Verplanck v. Mercantile Insurance

The Chancellor.

I shall not attempt to examine or express any opinion upon the merits of this case as stated ín the complainant’s bill; because upon examination of the objections which have been raised as to the form arid regularity of the proceedings before the vice chancellor, I find those objections insurmountable.

The first objection is, that although the order appointing a receiver purports to have been entered in a suit against M The Mercantile Insurance Company of New-York,” under which order the appellants have been deprived of the possession of their property, they were not in fact parties defendant in the bill; as the prayer of process 'Was only against the officers of the corporation. The name of the corporation-is as'before stated. But the prayer for process is that the subpoena may be directed to the president and directors of the said company. This was undoubtedly owing to the mistake of the solicitor who drew the bill; and who probably did not intend to make the president or directors, but only the corporation and Jacob Barker, parties to the suit. The , same mistake exists as to the prayer for the injunction, and is also carried into the order granting the injunction; so that the injunction, in fact, is neither against the corporation nor its officers by their proper names. ■ As this objection is merely formal, I should not feel disposed to sustain it, if the difficulty can be obviated by an amendment. As it now stands, it may deprive the appellants of a substantial right; arid it is somewhat doubtful whether they have the power to answer this bill. It neither prays process against the corporation, nor calls upon them to answer; for, by another singular oversight of the solicitor, .that part of the bill merely prays that the confederates may answer upon their corporal oaths ; whereas the officers of the corporation, and not the company, are charged with confederating; and they only could • put in their answer on their oaths. It is well settled that no persons are parties as defendants in a bill in chancery, except those against whom process is prayed, of who are spe *450 cifically named and described as defendants in the bill. ( 1 Marsh. Kent. R. 594. 2 John. Ch. R. 245. 2 Dicken’s R. 707.) In- Elmendorf v. Delancy, (1 Hopk. R. 555,) Chancellor Sandford says : “ When it is' uncertain who are complainants, or who are the persons called to answer, the' suit is fundamentally defective; and. if the parties are not clearly designated, it is the fault of him who institutes the suit.” In answer'to this objection, it is suggested by the respondents’ counsel that it is a mere misnomer1 of the corporation, and can only be taken advantage of by plea in abatement. It cannot, however, in this case be considered a misnomer. The name' of the corporation and "the substance of the charter are distinctly stated in the commencement of the bill, and the process is then prayed against the officers only. Besides, the appellants never had an opportunity to make the objection by plea in abatement, or in any other form. As the true name of the corporation was stated, the objection appeared on the face of the bill, and no plea was necessary to bring the fact to the notice of the court. '

Another fatal objection to the regularity of these proceedings is, that the appellants were deprived of the possession of their property, and divested of all their corporate rights, without having an opportunity of being heard, and without any sufficient cause for such a summary proceeding. By the settled practice of the court in ordinary suits, a receiver cannot .be appointed, ex parte, before the defendant has had an opportunity to be heard in relation to his rights, except in those cases where he is out of the jurisdiction of the court or cannot be found ; or where, for some other reason, it becomes absolutely necessary for the court to interfere, before there is timé to give notice to the opposite party, to prevent the destruction or loss of property. Formerly it was never done until after answer: (Vann v. Barnett, 2 Bro. Ch. Cas. 157. Maguire v. Allen, 1 Ball & Beat. 75. Tanfield v. Irvine, 2 Russ. R. 149. Coward v. Chadwick, id. 150, note. People v. Norton, 1 Paige, 17 .) In every case where the court is asked to deprive the defendant of the possession of his property without a hearing, or an opportunity to oppose the' application,' the particular facts and circumstances which render *451 such a summary proceeding proper, should be set forth in the bill or petition on which such application is founded, Oglevie’s affidavit in this case, that he was satisfied of the necessity of such a proceeding, was not sufficient. He should have stated the facts on which his opinion was founded, to enable the court to judge of its' correctness. There are 21 directors of this company, each of whom, by the provisions of the charter, must be a resident of this state, ánd an owner of $2,500 of the stock. It is not alleged that a majority, or even any considerable number of these directors were insolvent or destitute of character. And it would be felony in any of the individual officers to embezzle or spirit away the property of the institution, without the consent of the board of directors. (2 R. S. 678, § 59.) The court ought therefore to have something more than the mere opinion of a witness, however respectable, to induce it to suppose such a direction would subject themselves to punishment for the violation of an order of the court, or that the officers of the company would be guilty of felony, by embezzling the property without the consent of the directors, if the usual course of an order to show cause at a short day had been taken, and a temporary injunction in the mean time granted. That practice was adopted by the chancellor in the case of The Franklin Bank, (1 Paige’s R. 85,) and the same course has been pursued by him in all subsequent cases. This should have been considered by the vice chancellor as the correct practice, unless special circumstances rendered a different course of proceeding proper.

