granting the People the relief asked for in that complaint. An appeal was at once taken from that order to the Appellate Division of the second department, where the order was affirmed, but in the opinion handed down upon the affirmance of the order it was expressly stated that permanent receivers ought not to be appointed until the determination of the proceedings for a voluntary dissolution in which temporary receivers had before that time been appointed. Notwithstanding this plain intimation in the opinion of the Appellate Division, upon an application made to the same judge who had granted all the orders in the People’s action in the second district, he proceeded to direct a judgment to be entered dissolving the corporation and appointing as permanent receivers to distribute the assets of the bank the same persons whom he had before appointed as temporary receivers. A motion was at once made in the Appellate Division to resettle the order of affirmance,, which was done so that the order contained an express command not to appoint permanent receivers in that action until such time as this, proceeding had been discontinued or dismissed, and upon motion at the Special Term the judgment theretofore granted was amended by striking out the direction for the appointment of receivers and substituting an express direction that the Attorney-General might apply at the foot of the judgment for the appointment of permanent: receivers when such proceeding should be dismissed or discontinued. The situation, therefore, was then as follows: This pro — 322 — ceeding was still pending in the first district and temporary receivers were in existence, although they had not yet possession of the assets of the bank. A judgment had been entered in the People’s action in .the' second district dissolving the corporation, but no receiver had been appointed pursuant to that judgment. The temporary receivers who had been appointed in that action have been removed by the Appellate Division of the Supreme Court in the second department, and although they were holding a portion of the assets, yet they were doing so without any existing title, being in possession of them, so far as appears, simply because no effort had been made to take the assets out of their possession since the reversal of the order by which they were appointed temporary receivers. Ho order had been made in this proceeding either discontinuing or dismissing it. Upon that condition of affairs the temporary receivers appointed in this proceeding made a motion at the Special Term for an order, compelling the persons who had been, but who had ceased to be, receivers in the People’s action, to turn over to the receivers in this proceeding the assets which they had received under their appointment as temporary receivers in the action of The People v. Murray líill Bank. That motion was granted, and the People, through the Attorney-General, and the peiv sons who had been ajipointed receivers in the People’s action and the Bank Superintendent take this appeal. So far as the law is'concerned, it must be deemed to be settled that the action of the People for the dissolution of this.corporation and the voluntary proceeding of the directors having the same end in view, may be carried on together. (People v. Seneca Lake Grape & Wine Co., 52 Hun, 174; Matter of Murray Hill Bank, 9 App. Div. 546.) It must also be deemed to be settled that this proceeding for the voluntary dissolution of a banking corporation was properly conn menced by a majority of the directors, and the court has jurisdiction to entertain it although it was begun after the Attorney-General has sequestrated the assets of the corporation under the statute, on account of its insolvency. (Cases cited, supra.) But the fact that those propositions of law are settled does not enable us to dispose of the questions presented by this appeal, because those questions do not involve the status of the respondents as receivers under this vol — 323 — untary proceeding during tlie pendency of the action and the special proceeding which have thus far run along pari passu, but they must be decided upon a consideration of the condition of these two proceedings after judgment of dissolution had been entered in the action of The People v. The Murray Hill Bank, and while no further action has been taken in this proceeding except to make the order appealed from. It is claimed by the appellant that, as the result of the judgment in the action in the second district which adjudged that 'the corporation was dissolved, all proceedings to that end pending in this district came to an end, and any step which was attempted to be taken in these proceedings after that time was void, and that the court had no jurisdiction to take it. whereas it is claimed on the other hand by the respondents that the proceeding taken here, having for its object the dissolution of the corporation and the distribution of its funds, might continue to a final order, in which the fact of the dissolution should be adjudged again, and steps taken by the appointment of permanent receivers for the distribution of the assets of the corporation, in spite of the fact that a judgment of dissolution had already been entered. It is claimed by the respondents that such a condition of affairs was provided for by the judgment of dissolution entered in the second district, but we are of the opinion that in that claim the respondents are mistaken. That judgment does not in any way indicate the opinion of the court there that the assets should be distributed in this proceeding. On the contrary, so far as it indicates any opinion on the subject, it would seem to be that the' court supposed that this proceeding would be discontinued or dismissed upon application, and thereupon the Attorney-General was given leave to apply at the foot of that judgment for the appointment of permanent receivers. The provision of the judgment is that such leave should be given to the plaintiff in that action, or to the Attorney-General, to apply for the appointment of permanent receivers in that action, when by an order made in the first district these proceedings should be adjudged to be discontinued and dismissed; from which it would seem fairly to be inferred that it was understood by the court in that district that no further steps should be taken in this proceeding after the judgment for dissolution had — 324 — been entered .there. We are, therefore, forced to consider what is the necessary effect of a judgment dissolving a corporation upon these proceedings for its voluntary dissolution. It is well-settled law in this State that the dissolution of a corporation by judgment to that effect entered in an action against it terminates any action or proceeding