Case ID: ad_8/html/0042-01.html
Source: Caselaw Access Project
Author: {"author": "Putnam, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William H. Proctor, Respondent, v. The Sidney Sash, Blind and Furniture Company and Others, Appellants.
    
      Corporations — action for sequestration — the action is equitable and in the nature of a creditor’s bill—persons to whom, the directors ham illegally transferred property of the corporation may be made defendants,
    
    A proceeding under section 1784 of the Code of Civil Procedure is an equitable action, and a judgment creditor of a corporation seeking to sequestrate its property to satisfy bis judgment may, if a fraudulent transfer of the corporate property is alleged, join as parties defendant the persons who hold such property in their possession.
    In analogy to the procedure under a creditor’s bill in equity, the complaint, seeking to reach corporate assets, may unite claims for property in the possession or under the control of the judgment debtor, with demands against other parties who have obtained possession of the property of the corporate judgment debtor by fraudulent transfers thereof.
    Appeal by the defendants, The Sidney Sash, Blind and Furniture Company and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Delaware on the 2d day of October, 1895, upon the decision of the court rendered after a trial at the Delaware Special Term overruling the defendants’ demurrers to the plaintiff’s complaint, with notice of an intention to bring up for review upon such appeal the order upon which said judgment was based.
    
      James R. Baumes, for certain appellants.
    
      Albert F. Gladding, for certain appellants.
    
      Frank B. Gilbert, for the respondent.
   Putnam, J.:

This action was brought by the plaintiff as a judgment creditor against the Sidney Sash, Blind and Furniture Company, a domestic corporation, to obtain a sequestration of its property under the provisions of section 1784 of the Code of Civil Procedure.

Certain of the directors and stockholders of the corporation were made parties, and facts were alleged in the complaint tending to show the liability of the former for a neglect to file the annual report required by the statute, and for incurring a corporate indebtedness beyond the amount of the paid-up capital, and of the latter for a failure to fully pay up the capital stock.

The Sidney National Bank and others were also made defendants, and the complaint alleged facts tending to show separate, illegal and fraudulent transfers of the corporate property to such parties by the officers of the corporation.

The Sidney National Bank and certain other defendants interposed a demurrer to the complaint upon the ground that two or more causes of action were improperly joined therein.

The demurrers were overruled by the order of the court below, and from the judgment entered on said order this appeal is taken.

It is conceded that the plaintiff was authorized, under the provisions of sections 1790, 1791, 1792, 1793, 1794 and 1795 of the Code of Civil Procedure, to make the directors and stockholders of the Sidney Sash, Blind and Furniture Company parties, and to insert in his complaint the allegations contained therein, tending to show a liability upon them part.

The only question, therefore, that requires consideration is, whether the plaintiff could, in an action brought under the provisions of section 1784 (supra) against the Sidney Sash, Blind and Furniture Company, make others defendants, to whom it was alleged the officers of that corporation had made separate, illegal transfers of its property; and set up the facts in his complaint tending to show such illegal disposal of the corporate property. The appellants urge that the plaintiff in this action, brought to obtain a sequestration of the property of the defendant corporation, has united several other and distinct causes of action arising out of several distinct and separate alleged fraudulent transfers of the corporate property in violation of the provisions of section 484 of the Code of Civil Procedure.

The object of the action was to obtain a judgment of sequestration of the property of the Sidney Sash, Blind and Furniture Company. Sequestrate is defined to mean The act of taking property from the owner for a time, till the rents, issues and profits satisfy a demand.” (Century Diet.) By section 1793 of the Code of Civil Procedure it is provided that the judgment in such an action “ must provide for a just and fair disposition of the property of the corporation and of the proceeds thereof among its fair and honest creditors.” The judgment obtained in such action does not dissolve the corporation. (Kincaid v. Dwinelle, 59 N. Y. 548; Hollingshead v. Woodward, 35 Hun, 410.)

An action brought under the provisions of section 1784 (supra) is similar to a creditor’s bill brought by a judgment creditor against an individual; like a creditor’s bill, it can only be maintained after a judgment and execution returned unsatisfied, and the object in both actions is to reach the assets of the judgment debtor for the benefit of creditors.

