232 N.W. 259 | S.D. | 1930
This appeal is from an order overruling demurrers to an amended' and a supplemental complaint of the plaintiffs. O'n account of their length these pleadings cannot be set forth in full. The plaintiff, C. C. 'Wyman & Co., hereinafter called the Wyman Company, and the plaintiff, Deere & Webber Company, hereinafter called, the Webber Company, are creditors of the defendant company holding some, but inadequate, security for their several claims. Defendant company is insolvent. The relief sought in the amended complaint is a judgment decreeing that defendant is indebted to the Wyman Company in the sum of $19,297.04 and to the Webber Company in the sum of $12,798.70; that all of the property and assets of the defendant be decreed to be a trust fund, to be held for the benefit of the plaintiffs and all other persons who on final hearing of this cause may be found to be entitled to receive the same; “that said property and assets be converted into' money by sale or otherwise as the Court may direct, and the proceeds arising from said sale of said property and assets may be applied, first, in the discharge and payment of the encumbrances thereon for the preservation of other assets of the defendant, according to the rights and equities of the respective holders thereof, that an account may be taken as to the mortgages, liens and encumbrances held by these plaintiffs respectively, the validity thereof established as well as the encumbrances and liens held by other creditors of the defendant; and that all such mortgages, liens and encumbrances may be enforced herein under the direction of the court, and that the assets of the company may finally be distributed among those who are entitled thereto, and that the business of the defendant be discontinued and finally wound up; that immediately 'the Court appoint some discreet and proper person or corporation as Receiver in equity with the usual powers of Receivers in like cases, to take charge and possession and control of all of the property and assets, legal and equitable, including all books,
Prior to the tiling of this amended complaint in December, 1927, and1 at the time of filing his original complaint on April 8, 1927, the trial court entered an order appointing a receiver pendente lite. The receiver so appointed proceeded, as ordered, to operate the elevator and hardware business of defendant company and to collet the notes and accounts receivable and to- dispose of all the merchandise and physical properties of the defendant corporation.
On or about August 4, 1927, the defendant answered denying that its debts aggregated the amount claimed by plaintiffs, alleged that plaintiffs’ security was adequate for the payment of any indebtedness due them, denied that it was insolvent, and alleged certain counterclaims.
Prior to the date of this answer, the receiver made a report setting out the bid of one Benson for the elevator buildings and equipment, the hardware store building and fixtures and the stock of merchandise therein, also that, after disposing of the foregoing the only assets remaining would be the accounts and notes receivable, and asked for an order confirming the sale to Benson. This report was brought on for hearing on order to show cause. At this hearing one Hanson and other stockholders of defendant company made higher 'bids for the property. The defendant by written response at said hearing objected to the Benson offer or to> any sale at that time, and said that, if the property was to be sold, it should be sold to the Hanson bidders in order that the stockholders and guarantors of the defendant’s obligations should be given an opportunity to recoup so far as possible any loss occasioned by the sale at that time. The trial court ordered and confirmed the sale
Thereafter, but before any order had been made on defendant’s demurrer of February 8, 1928, the plaintiffs filed a supplemental complaint dated May 31, 1928. It repleaded all of the allegations of the amended complaint, alleged the facts contained in the foregoing statement and that the receiver had reduced to cash substantially all of defendant’s assets, Including that which constituted the security of plaintiffs’ claims; that after disbursing $24,783.47 under the order of the court the receiver had on hand $10,534.41 of which $3,500 should be paid to the Wyman Company and $3,780 to the Webber Company as being the procéeds of the sale of security held by them; that the amount still due the Wyman Company was $4,807.64 and to the Webber Company $9,607.54, and that the balance after distributing the $7,280, as above stated, would be insufficient to pay more than 15 per cent of the amount due unsecured creditors, including the unsecured balances due plaintiffs.- The prayer of the supplemental complaint was as follows : “Wherefore the plaintiffs pray judgment as in the Amended Complaint herein and that their expenses and disbursements incurred as herein alleged in connection with the caring for, securing and renewing- of their collateral security and in and about the collections made thereon may be determined and confirmed and approved in the several sums herein alleged and that the right of the respective plaintiffs to retain and apply the balances after paying such expenses and disbursements to their respective indebtednesses and interest may be approved and confirmed; that the plaintiff, Webber Company, may have an accounting herein from the Receiver
The first question to be answered in determining the sufficiency of these complaints is, What is the nature of the cause of action alleged? Appellant contends that, if a cause of action is alleged, it is one in which several creditors, having independent claims at law, seek to have a receiver appointed for a corporation which they allege to be insolvent. Appellant contends that such an action cannot be brought in South Dakota, because, under section 2475, Rev. Code 1919, the appointment of a receiver is an ancillary remedy in aid of some other primary object of litigation, and the primary object of this action is the appointment of a receiver.
