89 N.J. Eq. 121 | New York Court of Chancery | 1918
The suit is brought by the receiver of a New York corporation, appointed by this court on November 5th, 1917, against the Jersey Co-operative Realty Company, Marwood R. Baskerville, ’William J. Shearer, Carrie M. Shearer, his wife, Elizabeth Heights Realty Company, Benjamin A. Vail, as trustee in bankruptcy of said William J. Shearer, and the sheriff of the county of Union. It charges that on December 11th, 1915, the Jersey Co-operative Realty Company was the owner in fee of certain premises; on such day the company was insolvent and had suspended its ordinary business; for the purpose of hindering, delaying and defrauding creditors and stockholders and without consideration, defendant William J. Shearer, who was the president of.the company and one of its directors, the other directors being William J. Shearer, Jr., and Armwell W. Lassell, caused the company to transfer the said premises to him; on December 24th, 1915, William J. Shearer and wife conveyed the premises to the Elizabeth Heights Realty Company, a corporation of New Jersey; the Elizabeth Heights Realty Company was a mere dummy for William J. Shearer, the directors being William J. Shearer and William J. Shearer, Jr., .William J.- Shearer being president and William J. Shearer, Jr., treas
First. An examination of the order appointing the receiver discloses that there does not appear therein an adjudication of insolvency. The court did, in fact, adjudicate the corporation insolvent. The omission in the order was an oversight. It may be corrected by the entry of an order nunc pro tunc, amending the order appointing the receiver by including therein an adjudication of insolvency.
Second. Sections 65 and 66 of the act concerning corporations (Rev. 1396; 2 Comp. Stat. p. 1640) provide for the adjudication of corporations insolvent and the appointment of receivers. Section 96 provides that foreign corporations doing business in this state shall be subject to the provisions of the act so far as the same can be applied. 2 Comp. Stat. p. 1657.
Prior to the deliverance of the opinion of the court of errors and appeals in the case of McDermott v. Woodhouse, 87 N. J. Eq. 615, it appears not to have been doubted but that this court, had power to appoint a receiver of a foreign corporation under sections 65 and 66 upon a finding of insolvency, nor but that the procedure was substantially the same as upon an application for the appointment of a receiver of a domestic corporation.
In Albert v. Clarendon, &c., Co., 53 N. J. Eq. 623, the question was squarely presented. There the bill was filed against a corporation incorporated in England. The allegation was insolvency. A motion was made to dismiss. Vice-Chancellor Van
In National Trust Co. v. Miller, 33 N. J. Eq. 155 (at p. 159), the same learned judge had made practically the same pronouncement. He had said: “The legislative design was, unquestionably, to confer upon this court the same powers, in respect to insolvent corporations, created by foreign jurisdictions, having property in this state, that it exercised over insolvent domestic corporations, so far, at least, as the exercise of such powers was necessary to the recovery of any assets, whether legal, or equitable, which should go in discharge of debts.” In Irwin v. Granite State Provident Association, 56 N. J. Eq. 244, where it appeared that prior to the filing of the bill in this court there had been
In Low, Receiver, v. R. P. K. Pressed Metal Co., 91 Conn. 91; 99 Atl. Rep. 1; L. R. A. (1917 D) 291, in an original proceeding a receiver had been appointed of a New York corporation. Subsequently, a receiver was appointed in the state of the domicile of the company. Application was then made for the appointment of an ancillary receiver. It was insisted that the court was without jurisdiction in the original proceeding to
It is an established practice now for federal district courts to appoint receivers of corporations foreign to the district and the state in which the district is situated at the suit of a non-resident creditor, where the corporation can be served and does not object to the jurisdiction or where it consents. In such suits, all of the assets of the corporation are liquidated and the proceeds distributed. If necessary, suits ancillary to the first are brought in other districts. The receivers are permitted to assert any right of the corporation or its creditors. The authority of a state court to appoint a receiver for a foreign corporation which has entered into business in the state under a statute providing such corporations shall be deemed and taken to be corporations of the state was not questioned in the case of Blake v. McClung, 172 U. S. 239; 43 L. Ed. 432.
