Case ID: ad_57/html/0515-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Voluntary Dissolution of the Lenox Corporation. People’s National Bank of Waynesboro, Pa., Appellant; George Duchscherer, Temporary Receiver of the Lenox Corporation, Respondent.
    
      Temporary receiver of a corporation — Ms appointment in proceedings for its voluntary dissolution—the facts requisite to jurisdiction must be shown—proof of insolvency—insolvency need not be recited — the right of the receiver on the filing of Ms bond relates back to the time of entry of the oi'der appointing Mm.
    
    The sole authority for appointing a temporary receiver and granting an injunctian, enjoining creditors from prosecuting their claims at the commencement of a proceeding for the voluntary dissolution of a corporation, is that conferred by section 8433 of the Code of Civil Procedure, and if the statutory authority is not followed strictly, the order will be void.
    If there is any evidence tending to show the requisite facts giving the court jurisdiction, the order is not a nullity, although it may have been improvidently granted and may be set aside on a motion timely made for that purpose.
    Statements contained in the moving papers, used upon the application for such an order, showing that notes of the corporation had gone to protest, that suits to which the corporation had no defense were pending upon overdue claims exceeding in the aggregate §30,000, and that other creditors were threatening to sue and that the company’s assets amounted only to a few thousand dollars and a heavily mortgaged apartment house, are sufficient to warrant a finding that the corporation was insolvent within the meaning of section 3419 of the Code of Civil Procedure.
    In such a case the order granting the application is not void because it fails to recite that insolvency has been shown to the satisfaction of the court, as the court, having acquired jurisdiction, can correct such defect nunc pro tune.
    
    Upon the filing of the temporary receiver’s bond, his right to the possession of the property of the corporation relates back to the time when the order, appointing him and enjoining creditors from prosecuting their claims, was entered, and a judgment creditor, whose execution is delivered to the sheriff after the entry of such order, but before the filing of the receiver’s bond, acquires no lien thereon.
    
      • Appeal by the People’s National Bank of W aynesboro, Pa., from an order of the Supreme Court, made at the Erie Special Term and entered in the office of the clerk of the county of Erie on the 27th day of July, 1900, denying its motion to vacate an order appointing a temporary receiver and enjoining creditors from prosecuting claims and to have an execution theretofore delivered to the sheriff ■ of Erie county in its behalf declared a first lion on all the personal property of the corporation; ■ also from an order amending the first-mentioned order nunepro time.
    
    On the 13th day of March, 1899, the appellant recovered a judgment in the Supreme Court of Erie county against the Lenox Corporation for $3,420.27 on two promissory notes given for material used in the construction of an apartment house by the latter company. The judgment roll was filed and the judgment docketed at eleven-seventeen a. m. on that day. That morning on a petition of a majority of the directors of the Lenox Corporation for a volun tory dissolution thereof, under title 11 of chapter 17 of the Code of Civil Procedure, the Erie Special Term granted an order to show cause why said corporation should not be dissolved, returnable June 16, 1899, before a referee therein named, and the order also appointed a temporary receiver and authorized him to conduct the apartment house for the benefit of the creditors, that having heen the business theretofore carried on by this corporation, and enjoined all creditors from bringing action against the corporation for the recovery of money “ or from taking any further proceedings in any action which such creditor or creditors may have heretofore commenced and which is now pending.” This order was entered in the clerk’s office of Erie county at ten-forty-seven a. -m., just half an hour before the docketing of appellant’s judgment. An execution on appellant’s judgment was delivered to the sheriff at eleven-thirty a. m., but the order had previously been served on the sheriff, who informed the appellant’s attorney thereof. • At eleven-thirty-two a. m. the temporary receiver qualified by filing his bond. All of the real property of the corporation was sold on foreclosure on June 12, 1899. The receiver now has in his possession assets of the corporation aggregating $3,345.31. When appellant’s execution was delivered to the sheriff the judgment debtor had personal property consisting of $1,968.07 cash, partly in bank and partly in office cash drawer of apartment house, café furnishings and supplies in said house appraised at $1,200 and open accounts of the face value of $3,764.22, from which the sum of $1,809.81 had been realized.
    On the return of the order to show cause counsel for appellant appeared specially before the referee and objected to further proceedings on the grounds, (1) that the order appointing the referee was null and void, and (2) that the bankruptcy court had taken cognizance of the affairs of this corporation. The objections being overruled, counsel for appellant appeared generally. The referee found and reported that the corporation was insolvent at the time the proceeding was instituted.
    The petition for dissolution showed that the corporation was unable to meet its current obligations for interest, accounts and notes accruing; that some of its notes had gone to protest, and that seven actions or suits had been commenced by creditors to collect and enforce payment of the debts and obligations of the corporation, aggregating over $30,000, past due and owing, and to which it had no defense upon the merits, although in some instances an answer had been interposed to gain time in the expectation that the company would be able to float a further loan, which, however, it was unable to do ; that other similar suits were threat ened; that the principal asset of the corporation was the apartment house, which was covered by a first mortgage of $250,000, and a second mortgage of $100,000, upon which interest would soon fall due and must be paid, if at all, from the receipts of the building, which would be greatly impaired and depreciated by the recovery of judgments against the corporation or the interruption of its business thereby.
    The schedules annexed to the petition showed the estimated value of the assets $480,732.29, and the liabilities, exclusive of capital stock, $455,178. The outstanding capital stock was $130,000.
    
