The Chancellor.
The Monroe Manufacturing Company was incorporated on the twenty-fourth of February, eighteen hundred and thirty-eight, by a law of this state, for the purpose of manufacturing cotton and woolen goods, and dyeing, printing and bleaching cotton, woolen and silk goods, in the town of Paterson. The provisions of the act are much the same with those in ordinary charters of this kind, with a capital not to exceed two hundred thousand dollars, to be divided into shares of one hundred dollars each, but with power to commence bust [200] ness whenever fifty thousand dollars of the capital stock should be subscribed and paid in. The number of directors fixed by the act is five, and of course three is a majority for the transaction of business.
The application for this .charter was made by Samuel G. Wheeler, who was the principal owner at the time of the Beaver mill, with its machinery and appendages, and who, being much embarrassed,' deemed this, arrangement beneficial to his interests. The result was nothing more than putting the Beaver mill, with.its machinery and appertenances, then belonging to Mr. Wheeler and Patrick McGinnis, (but principally the former,) into a joint stock company, and dividing it up into shares of one hundred dollars each. Accordingly, among the first directors named in the act, Were these two gentlemen, with three others, who" appear to have been their friends arid relatives. Shortly, after the act passed, the subscription for the stock was opened, and Samuel G. Wheeler subscribed seven hundred and forty-eight shares, Patrick McGinnis two hundred and fifty shares, Arthur McGinnis one share, and Jeremiah Carpenter one share—being in all one thousand shares, which, at one hundred dollars. a share, made a capital of one hundred thousand dollars. On the same day the directors met, and resolved that the Monroe Manufacturing Company purchase of Samuel G. Wheeler and Patrick McGinnis, the cotton and woolen mills, dye-house, and all the machinery belonging to the same, and known as the Beaver Mill Company, for the sum of one hum dred thousand dollars, and that certificates of stock to that amount, (except the two shares subscribed for by Arthur McGinnis and Jeremiah Carpenter,) be issued to Samuel G. Wheeler and Patrick McGinnis,
By. this division of the stock, the whole power of the company and over the property, was placed in the hands of Samuel G. Wheeler, as much so as it had been while conducting the Beaver mills; and to add to it, he was appointed president, with a salary of two thousand dollars a year ; and by one of the by-laws, that officer is invested with the entire oversight [201] and supervision of the property and affairs of the company, is to direct the purchase of all stock and other things necessary to carry on the works, is to direct in the sale of all goods, to collect all bills of work done by the company, and arrange the hire of all clerks and operatives necessary to carry on the business, There was a secretary appointed, and a clerk, whose salaries were also to be fixed by the president.
After this organization, and the adoption of the by-laws, the minutes of the company do not show any thing more done than the holding of an animal election for directors, and the reappointment of the president and secretary, except a vote of the directors authorizing Samuel G. Wheeler to take for his own use an inventory of property amounting to six thousand five hundred dollars, by surrendering to the company the same amount of the capital stock.
Thus organized, and with such powers conferred upon the president, this company commenced business, and has continued to the present time. The stock, according to the books, is now scattered, and held either absolutely or as collateral security, by others than the original subscribers; Samuel G. Wheeler appearing to be the owner of ten shares only, and Patrick McGinnis of none.
The sale of six thousand five hundred dollars worth of the company’s property, although taken at the price at which it was inventoried, and although the stock of Mr. Wheeler was transferred for its payment to the same amount, still reduced the ability of the company to pay debts so much; and the president admits that he may have given the notes of the company for his own debts, but never without being charged with them on the books of the company, and they have been settled. It also appears that the Carpenter note, for eight thousand dollars, was passed to the company by the president, in discharge of his indebtedness to them. The president also admits himself personally insolvent.