There is another reason which rendered the ex parte proceeding in this case still more objectionable. This is a bill filed by stockholders to wind up the concerns of the corporation, on the ground of an alleged violation of the charter. In' this respect it differs materially from the bills which have frequently been exhibited in this court by stockholders, against the individual directors of the company, to restrain them from violating their trust And it can therefore only be sustained as a statutory proceeding under the 39th section of that title of the revised statutes which directs the manner of proceeding against corporations.at law and in equity. (2 R. S. 463.) That *452 is the only provision I have been able to find which authorizes a proceeding by- a stockholder to enforce forfeiture of the franchises of.the corporation, and to compel a distribut,on °f the funds. Although the 41st section authorizes the court in any stage of the proceedings, upon an application under that provision of the státute, to appoint a receiver of the property and.effects of the corporation, it could not have been supposed by the legislature that the court would appoint such receiver, with the powers conferred upon him by the next section, without any notice of the application to the corporation or its officers. The.receiver, appointed under' that part of the revised statutes, unless his powers are restricted and controlled by the order of the. court, is ..absolutely vested with all the property and effects of the corporation ; and he has full power to sell and dispose of the whole, at his discretion, and to distribute the proceeds among the stockholders, after paying the debts owing by the com pany. It is in effect a final order in the cause ; and unless altered or revoked, operates as a virtual dissolution of the corporation. It is not a common law receivership to protect the fund pending the litigation ; but the receiver is a statutory assignee, vested with nearly all the powers and Authority of the assignee of an insolvent, debtor. (2 R. S. 464, § 42 ; 469, § 67, &cc.) It would therefore, be a violation of one of' the fundamental principles of justice, to appoint such a receiver, ■ without any restriction of his powers, on an ex parte application ; and thus to condemn and deprive a company of. its chartered privileges unheard. A different'kind of receivership is authorized by the 36th section of the same title, on the application of a judgment creditor. (2 R. S. 463.) That is the same kind of receiver» which was authorized by the 17th section of the act of 1825, on the application of the attorney general, or of any creditor of the corporation. (Laws of 1825, p. 453.) Those wpre strictly common law receivers ; such as are usually appointed by this court in suits between party and party, and to protect the fund during the litiga-. tion. They have no powers except such' as are conferred upon them by the order. for their appointment, and the course and practice of the court.

*453 The vice chancellor erred in granting a general injunction on this bill, and in appointing a receiver, without n.otice to the corporation; both orders must therefore be reversed and vacated, with costs on the appeal therefrom, to be paid by the respondents, to the solicitor of the appellants. The proceedings must be remitted back to the vice chancellor of the first circuit, with permission to the complainants to apply to him for leave to amend their bill, so as to make the corporation defendants therein, and otherwise as they may be advised, upon due notice of such application to the solicitiors of the appellants and* of Jacob Barker. Upon such amendment being allowed and made, an order may be entered, directing the defendants to show cause before the vice chancellor, at such time and upon such notice as he shall direct, why a general or other injunction should not be granted, and a receiver be appointed, either with the general powers conferred by the statute, or subject to such restrictions as to the vice chancellor shall seem proper ; and that in the mean time a temporary injunc-' tion issue, restraining the defendants and the officers of the company from buying or selling any stocks, or doing any act in violation of the charter of the company, and from doing such other acts as may, in the opinion of the vice chancellor, be proper to restrain them from doing, pending the application before him.

Thomas R. Smith, the receiver appointed in this cause by the vice chancellor, must also forthwith deliver over to the assistant register of this court, as clerk of the vice chancellor of the first circuit, all the -books and vouchers, monies, property and effects of the corporation, which have come to his. hands, or to the hands of any of his attornies, servants or agents; and the assistant register must deposit the same in • the bank of the Manhattan company, subject to the further order and direction of the vice chancellor. And they are to be delivered up to the officers of the corporation, unless the complainants shall procure their bill to be amended, and obtain an order to show cause, dec. within three weeks after notice of this decision. Or, if the directors of the corporation, or the major part of them, shall give sufficient security, to the satisfaction of the vice chancellor, to abide the final order *454 and decree "which may be made in this cause, and to account for the property and effects of the company as this court shall direct, the" books, property and effects, the monies of the corporation in the hands of the, receiver, are to be immediately restored to such directors, or to their agents or servants, for the use of the company.