Duryee v. Gray

The opinion of the court was delivered by Collins, J. On the principal subject of this litigation, the result reached by the learned vice-chancellor accords with the opinion read by him for this court when he was one of its members, in the case of Montgomery v. Phillips, 8 Dick. Ch. Rep. 203. It is quite clear that the withdrawal of assets by vote of the executive committee of the board of directors of the United States Credit System Company, in order to create a trust fund to secure some of the directors of the company against an antecedent liability, — 629 — was 'illegal if the company was insolvent at the time of such withdrawal. Even without statutory prohibition, then non-existent, a preference of that character cannot stand. The appellants challenge the proof of insolvency, but it seems to us ample. The stipulation in the cause is to the effect that the facts set out in the several papers specified, among which are the bill for receiver and accompanying affidavits and the report of the temporary receiver, so far as relevant to the issue, are admitted. In the preface to this opinion are recited facts derived from those and other admittedly-correct documents, that establish insolvency and knowledge of the directors of that condition as early as August 21st, 1894, the date of the deposit of the trust fund. The statement of the bill, evaded by the answer, is that the money was not even paid to Mr. Taylor until that date, although the resolution of the executive committtee was passed on August 17th, but we think that insolvency antedated the resolution. The condition found by the receiver was not the growth of a week. The directors, and especially the executive committee, were bound to know, and must be presumed to have known, the state of affairs. Indeed, it is too plain to admit of discussion that the resolution was passed, because the directors foresaw the speedy termination of the company’s career. On the subsidiary question of the right of the sureties to a lien on the New York assets, we also agree with the vice-chancellor. Only so much of the property as remained in specie could be followed in the hands of the receiver. The lien on the residue was gone as soon as the property was dispersed in the course of a business conducted under the direction of the sureties themselves. There is more doubt if any lien at all existed. The bill and answer assume an attachment, but the obligation of the sureties recites only an intention to issue a warrant, which it was desired to prevent. The receiver has not appealed, and as the decree is equitable in this regard it will not be disturbed. .Ou the remaining subject of dispute, the final decree, we think, was wrong. It is settled that unless there is something in statute or decretal order tantamount to dissolution, a pending action against a corporation may regularly proceed, notwith — 630 — standing an adjudication of insolvency and the appointment of a receiver to wind up its affairs and distribute its assets among creditors and stockholders, and this is true although the action is in the courts of another state than that of the home jurisdiction; and under the federal constitution the judgment in the action will be conclusive upon every one. Pringle v. Woodworth, 90 N. Y. 502. The order of forfeiture of the charter of the United States Credit System Company worked a dissolution of the company, and it has been held in the United States supreme court that in such a case a pending action abates. Pendleton v. Russell, Receiver, 144 U. S. 640. Therefore, a modification of that order was necessary in order to permit the New York action to proceed, and was very properly made by the chancellor. It would have been unjust to deprive the plaintiffs in that action of the advantage of the bond, that had been given them in lieu of an attachment, and they, of course, could not have availed themselves of that bond if they had not been allowed to proceed to judgment. They were allowed to proceed, and the consequent judgment ought to be given its normal effect. It was said, however, although obiter, by Mr. Justice Field, in Pendleton v. Russell, ubi supra, that a receiver cannot take charge of any proceeding in a foreign jurisdiction by commencing an action or defending an existing action without express authority of the court whose officer he is, so as to bind any property or effects in his hands as receiver. This is too broad, and the cases cited do not support the dictum. Implied authority or ratification will be sufficient to support even affirmative action (Smith, Receiver, v. United Express Co., 135 Ill. 279), and if the doctrine has any application here the chancellor’s order of November 7th, 1894, was ample warrant for the receiver to defend. In Reynolds v. Stockton, 140 U. S. 254, 273, it was well said by Mr. Justice Brewer that whatever matters are, by the courts of primary administration, permitted to be litigated in the courts of another state come within the rule of conclusiveness. The receiver, respondent in this cause, does not dispute the soundness of these views, but he contends that by laying before him, as receiver, their claim against the — 631 — insolvent corporation, Eawitzer & Company abandoned tbeir New York action and submitted themselves to the exclusive jurisdiction of New Jersey. How the claim came to be presented or received so long after the order to limit creditors had expired is not explained. Probably no notice of the order was sent Eawitzer & Company, an omission significant of the understanding of the receiver so often implied in his various reports to the chancellor that their claim was in litigation and did not need to be presented. Presentation at some time was doubtless thought necessary by the creditor, and, lest there might be a dividend omitting the claim, which might lead to embarrassment, it was thought best not to delay it until