The present bill is filed by a creditor and stockholder, against the company, as being an insolvent institution, for an injunc[202] tion to stop its further operations in businéss, and for the appointment of receivers to settle up its affairs, under the provisions of the act) entitled, “An act to prevent frauds by incorporated companies,” passed the sixteenth of February, eighteen hundred and twenty-nine. When this bill was presented, a limited, injunction was ordered, to restrain the company and its officers from collecting and receiving debts, or paying out any of the moneys of the company, (except to the hands employed,) or from selling ’ any of the property, or transferring the securities' on hand, (but not stopping the, ordinary business of the mill,) until the parties could he heard; and notice of. the application for a more full-injunction, and the appointment of receivers, was directed to be served oh the defendants. That notice was served, and on the day named a further time was granted, the defendants to, prepare to meet the charges in the bill. Depositions have been taken, fully on both sides, and thé cause argued much at length, and with great ability, and I ani now to state to the parties thé result to which I have come.
A grave question is made at the outset, whether the provisions of the act under which this proceeding is had, applies to a corporation created for manufacturing purposes, of indeéd to any other corparation than a bank? That the primary object of the legislature was to reach banks, is manifest from the whole scope and tenor of the act. Some of its provisions declare when a bank shall be deemed and taken to be insolvent, as when two of the directors, or the cashier, shall admit it to be so, or it shall réfuse to pay its debts when, demanded within the usual and proper hours of business, or shall not redeem its notes in specie, &c. These were designed as tests, which the court might take on the question of insolvency, and, no doubt, from the difficulty without then) of coming to any conclusion oh so difficult and delicate a point. I have never, however, considered these as any thing more than evidences of insolvency, which may be overcome, even in the case of a bank, by other and Stronger proof. The court would, no doubt, be justified in act[203] ing upon these, in the first instance; but they may be explained, and the institution shown to be sound and safe.
But because this special provision for discovering insolvency, is made in the case of a bank, it by no means follows that other portions of the act may not have a more general operation. When, in these sections, special reference is had to a bank, it is called a bank, or an incorporated bank, or a banking company, while in the other general provisions they are referred to as “ incorporated companies,” without qualification or limitation. The title of the act is, “An act to prevent frauds by incorporated companies,” not by banks only; and the sixth section, which, authorizes the chancellor to act, declares that he may do so whenever any incorporated Company shall become insolvent.
By a fair construction of the act, it is manifestly the intention of the legislature to confer this power (which I admit to be very great) of granting injunctions in cases of insolvency, against other companies than incorporated banks. There are certain provisions intended to apply to those only, and when so intended, they are referred to as banks j but the act itself, by its general provisions, goes farther, and reaches other corporations as well as these, and may be carried out as to them without the aid of those special sections which are applicable to money corporations alone.
If any, doubt, however, existed as to this part of the case, it shoüld he settled by the last section of the act. By that section, it is provided, that nothing in the act should apply to any incorporated bridge, road or turnpike company, or literary or religious society.
The corporation in question here, is confined to manufacturing purposes alone, and being within the plain meaning of the words used in the act, and not coming within the exceptions in the last clause, must, as it appears to me, be considered within the general object and intention of the legislature. This was so held in the case of the Rahway Manufacturing Company, and an injunction ordered, and a receiver appointed by my immediate predecessor, and sustained by the present chief [204] justice sitting for the chancellor, although, the order was reversed afterwards upon the merits, in the court of appeal.
It is further insisted, that this power of issuing an injunction, cannot be exercised against a corporation, other than a bank, Until the company has actually suspended business. The phraseology, in many parts of this act, is obscure, and there is something in the language used in the sixth section that might, at first view, lead to this impression. The language is, “if upon such inquiry into the matters or.cause of complaint, it shall be. made to appear to the chancellor, that the.said company has become. insolvent, and shall not be about to resume its business in a short time thereafter, with safety to the public and advantage to the stockholders," then an injunction' may issue.
If it be admitted (and the argument virtually so admits) that you may injoin a bank under this act, before its suspension, then certainly you may any other corporation coming within its provisions, for it is under the same section (the sixth) that the power is conferred, and it is alike in all cases. By the seventh section, it is quite plain, you may proceed against a bank while pursuing its usual course of business, if either of the events there stated happen; and indeed without this power, if the court must wait for a suspension, all use of the act for the prevention of evil, would be lost. There is nothing that I can perceive in this respect, to distinguish the application in the case of a bank, from that against any other company, and this section was no doubt intended to mean nothing more, than that in cases where the company has suspended business, the chancellor will enquire into the prospect of its resuming again, with safety to the public, and was not intended to limit the powers of the court to the happening of such an event. In some cases the company will have stopped business, and in some not; if they have stopped, it will then, and very properly, enter into the consideration of the case, as to what, the prospect of its again resuming is.
