Ewen v. American Fidelity Co.

271 F. 848, 1921 U.S. App. LEXIS 1877

• Court: Court of Appeals for the Second Circuit
• Decided: March 2, 1921
• Docket: No. 116
• Status: Published

Opinion

ROGERS, Circuit Judge

(after stating the facts as above). [1] When a corporation has been legally dissolved it is dead. According to the principles of the common law it is not in existence for any purpose thereafter. The necessary effect of the death of a corporation is not different from the death of a natural person in that in the case of each no judgment can thereafter be entered against either in the absence of a statute otherwise providing. A judgment can no more be rendered against a dead corporation than against a dead man. It is wholly void in the one case as in the other. That such is the common-law rule is so well established upon the authorities that it is idle to controvert it. An action against a corporation abates when corporate existence comes to an end. Pendleton v. Russell, 144 U. S. 640, 12 Sup. Ct. 743, 36 L. Ed. 574; Carr v. Hamilton, 129 U. S. 252, 9 Sup. Ct. 295, 32 L. Ed. 669; Martyne v. American Ins. Co., 216 N. Y. 196, 110 N. E. 502; Blanchard v. Gay Co., 289 Ill. 421, 124 N. E. 616; Thornton v. Railway Co., 123 Mass. 32; Morgan v. New York National Building Association, 73 Conn. 151, 46 Atl. 877; Eagle Chair Co. v. Kelsey, 23 Kan. 632; Short Line R. R. Co. v. Maine Central R. R. Co., 92 Me. 476, 43 Atl. 113.

It is necessary to inquire, therefore, into the alleged dissolution of the Illinois Surety Company to ascertain whether the corporation had become civiliter morluus before judgment was rendered against it. It appears that the statute under which the Illinois Surety Company was-organized is entitled “An act to provide for the organization, management and regulation of surety companies,” in force April 17, 1899 (Laws Ill. 1899, p. 260). That that statute provided that such companies shall be subject to the provisions of “An act in regard to the dissolution of insurance companies,” in force July 1, 1874. That this statute of 1874 (Hurd’s Rev. St. of Illinois 1917, pt. 2, c. 73, pp. 1679, 1680) provides as follows:

“(8) The charters of all insurance companies incorporated in this state, which either from neglect or by vote of their members or officers, or in obedience to the decree of any court, have ceased, or shall hereafter cease, for the period of one year, to transact the business for which they were organized, shall be deemed and held extinct in all respects, as if they had expired by their own limitation; and the circuit courts shall have authority, upon application, by the petition of the auditor of state, or of any person interested, to fix, by decree, the time within which such companies shall close their concerns: Provided, that this section shall not be construed to relieve any such company from its liabilities to the assured or any of its creditors.

“(4) Insurance companies whose charters expire by their own limitation, •or become forfeited by non-user, or are dissolved by decree of court, or otherwise, shall, nevertheless, be continued bodies corporate for the term of two -years after such expiration, forfeiture or dissolution, 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 divide their capital stock and assets, but not for the purpose of continuing the business for which they were organized.”

It appears also that on April 19, 1916, a majority in number and interest of the stockholders of the Illinois Surety Company filed a bill in the superior court of Cook county, 111., “to close said company and to procure a decree of dissolution of the corporation in the manner provided by law.” That they enumerated the assets of the corporation in all states, and alleged that the corporation was insolvent and that if a receiver should not be appointed it would be subject to a multiplicity of suits and its property lost and depleted by expenses and unevenly distributed to its creditors. That they asked that—

“The Illinois Surety Company may be restrained by proper decree * * * from further prosecution of its business, * * * and that a receiver be appointed forthwith, to .take charge of the estate and effects of said corporation, including all such securities as are deposited in this and other states, to ■collect the debts due and the property belonging to said corporation with power to prosecute and defend suits in the name of said corporation, or in the name of said receiver, and to do all other acts necessary for the collection, marshaling, and distribution of the assets of said Illinois Surety Company and the ■closing of its concerns.”

On the same day, April 19, 1916, the Illinois Surety Company filed an answer to the bill, admitting all the allegations thereof, including ■insolvency.

On the same day, April 19, 1916, oral testimony was taken in the superior court of Cook county, Ill., which found that the averments •of the bill were true, and decreed:

“(1) That the said Illinois Surety Company, be, and it is hereby forthwith restrained, enjoined and forbidden from further prosecution of its business.”

