Mirabal v. Albuquerque Wool Scouring Mills

170 P. 50, 23 N.M. 534

• Court: New Mexico Supreme Court
• Decided: December 20, 1917
• Docket: No. 2001
• Status: Published

Opinion

OPINION OP THE COURT.

HANNA, C. J.

(after stating the facts as above) — This proceeding was instituted under the provisions of sections 954 to 976, inclusive, Code 1915, which were originally parts of chapter 79 of the Laws of 1905, the General Incorporation Act. The sections were copied, with' some modifications, from the New Jersey Corporation laws, and have been before the court for consideration in part in other cases. Sacramento valley Irr. Co. v. Lee et al., 15 N. M. 567, 113 Pac. 834, 33 L. r. A. (N. S.) 558; Eagle Mining Co. v. Lund, 15 N. M. 696, 113 Pac. 840; Department Store v. Gauss-Langenberg Hat Co., 17 N. M. 112, 125 Pac. 614; State ex rel. Parsons Mining Co. v. McClure, Judge, 17 N. M. 694, 133 Pac. 1063, 47 L. R. A. (N. S). 744, Ann. Cas. 1915B, 1110; and State v. First State Bank, 22 N. M. 661, 167 Pac. 3. The history and object of the sections are discussed in some of these eases. See, also, Pierce v. Old Dominion, etc., Co., 67 N. J. Eq. 399, 58 Atl. 319, and Gallagher v. Asphalt Co. of America, 65 N. J. Eq. 258, 55 Atl. 259.

The First National Bank of Albuquerque, with others, was joined as a party defendant with the Albuquerque Wool Scouring Mills. The purpose of such joinder was evidently to afford the appellant the opportunity of litigating with the bank the validity of its claim against the Albuquerque Wool. Scouring Mills. In Pierce v. Old Dominion, etc., Co., cited supra, the court said:

“Before leaving tbe consideration of tbe essential nature of our statutory equitable action against an insolvent corporation, it is important to observe that tbe almost uniform practice has been to make tbe corporation the sole defendant in tbe suit. * * *

“There seems to be no more room for a second or a third defendant than there is in an action to have a person or a corporation adjudged an involuntary bankrupt. * * * ”

The bank in this case was not only an unnecessary party, but an improper one.

[1-2] This case turns upon the question of the jurisdiction of the trial court concerning the claim of the First-National iBank of Albuquerque. By appellant it is contended that at the time of this adjudication the court was- without jurisdiction over the subject-matter of the claim of the bank, for the reason that the only question before the court at that time was the insolvency of the Albuquerque Wool Scouring Mills and the fact that it was not about to resume its ordinary business with safety to the public and advantage to the stockholders. As we have said, the bank was made a party defendant by appellant. It filed an objection to the appointment of a receiver of the property included within the trust deed, on the theory that it, or its trustee, had a better right to the possession thereof than did the corporation or the receiver, and that a receiver was unnecessary therefor, and unnecessary costs would be entailed, partly chargeable to it, on account thereof. The only reason apparent of record for joining the bank as a party defendant is that it afforded the appellant an opportunity to contest the validity of the claim of the bank against the Albuquerque Wool Scouring Mills. The claim was held valid as against the corporation and the receiver was excluded of possession of the trust property. '

The statute (section 957, Code 1915) provides:

“The district court, at the time of ordering said injunction, or at any time afterwards, may appoint a receiver or receivers or trustees for the creditors and. stockholders of the coration, with full power and authority to demand, sue for, collect, receive and take into their possession all the goods and chattels, rights and credits, moneys and effects, lands and tenements, books, papers, choses in action, bills, notes and property of every description of the corporation, and to institute suits at law or in equity for the recovery of any estate, property, damages or demands existing in favor of the corporation,” etc.

Section 959 provides:

“All the real and personal property of an insolvent corporation, wheresoever situated, and all its franchises, rights, privileges, and effects shall, upon the appointment of a receiver forthwith vest in him and the corporation shall be divested of the title thereto.”

