Atlantic Dredging Co. v. Beard

Ingraham, P. J.: The plaintiff brings this action as a creditor of a corporation organized under the laws of the State of West Virginia, known as the W. H. Beard'Dredging Company, to recover from the — 344 — defendants the amount of its claim against the dredging company, the individual defendants being members of a copartnership known as William Beard <& Co., and the directors of the West Virginia corporation. The defendant William Beard demurred to this .complaint upon the ground that there was a defect of parties defendant because the corporation, the dredging company, was not a party defendant, and the stockholders of the dredging company were not parties defendants that causes of action have been improperly united; and that the complaint does not state facts sufficient to constitute cause; of action. The- plaintiff thereupon made a motion to the Special Term upon, the pleadings, which motion was granted, allowing, however, the demurring defendant to serve an answer within twenty days,.upon payment of costs; and from that order the defendant Beard appeals. The complaint alleges that the dredging company was incorporated tmder the laws of the State of West Virginia; that chapter 53 of the Code of that State provided (§ 56) that the stockholders could at any time in general meeting resolve to discontinue the business of the corporation.; that, upon giving notice of such dissolution to the Secretary of State, the Secretary of State should file the same in his office, and should issue a certificate-under his hand and the great seal of the State, reciting such resolution and certifying that the said notice was duly published as required by the statute, and should certify to the clerk of the house of delegates the name of every such dissolved corporation, stating the date of the dissolution thereof, to be printed and bound with the acts of the Legislature; that, as soon as practicable after such resplution is passed, the stockholders should cause ample funds and assets to be set apart, either in the hands of trustees or otherwise, to secure the payment of all debts and liabilities of the corporation, and any creditor who supposes' his claim not to be sufficiently secured thereby might obtain an . injunction to prevent the distribution of the capital and a decree against, any stockholder for the amount of the capital received by him; and the court might appoint a receiver to take charge of and administer the" property and assets of the corporation; that (§ 59) when a corporation should expire, or be dissolved, its property and assets should, under the — 345 — order and direction of the board of directors then in office, or the receiver or receivers appointed for the purpose, he subject to the payment of the liabilities of the corporation, and the expenses of winding up its affairs; and the surplus, if any, then remaining should he distributed among the stockholders according to their respective interests. “And suits maybe brought, continued or defended, the property, real or personal of. the corporation, he conveyed or transferred under the common seal or otherwise, and all lawful acts he done, in the corporate name, in like manner and with like effect as before such dissolution or expiration; hut so far only as shall he necessary or proper for collecting the debts and claims due to the corporation, converting its property and assets into money, prosecuting and protecting its rights, enforcing its liabilities, and paying over and distributing its property and assets, or the proceeds thereof to those entitled thereto.” The complaint further alleges that the dredging company, in violation of said statutes of the State of West Virginia, thereafter transferred and set overall of the property of the said corporation to William Beard and Lavinia Beard, composing the firm of William Beard & Co., and that the plaintiff is and was at the time of the aforesaid acts a creditor of the said corporation in that, in the State of New York, the said corporation, the dredging company, hired from the plaintiff, and the plaintiff rented to it, on the 30th day of March, 1904, a certain scow containing a capacity of 495 cubic yards, known as No. “ A 17 ” for a period of eight days, to wit, from March 30, 1904, to April 7, 1904, inclusive, at the agreed price of two cents per cubic yard per day, thereby aggregating the total sum of seventy-nine dollars and twenty cents, and which is reasonably worth said sum and is justly due and owing by the said corporation to the plaintiff, no part of which has been paid, although duly demanded. There is a second cause of action based upon another indebtedness of the dredging company to the plaintiff amounting to $582.30; a third cause of action upon another indebtedness to the dredging -company amounting to $2,037.45, and a fourth cause of action based upon another debt of the dredging company to the plaintiff of $100; and the plaintiff demands judgment that the defendants account for the property of the dredg346 mg company transferred to them; that it be adjudged that the plaintiff have a lien on said property for the amount of its indebtedness, or that the said property be adjudged to be subject to said indebtedness of the plaintiff; and that the same be sold to satisfy the said indebtedness of the plaintiff, or that the said plaintiff have. judgment against the defendants for the amount claimed therein. The several causes of action to recover, for which this action is brought were based upon an indebtedness of this foreign corporation doing business within this State to a domestic corporation, which causes of action arose within this- State. The foreign corporation was dissolved and it surrendered its charter to the State of West Virginia, the sovereignty which had incorporated it. Its directors transferred and set over to the Beards, composing the firm of William Beard & Co., the whole of the property belonging to the dredging company, thus leaving the corporation without property to pay its debts. The dissolution of the dredging company, which is alleged in the complaint and admitted by the demurrer, actually terminated its existence, except so far. as it was expressly continued by the statute of the State of West Virginia. Its creditors, however, had a right to have its property applied- to the payment of its debts, and the duty was charged upon the stockholders of the corporation to set apart a sufficient amount of the property for that purpose. As between the corporation and its creditors the property of the corporation