Smith v. New York Consolidated Stage Co.

Cardozo, J. This case is directly within the authority, and must follow the disposition of Abbot a. The American Hard Rubber Co. (33 Barb., 578). If the company be regarded as solvent, the case is extremely plain. The directors were chosen-to manage the business of the corporation, not to destroy it. And yet, without the concurrence of the stockholders, they do an act which substantially terminates, for all practical purpose, at all events, the existence of the company. All its property is transferred to an assignee, and the company is left without any thing but a name. The act in the language of Judge Sutherland was “ void as to the plaintiffs and other stockholders not consenting.” In the language of Judge Allen “it was ultra vires.” It seems superfluous after the elaborate examination by Judges Sutherland and Allen in the case I have quoted, to review the authorities, or attempt to add any thing to the reasons which they have so well expressed in support of the doctrine, that such an act is beyond the power of the directors. If the corporation were solvent, the act of the directors being ultra vires, was in contemplation of law, although, perhaps, not so intended, “ a fraud upon the stockholders of the company,” as charged in the complaint. I do not understand that such an action as this cannot be maintained except in the name of the company. It was maintained by a stockholder in Abbot’s case, and as the transfer is void as to the stockholders,—and they are ultimately the real parties in interest,—I see no reason why they may not have a standing in court to have it so declared. — 422 — Whether the corporation must not be before the court is quite another question; and as it is a party-defendant here, that is a question which does not arise in this case. I do not understand Robinson a. Smith (3 Paige, 233) to hold that the action cannot be maintained except by the corporation, but only that as plaintiff, or defendant, it must be before the court. This disposes of the present application. But, perhaps, it may be proper to add that after my careful consideration of Mr. Lamb’s affidavit, the conclusion is irresistible that this transfer was made in contemplation of insolvency, and is therefore void. (2 Rev. Stat., 5 ed., 600.) I think no one can read Mr. Lamb’s affidavit, which substantially declares that the company was largely in debt; and that suits were pressing upon it; and that it had no money to discharge its obligations; and that this .transfer was resorted to with a view to have its affairs judiciously nursed, without being impelled to the conclusion that" the company was believed to be insolvent. Unable to pay its debts it certainly was, and Mr. Lamb’s statement as certainly indicates his belief in its insolvency. In whatever aspect, therefore, this case can be viewed, the act was void, and it must be so declared, and a receiver appointed. But I do not think it best to adopt the view of the plaintiffs’ counsel, and send it to a referee to appoint a receiver. It was suggested by one of the counsel that there might be considerable difficulty in determining who should be the receiver. And if there is likely to be a contest about it, I think it best to have that matter directly before the court. Upon the settlement of the order, however, which may be on one day’s notice, the parties can suggest the names of suitable persons to be the receiver ; and I will determine that matter, and then send it to a referee to have the assignee account and convey to the receiver. Motion granted, with $10 costs to the plaintiffs. II. January, 1865.—Settlement of the order appointing a receiver. — 423 — The order under the above decision was not immediately settled or entered. The Supreme Court, on the 17th of December, 1864, granted a writ of prohibition restraining the Court of Common Pleas from proceeding in this action. On the 19th and 20th of the same month Mr. Schell as assignee commenced a suit against each of the plaintiffs in this action and others, on béhalf of the company. On thp 22d of December a suit was brought in the Supreme Court by one John Siney, a stockholder, for substantially the same relief and on the same causes of action, and against the same defendants, as in the present action; and on the 24th, by the consent of all the parties to that action, Mr. Schell was appointed receiver, the order being dated as of the 23d. The court having directed that Kerr and Smith, the plaintiffs in this action, should be heard before Mr. Schell entered on the discharge of his duties as receiver, the matter was argued on the 27th of December.* On the 6th day of January, 1865, the writ of prohibition was quashed, and the order, appointing Mr. Schell receiver in that suit modified, by appointing John Murphy in his place.