In re Majority of the Directors of The Murray Hill Bank

Without determining the question whether the abatement of the-. voluntary proceedings could be- raised on the motion resulting in the order appealed from, or whether the Attorney-General is in such á sense ¡a party to the proceeding that he has the right to-*327appeal, I think, in view of the interests affected, that the merits should be disposed ■ of. It has been decided by this Appellate Division that the voluntary proceedings were properly instituted, and that the court had jurisdiction to entertain them and to appoint receivers. This decision was followed by the Appellate Division in the second department, and an order appointing different receivers in the People’s suit was reversed. The effect, therefore, of this decision was to vest the title and the right of possession of all the assets of the bank in the receivers appointed in the voluntary proceeding in the first department; and though they were but temporary receivers, they could take possession of the assets, and compel others who had property of the corporation to deliver it over to them, or maintain an action for its recovery.

It is insisted, however, that the effect of the judgment of dissolution in the People’s action was to abate the voluntary proceedings and to strip the receivers of all power except to hold such assets as they then had. But this judgment as modified is expressly limited to providing for the dissolution of the bank, and it is therein declared “ that no receivers of the said corporation or of the property thereof (shall) be appointed in or by this judgment.” - Recognizing the possibility that the voluntary proceedings pending in this district might be discontinued or dismissed upon the final hearing, the judgment further directed that, in that event, the Attorney-General might apply at the foot of the judgment for the appointment of permanent receivers. In the People’s action, as in the voluntary proceeding, the purpose sought was double relief. First, a dissolution of the corporation ; and, second, a distribution of its assets. In the judgment of dissolution, as we have seen, the court, having notice, and ju'ior to that time having held, that the same court in this district had first acquired jurisdiction in the voluntary proceeding over the assets, and was engaged in administering upon them, left to the receivers therein appointed the possession and the right of distribution of the assets, whilst according the other relief by dissolving the corporation.

I think the rule with respect to the abatement of all actions and proceedings against a dissolved corporation is subject to the limitation that, even as against such corporation, a pending action may proceed, providing the order or judgment of dissolution itself pre*328serves it from abatement. And from the form of the judgment as modified by the Appellate Division in the second department, and the language of the opinion of that court, it clearly appears that, so far as it was within the power of the court to do so, it intended to preserve the voluntary proceedings from abatement, notwithstanding the dissolution of the corporation, leaving it to the receivers whose appointment they had held valid to distribute the assets.

The question, therefore, remains as to whether, under section 1793 of the Code, the court in the People’s action was obliged to provide for distribution by appointing receivers. That question was before the Appellate Division and was directly passed upon, as shown by the opinion and by the form of the judgment; and I agree with the construction given to the section, viz., that the word “ must ” as employed in the section of the Code is not imperative, but, as applicable to the facts here, must-be construed as directory. What undoubtedly was meant by the provision of the Code is, that distribution had to be • made, and in such manner .as the court thought proper. And the court having already in mind that the assets had been taken possession of by its receivers in another proceeding, all - that was necessary to be done was to dissolve the coiv poration and leave to such receivers the- distribution. I think, therefore, as the assets were already sequestered for distribution in another proceeding, that it was entirely proper to refuse to insert an additional provision for distribution in the judgment in the People’s action, it appearing that the court that made the judgment was already administering the fund in such other proceeding. What the Code requires is- that, after dissolution, the q>rop>erty of the corporation shall be distributed among its creditors; but it can make no difference whether that takes place in one proceeding or another, especially where both proceedings are in the same court. Ror does the section referred to enact that the final judgment in the action brought against the corporation shall provide for the distribution of the property in that action.

The effect of reversing the order appealed from here is to permit that to he done which has been expressly disapproved of by the Ap>p>ellate Division in both the first and second, departments, and in a collateral way to construe- the judgment of dissolution — which has already been construed by the court that made it— contrary to *329the intent and purpose of that court. The delay, uncertainty and expense to depositors that will result from retracing the steps already taken, and substituting new receivers for those already appointed and acting, should be avoided, and, I think, this can be done consonant both with reason and authority; but even if it be assumed that these proceedings abated, then, for the reasons given by. Mr. Justice Ingraham, in which I concur, I think the order appealed from should be affirmed.

