Kelly v. Neshanic Mining Co.

7 N.J. Eq. 579 | New York Court of Chancery | 1849

The Chancellor.

The question now submitted is, whether the judgment creditors, or either of them, shall be permitted to proceed to sell under execution; or whether the receiver shall sell; and, in either case, how and when the property shall be sold; whether the engine, pump and machinery shall be sold separately from the farm, or with the farm; or whether the sale shall be deferred altogether until the question as to the validity of the judgments, and of the mortgages except the mortgage to Rockafellow, shall be determined, in the suits now pending, in which their validity is disputed.

The bill of Hezekiah Kelly was filed Nov. 12, 1847, charging that the Company, having ceased to pay debts 6n the 2d of Aug. 1847, suspended their ordinary business, for the want of funds to carry on the same, on the 9th of Nov. 1847.

On this bill an injunction was allowed, restraining the Company from collecting debts or transferring property.

The judgment of Moore was entered on the 5th April, 1848, on a writ returned in January, 1848.

The receiver was appointed on the 23d May, 1848.

The judgment of Joseph H. Bill was entered on the 24th of May, 1848.

The judgment of Bill was entered subsequently both to the injunction and the appointment of the receiver. Moore’s suit, in which his judgment was obtained after the issuing of the injunction ; and his judgment was entered before the appointment of the receiver.

The 5th section of the “Act to prevent frauds by incorporated companies” provides, that when any incorporated company shall have become insolvent, it shall be lawful for any creditor or stockholder to apply to the Chancellor, by petition or bill, setting forth &c., for a writ of injunction and the appointment of a receiver ; whereupon the Chancellor may hear &c.; and if it shall be made to appear to the Chancellor that the said company has become insolvent &c., it shall be lawful for the Chancellor to issue an injunction to restrain the company from exercising any of its privileges or franchises, and from receiving any debts, and from paying out, selling, assigning or transferring any of the estate, moneys, funds, lands, tenements or effects of the company. And the 7th section of the said act provides, that it shall be lawful for the Court of Chancery, at the time of ordering the said injunction or at any time afterwards during the continuance of the injunction, to appoint a receiver with full powmr to demand, sue for, receive and take into his possession, all the goods &c., credits, moneys and eifects, lands, books, papers, choses in action and property of every description belonging to the company at the time of tbeir insolvency or suspension of business; and to sell, convey and assign all the said real and personal estate ; and-to pay into court all the moneys and securities arising from such sale, or which the receiver shall receive by virtue of the authority vested in him, to be disposed of by him, from time to time, under the order of the court, among the creditors of the company.

And the 15th section of the said act provides, that, in the distribution of the funds of the company, the creditors shall be paid proportionally to the amount of their respective debts, excepting mortgage and judgment creditors when the judgment has not been by confession for the purpose of preferring creditors.

Independent of the question whether the judgments of Moore and of Bill, in this case, may or may not be considered as having been by confession for the purpose of preferring creditors, is either of them entitled to preference over creditors at large.

Bill’s judgment can have no such preference, because it was not entered till after the appointment of the receiver.

Moore’s judgment was entered before the appointment of the receiver, but not till after the injunction against the company as an insolvent company was issued. I am of opinion that no judgment is entitled to preference unless it was obtained before the granting of the injunction under the provisions of the said act. The whole property is locked up by the injunction; and the receiver, by the terms of the act, is to take possession of all the property belonging to the company at the time of the insolvency or suspension of business which induced the injunction. No other reading can bo given to the act; and to attribute any other intention to the Legislature would be to suppose they did not foresee the consequences which would result from permitting judgments obtained after the injunction to have preference. Judgments would bo confessed after the injunction.

It may be said that a judgment confessed after tbe injunction would clearly be for tbe purpose of preferring creditors, and would therefore be within the provision of the act denying preference to judgments by confession for the purpose of preferring creditors. But suppose a suit regularly commenced by one creditor and proceeding regularly when the injunction was issued} ••and afterwards that creditor proceeded regularly and obtained his judgment in due course, would that judgment have prefer-ence1 ,

If a judgment regularly obtained after the injunction would ■be preferred, would it make any difference whether the suit was ^commenced before or after the injunction! It would not be a judgment confessed; and, if the act contemplated that judgments obtained otherwise than by confession after the injunction should have preference, the language of the act makes no difference between suits commenced before and those commenced after the injunction. '

I am inclined to think that the act contemplated only judgments entered before the injunction.

If a judgment obtained after the injunction might have preference if not by confession &c., then the question as to Moore’s judgment would be whether it is not to be considered as a judgment by confession; and if so, whether it was for the purpose of giving preference.

I think that the orders restraining sales under the judgments should stand; and that the sale should be made by the receiver.

The next question is, how the sale shall be made: 1st, whether subject to the mortgage, or not so subject; and 2d, whether the farm, and the mining tools and implements shall be sold together, pr separately.

As to the mortgages of Janet Blair, their validity is disputed, and cannot be determined now. And in all cases of this kind, where receivers are appointed under this act,. there may be a question as to the validity of asserted liens. Is the receiver to wait until such question can be determined in the regular course of litigation; or is he empowered by the statute to sell irrespective of the incumbrances or alleged incumbrances !

By the 11th section he is to receive and take possession of all the property belonging to the Company at the time of their suspension, and sell the same, and bring the proceeds into court, to he distributed from timo to time, under the order of the court; and the 15th section provides, that in the distribution of the funds the creditors shall he paid proportionally to the amount of their respective debts, except mortgage and judgment creditors, when &c.

It seems to me that the idea was that the receiver should sell the property irrespective of the incumbrances, and pay the incumbrances, according to their priority, out of the proceeds.

Perhaps the court might exercise a discretion and allow the property to bo sold subject to admitted incumbrances, if it were probable that in that way the sale would yield a large sum for distribution among the other creditors, leaving such mortgage an existing lien. In that case the receiver would sell only the equity of redemption; and, whether the holder of that mortgage or some other person bought at such sale, the receiver would convey, not the property, but the equity of redemption only.

If it be clear that the best way to sell, in this case, would be to sell subject to Rockafellow’s mortgage, and if both parties desire it, I should be willing to direct the receiver to sell in that way. If not, let the receiver sell on the understanding that the purchaser is to have a free title.

As to whether the farm and the mining machinery should ho sold separately or together, there are no means of determining; nothing to guide the discretion of the court. No ore has yet been found. If there is no ore there, it is manifest the machinery should ho sold separately from the farm; for if the lands can only he used for farming piirposes, the machinery is of no use there. True, if the probability that ore will he found is so decided that it is clear that further progress should be made, and that whoever should buy would buy with a view of continuing operations for reaching ore, it would be better to sell the machinery with the land. But upon this question sufficient light has not been given to enable me to decide upon the probability of reaching ore.

But one of two courses is left: either to direct the receiver to sell in such way in this respect as he shall, on proper inquiry and investigation, think most advisable, or to act upon the best conjecture I can form myself as to the best mode of sale.

One thing may be said, the machinery, to be taken down and removed, might be of little value. The value of it to a person wanting it to take to some other place would be less by the expense of taking it out of the mine and removing it to such place.

I must suppose that the receiver will act diligently and fairly in inquiring and determining as to the probability of finding ore ; and I am inclined to direct him to sell in such way in this respect as, upon such inquiry and investigation as I have suggested,, he shall think most advisable.

Order accordingly.