† On the same day the following opinion was rendered, in this action, appointing John Murphy receiver. The various other names proposed by the parties appear in the opinion. The order appointing him was antedated as of the 12th of December, the day of the decision of the motion to appoint a receiver. Cardozo, J. The counsel for the plaintiffs having served me with an order quashing and vacating the writ of prohibition granted by the Supreme Court, requests me to proceed to discharge my duty to settle the order herein. I shall say a few words in regard to the selection of. a receiver. First. As to the names suggested on behalf of the defendants. After having decided that Mr. Chester Lamb had either been guilty of a breach of trust, or a clear violation of law, it is not likely that 1 should immediately confer another trust upon him. — 424 — Mor is it reasonable to expect me to appoint Mr. Schell. He is a lawyer, and must certainly be presumed to have known that the assignment to him was either a fraud or a violation of an express statute, and having assented to be the assignee under such circumstances, it is unreasonable to ask the court to make Mm the receiver. Eecorder Hoffman is my personal friend. I have the highest respect and esteem for him. And that respect and esteem prevent my appointing him. The indelicacy of his appointment in this case is so manifest that I am quite certain his name has not been suggested with his concurrence. Mr. Oliver Charlick I know from having when at the bar argued a case as counsel on his behalf. I believe him to be a gentleman of character and capacity, but my personal acquaintance with him is not sufficient to justify me in appointing him against the objection of the plaintiffs. As to the gentlemen proposed by the plaintiffs, I have only to say that I am not aware that I have any personal acquaintance with either of them, and'as they are not assented to by the defendants, they must also be rejected. It devolves upon me, therefore, to - select a receiver myself, and I have concluded to tender the place to John Murphy, Esq., the receiver of taxes. An additional reason for selecting Mr. Murphy is that I. am informed that the Supreme Court in a similar suit has also appointed him. IH. January, 1865.—Motion to punish for contempt. Subsequently, on the 18th day of January, an order was granted against Mr. Schell, to show cause why he should not be punished as for a contempt for commencing the suits above-mentioned as assignee. Those suits were brought by him to recover from Smith and others the amount of dividends which it was alleged they had declared unlawfully, whereby as officers of the corporation they became liable, under the statute. The motion was argued on the 21st of January. A. R. Lawrence, Jr., for the plaintiffs. I. It is a contempt of court to violate an order of injunction granted in a case in which- the court has jurisdiction. (People a. Spalding, 2 Paige, — 425 — 326; Sullivan a. Judah, 4 Ib., 444; Mayor, &c., of N. Y. a. Conover, 5 Abbotts' Pr., 244; People a. Compton, 1 Duer, 512; People a. Sturtevant, 5 Seld., 263; Ross a. Clussman, 3 Sandf., 676; Neele a. Osborne, 15 How. Pr., 81.) II. It is the duty of a party served with an injunction to direct the officers of the court, and others who act in the proceedings at his instance and under his control, to delay further steps in the matter pending the' injunction. (Mayor, &c., of N. Y. a. Conover, 5 Abbotts' Pr., 244; Neele a. Osborne, 15 How. Pr., 81; People a. Compton, 1 Duer, 512; People a. Sturtevant, 5 Seld., 263.) III. And the court on a proceeding against the party for a contempt will not -look into the merits of the cause to see if the injunction was properly issued. (People a. Spalding, 2 Paige, 326; People a. Sturtevant, 5 Seld., 263; Sullivan a. Judah, 4 Paige, 444.) IV. It is no answer where the rights of an adverse party are involved, that the violation of the injunction was committed under the advice of counsel. (Hawley a. Bennett, 4 Paige, 163; Ragen a. Patterson, 4 Ib., 450; Lansing a. Easton, 7 Ib., 364; Capet a. Parker, 3 Sandf., 662.) Y. The party applying to the court to punish a party for a breach of an injunction in the nature of a civil remedy, must show that he has some interest in the subject-matter of the injunction, or has a right to prosecute for breach thereof. (Hawley a. Bennett, 4 Paige, 163.) In this case it is apparent that the plaintiffs are interested in the subject-matter of the injunction, and have a right to prosecute for a breach thereof. VI. If the defendant does not appear at the day appointed, or at such other day as may be afterwards designated for that purpose, or if he appears and does not deny the alleged misconduct, the court may at once proceed to make a final decision, that the defendant has been guilty of the offence charged, and to award the punishment directed by the statute. (Crary, 397.) VII. In respect to the punishment to be inflicted for misconduct which has been productive of actual injury to the relator, the court has no discretion, but must impose a fine sufficient to indemnify the party for the injury, and for his costs and expenses. (2 Rev. Stat., 538, § 21; Lansing a. Easton, 7 Paige, — 426 — 364; People a. Compton, 1 Duer, 513; Ross a. Clussman, 3 Sandf., 676.) VIII. If the misconduct has not produced any actual loss to the relator, yet, if the violation of the injunction was wilful, the contempt is criminal and may be punished according to the aggravation of the case. (People a. Compton, 1 Duer, 512.) In such case the court may impose a fine of not exceeding $250, imprison the accused for a term not exceeding six months, for no other purpose than that of punishment, (Ib.) Where no actual loss is sustained by the relator, and the contempt is not of such a nature as to be punished as criminal, the