Rosenbaum v. United States Credit System Co.

The opinion of the court was delivered by The Chancellor.

The first question presented is whether there was a breach of the contract upon the part of the defendant.

In the case of People v. Globe Mutual Life Insurance Co., 91 N. Y. 174 , upon which the opinion of the Supreme Court relies, both parties to the contract, the insurance company and its agent, were restrained by injunction, at the instance of the attorney-general, from the further prosecution of the business of the company and the exercise of any of its corporate franchises; also a receiver was appointed and the corporation was dissolved, and it was held that action by both the contracting parties was paralyzed by the injunction so that neither could put the other in the wrong, and there could be no breach of the contract.

The case before us differs from that. In this case the suspension of the business of the company was in August, and the forfeiture of the charter was in the October following. The only injunction was that which was contained in the order to show cause, of the 23d of August, which forbade the contraction of debts, the collection of money due to the defendant and the assigning of the defendant’s assets, but did not restrain the defendant from exercising its franchises, or the plaintiff from continuing to procure and forward applications for guarantee, and the defendant from considering .whether the guarantee desired should be issued. By its terms it was to continue in force only until the 4th of September. On the last-named day there was an adjudication of insolvency and an appointment of a receiver, but no continuance of the injunction or the issuance of another in its stead.

*547 The statutes nowhere provide that a mere adjudication insolvency and appointment of a receiver shall take from the corporation its right to transact business. The practical effect of the insolvency and receivership would probably be the stoppage of business, but the right to continue would not be taken away. The chancellor might have issued an injunction to restrain the defendant and its agents from exercising any of the privileges or franchises of the defendant (Gen. Stat., p. 919, § 70), but it does not appear that he did so. ^Putting the corporation in charge of the receiver did not work its dissolution.) Kirkpatrick v. Board of Assessors, 28 Vroom 53 . It is then apparent that prior, to October 2d, 3 894, the defendant may have broken its covenant with the plaintiff.

The second and broad question in the case is whether the forfeiture of the charter will bar the plaintiff’s recovery of damages for the'" term of the contract unexpired at the date of that forfeiture.

Following the reasoning of the Yew York Court of Appeals in People v. Globe Mutual Life Insurance Co., supra, the Supreme Court looked upon the contract as one merely for skilled personal service and treated the insolvency of the defendant and forfeiture of its charter as analogous to the death of the master of such a servant, which, as an implied' condition in the contract, terminated it.

The Court of Appeals of Yew York carried the doctrine of implied condition in the contract still further. Judge Finch, in the case last cited, said : “ "What had happened was a dissolution of the contract by the sovereign power of the state, rendering performance on either side impossible. And this result was within the contemplation of the parties and must be deemed an unexpressed condition of their agreement. One party was a corporation. It drew its vitality from the grant of the state, and could only live by its permission. It existed within certain defined limitations, and must die whenever its creator so willed. The general agent who contracted with it did so with knowledge of the statutory conditions, *548 and these must be deemed to have permeated the agreement and constituted elements of the obligation.”

The judge admits that this implication will not exist if it shall be made to appear that the corporation was culpably responsible for the intervention of the state.

It appears to us that both these implied conditions are forced, or at least forced in their application to cases in this state similar to the case now considered, (it appears to us that the material fact that the corporation defendant is a stock company, and that its capital stands as a trust fund for the payment of its debts, is lost sight of.^ Such a company may become insolvent, and its charter may be forfeited when its assets may be more than sufficient to pay its debts. ^ Everyone who deals with such a corporation does so in view of the trust fund its capital provides, and the security that fund is intended to afford. "\ The stockholders who provide the fund invite confidence because of it, that through such confidence their venture may be profitable to them. }The mere statement of this situation makes conspicuous th.e injustice of any course of reasoning which will return to the stockholders their capital before satisfaction of all losses induced by faith in it shall be- made. The state creates corporations and requires of them the provision of such a trust fund, and when it destroys their corporate existence, natural justice requires that it shall provide for distribution of the fund so that no part of it shall be returned to those who offer it as security for the action of- others, until the latter shall have all the protection against loss in their undertaking that it is capable of affording. We think that our statute undertakes this duty. It provides that the assets of an insolvent corporation shall be collected and sold, and that the proceeds of sale shall be divided among the creditors of the corporation (Gen. Stat., p. 920, § 72), in proportion to the amount of their respective debts, including debts not due, and making proper rebate, and that the surplus only shall go to stockholders. Gen. Stat., p. 923, § 80. The general scheme of the statutes contemplates the ascertainment and payment of all just claims *549 against the corporation. The terms “creditor” and “deb ” are not used in a narrow, restricted or technical sense. By its provision for reference of a claim to a jury (Gen. Stat., p. 922, § 78; Pamph. L., 1896, p. 302, § 77), machinery whereby the amounts of claims sounding in unliquidated damages may be ascertained is provided, and such claims are brought within the term “ debts.” We agree with the view taken in the Court of Chancery with respect to the liberality with which the statutes are, in this respect, to be construed. Spader v. Mural Decoration Manufacturing Co., 2 Dick. Ch. Rep. 18; Bolles v. Crescent Drug and Chemical Co., 8 Dick. Ch. Rep. 615.

It is considered that the existence of this trust fund, and the evident policy of the state with reference to it, forbid the application of the rule invoked by the Supreme Court under the analogy it deemed to exist. By the terms of the decree which forfeits the defendant’s charter, the corporation is not dead, so far as the ascertainment of its obligations and their satisfaction are concerned. The record shows that this suit is brought by permission of the Chancellor virtually as a feigned issue out of Chancery in the insolvency proceedings, to aid in the ascertainment of an obligation or debt, and consequently the distribution of the assets of the corporation. It is a step in the administration controlled by the statute.

The demurrer to the plea should have been sustained, hence the judgment below will be reversed.

For affirmance—None.

For reversal — The Chancellor, Collins, Dixon, (xümmere, Ludlow, Adams, Bogert, Hendrickson, Nixon, Yredenburgh. 10.