Case ID: ny-st-rep_62/html/0154-01.html
Source: Caselaw Access Project
Author: {"author": "Bartlett, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Application of the Directors of the Binghamton General Electric Company, for a Voluntary Dissolution and for the Appointment of a Receiver.
    
    
      (Court of Appeals,
    
    
      Filed October 9, 1894.)
    
    1. Corporations—Dissolution—Injunction.
    In a proceeding under § 2423 of Code, the court has no power to restrain creditors of the corporation from disposing of its bonds, held as collateral to loans under lawful contracts empowering them to sell.
    2. Same.
    The equity power of the court does not extend to the sequestration of the property of a corporation by means of a receiver.
    Appeal from order of the general term of the supreme court in the fourth judicial department which modified and affirmed as modified an order of special term which modified an order of said court appointing a receiver of the Binghamton General Electric Company.
    
      W. J. Welsh, for app’lt; George F. Lyon, for resp’t.
    
      
       Reversing 59 St. Rep. 886.
    
   Bartlett, J.

We are of opinion that the order of the general term should be reversed. This proceeding is purely statutory, and the terms of the order appointing the temporary receiver and the scope of its injunction clause are defined by § 2423 of the Code of Civil Procedure. The court is empowered to restrain the creditors of the corporation from bringing any action against it for the recovery of a sum of money, or from taking any further proceedings in an action theretofore commenced.

There is nothing in the statute under which this proceeding ■was instituted authorizing the court to restrain the creditors of the corporation from disposing of its bonds held as collateral to loans under lawful contracts empowering them to sell.

It has long been the settled law of this state that the jurisdiction of chancery does not extend to the sequestration of the property of a corporation by means of a receiver. Atty.-Genl. v. Utica Ins. Co., 2 John. Ch. 371; Atty.-Genl. v. Bk. of Niagara, Hopk. 354; U. S. Trust Co. v. N. Y., W. S & B. Ry. Co., 101 N. Y. 478.

It follows that the authority of the court in this proceeding must be found in the statute and not in its general equitable powers. It is obvious that every lien upon the property of a corporation resting upon valid agreement or process before the appointment of a receiver, the lienor being lawfully in possession, must be preserved with the right of enforcement, unless courts and legislatures are to override the vested fights of creditors. This general principle has been repeatedly recognize'd and approved by this court. Ruggles v. Chapman, 59 N. Y. 163; Rogers Locomotive Machine Works v. Kelly et al., 88 id. 234; In Matter of H. P. S. F. Asso., 129 id. 288; 41 St. Rsp. 549; People v. Remington, 121 N. Y. 328; 31 St. Rep. 289.

In an early case in this state, Chief Justice Spencer, in discussing the rights of a secured creditor as bearing upon those of junior or unsecured creditors, said: “I know of no principle of equity which can take from him any part of his security, until he is completely satisfied.” Evertson v. Booth, 19 John. 485. The learned counsel for the respondents has cited a number of cases in this and other courts which he insists justify the original injunction order restraining .creditors holding collateral security, but in this he is mistaken.

It is also urged on behalf of the respondents that the Binghamton Trust Company does not hold as collateral security as many of the bonds of the Binghamton General Electric Company as is claimed in the affidavit of its president. That question is not to be determined in this proceeding. The modified order made by the special term only authorizes the sale of such bonds by the Binghamton Trust Company as are pledged to it as collateral.

The order appealed from is reversed, with costs, wherein it modifies the order of the special term entered in Broome county •clerk’s office on the 10th day of April, 1894, by striking out that part of said order which modifies.the restraining clause in the order of March 1, 1894, appointing the temporary receiver herein.

All concur, except Andrews, Ch. J., not sitting. "

Ordered accordingly.