The law seems to be well settled that a court of equity has jurisdiction under its inherent power, and where statutes exist similar to that in this state, then under such statutes, to appoint
“It is well settled that the eourts of one state may, at the instance of resident or domestic creditors, or even at the instance of a non-resident créditor, appoint a receiver for a foreign corporation doing business therein dnd having property there, notwithstanding the appointment of a receiver at the,domicile of the corporation where the general requisites for a receivership, are shown, as in other cases.”
Citing cases from many jurisdictions including the supreme court of the United States. The case of Albert v. Clarendon, &c., cited with approval.
. I conclude, therefore, that the appointment of the receiver was properly made.
Third. The last contention made hy the defendant is that the relief sought by the receiver is such an interference with the internal affairs of the corporation as that relief cannot be obtained within this state. And again reliance is placed upon McDermott v. Woodhouse, supra. I do not think that the principle of that case applies to this. The property alleged to have been fraudulently transferred is within this state. The alleged fraud doer is here in bankruptcy. The defendant Baskerville has appeared. The Elizabeth Heights Eealty Company is a New Jersey corporation. It is fair to assume that the wife of Shearer is a resident of this state. The New Jersey Co-operative Eealty Company is made a party defendant and may be served here. The bill is one which might have been brought by the corporation, or a stockholder in its right if the directors refused to proceed and if a receivership had not intervened, to set aside a conveyance alleged to have been fraudulently made by its directors for their own use and benefit, without consideration. If such suit were brought by the corporation, or by anyone in its behalf, it would necessarily have to be brought in a state where jurisdiction could be acquired over the persons of the defendants or over the property. Belief could not be obtained in the jurisdiction of the domicile of the corporation unless the parties defendant voluntarily'' appeared. The New Yórk courts have no control over the property, nor over the foreclosure proceedings pending in this court. No relief .could be granted which would, maintain
. A case directly in point is that of the National Trust Company v. Miller, supra. There had been a receiver appointed in the jurisdiction of the domicile of the corporation. Subsequently, upon a petition by certain of its creditors representing that all of its property was located in this state, that it had suspended its business and become insolvent and that a receiver had been duly appointed in New York for the purpose of winding up and making equal distribution, a receiver of the corporation was appointed in this state. A foreclosure suit- had been started against the company before the receiver was appointed. The receiver was let in as party defendant and attacked the validity of the mortgage. The nature of the defence is illustrated by the following excerpts from the opinion of Vice-Chancellor Van Eleet: “The validity of this mortgage is indefensible except on the theory that it was within the scope of the powers of the paper company to devote the half or the whole of its property to the railroad company, regardless of the rights of its creditors or the public. It is clear it possessed no such power, and if it had attempted to do so, by open and direct means, its act would have been so conspicuously ultra vires as to strip it of the least appearance of validity. * * * There is another important principle which I think it is my duty to enforce 'in deciding this case. Equity regards the property of a corporation as a fund held in trust for the payment of its debts, and if others than bona fide creditors of the corporation, or purchasers, possess themselves of it, they take it charged with this trust, which a court of equity will enforce against them.” The result was that the mortgage was set aside. If what was attempted to be accomplished in National Tmst Company v. Miller did not involve an interference with the internal affairs of the corporation, then it would seem that what is attempted to be accomplished in the case sub judice certainly- does not. The vice-chancellor held that the defence could be set up by the receiver appointed by this court and said: “There can be no doubt, under the rule established by this adjudication (referring
If I am right that a receiver of a foreign corporation can be appointed under the statute without a receiver having first been appointed in the jurisdiction of the domicile of the corporation, I think the fact that such a receiver has been appointed is immaterial with respect to the powers of the receiver appointed here. The case of National Trust Co. v. Miller is cited with approval in Beale For. Corp. § 791, and in many cases in this jurisdiction.
In Summit Silk Co. v. Kinston Spinning Co., 154 N. C. 421, the court said: "The property of the spinning company is in this state, and the laws of New Jersey should not be permitted to effect its status or prejudice the rights of creditors of the cor
In Minchin v. Second National Bank, 36 N. J. Eq. 436, a receiver had been appointed of a foreign corporation, under the statute. There had not been an appointment in the jurisdiction of the domicile of the company. It appeared that certain attachments had been levied upon the property of the corporation pending the hearing on the order to show cause. The party applying for the appointment of the receiver attacked the attachments. It was held by the chancellor that the proper party to make the attack was the receiver.
