Court Opinion

ID: 3569047
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:18:38.048056+00
Date Added: 2024-06-11T09:36:05.792435
License: Public Domain

At the time of the adoption of the Constitution of 1844, Chancery was not invested with jurisdiction *Page 81 
on a bill for the appointment of a receiver of a corporation alleged to be insolvent, to resolve in a summary manner issues of fact bearing upon the very existence of the indebtedness upon which complainant's right to intervene depended. The Act of 1829(Pamph. L. 1828-1831, p. 58), the prototype of R.S.
14:14-3, did not, I suggest, serve to modify the alleged debtor's common-law right of trial by jury as secured by Article I, paragraph 7 of the Constitution of 1844. The provision is that "The right of trial by jury shall remain inviolate;" and it has reference to the common-law right of trial by jury. There is nothing to suggest that the Act of 1829 was designed to curtail the common-law right in any degree, and nothing in the history to signify that the framers of the Constitution were so minded.
The use of the intransitive verb "remain" does not lead to the restricted sense and meaning found by my brethren of the majority. It is one of several employed interchangeably in constitutions to secure the common-law right. 50 C.J.S., Juries,section 10. The interpretation thus given lays undue emphasis on the verb and loses sight of the adjective "inviolate." The common-law right was ever unviolated and inviolable, and so it shall remain.
Trial by jury was recognized as a fundamental right long before it was guaranteed by the Magna Charta; and it is deemed basic and fundamental in our American jurisprudence. Bailey v. CentralVermont R. Co., 319 U.S. 350, 63 S.Ct. 1062,87 L.Ed. 1444. Magna Charta cherishes the principle of trial by jury as the great bulwark of English liberties, especially by the provision that "no freeman shall be hurt, in either his person or property, unless by lawful judgment of his peers or equals, or by the law of the land." Vide Thompson v. State of Utah,170 U.S. 343, 18 S.Ct. 620, 42 L.Ed. 1061. Quoting Story, Mr. Justice Sutherland observed that: "the Constitution would have been justly obnoxious to the most conclusive objection if it had not recognized and confirmed" the right of trial by jury "in the most solemn terms;" and he declared that "any seeming curtailment of the rights * * * should be scrutinized with the utmost care."Dimick *Page 82 v. Schiedt, 293 U.S. 474, 55 S.Ct. 296, 79 L.Ed. 603,95 A.L.R. 1150.
Thus, the law favors trial by jury; and the Constitution is to be read as sustaining the common-law right in its fullness unless the intention to curtail it is explicit. An invasion of the immemorial right by doubtful implication is inadmissible. There is no reported case, prior to the adoption of the Constitution of 1844, interpreting the Act of 1829 as permitting the establishment of the asserted creditor's claim on a summary inquiry in the insolvency proceeding itself, where there is a substantial issue of fact as to its very existence.
The purpose of the cited statute is entirely clear. The power to dissolve and wind up the affairs of an insolvent corporation through a receiver is wholly statutory. It formed no part of Chancery's original jurisdiction. It is not comprised in equity's inherent jurisdiction. The statutory proceeding for the appointment of a receiver of an insolvent corporation is in the nature of an equitable quo warranto designed to destroy the corporate existence and not to preserve it. The inherent jurisdiction of equity is exclusively custodial, to preserve and not to destroy the corporate body. Attorney General v. Stevens,1 N.J. Eq. 369 (Ch. 1831); National Docks Railway Co. v.Central Railroad Co., 32 N.J. Eq. 755 (E.  A. 1880);Jersey City Gaslight Co. v. The Consumers Gas Co., 40 N.J. Eq. 427 (Ch. 1885); Vanderbilt v. Central Railroad Co.,43 N.J. Eq. 669 (E.  A. 1887); Atlantic Trust Co. v. ConsolidatedElectric Storage Co., 49 N.J. Eq. 402 (Ch. 1892); Bull v.International Power Co., 84 N.J. Eq. 209 (Ch. 1915); Smithv. Washington Casualty Ins. Co., 110 N.J. Eq. 122, 135 (Ch.
1932). In all seeming, the object of the Act of 1829, supra, was to invest Chancery with a summary jurisdiction to appoint a receiver for an insolvent corporation, but not to assign to it the common-law function of determining the existence of the claimed indebtedness without which the complainant's status as a creditor would be nonexistent, where the facts are substantially in dispute. There is no indication that the establishment of the debt by a summary proceeding in equity in such circumstances was within legislative intendment. Where there are issues of fact *Page 83 
which raise a substantial doubt as to the existence of the debt, the obligation should first be established by a judgment at law.Jennings v. Studebaker Corporation, 112 N.J. Eq. 591 (Ch.
