(91 Hun, 220.)

#### HALPIN v. MUTUAL BREWING CO. et al.

(Supreme Court, General Term, Second Department.

December 2, 1895.)

Corporations—Receivers—Rights oe Creditors.

Where a receiver appointed in an action to prevent unlawful alienation of the property of the corporation (Code Civ. Proc. §§ 1781, 1810) does not proceed within a reasonable time to liquidate the indebtedness, it is proper for the court to refuse longer to restrain creditors from proceeding to collect their claims by ordinary process from the property of the corporation. Pratt, J., dissenting.

Appeal from special term, Queens county.

Action by Paul Halpin against the Mutual Brewing Company and others. From an order permitting the receiver to pay out of corporate funds in his possession the amount of a certain mortgage held by one C. F. Tietjen, trustee, and also certain judgments in favor of the West Side Bank and one Samuel K. Nester, and providing that if such payments were not made in 60 days the sheriff may proceed under executions theretofore issued on such judgments, and permitting foreclosure of said mortgage, plaintiff and the receiver appeal.

Affirmed.

Argued before BROWN, P. J., and DYKMAN and PRATT, JJ.

Benjamin Yates, for appellants.

C. J. G-. Hall, for respondents.

BROWN, P. J.

The point made by the appellants, that the original orders authorizing the receiver to pay the judgments in favor of the West Side Bank and Mr. Nester, and the mortgage held by Mr. Tietjen as trustee, were granted ex parte, needs no consideration, for *152■the reason that the order appealed from was made after the hearing •of a motion to vacate said ex parte orders, upon which motion all parties entitled to notice were heard, and the facts were fully presented to and considered by the court. That motion was treated as •an original application, and the order made thereon is the one from which the appeal now before us was taken. We are of the opinion that the order is fully warranted by the facts of the case.

The counsel for the appellants has directed his main argument to the justification of the appointment of the receiver, and to the demonstration that distribution of the corporate property among the creditors can also be made in this action. It is a sufficient answer to the latter proposition that no attempt has been made in this action by the plaintiff or the receiver to provide for the payment of the creditors. Although the decision in this action was filed in March, 1894, the judgment was not entered until the order appealed from was made; and during this period of 15 months the creditors were restrained from compelling payment of their claims, while the business was being conducted by the receiver. It is very evident from the moving affidavit that this delay was for the purpose of endeavoring to effect ■some settlement of the claims of creditors. But such a purpose affords no justification for the continuance of a receivership, or of an injunction against creditors’ prosecuting their just claims. If it was the purpose of the directors that the corporate property should ¡have been distributed among its creditors, they could at any time ¡have applied for a voluntary dissolution of the corporation. The •validity or propriety of the appointment of the receiver is not assailed. It was justified before the trial of the action by section 1810 of the •Cbde, and was properly continued after the trial to carry the judgment into effect. Section 713. But the action did not contemplate ¡a distribution of the corporate assets among creditors, nor a dissolution of the corporation. It was authorized under sections 1781 and 1782 of the Code of Civil Procedure. The complaint alleged waste of corporate assets, and wrongdoing and mismanagement on the part of three of the directors, and others confederating with them, and sought an accounting from said directors, and a restraint of the alienation of corporate property. Before the case was decided the offending directors had retired from office, and others had been elected in their place, and the judgment affords all the relief that the corporation can have against its offending officers. There is no finding in the decision that the corporation is insolvent, and no adjudication of that fact, •and there is no statement to that effect in the affidavit of the receiver: Under this condition of affairs, it is difficult to see why the receivership is continued. The object of the action has been accomplished. Creditors should now be permitted to assert their claims, and pursue such remedies as the law affords them.

The case of Duncan v. George C. Treadwell Co., 82 Hun, 376, 31 N. Y. Supp. 340, is quite like the case before us, and sustains the order appealed from. It should be affirmed, with $10- costs and disbursements.

DYKMAN, J., concurs.

*153PRATT, J. (dissenting).

This action is brought under sections 1781 and 1782 of the Code, and the appointment of a receiver was therefore within the power of the court. Section 1810. Under section 1806, the court had power to restrain the creditors from maintaining actions which may lead to inequitable results; and, under section 1807, it may require the creditors to present their claims for adjustment, and may distribute the assets of the corporation. That the action is not brought to dissolve the corporation does not determine that its property may not be sold, and the proceeds distributed. Code, §§ 178A-1793. See, also, People v. Ballard, 134 N. Y. 269, 32 N. E. 54; Osgood v. Maguire, 61 N. Y. 524. As the court has the power to distribute the corporation property equitably, and has already interfered by injunction to prevent its appropriation by certain of its execution creditors, we think it should continue that course, and restrain the other execution creditors. As the orders now stand, certain creditors who recovered judgments and executions in due course of law are restrained from enforcing their claims. Other creditors, no more meritorious, and whose judgments are subsequent, have been allowed to issue and levy executions on the property in the receiver’s hands. We do not think this orderly or equitable. In effect, it works a preference, and probable full payment, of certain creditors, while others, equally meritorious, are in effect postponed, and incur the risk of remaining entirely unpaid. Property in the hands of a receiver is in the custody of the law, and it is not easy to see why another officer of the court should be called in to dispose cf it. A question somewhat similar is discussed in White v. Frankel, 33 N. Y. Supp. 1, and a conclusion reached that the possession of the receiver should be maintained. The reasoning of the case is applicable here. We think that, so far as the orders appealed from sanction the levy of executions upon property in the hands of the receiver, they should be modified. Whether the foreclosure of such part of the chattel mortgage as was found valid shall be allowed to proceed is a different question, and, after some hesitation, we think that, so far as the orders appealed from allow its enforcement, they may be affirmed.