On the same day the superior court made a separate order appointing a receiver of all the property of the corporation or held for its account wherever situated. The order gave the receiver “power to prosecute and defend suits in the name of the Illinois Surety Company, or in his own name.”

[2] By virtue of the above order of the Illinois court enjoining the Illinois Surety Company from the further prosecution of its business, the chai'ter of the company must be deemed and held to have become extinct in all respects as if it had expired by its own limitation after the lapse of one year from the date of the order as provided in section 3 of the Act of 1874 above quoted. But this corporation' in accordance with the provision contained in section 4 of the same act, also above quoted, continued to be a body corporate for the term of two years after the expiration of its charter for the purpose of prosecuting and defending suits by or against it and for the settlement of its affairs.

As the Illinois Surety Company was restrained from doing any business by court decree of April 19, 1916, its charter expired on April 19, 1917. As it was continued a body corporate by statute for two years and no more after its charter became extinct its existence ceased and it became dissolved for all purposes on April 19, 1919.

'¡'he receiver was never made a party to the action brought by Mackey in New York against the Illinois Surety Company. On April 18, 1919, the superior court of Cook county, 111., which had appointed the receiver, directed him to discontinue any further defense of the Illinois Surety Company in the New York action and directed him to notify Mackey of the order. The order also directed Mackey to file his claims with the master who had been appointed under an order of the Illinois court made on January 30, 1918. That order referred all actions pending in the several states against the Illinois Surety Company, and against the Illinois Surety Company and the receiver, and all disallowed claims to a master to hear the evidence and report his conclusions of fact and law. Both of these orders appear to have been made on due notice to all parties entitled to receive notice. As soon as the order of April 18, 1919, was made the receiver directed the attorneys who had hitherto appeared for the Illinois Surety Company in the New York action to discontinue their appearance. They thereupon at once notified Mackey that their authority to represent the defendant in that action and to appear for it had been terminated and revoked. After this notification Mackey made haste to obtain the judgment in the New York action which is the judgment involved in the suit now before this court, and for the payment of which it is claimed the present defendant must pay to the extent of its bond. That action it will be recalled had been commenced in May, 1915, and had been prosecuted, it must be admitted, with much indifference through a period of four years, there being no adequate explanation given of the reason for the delay.

. [3] The state which grants a corporate franchise has exclusive and supreme power to withdraw it. Morgan v. New York National Building Association, supra. When the state of Illinois which created the Illinois Surety Company terminated its existence, its action was as decisive in New York as in Illinois. For as Chief Justice Taney said in Bank of Augusta v. Earle, 13 Pet. 519, 588 (10 E. Ed. 274):

“A corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. * * * It must dwell in the place of its creation, and cannot migrate to another sovereignty.”

The Supreme Court has often reaffirmed the statement. It must necessarily follow that a decree of dissolution of a corporation rendered in the state of its creation abates not only all actions pending by or against it in that state but in every other.

[4] It was urged upon the argument that the language of section 13 of the Illinois Insurance Raw hereinbefore set forth and which provides for the forfeiture of charters for failure to transact business for one year requires that this failure to do business must be “in obedience to the decree of any court,” and there was no such decree but only an interlocutory order. The language used by the court was:

“ * * * And the court being fully advised in the premises, doth find from said bill and petition and answer and oral proof heard in open court that the averments in said bill and petition are true, and doth order, adjudge and decree as follows, without bond from the complainants and until the further order of court:

“(1) That the said Illinois Surety Company be, and it is hereby forthwith restrained, enjoined and forbidden from further prosecution of its business.

“(2) That all the servants, agents, officers and employees of said Illinois Surety Company, be and they are hereby restrained and enjoined from interfering with, copying or carrying away any of its books, papers, records, schedules, lists of policyholders, or other documents, or any copies thereof.”

