Opinion
November, 1897.
Wahle Stone, for plaintiff.
Thornton, Earle Kiendl, for defendants.
The plaintiff, a nonresident stockholder in a foreign corporation, sues for the appointment of a receiver of its property in this state, and to set aside an assignment by it for the benefit of creditors.
At the threshold it is objected that the court is incompetent to entertain the action; because brought by a nonresident against a foreign corporation. But, since the property to be protected is exposed to the peril in this jurisdiction, and the challenged assignment was executed in the state to a resident, the case is clearly within the scope of subdivision 3, section 1780, of the Code of Civil Procedure.
It is urged again that no demand for redress on the corporate authorities preceded the action, to which the obvious and all-sufficient answer is, that "the functions of a corporation are suspended by the appointment of a receiver," and that its faculty of suing then no longer exists. Beach on Receivers, § 205. In respect, moreover, to the relief by sequestration, the right of the plaintiff is not by substitution nor as representative of the corporation; and as to the assignment, the corporate officers are the parties implicated. Barr v. R.R. Co., 96 N.Y. 444, 451; Kelsey v. Sargent, 40 Hun, 150.
Another objection to a discussion of the merits imports that the plaintiff is precluded from prosecuting the action, because the defendant corporation has not procured the certificate prescribed by section 15, chapter 687, Laws of 1892. But, as already said, the plaintiff does not sue in the right or as the representative of the corporation, nor in aid of the business conducted here without authority, nor for the enforcement of a contract made in the state.
Upon the pleadings and proofs it is apparent that the defendants' company is a New Jersey corporation; that it had an office and transacted business in the state of New York; that it is insolvent; that, in this state and to a resident, it has made an assignment, with preferences, for the benefit of its creditors; that it has officers and creditors and property in this state; that a receiver of its property has been appointed in the jurisdiction of its origin, and its officers restrained from intermeddling with its affairs and effects.
That upon these facts an action lies, at the suit of a stockholder, for the appointment of a receiver of the corporate assets in the state, was expressly adjudged by Van Brunt, J., at Special Term, in Woerishoffer v. North River, etc., Co., 6 Civ. Pro. 113, and was recognized as clear law by the General Term of the fourth department in Phoenix, etc., Co. v. North River, etc., Co., 6 Civ. Pro. 106. The principle upon which the relief proceeds is vindicated in Redmond v. Hoge, 3 Hun, 171; Hall v. Holland House Co., 12 Misc. 55; Dreyfuss v. Seale, 18 id. 551. Indeed, the action has the sanction of statutory provisions. Code Civ. Pro., §§ 1810, 1812. Nor is the nonresidence of the plaintiff any bar to its prosecution; since the receiver here is not the representative of the foreign creditors of the corporation (Booth v. Clark, 17 How. [U.S.] 322), and will not be permitted to remove the property from the state until the claims of domestic creditors are satisfied. Beach on Receivers, § 254. As the plaintiff is a citizen of New Jersey, and the receiver there was appointed on her application, she will not be heard to contest his title even as to property in this state. Bagby v. Atlantic, etc., R.R. Co., 86 Penn. St. 291. But so far from impugning his right the relief she solicits is for an auxiliary receiver.
The criticism of the complaint for defect in the prayer for judgment is unavailing. National Bank v. Wetmore, 124 N.Y. 241, 253; Dreyfuss v. Seale, 18 Misc. 551.
The assignment by the corporation for the benefit of creditors, being contrary to the law, both of the domicile and the forum, is necessarily invalid; and for repugnancy to the policy of this state, will receive no countenance from its courts. Hollis v. Drew, 95 N.Y. 166, 175; Bard v. Poole, 12 id. 495; Vanderpoel v. Gorman, 140 id. 563, 567; Milnor v. R.R. Co., 53 id. 363, 367.
I am of the opinion, however, that it is not for a stockholder to impeach the assignment. The order appointing the temporary receiver not being before me, I am ignorant of his powers; but upon application to the court, he might have been armed with authority to assail the assignment. At all events, when by the judgment herein a permanent receiver shall be appointed, he will be invested with the title to all the assets of the corporation and the right to sue for and collect them; and then he alone will be competent to challenge conveyances by the corporation. Passavant v. Bowdoin, 15 N.Y.S. 8, 10; In the Matter of the Guardian, etc., Co., 77 N.Y. 272; Osgood v. Laytin, 3 Abb. Ct. App. Dec. 418; Beach on Receivers, § 205.
If, however, under the circumstances disclosed in the case, a suit to set aside a fraudulent transfer by a corporation may be maintained by the plaintiff, it is in the interest of creditors, and so must proceed upon a judgment and an unsatisfied execution. Buckley v Harrison, 10 Misc. 683; 31 N.Y.S. 999, 1005; Sturges v. Vanderbilt, 73 N.Y. 384. A receiver, on the contrary, is relieved from compliance with such condition. 3 Banks Bros. R.S. 2166; Southard v. Benner, 72 N.Y. 424.
Judgment for plaintiff in conformity with opinion; but without costs, since the defendants prevail upon one cause of action. Crippen v. Heermance, 9 Paige, 211.
Ordered accordingly.