Opinion
[Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] This was an original proceeding in the Supreme Court to review the action of the Judge of the Fifteenth Judicial District, appointing a Receiver of the effects of the plaintiff corporation, a savings and loan society.
COUNSEL:
1. No such action as this is known to the common law or to chancery. Part of this complaint is an action at law by the plaintiff Gallagher, to recover ninety-eight thousand seven hundred and fifty dollars for his services as the attorney for the French Bank, the defendant. The remainder of the complaint aims to be a bill in equity. The bill has neither the form, the shape, nor the substance of any bill heretofore known to equity pleading. In his character as a creditor of this corporation, Mr. Gallagher has not, in an action at law to recover for his services as the attorney of this bank, the right in any category to have a Receiver appointed to take charge of the assets and property of this corporation, that they may be held as security for the payment of his debt. The provisional remedy to which he is entitled, under our Code of Civil Procedure, and the only one to which he is entitled, is a writ of attachment. If that was the whole of this case, an action at law by Gallagher for his fees, in which the Judge of the District Court had granted a Receiver, there would clearly be an excess of jurisdiction by said Judge.
What is the rest of this case, as made by the complaint?
Gallagher, as creditor and as depositor in this French Bank, files this so-called bill in equity to wind up the bank and to put it in charge of a Receiver, because of its alleged insolvency. The Court of Chancery has no power to restrain corporations from violating their charters, and has no power of visitation or superintendency over the conduct of corporations. (Attorney-General v. Utica Insurance Company, 2 Johns. Ch. 375-7, 385, 389-91.) The doctrines of this last case have been fully approved by the Supreme Court of California. (Neall v. Hill, 16 Cal. 145-52.)
The equities, so-called, are: (a ) That the French Bank is insolvent. (b ) That there is a deficiency of eight hundred thousand dollars, as compared with the total amount due to its depositors. (c ) That the late manager, Mr. Mahe, after said deficiency had occurred, paid out seven hundred thousand dollars to depositors. (d ) That nine hundred thousand dollars of demands have been registered, and that there is great danger, unless a Receiver is appointed for the assets of said corporation, that the remaining creditors and depositors will suffer irreparable injury. because of said deficiency of eight hundred thousand dollars. The meaning is obscurely expressed by the complaint, but it may be spelled out to be, that inasmuch as the capital has been impaired to the extent of eight hundred thousand dollars, the nine hundred thousand dollars of registered demands are in danger of attaining a preference over the demands of the other depositors, which are unregistered. Suppose this were precisely so--is that a sufficient equity to authorize the appointment of a Receiver and the dissolution of this French Bank, in order that the registered depositors should not obtain a preference over those depositors whose claims are unregistered? I say, the appointment of a Receiver and the dissolution of the bank; for the appointment of any Receiver (especially a Receiver with such powers as the Fifteenth District Court has conferred upon this Receiver) is a virtual dissolution of the corporation. As this Court said in Neall v. Hill, 16 Cal. 150: " This decree, if permitted to stand, must necessarily result in the dissolution of the corporation."
Plaintiff does not charge in his complaint that such preference of the registered depositors would be in violation of the by-laws. On the contrary, he avers that such preference would be in accordance with the by-laws; but, in substance, that though in accordance with the by-laws, still it would be unjust to the other depositors, by enabling the registered depositors to obtain a preference in payment over the unregistered depositors. In other words, that the impairment of the capital to the extent of eight hundred thousand dollars rendered the operation of the by-law giving the preference to registered demands unjust, and therefore a Receiver ought to be appointed.
As we understand the rules of equity, if the directors proposed and threatened to pay these registered demands, and give them the preference alleged, in direct violation of the by-laws, this would constitute no ground for the appointment of a Receiver, which is the virtual dissolution of the corporation. If the directors commit a breach of duty by violating the by-laws, they become personally responsible therefor, and can be personally enjoined.
2. There is a material difference between ordinary trustees and the trustees or directors of a corporation, so far as the control of equity over them respectively is concerned. In the case of an ordinary trustee, a Court of Equity will interfere to prevent him from committing a breach of trust; require him to account, if he has committed one; will discharge him, and, if necessary, will appoint a new trustee in his place. But not so where the trustees of a corporation are concerned. They cannot be discharged by a Court of Equity. Neither can a Court of Equity appoint new trustees in their places. (Robertson v. Bullions, 1 Kernan, 250, 251, 252, 253.) The doctrines of this last case are confirmed in Gram v. Prussia Society, 36 New York, 164. (a ) If the corporation assumes powers it does not possess, the remedy is at law by a quo warranto. (b ) If found guilty of a usurpation, or unlawfully exercising a franchise, there is judgment of ouster. (c ) A Court of Chancery under our system has no power of visitation or superintendency over the conduct of corporations, such as was exercised by the Chancellor in England over eleemosynary corporations. (d ) Directors of a corporation are accountable to a Court of Equity for a fraudulent breach of trust; that is an ordinary ground for equitable jurisdiction; but that does not involve the existence of the corporation. (Attorney-General v. Utica Insurance Co. 2 Johns. Ch. 389.) (e ) The complaint of Gallagher does not allege that a majority of the directors are insolvent or destitute of character. (Verplanck v. The Mercantile Insurance Co. 2 Paige's Ch. 451.) (f ) The appointment of a Receiver operates as a dissolution of the corporation. (g ) A Court of Equity can take jurisdiction where parties stand in the relation of trustee and cestui que trust; but this is not the relation between the corporation and the stockholders. The corporation is a political body, and each corporator is a constituent part of that body, and therefore the corporation and the stockholders are the same collection of persons. (Verplanck v. Mercantile Insurance Co. 1 Edw. Ch. 87.) How, then, can the relation of trustee and cestui que trust exist between the corporation and the stockholders? Such a relation requires separate and distinct bodies to constitute it. (h ) The officers of a corporation receive their authority from the sovereignty of a State. Hence a proceeding to forfeit the charter of a corporation can only be instituted by the government creating it, since that government is the only one that can waive the forfeiture. (Angell & Ames on Corporations, sec. 777; Robertson v. Bullions, 1 Kern. 252.) Private trustees derive their powers from private contract. Corporate officers derive their authority from a source above private contract.
The statute prescribes the qualifications of directors of a corporation, the mode of their election, the tenure of their office. What power has a Court of Equity to set aside the statute, or to impose conditions upon their holding office other than those specified in the statute?
3. Where directors are sued for a fraudulent breach of trust, they certainly must be parties to the suit. The language of Chancellor Kent, in Attorney-General v. Utica Insurance Co., is: " Directors of a corporation are accountable to a Court of Equity for a fraudulent breach of trust." No fraudulent breach of trust is charged against the directors in Gallagher's complaint; and the directors are not made parties to the suit. (Verplanck v. Mercantile Insurance Co. 1 Edw. Ch. 87, 88.) " Directors become the agents of the corporators, and a relation is created, not between the stockholders and the body corporate, but between the stockholders and those directors who, in their character of trustees, become accountable for any willful dereliction of duty or violation of the trust reposed in them. * * * This authority, however, should not be exercised unless the directors are parties to the suit, nor without calling upon them individually to answer the complaint. The Court would then deal with them personally." The suit of Gallagher is not a suit to hold the directors of the French Bank for a fraudulent breach of trust. The whole scope of the complaint is that plaintiff is entitled to have a Receiver because the corporation is insolvent. There is a plain distinction between making the directors accountable for a fraudulent breach of trust, and destroying the existence of the corporation. The one is a personal proceeding against the directors: the other attacks the life of the corporation.
We are not here to represent the old board of directors of this bank, nor are we here to justify or palliate the conduct of the late manager, Mr. Mahe; but we do represent the corporation and the corporators, and these corporators desire to manage their own property by and through agents of their own selection. It is a monstrous proposition, that because the directors of a corporation have been unfaithful, therefore there must be a sequestration of all the property of the corporation and a destruction of the corporation itself. Jeremy says: " The appointment of a Receiver is an equitable execution." (Jeremy's Equitable Jurisdiction, 249.) The infidelity of some or of all the trustees affords no ground for taking away the rights of the shareholders. (Belmont v. Erie Railway Co. 52 Barb. 665, 666.)
4. The five hundred and sixty-fourth section of our Code of Civil Procedure is too fragmentary, too defective, too incomplete to create in and of itself a new cause of action.
In New York, ever since 1825, there has existed a statutory proceeding to sequestrate the property of a corporation in case of its insolvency. (3rd Rev. Stats of N.Y. 5th ed. pp. 763, 764, secs. 44-49.) There are three categories under this New York statute in which a Receiver may be appointed for a corporation:
First--Where there is a judgment at law or a decree in equity against any corporation, and an execution has been issued thereon and returned unsatisfied.
Second--Whenever any corporation shall have remained insolvent for one whole year.
These two categories apply to all corporations.
Third--Whenever any banking corporation becomes insolvent.
