Opinion
07-20-1906
SQUIER v. PRINCETON LIGHTING CO.
George W. Betts, Jr., for petitioner. F. S. Katzenbach, for receiver.
Bill by William A. Squier against the Princeton Lighting Company. On petition of the Westinghouse Electrical Manufacturing Company for payment of its judgment in full. From an order denying such relief, petitioner appeals. Dismissed.
George W. Betts, Jr., for petitioner. F. S. Katzenbach, for receiver.
BERGEN, V. C. The Westinghouse Electrical Manufacturing Company, having recovered a judgment against the defendant company, an insolvent corporation, demanded of the receiver that the judgment be paid in full in preference to the general creditors, and the receiver, not being in funds to satisfy all creditors in full, rejected the application, from which determination this appeal was taken.
The facts, which are not disputed, are that on April 12, 1904, the petitioner recovered a judgment against the defendant company, and by virtue of an execution issued thereon the sheriff of the county of Mercer on the following day levied upon sufficient personal property to satisfy the judgment, which property was retained by the receiver and used for the benefit of the estate of the corporation. The receiver does not question the right of the petitioner to have so much of the funds in hand as may be necessary for that purpose applied towards the satisfaction of the judgment, if it be decreed that its lien was so established as to entitle it to priority in payment. On April 11, 1904, two days before the levy was made, the bill of complaint was filed in this cause, alleging the insolvency of the corporation, praying for the appointment of a receiver, and on the same day an order was made by this court restraining the defendant from paying or transferring its money and effects, or contracting any debts, and from selling, assigning, or transferring its property, and also requiring the defendant to show cause on April 19th, following, why an injunction should not issue and a receiver he appointed, and on the day last mentioned an order was made appointing a receiver with the usual injunctive restraint.
The appellant Insists that until the receiver was appointed, the title to the property remained in the corporation subject to levy, and, having perfected its lien previous to the appointment, it is entitled to the proceeds of its levy, at the expense of the general creditors. The receiver contends that from the making of the original restraining order the property was in the hands of the court, awaiting the appointment of its receiver to administer the assets as a trust fund for the benefit of all creditors, and that thereafter no priority could be obtained by any creditor. The appellant urges that, as section 68 of the corporation act (Laws 1896, p. 299, c. 185) divests an insolvent corporation of the title to its property upon the appointment of a receiver, the corporation remains vested with it, by virtue of the act, until such appointment, subject to the fastening of judgment liens thereon. I do not take this view of section 68, but rather that it intended to settle the question, about which there seems to have been some judicial difference, as to the actual status of a receiver in his relation to the insolvent property, and that in either case the holding of the bare title is not conelusive as to the rights of the creditors, for this court has ample power to protect the property, which by its restraining order it has required the corporation to hold undisturbed, and to hold the property for the benefit of creditors, in whose behalf it is justified in interfering.
In this case, before the judgment was entered, the court had issued its preliminary injunction, for its restraining order has that effect. To authorize the issuing of this preliminary injunction the court must find that the corporation was insolvent within the meaning of our act. This finding might be reversed upon the coming in of an answer, or upon satisfactory affidavits showing that its preliminary act was improvident; but, until reversed, it stands as the judgment of the court, and the postponement of the appointment of the receiver does not qualify it. The court could have appointed the receiver when the preliminary injunction was allowed. That it did not do so at once does not prevent the operation of its restraining order. Having thus prevented the corporation from paying any of its general creditors, it seems inequitable to permit to be done by indirection that which the corporation is directly restrained from doing. I am of the opinion that, the moment this court determines a corporation to be insolvent and restrains it from disposing of its property, it in effect takes possession of it as a trust fund for the benefit of all its creditors, and the mere fact that it has not appointed its agent to administer the property does not permit one who at that time was a general creditor to obtain an advantage over others who were then of like degree. The declaration of insolvency by the court, and the issuing of its restraining order,prevented the payment of this creditor before judgment was entered, and, if paid in violation of the order, the creditor would have been required to refund. To allow the present claim amounts to a payment out of the funds of the corporation which the corporation itself was forbidden to make before the judgment had been recovered.
My conclusion is that under our corporation act, and according to the views expressed by our courts, the property of an insolvent corporation is a trust fund to be administered for the equal benefit of its creditors, and the trust cannot be encroached upon by a creditor whose diligence falls short of obtaining a lien before the court has determined that insolvency exists and by its restraining order has taken control of the disposition of the property of the insolvent corporation. The priority claimed by the appellant does not exist, and the appeal will be dismissed, with costs.