Section 956, Code 1915, provides for tbe application for the appointment, and reads as follows:

“Whenever any corporation shall become insolvent or shall suspend its ordinary business for want of funds to carry on the same, any creditor or stockholder may by complaint seting forth the facts and circumstances of the case, apply to the district court for a writ of injunction and the- appointment of a receiver or receivers or trustees, and the court being satisfied by affidavit or otherwise of the sufficiency of said application, and of the truth of the allegations contained in the complaint, and upon such notice, if any, as the court by order may direct, may proceed in a summary way to hear the affidavits, proofs and allegations which may be offered on behalf of the parties, and if upon such inquiry it shall appear to the court that the corporation has become insolvent and is not about to resume its business in a short time thereafter with safety to the public and advantage to the stockholders, it may issue an injunction to restrain the corporation and its officers and agents from exercising any of its privileges or franchises and from collecting or receiving any debts, or paying out, selling, assigning or transferring any of its estate, moneys, funds, lands, tenements or effects except to a receiver appointed by the court until court shall otherwise order.”

Under the last-quoted section it will be seen that the alleged insolvent corporation is the only proper party defendant.

But the question remains for consideration whether a petitioning stockholder or creditor, having made a, lien-holder or mortgagee a party, and invited it to litigate the validity of its debt and lien in the application for the adjudication of insolvency and appointment of a receiver, is estopped to allege error upon the part of the court in so doing.

Upon his appointment, the receiver, by virtue of the statute, is invested with the title to all the property of the insolvent corporation, real and personal, of every kind and character, and the corporation is divested of the title thereto. Upon his appointment, by virtue of section 957, quoted supra, the receiver has full power and authority to demand, sue for, and collect, receive, and take into his possession all such property. These powers and prerogatives are given to the receiver, when he is appointed, by the statute, not by order of the court. This being true, and title vesting in him by virtue of the statute, and likewise the right to possession, or, to say the least, the right to sue for possession and to recover the same if entitled thereto, the court, at the time of adjudicating the insolvency of the corporation and decreeing that a receiver should be appointed, has not the power, in the same degree, and prior to the appointment and qualification of the receiver, to strip the receiver of these statutory rights and prerogatives.

The reason for this is clearly apparent. If the corporation is insolvent, which question only the court in such a proceeding is called upon to determine, the stockholders and creditors are all mutually interested in all the assets of the corporation. The}*- are not, other than the petitioning creditor or stockholder, before the court; and such petitioning creditor or stockholder is only before the court for one purpose, viz. securing a determination of the single question as to the insolvency of the corporation. In securing the adjudication of this question he is, of course, acting on behalf of all stockholders and creditors, for all are equally interested in the appointment of the receiver and securing the assets of the corporation from further dissipation if it is in fact insolvent. If the corporation is adjudged to be insolvent all are bound by the adjudication, but further than this their.rights are not affected.

The one question, which the court under the statute is empowered to determine, having been decided, and the corporation having been, adjudicated to be insolvent, and a receiver appointed, this officer of the court steps in, under the statute, and becomes the impartial representative of all the creditors and stockholders. Unless a referee is appointed, 'as may be done under the provisions of1 section 9.62, Code 1915, all claims should be presented to the receiver.

The receiver, being thus the representative of all the creditors, an adjudication between the receiver and others as to claims or title to property, or other matters affecting the same, is valid and binding, and all are represented in court through the receiver.

In the present case, with only the petitioning stockholder, the insolvent corporation, and one lienholder before the court, it proceeded to pass upon the validity of the trust deed, and to decree, that, as to the property included therein, the receiver should not take possession, thereby depriving all other creditors and stockholders, either directly or through the receiver, of the right to litigate the validity of such trust deed, thereby foreclosing the receiver of his statutory right to sue for such possession.

In this ease, if the corporation had no title to the mortgaged premises, the receiver would take none; if the corporation had title, but did not have the right to possession of the mortgaged premises and property, the receiver would have no right to the possession thereof. In other words, the receiver stepped into the shoes of the corporation, and took only such title and rights as it had. He had, or should have, the right to litigate, on behalf of the creditors and stockholders, the validity of the mortgage and the right of the trustee named therein to possession of the mortgaged property. This right the statute assures him, and the court, without a proceeding to which he, as the representative of all the creditors and stockholders, was a party, could not legally preclude him from asserting such right.

But little light is afforded on this question by the decisions of the New Jersey courts, from which stnU statute was taken. In the case of the Consolidated Coal Co. v. National State Bank, 55 N. J. Eq. 800, 38 Atl. 657, the court was asked to and did adjudicate the validity of a lien concurrently with the adjudication of the insolvency of the corporation. On appeal the appellate court held the lien to be invalid, and said:

“Before leaving the case, we deem it proper to state that, in our opinion, the question of the position which the respondent’s judgment is entitled to occupy in the distribution of the assets of the chemical company has been brought before the court in an entirely irregular way. An attack by one of the creditors' of a corporation on the validity of a claim held by another has no place in a; bill filed, in behalf of all the creditors, for a decree of insolvency and the appointment of a receiver. All such questions should be raised after the decree of insolvency is pronounced, in proceedings had before the receiver on the question of the distribution of the assets. But as the party whose judgment has been attacked has been heard in defense of its claim to have it declared a preferred debt, and as the conclusion reached by us is in the interest of those creditors who have not been afforded a hearing in the matter, no rights can be injuriously affected by the irregularity of the proceedings.”