I think, also, an action to obtain a sequestration of the property of a corporation must be deemed a suit in equity. The provisions of sections 1784 and 1793 (supra) are substantially the same as those contained in sections 36 and 37 (2 R. S. 463), which were embraced in article 2 of title 4 of chapter 8 of part 3 ; article 2 ivas entitled “ Of proceedings against corporations in equity.” Proceedings under the provisions of sections 36 and 37 (supra) against corporations, under the former practice, were taken in the Court of Chancery. Although the sections referred to provided for a proceeding against a corporation thereunder, by petition, it was held that a judgment creditor might, at his election, proceed by bill. (Judson v. Rossie Galena Company, 9 Paige, 598; Morgan v. New York & Albany Railroad , Company, 10 id. 290.)

The action to obtain a sequestration of the property of a corporation can only be maintained under the authority of the statute, yet it is an action of which the former Court of Chancery had jurisdiction, and which must be deemed a proceeding in equity.

The plaintiff, therefore, sought by a suit in equity to .sequestrate, to reach, to obtain the property of the Sidney Sash, Blind and Furniture Company, and to have the same applied in payment of his and the claims of other creditors. His object was substantially the same as in a creditor’s bill, to reach the assets of the corporation for the benefit of creditors. But if the averments in the complaint are true, the assets of the Sidney Sash, Blind and Furniture Company are in possession of several of the defendants named in the complaint to whom such property has been fraudulently transferred by the officers of the corporation.

I am inclined, therefore, to believe that this action, the object of which is to reach corporate assets, was properly brought, not only against the corporation, but also against those parties who have such corporate assets in their possession; that the complaint, which joined the corporation with those who had illegally obtained its property, claiming to recover that property for the benefit of creditors, contained but a single cause of action; that the well-settled principles applicable to a creditor’s suit against an individual should he deemed to apply to this creditor’s action against a corporation. In a creditor’s action against an individual the plaintiff can unite claims for property in possession or under the control of the judgment debtor with demands against other parties who have obtained the possession of property of the debtor by fraudulent transfers thereof.

In Reed v. Stryker (4 Abb. Ct. App. Dec. 26; 12 Abb. Pr. 47) a creditor’s action had been commenced to set aside several fraudulent conveyances made by the debtor at various times, and to various persons, and to subject the property to the executions of the plaintiffs, and to render an assignee in trust personally liable. It was held that the complaint stated but one cause of action, and that the various transferees might be joined as defendants, although there was no privity between them. Habbis, J., in delivering the opinion of the Court of Appeals, said: “ The object of the suit is single. The plaintiffs, defeated in the collection of their debts by the ordinary process of law, now seek to reach the property of their debtor from the hands of those to whom he has dishonestly conveyed it. However numerous the persons with whom the property has thus been deposited; however distinct the transactions by which the debtor has sought to place it beyond the reach of his creditors, or however widely it may have been scattered in. the execution of this purpose, the effort to recover the property and have it applied to the satisfaction of the plaintiff’s debts embraces but a single cause of action.” (See, also, Newbould v. Warrin, 14 Abb. Pr. 80; Brinkerhoff v. Brown, 6 Johns. Ch. 139; The New York & New Haven R. R. Co. v. Schuyler, Cross, etc., 17 N. Y. 592; Morton v. Weil, 11 Abb. Pr. 421.)

The case of Reed v. Stryker (supra) was cited and approved by the General Term of the fourth department in Wood v. Sidney Sash, Blind & Furniture Co. (92 Hun, 22) as applicable to actions under the present Code of Civil Procedure.

If I am correct in the conclusions above arrived at in this equitable action, which is similar to a creditor’s bill brought by a judgment creditor against an individual under rules applicable to such actions, the complaint contains but a single cause of action, the provisions of section 484 of the Code of Civil Procedure do not apply, and the suit was properly brought against the corporation and the various parties in possession of the corporate assets sought to be recovered.

We are referred to the case of Cummings v. American Gear & Spring Co. (87 Hun, 598), in which the General Term of the fifth department recently sustained a complaint which set forth a cause of action similar to that contained in the complaint under consideration.

I conclude that the judgment should be affirmed, with costs, with leave to answer on payment of costs of this appeal and the costs helow, within twenty days.

All concurred, except Parker, P. J., not sitting.

Judgment affirmed, with costs, with leave to answer within twenty days, upon payment of costs of this appeal and of the demurrer.