President of Atlas Bank v. President of Nahant Bank

delivered the opinion of the Court. The puestions which have been discussed in this case, in form came *486before the Court in the county of Essex, on a petition there filed, in the name of Parsons and others, as receivers, against Pingree and others, attaching creditors of the property of the Nahant bank. It was intimated, when the hearing came on in this county, as a case reserved from Essex, that this proceeding was irregular, that whatever power and jurisdiction the Court have in the matter, they take as incidental to the original jurisdiction of the principal cause, and this proceeding could be had only as a step in the original cause. The Court are now confirmed in that view, and are of opinion, that the petition pending in the county of Essex ought to be dismissed ; but as both parties there appeared, and upon a reservation of the case to this county, proceeded to a full hearing upon the merits, that petition, we think, ought to be dismissed without costs..

We then proceed to consider the matter in the same manner as if the petition were regularly filed and entitled in the cause pending in this county, and notice thereof were given to the respondents.

The first question is, whether the receivers are entitled to proceed in this summary mode, to obtain a decision of the Court upon the rights of the respondents, without a supplemental bill.

By the terms of the statute, Revised Stat. c. 44, § 9, the Court are to make all necessary orders and decrees to aid and protect the receivers in the collection and disposal of the property, and as incident thereto the Court have authority to protect the funds from interfering claims, and, for that purpose, to inquire into the validity of those claims.

Supposing the case and the parties rightly before the Court, the question is, whether the respondents acquired any legal and valid lien by their attachments of the property of the Nahant bank, which they can set up, to prevent a valid sale thereof by the petitioners as such receivers.

It appears by the facts, uncontested, that on the 7th of July, 1838, the Atlas bank, claiming to be a creditor of the Nahant bank, to a large amount, filed their bill, and made application to this Court for an injunction, pursuant to the provisions of the Revised Stat. c. 44, § 8, 9, and 10, alleging the insolvency *487of said bank, and praying proceedings ; that on the 9th of July an injunction was granted, and on the same day a subpoena was issued against the Nahant bank, returnable the 1st Monday of August; that the proceedings were delayed a few days by consent, and that on the 17th of August, by consent, the petitioners were appointed receivers ; that afterwards, by an order of one of the justices of this Court, they were authorized to make sale of the real and personal estate; and that these orders were confirmed by a decree of this Court ; that they were directed to advertise notice to all creditors to come in and file their claims, and the receivers were directed to retort a list of claims allowed, and a list of claims disallowed, with their reasons for such disallowance. Such is the general state of the cause.

It further appears, that after the filing of the bill and issuing of the injunction, and before the actual appointment of receivers, to wit, about the 21st of July, the respondents made their attachments of the real estate of the Nahant bank, for debts alleged by them to be due ; and the question is, whether these attachments are available against the receivers, claiming a power to sell the property and hold, appropriate and distribute the proceeds according to the provisions of the statute, for the benefit of all the creditors. This depends upon the construction of the statute.

The question arises upon the provisions of the Revised Stat. c. 44, § 8, 9, and 10, and its express provisions are to be expounded according to the objects and purposes of the statute, and the subject matter to which it applies. The power is given to the Court, in relation only to corporations, whose charters have expired. By a previous provision, these are kept in being for certain limited purposes, having reference solely to a final settlement of the affairs of such corporations, and not to the continuance of the business, for which they were established. On such expiration of the charter, the Supreme Judicial Court, on application of any creditor, or of any stockholder or member thereof may appoint one or more persons to be receivers or trustees of and -for such corporation, to take charge of the estate and effects of such corporation, to collect the debts and property, &c

*488Section 9 provides, that the said Court shall have jurisdiction in chancery of such application, and of all questions arising in the proceedings thereon, and may make such orders, injunctions, and decrees thereon as justice and equity may require.

Section 10 provides, that the said receivers shall pay all debts of the corporation, if the funds in their hands are sufficient, otherwise distribute the same ratably among all the creditors who shall prove their debts in the manner that shall be directed by any order or decree of the Court, and distribute the balance among the members or stockholders entitled thereto, or their representatives.

From this view of the statute, it is obvious that it was intended to promote and facilitate a prompt and equitable settlement of the affairs of expiring corporations, and it mainly has reference to insolvent corporations, that is, to corporations in debt, and which are in fact or apprehended to be insolvent. In case of corporations manifestly solvent and able to pay all their debts, any provision in regard to priority of claims of creditors would be unimportant, because all would be paid in due course of legal proceedings.

It is, therefore, in its character essentially a statute of distribution amongst creditors, with a residuary trust for stockholders, after all debts are paid. Treating it as a law of this description, we should expect to find in it that great principle of equity, which lies at the foundation of all systems of distribution of insolvent estates of persons either living or deceased, viz. that all creditors, with very limited exceptions, shall share equally in a fund insufficient to satisfy the whole. Attachment on mesne process is to be considered as a remedy merely given and regulated by law, to enable one creditor, who is proceeding for himself alone, to obtain satisfaction of his debt, and, when several are so proceeding, he who is first in time is prior in right. But in equity, all these priorities give way to a general proceeding, which has for its object to distribute all the effects of a debtor, by paying the whole if there be assets, and then providing for a ratable distribution. If the prop erty turn out to be sufficient to pay the whole, any priority by attachment would be useless ; if not, it would be unjust.

*489And the Court are of opinion, that the provisions of the statute, taken together as a whole, do necessarily prevent and defeat the right of any individual creditor, to obtain a preference for himself, by attachment on mesne process, by making another and different appropriation of the property of the expiring corporation, entirely inconsistent with the right which would be claimed under such attachment.