In these cases, thus provided for, the Attorney-General prosecuting on behalf of the People, or at the instance of any creditor of the corporation, or at the instance of any director or officer, may, according to the provisions of said New York statute, commence an action to have a Receiver appointed for such corporation. With these statutory modes of winding up the affairs of a corporation and appointing a Receiver for its assets, as provided by the New York Revised Statutes, the Code of Civil Procedure of New York was passed in 1848. (3rd Rev. Stats. of N.Y. p. 536.)
The chapter in the California Code of Civil Procedure entitled " Receivers" is copied nearly verbatim from the chapter of the New York Code of Civil Procedure upon the same subject. (California Code of Civil Procedure, sec. 564.)
Here is the very serious mistake made by the California Code Commissioners. They have extracted from the complete New York system a fragment. They have copied the provisions of the New York Code as to Receivers, but they have left out all that portion of the New York statutory law which
First--Creates the cause of action.
Second--Designates who shall have the right to sue, and,
Third--Provides for Receivers in such cases.
The New York Code of Civil Procedure reads:
" A Receiver may be appointed * * * in the cases provided in this Code, and by special statutes, when a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights, etc." (3rd Rev. Stats. of N.Y. p. 536.) The California Code of Civil Procedure omits the words " provided in this Code and by special statutes," and reads: " A Receiver may be appointed * * * in the cases when a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights." (California Code of Civil Procedure, sec. 564.)
The five hundred and sixty-fourth section of the California Code of Civil Procedure does not create and does not assume to create any new right of action. It does not say that a stockholder or creditor can bring suit against a corporation because it is insolvent.
It simply provides that when a case exists--that is a case with proper party plaintiff, one who, under the law, common or statutory, can maintain an action against a corporation because it is insolvent--in such a case, with such a proper party plaintiff, a Receiver may be appointed. But there is no statute in California authorizing a creditor or a stockholder to bring a suit of this kind against a corporation because of its insolvency.
The appointment of a Receiver is a mere ancillary remedy. It is never the main object of the suit. Sec. 564 of the California Code of Civil Procedure merely gives a provisional remedy. It creates no new right of action. If it is to be construed as creating a new and hitherto unknown right of action, in whom does it vest such new right of action? If the new right of action is created, as no person is named, it would be given to anybody and everybody. A stranger could sue just as well as a creditor or stockholder. If the cause of action is created by sec. 564 then the cause of action is the fact of insolvency. It may be said that to a great extent this construction renders sec. 564 of the Code of Civil Procedure inoperative. If so, that would only be another instance of imperfect and defective legislation.
5. The rules relating to the construction of statutes. (a ) The intent--the internal sense is to prevail. (Dwarris on Statutes, 352.) This is a rule applicable to statutes, deeds, wills, contracts. Yet each of these is sometimes " void for uncertainty." (Dwarris on Statutes, 353.) (b ) In the construction of instruments in general, the Courts constantly reject clauses of which they are unable to ascertain the meaning. (Dwarris on Statutes, 534.) (c ) The rules which apply to the construction of deeds and wills also hold good in the construction of statutes. (Dwarris on Statutes, 556-7.) (d ) The judgment of a Court in expounding a will or statute is declaratory of what is in the instrument, and not creative. (Dwarris on Statutes, 560, 561.) (e ) Effect cannot be given to an intention not expressed in the statute. (Dwarris on Statutes, 572-73, 598.) (f ) The Courts are neither to add to nor diminish the words of a statute. (Dwarris on Statutes, 579, 580, 582.) (g ) The Courts are not to presume or speculate as to what was the meaning of the Legislature. (Dwarris on Statutes, 584.) (h ) Public policy is a very unsafe rule for the interpretation of statutes. (Dwarris on Statutes, 597.) (i ) There is always danger in giving effect to what is called " the equity of the statute." (Dwarris on Statutes, 617.)
1. No District Court in this State possesses the jurisdiction to dissolve this or any other corporation, or to appoint a Receiver to administer its assets, unless the jurisdiction is conferred by statute. No such jurisdiction has been conferred by any statute of this State at the suit of any private person. In discussing the propositions involved in this point, we start with the recognized doctrine that the State or government under whose authority a corporation is formed only can institute or authorize the institution of proceedings to take that artificial life which it has conferred upon corporations. Angell & Ames on Corporations, sec. 777, lays down this indisputable rule, as follows: " A cause of forfeiture cannot be taken advantage of or enforced against a corporation collaterally or incidentally, or in any other mode than by a direct proceeding for that purpose against the corporation, so that it may have an opportunity to answer. And the government creating the corporation can alone institute such a proceeding, since it may waive a broken condition of a compact made with it as well as an individual."
This same doctrine was forcibly stated by Chancellor Kent, in Slee v. Bloom, 5 Johns. Ch. 381, and its correctness cannot be questioned at this day. Conceding this proposition, the fact that no Court, either of law or equity, possesses any inherent power to dissolve a corporation and appoint a Receiver to administer its assets logically follows. The appointment of a Receiver with power of administration is a dissolution of the corporation. (Neall v. Hill , 16 Cal. 150; Verplanck v. Mer. Ins. Co. 2 Paige, 452; Bank Coms. v. Bank of Buffalo, 6 Ibid. 503; Baylis v. Orne, 1 Freem. (Miss.) 172; Waterby v. Merchants' U. Ex. Co. 50 Barb. 167; Robertson v. Bullion , 11 N.Y. 252; French v. Gifford, 30 Iowa 153-59; State v. Ins. Co. 8 Humph. 252; Backus v. Baker , 32 Ill. 101-108; Bank Coms. v. Bank of Buffalo, 6 Paige, 502; Howe v. Deuel, 43 Barb. 504; Belmont v. Erie R. R. Co. 52 Barb. 665; Fountain v. Turnpike Co. 8 B. Mon. 142; High on Receivers, sec. 287, 288; Attorney-General v. Earl of Clarendon, 17 Ves. 491; Slee v. Bloom, 5 Johns. Ch. 379-381; Van Pelt v. U.S. Metallic Spring Co. 13 Abb. Pr. N. S. 331; Attorney-General v. Bank of Mich. Har. Mich. 315.)
2. The question then recurs, is there any statute of this State which confers the jurisdiction upon the District Courts of dissolving a corporation and winding up its affairs through the medium of a Receiver at the suit of a private person? I most confidently maintain the negative of this proposition. If the jurisdiction exists, it is by virtue only of the fifth subdivision of sec. 564 of the Code of Civil Procedure. In order to a proper understanding of this subdivision, it is necessary that it should be read in connection with the entire section.
Does this section confer any jurisdiction upon any Court of a cause of action which it did not before possess?
I confess to a sense of humiliation in being compelled seriously to argue that it does not; but his Honor of the Court below, after admitting fully the position that his Court did not possess the jurisdiction it exercised, unless that jurisdiction was conferred by statute, relies upon the fifth subdivision of this section as giving it the jurisdiction. This compels me to discuss a proposition which to my mind is too plain for argument.
If his Honer of the Court below is right in the construction which he has placed upon this statute, then it is manifest that we have a new class of actions unknown to and unheard of in any other portion of the civilized world. The insolvency of a corporation, or its imminent danger of insolvency, has become a substantive cause of action which may be availed of by any person in the world who may choose to institute an action against any corporation, and allege that it is insolvent, or in imminent danger of insolvency, although the person bringing the action may have no interest, direct or remote, present or contingent, in the corporation which he attacks.
There is no middle ground to which the doctrine of his construction can be limited. If subd. 5 of sec. 564 of the Code of Civil Procedure gives a new jurisdiction which the Courts did not before possess, it necessarily gives that jurisdiction in every case and in all cases where a corporation is alleged to be insolvent, or in imminent danger of insolvency. The section contains no limitation upon the character of the party who may bring the suit, or of his relations to the corporation assailed.
But it may be said that the Court would by construction incorporate a provision in the statute requiring the action to be instituted by some one having an interest in the corporation or its assets. We are then presented with the case where the Court first construes that insolvency or imminent danger of insolvency is made a new substantive cause of action, and then construes that only certain persons can maintain such an action. The theory of his Honor of the Court below requires too much construction to sustain it.
We are dealing with one of the most sacred rights of the person, whether that person be a natural or an artifical one--his right to the possession, control, and management of his own property; and we are told that there is a certain section of a certain statute of this State--neither section nor statute being devoted to the subject-matter of conferring new jurisdiction upon the Courts--which is susceptible of the construction that Courts may exercise a new jurisdiction, of depriving that person of his constitutional rights over his own estate! If the Legislature had designed to confer this new jurisdiction, would it not have said so in language from which its intent could have been derived without the aid of construction, and that construction necessary to be itself construed?
But even if this Court were disposed to depart from the well-settled rule of interpretation requiring a strict construction to be placed upon every legislative enactment, under the color of which the constitutional rights of the citizen might be invaded, the statute we are now considering is utterly incapable of being construed as conferring jurisdiction upon any Court of any new class of actions.
