Case Name: Albert Lilienthal and Philip N. Lilienthal, Suing in Behalf of Themselves and of All Other Creditors of D. G. Yuengling Brewing Company, a Former Corporation, Now Dissolved, Who May Be Similarly Situated, and Who May Come in and Contribute to the Expenses of This Action, Respondents, v. John F. Betz, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1905-11
Citations: 108 A.D. 222
Docket Number: 
Parties: Albert Lilienthal and Philip N. Lilienthal, Suing in Behalf of Themselves and of All Other Creditors of D. G. Yuengling Brewing Company, a Former Corporation, Now Dissolved, Who May Be Similarly Situated, and Who May Come in and Contribute to the Expenses of This Action, Respondents, v. John F. Betz, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 108
Pages: 222–225

Head Matter:
Albert Lilienthal and Philip N. Lilienthal, Suing in Behalf of Themselves and of All Other Creditors of D. G. Yuengling Brewing Company, a Former Corporation, Now Dissolved, Who May Be Similarly Situated, and Who May Come in and Contribute to the Expenses of This Action, Respondents, v. John F. Betz, Appellant.
Action by a creditor of a, corporation to compel an'officer thereof to account for misappropriation of its properly — when it need wot be alleged that a j'tidgrnent was obtained. and an execution issued against it — its receiver is a necessary party, although .discharged.
In an action brought by á creditor of a corporation under sections 1781 and 1782 of the Code -of Civil Procedure to compel the officers of the corporation to account for any property thereof “ which they have acquired to themselves,' or transferred to others, or lost, or wasted, by a violation of their duties,’’ the " fact that the corporation has been dissolved and a receiver of its property has been appointed, constitutes a sufficient excuse for the failure of the plaintiff to obtain a judgment against the corporation and issue execution thereon before beginning suit against its officers.
The receiver of the corporation is a necessary party to such an action, even though he has been discharged prior to the commencement thereof.*
t^Sefe Michel v. Betz (post, p. 241). — Rep.
Appeal by the defendant, John F. Betz, from an interlocutory judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of New York on the 28th day of February, 1905, upon the decision of the court, rendered after a trial-at the New York Special Term, overruling the defendant’s demurrer to the amended complaint.
Abram I. Elkus, for the appellant.
Harold Nathan, for the respondents.

Opinion:
Ingraham, J.:
I think this action can be maintained under sections 1781 and 1782 of the Code of Civil Procedure. Subdivisión 2 of section 1781 provides that an action may be maintained against one or more trustees, directors, managers or other officers of a corporation to procure a judgment " compelling" .them to pay to the corporation, which they represent, or to its creditors, any money, and the value of any property, which they have acquired to themselves, or transferred to others, or lost, or wasted, by a violation of their duties; " and section 1782 provides that an action may be brought as prescribed in subdivision 2 of section 1781 by a' creditor of the corporation. The complaint alleging facts which make it impracticable to obtain a judgment against the corporation, any question as to the necessity of alleging that such judgment had been obtained and execution thereon returned unsatisfied is not presented; the dissolution of-the corporation and the appointment of a receiver of its property excuse the plaintiffs from enforcing their remedy against the corporation prior to the commencement of this action. (Hunting v. Blun, 143 N. Y. 511; Hirshfeld v. Bopp, 145 id. 84.)
The only serious question is whether the receiver of the corporation was a necessary party to this action. We have held in the case of Michel v. Betz (post, p. 241) that in an action brought by a stockholder to compel the defendant to account, the receiver of the corporation was a necessary party; and I think that the rule adopted in that case should be applied in this, and that, the receiver of the corporation appointed upon its dissolution was a necessary party defendant to this action. Upon the dissolution of the corporation and the appointment of a receiver, all of the property of the corporation vested in the receiver who was charged with the duty of distributing it among its creditors and paying any sur plus to the.stockholders. The property acquired.' by the -defendant and for which he is to he required to account in this action vested in the receiver thus appointed, and the allegations óf the complaint '.upon which the cause of action is based are that this defendant has by means of various sales and conveyances wrongfully acquired possession of this property which belonged to the creditors and stockholders. If the allegations óf the complaint, are true, it is the property that vested in the receiver that the defendant has unlawfully obtained. The receiver,' when appointed, represented the creditors and stockholders, and it was his duty to apply this property to the payment of the debts of the corporation, and the balance to the stockholders. The accounting is for the benefit, of all creditors and' stockholders, and while the plaintiffs sue on behalf of themselves and all other creditors, the object of the action is to have applied to the payment of the creditors uf the corporation the property that had, become vested, in the receiver in trust for the creditors. To accomplish this it is necessary to set aside the conveyance by the receiver of the personal property to the defendant, the title to winch had been acquired through the receiver, and "also to set aside the sale of the property under the judgment for the foreclosure of the mortgage, which property had vested in the receiver upon his appointment, and had become vested in the defendant by virtue of the deed in the foreclosure action. The judgment to which the plaintiff would be entitled would be a judgment requiring the defendant to account to the receiver, and providing- for the application by the receiver of any money that he received under, •the judgment by distributing it among the creditors and stockholders'of the corporation. The only excuse alleged in the- complaint for not making the receiver a party is. that the receiver has ' been discharged. There is no allegation that the receiver was a party to the conspiracy charged in the complaint by which this defendant obtained the title to the property of the corporation, and there is no doubt but that the receiver could have maintained this action, if the defendant had wrongfully acquired property of -the-corporation which should be applied to the discharge of its debts. I think it clear that the dischai'ge' of the receiver . did not divest , him of property that had vested in him by virtue of his appointment, and that to reach this property it was necessary to enforce for the benefit of creditors the cause of action that vested in the receiver, and that to enforce such a cause of. action the receiver was a necessary party, either as plaintiff or defendant.
There is also a demurrer upon the ground that causes "of action have been improperly united, but I. think that all of the allegations of the complaint are germane to an action brought under sections 1781 and 1782 of the Code of Civil Procedure, before cited, to require the defendant to account for "the moneys and property in his hands which, it is alleged, he has wrongfully acquired. There is an allegation in the 7th clause of the complaint from which it might be possible to spell out a cause of action against this defendant based 'upon the ground that he had assumed the .indebtedness of the corporation and had promised the plaintiffs to pay the amount of their indebtedness, and as the demand for judgment is to. recover a sum of money against the defendant, it may be that there is alleged in this complaint a cause of action upon contract based upon the assumption by the defendant of the debts of the corporation, but as the demurrer does, not specifically set up such a misjoinder of causes of action as a ground of demurrer, that question need not be considered.
For the reason stated, I think the receiver was a necessary party and that the judgment appealed from should be reversed, with costs, and the demurrer sustained, with costs, with leave to the plaintiffs to amend upon the payment of costs in this court and in the court below.
O'Brien, P. J., Patterson, McLaughlin and Clarke, JJ., concurred.
Judgment reversed, with costs, and demurrer sustained, with costs, with leave to plaintiffs to amend on payment of costs in this court and in the court below.