Horton v. Thomas McNally Co.

155 A.D. 322, 140 N.Y.S. 357, 1913 N.Y. App. Div. LEXIS 5103

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: February 28, 1913
• Status: Published

Opinions

Woodward, J.:

Briefly, the facts in this case are that the Thomas McNally Company is a Pennsylvania corporation, organized for the purpose of performing public contracts; that it has, as its chief asset, a contract with the city of New York for the construction of a part of the Catskill aqueduct, at an agreed price of something like $4,000,000; that the said corporation became financially embarrassed and entered into negotiation with William E. Paine, president of the Yellow Pine Company, for a loan for the purpose of carrying on the contract above mentioned; that this negotiation resulted in a contract between the Georgia-Florida Lumber Company, by the terms of which said company is to have one-half of the profits growing out of the performance of the Catskill aqueduct contract in consideration of certain advancements made to the Thomas McNally Company in financing the work. , The Yellow Pine Company is the owner of all of the stock of the Georgia-Florida Company, the latter apparently being made use of for the purposes of this contract only, both corporations occupying the same offices at No. 16 Beaver street, New York. Among the conditions of the contract between the Thomas McNally Company and the Georgia-Florida Company, was one that all of the stock of the Thomas McN ally Company should be pledged or delivered to the Georgia-Florida Company, and that the latter corporation should during the continuance of the contract have control of the majority of the board of directors of the Thomas McNally Company, Thomas McNally remaining as president and one of the members of the board. This arrangement appears to have been carried out, and soon after the signing of the loan contract above referred to, Mr. Maloney, who had been the president of the Georgia-Florida Company, resigned and Mr. Paine (president of the Yellow Pine Company) was elected president of the Georgia-Florida Company. He was likewise chosen as vice-president of the Thomas McNally Company, and was clearly the dominating spirit of the entire transaction. With this reorganization brought about, work was put forward upon the aqueduct contract, and in November, 1908, Mr. Paine, acting under a provision of the loan contract, collected $47,623.22 from the city of New York and credited the amount received upon the credit account of the Georgia-Florida Company, and neglected and refused to apply the sum to the payment of the claims for labor and materials upon the aqueduct work, with the result that the work was suspended, with approximately $100,000 of labor and material bills outstanding. In December of that year a meeting of the creditors of the Thomas McNally Company was held at the office of certain attorneys in New York, where an effort was made to procure the consent of such creditors to the appointment of Mr. Paine as receiver of the Thomas McNally Company. This move failed, and on the 17th day of December, 1908, a decree was made in an action brought in the State of Pennsylvania, and a receiver of the Thomas McN ally Company was appointed in that State. On the following day an order was made in this State'in the action of John M. Moe against the Thomas McN ally Company, appointing J. F. Emy of Pittsburg and the Trust Company of America as ancillary receivers of the property of such company within this State, and these receivers qualified and took possession of the property. This order contained an injunction restraining creditors or others from interfering with the property. At about this time the Georgia-Florida Company, with other creditors, got out attachments against the property of the Thomas McNally Company, and the sheriffs of Putnam and Westchester counties made levies, notwithstanding the injunction contained in the order above mentioned. Soon afterward the Georgia-Florida Company brought an equitable action in the Circuit Court of the United States for the Southern District of New York, in behalf of itself and other creditors similarly situated, praying for the appointment of a receiver for the Thomas McNally Company. This action was subsequently discontinued, upon the appointment of Mr. Paine and Benjamin B. Odell, Jr., as receivers of the property in an action brought by Chauncey S. Horton and others as judgment creditors, to which further reference will be made.