relator is only entitled to his costs and expenses. (People a. Compton, 1 Duer, 512; Hawley a. Bennett, 4 Paige, 163.) These costs are to be at the rate allowed for similar services in civil actions, (Laws of 1854, 592, ch. 270; Crary’s Proceedings, 417; People a. Sturtevant, 3 Duer, 616.) The court may order a reference to ascertain the costs and expenses to which the party prosecuting the attachment is entitléd. (People a. Compton, 1 Duer, 546, note.) In determining the costs and expenses to which the party is put, and which the defendant is obliged to pay, the court may allow reasonable counsel fees to the aggrieved party. Such fees form a part of the expenses to which such party is jointly entitled. (Davis a. Sturtevant, 4 Duer, 148.) C. A. Rapallo and Wm. F. Allen, for Augustus Schell, argued that the suits were not a violation of the injunction; -and urged that Mr. Schell had acted under advice of counsel, and that the suits had been- authorized by Mr. Schell before the injunction. Cardozo, J. —The defendant Schell does not deny bringing the suits against the plaintiffs and others, which are complained of as being a violation of the injunction in this case. If bringing those suits was a breach of the injunction, it is clear that, even if the power of the court bé limited by the provisions of the Revised Statutes respecting proceedings as for contempts to enforce and protect the rights of parties in civil actions, which I by no means concede, it was misconduct on his part by which the rights or remedies of plaintiffs have been “ im — 427 — paired, impeded, or prejudiced.” The plaintiffs had a right, and that was part of the object of this action^ to prevent any meddling with the property of The New York Consolidated Stage Company by a person not legally authorized to have the custody of or to interfere with it; and it will be difficult to see , why they are not impeded and prejudiced when one having no right attempts, in violation of the order of the court, to interfere with it. It was an attempt to do the very thing which the court has decided the plaintiffs had the right to prevent the defendant Schell from doing, and it is the merest sophistry to say that the plaintiffs’ rights and remedies have not been impaired, impeded, or prejudiced, when that which the court ■ decides the plaintiffs are entitled to prevent the defendants from doing is done, despite the order of the court. Nor does the fact, that it was understood in open court that any proper act for the preservation of the line should not be deemed a violation of the injunction, afford any answer or protection. That stipulation was given on the suggestion that the line would have to be- stopped, and that the horses would die from want of feed, unless Mr. Schell were allowed to do what was necessary to keep it going, and it could not possibly have misled any one. Were the suits brought by Mr. Schell a violation of the injunction ? A very specious, but, I think, manifestly unsound argument has been made on his behalf. The assignment to Mr. Schell purported to convey all the property of every character of the company. The complaint in this suit sought to annul that assignment. It charged that the assignment was illegal and void; that the directors had no power to make it, and that Mr. Schell had taken.possession under it of all the property and effects of the company, and it prayed among other things that Mr. Schell might be enjoined and restrained from “in any manner disturbing, holding possession of, or interfering with the property and effects of The New York Consolidated Stage Company, or any part thereof, and that a receiver of said property and effects might be appointed.”' The order to show cause why an injunction should not issue and a receiver be appointed, which, with the summons and complaint, was duly served on Mr. Schell, commanded him “ and his agents, servants, attorneys, and all — 428 — persons acting under him, to refrain and desist from disturbing, holding possession of, or interfering in any manner with the property and effects of The Mew York Consolidated Stage Company, or any part or portion of the same.” It is admitted that the suits complained of were commenced after Mr. Schell had been duly served with the order. It is claimed, and authorities are cited quite unnecessarily to show, that the language of an injunction should be plain, and that a party is not to be punished for violating an order which is so ambiguously expressed as to mislead him into the belief that the act complained of was not prohibited. This is undoubtedly the rule—it is only just—and, if applicable to the facts here, will be acted on. It is said that the subject of the suits brought by Mr. Schell were neither “ property” nor “ effects,” and that therefore the injunction has not been violated. A very natural question arises, and it is this: If they are neither “ property” nor “ effects,” what are they? The counsel for Mr. Schell said they were “ mere choses in action.” But “ choses in action” are covered by the term “ property”), which is a most comprehensive word. (See Bouvier’s Law Dict. “ Property.”) While it is true that an injunction must be so expressed that ordinary people will not be misled, it is equally true that learned persons are not to be permitted to give an unusual, forced, and ingenious