It is further urged, that if this.law applies to this company, [205] and that too while carrying on business ; that the bill is imperfectly drawn, and does not contain the charges necessary for that purpose. The objection to it is, that the facts and circumstances of the case are not sufficiently set forth to enable the chancellor to determine on the propriety of interfering.
I have carefully looked, into this bill, and it does not appear to me liable to this objection. The complainant declares himself to be a stockholder and creditor for a large amount, and specifies in what his claim as a creditor consists ; that he has repeatedly called on the president of the company for payment, but he has always failed to make payment. The bill then charges, that the president has the entire control of the company ; that he is insolvent and uses the property of the company as his own and for his own use; that the company is, to the belief of the complainant, insolvent and unable to pay its debts, and unless this court, interfere the whole property will be squandered. The bill then recites the unauthorized acts of the president, by giving a mortgage for fifteen thousand dollars upon all the property to the Swifts and Gay, and a confession of judgment to the same amount to Mr. Gay; by confessing another judgment to him for five hundred and seventy-two dollars, and another to Henry C. Stimson for three thousand dollars, and all without authority from the board of directors. Besides these judgments, it is charged that the company owe a large amount of debts to other persons, and that other executions beside those on the judgments above stated, are in the hands of the sheriff of Passaic county, and that the property is now advertised for sale by the sheriff “on the said executions. The company is stated, further, to be insolvent, according to the belief of the complainant, from the mismanagement of the president. '
It appears to me that the facts and circumstances here set forth are sufficient, if true, to justify the action of the court, and that the bill is, therefore, particular enough in the allegations made. It would, indeed, be very difficult for, a creditor, in a majority of cases, to.go more into detail than is done in this bill.
[206] The great questions to which we must come in this cause are, first, Is this company insolvent within the meaning of the act? and, second, Do the facts and circumstances of the ease call for the interference of the court ?
I agree entirely with the counsel of the defendant; that the foundation of this whole proceeding must rest on the question of insolvency: for unless that is satisfactorily made OUt, the court has no jurisdiction; and when made out, there still resides, and must reside in the chancellor, a discretion as to the ordering of the injunction and the appointment of receivers, to be governed by the facts of the case. It may be that the court will find it proper to restrain a company from carrying on further business, or a bank from issuing notes, and yet leave.the directors to settle up its affairs. The court may, at pleasure, grant or reject the prayer in part or in whole. It is necessary that this discretion should be with the court, but at the same time it must not be arbitrarily Or unjustly exercised. And if the case come fairly within the provisions of the act, and is one which the legislature intended to provide for, the court is bound to give effect to it, and to enforce its requirements.
1. As to insolvency: Is this company insolvent?
The president has declared the company insolvent, both to Mr. Stimson and Mr. Biggs, and that fifty cents on a dollar was as much as it could pay. There is a mortgage on the property now in process of foreclosure, in favor of Mr. Coster, for twenty-five or twenty-six thousand dollars, and executions in the hands of the sheriff of Passaic county amounting in the whole to a sum exceeding-twenty thousand dollars. These executions, ten in number, the sheriff says, were received by him during the last February term of the court, and- are remaining unsatisfied in his hands.
These facts show great embarrassment, at all events; but the parties have gone more into detail. The complainant has caused the property of the company to be examined by nine gentlemen residing in Paterson, men of respectability, and said to be good judge's. They estimate its value at forty-eight thou[207] sand four hundred and eighty-four dollars and fifty-six cents. Several of these persons have been examined, and declare that they made a careful investigation of the matter, and placed a fair value on the property, and that if sold at a forced sale it would not bring exceeding thirty-five thousand dollars. I am well satisfied that property should be judged of at its fair value, and not at the depreciated rate at which a forced sale might bring it.
The defendants have also had the same property examined by two respectable gentlemen, and they estimate it at sixty-nine thousand and twenty-eight dollars. The items of property valued, it will be found, are the same, the difference consisting only in the prices carried out.