Without attempting to enumerate all of the powers possessed by a receiver of a foreign corporation, it seems to me to be clear that he has the power to institute such actions as may be necessary to recover, for the creditors and stockholders, assets, legal or equitable, within this state, and to enforce such obligations of persons over whom jurisdiction cam be obtained in this state which the corporation or its creditors might have enforced. I do not think that the suit will affect the internal management of the affairs of the corporation within the sense used by the court of errors and appeals in McDermott v. Woodhouse, supra, or in Jackson v. Hopper, 76 N. J. Eq. 604.
It is extremely difficult, and, I think, almost impossible, to formulate a test as to what constitutes an interference with the internal affairs of the corporation which can be applied in every case. The court of errors and appeals in Jackson v. Hopper, supra, while approving the definition contained in the case of North State Mining Co. v. Field, 64 Md. 151, confined it to the class of cases of which that then before the court was one.
The subject is treated in 12 Ruling Case Law (tit. “Foreign Corporations”) §§ 20, 21, 22. It is there stated that the test
*134 “Where the act complained of affects the complainant solely in his capacity as a member of the corporation, whether it be as corporator, stockholder, director, president or other officer, and is the act of the corporation, whether acting in stockholders’ meeting or through its agents, the board of directors, then such action is the management of the internal affairs of the corporation, and in the case of a foreign corporation courts of another state will not take jurisdiction even though the visible tangible property of the foreign corporation is situate therein. Where, however, the act of the foreign corporation complained of affects the complainant’s individual rights only, then a domestic court will take jurisdiction,”
has been adopted by courts of several jurisdictions, yet it appears that it has not been by any means uniformly approved. It has been held that there are cases where, although the rights of a party grow out of his membership in the corporation, yet, as the matter affects only his individual rights under the contract by which the stock was issued, therefore an enforcement of those rights will not be an interference with the internal management of the corporate affairs within the meaning of the rule. The author says that the difference between the two tests is as follows:
“Those courts which apply the first mentioned test, in determining whether they will take jurisdiction of an action against a foreign corporation, inquire whether the right sought to be enforced accrues to the plaintiff as an individual, independent of his relationship to the corporation, while with those which have adopted the latter, the question is, does the right, though growing out of his status as a stockholder, belong to the plaintiff individually and not as one of a class. Irrespective of the question as to the proper test to be applied in determining what are the internal affairs of a corporation, the view has been expressed by some courts that in the case of corporations which are non-resident only in that they were created in another state — the officers, agents, stockholders, business, and property all being within the jurisdiction of the court — they will not deny relief in a proper case on the ground that the ‘internal affairs’ of the corporation will be affected.”
It has been held (Babcock v. Farwell, 245 Ill. 14; 91 N. E. Rep. 683; 137 A. S. R. 284; 19 Ann. Cas. 71, and note, a well-reasoned case) that where minority stockholders in a foreign corporation seek by suit in equity to have restored to the corporation property fraudulently appropriated to their own use
If it had not been for the strenuous insistence on the part of the defendant that the opinion of the court of errors and appeal in McDermott v. Woodhouse required a determination directly contrary to which I have arrived, I would have contented myself in disposing of this case with a mere reference to Albert v. Clarendon, &c., Co., National Trust Co. v. Miller, Minchin v. Second National Bank, Irwin v. Granite State Provident Association.
Whether the objections sought to be raised by the defendant as to the validity of the order appointing the receiver and the jurisdiction of the court to appoint a .receiver can be raised by him in this suit I have not considered and express no opinion thereon.
The result is that the order to show cause will be made absolute and the injunction will be continued to final hearing upon condition that the defendanits secure, or cause to be secured, the payment of the amount due upon the decree of the defendan t Baskerville; other equitable provisions may also be made in favor of other defendants if they appear. Before the signing of any order, an order amending the order appointing receiver should be taken as indicated in the forepart of this opinion.
Settle order on two days’ notice.