construction to language, and then plead their learned ingenuity as an excuse for a violation of an order which would have been understood by the most ordinary intellect. A person," astute enough to see the very nice and fine ' distinction which is made on behalf of Mr. Schell, must have been quite conscious that the words “ property and effects” were of a very sweeping and general character, and could not have been ignorant that they included “ mere choses in action.” Any person of ordinary capacity would have understood that “ all the property” of the Consolidated Stage Company meant every thing to which that' company could have any right, and no one of ordinary mind could have imagined that, when ordered to let “ every thing” alone—not to interfere with it in any manner—he was not ordered to let that part of “ every thing” alone which was only a “ mere chose in action.” Mr. Schell cannot be permitted to shield himself by asserting that he misapprehended, that which is plain to the meanest under — 429 — standing. The language of the order is to be understood according to its ordinary import, and we are not to strive to put upon it, by ingenious construction, a meaning different from its natural significance, because of the position vjhich the defendant occupies. It is especially the duty of prominent citizens to obey scrupulously the orders of the court, and they should receive no encouragement in efforts to evade them by shallow pretexts. The administration of the law will become justly contemptible when persons of education, character, and position can escape the consequences of disobedience to the order of the court by resorting to such refined and artificial attempts at construction as have been invoked on behalf of the defendant. A single other remark will exhibit the groundlessness of the defendant’s plea. If Mr. Schell supposed that the words “ property and effects” contained in the injunction did not include mere “ choses in action,” how did it happen that he gave a different construction to those words when contained in the assignment ? If they did not cover “ choses in action,” then he cannot pretend to have any title to "the choses in action, which he is endeavoring to collect by the suits complained of, and that is a position he will hardly assume. It is very idle for Mr. Schell to say that he understood “ all property and effects” one way when he read the assignment, and another way when he read the inj unction. It is manifestly an afterthought and a subterfuge. I am, therefore, of opinion that Mr. Schell has clearly violated the injunction, and that the case is within the provisions of the Revised Statutes. But it is sworn that the acts done by Mr. Schell were done under the advise of counsel, that they were not prohibited by the injunction, and were innocent. While, undoubtedly, advice of counsel will not excuse a violation of an injunction, yet, if given in good faith, it is an important element in considering what the judgment of the court should be. If the suggestions which I am about to make are acted upon, the authority of the court will, probably, have been, after what I have said, sufficiently vindicated to render any further action, except, perhaps, to determine a question of costs of motion, unnecessary in this case. It is within Mr. Schell’s power to undo his violation of the injunction. That must be done. The suits brought in disobedience of the order of the court must be discontinued. I cannot listen for a mo — 430 — ment to any other suggestion after having carefully examined and decided, and not having the slightest shadow of a doubt, that the assignment to Mr. Schell was utterly void, and when I can see that no harm can possibly accrue by his obeying the order of the court, since it is not pretended that the supposed causes of action are in danger of being barred by the Statute of Limitations, or that any other reason exists for such great haste. If the order made be right, and the alleged cause of action exists, the receiver is the only proper person to bring and prosecute the suits. There is not the slightest reason to apprehend any mismanagement of or damage to a trust confided to the gentleman who has been made the receiver in this matter. Beyond this, he is under the immediate supervision and control of the court, and certainly a person, who it has been decided has no interest in the premises, cannot be permitted to dictate or interfere with him. A little less haste on the part of Mr. Schell, in a matter in which no especial occasion for speed has been disclosed, would have saved the necessity of the present motion, and even if he be' right in claiming that the assignment is valid, a little loss of time, very' unimportant when compared with upholding the dignity of the court, will be the only detriment which can arise from his discontinuing the suits in question, and obeying the order, “ not in any manner to interfere” with the property or effects of The "ISTew York Consolidated Stage Company. If, within two days after notice of this opinion (which notice may be given by a letter to defendant’s attorneys, apprising him that my opinion herein has been filed), Mr. Schell causes the suits brought in violation of the injunction to be discontinued, and presents to me an affidavit of the fact within the same time (a copy of which, with notice of the time and place, when and where it will be handed to me, must be served on the attorney for the plaintiffs in this action), probably, except to dispose of the question of the costs of this motion,-! shall feel that all has been done which is necessary to vindicate the majesty of the law. If this suggestion be disregarded, I will make such order as I think the circumstances "demand. IV. February, 1865.