On the 11th of August, 1896, the Bank Superintendent, claiming to act under the authority of the statute, closed the doors of the Murray Hill Bank, a banking corporation located and doing business in the city of New York, and proceeded to an examination of its property and assets. The result of that examination was that the Superintendent of Banks concluded that the corporation was insolvent, and requested the Attorney-General to commence an action for its dissolution and for a distribution of its assets, in the manner provided by law. For various reasons this action was not *320commenced until about the 31st of August, 1896. Shortly before that date, and on the twenty-eighth of August, a majority of the directors, claiming to act under the authority of. section 2419 of the Code of Oivil Procedure, filed and presented to the court a petition, in the form provided for by that section and the subsequent sections on that subject, seeking to obtain the voluntary dissolution of the corporation. An application was on that day made to the Special Term in the first district, and, it having been made to appear that the corporation was insolvent, Messrs. Trask and , O’Brien were appointed temporary receivers and directed to take possession of its assets. In the suit of the People against the bank, which for some reason was brought in the second district, although the corporation was located and did business in the first district, and all its'assets were situated in .that district, a motion was made by the Attorney-General on the eleventh of • September for an order appointing receivers’ of the bank.' Upon this motion coining on to be heard, it was made to appear to the court that receivers of. the bank had already been appointed, but the court, brushing aside that objection, proceeded to appoint other receivers. The Attorney-General appealed from the order of the Special Term in. this proceeding appointing receivers to the Appellate Division in this department, and the bank appealed from the. order of the Special Term appointing receivers in the Attorney-General’s action to the Appellate Division in the second department. When the appeals came on to be heard, the order of the Special Term appointing receivers in this proceeding was affirmed, and the order of the Special Term appointing receivers in the action brought by the People was reversed, the question presented in each case being substantially the same, and that is, whether this proceeding for the voluntary dissolution of the banking corporation could be taken by the directors after the property and assets of the bank had been sequestrated by the Bank Superintendent, and whether, having been begun, it could be maintained after the People, through the Attorney-General, had brought an action for the dissolution of the corporation. This question was answered in the same way in both departments. (Matter of Murray Hill Bank, 9 App. Div. 546 ; People v. Murray Hill Bank, 10 id., 328.) As a result of the decision the appointment of the receivers in the Attorney-General’s *321action was set aside, and they ceased to have any standing as receivers of this corporation in this court. The appointment of the receivers in these proceedings was affirmed and their authority continued as' such. At this time, therefore, the situation of affairs was that the Attorney-General’s action was pending in the second district, hut there were no receivers who had been appointed in that action. In the first district there was pending this special proceeding, in which receivers had been appointed and had qualified, but the assets of the hank which still remained in the possession of the Banking Superintendent liad not been turned over to them. An answer was then interposed in the People’s action in the .second district, but upon motion it was adjudged frivolous, and judgment was ordered on account of the frivolousness of the answer, dissolving the corporation and granting the People the relief asked for in that complaint. An appeal was at once taken from that order to the Appellate Division of the second department, where the order was affirmed, but in the opinion handed down upon the affirmance of the order it was expressly stated that permanent receivers ought not to be appointed until the determination of the proceedings for a voluntary dissolution in which temporary receivers had before that time been appointed. Notwithstanding this plain intimation in the opinion of the Appellate Division, upon an application made to the same judge who had granted all the orders in the People’s action in the second district, he proceeded to direct a judgment to be entered dissolving the corporation and appointing as permanent receivers to distribute the assets of the bank the same persons whom he had before appointed as temporary receivers. A motion was at once made in the Appellate Division to resettle the order of affirmance,, which was done so that the order contained an express command not to appoint permanent receivers in that action until such time as this, proceeding had been discontinued or dismissed, and upon motion at the Special Term the judgment theretofore granted was amended by striking out the direction for the appointment of receivers and substituting an express direction that the Attorney-General might apply at the foot of the judgment for the appointment of permanent: receivers when such proceeding should be dismissed or discontinued. The situation, therefore, was then as follows: This pro*322ceeding was still pending in the first district and temporary receivers were in existence, although they had not yet possession of the assets of the bank. A judgment had been entered in the People’s action in .the' second district dissolving the corporation, but no receiver had been appointed pursuant to that judgment. The temporary receivers who had been appointed in that action have been removed by the Appellate Division of the Supreme Court in the second department, and although they were holding a portion of the assets, yet they were doing so without any existing title, being in possession of them, so far as appears, simply because no effort had been made to take the assets out of their possession since the reversal of the order by which they were appointed temporary receivers. Ho order had been made in this proceeding either discontinuing or dismissing it. Upon that condition of affairs the temporary receivers appointed in this proceeding made a motion at the Special Term for an order, compelling the persons who had been, but who had ceased to be, receivers in the People’s action, to turn over to the receivers in this proceeding the assets which they had received under their appointment as temporary receivers in the action of The People v. Murray líill Bank. That motion was granted, and the People, through the Attorney-General, and the peiv sons who had been ajipointed receivers in the People’s action and the Bank Superintendent take this appeal.

