Harned v. Beacon Hill Real Estate Co.

9 Del. Ch. 232 | New York Court of Chancery | 1911

The Chancellor :

The purchaser by his petition practically raises the question of the jurisdiction of the Court to appoint the receiver, or make the order of sale. When a Court, having jurisdiction of the parties and of the subject matter, appoints a receiver over the property, or fund in controversy, the validity of such appointment and the propriety of the order cannot be successfully challenged in a collateral suit or proceeding. High on Receivers, § 39a, and cases there cited. But it is otherwise when the Court is without jurisdiction. High on Receivers, § 39c. A Court should always re-examine the question of its jurisdiction if it be questioned by a purchaser at a sale made by its order, for a purchaser at a judicial sale should not be required to take title to property which would be manifestly invalid if the court had not jurisdiction of the cause in which the sale was made. But after a careful consideration of all the objections raised by the petition, the jurisdiction of the Court seems to be clear and the sale will be confirmed.

It is contended on behalf of the purchaser, that at the time the bill was filed the company was entirely dead, its officers were stripped of all power Or right to represent it, or act for it, and it could not employ a solicitor to appear for it in the suit, and could not, therefore, be a party defendant. Making it the party defendant was like making a dead person a defendant, which was not allowable. It was conceded, however, by the counsel for the petitioner, that under section 43 of the general corporation Act the application, if 'it could be made at all, could have been made by an ex parte proceeding without a formal defendant therein. Assuming it to be true, as contended by the petitioner’s counsel, that in general, in absence of statutory authority, a dissolved corporation is dead and cannot sue or be sued, it does not follow that under the broad powers of section 43 of the Delaware statute under which the bill was filed, it cannot properly be named as a defendant in that suit, or that service cannot be made in that suit on those officers who were such at the time of its dissolution, or that an appearance for it cannot be entered in that suit by a solicitor employed by such officers. Section 43 is very broad in its terms, and fills out the scheme of legislation concerning dissolved corporations. A corporation which has defaulted in payment of its franchise tax and been proclaimed, loses thereby its right to do business. As was said by the Court in Harris, etc., Co. v. Coffin, (C. C.) 179 Fed. 257, 265, in reference to a similar provision of the law of New Jersey:

“Figuratively speaking, the right hand of the corporation, by which it was enabled to carry on business in which it was actively engaged, was paralyzed completely by the proclamation of the Governor; but its body was not affected thereby, in so far as the exercise of those functions were necessary to the performance of the acts incident to closing out and winding up its affairs were concerned.’’

Such a corporation is clearly within the terms of section 43 of the Delaware Act. The words of section 43, “When a corporation * * * shall be dissolved in any manner whatever,” refer to a corporation dissolved by proclamation. The section is al so amply broad as to the time within which the Court of Chancery may appoint a receiver; for it says it may be done “at any time.” This means what it says, and does not mean at any time within three years, a,s the petitioner’s counsel contends, when he seeks to apply section 40 as limiting the time of corporate existence to three years after dissolution. The scheme of the general corporation Act is veiy plain. ' Section 39 provides a method of voluntary dissolution by the directors, by authority of the stockholders; section 41 makes the directors the trustees to so wind up its affairs, and section 42 directs how suits may, after such dissolution, be brought by and against the corporation. By section 40 the corporate existence is extended for three years from the time of voluntary dissolution for the purpose of winding up the affairs of the company. After three years the officers of the company have no power to continue further their winding up duties. Then comes section 43, which says that “at any time” after dissolution the Court of Chancery may take charge of the affairs of the corporation and wind them up; and having acted on an application of a creditor or stockholder, for that purpose, “may make such orders and decrees and issue injunctions therein as justice and equity shall require.” This section supplements 'all that goes before, and supplies every need for aid in closing up the affairs of a corporation whose arm has been paralyzed by the proclamation of the Governor, who has dissolved it as a penalty for non-payment of the taxes which it owes to the State as a condition of its continued right to transact the business or purpose for which it was created.

If it be true that even after the expiration of three years from the dissolution of the company by proclamation, jurisdiction is given to the Court of Chancery to take charge of the unfinished business of the company and its undisposed assets for proper administration thereof for the stockholders and creditors of the company, all of which is involved in the words “at any time,” used in section 43; then the jurisdiction is not lost, if the application be made by a bill in which the corporation is named as the defendant. The statute does not indicate the form of the application, but presumably it is intended that the forms and procedure in equity cases shall be- used so far as practicable; and this is by bill, answer and other pleadings; and this has been the practice in this State. In every suit there must be parties, and the corporation, though paralyzed, is still a proper party and those who were its officers when it was dissolved may answer for it in that suit. Section 40 does not operate as an act of limitations on an application made under section 43; and though the corporate existence for a winding up by the officers of the company is limited to three years from dissolution, the power of the Court of Chancery to administer the winding -up proceedings is not limited thereby. Then it is not reasonable to contend, that though the Court of Chancery has express power at any time to wind up the affairs of a dissolved corporation, still it cannot exercise that power after three years from the time of dissolution, because there is no legal entity in existence to be made a party defendant, or reply to the application. Yet such is the contention of the counsel for the petitioner. A clearly designated jurisdiction cannot be whisked away by such specious argument; and a remedial section of the general corporation Act of great value to those interested in the property of dissolved corporations, the stockholders and creditors thereof, should not be nullified by such a strained construction of other sections of the Act not in terms applicable to the sections under consideration.

The only question which is properly raised by the petition of the purchaser is as to the jurisdiction of the Court to appoint the receiver and administer the unfinished business of the company by disposing of its sole remaining asset, the real estate, for the benefit of the creditors or stockholders of the company, or both. But the counsel for the petitioner urges that the application of the stockholder involved an adjudication based on facts, and that there was no proper presentation of the facts for an adjudication, because there was no one competent to present them, the corporation being non-existent and its officers being therefore destitute of power to represent it. If a corporation at the time of its dissolution is an active one, and even to a small extent pursues the objects for which it was created, then the Court might require some reason to be shown why the officers should be displaced by a receiver to wind up its affairs. In New Jersey, under a similar provision, it was held that in such case proof of the unfitness of the directors to administer the trust, or their misconduct or incapacity to discharge their duties, should be shown as a reason for their displacement by a receiver. American Surety Co. v. Great, etc., Co., 58 N. J. Eq. 526, 43 Atl. 579; Newfoundland, etc., Co. v. Schack, 40 N. J. Eq. 222, 229, 1 Atl. 23; Rawnsley v. Trenton, etc., Co., 9 N. J. Eq. 95. But it is not necessary to so hold in this case. There are in the bill allegations sufficient to justify the appointment of a receiver to displace the directors. Nothing remains to be administered but a farm, which the corporation unsuccessfully undertook to sell and convey after the expiration of three years from the dissolution of the company; and the complainant is interested personally, as well as a stockholder, to have a good title made to the property. All management of the affairs of the company has long been abandoned by the officers of it, and the' president and two directors have signed an answer, which in effect consents to the appointment of a receiver to displace them. So that it appears of record that not only was there jurisdiction in the Court to appoint a receiver for the corporation, but sufficient reasons for so doing.

The prayer of the petitioner will be den:ed and an order made requiring him to comply with the terms of sale.

Note.—-The decree in this case was affirmed by the Supreme Court on appeal. See post p. 411.