Harned v. Beacon Hill Real Estate Co.

9 Del. Ch. 411

• Court: Supreme Court of Delaware
• Decided: January 15, 1912
• Status: Published

Opinion

Pennewill, C. J.,

(delivering the opinion of the Court): The defendant company was organized under the general corporation law of this State in 1900; and having subsequently failed for two consecutive years to pay the franchise taxes due the State, its charter was repealed, and the corporation dissolved, by proclamation of the Governor, February 17th, 1906. The company has never been reinstated, and the taxes are still unpaid. At the time of its dissolution the said corporation owned no property except a farm in Brandywine Hundred containing one hundred and fifty-four acres, and owed no debts except the franchise taxes aforesaid. The said farm was not disposed of during the three years following the dissolution of the corporation, but continued to be held by the company, and was so held, at the time the bill was presented to the Court of Chancery by the complainant asking for the appointment of a receiver for the company with authority to sell and convey all its real estate for the benefit of the stockholders. A receiver was appointed in accordance with the prayer of the complainant’s bill.

In the proceeding in the Court below the company was made party defendant, appearance was entered for the company by its solicitor, and an answer was filed, under its corporate seal, signed by the president and two directors, and attested by the secretary of the company. The case was heard and determined below on bill and answer, and the proceedings were in all respects such as are usually had in the Court of Chancery for the appointment of a receiver. The receiver sold the said real' estate pursuant to the Court’s decree, and upon the return of the sale the purchaser, the complainant, presented a petition to the Court, asking that the sale be set aside, and the order therefore be revoked. The prayer of the petitioner was denied, and an order made that the purchaser comply with the terms' of sale.

The case is now before this Court upon an appeal from the decree of the Chancellor, and while there were several errors assigned, there is practically but one question raised and to be determined, viz.: Whether the company could be made party defendant in the proceeding instituted below for the appointment of a receiver.

The appellant, complainant below, insists that the proceedings under which the receiver was appointed were irregular and void, for the reason that at the time the said proceedings were instituted the Beacon Hill Real Estate Company, the defendant named therein, was a dissolved corporation, had ceased to exist, was civilly dead, and incapable of suing or being sued for any purpose whatever. In support of this contention the appellant has referred the Court to the franchise tax Act (21 Del. Laws, c. 166) approved March 10, 1899, and also to certain provisions of the general corporation law of the State, which are deemed pertinent to the question to be determined. It is not necessary to refer particularly to the franchise tax Act because it is admitted that the company failed for two consecutive years to pay the state tax assessed against it, and that its charter and all the powers conferred by law upon it became thereby inoperative and void. By section 40 of the general corporation law it is provided that "all corporations, whether they' expire by their own limitation, or are otherwise dissolved, shall nevertheless be continued for the term of three years from such expiration, or dissolution, bodies corporate for the purpose of prosecuting and defending suits by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, and to divide their capital stock, but not for the purpose of continuing the business for which said corporation shall have been established.”

We fail to see that section 46 of the corporation Act is at all pertinent to the question before us, because its Sole purpose is to provide that a suit begun against a corporation before dissolution shall not abate on account of the dissolution, but that upon a suggestion of the dissolution, and entry of the names of the trastees or receivers, upon the record, the action shall proceed to final judgment against the said trustees or receivers by the name of the corporation. The provision of law particularly applicable to the present case is section 43 of the general corporation law, which is as follows:

"When any corporation organized under this Act shall be dissolved in any manner whatever, the Court of Chancery, on application of any creditor or stockholder of such corporation, at any time, may either continue such directors, trustees as aforesaid, or appoint one or more persons to be receivers of and for such corporation, to take charge of the estate and effects thereof, and to collect the debts and property due and belonging to the company, with power to prosecute and defend, in the name of the corporation, or otherwise, all such suits as may be necessary or proper for the purposes aforesaid, and to appoint an agent or agents under them, and to do all other acts which might be done by such corporation, if in being, that may be necessary for the final settlement of the unfinished business of the corporation; and the powers of such trustees or receivers may be continued as long as the Chancellor shall think necessary for the purposes aforesaid.”

It will be observed that the powers of the Court of Chancery under this provision are about as broad and general as it is possible to make them. If the corporation be dissolved, in any manner whatever, the Court shall have power at any time to continue the directors, trustees, or appoint receivers, to make a final settlement of the unfinished business of the corporation, etc., and their powers may be continued as long as the Chancellor shall think necessary. Section 44 provides that “the Court of Chancery shall have jurisdiction of said application mentioned in section 43, and of all questions arising in the proceedings thereon, and may make such orders and decrees and issue injunctions therein, as justice and equity shall require.” We do not understand it to be contended that the Court of Chancery has not power to appoint a receiver for a dissolved corporation at any time, if he thinks it is necessary for the interests of the creditors or stockholders that it should be done. Certainly such a contention could not be successfully made, and we need not. discuss it.

But it is very seriously urged that after three years from the date of dissolution the corporation is dead, and cannot authorize a solicitor to appear for it in an action brought against it, neither can it be made a defendant in the action. We think the determination of this question depends almost entirely upon the real intent and meaning of said section 43. In our opinion the other sections and provisions of law referred to do not affect the question or materially aid in its solution, except so far as all the provisions taken together may show a purpose in the legislative mind to provide for the final settlement of the affairs of every dissolved corporation regardless of when or how the dissolution was effected. Section 40, which we have quoted, and upon which-the appellant lays so much stress, can have no direct bearing upon the question we are considering. That section provides for the continuance of the corporation for three years after dissolution in order that the company itself may settle and close its business. Such settlement would be entirely voluntary with the company, and the provision would not avail the creditors or stockholders, or inure to their interest, unless the company chose to settle and close its business.

