Trotter v. Lisman

Equity — action toy non-resident receiver of a foreign corporation to recover assets unlawfully held toy residents of this state — when such action can toe maintained. 1. The provisions of the Code of Civil Procedure (§ 1780) do not affect the inherent power of a court of equity to take jurisdiction, when invoked in a ease falling within some subject of equity jurisdiction. The Supreme Court possesses general jurisdiction in equity, and creditors’ actions to reach the personal property and things in action of their judgment debtors have always been of equitable cognizance. 2. The assets of a corporation constitute a trust fund for the payment of its debts, and its creditors have an equitable lien upon the same, superior to the right of the stockholders. 3. A non-resident receiver of a foreign corporation, who holds an unpaid judgment recovered in another state against another foreign corporation, may maintain an action in the courts of this state to recover assets of the judgment debtor claimed to have been unlawfully diverted and held by residents of this state. (Trotter v. Lisman, 199 N. Y. 497, distinguished.) 4. The judgment debtor is not a necessary but is a proper party to the action.

Appeal, in the first above-entitled action, from an order of the Appellate Division of the Supreme Court in the first judicial department, entered January 3, 1913, which reversed an interlocutory judgment of Special Term sustaining a demurrer to the complaint, and overruled such demurrer. Appeal, in the second above-entitled proceeding, from an order of the Appellate Division of the Supreme Court in the first judicial department, entered January 3, 1913, which affirmed an interlocutory judgment of Special Term overruling a demurrer to the complaint. The plaintiff brings this action to recover property, alleged to have been diverted from the defendant, Iron Railway Company, and to be held by the individual defendants, which should be applied to the payment of the claims of the plaintiff and of other creditors of the said company. The Iron Railway Company and certain of the individual defendants have demurred to the complaint upon the grounds that the court has not jurisdiction of the subject of the action and that the complaint does not state facts sufficient to constitute a cause of action. The complaint alleges that the plaintiff, a resident of Ohio, was duly appointed as the receiver of the Gilman-McNeil Company, a corporation of the state of West Virginia, in an action brought in that state. As such receiver, he recovered a judgment in the state of Ohio against the Iron Railway Company, a corporation of that state, for moneys due the Virginia corporation upon contracts relating to certain railway construction. Execution was issued upon said judgment and was returned unsatisfied: It is alleged that the plaintiff was, and is, a non-resident of the state of New York; that the cause of action, upon which he obtained his judgment, did not arise within this state and that it is not possible for him to maintain an action against the railway company in the courts of this state “so as to obtain judgment and issue execution thereon.” The complaint sets forth that the Iron Railway Company, under a certain contract made in the state of Ohio with the Detroit Southern Railway Company, had agreed to convey to the latter company its railroad property, franchises and assets in consideration of the payment of the sum of $600,000, to the Iron Railway Company, or its shareholders, upon the delivery of their shares of stock to the vendee. Upon the payment to the shareholders, “the officers of the company should be authorized to acknowledge the receipt of said consideration in their behalf with the same effect as if * * * paid to the Railway Company.” It is, then, alleged that the firm of F. J. Lisman & Co. of New York city controlled the conduct of the affairs and business of the Iron Railway Company, through ownership and control of the capital stock, and arranged the terms of the contract of sale, which has been referred to; that the said firm of F. J. Lisman & Co., purporting to act on behalf of the railway company, received in New York city the said sum of $600,000, and interest thereon, and, thereupon, and in accordance with the provisions of said contract, paid the same in said city to certain firms named, who were shareholders of the railway company; that, at the date of the said contract, the railway company had no property, nor assets of any description, other than the property agreed to be conveyed under the contract, and now has no property, nor assets, whatsoever, excepting its right to receive the consideration mentioned in said contract; that, at the time