Early in February, 1909, the Pennsylvania receivership was vacated and set aside, upon the ground that the plaintiff in that action was not a judgment creditor, and thereupon a motion was made in this State to set aside the order appointing ancillary receivers. This motion was denied, the learned court writing an opinion in which it was pointed out that to revoke the order might operate to let in all of the attaching creditors and result in a dissipation of the property of the Thomas McNally Company, preventing the performance of the aqueduct contract, and thus depriving creditors and stockholders of the opportunity of realizing upon their equities, at the same time pointing out that all parties conceded the advisability of a receivership, though questioning the right to retain the ancillary receivers in the action of Moe, who was not a judgment creditor. Later, by agreement among all the parties in interest, it was arranged that Chauncey S. Horton and others should bring an action against the Thomas McNally Company on certain promissory notes, and such steps were taken, as resulted in the entry of judgment upon such notes, and execution was issued and returned wholly unsatisfied, when an action was brought upon such judgment, asking for the appointment of a receiver, and for the carrying on of the contract for the construction of the aqueduct, and the final distribution of the funds. All of these matters were the subject of negotiation between the various parties, acting generally through their attorneys, and there can be no question that Mr. Paine, the president of the Georgia-Florida Company, was represented by counsel, and that he agreed, in behalf of his company, that if he was appointed one of the receivers in the judgment creditor’s action, he would relinquish all claim under the attachment above mentioned, and it appears from the record that these matters were all agreed to in open court; that the court, upon the express understanding that the attachment was to be vacated, appointed Mr. Paine, as representing the principal creditor, and Benjamin B. Odell, Jr., as receivers, and that the attachment was thereupon vacated, both such receivers qualifying and entering upon the discharge of their duties. Since that time a great part of the work contemplated under the- aqueduct contract has been performed; about $350,000 of receivers’ certificates have been authorized and issued to various creditors, and each of the receivers has been paid fees in excess of $32,000, and now the Georgia-Florida Company asks to have this receivership set aside, upon the ground that the court was without jurisdiction to make the order, and that its attachment shall be reinstated. This motion has been denied, and appeal comes to this court, it being urged also that Mr. Paine, who was summarily removed as one of the receivers, should be reinstated.

The first question naturally to present itself is the right of the Georgia-Florida Company to be heard upon this motion or the appeal. It is a well-established principle that that to which a person assents is not esteemed in law an injury (Broom Leg. Max. [8th Am. ed.] 267), and it seems reasonably certain that the Georgia-Florida Company not only assented to the appointment of the receiver in this case, but made it the condition of its surrender of any rights which it might have had under the attachment proceedings, and that it has had the benefit of the performance of the contract with the city of New York, under which it not only hoped to secure a return of its • advancement, but to share in the profits which might accrue. Mr. Paine had no right to expect an appointment as receiver in a judgment creditor’s action against the Thomas McNally Company, except as he represented the G-eorgia-Florida Company, the principal creditor of the Thomas McNally Company, and it appears from the record that the learned court at Special Term was unwilling to appoint Mr. Paine because the latter, as the representative of the G-eorgia-Florida Company, claimed to have an attachment against the property, and it was only upon the representation of the attorney of the Georgia-Florida Company that the attachment would be vacated upon the appointment of Mr. Paine, that the latter was chosen and the attachment vacated. This occurred in 1909, and it was not until the year 1912 that this motion to set aside the receivership was made, a time so long that it must be apparent that there could be no good faith in the suggestion that the board of directors of the Georgia-Florida Company did not know of the action of its president in connection with this receivership. It is urged, however, that this question is not open; that it has been determined in favor of the right of the appellant in Zeltner v. Zeltner Brewing Co. (19 App. Div. 136). In that case all of the directors of the corporation had resigned for the purpose of bringing the situation within the letter of subdivision 3 of section 1810 of the Code of Civil Procedure, authorizing the bringing of an action “to preserve the assets of a corporation having no officer empowered to hold the same,” and then William H. Zeltner, as an individual stockholder in the brewing company, and as the executor of a deceased stockholder, brought an action for the purpose of securing the appointment of a receiver to wind up the affairs of the corporation. The "order appointing the receiver contained an injunction restraining creditors from interfering with the property, and the receiver took possession and proceeded to discharge the duties of a general receiver. There was no objection - offered to the appointment of the receiver by the corporation. Before this action was commenced, however, the Yorkville Bank had commenced two actions in the Supreme Court upon promissory notes amounting to $10,000, and these actions came within the inhibitions of the injunction order issued in connection with the appointment of the receiver, and it was “this feature of the order which gave the Yorkville Bank the requisite status to move to vacate the order and which enables it to prosecute the present appeal,” to quote the language of the court in that case. The motion of the Yorkville Bank was denied at Special Term, but on appeal the order was reversed and the order appointing the receiver was modified so as to relieve the Yorkville Bank from the operation of the injunction contained therein, and permit said bank to prosecute its claims against the Henry Zeltner Brewing Company to judgment, and to enforce any judgments it may obtain against the property in the hands of the receiver. (Zeltner v. Zeltner Brewing Co., supra.) In that case, although the court held that the action of the officers and directors was absolutely illegal, and that there was no jurisdiction to appoint the receiver, it refused to grant the motion of the Yorkville Bank to vacate and set aside the order appointing the receiver, and merely modified the order in such a manner as to permit the bank to prosecute its claim against the property in the hands of the receiver. But there the Yorkville Bank had not given its consent to the appointment of receivers, upon condition that its president should be one of the receivers, and for the purpose of enabling the insolvent corporation to fulfill a contract in which the bank and its officers were vitally interested. It found itself denied the right to collect the moneys due it by reason of an injunction order issued in connection with a fraudulent receivership, and the court permitted it to come in and be relieved of the injunction order that it might prosecute its action, already begun, for a judgment against the corporation, which judgment might be enforced against the property in the hands of the receiver. If the Georgia-Florida Company had been a simple creditor, in no wise involved in the appointment of the receiver, and the receiver has been named without the court having jurisdiction, it might be that it would have a right to intervene by a motion for the purpose of being relieved of an injunction order which prevented it from asserting its claim against the corporation, but it would have no right to "interfere with the receivership, to which the Thomas McNally Company had assented, for the receivership merely vests the properly in the court for the benefit of creditors generally, and it could have no interest in the matter so long as it was permitted to prosecute its own claim. This is the extent to which the case cited goes in sustaining the right of the Greorgia-Florida Company to its intervention in the present case, and we are of the opinion that it is not aggrieved by the order which has been made, denying its motion to set aside the receivership. If it is aggrieved, then it is estopped to urge the point because it has accepted the benefits of the order to which it had already assented, by having the affairs of the Thomas McNally Company, its debtor, administered under the personal supervision of its own president, who must be presumed to be acting in good faith, not alone to his corporation, but in his relations as an officer of the court.