It is transparently manifest that this section of the Code of Civil Procedure was not designed or intended to confer any specific new jurisdiction--that is, in any new class of cases--upon any Court. Its self-evident purpose and intent was to regulate and prescribe the manner of the exercise by the Courts of a power ancillary and auxiliary to an already acquired and acknowledged jurisdiction. It simply instances when the Courts may appoint a Receiver in an action already pending, of which they have jurisdiction, without the aid of this action.
The instances enumerated by the statute when this auxiliary and ancillary power may be exercised are:
First--In an action by a vendor to vacate a fraudulent purchase of property.
Second--In an action by a creditor to subject any particular property or fund to his claim.
Third--In an action between partners or others jointly owning or interested in any property or fund, where it is shown that the property or fund is in danger of being lost, removed, or materially injured.
Fourth--In actions to foreclose a mortgage, where it appears that the mortgaged property is in danger of being lost, removed, or materially injured.
Fifth--After judgment, to carry the judgment into effect.
Sixth--After judgment, to dispose of the property according to the judgment.
Seventh--To preserve property, the subject-matter of an action, during the pendency of an appeal.
Eighth--In proceedings in aid of execution, when an execution has been returned unsatisfied, or when the judgment debtor refuses to apply his property in satisfaction of the judgment.
This analysis of the first four subdivisions of this section shows that the Legislature did not contemplate by their enactment the granting of any new jurisdiction to the Courts. In every instance, the regulation of the use of this extraordinary ancillary remedy has reference to cases of which the Courts had an unquestioned jurisdiction entirely independent of this section.
If the Legislature intended, in the first four subdivisions of this section, only to regulate the use and exercise of this ancillary power, is there any reason to suppose that by the fifth subdivision they intended to depart from this expressed policy of the section, and by that subdivision to grant to the Courts a jurisdiction which they did not before possess? If four-fifths of the section are transparently intended not to confer jurisdiction, but to regulate how and when a power incident to an acquired and existing jurisdiction may be exercised, is there any possible reason for the deduction that the remaining fifth of the section was designed to go further than the four-fifths, and to give a jurisdiction which did not before exist?
The very title of that title of the Code of Civil Procedure, of which this sec. 564 forms a part, seems to me to be conclusive of this question. Sec. 564 is a part of Title 7 of the Code of Civil Procedure, and it is entitled " Of provisional remedies in civil actions." The chapters of this title treat respectively of arrest and bail, claim and delivery of personal property, injunction, attachment, Receivers, and deposit in Court. Did it ever enter into the mind of mortal man to suppose that the regulation of any of these subject-matters contained in any of these chapters conferred any jurisdiction of any new class of actions upon the Courts? Or, in other words, that by reason of these regulations the Courts would have any other or further jurisdiction than they would have had if they had never been enacted? If the first four subdivisions of sec. 564 of the Code of Civil Procedure are but regulations " of provisional remedies in civil actions," of which actions the Courts have already jurisdiction, there is and can be no reason in the world for construing the fifth subdivision to be other than a similar regulation.
This fifth subdivision provides that " a Receiver may be adpointed by the Court in which an action is pending, in the cases where a corporation has been dissolved, or is insolvent, or in any imminent danger of insolvency, or has forfeited its corporate rights."
We maintain that this subdivision, like all others of the section, was intended merely to regulate the exercise of an auxiliary power of the Court, to be exercised in a case pending in Court of which the Court had already jurisdiction. It neither in terms nor by implication confers upon the Court jurisdiction to dissolve a corporation.
In the first subdivision of this sec. 564, a Receiver is permitted to be appointed in an action by a vendor to vacate a fraudulent purchase of property, in actions by creditors to subject particular funds to their claims, in actions between partners and others jointly interested in any property or fund; but in all of these actions the statute requires that before a Receiver is appointed it shall be " shown that the property or fund is in danger of being lost, removed, or materially injured." The same requirement is in the next subdivision in relation to actions between mortgagors and mortgagees. But when we come to the fifth subdivision, which it is claimed confers the jurisdiction to dissolve a corporation and appoint a Receiver of its assets, no such requirement as to the danger to the property is made.
Now, is it conceivable, if the Court please, that the Legislature should so very carefully provide that the classes of actions referred to in the first and second subdivisions of the section, that the party who had possession of the property should not be dispossessed thereof, unless it was shown that the existence or the value of the property was endangered, while in the cases provided for by the fifth subdivision--cases naturally involving property greatly in excess in value of any that were likely to be embraced in the actions referred to in the first and second subdivisions--it designed that corporations might be dispossessed of their property without any pretense of its existence or value being endangered by their continued possession thereof?
In other words, in the classes of actions provided for in the first and second subdivisions of this sec. 564, a Receiver cannot be appointed unless it is shown that the property or fund is in danger of loss or injury, and that the applicant for the appointment of a Receiver has a probable interest in the property; while according to the theory of his Honor of the Court below, the Court has power to appoint a Receiver of the property of a corporation, notwithstanding the applicant for the appointment may have no probable interest in the corporation's property, and the property itself may be perfectly safe in the corporation's possession. In the one class of actions--those in which the possessor's rights are so carefully guarded--the amount in controversy is usually small and insignificant; while in the other class, where the possessor's rights are not protected, the amount in controversy must, in the nature of things, be usually very large and of great importance. Is not this consideration--the fact that subd. 5 does not give the same protection to a corporation's possession of its property that subd. 1 does to that of one joint owner--conclusive of the proposition that the Legislature did not, by subd. 5, intend to confer the jurisdiction which is asserted under it in this case? " But," say the plaintiffs, " these protecting requirements of subd. 1 must be construed to be a part of subd. 5." This makes Construction No. 3, which is essential to give effect to a legislative enactment, which it is claimed authorizes the Court to dispossess an owner of his property summarily and without due process of law.
It will be borne in mind that a Receiver can only be appointed after an action is pending; logically and of necessity the action so pending must be one of which the Court has jurisdiction. It would be supremely absurd to say that in an action instituted in this Court upon a subject-matter of which the Court could have no jurisdiction, the appointment of a Receiver therein would give the Court jurisdiction thereof. So, by the very terms of the opening paragraph of the section, before the auxiliary power of appointing a Receiver can be exercised, the Court must have jurisdiction of the subject-matter of the action. What is that subject-matter in this case?
This dissolution of a corporation at the suit of a private person, and the administration of its assets by the Court. We have shown that this is a subject-matter over which this Court has no jurisdiction unless it is conferred by statute, and in reply we are met with the proposition that a statute which in terms limits the appointment of a Receiver for a corporation to a period of time after it has been dissolved, confers the jurisdiction to dissolve it.
We admit that the Attorney-General might institute an action in this Court, which, if based upon proper allegations, would give to this Court jurisdiction to dissolve the defendant. This would be such a pending action as is referred to in the opening paragraph of sec. 564 of the Code of Civil Procedure; and if in this action the Court rendered a judgment of dissolution against the defendant, then subd. 5 of that section would authorize the Court to appoint a Receiver of its effects.
I do not lose sight of that portion of subd. 5 of sec. 564 which authorizes the appointment of a Receiver when a corporation is insolvent, or in imminent danger of insolvency. But this authority, like all others granted by the section, is limited by the requirement that it can only be exercised in a pending case of which the Court has jurisdiction. It cannot be construed as granting a jurisdiction which the Court did not before possess. Before it can have any application to a case of this character, legislative authority must be shown which authorizes this Court to dissolve a corporation at the suit of a private person, and wind up its affairs, upon proving that the corporation is insolvent, or in imminent danger of insolvency. No such statute exists.
In order that there may be no possible mistake upon this proposition, I invite the attention of the Court to sec. 244 of the Code of Civil Procedure of the State of New York, from which sec. 564 of our Code of Civil Procedure is taken.
The fourth subdivision of sec. 244 of the New York Code is the subdivision of that section analogous to subd. 5. of sec. 564 of our Code. This subd. 4 provides that a Receiver may be appointed " in the cases provided in this Code and by special statutes, when a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights."
Here express recognition is given to the proposition that something more is necessary in order to warrant the appointment of a Receiver of a corporation's assets than the general delegation of authority to the Courts to make use of this provisional remedy. It can only be availed of in the cases provided for by the Code, or by special statute.
Our codifiers, in their transcription of this provision, in their anxiety for brevity, omitted this recognition; but inasmuch as the language in which the recognition is given is not in any sense affirmative legislation, but a simple reference to an acknowledged rule of existing law, their omission of this recognizing language cannot be construed as a repeal of that existing rule of law.
In other words, at the time of the adoption of the New York Code, the rule of law was well established that no Court could appoint a Receiver of a corporation's assets unless authorized to do so by statute. The framers of their Code of Civil Procedure thought proper in this section to give express recognition to this established rule of law. The same rule of law prevailed in this State (Neall v. Hill ) at the time of the adoption of our Code of Civil Procedure, but our codifiers omitted in this section to give that recognition to this established rule of law, and therefore it is contended that the rule of law referred to has been repealed. The proposition is too absurd for argument.
