Court Opinion

ID: 7945923
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:20:23.536372+00
Date Added: 2024-06-11T16:33:55.440577
License: Public Domain

McAlvay, J.
(dissenting). Plaintiff brought assumpsit against defendant to recover a judgment on four certain promissory notes, amounting, without interest, to $2,666.58, executed by defendant to certain parties and duly indorsed to plaintiff. Defendant was a Michigan corporation, and the defense .interposed was that, under and by virtue of the provisions of chapter 300 of the Compiled Laws of 1897, the defendant corporation by its directors took proceedings to be dissolved, and on May 6, 1905, a decree was entered by the circuit court for Ingham county, in chancery, dissolving the corporation, and appointing the Detroit Trust Company permanent receiver. These notes were presented during the course of these proceedings and the claim allowed, and plaintiff subsequently participated in dividends paid, to the amount of 20 per cent, of the claim. This suit was begun after said claim was filed and before any dividends were paid. The validity of the notes is not in dispute. The court held that by reason of the proceedings had under chapter 300, 3 Comp. Laws, the suit could not be maintained and rendered judgment in favor of defendant. Plaintiff brings error.
The errors assigned are upon the holdings of the court in deciding the case, as expressed in the opinion, which is made a part of the record, and which reads as follows:
“The facts in this case are not in dispute. The defendant was a domestic manufacturing corporation, and on May 6,1905, this court in a proceeding under chapter 300, 3 Comp. Laws, entered a decree dissolving the corporation and appointed a receiver under the statute to wind up its affairs. The plaintiff at the time the decree was made held the promissory notes set up in plaintiff’s declaration, and there was due upon such promissory notes from the said E. Bement’s Sons to said plaintiff the amount of such notes, with interest thereon. The plaintiff as such creditor presented his claim to the receiver, which claim was allowed at the amount of said notes, with interest thereon, and he has participated in the declaration of dividends paid creditors, receiving $266.66 on October 24, 1907, and $266.66 on January 8, 1908. August 13, 1907, plaintiff *422commenced this suit against E. Bement’s Sons as though it had not been dissolved, and now asks judgment against it for the amount due him. The suit was commenced by-declaration, and service was made on Arthur O. Bement, president of the corporation. Can this suit be maintained ? It is claimed by plaintiff that section 8534, 3 Comp. Laws, gives him the right to bring this suit. In this I am of the ’ opinion he is mistaken. If this statute gives him the right to sue the corporation within three years after the court’s decree dissolving it, then the rest of the same section of the statute applies, and the corporation can bring suits, and, for the purpose of enabling it to gradually settle and close its concerns and dispose of and convey its property, the corporation itself continues after the decree dissolving it and the appointment of a receiver. If the officers of the corporation after the appointment of the permanent receiver upon the order of dissolution had attempted to do any of the things mentioned in section 8534, they would have been made to feel the heavy hand of the court, and have been punished for interference with the power of the court under chapter 300. The decree dissolving the corporation ended its existence and never since that decree have its former officers had power to act for or in any way manage the estate left by such defunct corporation. A reading of chapter 300 so clearly indicates that no such suit as this can be maintained that no other authority for refusing judgment need be cited. Counsel for defendant, however, does cite other authority, and the case of Adams Cotton Mills Co. v. Dimmick, 96 Ala. 238 (11 South. 428, 17 L. R. A. 375), was so near in principle like this that the reasoning of the court in that case might well be adopted as the opinion in this case. Chapter 300, 3 Comp. Laws, being the law of Michigan when plaintiff commenced his dealings with the corporation, he cannot now be heard to say that the provisions of this law impair the obligations of the contracts of the corporation. Contracts are usually made having in mind existing law, and, as it must be understood that the provisions of law may be invoked by either party, such provisions, when invoked, do not fall within the prohibition of the Constitution against impairing the obligation of contracts. Section 8534, 3 Comp. Laws, does not permit this suit to be brought. Chapter 300, 3 Comp. Laws, to be effective, prohibits such a suit as this. Judgment for defendant.”
