Bliven v. Peru Steel & Iron Co.

Barrett, J. It seems to me to be very clear that this application should be granted. Neither a stockholder nor a creditor had a right thus virtually to dissolve the coiporation. It is well settled that such a decree is not warranted by the general or inherent powers of a court of - equity. The statute is the sole guide in such matters. The plaintiff Bliven filed his bill as a stockholder, although it is averred that he was a creditor as well. As a stockholder he was not entitled to a decree winding up the affairs of the corporation, and for that purpose appointing a permanent [283] receiver (Howe agt. Deuel, 43 Barb., 505; Ramsey agt. The Erie Railway Co., 7 Abb. [N. S.], 181; Gilmam agt. The Greenpoint Sugar Co., 4 Lans., 483; Galvey agt. U. S. Steam Refining Co., 36 Barb., 256; Denike agt. N. Y. and Rosendale Lime and Cement Co., Ct. of Appeals, see opinion Earl, J.) That wks said in Verplanck agt. The Mercantile Insurance Company (2 Paige, 438) to be a virtual dissolution of the corporation. So in Gilmam agt. The Greenpoint Sugar Company (supra), Itobaham, J., referred to Howe agt. Deuel (supra) as holding that in no case could a stockholder, except of a moneyed corporation, have a receiver appointed to take possession of the property of a corporation, “and thereby cause a forfeiture of the charter.” If a stockholder may proceed under that branch of the statute (3 R. S., 463, sec. 38) which provides for dissolution when the corporation has been insolvent for a year or has neglected or refused for a year the payment of its debts, or has suspended its business for a year, as to which we need express no opinion, still it is, to say the least, exceedingly doubtful whether the plaintiff made out such a case. He says, in his complaint, that a part of the indebtedness has been due for a year; but that is not the averment of insolvency for a year. He also says that his entire debt of $6,950 is now (that is, at the time of filing the bill) due, and that payment of the same has been demanded and refused, upon the ground of a lack of sufficient pecuniary assets. But he does not state when the demand was made, non constat it was within the year, perhaps the day before the filing of the bill. As to the suspension of business, the complaint falls far short of what the statute requires. A partial suspension will not do, nor, to quote the substance of the complaint, “apractical suspension to a great extent for the whole or greater part of the year.” Even the then present insolvency of the company was only in the sense of inability to pay its debts as they matured. There was in reality an excess of assets over liabilities, and [284] the reverse was made out only by the strange process of including the capital in the list of liabilities. The plaintiff was equally weak as a creditor; for nothing is better settled than this, that it is only a judgment creditor who can apply for sequestration under 2 Eevised Statutes, 463, section 36. It may be said that the company substantially assented to what was done. Even if that were so, the question of authority remains. The statute points out the means of effecting the voluntary dissolution of a corporation. Consent to a judgment not authorized by the statute cannot very well he substituted for the methods so prescribed. But, in truth, the company did not so consent. The proofs would seem to indicate acquiescence upon the part of some of the trustees in the appointment of a temporary receiver. As to the board, however, there is a conflict of evidence. However that may be as to the temporary receivership, it is quite evident that the plaintiff, Bliven, who was president of the company, acted upon his own responsibility in procuring the final decree. He had no authority from the hoard of trustees to proceed to this grave extremity. The present body would he derelict in its duty if it suffered the company to be thus practically wiped.out of existence. There was, in fact, no necessity for this iron-clad decree. What has been done could as well have been accomplished, certainly without any greater straining of the statute, under orders of the court to the temporary receiver. But even the exigency which undoubtedly prompted the plaintiff’s irregular action has ceased; for it now appears that the entire unsecured indebtedness of the company has been paid, with every reasonable prospect, one would think, from the receiver’s past success, of the payment at no distant period, of the secured indebtedness. Thus, the danger to be apprehended from judgments at law has passed away, and [285] the company is free to put its energies, facilitated by the receiver or other suitable agencies, to the work of complete and perfect rehabilitation. The payment of the unsecured indebtedness is admitted, but the present plaintiffs seeks to retain the judgment for their bonds, which is the form of the secured indebtedness. This will not do, for the reason that the complainant was entirely silent as to the bonds, and naturally so, because no part thereof was due when Bliven exhibited such complaint. He cannot now, nor can other bondholders, in a like position, be permitted to uphold this unauthorized and now really spent judgment, by a supplement entirely foreign to the grounds upon which it was obtained, especially as the papers disclose the fact that an original bill in due form has been filed, and is now pending on behalf of the bondholders; in which action his and their rights, with respect to the secured indebtedness, will be fully and adequately protected. That bill proceeds upon a different footing from the present. The bondholders have a specified lien, but -seemingly no present right to foreclose. Consequently they have a distinct equity to preserve the subject-matter of the lien, and, by the carrying on of the business temporarily through a receiver, to conserve that lien, and in due time render it practically available. So that even if the bondholders had become parties to this suit, which, in a legal sense, they