There is another argument which, to my mind, is conclusive of the proposition that subd. 5 of sec. 564 of the Code of Civil Procedure was not intended to grant the jurisdiction which the plaintiffs assert in this case. Here a Receiver is asked for, for the purpose of entirely supplanting the defendant and its officers in the management of its affairs, and for the winding up and settlement of its entire business. It is apparent, from the reading of the whole of sec. 564, that the Receiver, the appointment of whom is authorized by that section, was not intended to be invested with any such power or authority. The instances in which the section authorizes the appointment of a Receiver limit the powers and duties which he is to exercise.
A Receiver appointed in an action by a vendor to vacate a fraudulent purchase of property, or in an action by a creditor to subject specific property to his claim, or in an action by a mortgagee for the foreclosure of a mortgage, is invested with no power of administration. It is the evident purpose of the section to invest Receivers appointed under its provisions only with the power and duty of custodians of the property, the subject-matter of their appointment, and in one or two instances only of the duty of specific application of that property. A Receiver appointed under sec. 564 has only such powers of custody and application as are the necessary incidents of the objects and purposes for which the statute authorizes his appointment, and is possessed of no powers and is invested with no duties of administration. This proposition is made perfectly apparent by the very next section of the Code of Civil Procedure. Sec. 565 provides that: " Upon the dissolution of any corporation the District Court of the county in which the corporation carries on its business or has its principal place of business, on application of any creditor of the corporation or of any stockholder or member thereof, may appoint one or more persons to be Receivers or Trustees of the corporation, to take charge of the estate and effects thereof, and to collect the debts and property due and belonging to the corporation, and to pay the outstanding debts thereof, and to divide the moneys and other property that shall remain over among the stockholders or members."
If it had been intended by the Legislature to authorize the appointment of a Receiver to administer and wind up the affairs of a corporation under the provisions of subd. 5 of sec. 564, what was the necessity of the adoption of this sec. 565? If that could be done under sec. 564 which is expressly and in terms authorized by sec. 565, then sec. 565 is wholly useless and unnecessary. The familiar rules of construction forbid the adoption of this construction, and require that every part of the statute shall be given effect. Apply this rule to sec. 565, and it must receive the construction that the subject-matter of which it treats is another and different subject-matter from that with which sec. 564 deals; or, in other words, that its subject-matter had not been already provided for by sec. 564.
Sec. 565 specifically provides for the appointment of a Receiver to administer the assets of a corporation, and to wind up its affairs, and sec. 564 does not. Sec. 565 authorizes the appointment of a Receiver only after or upon the dissolution of the corporation. In sec. 565 the Legislature is dealing specifically with the subject of the administration of a corporation's assets, and the winding up of its affairs through the intervention of a Receiver. In sec. 564 it was not dealing with this special subject-matter. This is an action praying a dissolution of a corporation, the appointment of a Receiver to administer its assets and wind up its affairs. Which of these sections is applicable to this action--the one legislating upon the appointment of Receivers in general, or the one relating to the appointment of Receivers in the particular and specified cases of which the case made by this complaint is one? Can there be any two opinions upon this question? Can any sane man suppose for a moment that the general provisions of a statute are to override and supersede those special and particular ones which were enacted with direct and special reference to the very case in hand?
When the Legislature, by the enactment of sec. 565, provides for the appointment of a Receiver to administer a corporation's assets and wind up its affairs, prescribes the powers and duties of a Receiver appointed thereunder, and limits the power of making the appointment to a period subsequent to the dissolution of the corporation, the enactment must receive the construction that it prescribes the only case in which a Receiver can be appointed having these powers and duties. Expressio unius est exclusio alterius .
This conclusion is rendered irrefutable, if the Court please, by reference to another portion of our statute law, which is in pari materia with subd. 5 of sec. 554 and sec. 565 of the Code of Civil Procedure.
I now direct the attention of the Court to the chapter of the Civil Code of this State which deals with the subject of the " dissolution of corporations." This chapter begins with sec. 399, and includes sec. 403. Not only the doctrine that all statutes in pari materia shall be construed as a whole, but the positive requirement of sec. 4480 of the Political Code demands that the provisions of this chapter of the Civil Code shall be consulted in arriving at the proper construction of secs. 564 and 565 of the Code of Civil Procedure.
Sec. 399 of the Civil Code prescribes when and at whose suit a corporation may be dissolved, and points out specifically the proceedings to accomplish that end; and secs. 400 and 403 prescribe who shall administer the assets of the corporation when dissolved. They are thus in pari materia with subd. 5 of sec. 564 of the Code of Civil Procedure in the two aspects of the power of a Court to dissolve a corporation and to administer its assets. The first subdivision of sec. 399 of the Civil Code prescribes how and the reasons for which a corporation may be dissolved against its consent. These reasons, and the mode and manner of accomplishing the result, are found in the Code of Civil Procedure, from secs. 802 to 810, inclusive. By reference to the provisions of these sections, it will be apparent, first, that no one can institute the action which is to result in the dissolution of the corporation except the Attorney-General; and secondly, that insolvency or imminent danger of insolvency are not prescribed as the causes for which such an action could be maintained, if instituted by the Attorney-General. This first subdivision of sec. 399 of the Civil Code forms a part of a chapter of the Codes which deals with the particular special subject-matter of the involuntary dissolution of corporations, and it does not prescribe, either directly or by inference, insolvency or danger of insolvency as a cause of action for the dissolution of a corporation.
If I am correct in the position which I have tried to maintain--that a statute prescribing when a provisional remedy may be availed of necessarily presupposes that the Court granting the provisional remedy has jurisdiction of the action in which the remedy is granted--then the jurisdiction of the Court below in this case, being one for the dissolution of a corporation, must be derived, if at all, from this first subdivision of sec. 399 of the Civil Code. I think that I have shown that that statute does not confer the jurisdiction which has been assumed by the Court below.
If by any possible mode of reasoning it can be held that the regulation by the Legislature of the use of a provisional remedy can give the Court jurisdiction of an action simply for the reason that the ultimate object of the action is the attainment of a result of which the provisional remedy is a necessary or usual ingredient, then I respectfully maintain that that section of the Code of Civil Procedure relating to this provisional remedy must be construed in pari materia with subd. 1 of sec. 399 of the Civil Code.
The Court below held (and the same position must be asserted here) that subd. 5 of sec. 564 of the Code of Civil Procedure gave that Court jurisdiction of an action to dissolve a corporation and administer its assets, upon the allegation that it was insolvent or in imminent danger of insolvency. I say that this section does not form a part of any statute of this State devoted to the question of either dissolving a corporation or administering its assets after dissolution; that there is a statute which is devoted to this particular subject-matter, and that this last statute does not permit a corporation to be dissolved for these reasons; nor does it permit the Court upon such allegations to administer the corporation's assets. I say that upon principle, reason, and authority the statute particularly devoted to the subject-matter shall govern and control the question, and as I understand sec. 4481 of the Political Code, the rule of construction for which I contend is commanded by statute.
And this same chapter of the Civil Code, devoted to the dissolution of corporations, also makes provision for the administration of the corporation's assets after dissolution.
Sec. 400 permits the Court to appoint some other person or persons than its directors or managers to wind up its affairs. But this permission is qualified and limited by sec. 403, which provides that if any special provision is made in regard to the administration of any particular corporation or class of corporations' assets after dissolution, that then and in that case the special provision shall prevail. It appears in this case that the corporation whose interests are here involved was formed under the provisions of " An Act to provide for the formation of corporations for certain purposes," approved April 14th, 1853. (Stats. 1853, pp. 87-92.) Now, by the twenty-third section of this act, express and special provision is made that upon the dissolution of any corporation formed thereunder, its affairs shall be administered and wound up by those persons who are trustees of the corporation at the time of its dissolution.
3. Can an order made by a District Court appointing a Receiver of a corporation's assets be reviewed by the Supreme Court on certiorari, after the District Court has refused to vacate its order, and before the final adjudication of the suit in which the Receiver was appointed? I maintain the affirmative of this proposition. Sec. 1068 of the Code of Civil Procedure provides that the writ of review may issue " when an inferior tribunal * * * has exceeded the jurisdiction of such tribunal, * * * and there is no appeal nor * * * any plain, speedy, and adequate remedy."
The use of the adverb of time " when" in sec. 1068 would seem to indicate that the right to the writ of review in point of time was whenever or as soon as the Inferior Court made an adjudication upon any question in excess of " the jurisdiction of such tribunal." Sec. 1068 contains no warrant in support of the idea that the writ of review can only issue after the final determination of all matters involved in the suit in which an order may be made which is in excess of the jurisdiction of the Court making the order. To the contrary, the section seems to imply that the writ may be availed of whenever the Court in any action has made any adjudication which by law it has no power to make. I think there could be no doubt of this last proposition, but for a misconstruction which has been placed upon certain decisions of this Court.