An interlocutory order is one made pending a cause and before final hearing on the merits and where further action is necessary. But the decree in this case by its language shows that it was made after the court was “fully advised in the premises” and that it was [>ased not only on the “bill and petition and answer” but also upon “oral proof in open court” which satisfied the court “that the averments in said bill and petition are true.” It was not necessary that any further steps should be taken, and- it settled not some intervening matter but the cause itself. There was nothing left open which remained to be disposed of. The rights of the parties were determined by it. The object of an interlocutory order is to maintain the status quo. The object of a final decree is to determine the right in controversy. That was done by the decree which was entered in this case. This court has before decided that a decree does not lose its character as a final decree by adding the words “until the further order” of the court. That question has been settled for fifty years in the federal courts by the decision of the Supreme Court in Trench v. Shoemaker, 12 Wall. 86, 98, 20 L. Ed. 270. In that case leave was given, at the foot of the decree, to either party to apply for such further order as might be necessary or as might be requii-ed in relation to any matter not finally determined by it. The court in commenting upon it declared it to be “quite apparent that that reservation was superadded to the decree as a precaution and not because the court did not regard the whole issue between the parties as determined by the decree.”

[5] In Commercial Roan & Trust Co. v. Mailers, 242 Ill. 50, 89 N. E. 661, 134 Am. St. Rep, 306, 17 Ann. Cas. 224, the court construed section 10 of the General Corporation Raw of that state (Hurd’s Rev. St. 1917, c. 32), and which provided that corporations organized under the law should continue their corporate capacity “during the term of two years,' for the purpose only of collecting the debts due said corporation, and selling and conveying the property and effects thereof.” It held that the act applied only'to corporations organized under it. It accordingly held that a corporation organized for banking purposes, and not organized under the General Corporation Law, was not affected by the two-year limitation and might rightfully enforce its claims against its debtors in the courts of the state until such indebtedness had become barred by the general statute of limitations. This, the court thought, was in accord with “the general public policy of the state which permits a corporation to do such acts as may be necessary to collect its debts and settle up its affairs after dissolution.” In that case the banking corporation had been dissolved during the pendency of the action; judgment was not actually entered in the suit until ten years thereafter; it was held that the action did not abate.

In Singer & Talcott Co. v. Hutchinson, 176 Ill. 48, 51 N. E. 622, the court construed section 12 of the Corporation Law of the state which reads as follows:

"Tlie dissolution, for any cause whatever, of any corporation created as aforesaid, shall not take away or impair any remedy given against such corporation, its stockholders or officers, for any liabilities incurred previous to its dissolution.”

The court in passing upon it said:

•‘While tlie corpora4e capacity of this corporation was continued for two years after the expiration of its charter, or until April 10, J894, in order to bring suits for the purpose aforesaid, its corporate capacity to be sued as a parly defendant, for liabilities which accrued before its dissolution, was continued without limitation as to time, and therefore the general statute of limitations, only, would apply.”

If the Illinois Surety Company had been subject to the General Corporation Law of the state instead of the Insurance Law of 1874 there might be ground for the contention that the judgment which Mackey obtained in New York after the two year period had expired was binding upon the Illinois Corporation. But if, as we hold it was, the corporation was subject to the act of 1874 in regard to the dissolution of insurance companies, then it was not subject to the General Corporation Law of the state, or to the public policy of the state as announced in the two decisions last quoted. Our attention has not been called to any decision of the Supreme Court of Illinois, or of any of its other courts, construing sections 3 and 4 of the act of 1874, and in the absence of such a decision we must hold that the provision in section 4, heretofore quoted, which continues bodies corporate after their charter had expired “for the term of two years” for the purpose “of prosecuting and defending suits by or against them and of enabling them gradually.,to settle and close their concerns” is a period of limitation and that no judgment can be entered in any action, against any corporation subject to its provisions, unless it is done within the period so prescribed.

[6] Counsel for the plaintiff directs our attention to the language used at the end of section 13 of the Insurance Law, wherein it is expressly said that—

“This section shall not be construed to relieve any such company from its liabilities to the assured or to any of its creditors.”

That section provides thát the charter of the corporation expires by limitation at the end of the one-year period, and that the fact that it has expired shall not relieve it from liabilities to creditors. But it is not claimed that the company is relieved from liabilities to creditors by section 13. It is claimed that it is relieved under section 14. That section provides that after the corporation has been dissolved at the end of one year under the provisions of section 13 it shall be continued for the term of two years more for the purposes mentioned.' The relief from liability plainly comes at the end of this additional period of two years under the provision of section 14.

There are other assignments of error which we have examined and found without merit.

Judgment affirmed.