Case Name: In the Matter of John D. Belton, Praying for Appointment of a Receiver
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1895-11-18
Citations: 47 La. Ann. 1614
Docket Number: No. 11,714
Parties: In the Matter of John D. Belton, Praying for Appointment of a Receiver.
Judges: 
Reporter: Louisiana Annual Reports
Volume: 47
Pages: 1614–1621

Head Matter:
No. 11,714.
In the Matter of John D. Belton, Praying for Appointment of a Receiver.
Though the shares oí a corporation, after its creation may be held by a less num - berof shareholders than that which the law would have required as a condi fcion precedent to fclie organization of the same corporation, the corporation continues to exist.
Neither the want of oilicers by reason of failure to elect, or by death, nor the burning of the mill which it was the object of a corporation to carry on, will of themselves work a dissolution of the corporation.
The connection of an officer of a corporation with it is one of personal trust and terminates at his death. The property of the corporation which he had in his possession or custody as such officer does not pass at his death into the possession of and under the control and administration of his administrator. The stockholders have the right to insist that corporate property should be placed in the hands and under the control of corporate agencies.
Where the necessary offices of a corporation having all become vacated by the centring* of its stock in the hands of two owners, and by the death of the owner of the majority of the stock, who at the time of his death held the principal office of the company, the administrator of this stockholder, as such, takes possession of all the corporate property and takes no step looking to a re placement of officers, the remaining stockholder has the right to take judicial action looking to the appointment of a receiver by the court. If upon the trial of a demand for such an appointment it should be shown that corporate officers could not be replaced through corporate agencies either by reason of lhe unwillingness or inability of the stockholders to do so, the court would be authorized itself to appoint a receiver. It would not follow that a third person should be selected as such receiver, nor that the representatives of the deceased stockholder would be deprived of the legitimate influence which they should have in the selection as holders of stock.
APPEAL from the Civil District Court for the Parish of Orleans. Rightor, J.
Fenner, Henderson <& Fenner for Plaintiff, Appellant.
Henry Denis for Mrs. Joseph Menge, widow and natural tutrix, Defendant, Appellee.
Argued and submitted November 4, 1895.
Opinion handed down November 18, 1895.
Rehearing refused December 17, 1895.
Plaintiff, together with Jos. Menge and Wm. A. Reese, were the-(Scaly stockholders of the Edna Rice Mill Company, a corporation organized under the laws of this State; Jos. Menge was the secretary and treasurer, William A. Reese was chairman of the finance committee, and plaintiff the superintendent; on January 15 the rice mill and plant were totally destroyed by fire; on or about the 24th of January, 1894, Joseph Menge died and William A. Reese disposed of his stock to the succession of the said Menge; after the destruction of .the mill and plant various suits were instituted by the corporation against various insurance companies, upon policies of fire insurance upon their property held by the corporation, which were pending and undetermined at the time of the death of the said Menge; after his death his wife, Mrs. Ida Menge, as tutrix of her minor children and administratrix of his .succession, assumed the administration of the affairs of the corporation generally and the direction of the said suits in particular; and since that time she has continued and is continuing her administration of the affairs of said corporation generally and the direction of the said suits in particular; has compromised all the suits against the insurance companies and has received from them sums aggregating more than fifteen thousand dollars, in settlement of their indebtedness to the said corporation; that she has collected and retains other assets belonging to the said corporation. The plaintiff claims in all these matters Mrs. Menge has acted entirely without legal right, and in her administration of the corporation’s affairs is and has been a mere negotiorum gestor; that her assumption of the administration of the affairs of the said corporation, and her appropriation of all its assets, was and is a flagrant trespass upon the rights of the plaintiff, who is a stockholder and creditor of the same, and who as such is entitled to require that its affairs shall be properly administered; that the said corporation is now hopelessly derelict — the only stockholders being plaintiff and the succession of the late Joseph Menge, represented by Mrs. Ida Menge as aforesaid; that there are various other creditors unpaid; that to the end that he may be enabled to assert his rights as a stockholder and creditor he desires that a receiver should be appointed by the court, in accordance with law and the rights of all interested parties.
Defendant, in her capacity as widow in community of the late Joseph Menge and natural tutrix of the minor children, issue of her marriage with said deceased, excepted to the demand upon the ground that the petition disclosed no legal cause of action, and she prayed that the demand be dismissed, which the District Court considered well taken, sustained the same and dismissed the suit. Plaintiff appealed.

Opinion:
The opinion of the court was delivered by
Nicholls, C. J.