In People v. County Judge , 40 Cal. 480, the County Judge had made an order designating a certain day for the hearing of an application for fixing the compensation of certain commissioners. At this stage of the proceeding a writ of certiorari was issued to the County Judge. This Court held that the writ was premature, upon the ground that the inferior tribunal had not exceeded its jurisdiction, but only threatened to do so.
In the case of Templeton v. The Twelfth District Court , 47 Cal. 70, this Court entertained a writ of certiorari to review an order made by the Court below, setting aside an order theretofore made by the Court, allowing Templeton to enter into the possession of certain lands pending an eminent domain proceeding; neither the order permitting Templeton to enter into possession nor the order vacating that order were final determinations in the sense of being a part of the final adjudication in the eminent domain proceeding in which they were made. But they were final determinations in the sense in which that term was used by the Court in People v. County Judge. And in the case of the Cal. P. R. R. Co. v. The Cent. P. R. R. Co. 47 Cal. 530, this Court issued its writ of certiorari to review an order of the Court below authorizing the California Pacific to enter into the possession of certain lands, upon its giving a certain bond, as provided by statute, pending certain eminent domain proceedings, and prior to the final determination of those proceedings. And upon the hearing of this writ of certiorari, the Court set aside the order of the Court below as having been made without jurisdiction. (Vide, also, Sanborn v. Belden , 51 Cal. 266; Adams v. Haskell , 6 Cal. 316; People v. O'Niel , 47 Cal. 110; Batchelder v. Moore , 42 Cal. 413.) These cases recognize the principle, which is undoubtedly the correct one, that whenever the order sought to be reviewed is a final determination of the question involved in that order, and there is no appeal from that order, that it presents a proper case for review by certiorari, although the entire controversy has not been determined.
The order appointing the Receiver in this case is a final determination within the meaning of the statute and the authorities. An inspection of the orders shows this fact: they not only dispossess the corporation of its property, but they invest a stranger with the right to consume it with expenses. That such an order is a final order was determined by the Supreme Court of Michigan in Barry v. Briggs , 22 Mich. 204.
In the case of Ruthrauff v. Kresz , 13 Cal. 639, this Court, upon certiorari, reversed an order appointing a Receiver.
Having established the proposition that the order appointing the Receiver is such a final determination as may be reviewed by certiorari, the only remaining question is: Is there any appeal from such an order?
An appeal to this Court is a procedure regulated by statute, and the statute also enumerates the subjects of appeal. (Blum v. Brownstone , 50 Cal. 294.) Secs. 929 and 963 of the Code of Civil Procedure enumerate the cases in which an appeal may be taken from a District Court to this Court, and in neither of them is an order appointing a Receiver mentioned.
It is true that three cases appear in the reports of the decisions of this Court, in which appeals have been entertained from orders appointing or vacating the appointment of Receivers; but a very slight examination will show that these cases would not sustain a right of appeal in the present case.
This Court is a Court of Errors, ordinarily. It is the appellate tribunal of this State. Its powers, under the Constitution and laws, are mostly appellate. There are some things in which, under the Constitution, it has original jurisdiction. It has the power, in the exercise of original jurisdiction, to issue certain writs under certain circumstances, intended to keep what are styled " inferior tribunals" within the constitutional limits of their powers. The views that such a Court takes of cases, in the exercise of that original jurisdiction, are very different from those it entertains when sitting in the exercise of its appellate power. It is very hard to apply under our system, to the District Courts of this State, the terms which originally were ordinarily applied by the English Courts and under the English system--when they were intended to control the powers of the Courts below, by virtue of their supervisory jurisdiction over all inferior tribunals. I do not think this Court occupies the position that the Court of King's Bench occupied under the English system--having the power by its writs to control entirely all inferior tribunals in England, and to confine them within the limits of their prescribed jurisdiction. I am not aware that the Court of King's Bench ever issued a writ of certiorari to a Court of Common Pleas--a Court of equal co-ordinate jurisdiction. I do not think that in any sense the superior tribunals of Westminster were considered inferior Courts, and within the mandatory control of the Court of King's Bench. This Court has the general power, under the Constitution, to issue writs of prohibition and writs of certiorari. The Constitution does not undertake to define the cases in which this Court will issue those writs, nor the tribunals to which they will issue. And the statute law is equally indeterminate, except that it says these writs will go to the inferior tribunals and boards or officers.
It is not necessary for me to undertake to assume or to maintain the proposition that a writ of certiorari could not issue from this Court to a District Court. But I refer to this more upon the idea that it must be a very plain case--a case without question or doubt--which would call upon this Court to issue these writs to restrain a Court of general jurisdiction, to restrain a Court exercising entire equity powers, that exist under the Constitution and under the law. I say that this Court will hesitate to issue those writs when the District Courts, in the exercise of their equity jurisdiction, accorded to them by the Constitution, have entertained the proceedings in the case. This Court will be reluctant to issue its writ of certiorari without a plain proceeding before it, authorizing or requiring such issue. The issuance of such writs goes upon the ground that this Court has general and universal jurisdiction for the control of all interests of property in the State, and that the District Court has exceeded its powers--if that be the Court to which the writ is directed. In no sense can the Constitution or the laws be interpreted to give this Court any control over the proceedings in the District Court in a case where that Court has jurisdiction, except upon the extraordinary occasions which I have indicated. Considerations which are applicable to these proceedings as against a board, or an officer, or a Court of limited, special, small jurisdiction, are not applicable here when the question involves the powers of a Court of general jurisdiction in all the District Courts in this State.
What is the nature of this proceeding? It is an application for a writ of certiorari, directed to the District Court of the Fifteenth Judicial District, and to the Judge thereof, commanding him to send up his record for the purpose of ascertaining whether he has not exceeded his jurisdiction in the controversy before him. This Court, in the exercise of its original jurisdiction, has no power whatever to postpone the hearing, or to inquire into the merits of the controversy in the Court below.
Nor has this Court the power in this way to inquire into the sufficiency of the facts upon which the Court below founded its action; nor to inquire into any supposed mistakes of law or mistakes of fact which the Court below may have possibly fallen into in the course of its consideration of the case before it. It matters not however erroneous or however mistaken the views of the Court below upon a question of law, or upon the facts presented before it--those mistakes cannot be reviewed in this form of proceeding. You cannot turn a writ of certiorari into a writ of error, and thus review and consider the errors of law which may have been committed, or the errors of fact which might appear in the Court below in a bill of exceptions. Nor can you consider on such a writ the sufficiency of any proposition made in the Court below which brought that Court into action, and induced it to come to a determination. There is but one question involved in a proceeding of this character; and that is, had the Court below power in a particular case? The power to do what? To hear and determine upon the facts and matters presented before it. This is what I understand to be jurisdiction; and all else is the mere exercise of jurisdiction. The exercise of jurisdiction can never be controlled in this tribunal by a writ of certiorari. In order to give this Court the right to determine the question legitimately involved here, the Court below must have assumed a jurisdiction which the law did not give it; and it is this, and this alone, that a writ of certiorari is intended to prevent. What the Court does, if it has the jurisdiction to inquire and determine at all, is a matter entirely aside from this question. And this Court went so far in the case of The People v. Barney , 29 Cal. 460, as to say that that was a case entirely within the power of the Court below, although the law gave no appeal; and so the decision and action of the Court below was maintained. Under no circumstances can the review be extended to the merits. This I understand to be the doctrine of the reported decisions of this tribunal.
In a recent case decided by this Court, (Spring Valley Water Works v. Bryant , 52 Cal. 132) this Court held that, in order to authorize a writ of certiorari, the inferior Court must have entered a judgment beyond the jurisdiction conferred upon it by law. That is, that the Court must have assumed a jurisdiction which it had not--assumed the right to hear and determine a particular matter brought before it, which the law did not give power to the Court to hear and determine.
The same doctrine was early advanced in the decision of this Court in the case of Whitney v. The Board of Delegates of the San Francisco Fire Department , 14 Cal. 500, and I understand it to be the well-settled doctrine of this Court. Under no circumstances can the review be extended to the merits. The nature and provisions of this writ are settled by a long line of decisions, from the early days--from the very earliest day of our jurisprudence--down to the present time. (People v. Barney , 29 Cal. 460; People v. Elkins , 37 Cal. 457; Coulter v. Stuart , 7 Cal. 345; Clary v. Hoagland , 13 Cal. 173; People v. Shepard , 28 Cal. 115; Winter v. Fitzpatrick , 35 Cal. 269; People v. County Judge , 40 Cal. 480; Barber v. San Francisco , 42 Cal. 634; Bennett v. Wallace , 43 Cal. 26; Spring Valley Water Works v. Bryant , 52 Cal. 132; Miliken v. Huber , 21 Cal. 166; Yenawine v. Richter , 43 Cal. 312; C. P. R. R. v. Placer Co. 43 Cal. 366; Same v. Same , 46 Cal. 671; Petty v. County Court San Joaquin County , 45 Cal. 246; Montreal v. Bush , 46 Cal. 79; Whitney v. Board of Delegates , 14 Cal. 500.)
