City Pottery Co. v. Yates

The opinion of the court was delivered by

I agree, in the main question in this case, with the view expressed by the vice-chancellor, for it appears to me that it is conclusively shown that this company is insolvent, and is not about to resume business, within the meaning of the seventieth section of the act respecting corporations. The jurisdiction of equity, therefore, attached to the case, and the bill was properly retained. But I think the decree should be modified by expunging from it the order for the appointment of a receiver. There is not shown in the proofs any stable ground for such an intervention on the part of the court. The directors having the affairs of the corporation in charge are about winding them up. They are men of property and of experience in business, and there is every reason to believe that their closing of the enterprise will be more advantageous to the stockholders and creditors than the management of a stranger in this respect would be likely to prove. This transfer of administration appears to have been, in part, occasioned in the court below by stress of the fact that one of the directors had taken a mortgage, by way of preference, for a debt due to him, and it was indicated that such circumstance was suggestive of an influence in that quarter that might be dangerous to the interest of the other persons having a right to equitable protection. But there is no immoral taint in this mortgage; the money which it secures is honestly due; and it was made by virtue of an agreement entered into many months ago with the unanimous consent of the board of directors. No-*549creditor, so far, has challenged this preference, and the petitioner in this case, being a stockholder and a debtor of the company, was a party to the agreement just mentioned. The mortgage in question appears to have been given as a matter of course, and as an act in fulfillment of a fair promise. Whether such an encumbrance will stand the test of the statute which controls, in some degree, the powers of. a failing corporation, is not a question that is now present for consideration. When the assets of this company, in the progress of the present proceedings, come to be marshaled by the court of chancery, then the time will have arrived to pass judgment with respect to the validity of the priority which is claimed by this creditor. In the meantime, such creditor is not chargeable with having exerted any undue influence in his own interest, or with any misconduct whatever. So far as the case shows, or as there is reason for believing, all the creditors of this company, and all its stockholders, with the single exception of the petitioner, are satisfied with its present management. A receivership would augment largely the expenses of closing up the business. Under these conditions, it seems to be entirely unnecessary to supersede this board of'directors.

I shall vote to vary the decree so far as to strike from it the order appointing a receiver, such reversal to be without costs.

Decree unanimously reversed.