The question involved in this case is whether suit may *423be maintained against a corporation whose directors have invoked the provisions of chapter 300, 3 Comp. Laws, after a decree dissolving the corporation and the appointment of a receiver. Plaintiff insists that this suit may be maintained by virtue of section 8534, 3 Comp. Laws, which provides:
“All corporations whose charters shall expire by limitation, or shall be annulled by forfeiture or otherwise, shall nevertheless continue to be bodies corporate, for the term of three years after the time when they would have been so dissolved, for the purpose of prosecuting and defending suits by or against them, and of enabling them gradually to settle and close their concerns, to dispose of and convey their property, and to divide their capital stock; but not for the purpose of continuing the business for which such corporations have been or may be established.”
The entire section has been quoted for the reason that the argument has been presented that, if applicable at all to such cases, the entire section is in force. The section quoted is one of the general provisions relative to corporations, and will be held to control in the case at bar unless the provisions of chapter 300, supra, ave so repugnant to its application that we must hold that it is repealed by implication as far as corporations which have been dissolved- by virtue of such chapter are concerned. The provisions of this section relative to the time within which suits by or against corporations whose charters have expired or been annulled by forfeiture or otherwise must be commenced, have been included in our statutes since 1838. A history of it is given at length in Bewick v. Alpena Harbor Co., 39 Mich. 706-708; and, although the question now before the court was not involved, the decision in that case, and in other cases, in which this three-year term has been discussed cannot be construed as indicating that it would not apply to voluntary.dissolutions. See Bewick v. Alpena Harbor Co., 39 Mich. 700; Empire Manfg. Co. v. Stuart, 46 Mich. 484 (9 N. W. 527); Montgomery v. Merrill, 18 Mich. 338. In chapter *424300, being the voluntary dissolution act, special provision is made that suits pending by or against such corporations shall not be abated, and for bringing new suits after dissolution in the name either of the corporation or the receiver (section 10887). Suits so brought, instead of being in contempt of the authority of the court where the dissolution had been ordered, would have been acts within the provisions of this law. Section 10889 provides that suits pending against such corporations at the time of dissolution shall continue to final judgment or decree. Construing section 8534, 3 Comp. Laws, with these provisions of chapter 300, it appears the legislative intent was not to make a corporation voluntarily dissolved an exception to the provisions of section 8534, but indicates by the provisions of sections 10887 and 10889 that the entire section should apply to such corporations. Such construction can imply no interference with the court having jurisdiction of the dissolution proceedings. It is within the fair construction of the statute and gives effect to all of the words of the statute, “all corporations whose charters expire by their own limitation, or shall be annulled by forfeiture or otherwise,” and preserves to litigants their rights which in the cases cited it is said was the presumed legislative intent to preserve. The fact that a claim for the same indebtedness was filed and allowed in the dissolution proceedings is no bar to plaintiff’s right to maintain this suit. It is certain that if such voluntary dissolution operates to wipe out all claims of creditors not satisfied by distribution, whether participating in the distribution of assets or not, chapter 300 is both in fact and in law a State insolvency law. This has been construed by this court not to be the character of this chapter. Town v. Bank of River Raisin, 2 Doug. (Mich.) 556-557. The court under this voluntary dissolution statute determines nothing as to creditors except to distribute assets on hand pro rata among them. Such a dissolution is not an adversary proceeding and may be taken by a solvent as well as an insolvent corporation. A creditor *425need not participate in the proceedings. If they are begun honestly and in good faith, he will be given his pro rata in any event. Such a corporation may not, under chapter 300, commit suicide, and in that manner avoid paying liabilities, or deprive a creditor from his day in court, any more than an individual may do so. A private corporation cannot voluntarily dissolve so as to discharge itself from existing liabilities. Portland Dry Dock & Insurance Co. v. Trustees of Portland, 12 B. Mon. (Ky.) 79. And, in construing a statute similar to section 8534, the supreme court of West Virginia’s views were those insisted upon by plaintiff in the case at bar. Lumber Co. v. Ward, 30 W. Va. 43 (3 S. E. 227).