This proposition is very certain: that any order appointing a Receiver in this case, or any order refusing to vacate the appointment on motion, may be reviewed on appeal from the judgment. I do not think there is any question on that proposition. The only question involved here would be, whether that would bring the case within the provision of the statute--that there can be no writ of certiorari where there is an appeal or any other remedy known to the law; and on that proposition the argument might be very securely advanced--and, as far as I am concerned, my own opinion runs conclusively in that direction--that inasmuch as these orders may be reviewed on an appeal from the judgment, that that is a plain, speedy, and adequate remedy, given by the law, which comes under the right to resort to the extraordinary process of certiorari. As your Honors said in one of the cases I have cited, you might be called upon to interfere by a writ of certiorari or by a writ of prohibition at every step in the case pending in the Court below, if another doctrine was adopted, if another purpose was sanctioned. After you had settled one writ, another might be made, and the same proceeding resorted to again, the same process invoked to stop the machinery of law and justice in the Court below; and so you might be required to practically withdraw the consideration of the case in all its forms from the Court below at any step in its progress, by the invocation of this extraordinary power.
Now, the District Court is a Court of general jurisdiction in the administration of justice in a case over which it has jurisdiction. I think myself that there was a remedy by appeal in this case from the order appointing the Receiver, or the refusal of the motion to set aside the appointment already made. Everywhere else, as far as I have examined, an appeal is made directly. Whether provided for by the statute or not, I cannot say in every instance; but they go directly on appeal to these very orders, and the Court, in the exercise of its appellate jurisdiction, reviews these orders, and reverses the Court below for its error in issuing an order in any case improvidently.
Certainly it is not the intention of this law, which expressly provides that there shall be no such writ in the case where there may be an appeal, or any other remedy known to the law, to provide for any interference during the progress of a case which is being tried before a Court of competent jurisdiction. That would be to turn these proceedings into a writ of error, and to do away with the necessity of an appeal altogether.
I say, emphatically, there can be no writ of certiorari against a Court of general jurisdiction, to prohibit the issuing or the execution of any order which it thinks proper to make, where that order can be reviewed on appeal from the judgment.
Here is but an intermediate order, made in a case now pending--a mere order for the preservation of the property in controversy, pending litigation, upon the ground that it is insecure in the possession of the defendant, alleged to be insolvent. Here its officers are shown to have been delinquent, and to have suffered its employees or managers to misappropriate its funds to a large amount. There is no final determination of anything in an order of that sort. No rights of parties are sacrificed. It is a step in the case.
Your Honors have held that a writ of certiorari is a writ of review. Its office is to bring up for review final determinations and adjudications of inferior tribunals, or boards, or officers, exercising judicial functions, when no appeal, nor any other plain, speedy, or adequate remedy is to be had. The writ is necessarily founded on final determination.
This order appointing a Receiver is in the nature of an interlocutory order, and may undoubtedly be reviewed on an appeal after final judgment, which affords a plain, speedy, and adequate remedy according to law. I rely upon the proposition--that if for no cause whatever, if under no circumstances, the District Court has the power to order the appointment of a Receiver for a corporation, this Court cannot by certiorari control the exercise of that power, nor review in such a proceeding or on such a writ any errors of law or of fact in the Court below. The only question for this Court to consider is a question of power. If the jurisdiction exists at all, if the power is present in the Court below, under no circumstances can this writ lie. Counsel for the petitioner so far lost sight of settled doctrines as to enter into an argument to show that the allegations of the complaint were insufficient to sustain the application for a Receiver. Surely the learned counsel knows very well that this Court cannot, in this proceeding, review the insufficiency of allegations in a complaint to sustain the action or the decree of the Court below. This would be at once to convert this proceeding, which is aimed at the jurisdiction of the Court below, into a writ of error, to review its action under its jurisdiction.
2. The true question, then, is, can a Court of Equity in this State, or in any case, appoint a Receiver of a corporation? And upon the solution of that question depends the entire controversy, in my judgment. Here are secs. 564- 566 of the Code of Civil Procedure. It is admitted that the Attorney-General may bring a suit for the People, asking the appointment of a Receiver for a corporation; but it is said an individual cannot do so. I contend that any party interested may maintain such a suit. These sections that I have cited are portions of the Code which regulate the administration of the law, and which prescribe the remedies. They regulate the forms and modes in which the Courts will administer relief to a suitor. The various provisions of the Code from beginning to end altogether make a system of practice by which the parties and the Courts are regulated and governed. I believe that in no case, throughout the whole course of this Civil Practice Code, does the law go into minutiae, and prescribe specifically who shall be parties in a suit or who shall be defendants in a suit. The manner and provisions are general, and they apply to all proceedings.
The parties to a suit to enforce a claim by the General Law are, of course, the proper parties, and the persons or parties who are responsible to that claim are, of course, the proper defendants. A party plaintiff complains and presents his case. A party defendant answers and presents his defense. The whole progress and system of the allegations are prescribed in the various sections of this Code, and the various remedies are prescribed, many of which are styled provisional. Attachments, replevins, injunctions, Receivers, and other provisional remedies are provided for in the Code, and the whole process of proceedings and remedies by appeal are prescribed and provided for. The District Courts hold their power over equity matters and over law matters under the Constitution. The Code only prescribes the mode of procedure and furnishes the machinery, so to speak. It prescribes the mode by which the Court, in the exercise of its acknowledged equity or legal powers, will pursue certain forms in the administration of affairs. The General Law says who is to sue, who is to defend, prescribes rights, and gives remedies. The Code gives the form of proceedings, and also gives special remedies where it is indicated that any special remedies are to be applied. I say that the objections taken by counsel--that these provisions here form no system; that they are a mere interjection of parts of some other Code, the New York Code, for instance--are utterly unfounded. Such objections apply with the same force, and no more, to any other provisional remedy, or to any other proceeding authorized by the Code, in pursuance of the jurisdiction of a Court of Equity.
I supposed that it would not be disputed that a Court of Equity has jurisdiction over a corporation in many other respects, for many other purposes. That is too clear for controversy. That a District Court will entertain a bill against a corporation for relief, and at the suit of a stockholder or creditor, under certain circumstances, is a proposition which cannot be disputed. The District Courts have certain general control over corporations, as they have over all other suitors in the administration of the rules of equity, in the administration of equity jurisprudence.
It was perfectly competent for the legislative power, in prescribing the mode and manner in which the equity jurisprudence of these tribunals should be exercised, to give any remedy for the administration of that power which did not regard the system, or which the theory or the decision of the Courts of Chancery had determined not to enter into the nature of these tribunals, or to belong to a Court of Equity. The Legislature clearly had that power.
Now, our whole legislation, for years, tends to bring corporations to the same level, and to the same responsibility, and subject to the same remedies as individuals. That is the course of the legislation in this State, and in all the States. And it is the course of the legislation and of decisions by the supreme authorities and tribunals of the United States. The progress of the law is forward in this regard, and not backward. Almost all the States have provided by law for the administration in the ordinary exercise of the powers of equity of law or laws to control corporations.
This whole doctrine, upon which rests the idea that a Court of Chancery is to be stopped at the threshold when a corporation is involved in a suit brought before it, is a lineal descendant of the Case of Dartmouth College. There the Supreme Court of the United States arrested the power of the sovereign State to control these corporations, upon the ground that they were contracts irrepealable under the Constitution of the United States. This is the foundation of the whole doctrine. Now, what did that rest upon? These corporations then were created by the special acts of the Legislature, with certain powers for a given time. They were established under the laws and the Constitution of the United States. They were surrounded and protected by the Constitution upon the ground of contract, and therefore no Court of Equity could interfere with them, or control them, or dissolve them, and no one could do it but the State. In the exercise of its sovereign powers, and upon good cause to the Court shown, the State could interfere and dissolve them. But they were withdrawn from the reach of the arm of a Court of Equity, except in particular cases and for particular purposes. But that doctrine has seen its last day; it is no longer the law that a corporation, the creature of legislative power, is beyond the reach of the Courts of the country, or ordinary administration of law.
From the earliest day in the history of our jurisprudence, our Courts have more and more assimilated what were called corporations with copartnerships, and with joint-stock associations, having the same privileges as corporations, and in the main holding the same position, exhibiting the same character, and possessing the same rights of controversy. In an able opinion, delivered by Judge Baldwin of this Court, at an early day, this idea was maintained with great force. He held that these corporations were mere associations of wealth, formed under a general law, which pertains to the character, power, and privileges of corporations. That the law does little more than allow them to incorporate--strictly so-called--so as to have succession, and to continue for a given number of years. In all other respects they partake of the character of copartnerships, or joint-stock associations.
