90 N.J. Eq. 532 | New York Court of Chancery | 1919
This is the return of an order to show cause addressed to creditors and stockholders why a receiver of defendant corporation should not he continued or some one substituted in his place. On May 9th, 1919, the corporation was adjudged insolvent and a receiver appointed under the statute. .The statutory injunction order enjoined the corporation, its officers and agents, from exercising any of its privileges or franchises, and from collecting or receiving any debt or paying out, selling, assigning or transferring any of its estate, money, &c., except to a receiver appointed by this court, which order was, before the performance of the acts hereinafter mentioned, served upon, or brought to the knowledge of the officers and directors. No objection is made to the personnel of the receiver. It is represented to the court by the receiver that he has been informed
The receiver is directed to apply to the United States district court to vacate the order appointing a receiver and to strike out the petition upon the ground, among other things, that the acts of the officers, or those pretending to exercise the rights of officers, of the corporation, were not binding upon the corporation and represented no corporate act.
The receiver, as I understand the law, is entitled to be heard in the district court. In re Gold Run Mining and Tunnel Co., 200 Fed. Rep. 162; Rosenbaum v. Dutton, 203 Fed. Rep. 838; Blair v. Brailey (Circuit Court of Appeals for the Fifth Circuit), 221 Fed. Rep. 1.
It is uniformly held that a board of directors may file or authorize the filing of a voluntary 'petition or may execute or direct the execution of a voluntary admission of insolvency, but it is stated in all of the cases that I have had an opportunity to examine that the authority exists only if not prohibited by statute or by-laws. It seems to me that the effect of our statute, upon the appointment of a receiver, vesting in him the privileges and franchises of the corporation and the right to act for the corporation, is a prohibition by statute against such acts as the directors took in this case. The effect of our statute has been considered by Vice-Chancellor Stevenson in Singer v. National Bedstead Mfg. Co., 65 N. J. Eq. 290; Gallagher v. Asphalt Co., 65 N. J. Eq. 258; Elm v. International Steam Pump Co. (not yet reported), and by me in Hitchcock v. American Pipe and Construction Co., 89 N. J. Eq. 440; and Michel v. Necker, 90 N. J. Eq. 171. By force of the statute, so far as ability to act for the corporation is concerned, those who, at the time of the appointment of the receiver and the issuance of the injunction were officers and directors ceased to be such. Whatever acts they performed are not binding upon .the corporation. In Bissell v. Besson, 47 N. J. Eq. 580; Vice
I am advised that the bill of complaint filed in this court did not indicate a condition of insolvency as defined by the Bankruptcy act, and that the voluntary petition filed in the federal court did not indicate such a condition. AVhile, of course, if the case is one in which the federal district court has jurisdiction this court will, under no circumstances, put, or permit to be put, any obstruction in the way of the exercise of that jurisdiction, if, on the contrary, the case is one in which the bankruptcy court has no jurisdiction, it is the duty of this
It is the privilege and duty of the district, court to determine whether it had jurisdiction or not. By the course which the proceedings took in the federal court, that court has not yet had an opportunity to determine whether it has or has not jurisdiction. There has been no hearing. If the receiver is convinced that the corporation is not insolvent within the meaning of the Bankruptcy act and is not subject to the jurisdiction of the bankrupt court, ho should have the permission of this court to report such facts to the bankruptcy court and to apply to that court for leave to intervene and file such answer or take such other steps as he may be advised is proper and he has that permission. The case is different from that of Singer v. National Bedstead Co., in which Vice-Chancellor Stevenson permitted the turning over of the assets to the federal trustee without a determination as to the merits. In that case there were no parties appearing objecting and in order to save needless expense ,to creditors, the vice-chancellor permitted'the turn over. Here there is objection.
The receiver also asks for instructions as to what he should do as to turning over the assets to the federal receiver if demand ■be made therefor. I understand that the rule in the district court in this district has been not to appoint a receiver in a case where a state receiver is in control, not only because of a feeling* of comity, but because, under the Bankrupt act, the district court cannot appoint a receiver except it be absolutely necessary for the preservation of the estate, and the courts here have
. It may be argued that the case of In re Yaryan Naval Stores Co., 214 Fed. Rep. 563, is authority for the proposition that the act of the directors, although in contempt of the state court, still is effective to confer jurisdiction upon the court in bankruptcy. In that case the district court based its conclusion upon the fact that the order of the state court properly interpreted contained nothing which indicated an intention to prohibit due application being made to the appropriate bankruptcy court. The situation in that case was different from that here present. In that case, as I gather from the opinion, the injunction of the state court was merely against interference with the duties of the receiver and against the institution or prosecution of any suits, &c., against the stores company without the order or permission of the state court. It seems that construing this injunction the circuit court of appeals for the sixth circuit interpreted it differently than it would have been interpreted l>v the
The order will be discharged as to the director Adelbert Hauschild, it appearing that he did not in anywise participate in the alleged contemptuous conduct. Counsel does not now argue that the acts committed by the directors were not in violation of the orders of this court. The excuse offered by the directors is that they acted upon advice of counsel. It appears that they knew that what they proposed ’to do might be in violation of the order of this court. Counsel examined certain cases and came to the conclusion that the proposed act of the directors would not lie a contempt and fortified his opinion by asking the advice of the referee in bankruptcy. I have no doubt but that both counsel and the directors acted bona fide. It is almost needless to point out that this court cannot accept, under the circumstances of this case, the excuse, for what I held to bo a gross contempt, that it was committed under advice of counsel. This court ordinarily acts only in personam and to accept such an excuse would lie to paralyze it. The rule that advice of counsel will not be accepted does not work any particular hardship in this case. The parties knew that they might be in contempt. This court was open to them at all times as well as to their counsel. If they elected to rely upon advice of counsel, reinforced by advice of the referee in bankruptcy, rather than to apply direct to this court, they must stand the consequences. See 6 Rul. Cas. L. tit “Contempt” § 14; In re Bowers 89 N. J. Eq. 397; Seastream v. New Jersey Exhibition Co., 61 Atl. Rep. 1045; 13 Corp. Jur. tit. "Contempt" p. 43, § 57, and cases cited; McKillopp v. Taylor, 25 N. J. Eq. 139; Cape May, &c., v. Johnson, 35 N. J. Eq. 422; West Jersey Traction Co. v. Camden, 58 N. J. Law 536. I might add that it appears that in order to perfect the petition in bankruptcy the seal of the corporation and the minute book were removed from the possession of the receiver, without his knowledge or consent.
The respondents will be adjudged guilty of contempt. I will not at this time fix the punishment.