[3] Appellee argues that the alleged errors contended for by appellant were invited, and that invited error is not ground for reversal of a judgment. This is true as to all errors not jurisdictional. As to errors relating to jurisdiction . however, the better mle is that a plaintiff against whom judgment is rendered is not estopped to assert, on appeal or error, that the court to which he resorted had no jurisdiction of the subject-matter of the suit or of the person of the defendant. 4 C. J. 700.

In an early case (Capron v. Van Noorden, 2 Cranch, 126, 2 L. Ed. 229) the Supreme Court of the United States held that a plaintiff may assign for error the want of jurisdiction in that court to which he has chosen to resort.

The same rule was announced in’ the case of United States v. Huckabee, 16 Wall. 414, 21 L. Ed. 457.

In the case of Railroad Co. v. Swan, 111 U. S. 379, 4 Sup. Ct. 510, 28 L. Ed. 462, the court said:

This court will, “where no motion is made by either party, on its own motion, reverse such a judgment for want of jurisdiction, not only in any cases where it is shown negatively * * * that jurisdiction does not exist, but even when it does not appear affirmatively that it does exist.”

Following the court said:

“It is true that the plaintiffs below, against whose objection the error was committed, do not complain of being prejudiced by it; and it seems to be an anomaly and a hardship that the party at whose instance it was committed should be permitted to derive an advantage from it; but the rule, springing from the nature and limits of the judicial power of the United States, is inflexible and without exception, which requires this court, of its own motion, to deny its own jurisdiction, and, in the exercise of its appellate power, that of all other courts of the United States, in all cases where such jurisdiction does not affirmatively appear in the record on which, in the exercise of that power, it is called to act. On every writ of error or appeal, the fir'st and fundamental question is that of jurisdiction, first of this court and then of the court from which the record comes. This question the court is bound to ask and answer for itself, even when not otherwise suggested, and without respect to the relation of the parties to it. This rule was adopted in Capron v. Van Noorden, 2 Cranch, 126 (2 L. Ed. 229), decided in 1804, * * * on the application of the party against whom it had been rendered in the circuit court, for want of the allegation of his own citizenship, which he ought to have made to establish the jurisdiction which he had invoked.”

In tbe case of Freer v. Davis, 52 W. Va. 1, 43 S. E. 164, 59 L. A. R. 556, 94 Am. St. Rep. 895, the court held that, as consent cannot confer jurisdiction, a plaintiff upon whose bill there is a final decree and adjudication against him, upon matters set up in the bill, is not estopped to assert upon appeal that the court to which he resorted had no jurisdiction of the subject-matter. See, also, to the same effect, Wildman v. Rider, 23 Conn. 171; Bell v. Fludd, 28 S. C. 313, 5 S. E. 810; Watson, Adm’r, v. May, 6 Ala. 133; Sprinkle v. Duty, 54 W. Va. 559, 46 S. E. 557; Jordan v. Dennis, 7 Metc. (Mass.) 590.

In the instant case the proceeding was special, and was governed solely by the provision of the statute. The statute limits the jurisdiction of the court, upon application for the adjudication of the insolvency of the corporation, the writ of injunction, and the appointment of a receiver to the inquiry as to whether the corporation is insolvent and is not about to resume its business with safety to the public and advantage to the stockholders. This is the only question with which it is invested with power to determine at such hearing. The adjudication of liens, claims, rights to property, and other like questions, under the statute, follow the appointment of the receiver.

Appellee insists that it is not proper for the court to charge the expenses of the receivership against the property covered by its lien, and, further, that the trustee named in the deed of trust should have possession of the same, and that it should be allowed to proceed to foreclose the mortgage under the powers contained in the deed of trust. These are all questions -which should be presented to the district court, at the proper time, for determination.

For the reasons stated, the portion of the judgment of the district court adjudicating tbe validity of the trust deed and awarding possession of the property covered thereby to the trustee named therein will bo reversed, and it is so ordered.

ROBERTS, J., concurs. PARKER, J., being absent, did not participate.