The variations in these values are very material. Take, for instance, the value of the lot on which the mill stands, with the water privileges. It is fixed by the complainant’s witnesses at fourteen thousand dollars, and by the defendants’ at twenty thousand dollars. So with the next item: the building is valued by the complainant’s witnesses at ten thousand dollars, and by the defendants’ at twelve thousand dollars. The remaining items, with very few exceptions, vary in the same way. With this contradiction in the evidence, and with no personal knowledge of the value of the property, the rule of law would require that I should be governed by the weight of evidence, by which that of nine on the one side, of equal intelligence and respectability, would overbalance the two on the other, without a resort to any invidious distinction between the witnesses. There is one fact, however, disclosed by the evidence of Mr. King, one of the defendant’s appraisers, that I cannot shut my eyes against. He says the statement of the property, with the prices carried out just as it now appears, was first made by the president of the company; that they went through the mill with him, and fixed the valuation at the same prices that he had done. This would seem, at all events, to evince great reliance on the judgment of Mr. Wheeler, and really to amount rather to his own estimate, than that of the other men. I mean [208] to infer from this that.nothing wrong was intended by these appraisers, beyond a falling in or acquiescence with the views of Mr. Wheeler, as to the general estimate of his property. It would seem that the nine appraisers on the part of the complainant made their own estimate, without any guide of this character.
Independent of the property thus valued, the assets of the company are put down at sixteen thousand four hundred and fifteen dollars and ten cents. These several items are canvassed in the evidence; and their real value from that is very small. One item of eight thousand dollars, in J. Carpenter’s note, the president considers good, and from a conviction that Mr. Carpenter will succeed in a suit depending in the supreme court of the United States. This suit, it seems, has recently been decided in that court against Mr. Carpenter, and of course the hope on which its recovery is. put has failed. A sum of, thirteen hundred and twenty-four dollars and forty-four cents, due from the Reaver mill, is abandoned. A claim of five thousand and ninety dollars, against John G. Coster, stands at present with a decision against the company except as to a part, and that a. moderate part of that sum. The president himself, also, is placed as a debtor for five hundred and fifty dollars, and he declares himself insolvent. There is scarcely an item on the list of assets, about which a doubt as to recovery does not exist, and it is to me very uncertain, from the evidence, whether any thing beyond a very few thousand dollars, perhaps two or three thousand, will ever be realized to the company from that source.
From this estimate of the property and assets of this company, paying that respect to the evidence which the rules of law require, it would not much exceed in value fifty thousand dollars, and should we even take a medium estimate from the two sets of appraisers, it would not exceed sixty thousand dollars. The'debts of the company are stated by the president of the company at sixty thousand dollars, and by an estimate, furnished by the company at fifty-nine thousand, five hundred and fifteen dollars and fifty cents. To this sum there must be added the [209] amount of a mortgage on the property, given by Mr. Wheeler while owner, on which there remains unpaid somewhere about seven thousand dollars. This mortgage is in the hands of the complainant, and I confess there is some embarrassment respecting it; but from all the facts, if I rightly understand the case, it would seem to be a question rather, who was entitled to receive the money, than as to the ultimate liability of the property for its payment. If the company has never paid off this incumbrance, it would be very unsafe in this case to consider is as discharged from all liability, on account of the dispute among the present holders. If it was passed to Mr. Colt for his security, and he passed it again to Mr. Parsons for his indemnity against his notes given on that account, there would seem to be a just claim against the property of the company for one' or the other of these persons. If this mortgage is still a valid one, the indebtedness of the company is thereby increased seven thousand dollars. The claim of Mr. Parsons, the complainant, is put down in this estimate at about fifteen hundred dollars; the evidence shows his debt to be larger than this at all events, and he claims a sum rising four thousand dollars.
Forming the best judgment in my power from this whole evidence, with the position of the claims, and the urgency of the demands on the company, by executions hanging over it, and only restrained by the order of this court until this question can be settled, I can come to no other conclusion, than that this company is insolvent, and hopelessly so in its present condition. The whole capital is sunk, and its present property not able to pay the demands against it. It has been in operation since eighteen hundred and thirty-eight, and has, according to the evidence, been carrying on a fair business, but yet no dividends to the stockholders have ever been made, and we now find it in this embarrassed situation. There is one fact to which I should not fail to recur; the company refuse to produce their books of account, though repeatedly called on for that purpose. What those books would show, if exhibited, it is impossible to say, but [210] the most unfavorable inference may justly be drawn from withholding them on an investigation of this character.
