Case ID: abbn-cas_17/html/0115-01.html
Source: Caselaw Access Project
Author: {"author": "Brady, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

SWORDS v. NORTHERN LIGHT OIL CO.
    
      N. Y. Supreme Court, First Department; General Term,
    
    
      May, 1885.
    Action to dissolve Corporation.—Pleading; complaint; leave to sue; demurrer.—Corporation, when insolvent; CESSATION OF BUSINESS.
    In a stockholder’s action to dissolve a corporation, the complaint states a cause of action for dissolution for insolvency and suspension of business, within Code Civ. Pro. § 1785, where it alleges that the debts of the company have remained unsatisfied for many years, and will continue so to remain, because it is without means of payment, and that the corporation has become and is insolvent and unable to pay its debts, and has remained insolvent for one year last past; that it is indebted in- large sums of money to various persons and has no means whatever of liquidating its outstanding indebtedness, and that it has not had the means for more than a year last past; and that, though its property consists of oil lands to a certain extent developed, but little, if any, oil for many years has been taken from its wells and mines, and that the supply of oil has gradually diminished until the operation of them has ceased, and that the principal i'esources of the corporation were their production of oil; and that, by reason of the failure of the wells and mines to further yield oil, and the failure to operate them, the corporation has become and is crippled in its supply, rendering it wholly impossible to continue the existence of the same without loss and damage. So held, on demurrer for insufficiency.
    In such an action, the leave to sue required by Code Civ. Pro. § 1786, sufficiently appeals from allegations showing an application to the attorney-geneial requesting him to commence an action on behalf of the people to dissolve the corporation; that more than sixty days have elapsed since a statement of facts verified on oath was submitted to him, and that he has omitted, for sixty days after such submission, to commence the action, and that, upon his refusal to proceed, the plaintiffs applied to the supreme court at special term for leave to bring the action, and that such leave was duly granted.
    Where two causes of action are set up in the complaint, and a general demurrer is interposed to them, if either cause of action is sustained, the demurrer must be overruled.
    
      Appeal from an interlocutory judgment entered, upon an order .overruling two demurrers, one interposed to the original, and one to the amended complaint.
    Thomas Swords and others, for themselves and all other stockholders who might come in and contribute to the expenses of the suit, brought this action against the Northern Light Oil Company, Charles W. Burton, as its president and individually, and others, as its trustees, to dissolve the corporation, for the appointment of a receiver of its assets, and for an injunction restraining the corporation and its officers and agents from exercising any of its corporate rights and franchises.
    In the summons and complaint, as originally served, Burton individually was joined as a defendant, but no relief was demanded against him in the complaint in Ms individual capacity. A demurrer to the complaint on behalf of all the defendants was interposed ; it was amended as of course, whereupon the defendants again demurred to the amended complaint, assigning the same grounds of demurrer as to the original complaint. These grounds are stated fully in the opinion of the court.
    The allegations of the amended complaint, material to the consideration of the questions raised by the demurrer thereto, were as follows :
    “ Eleventh. That notwithstanding the vast amount of property owned by the said corporation at the time of its incorporation, and notwithstanding the fact that nearly all of said property was to a certain extent developed, but little, if any, oil has been for some years past taken from the wells and mines of the said corporation, and the supply of oil from the said wells and mines has gradually diminished until operation on said wells and mines has ceased.
    “Twelfth. That the principal resources of the said corporation were the product of said property, to wit, the oil so taken therefrom, and by reason of the failure of the said wells and mines to further yield such oil, and by reason of failure to operate the same, the said corporation became and is crippled in its means of supply, rendering it wholly impossible to continue the existence of the same without loss and damage to these plaintiffs.
    “ Seventeenth. That the corporation is indebted in large sums of money to various persons to these plaintiffs unknown, and has no means whatever of liquidating its outstanding indebtedness, nor has it had the means to do so for much more than one year last past. That its debts have remained unsatisfied for many years and will continue to remain so unsatisfied, as no means are at the command of the corporation to enable it to ever discharge its obligations by reason of the premises the plaintiffs charge ; that the said corporation has become and is insolvent and unable to pay its debts, and has remained insolvent for at least one year last past, and thatdt is no longer entitled to act as a corporation, but that it is subject to be deprived of its franchises and rights by the act of this court, and be dissolved.
    “Eighteenth. That in pursuance of section 1786 of the Code of Civil Procedure, the said plaintiffs duly applied to the attorney-general of the State of New York, by submitting to him a written statement of facts verified by oath, reciting in substance all the matters and things alleged herein, and showing grounds for an action under the provisions of section 1785 of the. Code of Civil Procedure, and requesting the said attorney-general to commence an action in the name and in behalf of the People of the State to dissolve said corporation. That more than sixty days have elapsed since such submission was made, and the attorney-general has omitted for sixty days after the written statement of facts, verified by oath, was submitted to him as aforesaid, to commence an action or proceeding to dissolve the said corporation, or any action specified in said section 1785, and these plaintiffs as stockholders as aforesaid now have the right to begin an action in their own name such as is by the-said sections 1785 and 1786 provided. That thereupon, upon such refusal of the attorney-general to proceed as aforesaid, the plaintiffs duly applied to the supreme court at a special term thereof, for leave to bring this action in their own name against the defendants, and thereupon the court duly granted the plaintiffs such leave to sue with like force and effect as if the action had been brought by the attorney-general in the name and in the behalf of the People of the State of New York, and thereupon an order to that effect was duly made and entered on September 25, 1883, at a special term of this court held at the court-house in the city and county of New York, entitled in this action, wherein and whereby it was amongst other things ordered, ‘ that leave be, and is hereby granted to the plaintiffs, stockholders in the said Northern Light Oil Company, to begin this action in their own name, pursuant to the provisions of section 1786 of the Code of Civil Procedure, and that they be empowered to conduct and carry on the same with like force and effect as if the said action had been commenced by the attorney-general in the name and in behalf of the People of the State of New York, as by reference to the said order, when the same shall be produced, will more fully and at large appear, and to which these plaintiffs pray leave to refer, if need be.”
    Both demurrers were brought on for argument at special term and overruled with the usual leave to answer, whereupon defendants took this appeal from the interlocutory judgment entered upon the order overruling both demurrers.
    