This view óf the case makes it unnecessary, perhaps, to go into the question of the jurisdiction of the court to grant the motion for a receivership in the first instance, but it may not be out of place to observe that while it may be that the complaint does not ask for the proper relief, we do not see any good reason why the court should not have taken possession of the property of the Thomas McNally Company within the State of New York under the circumstances presented by this record. It is undoubtedly true, as suggested, that the court could not wind up the affairs of the corporation created by and under the laws of the State of Pennsylvania, but it could take charge of the property, legal and equitable, within the State of New York for the purpose of protecting the rights of domestic creditors, and upon a final adjustment of its affairs within this ‘ State, it could direct the payment of local creditors, and the turning over of any surplus which might result to the corporation itself, and this is especially true where, as in the case now before us, it appears that all of the parties in interest have consented to the receivership and have acted under it for several years without complaining. The objection now urged is not that the Supreme Court has not general jurisdiction of actions by judgment creditors, but that it has no jurisdiction of the subject-matter of this action because, the corporation being created under the laws of the State of Pennsylvania, it is not competent for our courts to take jurisdiction of an action which has for its object the dissolution of the corporation and the winding up of its affairs. But it unquestionably has jurisdiction of the property of the corporation within this State, and the corporation having come in and asked for the appointment of the receiver by its answer it would not be permitted to question the jurisdiction of the court, and it is difficult to understand how a mere general creditor, who has likewise consented to the appointment of the receiver, can be in a better position than the corporation itself. “ It is also objected,” say the court in Matter of Metropolitan Railway Receivership (208 U. S. 90, 109), “ that the Circuit Court had no jurisdiction because the complainants were not judgment creditors, but were simply creditors at large of the defendant railways. The objection was not taken before the Circuit Court by any of the parties to the suit, but was waived by the defendant consenting to the appointment of the receivers, and admitting all the facts averred in the bill. (Hollins v. Brierfield Coal & Iron Company, 150 U. S. 371, 380.) That the complainant has not exhausted its remedy at law — for example, not having obtained any judgment or issued any execution thereon — is a defense in an equity suit which may be waived, as is stated in the opinion in the above case, and when waived the case stands as though the objection never existed.” In the case to which reference is made the court say: “ Given a suit in which there is jurisdiction of the parties, in a matter within the general scope of the jurisdiction of courts of equity, and a decree rendered will be binding, although it may be apparent that defenses existed which, if presented, would have resulted in a decree of dismissal. Take the present case as an illustration: Suppose the corporation and other defendants had made no defense, and, without expressly consenting, had made no objection to the appointment of a receiver, and the subsequent distribution of the assets of the corporation among its creditors, it cannot be doubted that a final decree, providing for a settlement of the affairs of the corporation and a distribution among creditors could not have been challenged on the ground of a want of jurisdiction in the court, and that notwithstanding it appeared upon the face of the bill that the plaintiffs were simple contract creditors, because the administration of the assets of an insolvent corporation is within the functions of a court of equity, and the parties being before the court, it has power to proceed with such administration. If there was a. defense existing to the bills as framed, an objection to the right of these plaintiffs to proceed on the ground that their legal remedies had not been exhausted, it was a defense and objection which must be made in limine, and does not of itself oust the' court of jurisdiction.”