The last question involves the consideration of the propriety of the court interfering in this case. At the call, of a creditor, against a company standing as this does, I have no hesitation, in coming to the conclusion, that I am imperiously required by a sense of public duty, to interpose by way of injunction, and the appointment of receivers. It would have been, grateful to me, could I have come to a different result; but when I look at the organization of the company, at the fact that the whole power is virtually in the hands of one man, that we find a mortgage given on the property, and judgments confessed for large amounts without any order from the board; when I see that the capital is gone, without any dividends ever having been made, and the property remaining unequal to the discharge of the claims against it, with ten executions now in the hands of the sheriff, I cannot say that the complainant has come here without goód grounds. Unless I am prepared to declare the law a dead letter, and refuse to give effect to it, there appears to-my mind no other alternative than to enforce its provisions in this case. My reluctance to interpose, has been increased by the desire expressed in the petition from , several of the creditors and stockholders, that the company might not be injoified; but from these petitions, it is quite evident they act under (what I believe) a misapprehension of the case, and that is, that the company is solvent. Had the investigation brought, me to that result, I should certainly not have interposed, but being satisfied fully on that point, I cannot comply with their request.
The injunction, according to the provisions of the act, must therefore be issued, and receivers appointed,
"This cause being opened to the court by Mr., A. S. Pennington, of counsel with the complainant, at a special court held at Newark, on the fourteenth day of March, in the year of our Lord, eighteen hundred and forty-two, and upon reading the proofs and exhibits taken in this cause, and upon hearing the [211] arguments of counsel on both sides, the court thereupon took time to consider of the same, and now on this fifth day of April; in the year of our Lord eighteen hundred and forty-two, at a court of chancery held at Trenton, at the stated term of said court, the chancellor being satisfied of the sufficiency of the application made by the said complainant in the said bill, and also of the truth of the facts and allegations therein contained : it is ordered and directed by the chancellor, that a writ of injunction do issue out of, and under the seal of this court, directed to “ The Monroe Manufacturing Company,” and all and every of its officers and agents, to restrain them, “ The Monroe Manufacturing Company,” and all and every of their officers and agents, under the penalty of five thousand dollars, to be levied on their and each of their lands, goods, and chattels to our use, from exercising any of the privileges or franchises granted by the act incorporating said company, and from collecting or receiving any debt, and from paying out, selling, assigning or transferrring any of the estate, moneys, funds, lands, tenements or effects of the said company, until this court shall otherwise order.
“ And from the circumstances of this case, the ends of justice requiring it, this court doth appoint George A. Ryerson, Benjamin W. Vandervoort and David Burnett, esquires, receivers, 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 belonging to the said company at the date of this order, and to sell, convey, lease or assign all the said real and personal estate, and pay into this court to the account of the said receivers, in some safe place of deposit, to be selected by the said receivers, to the credit of this cause, all moneys and securities for moneys arising from such sales or leases which the said receivers shall collect or receive by virtue of the authority vested in them, to be disposed of by the said receivers from time to time, under the order of this court; that the receiy[212] ers shall first take and subscribe the oath or affirmation directed in and by the act entitled, “ An act to prevent frauds by incorporated companies ;” and that the said receivers shall be deemed and taken to be receivers for the creditors and stockholders of the said company, with full power and authority, whenever they shall deem it proper, to institute suits at law or in equity, in their names as receivers as aforesaid, for the recovery of any estaté, real or personal, debts, rights in action, damages' and demands whatsoever and wheresoever existing in favor of the said company at the. time of the date of this order, or accruing subsequent thereto; and that .the said receivers be also vested with all other powers and .authority given and granted in and by the. act last mentioned and the supplement thereto, and have liberty to apply to this court- as occasion may require; and all other directions concerning the said receivers are to be subject to the future orders of this court.”