—Motion to authorize the receiver to sell.' — 431 — The counsel for the plaintiffs moved on behalf of the receiver,for an order empowering the receiver to sell the property of the company, on the grounds, among others, that the current receipts were not sufficient to meet current expenses; that there was danger that the United States Marshal would seize the property and make a forced sale for arrears of the revenue tax; and that the landlord of their leashold property was threatening an eviction for arrears of rent. Horace F. Clarke, on behalf of the company opposed the motion, urging that the counsel for the plaintiffs should not also act for the receiver; that the appointment of the receiver was invalid, the court having no power to authorize a receiver to,carry on a business, and, further, that the assignment being void, the property reverted back to the company directly. That the receiver being an officer of the court could not be evicted by summary proceedings; and that if such an order were to be made, a reference should be first directed to inform the court what it was necessary and convenient to sell, and the manner of the sale. Cardozo, J. This isa very simple matter. The application is the ordinary one of a receiver appointed by the court, petitioning for instructions respecting the management of the • estate confided to his care. It might have been made and granted ex parte, although, of course, the wiser plan was to give notice (and undoubtedly the court would ordinarily require that to be done) to those interested in the estate. Whether, however, objections which may be termed of a technical character should be entertained may be a question, but it will not be necessary to consider it. Nor will it be requisite to examine whether, in any case, there would be any, and if so, what force in the objection raised that the attorney for the plaintiffs in the suit appears as attorney and counsel for the receiver. Whether any general practice ever existed, prohibiting such an appearance, or if there did, whether it ought not to be deemed .obsolete, since it is certain that for very many years it has been disregarded almost daily, and thus seems to have met with the condemnation of the profession— and who could avail themselves of the objection, if it be one— — 432 — are also questions which nee.d not be determined, because it never was pretended that the rule applied to a proceeding like the present. It was only when the receiver was acting adversely to one of the parties that it has ever been supposed there was any impropriety in employing .the counsel of the other. That is not the case here. It was also urged that this court should not give any directions to the receiver, but should leave it to the.Supreme Court to instruct him. If it were necessary, I think I should have very little difficulty in reaching the conclusion that the suit of Siney against these defendants, in the Supreme Court, in which Mr. Murphy has also been appointed receiver, was a colorable proceeding, not taken with a view to obtain the relief demanded, but with the design to enable the defendants to escape the consequences of a decision which had been announced in this case. Indeed, Mr. Siney almost tells us so in his affidavit. But there is really no ground for this objection of the defendants. The' order appointing Mr. Murphy receiver in the suit in this court was properly made to relate back to the time when the decision that a receiver should be appointed was announced, and is prior to the appointment made by the Supreme Court. (See Deming a. N Y. Marble Co., 12 Abbotts’ Pr., 66.) The case, then, presented for my consideration is simply this: The receiver, who by the order was to take possession and hold the assigned property and the proceeds arising from conducting the business of the company, finds that the business is so unprofitable that it will not yield enough to bear its current expenses, and that the receivership has no other means to defray those expenses, and that the property which he was directed to hold is subject to liens to a large amount, which are becoming urgent. The receiver took the property subject to whatever liens were upon it, and those liens should be paid. (In re North American Gutta Percha Co., 11 How. Pr., 549, and 9 Abbotts' Pr., 79; Rich a. Loutrel, 9 Abbotts' Pr., 356.) The petition shows that, except by sale, the receiver cannot discharge the liens; that he has no means of the company either for that purpose or to continue its business. One of the counsel for the defendants complained of the receiver for carrying on the business, denied that the receiver — 433 — had been authorized to do so, and more than hinted a doubt whether the court had the power to confer such authority. This complaint sounds singularly when it proceéds from the counsel of those who attempted to transfer the property of the company to an assignee, and