In the case now before us it is urged that as this is a judgment creditor’s action the court is without jurisdiction because section 100 of the General Corporation Law (Consol. Laws, chap. 23; Laws of 1909, chap. 28) provides only for such an action as against a corporation created by or under the laws of the State, but we apprehend that the parties to the action and those interested may consent to waive the fact that the Thomas McNally Company is a foreign corporation, and , that, having once done so and the court having acted upon that! waiver, it is not for a third party, who has likewise consented, j to interfere with the administration of the property which has ! thus been confided to the care of the court through its receivers. If the Thomas McNally Company had entered into an agreement with its principal creditor, the Georgia-Florida Company, that the affairs of the corporation should be conducted by Messrs. Paine and Odell, and the latter-named gentlemen had entered upon the discharge of the duties, and had arranged to satisfy the other creditors with the notes or other obligations of the Thomas McNally Company, to the advantage of the Georgia-Morida Company, can there be any doubt that such an agreement would be enforced and continued as against the demand of the latter company that it should be abrogated ? This is practically what has been done, only it has been accomplished through the forms of law; it has been mutually agreed that these men should administer the property of the Thomas McNally Company in the form and manner provided for the conduct of receivers under the laws of New York, and this agreement has been ratified by the parties thereto, and it cannot be set aside for the purpose of permitting one of the parties to such agreement to get an unfair advantage of other creditors, or those who have expended time and money relying upon the good faith of the parties to the agreement.

We think this court is committed to the doctrine that a receiver of the property of an insolvent foreign corporation situated in this State may he appointed to preserve the property pendente lite for the protection of the interests of New York creditors. (Moe v. McNally Co., 138 App. Div. 480; People v. Granite State Provident Association, 41 id. 257; affd., 161 N. Y. 492; Popper v. Supreme Council, 61 App. Div. 405; Reusens v. Manufacturing & Selling Co., 99 id. 214. See, also, Blake v. McClung, 172 U. S. 239, 257.)

As hereinbefore stated, it may be that the prayer for relief in the Horton suit is broader than the relief to which the plaintiffs therein are entitled; but the facts pleaded, which the defendant admitted, were sufficient to invoke the jurisdiction of the court to preserve the property of the corporation in New York through the agency of a temporary receivership, and the receivership order is riot open to collateral attack except upon the ground that it is void.

While the action of the court in removing Mr. Paine as one of the receivers was somewhat summary, and ought not to be regarded as a general precedent, the statute (Gen. Corp. Law, § 273) provides that “ Such receivers may be removed by the court,” this language being substituted for that of the Revised Statutes, which provided that “ they may be removed by the court.” (R. S. pt. 3, chap. 8, tit. 4, art. 3 [2 R. S. 472], § 85; Laws of 1852, chap. 71, as amd. by Laws of 1860, chap. 403.) It was held in Hoyt v. Continental Insurance Co. (21 Wkly. Dig. 145) that the power of the Supreme Court to remove its own receiver of a corporation, and appoint another in his place, does not depend on any notice to stockholders who have appeared; that the court can act on its own motion. (1 Rumsey Pr. 747.) Sections 235 and 236 of the General Corporation Law provide for the authority which shall vest in a single receiver and in cases where there are more than one receiver, and section 237 provides that the “ survivor or survivors of any receivers shall have all the powers and rights given to receivers,” and that “All property in the hands of any receiver at the time of his death, removal or incapacity, shall be delivered,to the remaining receiver or receivers, if there be any.” While the power is given to appoint to “Any vacancy created by removal, death or otherwise” (Gen. Corp. Law, § 274), this is not made obligatory, and, as the purpose of a receivership is to hold the property in the control of the court, and as one receiver may discharge all of the functions, no; good reason appears why the order in this case should be interfered with by this court. Mr. Paine, moreover, is not a party to this appeal, and so far as appears has never objected to his removal, or applied in any way for reinstatement. There is no claim that the work has been jeopardized or impeded by his removal. The question, therefore, may fairly be considered as not germane to the present proceedings, and may well abide his future action, if any be contemplated.

As to the appeal from the order denying the motion of the Georgia-Florida Lumber Company to reinstate its attachment, we think any further discussion unnecessary, and it should be affirmed.

The orders appealed from are affirmed, with costs.

In Horton v. McNally Company, Jenks, P. J., Hirschberg and Rich, JJ., concurred; Burr, J., concurred in result, in separate opinion, so far as the order appealed from denies the motion to remove the receivers, and dissented so far as the order removes William E. Paine, one of said receivers. In Georgia-Florida Company, Jenks, P. J., Hirschberg and Rich, JJ., concurred.