      George A. Black (Scudder & Carter, attorneys), for defendants, appellants.
    
      William Jay and M. L. Erlanger (Van Winkle, Candler & Jay, attorneys), for the plaintiffs, respondents.
   Brady, J.

—This action was commenced by the plaintiffs, as stockholders of the Northern Light Oil Company, under sections 1785 and 1786 of the Code of Civil Procedure, to dissolve the corporation, for the appointment of a receiver of its assets, and for an injunction restraining the corporation and its officers and agents from exercising any of its corporate rights and franchises. The dissolution is asked upon the ground that it is and has been for more than a year before the commencement of the action, insolvent; that it had neglected for at least a year prior to that time to pay and discharge its indebtedness, and had suspended its ordinary and legal business for at least a year also.

In the original complaint the defendant Charles W. Burton was sued individually as well as the president of the company, although no relief was demanded against him in his individual capacity.

The original complaint was demurred to on several grounds, viz :

First. That the complaint does not state facts sufficient to constitute a cause of action.
Second. That the first cause of action mentioned in the complaint does not state facts sufficient to constitute a cause of action.
Third. That the second cause of action mentioned in the complaint does not state facts sufficient to constitute a cause of action.
Fourth. That the court has not jurisdiction of the subject of the action, inasmuch as it does not appear upon the face of the complaint that leave to sue has been granted.
Fifth. That the plaintiffs have not legal capacity , to sue, inasmuch as it does not appear upon the face of the complaint that they have obtained leave to sue.
Sixth. That causes of action have been improperly joined.

Whereupon the complaint, as permitted by the Code, was amended, and the word “individually” stricken out; so that it remained as an action against Mr. Burton, as president of the company only. A demurrer similar to that which was previously interposed was served to the amended complaint. Both demurrers appear to have been brought on for argument and both overruled.

The demurrers were properly overruled, because the averments contained in the latter named pleadings were sufficient to put the defendants to an answer.

A corporation, like an individual, is insolvent when it is not able to pay its debts (Brouwer v. Harbeck, 9 N. Y. 589, 594; Ferry v. Bk. of Cent. N. Y., 15 How. Pr. 445).

It was alleged that the corporation is indebted in large sums of money to various persons and has no means whatever of liquidating its outstanding indebtedness, nor has it had the means for' much more than a year last past. The demurrer admits this, and this establishes its inability to pay (Mickles v. Rochester City Bank, 11 Paige, 118, 128; Medbury v. Rochester Frear Stone Co., 19 Hun, 498).

The complaint further alleges that its debts have remained unsatisfied for many years, and will continue so ¡to remain, as no means are at the command of the corporation to enable it ever to discharge its obligations ; and further, that the corporation have become and is insolvent and unable to pay its debts, and has remained insolvent for at least one year last past; and this is also admitted by the demurrer.

The property of the corporation seems from the complaint to have consisted of oil lands, and notwithstanding that it was to a certain extent developed, but little, if any, oil for many years had been taken from its wells and mines, and the supply of oil had gradually diminished until the operation of them had ceased; and further, that the principal resources of the corporation were their product, namely, oil so taken from it, and that, by reason of the failure of the wells. and mines to further yield oil, and by reason of the failure to operate them, the said corporation.became and is crippled in its means of supply, rendering it wholly impossible to continue the existence of the same without loss and damage.

All these allegations were admitted by the demurrer, and there is little doubt that they bring it within the section of the statute already referred to, namely, section 1785 of the Code of Civil Procedure.

The case of Denike v. N. Y. & Rosendale, &c. Co, (80 N. Y. 599), was an action brought prior to the enactment of the section mentioned, and it is therefore not an authority in favor of the defendants. There is nothing in the case of Bliven v. Peru Steel and Iron Co. (9 Abb. N. C. 205), to conflict with the views herein expressed. The circumstances developed in that cause are entirely different from those which characterize the case in hand.

It sufficiently appears also in the complaint that leave to prosecute this action was obtained. Section 1786 of the Code of Civil Procedure provides that an. action may be maintained by a creditor or a stockholder under certain circumstances, and the allegations of the .eighteenth paragraph of the amended complaint show that the provisions of that section have been complied with. They show an application to the attorney-general requesting him to commence an action on behalf of the people to dissolve the corporation ; that more than sixty days have elapsed since the submission was made to him, and that he had omitted, for sixty days after the written statement of facts verified on oath was submitted, to commence an action; and further, that upon such refusal of the attorney-general to proceed, the plaintiffs applied to the supreme court, at a special term, for leave to bring this action, which was duly granted.

The first cause of action, therefore, as set forth in the amended complaint, is sufficiently established by the averments contained in the complaint in that regard.

Where two causes of action are set up in the complaint, and a general demurrer is interposed to them, if either cause of action is sustained, the demurrer must be overruled (Hale v. Omaha Natl. Bank, 49 N. Y. 626.

This renders it unnecessary to consider whether the second cause of action is well stated or not, and it becomes our duty to affirm the judgment of the court below, with leave to the defendants to answer on the payment of costs. 
      
       From the briefs of counsel, the point does not seem to have been raised as to the right thus, in effect, to amend the summons, by striking out a party named in the title thereof.