In re a Majority of Board of Directors of Automatic Chain Co.

119 N.Y.S. 379 | N.Y. App. Div. | 1909

Robson, J.:

It does not seem to be urged by respondent on this appeal and the order from which this appeal is taken is not based upon the fact that there was any fraud or irregularity in the proceedings which resulted in the order of dissolution of the corporation. Appellant urges that in the absence of fraud, mistake, inadvertence or irregularity in those proceedings the court had no power to vacate the final order of dissolution. This position of appellant involves an answer to this question: Has the Supreme Court of the State of New York the same power over its order dissolving a corporation which it has over any other order granted by it ?

The general power of the Supreme Court to vacate, set aside, or modify even its final orders or judgments for sufficient reason and in the interests of substantial justice is well recognized, is not dependent upon any express statutory provision giving it that power, but is a power inherent in the court itself. The statement defining and recognizing this power most frequently adopted by the courts is found in the case Matter of City of Buffalo (78 N. Y. 370). The court says : “ Courts have always control over their own proceedings, and where there is not express prohibition, may deal with them so that what is right and just may be reached.” Many instances of the exercise of this power are found in the reported cases. It is true that in many of these cases there appeared either fraud, excusable mistake, irregularity or inadvertence. But the court is never limited in its action in setting aside or modifying its orders, decrees or judgments to any one or all of these occasions for its exercise; but if it appears that substantial justice will be subserved, and injustice to persons, even though they be not in form parties to the proceeding, whose rights would otherwise be injuriously affected by the judgment, prevented, the court will set aside, correct or modify its judgment. (Ladd v. Stevenson, 112 N. Y. 325 ; Gould v. Mortimer, 26 How. Pr. 167.) See, also, Vanderbilt v. Schreyer (81 N. Y. 646), where the general power of the court to deal with its proceedings is stated in broad and liberal terms.

Appellant further urges that the corporation having been dissolved by the court’s order it became thereupon, and is forever thereafter, legally dead, and cannot be revived by judicial authority. To hold this would be to place such orders as to their legal effect in a class by themselves as immune from further interference by way of correction or change in ultimate effect. There does not appear to be any reason why different principles should control the court’s action as to such orders from those of general application in other court proceedings. The power of the court in proper case to set aside such an order seems to be suggested, though not in terms decided. (Matter of Peekamose Fishing Club, 151 N. Y. 511, 520.) That the court has such power and can revive or resuscitate a corporation it has by order dissolved is expressly held in the Connecticut court of last resort. (Sullivan Co. R. R. Co. v. Connecticut River Lumber Co., 76 Conn. 464.) The reasoning upon which that decision is based is entirely satisfactory and convincing. It is true that in this case the ground for setting aside the order of dissolution was for fraud and irregularity. But, if the automatic effect of such an order is to toll the limit of the corporation’s legal life, I see no reason why it would not be equally fatal to its existence when fraudulently or irregularly granted, as it would be if the order were improvidently granted.

I think the preliminary objection interposed by appellant on the return of the order to show cause on Ryan’s application, and on the hearing of the receiver’s motion, that the order to show cause in the first proceeding and the notice of motion in the second, should have been served upon each of the stockholders of the corporation, and that said stockholders and creditors were entitled to be heard in each proceeding, was in each case properly overruled by the court. The Attorney-General, the receiver of the corporation and the only stockholder who had appeared in the dissolution proceedings were before the court. The other directors had then no interest in the corporation as stockholders. The creditors are protected by the order granted, and payment of their claims by the corporation is assured by the bond which Ryan gave as a condition of granting the order. The other stockholders, who had not appeared, were not necessary parties to this application. (Matter of Broadway Ins. Co., 23 App. Div. 282.) In the case last cited it is true the application to the court in the dissolution proceedings concerned, not a final order, but attacked the proceedings for failure to serve the first order to show cause on the Attorney-General. The reason for serving notice upon stockholders who had not appeared would seem to be equal in each instance.

The order appealed from was in the interests of substantial justice. The corporation was organized to manufacture chains by the use of patented machinery and a patented process. Its assets consisted largely of its ownership of and interest in these patents. It had paid for these patents and interests $30,000 in cash and by delivery of 1,200 of its 1,500 shares of common stock. It had also contracted for the construction of some five of these patented machines at an expense of $15,200. Two of these machines had been delivered and the corporation had paid therefor $4,400. The remaining machines had been manufactured, but not delivered. It had also contracted for an electric motor, etc., at the price of $7,000, upon which $3,500 had'been paid, but the machines had not been delivered. The total of the liabilities of the corporation as found by the referee was $14,608. Of this sum $14,600 was for the unpaid purchase price of the machines above referred to with certain charges for storage added. The indebtedness outside of these claims was insignificant. In the schedule of assets the patents and privileges thereunder, for which the company had in fact paid $30,000 in cash in addition to the shares of stock above referred to, were valued at $5,000. The two chain welding machines in its possession, which had never been used, for which the corporation had paid $4,400, were valued at $100 each. To a going concern, there is apparent reason to believe that the patents and these machines, which are concededly necessary to carry on the business for which the corporation was organized, would be worth much more than the value fixed by the referee. When the liabilities are paid the company will have three- more machines and the electric equipment. Ryan is anxious to proceed with the business of placing the corporation on its feet. He is the person most largely interested in its success. He has shown his good faith by his large investment in the stock of the company after the proceedings were begun for the dissolution of the company, and by furnishing a bond, by which payment of all liabilities is assured. The order appealed from was opposed, and its granting is now attacked by only one stockholder, who owns but five shares of its stock. There seems to be no conceivable reason why the order rehabilitating the corporation, and again giving it the opportunity to proceed with the business for which it was organized, was not under all the circumstances well warranted and a just and equitable exercise of judicial discretion.

The order should be affirmed, with ten dollars costs and disbursements.

All concurred.

Order affirmed, with ten dollars costs and disbursements.