after the trial of the action. We agree to the view that presentation was necessary. The order to limit creditors was purely administrative, not required by the statute in force at the time it was made (Gen. Stat. p. 904), and on reasonable excuse would have been opened almost, of course, at any time before distribution. Under the terms of the order, if notice was not mailed Rawitzer & Company their presentation of claim was timely. At all events, its regularity is not questioned. The contention that it worked an abandonment of the New York action has no basis. A like argument was repudiated in a case almost identical with this, by Judge Woods, in the circuit court of the United States for Indiana. Pine Lake Iron Co. v. La Fayette Iron Works (Adams, Intervener), 53 Fed. Rep. 853. The learned judge held in that case that the proving of a claim without any reference to a pending suit in another jurisdiction, of which suit the receiver had knowledge, was no waiver of the suit, and that the judgment afterwards therein recovered was conclusive. It would be most inequitable in this case, in view of the action of the receiver and the orders of the chancellor, to hold these sureties, but not the receiver, bound by the New York judgment. The notice given by the receiver to Mr. Taylor was consistent with a decision on his part that he had no defence to the action. To interpret it now as a notice that he meant to draw the litigation, as far as he was concerned, into New Jersey, is not permissible. He gave notice neither that Eawitzer & Company — 632 — had laid their claim before him as receiver nor that he had passed upon it. The recovery in New York is simply for the claim as constantly made by Rawitzer & Company, with interest and costs. Interest alone brings the claim above the sum for which the judgment was compromised. The difference between the parties extended only to the Schofield loss, as to which the receiver sought to apply a harsh and doubtful interpretation of the policy. The judgment must be held to be conclusive everywhere and upon everyone. "We must still consider how to give effect to this judgment. The respondent insists that no other practice can be sanctioned than a judicial determination by the receiver, subject to appeal to the chancellor. A revision of the General Corporation act took effect July 4th, 1896 (P. L. of 1896 p. 277), a few days after the presentation of the claim of Rawitzer & Company, and as it affords more color for the receiver’s insistence than can be found in the former statute, I will consider it as applicable to the claim, doubtful though that construction may be. By section 76 the receiver may examine witnesses and must pass upon and allow or disallow all claims presented or any part thereof, and notify the claimants of his determination. This was a new provision in the law. Previously, the only powers of the receiver were such as might be fairly implied from the section next cited. Section 78 reads as follows: “Every such insolvent corporation, or any person aggrieved by the proceedings or determination of such receiver in the discharge of his duty, may appeal to the court of chancery, which court shall in a summary way hear and determine the matter complained of and make such order touching the same as shall be equitable and just.” This language is identical with the first clause of section 82 of the former act, except that there the court is designated as the chancellor. In that section also was contained a grant of chancery jurisdiction and procedure that the revisers have omitted as unnecessary. The appeal given is not technical. The word is used in a broad, general sense. No particular form is prescribed, and there is no reason why the jurisdiction should — 633 — not be appealed to by any recognized form of chancery procedure. Indeed, in this case affirmative action was needed, for, after the presentation of the claim to the receiver and his action thereon, a new and controlling element arose, namely, the judgment. It was necessary to amend the claim so as to embrace that judgment, and it was proper to invoke, to that end, the direct jurisdiction of the chancellor, and to ask decree of its conclusiveness. That was precisely the course adopted by Judge Woods in the case decided by him above cited. It would be idle formality to take a decree to amend the claim, and then argue before the re-'' ceiver the effect of the judgment, subject to an appeal from his adverse decision to the chancellor and then to this court. The necessity for amendment gave jurisdiction, which, being obtained, ought to be held for all purposes. It was proper furthermore to settle all cognate equities in the suit brought by the receiver. Good practice, indeed, required a pleading by way of cross-bill, but the vice-chancellor rightly considered that as non-essential, ^ and the pleadings of course can be properly moulded. ■A question arises as to the amount to be established as a lawful claim against the company. This is not without difficulty, but it would seem that the directors, standing in the position of sureties ought not, although assignees of the judgment, to be allowed more than the sum actually paid for it, and that is our decision. The interlocutory decree will be affirmed, and the final decree will be reversed for the purpose of modification, so as to establish a claim upon the assets of the corporation pro rata with the other creditors whose claims have been or shall be established, in favor of Uzal II. McCarter, trustee, for the sum of $9,000, less $107.50 awarded by the decree, and subject to a rebate of interest to August 23d, 1894, the date to which the adjudged insolvency relates. Mayer v. Attorney-General, 5 Stew. Eq. 815. For reversal — The Chief-Justice, Van Syckel, Dixon, Garrison, Lippincott, Gummere, Ludlow, Collins, Bogert, Hendrickson, Adams, Vredenburgh — 12. • For affirmance — None.