was a fund held by the corporation and- its officers in trust for the payment of its debts, and a creditor can, by a creditor’s bill, follow such property in the hands of any person who receives it with notice of the trust and of a violation of the law providing for the distribution of the assets of a corporation among its creditors. Ordinarily, as in other creditors’ actions, a creditor must exhaust his remedy at law. by obtaining a judgment against the corporation and the-return of execution unsatisfied; but where, by the act of the corporation or for any other cause it is impossible for the creditor to obtain such a judgment the creditor can maintain the action notwithstanding that no judgment has been obtained. Under the allegations of this complaint the corporation itself is dissolved. It is true that an action -could — 347 — be brought, continued or defended in lite manner and with like effect as before such dissolution or expiration, but only so far as it should be necessary or proper for collecting the debts and claims due to the corporation and converting its property and assets into money, prosecuting and protecting its rights, enforcing its liabilities and paying over and distributing its property and assets or, the proceeds thereof to those entitled thereto. Where the corporation has disposed of all its property without paying its debts and has discontinued its ordinary operations the right was not reserved to sue the corporation to recover for the amount of an indebtedness as that would be an idle and unmeaning ceremony. The debtor is a foreign corporation. Its creditor is a domestic corporation and is entitled to follow the property of the corporation into the hands of these defendants. This State has always protected its citizens in enforcing in then* favor the obligations of foreign corporations especially where the cause of action arose in this State. Obtaining a judgment in this State against this defendant corporation would be from- the fact alleged entirely useless if not impossible, and I do not think it should be held a prerequisite for a creditor to follow the assets of a corporation into the hands of those to whom they have been transferred. Nor do I think causes of action have been improperly joined. The action is brought to reach assets of a corporation. These assets consist of property transferred by the corporation to the defendant Beard and to money due to the corporation by its directors. I see no objection to a plaintiff uniting in one action various claims of the corporation against its officers or others which are applicable to the payment of the debts of the corporation to the plaintiff. There is but one cause of action, and that is to reach property of the corporation which is applicable to the payment of the plaintiff’s claim against it. Nor do I think the corporation is a necessary party defendant. The corporation has been dissolved and its charter forfeited. There is no receiver of its property or of the corporation, and it has no property except that ■ transferred by it to these defendants. By its dissolution it ceased to be an existing corporation, and, except in so far as its existence was continued by the laws of the State of West Virginia, no action — 348 — could either be instituted by it or maintained against it. The provisions of the West Virginia statute only authorízé suit to^. he brought, continued or defended, so far as it should be neces- . sary or proper for collecting the debts aiid claims due to the corporation, converting its property and assets into money, prosecuting and protecting its rights, enforcing its liabilities and paying over and distributing its property and assets or the !. proceeds thereof to those entitled theréto. There is no author- ^ ity here granted for a simple contract creditor to sue the corporation merely to establish the validity of its claims. This provision is quite different from that contained in the statutes of this State affecting domestic corporations, and which were applied in Cunningham v. Glauber (133 App. Div. 10). The creditor in that case concededly had a fight to sue the corporation. The action was to recover for a tort alleged to have been committed by the corporation against the plaintiff during its existence, and the action, was brought to establish the liability of the corporation for the tort as against the trustees who had succeeded to the property of the corporation and not. against the corporation. The1 difference between the two cases, it seems to me, is unmistakable. That was not a. creditor’s bill to reach assets Of a dissolved corporation, but an action to establish ah independent liability for a tort alleged to have/ .been committed by the corporation before its dissolution^ If the plaintiff is' denied this relief, it is difficult to; see how, it can ever obtain a-satisfaction of its claim' against this dissolved corporation, although these defendants may have in-their possession any amount of- money or property which had belonged to.the corporation and which was in effect a fund held in trust for the benefit of its creditors. It would be useless to send the plaintiff to the State of West Virginia, for all its property has been transferred to these individual defendants, who were citizens of this State, over whom the courts of' West Virginia could obtain no jurisdiction. No other action than the one now before us' could be brought in this State by which the property of the corporation could be reached. Certainly it is not the policy of this State to deny its citizens relief or refuse to enforce claims against a foreign corporation where property applicable to the payment of their claims is — 349 — within this State. The principle established in the case of General Railway Signal Co. v. Cade (122 App. Div. 106), I think; justifies this action, and although in that case the object sought was to obtain the specific performance of a contract to convey personal property, and not a mere money demand, the judgment asked for in this case is to enforce an equitable lien against the property of the corporation in the hands of these defendants. I think, therefore, the complaint alleges a cause of action and it was not necessary to make the corporation a party.' The order appealed from is, therefore, affirmed, with ten dollars costs and disbursements, with leave, however, to the defendant to withdraw the demurrer and to answer within twenty days on payment of costs in this court and in the court below. Clarke and Scott, JJ., concurred; Laughlin and McLaughlin, JJ., dissented.