of the distribution of ■ the $600,000 received by Lisman & Co., the defendants knew of the obligations of the railway company to the GrilmanMcNeil Company, the corporation of which the plaintiff is the receiver; that the latter company was continuing to perform its contracts and that the railway company would be rendered incapable of paying the indebtedness then due and to be due under said contracts, and that the distribution of the $600,000 was made with the intention of preventing the use of that money for the payment of the railway company’s debts to the Grilman-McNeil Company, or its other creditors. It is alleged that, though thereto requested, the Iron Eailway Company had failed to bring any suit against Lisman & Co. for the recovery of the said sum of $600,000. Judgment is demanded that a receiver be appointed, to whom the individual defendants should account and pay over the moneys and assets received by them under the aforesaid contract, and that the same be applied upon the plaintiff’s claim and upon any other claims properly payable therefrom. The defendants to the action, other than the Iron Eailway Company, were firms doing business in the city of New York, who held between them the shares of the capital stock of the railway company. At the Appellate Division, all the demurrers interposed to the complaint were overruled and leave was given to appeal to this court; the following questions being certified : 1. Does the complaint state facts sufficient to constitute a cause of action against the several defendants, or any of them ? 2. Has the Supreme Court of the state of New York jurisdiction of the subject-matter of the action. 3. Has the plaintiff legal capacity to sue ? The complaint fails to state facts sufficient to constitute a cause of action against the defendant Iron Railway Company. (Flynn v. B. C. R. R. Co., 158 N. Y. 493; Kavanaugh v. Commonwealth Trust Co., 45 Misc. Rep. 295; 103 App. Div. 95; Leslie v. Lorillard, 31 Hun, 305; Hallenborg v. Greene, 66 App. Div. 590; Acken v. Coughlin, 103 App. Div. 1; Moe v. McNally Co., 138 App. Div. 480; Lehigh Coal & Nav. Co. v. Central R. R. of N. J., 43 Hun, 546.) The court has not jurisdiction of the subject-matter of this action in respect to the defendant Iron Eailway Company, and the plaintiff has not legal capacity to sue, because the plaintiff is a non-resident, the railway company is a foreign corporation, and the cause of action did not arise within this state. (Robinson v. O. S. N. Co., 112 N. Y. 315; Barker v. Cunard Steamship Co., 91 Hun, 495, 500; Anglo-American Provision Co. v. Davis Co., 50 App. Div. 273; Snow Church & Co. v. Snow Church Surety Co., 80 App. Div. 40; Jones v. Burr Brothers, Inc., 142 App. Div. 640; Mabon v. Ongley El. Co., 156 N. Y. 196.) The complaint does not state facts sufficient to constitute a cause of action against the defendant Iron Railway Company. (Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493; Kavanaugh v. Commonwealth Trust Co., 181 N. Y. 121.) The complaint does not state facts sufficient to constitute a cause of action. (Trotter v. Lisman, 199 N. Y. 497; Nat. Tradesmen's Bank v. Wetmore, 124 N. Y. 241; Patcher v. Rofkar, 12 App. Div. 475; McCartney v. Bostwick, 32 N. Y. 53; Bateman v. Hunt, 46 Misc. Rep. 346; Gunnison G. & W. Co. v. Whitaker, 91 Fed. Rep. 191; Lathrop, Shea & Henwood Co. v. Byrne, 115 App. Div. 846; F. Nat. Bank v. Smith, 6 Fed. Rep. 215; Cunningham v. Pell, 5 Paige, 601; Prentiss v. Bowden, 145 N. Y. 342.) The court has not jurisdiction of the subject of the action. (Robinson v. Oceanic Steam Navigation Co., 112 N. Y. 315; Anglo-Am. Provision Co. v. Davis Provision Co., 169 N. Y. 506; Hoes v. N. Y., N. H. & H. R. R. Co., 173 N. Y. 435; Osgood v. Laytin, 3 Keyes, 521; F. Nat. Bank v. Smith, 6 Fed. Rep. 215; Lathrop, Shea & Henwood Co. v. Byrne, 115 App. Div. 846; Cunningham v. Pell, 5 Paige, 607; Swan L. & C. Co. v. Frank, 148 U. S. 603; C. A. Co. v. Cook, 152 Fed. Rep. 652; Lawrence v. Southern Pacific Co., 180 Fed. Rep. 822; Elkhart Nat. Bank v. N. W. G. Loan Co., 87 Fed. Rep. 252.) The failure of the plaintiff to obtain judgment against the Iron Railway-Company in New York, and to issue execution thereon, was not a condition precedent to the maintenance of this action in equity. (N. T. Bank v. Wetmore, 124 N. Y. 241; Bartlett v. Drew, 57 N. Y. 587; Cole v. M. I. Co., 133 N. Y. 164; Code Civ. Pro. § 1080; McCartney v. Bostwick, 32 N. Y. 53; Lefevre v. Phillips, 81 Hun, 232; Patchen v. Rofker, 12 App. Div. 475; 52 App. Div. 367; Bateman v. Hunt, 46 Misc. Rep. 346.) The Supreme Court has jurisdiction of the subject-matter of the action. (Hibernia Nat. Bank v. Lacombe, 84 N. Y. 367; Durham v. Spence, L. R. [6 Ex. Cas.] 46.)