Opinion
11-28-1899
MORTON v. STONE HARBOR IMP. CO. et al.
George J. Bergen, for Walter J. Brooks. Paul T. Shinn, for receiver.
Action by Elmer E. Morton against the Stone Harbor Improvement Company and others. A receiver of the improvement company, appointed after the commencement of the action, applies for an injunction restraining the further prosecution of the action. Granted.
George J. Bergen, for Walter J. Brooks.
Paul T. Shinn, for receiver.
GREY, V. C. (orally). The situation is one which seems to me to be clear and simple. The court of chancery has extended its hand to administer upon the assets of a corporation which it has determined to be insolvent. Before the court reached out to administer these assets, a creditor, or one claiming to be a creditor, had brought a suit against the corporation. It is the duty of those who are conducting the business of a corporation not to permit any creditor to obtain a merely preferential Judgment against the corporation. They should first see that the corporation is solvent, and should arrange or pay its debts, but, if they find that it has become irrecoverably insolvent, it is their duty and they ought to apply at once to the court of chancery, and have its assets administered for the equal benefit of all creditors. The statute expressly provides, for the very purpose of enabling all the creditors of the corporation to be equally secured by the insolvency proceedings, that instantly that the corporation is declared insolvent, and a receiver appointed, the title to all its assets shall proceed to and be held by the receiver, and necessarily all claimants upon those assets must file their claims in this court before the receiver in the ordinary course of the administering of the assets of the insolvent company. To permit a creditor to pursue a suit against a corporation while the corporation Is (by the very terms of the order appointing a receiver and granting an injunction) restrained from doing any business, or raising or expending any money, whereby it might make a defense,— in short, while it is denuded of all its property,—is practically to leave the corporation standing before the common-law court absolutely stripped of all means of defense. The prosecutor of a suit against a corporation before a common-law court after a receiver for it has been appointed in chancery can acquire no preference by such a suit. The pendency of his suit before judgment does not advance his claim in any way beyond that of other creditors of the corporation. He can secure all his rights by proof of his claim before the receiver, and that is the proper and only mode of procedure. The further prosecution of a suit at law against a corporation after its insolvency has been decreed and a receiver appointed is wholly inconsistent with the methods provided by the statute for the administration of the assets of insolvent corporations, and ought, therefore, to be restrained, and the claimant should be relegated to his remedy in this court. I will allow an injunction restraining the further prosecution of the suit at law.