1933). Vide R.S. 2:29-9. Until then, Chancery's jurisdiction under the statute is not invocable. The creditor status is a condition prerequisite. Insolvency alone is not enough under the statute. If complainant is not a creditor or stockholder, he has no interest in the corporation.
But insolvency is also a jurisdictional sine qua non. Here, as in the case of Atlantic Trust Co. v. Consolidated ElectricStorage Co., supra, that condition does not obtain if complainant's claim be nonexistent. There are no other debts to speak of; certainly none of large amount, and none which the corporation has not the means to liquidate promptly. In the case last cited, Vice Chancellor Van Fleet said that, in a purely summary proceeding, the court usually acts "upon facts which cannot be denied or disputed," and where insolvency depends upon the subsistence of complainant's claim, the debt must be proved by evidence that is "clear and convincing," for insolvency is a jurisdictional fact; if there be "doubt" as to this, the court is obliged to resolve it against the application "and refuse to interfere." A mere denial of the indebtedness is not sufficient to stay the hand of equity. If the proofs clearly demonstrate that the denial is sham, the claim is established and equity's statutory jurisdiction becomes operative, but not otherwise.
Complainant's claim is not in that category. The defendant corporation interposed demands for damages for breaches of contract and for overcharges allegedly made in violation of Federal price regulations, all totalling many times the amount of complainant's claim. There were set-offs and counterclaims (a) for failure to deliver beer in the quantity stipulated; (b) for the delivery of "spoiled, unfit and misbranded beer;" (c) for promotional and advertising expenses; (d) for OPA overcharges; and (e) for empty beer containers returned or tendered, in itself a very substantial claim. The affidavits introduced by defendant are circumstantial and plainly raise substantial issues of fact as to the existence of the debt asserted by complainant; but the learned Vice Chancellor in a summary *Page 84 
proceeding, on ex parte affidavits pro and con, weighed the proofs thus submitted, determined the credibility of the affiants, and found insolvency. In so concluding he wholly disregarded the corporation's off-setting claims, not as clearly sham, but merely as of "doubtful validity." After reviewing defendant's affidavits, the Vice Chancellor said: "The issue involved is the solvency or insolvency of Heirloom. I am satisfied that Ebling has a proper status as a creditor and that the claims asserted by Heirloom are of such doubtful validity that this court must ignore them in its consideration of the matter." This, I submit, was clear error. The issue was not insolvency alone. On this finding, there was no jurisdiction under the statute to appoint a receiver. Plainly, the Vice Chancellor did not undertake to determine the validity of the corporation's claims by way of set-off and counterclaim, presumably because a summary inquiry was not adapted to that end. He simply ignored the claims as of "doubtful validity." But is it not quite obvious that until these set-offs and counterclaims are adjudicated, complainant's claim is not proved, and so neither the requisite creditor status nor insolvency was established?
And, if there was jurisdiction, it would seem that in the special circumstances the exercise of a sound discretion would lead to a denial of the application for a receiver pending the establishment of the debt at law, for there might very well be a rejection of the claim in its entirety or a reduction to a sum within the means of the corporation. Its relations with complainant had been unsatisfactory. It is conceded that beer of an inferior quality had been supplied to defendant, and that complainant had sometime before settled a claim on this score for $50,000. There was undoubted damage to good will. Defendant finally secured a new place of business and the agency of another brand of beer, and had arranged for a substantial loan and a line of credit adequate for the financing of the new venture.
Such applications invoke the sound discretion of the court, guided by the statutory considerations. The statute confers an extraordinary power that is of necessity to be exercised with great caution and circumspection, and only when the circumstances *Page 85 
and the ends of justice clearly dictate that course. AtlanticTrust Co. v. Consolidated Electric Storage Co., supra; Glaser v.Achtel-Stetter's Restaurant, 106 N.J. Eq. 150 (E.  A.
1929); Tachma v. Pressed Steel Car Co., 112 N.J. Eq. 411 (E. A. 1932). As said, the full exercise of the power is destructive of the corporate existence. This power of life and death should be exercised adversely to the corporation only in the clearest case.
I would reverse the decree.
For affirmance: Chief Justice VANDERBILT and Justices CASE, WACHENFELD, BURLING, and ACKERSON — 5.
For reversal: Justice HEHER — 1.