      J. McO. Mitchell, for the appellant.
    
      William L. Ma/rcy, for the respondent.
   Laughlin, J.:

The first point urged by appellant is that the order appointing the temporary receiver and enjoining creditors from prosecuting' claims is absolutely void. If so, doubtless it must be vacated, notwithstanding petitioner’s loches in making the motion is so great • under the circumstances as to warrant, if not require, the denial of the motion if addressed to the discretion of the court. The grounds upon which it is claimed that the order is void are, (1) that neither the petition nor affidavits contain an allegation of insolvency; (2) that the schedules show solvency, and (3) that the order fails to recite that insolvency has been shown to the satisfaction of the court. There seems to be no authority for appointing a temporary receiver and granting such an injunction at the commencement of a proceeding for the voluntary dissolution of a corporation excepting that conferred by section 2423 of the Code of Civil' Procedure, and if, therefore, the statutory authority be not followed strictly, the order will be void. (Matter of Dolgeville Electric Light & Power Co., 160 N. Y. 500; Matter of Hamilton Park Co., 1 App. Div. 375, 379 ; Chamberlain v. Rochester S. P. V. Co., 7 Hun, 557.) Although the order may have been improvidently granted and might be set aside on motion timely made for that purpose, yet, if there' be any evidence tending to show the requisite facts, it would ■ give the court jurisdiction to act, and its order was not a nullity. (Fischer v. Langbein, 103 N. Y. 84; People ex rel. Cauffman v. Van Buren, 136 id. 252; Fischer v. Blank, 81 Hun, 579; affd., 144 N. Y. 700.)

We agree with the contention of the learned counsel for appellant that the insolvency specified in sections 2423 and 2429 of the Code of Civil Procedure is limited and defined by section. 2419. For the purpose of a proceeding of this character, therefore, a corporation is insolvent when the “ stock, effects and other property thereof are not sufficient to pay all just demands for which it is liable or to afford a reasonable security to those who may deal with it.” (Code Civ. Proc. § 2419.) With overdue claims again, i the' corporation, exceeding in the aggregate $30,000, arising on its express contract obligations, and upon which actions or suits, to which, it had no defense, had been brought and were pending, and matured and maturing obligations of other creditors upon, which they were threatening litigation, and the company’s assets amounting to only a few thousand dollars exclusive of its apartment house which was so heavily mortgaged — insolvency, even in the broadest sense, if not upon this corporation, was imminent. We do not think it can be successfully maintained that the court had before it no evidence that the property of the Lenox Corporation would not afford reasonable security to those who might deal with it or of its insolvency, within the intent and meaning of that word as used in the title of the Code of Civil Procedure relating to this subject. (Sterrett v. Third Nat. Bank of Buffalo, 46 Hun, 22; Brouwer v. Harbeck, 9 N. Y. 589 ; Baker v. Emerson, 4 App. Div. 348; French v. Andrews, 81 Hun, 272; Denike v. New York & Rosendale Lime & Cement Co., 80 N. Y. 599 ; National Broadway Bank v. Wessell Metal Co., 59 Hun, 470.) The court having acquired jurisdiction could make the order nunc pro tune correcting the formal defects in its order reciting that insolvency had been satisfactorily shown. (Matter of Christian Jensen Co., 128 N. Y. 550.)

Upon the filing of the receiver’s bond his right related back to the time the order was granted and entered, from which time the property is deemed custodia legis, and appellant acquired no lien thereon by virtue of its execution delivered to the sheriff after he had been enjoined from enforcing the claims of creditors. (Matter of Christian Jensen Co., supra.) Appellant also contends that it has been misled to its prejudice by the misrepresentations of an officer of its judgment debtor, in consequence of which it deferred entering judgment for three days: A controverted question of fact is presented by the denial that any misrepresentation was made or that the company was guilty of had faith. We refrain from reviewing the decision of the Special Term on this question of fact, if the Special Term did decide it, which is doubtful, for two reasons, (1) appellant should have moved promptly and within the life of its execution, and (2) it appears that other creditors whose claims exceeded the personal property of the judgment debtor were prepared to enter judgment before appellant was entitled so to do, and that they were induced to refrain from so doing upon the understanding that they would not thereby lose their priority, and it would, therefore, be inequitable to allow appellant a preference over them.

The order appealed from should be affirmed, with costs.

All concurred.

Order affirmed, with ten dollars costs and disbursements.