So far as the law is'concerned, it must be deemed to be settled that the action of the People for the dissolution of this.corporation and the voluntary proceeding of the directors having the same end in view, may be carried on together. (People v. Seneca Lake Grape & Wine Co., 52 Hun, 174; Matter of Murray Hill Bank, 9 App. Div. 546.)

It must also be deemed to be settled that this proceeding for the voluntary dissolution of a banking corporation was properly conn menced by a majority of the directors, and the court has jurisdiction to entertain it although it was begun after the Attorney-General has sequestrated the assets of the corporation under the statute, on account of its insolvency. (Cases cited, supra.) But the fact that those propositions of law are settled does not enable us to dispose of the questions presented by this appeal, because those questions do not involve the status of the respondents as receivers under this vol*323untary proceeding during tlie pendency of the action and the special proceeding which have thus far run along pari passu, but they must be decided upon a consideration of the condition of these two proceedings after judgment of dissolution had been entered in the action of The People v. The Murray Hill Bank, and while no further action has been taken in this proceeding except to make the order appealed from.

It is claimed by the appellant that, as the result of the judgment in the action in the second district which adjudged that 'the corporation was dissolved, all proceedings to that end pending in this district came to an end, and any step which was attempted to be taken in these proceedings after that time was void, and that the court had no jurisdiction to take it. whereas it is claimed on the other hand by the respondents that the proceeding taken here, having for its object the dissolution of the corporation and the distribution of its funds, might continue to a final order, in which the fact of the dissolution should be adjudged again, and steps taken by the appointment of permanent receivers for the distribution of the assets of the corporation, in spite of the fact that a judgment of dissolution had already been entered.

It is claimed by the respondents that such a condition of affairs was provided for by the judgment of dissolution entered in the second district, but we are of the opinion that in that claim the respondents are mistaken. That judgment does not in any way indicate the opinion of the court there that the assets should be distributed in this proceeding. On the contrary, so far as it indicates any opinion on the subject, it would seem to be that the' court supposed that this proceeding would be discontinued or dismissed upon application, and thereupon the Attorney-General was given leave to apply at the foot of that judgment for the appointment of permanent receivers. The provision of the judgment is that such leave should be given to the plaintiff in that action, or to the Attorney-General, to apply for the appointment of permanent receivers in that action, when by an order made in the first district these proceedings should be adjudged to be discontinued and dismissed; from which it would seem fairly to be inferred that it was understood by the court in that district that no further steps should be taken in this proceeding after the judgment for dissolution had *324been entered .there. We are, therefore, forced to consider what is the necessary effect of a judgment dissolving a corporation upon these proceedings for its voluntary dissolution.

It is well-settled law in this State that the dissolution of a corporation by judgment to that effect entered in an action against it terminates any action or proceeding then pending by or against it, and that all subsequent steps taken in such action or proceeding are-void. (McCulloch v. Norwood, 58 N. Y. 562 ; Sturges v. Vanderbilt, 73 id. 384.) If this proceeding for a voluntary dissolution can be said in any just sense to be a proceeding by or against a corporation, then we think-it comes within the rule stated in the cases just cited, and that no further steps can be taken in it, but that it is abated without any further order of the court. Whether it is or not a proceeding by or against a corporation, so that this principle applies, is the matter to be discussed.