In the brief filed in this court plaintiff declares that having been unable to effect any satisfactory settlement of his rights with Mrs. Menge, who has arrogated to herself all the rights and powers of the corporate body, he has brought this suit for the appointment of a disinterested third person as receiver and for a judicial settlement of the affairs of the corporation, which is hopelessly derelict, with no officers or duly qualified representatives. He calls our attention to the form of the proceeding as not being an application for the appointment of a receiver on ex-parte affidavits, but a demand contemplating a trial upon the merits and a full opportunity for both parties to be heard. He declares that the power of the State courts to appoint receivers in proper cases has been clearly recognized, and that the only question before the court is whether the petition sets out a proper case for the exercise of its power or jurisdiction. He says it is the case of a' corporation utterly derelict, with no officers or representatives authorized to take charge of its affairs; that there is no attempt here to divest the properly and legally constituted officers of a corporation of the control of its property and affairs; that it is a corporation without officers; that the administratrix of a deceased stockholder has assumed the administration of its affairs without any further right or authorization than may be implied from the fact that she represents the heirs of her deceased husband, who was a stockholder; that he objects to the exclusive administration assumed by the defendant and demands a judicial settlement of the corporate affairs to the end that his rights as a stockholder and creditor, which are denied by the defendant and, those of other interested parties, may be regularly ascertained and protected. He claims that the appointment of a receiver is a matter which rests largely in the discretion of the court, and that this discretion can be intelligently exercised only after a trial upon the merits, when the court will have been put in possession of all the facts.
The defendant resists the application. In her brief she calls our attention to the fact that while plaintiff avers that there are various other creditors unpaid, plaintiff does not say who they are, nor what is due them, nor that they have made any complaint in the premises, nor that they join him in his application or approve of his action.- That he does not aver that the property or assets of the company are abandoned, and exposed thereby to loss or damage, but, on the contrary, says that they aré under the administration and in the possession of the defendant. That he does not aver that her administration is bad or negligent or fraudulent; that he does not aver that he is exposed to any danger, immediate or remote, of loss or injury from her administration; that he does not aver that she has excluded him from a participation in such possession and administration, nor that he has made a demand upon her. for such participation, nor that he has objected to, or remonstrated against, her administration and possession; that he does not aver that he has made a demand upon her for payment of his debt, or that she refuses to acknowledge it or pay it; that he does not aver that the corporation is insolvent; that the averment that the company is derelict is'nullified by the averment that defendant administers its affairs as a negotiorum gestor; that defendant in the interest of all parties concerned took charge of the affairs of the company, as plaintiff, (from his own showing, an officer and director of the corporation) , abandoned the care and management of it, having taken no care to p;otect its ássets from Joseph Menge's death, on the 26th of April, 1894, to the institution of this suit, on the 12th of October, 1894; that plaintiff has been guilty of laches and brought about the condition complained of, and has no legal right to apply for a receiver under such circumstances.
She further asserts that plaintiff's petition discloses the fact that the corporation of the Edna Rice Mill Company is extinct, inasmuch as the number of its incorporators is reduced to two, and a corporation can not be composed of less than three persons; that at the extinction of a corporation its property vests in the stockholders, who thereby become joint owners of the same; that therefore, on the face of the petition, plaintiff and defendant are simply joint owners of undivided property, each one having a right to hold and possess it until a partition takes place; that the right of the parties in such cases is to demand the partition of the common property, and if necessary the sequestration of it pendente lite, but not the delivery of it into the hands of a receiver; that it is doubtful whether a receiver may be appointed in Louisiana as an incident to a partition suit, but that in the absence of a partition suit as a mode of dividing the property and settling the rights and interests of the joint owners between themselves, there being no creditors demanding it, no such appointment can be made.
The plaintiff replies that the question of laches vel non can not be raised on the trial of an exception of no cause of action; that such an issue could only be raised and determined on a trial upon the merits and evidence adduced. That it is true that the act under which the corporation was organized requires that there be originally at least three stockholders, and he is not prepared to say what might be the effect in such a ease of the subsequent reduction of the number of stockholders to two in so far as the right to continue business as a corporation is concerned; but that qaoad its liquidation and the rights of stockholders and creditors, the corporation does still exist. That the defendant by purchasing the interest of the third stockholder could not have affected the rights of the plaintiff as a stockholder. That the relations between the parties are exactly what they were constituted in the charter to which both subscribed. They are both stockholders in a corporation and the assets are corporate assets and are to be distributed as such.