It is urged repeatedly that, after such dissolution, a corporation is dead, and all rights to sue are therefore cut off, and creditors cannot recover judgment against a corporation, although debts are not paid in full. Such construction can be founded upon nothing except the theory that chapter 300 is an insolvency law. No court has ever so held. To do so would open the door to the grossest fraud upon creditors, and would be contrary to abundant authority which holds that all State insolvency laws are suspended while a Federal bankruptcy law is in force. Sturges v. Crowninshield, 4 Wheat. (U. S.) 122; Boese v. King, 108 U. S. 379 (2 Sup. Ct. 765). It is not contended that chapter 300 is without any effect, but invalid only in so far as it operates to discharge a corporation for future liability to creditors. This was held in the case of Boese v. King, supra, as to creditors who came in under an assignment and participated in a distribution of assets. The construction contended for by defendant would apply to all the creditors in any ease where the assets of a corporation were insufficient to pay creditors in full. It cannot be that such a construction can be founded either upon sound reason or authority. The following authorities have followed the Federal decisions, and have held that insolvency laws were suspended and not in operation, although no proceedings in bankruptcy were instituted: *426Moody v. Development Co., 102 Me. 365 (66 Atl. 967), and oases cited; Parmenter Manfg. Co. v. Hamilton, 172 Mass. 178 (51 N. E. 529, 70 Am. St. Rep. 258); Potts v. Smith Manfg. Co., 25 Pa. Super. Ct. 206; Griswold v. Pratt, 9 Metc. (Mass.) 16; Ketcham v. McNamara, 72 Conn. 709 (46 Atl. 146, 50 L. R. A. 641); Harbaugh v. Costello, 184 Ill. 110 (56 N. E. 363, 75 Am. St. Rep. 147); Foley-Bean Lumber Co. v. Sawyer, 76 Minn. 118 (78 N. W. 1038); Lyman v. Bond, 130 Mass. 291.
Upon another ground in this case it would seem that plaintiff is entitled to be permitted to pursue his remedy within the time limited by section 8534, and that is that plaintiff as a judgment creditor may reach assets which a statutory receiver appointed under chapter 300 is not able to reach; i. e., to recover from individual stockholders of defendant corporation assets distributed as dividends while the capital stock was impaired. The powers given to receivers appointed under chapter 300 and their duties and obligations are the same as are given and imposed by law on trustees of insolvent debtors. If the insolvent corporation in this case could not question the matter of unlawful dividends paid its stockholders, by what principle of law can its voluntary assignee or trustee do so? This court has held that he could not attack a chattel mortgage transfer of his assignor; that he did not represent the creditors in such a manner as to entitle him to do so; that creditors could raise the question only in proceedings brought to enforce their claims ( Wakeman v. Barrows, 41 Mich. 363 [2 N. W. 50]); and that none but a judgment creditor can attack a transfer on the ground that it is fraudulent as to creditors (Millar v. Babcock, 29 Mich. 526). It is held that claims for dividends unlawfully declared belong to creditors, and not to the receiver. Butterworth v. O’Brien, 39 Barb. (N. Y.) 192; Farnsworth v. Wood, 91 N. Y. 308.