have not, the non sequitur of such a supplement to the original bill herein is apparent. These conclusions cannot be affected by the individual action of one or more of the trustees. We have not, for instance, overlooked what is said as to Hr. Gunther’s general assent as to his agreement with Bliven, and in fact as to his course throughout. But his individual action or non-action could not bind the company, and the essential fact remains that this application proceeds from the company and its board of trustees. While we have been compelled to criticise the present action, we have no doubt that it was originally well intended, [286] and indeed that it has served a useful purpose. But the statutes of our state cannot be disregarded, however great or pressing the emergency. Still, the receiver has acted in good faith and he will be protected for whatever he has done under the orders of the court. Note.—The foregoing opinion is calculated to remove some misapprehensions which have obtained in reference to the power of a stockholder or creditor of a private corporation to procure the closing up of its affairs by a receivership. It should be read in connection with the provisions of title 3 of chapter 15 of the Code of Civil Procedure, which modify very much the rules heretofore applicable on this subject. The opinion points out that a stockholder or a creditor cannot, except under the statute, compel the dissolution of the corporation in this manner, even if the corporation do not resist the proceeding or substantially assent to the receivership. [286] We do not now definitively decide that the present action should be dismissed and the receiver directed to account, for such relief is not within the scope of the present application. But we think upon a review of the whole case, which is more or less involved in this motion, that the plaintiffs would do well to adopt that course, particularly in view of the satisfaction of the unsecured indebtedness and the pendency of the bondholder’s suit. If notwithstanding this recommendation they insist upon proceeding, the company will be permitted to answer or demur. If it answers it should have leave to set up the payment of the unsecured indebtedness and any other matters which have happened since the commencement of this suit by way of supplement, as well of course as any proper defense existing at the time of the commencement of this action. The order will therefore be that the motion papers be amended throughout by striking out the name of Charles Bliven as plaintiff, and inserting instead thereof the names of the executors, who it appears have already been brought in as parties plaintiff in place of said Charles Bliven, deceased. The order will further provide that the final judgment herein be vacated and set aside, and that the company bé permitted within twenty days either to demur or to interpose an original and supplementary answer. And further, with leave to the defendant to move at any time for the discharge of the receivership and for an accounting by Hr. Dominick and the closing up of his trust, so far as this suit is concerned Ho costs of this motion. Let the order be settled upon two days’ notice. The question whether a stockholder can proceed under the statute (3 B. 8., section 38; 3d Id. [6tA «?.], 748) on the neglect of the corporation for more than one year to pay its debts, &c.; or for the suspension of its business — a question not decided by the foregoing opinion—was passed upon by judge Daniels in Kitteridge agt. 'live Kellogg Bridge Co. (8 AVb. K. C, 168), where he held in the affirmative in respect to corporations organized under the general manufacturing laws, conceding, however, that the contrary rule was established by the act of 1870, which gave the power of thus proceeding to the attorney-general exclusively. Under the statutes existing previous to the adoption of the Code of Civil Procedure a clear distinction existed, recognized by the courts between an action to terminate the business and existence of the corporation, and an action to rescue it from danger of being terminated by unfaithful officers. The provisions of the Code of Civil Procedure in effect require that an action for the former purpose must be brought by the attorney-general exclusively, unless he omits for sixty days after due request to do so, in which case the creditor or stockholder who made the request may, with leave of court, bring the action. In respect to the second class of actions to overhaul the conduct and transactions of officers and remove them for misconduct, the Code of Civil Procedure allows the action to be brought by the attorney-general or, except when removal or suspension from office is asked, by any creditor or officer; but singularly enough does not recognize the right, which the courts have always recognized, of a stockholder to bring the action if all the officers refuse. There is a provision, however (Code of Cwil Procedure, sections 1808, 1986), by which, if under the foregoing rules, an action can only be brought by the attorney-general alone, he maybe retained for the purpose by a creditor, stockholder, director or trustee, and in such a case the action will be in the name of The People, on the relation of the person retaining him. Whether these provisions extending the power of the attorney-general are to be in effect an enlargement of the license and immunity of the managers of corporations, or whether they are to be an additional protection for stockholders and creditors, must depend very much on the discretion and fidelity of that officer. Apart from that it would seem doubtful whether justice is promoted hy refusing to allow stockholders and creditors to apply to the court to redress any wrong to the corporation which the officers refused to do; and it is a question whether all the advantages without the inconveniences would not be secured hy requiring a private plaintiff to make the attorney-general a party, and, if unsuccessful, pay his costs (See 1 Laws 1880, p. 756, c. 537).—[Ref.