The persons appointed are to be receivers or trustees, indicating a power much larger and of a different character from that of ordinary receivers, in a chancery suit. They are to take charge of the estate and effects. As they are to pay all debts, the words “estate and effects” must be construed to extend to all property, liable by law as assets for the payment of debts, and must include all estate and effects liable to attachment. They are to pay all debts; if therefore the estate and effects consist of any property other than money, they must convert it into money, as the only means of applying it to the payment of debts, and for this purpose they must have power, either by force of their appointment, or by an order of court, to sell the property, and for the purpose of this inquiry, it is immaterial which. The funds in their hands are, all the estate and effects, of which they are to take charge by express direction of the statute. The court shall have jurisdiction, in chancery of such application, and of all questions arising thereon, and may make orders, &c. All these powers and duties, having in view the collection and appropriation of all the estate and effects of the corporation, and with a view to the payment of all its debts, are wholly incompatible with a concurrent right of a single creditor to take by attachment on mesne process and appropriate a part of that same property for the security and satisfaction of his own particular debt.

And the Court are of opinion, that the sequestration intended to be made by force and operation of this statute, for the benefit of all creditors, by one general process, must be considered as taking effect, not merely from the time of the appointment of receivers, which is an incidental step in the proceeding, but from the institution of the proceeding by the filing of the bill, or at least by the act of the Court sustaining -it,' by the issuing of an injunction. For the purposes of this *490cause, it is unnecessary to consider whether this sequestration takes effect from the filing of the bill or the issuing of the injunction, as all the attachments in question were made subse quently to both. Whether the statute should be so construed, as to defeat an attachment made prior to the filing of the bill, we give no opinion.

But it was argued that the attachment being made before the appointment of receivers, the estate was then vested in the corporation and might well be attached, that the estate did not pass to the receivers till their appointment, which was after the attachment. But we think this view of the case does not change the result. It is not necessary to maintain that the legal estate vests in the- receivers at th'eir appointment. They are vested with a power to sell the property, and when they execute the power, the property passes to the purchaser by force of the statute. If an attachment be made on the estate of a person, who afterwards dies, and the estate is declared insolvent, the attachment is dissolved. So, if an executor or administrator is authorized to sell real estate under a license for the payment of debts, such power relates back and divests the estate of the devisee or heir, although no estate was ever vested in the executor or administrator. If the execution of a power to sell can relate back and defeat a vested estate, áfor tiori may it relate back and discharge a lien created by mere operation of law, by service of legal process, in favor of a larger legal process, intended to secure and pay all debts.

It was contended that the power did not extend to the real estate, but only to the rents and profits, because such is the usual power of receivers under a proceeding in chancery. To estimate the force of this objection it is necessary to recur to the condition of the corporation and its property, and the purposes of the statute. By the case supposed the corporation has expired, and all its powers of disposing of its own proper ty are taken away. All the debts are to be paid, and the sur plus, if any, distributed amongst the stockholders or corpora-tors, who are the parties beneficially entitled to the whole property, after the debts are paid. If then the powers of these receivers do not extend to the disposal of the real estate, how are these parties beneficially interested, to avail themselves of *491the property ? By the dissolution of the corporation in whom it is vested, the property does not vest in the corporators. Shall it escheat to the Commonwealth ? Every consideration of equity and policy, which could influence the legislature, leads to the belief, that this statute was intended to prescribe a mode for the final settlement of the whole concerns of an expiring corporation, as well for the benefit of the owners of the stock and property in it, as of creditors, inasmuclras the proceedings may be instituted by stockholders and corporators, as well as creditors, and the former as well as the latter are to share in its benefits, according to their relative preexisting rights. But as this final and equitable arrangement can only be made by construing the powers of the receivers to extend to all the real and personal property of the corporation, the conclusion is, that it was the intention of the legislature so to extend these powers.

It is objected among other things, that the receivers are to act as judges, according to the powers claimed for them, and hence it is argued, that as they are an unfit body to act in that capacity, it could not be intended to confer such powers. But there is a distinct provision, that the debts are to be proved in such manner as the Court may direct, which, in case of contested claims, would undoubtedly be, in some well approved course of judicial proceeding. The receivers rather stand in the character of administrators than judges, to pay claims ascertained in due course of law.

It is said that this is not a proceeding in behalf of all creditors, and that all creditors are not bound to come in nor bound by the process, but have other remedies against the corporation and against the stockholders. We think this substantially a proceeding in behalf of all creditors, because all are entitled to a dividend, and because it provides for an administration of all the assets. It is true that they are not bound to prove their debts and take a dividend, because it is a privilege they may waive, and the remedy against the corporation, if it remains nominally, would be of little value after the corporation has expired, and all its effects have been disposed of. As to the statute remedy against the individual stockholder, it is independent and collateral, like the remedy against a surety, and does not affect the question.

*492It is said, that if these attachments' aré dissolved, the plaui1 tiffs may dismiss their bill, and then by a new process, attach the same property themselves. But we do not so consider it. The plaintiffs having once instituted the proceedings as a statute remedy for themselves and others, they go on afterwards for the benefit of all parties concerned, and the original complainants have no power to discontinue, any more than a petitioning creditor could discontinue the proceedings under a commission of bankruptcy.

On the whole, without reverting to the whole of the full .extended argument on the subject, the'Court are of opinion, that this proceeding, in the special case of a corporation whose charter has expired, was intended to provide one general rem edy for all creditors, and must necessarily supersede an interfering proceeding instituted for the benefit of a particular creditor, that it was intended to prevent and defeat special pret erences by attachments on mesne process, and that these respondents cannot set up their attachments against the power of the receivers to sell the attached property for the general benefit of all the creditors, and that upon a proper petition and notice, the respondents may be restrained from proceeding on their attachments.