Section 43 very properly provides a remedy for the creditors and stockholders of the dissolved corporation which may be invoked for their protection at any time if the company refuses, fails or neglects to settle and close its business. What then does section 43 mean when reasonably construed? 1. That the Court of Chancery shall have power to appoint a receiver for any dissolved corporation if in the judgment of the Court it is necessary or proper to do so. 2. That such power may be exercised at any time after the dissolution. 3. No other procedure being prescribed by the statute, such'procedure and practice shall be adopted as is approved and followed in the Court of Chancery in cases of like character.

The procedure that is not only usually, but invariably, followed in such court is the one that was adopted in the present case. A bill of complaint was filed, and necessarily there had to be a defendant in the action. Who should be named as defendant? Manifestly there could be none other than the Beacon Hill Real Estate Company, the dissolved corporation. If such corporation could not be made party defendant, then there could be no defendant named, and the decree would have been based upon the cx parte application of the complainant, for the Court unquestionably had the power to appoint a receiver in one way or the other.

We are very clear in our opinion that the Legislature did not intend that a receiver should be appointed, even for a dissolved corporation, in an ex parte proceeding, if there were any of its officers in existence who could be served with process, and, therefore, they must have intended that the corporation should be made party defendant. Even though the corporation named as defendant in the present case had been dissolved, and three years had passed since the dissolution, it nevertheless was sufficiently alive and existent at the time the action below was instituted, to be the owner of the real estate sought to be sold. The company, so far as it was able to do so, authorized an appearance to the action, and under its corporate seal filed an answer to the bill of complaint signed by persons who were its president and directors at the time of dissolution. By its answer the company admitted the truth of the allegations set forth in the bill, and submitted to such order, as the Court might make in the premises. But the only question for this Court to determine is whether it was competent, legal and proper to make the corporation defendant ,'n the proceeding below. We are clearly of the opinion that it was. Conceding, as we must, the power of the Court of Chancery to appoint a receiver for the company, with authority to sell the real estate it still owned, we think it logically and necessarily follows that the company should have been made defendant. In that way only would the company be apprised of the fact that application had been made to the Court for the appointment of a receiver to sell its property.

The contention of the appellant, that the defendant company was, at the time the action was brought, civilly dead and incapable of suing or being sued for any purpose whatever, would be sound if the rights of a dissolved corporation were governed by the principles of the common law. But the condition of a dissolved corporation under the statute laws of this State is very different from that which would exist under the common law. In England, and in this State, at the time of the decision of Commercial Bank v. Lockwood’s Adm’r., 2 Harr. 8, a dissolved private corporation was absolutely dissolved, civilly dead, without life or being, and altogether at an end. The Court in that case said:

“The companies which have been created in this State with banking powers are corporations very different from the incorporated towns in England. They are the mere creatures of the law, deriving their existence and all their rights and powers either expressly or incidentally from the law creating them. Perpetual succession is not one of their attributes. In their charter the days of their existence are numbered, and the very period of their dissolution fixed. If the charter be not extended, the very moment that period arrives the corporation stands, not dormant, disabled, or incapable of action merely, but absolutely dissolved, civilly dead, without life or being, and altogether at an end. Their condition when their charter has expired, is not therefore the same as that of the incorporated town which has failed to elect its officers, and as the consequence of that failure is rendered inactive. The life of the one is out by its own constitution, and not from a failure to do what their charter enabled them to do, to give them active being; the other was entitled by its charter to a continued active life, but it has failed to continue that activity by the election of its necessary officers—its active powers, but not its being, are gone. The one is dead, the other is dormant. The principles of law which apply to the rights of a corporation thus dormant or disabled are not the same as those which are applicable to the rights of a corporation which is dissolved or civilly dead. If the fact of dissolution, absolute dissolution, be admitted or established, there would seem from the authorities which bear on this point, to be no question as to what becomes of the estate both real and personal, and of the rights and credits of the corporation. The text-books and cases decided are uniform in their language— that the real estate held by the corporation at its civil death, reverts to the grantor and his heirs — that the personal estate vests in the people, or in England in the crown, and that the debts due to and from the corporation are totally extinguished, so that neither the stockholders nor the directors or trustees of the corporation can recover or be charged with them in their natural capacity.”

But such is not now the law of this and many other states. While a dissolved corporation is not continued for the purpose of doing the business for which it was created, it is continued in order that, for the period of three years, the corporation itself may settle and close its business, and, if it fails so to do, that thereafter its creditors and stockholders may, by application to the Court of Chancery, secure the appointment of trustees or receivers who shall make a final settlement of the unfinished business of the corporation. And any property which may not have been disposed of by the company before dissolution, or during the succeeding three years, is not lost, but remains the property of the corporation, so that it may be sold and disposed of for the benefit of its creditors and stockholders. We arc not only of the opinion that the Court below had jurisdiction of the subject matter of the bill of complaint, and of the parties but also that the allegations contained in the bill were sufficient to justify the appointment of the receiver. Nothing remained to be disposed of, settled or administered but the farm, which the corporation unsuccessfully, • and without authority, undertook to sell and convey more than three years after its dissolution; the complainant was interested personally, as well as stockholder, in having a good and marketable title made to the property; all management of the affairs of the company had long before been abandoned by its officers, and the president and two directors of the company had admitted the allegations of the bill to be true, and agreed that a receiver should be appointed as prayed for by the complainant.'

We find no error in the decree of the Chancellor, and the judgment of the Court below is therefore- affirmed.

It is ordered that each side pay the costs of their briefs, and that the appellant pay the remaining costs.