The contention of the defendant that the Edna Rice Mill Company has been dissolved — that by reason of that fact the property of the corporation has resolved itself'into property held in joint ownership between the stockholders; that the present situation is that of certain joint property in the custody and possession of one of the joint owners, who is entitled to hold possession of the same as joint owner under the rules applicable to that kind of property and subject alone to an action of partition, is not tenable. If his premise that the corporation is dissolved were true it might be that his conclusions would be correct. Possibly Art. 474 of the Civil Code may countenance that pretension, and true it is in an obiter in rhe case of Stark, Receiver, vs. Burke, Watt & Co., 5 An. 741, the organ of this court declared that "by the civil law on the dissolution of corporations of the class therein the subject of litigation the property of the corporation belonged to its members and must be divided among them;" but his premise is not true, and the result which he sets up as following therefrom has not arisen in this case. If it be true that by the mere centering of the stock of a corporation in the hands of two stockholders, a less number than the number of stockholders required as a condition precedent to the creation of the corporation, the corporation is dissolved ipso facto, and the property at once changes from corporate property to individual property held in joint ownership between the two, then the purchase by a single person of all the stock of a corporation would also dissolve it and convert its property into the individual property of the single stockholder, subject to be disposed of by him at will as such. That is not true. After a corporation has been formed, our law, in express terms, declares that it is " an intellectual being different and distinct from all the persons who compose it (Art. 435) ; that the estate and rights of a corporation belong so completely to the body that none of the individuals who compose it can dispose of any part of them. In this respect the thing belonging to a body is very different from a thing which is common to several individuals as respects the share which every one has in the partnership which exists between them " (Art. 436) ; that' "what is due to a corporation is not due to any of the individuals who compose it, and mee versa " (Art. 437). The rights and obligations of parties would be confounded and thrown into confusion by adopting the rule which defendant contends for.
In Green's second edition of Brice's Ultra Vires, page 795, in a note it is said, " A private corporation does not become dormant or forfeit its franchises because a single individual becomes, by purchase of the stock, sole owner of the corporate property and franchises, and if such sole owner continues the business under the corporate name without notice to the public he may be sued as such corporation. Newton & Co. vs. White, 42 Ga. 148; Cook vs. Kent, 105 Mass. 246."
In Morawitz on Private Corporations, Sec. 1009, the author says: "The decease of all the stockholders in such a corporation, therefore, does not terminate its existence, and it is well settled that all the shares in a corporation may be held by a single person and yet the corporation continue to exist; and if the charter or by-laws require certain acts to be done by more than one shareholder, the sole owner may transfer a portion of his shares to other persons So as to conform to the letter of the rule." In support of this proposition he cites the aforementioned case of the Newton Manufacturing Co. vs. White; Russell vs. McLellan,. 14 Pick. 69-70, and Baldwin vs. Canfield, 26 Minn. 43. See Fitzgerald vs. Missouri Pac. R. R. Co , 45 Fed. Rep. 819.
It has been held that the owner of all the stock of a corporation is not authorized to pledge the property of the corporation to the prejudice of its creditors. (Stewart vs. Gould, 36 Pac. 277.) In a note on the same page of Brice's Ultra Vires it is stated that the want of the proper officers, byreason of failure to elect or by death, does not cause dissolution, though the exercise of the powers of the corporation may be thereby suspended, and that mere insolvency, proceedings in insolvency, the appointment of a receiver or nonuser of the powers granted does not of itself work dissolution. The authorities cited in support of these propositions are too numerous to be specially referred to.
We are of opinion that the Edna Rice Mill Company has not been dissolved and that we must deal with its affairs as an existing company.
When Menge, the secretary and treasurer of that company, died, the position which he held being a personal trust did not pass to or devolve upon his administratrix, but became vacant subject to replacement. The corporate property at his death did not pass under the control of the administratrix of the succession of Menge as such.
The plaintiff has the undoubted right to insist that it be placed in the hands of some corporate agency. The situation either admits of this being done extra-judicially by the stockholders and through methods provided for by the charter, or it does not. If it be possible to place corporate matters in the hands of corporate agencies selected by the stockholders themselves and defendant has the means of bringing this about legally, outside of any action by the court, she ought to avail herself of that power and bring that result about; but should she be either unable or unwilling to do so she can not insist that matters should remain as they are forever.
We think plaintiff has made a sufficient showing to entitle himself to a hearing upon the merits. We can not tell whether, when the case goes to trial, the situation at that time will be of such a char acter as to call for the exercise of the CQurt's action in appointing a receiver. If the court should be called on to make such an appointment it by no means follows that a third person will be appointed or that the succession of Menge will be deprived of exercising the legitimate influence to which it will be entitled as a stockholder in the corporation.
The allegations of the petition might have been in some respects more specific than they are, but they are sufficiently so to throw the whole case open to inquiry.
The judgment appealed from is hereby annulled, avoided and reversed and the cause is remanded for further proceedings according to law, costs to await the decision of the lower court.
Rehearing refused.