Opinion
02-10-1903
HENRY et al. v. SISIANTON et al.
Martin Wyckoff, for complainants. I. W. Schultz and S. C. Smith, for defendants.
Bill for relief by Abbie I. Henry and the South Bend Chilled Plow Company of indiana, as creditors of the Musconetcong Grange, No. 14, a voluntary association, against William M. Simanton and another, defendants. Decree appointing a receiver and granting an injunction.
Martin Wyckoff, for complainants.
I. W. Schultz and S. C. Smith, for defendants.
REED, V. C. This bill is filed by two creditors for themselves and such others as may come in. The relief is sought under the provisions of an act passed in 1899 (P. L. 1899, p. 485), entitled "An act for winding up voluntary associations, and associations with partnership liabilities." The act provides that whenever a voluntary association, carrying on business with partnership liabilities, shall become insolvent, or shall suspend its ordinary business for want of funds to carry on the same, it shall be lawful for any creditor or member of such association to apply to the chancellor for a writ of injunction and the appointment of a receiver, for the winding up of the business and the payment of the debts of such association. It empowers the chancellor to proceed in the manner provided for winding up insolvent corporations, under the corporation act of 1875. It makes it the duty of the trustees or managers of such association who are served with subpoena to file with the clerk of this court a verified statement of the names of all the members of the association. After the filing of this list, an order is to be made requiring all such members to show cause why the prayer of the bill, namely, that an injunction should not be allowed and a receiver appointed, should not be granted. Any member, upon the return of such notice, may file his or her answer, and proceed to a hearing. The remaining parts of the statute deal with the procedure after the receiver is appointed. In the present case the trustees filed a list of members, and upon the return of the rule to show cause 55 members out of 106 filed answers, and against the remaining 51, who failed to file answers, decrees pro confesso have been taken.
In addition to the answers, a demurrer was interposed to the bill. The first ground taken by the demurrant is that the act of 1899 provides that the chancellor in this proceeding may proceed in the manner provided for the winding up of insolvent corporations under the act concerning corporations approved April 7, 1875. It is insisted that there is no act concerning corporations now in existence approved April 7, 1875, because it was repealed by the act of 1896 (page 317). The act of 1875 is repealed by the act of 1896 only so far as the provisions of the act of 1875 are not expressly re-enacted in the act of 1896. The repeal therefore operated only upon those provisions in the act of 1875 which are inconsistent with the provisions of the act of 1896. The methods of procedure in winding up insolvent corporations, contained in the act of 1875, are substantially re-enacted in the revision of 1896. The effect of the revision was to continue them in force. Sunderland on Statutes, § 161. The act of 1875 was usable as a standard of procedure, and became a legal rule, apart from its own virtue, by reason of the vitality imparted to it by the legislative reference to it in the later act. I am of the opinion, therefore, that this ground of objection to the bill is not tenable.
The second ground of attack is that the bill, while setting out that the associationfiled a certificate of incorporation at a certain date, does not state whether the debts due to the two complainants arose out of the dealings with the association before or after its incorporation. The point of this objection is that, unless the debts of the complainants accrued before the date of filing the certificate of incorporation, they are not debts of a voluntary association; and that it was the pleader's duty to state as a fact that the debts were incurred while the grange was still unincorporated. But the theory of the bill is that the certificate of incorporation did not protect the members of the grange from liability for debts incurred in the business conducted by the grange, even after its incorporation. The bill asserts that no notice of the intention to incorporate was given at a previous regular meeting of the grange, and, further, that these debts were not contracted in the transaction of the corporate business of the grange. If these facts are so, as I must assume them to be, then any debts incurred by the grange at any time confer upon the creditor a footing to file a bill.
The third ground taken is that one of the complainants, the South Bend Chilled Plow Company, is shown to be disentitled to stand as a creditor, because the bill describes it as a foreign corporation, without showing that it has become equipped to do business in this state. Admitting this to be true, this complainant is not the only complainant. There remains another creditor who was entitled to file the bill. But, indeed, it does not appear from the bill that the South Bend Chilled Plow Company is disentitled to stand as a creditor. It does not appear from the bill that the contract out of which the debt arose was made in the state of New Jersey; and, if it did so appear, a single transaction would not amount to doing business in this state. For these reasons I think the general demurrer challenging the equity of the bill must be overruled.