then pending by or against it, and that all subsequent steps taken in such action or proceeding are-void. (McCulloch v. Norwood, 58 N. Y. 562 ; Sturges v. Vanderbilt, 73 id. 384.) If this proceeding for a voluntary dissolution can be said in any just sense to be a proceeding by or against a corporation, then we think-it comes within the rule stated in the cases just cited, and that no further steps can be taken in it, but that it is abated without any further order of the court. Whether it is or not a proceeding by or against a corporation, so that this principle applies, is the matter to be discussed. It is apparent at first blush that while the corporation is not a party eo nomine to proceedings taken, for its voluntary dissolution, so that it is rightfully entitled to notice of every step that shall be taken in those proceedings, yet that the corporation considered as an entity is directly interested in the effect of these proceedings. They are taken for the express purpose of putting an end. to its corporate existence, and to distribute its assets. They are begun by persons acting' in the interests of the corporation (Drew v. Longwell, 81 Hun, 144,146), and except in one particular instance they can only be taken by the action of a majority of the directors who must act in this case as in every other case where steps are taken in behalf of the corporation. -Notice of them is required to be given to every stockholder and creditor of the corporation. Upon the filing of the petition, any transfer by the corporation.of its property in payment of or as security for a debt or a judgment confessed by it, is void as against the creditors of the corporation. If the corporation is claimed to be insolvent, the Attorney-General may apply to- the court for the appointment of a receiver in these proceedings, but by the express provision of the statute this application can be made only upon-notice to the corporation. In all these proceedings the corporation is directly interested, and the necessary effect of the proceedings is to put an end, if successful, to its existence. It must be, therefore, that the proceeding is one which, taken by a majority of its direct — 325 — ors, is directed against the corporation, and that it comes within the principle stated above, as to actions of proceedings of that nature.. The object of the proceeding is to dissolve the corporation. The only question to be considered upon the hearing before the referee is, whether, for any reason, the corporation should be dissolved ; and the only order that can be made, if the proceeding is well taken, is a final order dissolving the corporation, and appointing receivers. (Code Civ. Proc. § 2429.) If a judgment dissolving the corporation has already been entered, the object of this proceeding is certainly accomplished, and no reason is apparent why it should further continue. The intention of the statute, in permitting proceedings of this nature to be taken in the case of a corporation,, clearly was to afford an opportunity for its dissolution amicably, for reasons other-than those for which the Attorney-Q-en eral was compelled to bring an action to accomplish the same end. It' was not the purpose of the Legislature to take away from the People the right to maintain such an action, nor was it their object to permit this proceeding.after a judgment of dissolution, leaving that judgment of dissolution to operate simply as evidence to be used in this proceeding that the corporation had already ceased to exist. When once there had been a final judgment dissolving the corporation, there is no reason why any other action or proceeding, having in view the same purpose, should longer be permitted to continue. The effect' would only be to complicate the affairs of the corporation and to create a conflict of jurisdiction which might result in discredit and scandal to the courts. It is said, however, that a hearing has been had in this proceeding and- a motion for final order made therein, and this final order is relied upon as an ad judication that these proceedings were not abated by the judgment of dissolution entered hi the second district In' answer to this claim it must be said that there is nothing in the papers in this case to show that any such proceeding has been taken, or any such final order has been'made. If it should be made to appear subsequently that any such thing has been done, it will then be our duty to decide as to the effect of it; but, in the absence of any such proof, the question now presented must be decided upon principle only. We conclude, therefore, that the voluntary proceedings abated by the entry of judgment of dissolution in the — 326 — action pending in the second district. The persons appointed as-receivers in this proceeding did not, because it had abated, cease to be receivers of the bank as to the assets which they had already received, so far as it was necessary for them in that capacity to protect those assets, or so far as -to make them accountable for what they might do in regard to them. (High on Receivers, § 833.) But we do not think that their powers continued to such an extent as to give them the right to take away from other persons,, who had lawfully come into the possession of the assets of the bank,, the property Which they had received in that relation. It appears that Messrs. Hobbes and Odell, who had been appointed receivers in the People’s action in the second district, had received, as such, assets-of the corporation which were still in their hands. While these gentlemen had ceased to be receivers, because the order appointing them.had been reversed, they stood in relation to such assets in precisely the same situation as the respondents were standing in relation to any assets they may receive. They are no longer active receivers-for the purpose of procuring other assets, but they are bound to protect the assets which they already have until they shall be taken out of their possession by an order of the court and given to some-person who has a better right than they to hold them. That better' right can only exist in connection with some valid appointment in a pending proceeding. After the judgment of dissolution had been entered the respondents had no such right that we can discover. For that reason it was error, as we think, to make the order appealed from requiring those who -had formerly been receivers in the People’s-action to deliver over assets in their hands to these gentlemen who had formerly been receivers in this proceeding which has now abated. • The result of our examination is that this order must be reversed,, but, under the circumstances, without costs. Yan Brunt, P. J., and Barrett-, J., concurred; O’Brien and Ingraham, JJ., dissented.