Mickles v. Rochester City Bank

| New York Court of Chancery | Aug 6, 1844

The Chancellor.

The question as to the validity of the election of Gould, Ward and Smith, as trustees, if the corporation is not actually dissolved, does not appear to be a proper subject of equitable cognizance. The legislature has provided a summary remedy, by an application to the supreme court, to set aside the election of these directors if it is illegal. (1 R. S, 603, § 5.) That court, therefore, is the proper tribunal to set aside the election if it has not been made in conformity to law. And there is no allegation in the bill that these new trustees are insolvent or irresponsible, so as to make it necessary for this court to interfere by injunction to restrain them from wasting the property of the corporation pending the application to the supreme court.

The complainant’s bill shows a case in which this manufacturing corporation is brought clearly within the provisions of the 38th section of the article of the revised statutes relative to proceedings against corporations in equity, which declares that by certain acts of nonuser incorporated companies shall be deemed to have surrendered their rights, privileges and franchises, and shall be adjudged to be dissolved. (2 R. S. 463.) Several questions are presented for consideration'upon this state of facts. The complainant insists that by the nonuser and suspension of the ordinary business of the corporation for one whole year the corporation became ipso facto dissolved; and that the judgments recovered after that time, and the sale of the property upon executions subsequently issued, were unauthorized and void, and gave no title to the purchasers of the property under those executions. The counsel for the respondents, on the other hand, insists that the corporation continues to exist until the surrender of its franchises has been duly declared by a court of law, upon a proceeding by quo warranto • and that this court has no jurisdiction to declare the dissolution of the corporation upon a bill filed by a stockholder.

As to the first question, I have no doubt that the judgments and exéeutions, and the sale of the corporate property under them, before any proceedings had been instituted, either at law or in equity, to obtain a judgment or decree declaring a surrender of the corporate franchises and a dissolution of the corporation, was valid, And by the sale the purchasers acquired the legal title to the corporate property which was conveyed to them by the sheriff. The object of the statute was not to put an immediate end to the corporation for all purposes, at the termination of the year from which the insolvency or non-user commenced, so as to deprive its creditors of all the rights and remedies by suit against the corporation itself; but to enable the creditors, and all others who were interested in having the surrender of the corporate privileges and a dissolution of the corporation judicially declared, to take the proper proceedings for that purpose. Until a judgment upon a quo warranto, or a decree of this court, therefore, has declared a surrender of the corporate franchises and the dissolution of the corporation, any creditor is at liberty to proceed by suit, against the corporation and its property, to obtain satisfaction of his debt, in the same manner as if the alleged surrender by insolvency or non-user had not occurred. And if any of the creditors wish to prevent other creditors from obtaining a preference, they must file their bill for the purpose of obtaining a judicial declaration of the fact that the corporation has surrendered its corporate rights and franchises, according to the provisions of this 38th section, and for a decree declaring the corporation dissolved, and directing the appropriation of its property and effects to the payment of its creditors. Then, by an application under the 56th section of the same article, they may, if a proper case is shown, be entitled to an injunction restraining proceedings at law of the other creditors to obtain a lien and preference in payment out of the corporate property; and allowing such creditors to come in and make themselves parties to the suit in chancery.

The 38th section of the article before referred to has no immediate connection with the four sections which immediately follow it, and which appear to be confined to moneyed corporations ; nor with the two sections which precede it, which provide for the case where an execution at law against the corporate property has been returned unsatisfied. It is doubtful, therefore, whether a summary application, by petition and notice to the proper officers of the corporation, can be made-in the case of an incorporated company which is not a moneyed corporation, and where no execution at law has been returned unsatisfied. The object of introducing this 38th section into the article relative to proceedings against corporations in equity, when the same provision in terms was contained in the last clause of the fourth section of the title containing special provisions relative to certain corporations, (1 R. S. 603,) could have been for no other purpose, however, than to give to this court the power to decree and declare the surrender of the corporate rights and franchis.es, and to decree the dissolution, of corporations which were not moneyed corporations, in cases coming within the provisions of this 38th section. When any corporation, therefore, other than those mentioned in the last section of that article, has remained insolvent for a year, or has neglected or refused for that length of time to pay its ordinary and undisputed evidences of debt, or has for one whole year suspended the ordinary and lawful business for which the corporation was created, I think any creditor or stockholder, who has an interest in closing up its affairs, and having its effects applied to the paymeut of its debts or distributed among its stockholders, may file a bill in this court against the corporation, to have its dissolution judicially declared, and its concerns wound up under the direction of the court. Whether a receiver appointed upon such a bill, in a case not provided for by the 45th section, will have the statutory powers given, to receivers of moneyed corporations, or only such powers 'as this court can confer upon its receivers appointed in ordinary suits between party and party, is a question not necessary to be discussed here.