Upon the hearing upon the bill and answers filed, the following facts appeared: The Musconetcong Grange was organized in February, 1893. Its primary purpose was to establish a store, where general merchandise, such as is usually carried by a country store, should be sold and exchanged for the benefit of the members of the grange. Persons other than members were permitted to deal at the store, but the members wore favored in the transaction of the business. The scope of the business was extended from time to time, and included the sale of grass seeds, harvest implements, fertilizers, sheep, etc. The grange also operated a mill and conducted a butcher business. The business was conducted by a superintendent, named Wesley Fleming, under the firm name of Wesley Fleming & Co., adopted at a meeting of the members of the grange held March 30, 1893. The executive functions of the grange were in the hands of three trustees. On January 11, 1894, the association elected three trustees, and filed a certificate of incorporation, under color of the provisions of an act approved April 21, 1876, to enable grangers of the order of patrons of industry to incorporate (2 Gen. St. p. 1614). The history of the business of the association before incorporation seems to have been this: The store had been in operation before Fleming came to take charge of it. He began the management of the business under a salary on April 16, 1893. A note had already been given to one William M. Simanton for $1,500. Simanton was one of the trustees of the grange trading as Wesley Fleming & Co., and the note was signed by Royal Milroy, Charles I. Carpenter, and Isaac Woolverton, who were in fact trustees of the association. Interest was paid on this note out of the funds of the association after Fleming took charge. On May 25, 1803, another note was made to Daniel Williamson & Son for $500, signed by the same makers as trustees, in the same form as the former note. Upon this note interest was paid in the same manner as upon the former note. The note to Abbie I. Henry, one of the complainants, was not made until after the certificate of incorporation was filed. It was dated March 31, 1804, and signed by William M. Simanton, Isaac Woolverton, and Absalom Apgar, trustees. Another note to William D. Hill, for $200, dated April 1, 1804, was also executed by the trustees. Still another note was executed March 31, 1804, for $200, to Isaac Woolverton, and signed by the same trustees, and sealed with the corporate seal. The note to the South Bend Chilled Plow Company, the other complainant, was made on May 1, 1897, and was signed in the name of the Asbury Mercantile Company, by the treasurer of the company. These are the facts disclosed.
To the settlement of what questions are these facts to be presently applied? What are the points to be settled at this stage of the proceedings? The act, as I have already observed, provides for a subpoena after filing a bill or petition. This subpoena is to be directed to the trustees or managers of the association, who are to file a list of members of the association. Then these members are to be brought into court by rules to show cause why the prayer of the petition or bill should not be granted. The appropriate prayer of the bill is for the appointment of a receiver and an injunction. The facts conferring jurisdiction upon the court to grant such prayer are, therefore, the following: First, the existence of a voluntary association carrying on business with partnership liabilities; second, the fact that such association has become insolvent, or has suspended its business for want of money to carry on the same; and, third, the fact that a creditor, or member of such association, is the complainant who files the bill of petition. It therefore seems to be clear that one whohas been returned by the trustees as a member can contest only the existence of these facts by his answer; at least, it is manifest that the existence of these facts are alone triable at this stage of the procedure. The defendant cannot try the question whether he ever was a member, or was such at the time a debt or debts were incurred. It is, of course, true that each person returned as a member has the right to his day in court to test his or her personal liability to any creditor of the grange. But by the scheme provided by the statute it seems that this must be done by exceptions filed to the report to be made by the receiver of the claims against the association; and as to his liability for any valid debt, the contest must occur when the assessments against each member, in proportion to the debts and expenses, shall be made. In respect to the three matters to which the present inquiry is confined, I am of the opinion, disregarding for the moment the effect of the certificate of incorporation, that it has been proved that there existed a voluntary association having some members, who, either by direct action or by express or implied assent, did business in which the borrowing of money was a part, for the common purposes of such members; that there arose, as to such members, a partnership liability for such debts; that this association did business under the name of W. Fleming & Co., and afterwards under the name of the Asbury Mercantile Company, and that in 1897 it became insolvent, and also ceased to do business for want of funds to carry it on. It also appears that Abbie I. Henry and the South Bend Chilled Plow Company are creditors of these associated members.
The remaining question is whether the certificate of incorporation of the grange relieves the individual members from liability, and imposes it alone upon the corporation. The debts of the complainants were incurred after the certificate of incorporation was filed. I will assume that the certificate of incorporation was regular, although the point is raised that no notice was given or entered in the minutes of the grange of an intention to incorporate, and I will assume that the incorporation was one which cannot be attacked by a creditor who did business with it because of irregularities of organization. Stout v. Zulick, 48 N.J.Law, 599, 7 Atl. 362. In my judgment, the business conducted by the members of the organization was so entirely aside from the power conferred upon the grange by the statute under which the incorporation was effected that the business must be regarded as partnership, and not corporate. It is perceived that the act under which the incorporation was effected declares that the trustees of the grange shall be a body corporate, with only the ordinary powers incidental to all corporations. The enumerated powers are to have a common seal, to sue and be sued, and to acquire, hold, improve, and lease or sell land, and to have a capital stock, and to make by-laws. There is no power granted to transact any mercantile business whatsoever. The corporation is a mere club or society, with power to acquire property for club or society purposes. It has no more power to transact a business as a corporation than has an incorporated religious society. The entire business transacted was dehors the grant contained in the act. Mr. Cook remarks: "Where the business for which incorporation is sought is not within the class of business mentioned in the act itself, the attempted incorporation is void, and the participants are liable as copartners." 1 Cook, Law of Stockholders & Corps, p. 316, § 236. Nor was this grange transacting business as a de facto corporation; for while there are statutes under which it might have become incorporated for such purposes, there was no effort made, bona fide or otherwise, to become incorporated under such a statute.
I shall advise a decree appointing a receiver and granting an injunction.