Court Opinion

ID: 5181938
Source: CourtListenerOpinion
Date Created: 2022-01-06 04:43:21.08065+00
Date Added: 2024-06-11T08:26:36.036031
License: Public Domain

Patterson, J. (dissenting) :
I am not able to concur in the views expressed in the opinion of the majority of the court on the matters involved in this appeal. I think the injunction was properly granted and should be maintained for the reason that the acts of the directors of the Broadway Insurance Company, complained of by the plaintiffs and performed in execution of the terms of the contract between that company and the Hartford Insurance Company, were altogether beyond the powers of those directors and were destructive' of the business of the Broadway Company, which they were bound to preserve for the benefit of the stockholders' until a judicial sentence of dissolution is pronounced against that corporation, if-that is ever done. No one will assert that it is competent for the directors of a solvent' and going corporation to transfer all its business assets and good will to another corporation' and leave their own company nothing but its corporate name and its liabilities, and that is in effect what the directors of the Broadway Insurance Company have done. The contract made by them with the Hartford Fire Insurance ■ Company virtually terminates everything but the ' nominal -existence of the Broadway Company. It is called a contract of reinsurance. It is not only such a contract, but it is one by which everything of real value belonging to the Broadway Company is turned over to a- foreign insurance company or its agents within this State. The. contract has not only been formally executed and delivered, but acts have been performed under it which, if allowed to stand, completely destroy the corporation. Justifica*393tion for this is sought in the statement that the directors of the Broadway Insurance Company passed a resolution favoring the voluntary dissolution of that corporation under the statute, and that the contract made with the Hartford Insurance Company is' in furtherance of that resolution, is appropriate, is authorized and is necessary in view of it. It is further claimed that the authority to reinsure is derived from the 2d section of the charter of the Broadway Insurance Company, which charter was granted in the year 1842. Wherever this subject is touched and at whatever point it is taken up, it seems to me to he beyond the possibility of contradiction that everything done by the directors of the Broadway Insurance Company under the contract with the Hartford Fire Insurance Company is entirely beyond their powers in view of the claim they make as to the purpose of the contract. No authority whatever was given to these directors to strip the corporation of all its possessions by the provision of section 2 of its charter. The so-called reinsurance of all its risks was by the confession of the defendant directors themselves made in cmtioipation and for the purpose of discontinuing the business of the corporation to the end' that it might be judicially dissolved. The provision as to reinsurance contained in the 2d section of the charter, considered independently, is to enable the corporation to do business, not to cease doing it. It only relates to the ordinary contract of reinsurance between one underwriter and another, by which the original underwriter is enabled to transfer its liability to or divide it with that other. It is a mere contract between two underwriters, with which the policyholder is in no way in privity, and which he cannot enforce except under an assignment. It was obviously inserted in this charter in order that the faculty to do that particular thing might be conferred upon the Broadway Insurance Company. It is a grotesque perversion of the charter to invoke the aid of that section to destroy the business of a corporation, and the contract between the insurance companies in this case turns everything-of real value over to the Hartford Insurance Company. It gives it the possession of the offices of the Broadway Insurance Company, its papers and its property. It wrecks the business of that company, and the whole purpose of the scheme is to dis*394solve the corporation as of the date of November 11, 1896, for on that day the (secretary of the corporation notified all its agents that the Broadway Insurance Company had determined to discontinue business, and that all records and all supplies in the agenté hcmds had been sold to and were now the property of the New York Underwriters’ Agency, which appeal's to be under the control of A. & J. H. Stoddard, the agents of the Hartford Fire Insurance Company, and by the contract the Broadway Fire Insurance Company recognized A. & J. H. Stoddard as the general agents of the Hartford Fire Insurance Company.