Section 2475, so far as appellant contends it to be applicable, is as follows: “A receiver may be appointed by the court in which an action is pending, or by the judge thereof: * * * 5. In the cases where a corporation has been dissolved, or is insolvent, or is in imminent danger of insolvency, or has forfeited its corporate rights.” Our section 2475, with its six subdivisions is substantially identical with section 564, Cal. Code Civ. Proc., as construed by the California court in what is known as the French Bank Case, 53 Cal. 495, 553. For that reason appellant quotes with confidence therefrom as follows: “There is, of course, no-such thing as an action brought distinctively for the mere appointment of a Receiver — such an appointment, when made, is ancillary to or in aid of the action brought. Its purpose is to preserve the property pending the litigation so that the relief awarded by the judgment, if any, may be effective.” There are courts which hold to the contrary (23 R. C. L. 11; 4 Ann. Cas. 67; Supreme Sitting of the Order of Iron Hall v. Baker, 134 Ind. 293, 33 N. E. 1128, 20 L. R. A. 210), but respondents do not -contest the point, so it is unnecessary to decide it.
But respondents contend that this is not “an action brought distinctively for the mere appointment of a receiver,” but that it is an action in the nature of a creditor’s bill. To- this appellant objects that a court of equity would not entertain a creditor’s bill
In Fidelity Savings & Loan Association v. Reese, supra, this court said: “The rule that legal remedies must be exhausted before equity will entertain an action to determine the validity of a transfer made by a debtor arose when the courts of law and equity
In Austin v. Morris, 23 S. C. 393, 402, 403, Mr. Justice McGowan asks: “Why insist upon that evidence if there is other perfectly satisfactory evidence of the fact in question? Especially if the circumstances are such that the delay in getting judgment may be fatal to the relief sought ?”
While, therefore, the pleadings demurred to are not creditor’s bills in the strictest sense, yet equity has often taken cognizance of similar proceedings by creditors of insolvent corporations to compel distribution of assets. Sometimes the pleading asking for this relief is called a creditor’s bill and sometimes not. 8 R. C. L. 25, 25, 27, § 29; 15 C. J. 1382, note 8, and cases cited. In such suits receivers have been appointed. Northwestern National Bank v. Mickelson-Shapiro Co., 134 Minn. 422, 159 N. W. 948; Matter of Reisenberg, 208 U. S. 90, 28 S. Ct. 219, 52 L. Ed. 403; Tradesman Pub. Co. v. Knoxville Car Wheel Co., 95 Tenn. 634, 32 S. W. 1097, 31 L. R. A. 593, 49 Am. St. Rep. 943; 7 R. C. L. 747. See Gates v. McGee, 15 S. D. 247, 88 N. W. 115.
Insolvency of the defendant could not be more clearly shown by a return nulla bona than by the facts' not merely alleged but substantially proven in the pleadings demurred to. Moreover — by the demurrers thereto — there are admitted the debts due respondents as well as the inadequacy of their security; default in payment of the notes given in evidence of such indebtedness; the retention of title by plaintiff, the Webber Company, of a large amount of
Whether, therefore, the pleadings demurred to may properly be designated creditor’s bills or not, they do state a cause of action on the equity side of the court and are not merely for the appointment of a receiver. They contain allegations of fact amply sufficient to have defendant corporation declared insolvent, for the marshaling of its assets, the sale of the securities held by plaintiffs and other corporate property, the equitable distribution of its assets among its creditors as well as for the appointment of a receiver as ancillary relief. This view makes it unnecessary to■ consider separately, the five grounds of demurrer stated.
We are of the opinion that the orders overruling the demurrers should be, and they are, affirmed.