Counsel for defendant urges that a careful examination of these New York cases shows that they are not applica*427ble to the case at bar. We read them as directly in point. On principle this contention must be sound. The relations of this voluntary receiver to the stockholders as well as to the creditors are such that to hold he could sue the stockholders for the benefit of the creditors would be allowing him to assume a position not in accord with such relations. On behalf of defendant, it is urged that the case of American Steel & Wire Co. v. Eddy, 130 Mich. 266 (89 N. W. 952), appears to be conclusive of this case. In that case a judgment creditor sought to recover, under section 7057, 2 Comp. Laws, against a preferred stockholder, dividends unlawfully declared. This court determined that a preferred stockholder was not exempt from the provisions of the statute, and was liable to the creditor. Careful attention is called to the opinion in the case, in which Chief Justice Hooker, speaking for the court, said:
“This statute provides a new procedure, permitting one who has exhausted his remedy against the corporation (if not others) to sue the stockholder in an action at law. It is contended that this cannot have been contemplated, and that the collection should have been made by an assignee for the benefit of all creditors. We have no doubt that a court of equity, under its general powers, might take custody of all assets for the purpose of distribution, and cut off the personal remedy of the creditor, under this statute, as in other cases; but we have not such a case. We are not advised that any court has taken control of the assets of this corporation, or is in any way attempting their collection and distribution.”
The question in the case at bar of the powers, duties, and rights of a voluntary receiver under chapter 300 was in no way before the court or considered by it. The general powers of a court of equity to authorize a general receiver to get possession of all of the assets of a corporation for the benefit of all creditors was recognized, and nothing more. The case cited is therefore not helpful in the case at bar. In this case the ample powers exercised by general receivers in chancery must be distinguished from *428the limited powers granted to receivers, so called, under chapter 300, in proceedings voluntary and not adversary, and which must be strictly construed. The powers granted to receivers under chapter 300 are declared by that act to be the same as those granted to receivers of insolvent debtors. This court has never held that receivers of insolvents were clothed with all the powers of general chancery receivers, and has never receded from the position declared in Wakeman v. Barrows and Millar v. Babcock, supra. The powers of such receivers being limited by statute, sections 10863 and 10887 are only available to such receivers within such limited power, and unless we reverse previous decisions of this court, which have never been questioned, we cannot say that the assets sought to be reached by plaintiff can be reached by the receiver in this case. This is the practical construction which to the present time has been given to this law by the receiver and its counsel.
These proceedings under chapter 300 were instituted for the purpose of dissolving a solvent corporation, when, in fact, it was insolvent, as this court found in the case of McIntyre v. E. Bement’s Sons, 146 Mich. 74 (109 N. W. 45). This is of importance, as showing that in fact these proceedings were undertaken to wind up and distribute the assets of an insolvent. This law authorizing the appointment of a receiver to collect, receive, and distribute the assets of an insolvent corporation is an insolvency law, although it does not provide for the discharge of the debtor. Moody v. Development Co., supra, and cases cited. If the construction contended for is given to this statute, it is contrary to the decision of this court in Town v. Bank of River Raisin, supra. If section 8534 does not apply to corporations which have instituted proceedings under chapter 300, and plaintiff is prevented from beginning suit and obtaining judgment against defendant upon a valid and subsisting obligation by the only way possible to begin such a suit, he is not only deprived of his right of action, but such law operates to discharge the debt against the corporation, and is an *429insolvency law. There was in force before these proceedings were taken and ever since the United States bankruptcy act (Act July 1, 1898, chap. 541, 30 U. S. Stat. p. 544 [U. S. Comp. Stat. 1901, p. 3418]), and chapter 300 in so far as it operated as, and was, an insolvency law, was suspended, and could not operate to discharge the debt due plaintiff, and prevent him from taking a judgment thereon, and was to that extent null and void. There is abundant authority that the question may be raised and determined in this case. Moody v. Development Co., 102 Me. 381, et seq. (66 Atl. 967).
Taking this view of the law applicable to this case, it follows that the judgment of the circuit court should be reversed, and, as there is no disputed question of fact presented, no new trial should be granted. A judgment should therefore be entered in this court in favor of plaintiff for the amount of the notes sued upon with interest to date, deducting payments as of the date received; and also costs of both courts.
The term of Mr. Justice Grant having expired after this case was reargued, by consent of counsel Mr. Justice Stone, his successor, took part in its consideration and determination. Chief Justice Montgomery did not sit.
Hooker, J., concurred with McAlvay, J.