It is very clear that the Legislature intended by these provisions to place corporations on the same plane with individual suitors in the Courts, and to subject them to the same remedies under the jurisdiction of Courts of Equity, to the same extent as private suitors in Courts.
Not only have they done it in this instance, where there are prescribed remedies to suitors in Courts of Equity, but they have in half a dozen different ways provided that these corporations may be reached by the arm of the law, and that all the remedies for the protection of parties shall be extended to them, in some form or other, either by proceeding under one law or another, that they may be reached and controlled in the exercise of the equitable jurisdiction of the State tribunals. It is the policy that prevails, not only here, but everywhere, that there shall be no body superior to the Courts of the country in the ordinary application of remedies provided by law for the protection of private rights and the advancement of public interest. To hold otherwise is to strike these sections bodily from the Practice Code. It is to bar the Courts of Equity from all remedial jurisdiction in one class of cases, which are most important, as exercised in vindication of private rights and against the association of wealth and the assaults of fraud and wrong of every form incident to corporate management.
We have thousands of corporations in this State formed under our General Laws. If the doctrine of the other side is to prevail, all these immense interests are to be withdrawn from the operation of ordinary rules of equity jurisprudence, and are to stand beyond the reach of the equitable arm of the Courts in any controversy where the private individual has rights adverse to these associated bodies.
3. We are met by another proposition. We are told that these proceedings appointing a Receiver will dissolve the corporation, and it is said that the Court cannot do indirectly what it cannot do directly. This is not so clear a proposition as is claimed under the present state of the law--as to the power of a Court of Equity, under proper circumstances, to dissolve a corporation, or to do what is equivalent to it. It is not necessary to contend to the contrary at present.
The proceeding to dissolve a corporation, and the proceeding to protect a stockholder or creditor, and to take his property and put it in the hands of a Receiver, are distinct and independent remedies. The case of Miner's Ditch Company v. Zellerbach , 37 Cal. 543, is a case in point. There the Court holds that the entire conveyance of all the property of a corporation, which strips it of everything of which it was incorporated to manage, has no effect whatever upon the existence of the corporation; that it does not dissolve it; that the corporation still remains a corporation. There the Court decides that the corporation may still go on in business, if the managers desire to do so. If there was anything in the proposition that the appointment of a Receiver was equivalent to a decree of dissolution by the Court, and if the doctrine is involved in this case, and if that doctrine is involved in the case of Neall v. Hill , 16 Cal. 145, the doctrine has been overruled by later decisions of this Court. The entire property of a corporation may be taken out of its hands, either by judicial process or by the conveyance of the corporation itself. It may have nothing with which to carry on business, but it still remains a corporation, and dissolution does not follow--one is not the equivalent of the other. The same doctrine is maintained on page 347 of Wait's Actions and Defenses, citing this case in 37 Cal.
So that the appointment of a Receiver is not equivalent to a dissolution. So far as this Court is concerned--so far as the jurisprudence of this State is concerned--that authority is no longer authority here. A corporation created by law has no property, necessarily, as a precedent to incorporation. The property must be acquired. It is the mere authority to exist as a corporation that the law provides for. It acquires its property afterwards. And whatever disposition may be made of the property, whether in the administration by the Court of Equity by the appointment of a Receiver, or otherwise, such action cannot affect the existence of the corporation.
Hall McAllister, for Petitioner.
John A. Stanly, also for Petitioner.
Delos Lake and Geo. R. B. Hayes, also for Petitioner.
J. P. Hoge, for Respondent.
D. H. Whittemore and W. H. L. Barnes, also for Respondent.
JUDGES: Wallace, C. J. Mr. Justice McKinstry expressed no opinion.
OPINION
WALLACE, Judge
It appears by the return to the writ of certiorari issued in the cause that, on the 7th of October last, Thomas J. Gallagher, as plaintiff, filed in the office of the Clerk of the District Court of the Fifteenth Judicial District, in the City and County of San Francisco, a complaint (in which complaint the petitioner was the sole defendant) complaining on behalf of himself and of all others, creditors, depositors, and members of " La Societe Francaise d'Epargnes et de Prevoyance Mutuelle" who should thereafter come in and seek relief by, and contribute to, the expenses of the action thereby instituted.
In this complaint it was alleged that the defendant therein is a corporation duly incorporated under the laws of the State of California for the purpose of receiving deposits of money, preserving the same from loss, and finding secure and profitable investments therefor--its principal place of business being at the said City and County of San Francisco. That the said defendant is indebted to the plaintiff in the sum of ninety-eight thousand seven hundred and fifty dollars in gold coin of the United States, for services by the plaintiff theretofore rendered, as the attorney of the defendant, at divers times between the 1st day of June, A. D. 1870, and the 5th day of October, A. D. 1878, in prosecuting and defending certain suits, in drawing and engrossing various instruments of writing at its request, in counselling and advising the defendant, for attendance in and about the business of the defendant, and for money paid, laid out and expended by the plaintiff at the request of the defendant in and about its suits and business; that payment therefor had been duly demanded of the defendant by the plaintiff; but that the defendant had not paid to the plaintiff the said sum, or any part thereof. It was further alleged in the complaint that the plaintiff is a depositor and voting member of the said corporation defendant; that the defendant is insolvent; that the Board of Bank Commissioners, proceeding under the Act of the Legislature of this State, approved March 30th, 1878, had examined the affairs of the said corporation defendant, and had reported that it had not sufficient funds to pay its depositors and creditors--there being discovered to be a large deficiency in its assets, and that its liabilities were in excess of its assets some eight hundred thousand dollars and upwards.
It was further set forth in the complaint that under the bylaws of said corporation every depositor having fifty dollars on deposit for six months becomes thereby a voting member of the corporation--has a vote in the election of its officers, and a vote upon any business coming before any meeting of its members; and it is further alleged, in this connection, in the complaint, " that there is great danger that designing and irresponsible men may obtain control of its affairs, and that the assets of said corporation may be squandered to such an extent that it can pay no part of its liabilities." It is further alleged in the complaint that by certain by-laws of the corporation, adopted in the year 1860, it is provided that no voluntary liquidation of its affairs can take place unless desired by a majority of its members representing three-fourths in amount of the deposits; and it is averred that, in point of fact, members representing more than one-half of the deposits are resident beyond the limits of the United States, and principally reside in the Republic of France.
It is further set forth in the complaint that through the improper conduct of a late manager of said corporation, upwards of seven hundred thousand dollars had been paid out to depositors after the said deficiency of eight hundred thousand dollars had occurred.
It is further averred in the complaint that under the existing by-laws of the corporation it is provided that its depositors shall be paid on demand from its first disposable funds, and that such demands are registered and paid pursuant to the order in which they have been presented; that, in point of fact, unpaid demands of this character are now registered upon the books of the corporation to the amount of upwards of nine hundred thousand dollars; " that there is great danger that unless said corporation and its officers are restrained from paying these amounts, and a Receiver appointed herein, the remaining creditors and depositors will suffer great and irreparable injury, because of said deficiency of eight hundred thousand dollars," and that by reason of the said existing deficiency the depositors who have been paid have in fact been overpaid, and that the holders of the registered demands will, under the operation of the by-laws referred to, also be preferred and overpaid, to the great loss and damage of the creditors, and of those of the unpaid depositors who have not registered their demands for repayment.
The prayer of the complaint is that the plaintiff have judgment against the defendant for the sum of ninety-eight thousand seven hundred and fifty dollars and costs of suit; that said corporation be declared insolvent, and that an injunction be issued restraining the managers of said corporation, their agents and servants, from paying out the funds thereof, or in any way interfering with the business thereof, and that said corporation be dissolved; that a Receiver be appointed to take charge of the business of said corporation, to wind up the affairs thereof, to take possession of the books, papers, property, evidences of indebtedness, and all the assets thereof; to collect all debts due said corporation; to pay all legal claims against the same; to employ all needed accountants, clerks, servants, and attorneys, and generally to do all and everything necessary to protect the rights of the creditors and depositors of said corporation, and " for such other and further relief as may be just." Immediately upon filing the complaint the following order was made and entered upon the minutes of the Court:
" On filing the complaint herein, and good cause being shown therefor, it is ordered that Frederick F. Low be and he is hereby appointed Receiver, as prayed for in said complaint, on filing a bond therein in the sum of two hundred and twenty-five thousand dollars. Samuel H. Dwinelle,
" October 7th, 1878. District Judge." Subsequently, and on the same day, the following order was made by the Judge of the District Court of the Fifteenth Judicial District, and entered upon the minutes of the Court:
" Whereas, an order has been made in the foregoing action, appointing Frederick F. Low Receiver in the foregoing action, as prayed for in the complaint herein, on filing a bond in the sum of two hundred and twenty-five thousand dollars; and whereas, said Frederick F. Low has filed a bond in the said sum of two hundred and twenty-five thousand dollars, with good and sufficient sureties, which bond has been duly approved by me: Now, therefore, it is ordered that said Frederick F. Low be and he is hereby appointed the Receiver to take charge of the affairs of said corporation, to collect all money due the same, to pay all legal claims against said corporation, to take possession of all books, accounts, papers, property, evidence of indebtedness, and all assets thereof, to employ all needed accountants, clerks, servants, and attorneys, and generally to do all and everything necessary to protect the rights of the creditors and depositors of said corporation."