The objection raised by the demurrers, that the corporation itself is a necessary party to a bill, filed under this 38th section, to declare.the surrender of its 'corporate rights and privileges, and obtain a decree of dissolution, and to distribute its corporate property and effects among its stockholders, appears to be well taken. Where the corporate property of a manufacturing corporation is all exhausted, and the bill is filed against the stockholders by a creditor of the company, for the.mere purpose of enforcing the personal liability of the stockholders for the debts of the company, it may not be necessary to make the corporation itself a party, although .its dissolution has not been .judicially declared. But where the object of the bill is to divest the corporation itself of any of its property, or of any of its corporate rights or privileges, upon the ground that it has forfeited its charter or surrendered its franchises, the other defendants in the suit have a right to insist that the corporation itself shall be made a party ; to the end that the decree may be binding upon such corporation, and that the other defendants may not be subjected to future litigation with the corporation itself in relation to the same matters. In the present case, one object of the bill is to compel the bank to account for the money received for the insurance, which had been effected upon the real estate before the property was actually sold upon the execution. And a decree that the bank was not liable therefor, or that the bank should account for it to the complainant and other stockholders, would not prevent the manufacturing corporation from afterwards filing a bill for the same matter. For that decree would not be binding upon the corporation, nor be any evidence of the fact, as against the corporation, that it had surrendered its corporate rights and privileges.

It would be a matter of course to permit the complainant to amend, by making the corporation a party, if there was sufficient equity in the bill in other respects. But the principal object of the bill appears to be to set aside the sales of the property of the corporation, upon the ground that the sales were invalid,. In this, the complainant must necessarily fail, upon the allegations in the bill, even if the corporation is made a party. For the sales were valid, and gave a good title to the purchaser. And one stockholder of a corporation has a perfect right to become a purchaser, for his own benefit, at a sheriff’s sale of the corporate property upon an‘execution against the corporation; nor is he accountable to any other stockholder for such property, if there is no fraud in the sale, even where the property is bought in by him much below its value. The remedy of the other stockholders is to attend the. sale, upon the executions, and bid .up the property to its cash value, and thus prevent the same from being sacrificed. The stockholders of a corporation are neither tenants in common of the corporate property nor copartners, either before or after the dissolution of the corporation. Before the dissolution the whole title is in the corporation itself, as the legal owner; and upon its dissolution, if no other provision is-made, the whole title vests in the directors or trustees then in office, under the general provision contained in the revised statutes on that subject. (1 R. S. 601, § 9.)

This of course disposes of the whole question as to the insurance money received for the moveable machinery, as the property belonged to the bank at the time the insurance was effected. The insurance upon the buildings and fixed machinery was effected three days before the sale of that part of the property. And as it was effected in the joint names of the bank and of the manufacturing corporation, the $350, received for the damage to the fixed machinery, equitably belongs to the party who sustained the loss. If the fire had occurred before the sale, the amount of the proceeds pf the sale wouldhave been proportion ably diminished. The manufacturing corporation would in that case have sustained the loss and would equitably have been entitled to the money. But I infer from the bill that tlpe fire occurred after the sale. The loss, therefore, falls upon the purchaser at the sale, as the property was not redeemed within the time allowed by law for that purpose. If the corporation had elected to redeem within the year, it would have been entitled to this $350, as a part of the property redeemed ; that being the substitute for so much of the property bid off at the sale as was subsequently destroyed by the fire.

It is not stated in the bill that there is any property, or any effects of the corporation, other than the. property sold on the executions, which could give the complainant any interest in a formal decree declaring a dissolution of the corporation and directing its surplus effects to be distributed among its stockholders. It would, therefore, be a useless expense to the complainant to amend his bill and make the corporation a party. I presume then that no such amendment was asked for before the vice chancellor. The dismissal of the bill, as to the Rochester City Bank, was the necessary result of the allowance of its demurrer.

The bill being defective both in form and substance, the injunction should not have been granted as to any of the defendants. It was, therefore, properly dissolved upon the matter of the bill alone, and without reference to any thing contained in the answer of the other defendants.

The decretal order appealed from must be affirmed with costs.^(a)

(a) Affirmed on appeal to the court for the correction of errors, December 28th, 1845.