when that assignee had conducted the business for a considerable time. The right of the court "to authorize the receiver to continue the búsiness is, however, indubitable, and the cases are numerous, in which the power has been exercised both by the late Court of Chancery and by the tribunals possessing equity jurisdiction, since the abolition of that court. (See Martin a. Van Schaick, 4 Paige, 479; Crane a. Ford, Hopk., 114; Jackson a. De Forest, 14 How. Pr., 81; Dayton a. Wilkes, 17 Ib., 510; Clarke a. Brooks, decided by Judge Brady, in this court.) I shall not stop to inquire whether the receiver has been so authorized in this case, because, if he has been, it is clear on the papers before me that the concern cannot, and if he has not been, ought not to be kept going by him., It cannot be, because there is a lack of means, and it ought not to be, because it is apparent that it is a losing business. It appears, among other things, and is uncontradicted, that the moneys arising frorp. the prosecution of the business are insufficient to defray the current expenses, and that there are no other means of the company to do so ; that the United States authorities threaten to distrain for non-payment of revenue tax, and that the landlord of the stables threatens to dispossess for back rent. It is very easy to say, as was suggested on the argument, let the receiver get another stable or make terms to hire the same premises from the date of his appointment. Even if these things were practicable, only one difficulty ' would be removed, and, moreover, it does not appear how the receiver is to pay the rent either of other or the same premises from the date of his appointment or any other time. But the landlord of the present premises may decline renting, and it may not be, probably is not, and at all events, without proof it ought not to be assumed that it is always feasible to obtain premises suitable for stabling so many horses and vehicles. Even if it were proper for the receiver, or for the court to permit him to do so, to endeavor to hire the present stables without the means or the prospect of means to pay the rent., it is not too — 434 — much to assume that the landlord, under the circumstances disclosed in this petition, would decline to let them. Whether the landlord can or not avail himself of the statutory remedy of summary proceedings as against the receiver, it would be monstrous to say to him “ you shall, whether willing or not, make terms with the receiver to allow him to remain in possession of your property, though the rent is largely in arrear, and there is not the slightest possibility that he will be able to realize enough from the business to pay you.” Rone of the allegations of the receiver were denied, and I must frankly say, from what has transpired before me on the various motions in this case, I do not see how they could be. But it was suggested that possibly the company would pay the demands. It was not suggested that possibly the company would furnish the money to continue running the line; but, had it been, the answer would be the same as to the suggestion just previously mentioned... If any of the stockholders designed to furnish the means either to run the line or discharge pressing liabilities, it would have been very easy to have said so, and not leave it to be intimated by way of argument. That they have not done so is very strong proof that they did not and do not intend to do any such thing.' The suggestion that possibly the company might furnish the means requires but a single remark. The assignment by the. company to Mr. Schell purported to convey every thing it had; and all that was attempted to be assigned has been ordered to be transferred to the receiver. After having parted with every thing, it is difficult to imagine where the company will find the means to carry out the suggestions of the counsel. The receiver, finding things in this plight, asks the court what he shall do. The answer is inevitable, “ You must sell.” One of the counsel for the defendants, while not objecting to a sale, argued that I should order a reference to ascertain what should be sold. I do not see that any thing, except to create additional .charges on the fund, is to be attained by that course. How much the property will produce, and, therefore, supposing that it were unnecessary to sell all, how much would have to be sold to pay liens, and whether the property would realize more if sold — 435 — together than if sold in parcels, and what is the most discreet method of making the sale, must all necessarily be mere matter of opinion and speculation, on which judgments would be as diverse as there was witnesses examined. I think it quite as well to trust the judgment of the present receiver as that of a referee, and that, therefore, the wiser course is to vest, as I shall, a discretionary power in the receiver to .sell all or any part of the property as he thinks best, and either at public or private sale as -he deems most advisable, but all the sales must be made on condition of being subject to the approval of the court, and the receiver will make no disposition of the proceeds, except upon application to the court. This, it seems to me, will protect everybody. Footnotes [*] The decision on that proceeding is reported, Post, 435. [†] Ib., 438.