These orders were made ex parte, upon application of the plaintiff, and before the corporation defendant had been summoned to answer the complaint. Subsequently, in the further progress of the cause, the corporation defendant appeared in the action and demurred to the complaint, filed an answer, and made an unsuccessful motion to set aside the order appointing the Receiver; but as, in the view entertained by us, the particular consideration of these proceedings would not aid in the solution of the general question before us, they will not be further noticed.
1. In support of the first point made by the counsel for the respondent, it is assumed by them that the correctness of the orders complained of by the petitioner might be considered here upon appeal from the final judgment, should one be hereafter rendered in the cause, and an appeal taken therefrom to this Court, and it is therefore claimed that they cannot be reviewed here upon this proceeding by certiorari . The statute concerning this writ (sec. 1068) provides that it may be resorted to " when * * there is no appeal," etc. If there be an appeal, the writ of certiorari cannot be awarded; but no direct appeal is given by the statute, and we are of opinion that such an order is not subject to be reviewed on an appeal from the judgment under sec. 956 of the Code of Civil Procedure.
2. The case here not being in error but upon certiorari, the inquiry is of course to be confined to a consideration of the mere power of the District Court to appoint a Receiver in a case of this impression.
Irrespective of the effect of the fifth subdivision of sec. 564 of the Code of Civil Procedure, which will be presently considered, there is no jurisdiction vested in Courts of Equity to appoint a Receiver of the property of a corporation in a suit prosecuted by a private party. This is only to say that there is no jurisdiction vested in these Courts in such a case to dissolve a corporation; for the power of a Receiver, when put in motion, of necessity supersedes the corporate power. It necessarily displaces the corporate management and substitutes its own, and assumes, in the language of the order under review, " to do all and everything necessary (in the judgment of the Receiver, under the advice of the Court) to protect the rights of the creditors and depositors of said corporation."
This precise question was brought directly under consideration here in the case of Neall v. Hill , 16 Cal. 145, where, in a suit brought by a stockholder, a Receiver had been appointed by the District Court to take possession of the property of the " Gold Hill and Bear River Water Company," a corporation existing under the laws of this State. The opinion in that case, rendered by Mr. Justice Cope, and concurred in by the whole Court, after referring to the adjudicated cases in England and in this country, uses this language: " This decree, if permitted to stand, must necessarily result in the dissolution of the corporation; and in that event the Court will have accomplished. in an indirect mode, that which, in this proceeding, it had no authority to do directly. It is well settled that a Court of Equity, as such, has no jurisdiction over corporate bodies for the purpose of restraining their operations, or winding up their concerns. We do not find that any such power has ever been exercised in the absence of a statute conferring the jurisdiction."
Of course, it is not to be doubted that the trustees of a corporation, the persons who constitute its direction, and from time to time exercise the corporate authority in the management of its affairs, are subject to the control of Courts of Equity, or, as observed by Chancellor Kent, " that the persons who from time to time exercise the corporate powers, may, in their character of trustees, be accountable to this Court [the Court of Chancery] for a fraudulent breach of trust; and," he adds, " to this plain and ordinary head of equity the jurisdiction of this Court over corporations ought to be confined." (Attorney-General v. Utica Ins. Co. 2 Johns. Ch. 388.) And in exercise of these admitted equity powers of the Court, referable to the well-known grounds upon which its jurisdiction ordinarily proceeds, embracing the cognizance of fraud, accident, trust, and the like, the rights of natural persons injured or put at hazard through corporate proceedings unauthorized by law, will find ample protection and redress.
But even in such a proceeding as that, the Trustees must of course be made parties defendant; and it will be observed upon looking at the complaint of Gallagher in this view that it is not substantially sufficient in its scope to put the equity powers of the Court in motion for any purpose. The corporation itself being the sole party defendant, the Trustees--those persons upon whom the management of its affairs is devolved--are not parties, nor is any relief sought against them personally. That there is no inherent power in the District Courts, as being Courts of Equity, to appoint a Receiver in such a case as that presented by the complaint of Gallagher, is therefore apparent both upon principle and authority.
3. We proceed, therefore, to inquire whether the jurisdiction of the Courts of Equity, in the respect referred to, has been enlarged by any statute of this State. The only statute brought to our attention, which is supposed to have that effect, is sec. 564 of the Code of Civil Procedure, which is as follows:
" Sec. 564. A Receiver may be appointed by the Court in which an action is pending, or by the Judge thereof: " 1. In an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to his claim, or between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or any party whose right to or interest in the property or fund, or the proceeds thereof, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured.
" 2. In an action by a mortgagee for the foreclosure of his mortgage and the sale of the mortgaged property, where it appears that the mortgaged property is in danger of being lost, removed, or injured, or that the condition of the mortgage has not been performed, and that the property is probably insufficient to discharge the mortgage debt.
" 3. After judgment, to carry the judgment into effect.
" 4. After judgment, to dispose of the property according to the judgment, or to preserve it during the pendency of an appeal, or in proceedings in aid of execution, when an execution has been returned unsatisfied, or when the judgment debtor refuses to apply his property in satisfaction of the judgment.
" 5. In cases where a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights.
" 6. In all other cases where Receivers have heretofore been appointed by the usages of Courts of Equity."
That the case brought into the District Court of the Fifteenth Judicial District is not included in the sixth subdivision of this statute has been determined already; and the appointment here not having been made " after judgment," of course the third and fourth subdivisions can have no application. The first and second subdivisions provide for the appointment of a Receiver in an action brought by a vendor to vacate a fraudulent purchase; in aid of a creditor's bill; also, in proceedings involving questions between partners; also, in suits of foreclosure brought by mortgagees when the security is likely to be lost or seriously impaired. These subdivisions do not assume to create a substantive right of action where none existed before. Their aim is to provide a more efficacious remedy in the conduct of actions, the right to bring which already exists, and are elsewhere provided for. The action by a vendor to vacate a fraudulent purchase, or by a mortgagee to foreclose a mortgage, is not created by the statute we are now considering--they exist independently of its provisions, and would continue to exist if this statute were repealed.
The particular subdivision, however, which is supposed to confer the power in question and to authorize the District Court to appoint a Receiver of the property of this corporation, is the fifth--being the only portion of the statute in which corporations are named--" A Receiver may be appointed * * * * in the cases when a corporation * * * * is insolvent." There is, of course, no such thing as an action brought distinctively for the mere appointment of a Receiver--such an appointment, when made, is ancillary to or in aid of the action brought. Its purpose is to preserve the property pending the litigation so that the relief awarded by the judgment, if any, may be effective. The authority conferred upon the Court to make the appointment necessarily pre-supposes that an action is pending before it, instituted by some one authorized by law to commence it. But there is no statute of this State, none to which we have been pointed, which undertakes to confer upon a private person, either as stockholder or creditor, the right to maintain an action to dissolve a corporation upon the ground that it is insolvent, or to obtain relief by seizing its property out of the hands of its constituted management, and placing it in the hands of a Receiver.
The statute of this State (sec. 564) is copied from the Code of Procedure of the State of New York, (sec. 244) the fifth subdivision of ours corresponding in part with the fourth subdivision of theirs. But the fourth subdivision of their statute provides: " A Receiver may be appointed * * * * * (4) In the cases provided in this Code and by special statutes, when a corporation has been dissolved, or is insolvent," etc. The words in italics are omitted from subd. 5 of our Code of Civil Procedure. There were no such cases provided.
The difference between the two statutes is very material, and involves the precise point which we have been considering, in reference to the construction to be placed upon our statute; for the statutes of the State of New York contained independent provisions to the effect that a Receiver of the property of a corporation might be appointed upon petition of the execution plaintiff, when an execution issued upon a judgment rendered against the corporation had been returned unsatisfied in whole or in part; that a corporation should be adjudged to be dissolved when it had remained insolvent for one whole year, or for that length of time had neglected or refused to pay its notes or other evidences of debt, or had for one year suspended its ordinary business. These statutes, independently of the section of its Code of Procedure from which subd. 5 of sec. 564 of our Code of Civil Procedure was extracted, created rights of action in favor of private persons, and correspondingly enlarged the powers of the Courts of Equity by directly and in terms authorizing them in such cases to appoint Receivers of the property of corporations, upon application made to them by creditors, stockholders, and other private parties instituting proceedings for that purpose.
We are, therefore, of opinion that the said orders of October 7th, 1878, assuming to appoint a Receiver in the case of Thomas J. Gallagher v. La Societe Francaise d'Epargnes et de Prevoyance Mutuelle, were in excess of the jurisdiction of the District Court, and that they be annulled. So ordered.