The only ground upon which the directors of the Broadway Insurance Company can claim (and they do claim it) to justify their action is, that they determined that it was. for the best interests of the stockholders of that company that it should be dissolved, and that they passed a resolution to that effect,, and that in pursuance of that resolution they took proceedings under the statute for a voluntary dissolution of the corporation, and that their action in making the contract with the Hartford Insurance; Company, and all that they 'have done under and pursuant to that contract, is in the best interests of the stockholders. But all that is unavailing to sanction what the directors of the Broadway Insurance Company have done. It is stated in the majority opinion of the court that it is not charged that the action of these directors is fraudulent. It is not so charged in the complaint, and, therefore, I do not intend, to impute any fraud to any of the directors who have united in the resolution or who have authorized the contract or the acts done under it, but 'the consideration of fraud, has nothing to do with the question of power which is the one involved in this matter. That question of power must be considered as relating to the dissolution of the. company. The institution and- pendency of proceedings for the voluntary dissolution of the corporation gave no right, whatever, to the directors to do any of the things they have done in their transaction with the .Hartford Insurance Company. The voluntary proceedings referred to are taken under the statute and those proceedings must be strictly pursued. (Matter of E. M. Boynton Saw & File Company, 34 Hun, 371; Chamberlain v. Rochester S. P. V. Co., 7 id. 557; Matter of French Manufacturing Company, 12 id. 488.) All the right given under that statute to the majority of the directors is to present *395a petition to the court to procure an order to show cause and make service of that order upon the parties who are entitled to notice under the statute and then stop until the court acts. Not one step can be taken further than that until the whole matter is brought before the court and the parties interested as creditors or stockholders are heard, if they want to be heard, upon the subject of the petition. So carefully are the rights of stockholders and creditors protected that it is provided in the statute that not less than three months shall elapse from the time the order to show cause is granted, before the court, can act, and the court itself is powerless to do' anything with reference to the corporation or its business, or to interfere with it in any way, even by the appointment of a receiver to protect assets, except in the case of an insolvent corporation. But in .this case the directors of this solvent and going corporation have not only taken the steps authorized by the statute, but they have decided the matter for themselves without a hearing of the.stockholders. This corporation may never be judicially dissolved, but these directors have virtually pronounced a decree for the court; they have declared1 to their agents that the corporation is dissolved; they have disposéd of its assets and business; they have put themselves in the place of the court, and done that which the ■ court was itself powerless to do, namely, determine the matter before the order to show cause was returnable, and they have assumed all the functions of the court in advance in disposing of their own application. If such acts on the part of directors of corporations are to be tolerated, it is very easy to see where it Would lead. If on the return day of this order to show cause the stockholders of the Broadway Insurance Company shall show good reason why the corporation should not be dissolved, there would be absolutely nothing left of the business for thé shareholders of the company unless the restraint is continued. ■
There are affidavits presented on the part of the defendant, made by gentlemen in the business of fire insurance, who assert that, notwithstanding' the agreement with the Hartford Insurance Company, and the acts of the directors of the Broadway Company under it, the Broadway Insurance Company, in case the petition of the directors is not granted by the court, could repossess themselves of the business, and go on with it.. But this seems to be utterly incred*396able, in view of what has been done by these directors, and of which the affiants must have been ignorant, namely, the notices which were ■sent out to their agents terminating and destroying the business of ■all the agencies of the company wherever they existed, leaving the Hartford Insurance Company, or A. & J. H. Stoddard, its agents, in the absolute control and possession of really all that there was of the ■active business, and the good will of the corporation.
The purpose of this injunction was to stop the acts of the directors just where they were, and until the question of the dissolution •of the corporation can be determined, by the only court that has jurisdiction to determine it, namely,, that branch of this court- in which the order to show cause is made returnable, I think we have no right- on this appeal to go into the merits of that application. That would be sitting in appeal upon such, merits before the court •of first instance has jurisdiction to hear the parties. The right of the directors of the Broadway Company was limited merely to getting that application properly and regularly before the court. • In the meantime the business of the Broadway Company should stand ■as it had stood, namely, within the control of its directors as an active and going concern. As the whole purpose was merely to invoke judicial action, those directors had no power to do anything further, and no injury can result because the control of the business is in their hands, and there are no outside influences that can interfere with their discreet and proper management of that business in their own way. It is entirely clear to me that these directors have . undertaken to do that which can only be done by the judgment of the Supreme Court, and through its receiver when dissolution is adjudged, and that the injunction was a wise and just exercise of the discretion of the court, from whose order this appeal is taken.
This is not the case of the directors of a manufacturing or trading ■corporation, suspending active business to prevent further loss to .stockholders. All that was here done was directly connected with a proceeding devolving upon the court the duty of deciding the fate •of the corporation. The statute controls. No other ■ method than "that prescribed by the statute to effect dissolution and end the business could be pursued. “ The method! of effecting corporate dissolution, when prescribed by statute, as in this State, is exchosive.” (Hitch v. Hawley, 132 N. Y. 217, citing Verplanck v. Mercantile *397Ins. Co., 1 Edw. Ch. 84; Kohl v. Lilienthal, 81 Cal. 378; Spell. Priv. Corp. § 1008. See, also, People v. Ballard, 134 N. Y. 294.)
I think the original injunction, as modified by the order of Mr. J ustice Lawrence, should be maintained; but there should also be a provision made in it that nothing therein contained shall operate to prevent the directors of the Broadway Insurance Company from bringing on their application for the voluntary dissolution, to be heard in accordance with the terms of the order to show cause.
With this modification, I think the order appealed from should be affirmed, with costs.
Order reversed, with ten dollars costs and disbursements, and application denied, with ten dollars costs.