It is apparent at first blush that while the corporation is not a party eo nomine to proceedings taken, for its voluntary dissolution, so that it is rightfully entitled to notice of every step that shall be taken in those proceedings, yet that the corporation considered as an entity is directly interested in the effect of these proceedings. They are taken for the express purpose of putting an end. to its corporate existence, and to distribute its assets. They are begun by persons acting' in the interests of the corporation (Drew v. Longwell, 81 Hun, 144,146), and except in one particular instance they can only be taken by the action of a majority of the directors who must act in this case as in every other case where steps are taken in behalf of the corporation. -Notice of them is required to be given to every stockholder and creditor of the corporation. Upon the filing of the petition, any transfer by the corporation.of its property in payment of or as security for a debt or a judgment confessed by it, is void as against the creditors of the corporation. If the corporation is claimed to be insolvent, the Attorney-General may apply to- the court for the appointment of a receiver in these proceedings, but by the express provision of the statute this application can be made only upon-notice to the corporation. In all these proceedings the corporation is directly interested, and the necessary effect of the proceedings is to put an end, if successful, to its existence. It must be, therefore, that the proceeding is one which, taken by a majority of its direct*325ors, is directed against the corporation, and that it comes within the principle stated above, as to actions of proceedings of that nature.. The object of the proceeding is to dissolve the corporation. The only question to be considered upon the hearing before the referee is, whether, for any reason, the corporation should be dissolved ; and the only order that can be made, if the proceeding is well taken, is a final order dissolving the corporation, and appointing receivers. (Code Civ. Proc. § 2429.) If a judgment dissolving the corporation has already been entered, the object of this proceeding is certainly accomplished, and no reason is apparent why it should further continue. The intention of the statute, in permitting proceedings of this nature to be taken in the case of a corporation,, clearly was to afford an opportunity for its dissolution amicably, for reasons other-than those for which the Attorney-Q-en eral was compelled to bring an action to accomplish the same end. It' was not the purpose of the Legislature to take away from the People the right to maintain such an action, nor was it their object to permit this proceeding.after a judgment of dissolution, leaving that judgment of dissolution to operate simply as evidence to be used in this proceeding that the corporation had already ceased to exist.

When once there had been a final judgment dissolving the corporation, there is no reason why any other action or proceeding, having in view the same purpose, should longer be permitted to continue. The effect' would only be to complicate the affairs of the corporation and to create a conflict of jurisdiction which might result in discredit and scandal to the courts.

It is said, however, that a hearing has been had in this proceeding and- a motion for final order made therein, and this final order is relied upon as an ad judication that these proceedings were not abated by the judgment of dissolution entered hi the second district In' answer to this claim it must be said that there is nothing in the papers in this case to show that any such proceeding has been taken, or any such final order has been'made. If it should be made to appear subsequently that any such thing has been done, it will then be our duty to decide as to the effect of it; but, in the absence of any such proof, the question now presented must be decided upon principle only. We conclude, therefore, that the voluntary proceedings abated by the entry of judgment of dissolution in the *326action pending in the second district. The persons appointed as-receivers in this proceeding did not, because it had abated, cease to be receivers of the bank as to the assets which they had already received, so far as it was necessary for them in that capacity to protect those assets, or so far as -to make them accountable for what they might do in regard to them. (High on Receivers, § 833.) But we do not think that their powers continued to such an extent as to give them the right to take away from other persons,, who had lawfully come into the possession of the assets of the bank,, the property Which they had received in that relation. It appears that Messrs. Hobbes and Odell, who had been appointed receivers in the People’s action in the second district, had received, as such, assets-of the corporation which were still in their hands. While these gentlemen had ceased to be receivers, because the order appointing them.had been reversed, they stood in relation to such assets in precisely the same situation as the respondents were standing in relation to any assets they may receive. They are no longer active receivers-for the purpose of procuring other assets, but they are bound to protect the assets which they already have until they shall be taken out of their possession by an order of the court and given to some-person who has a better right than they to hold them. That better' right can only exist in connection with some valid appointment in a pending proceeding. After the judgment of dissolution had been entered the respondents had no such right that we can discover. For that reason it was error, as we think, to make the order appealed from requiring those who -had formerly been receivers in the People’s-action to deliver over assets in their hands to these gentlemen who had formerly been receivers in this proceeding which has now abated. •

The result of our examination is that this order must be reversed,, but, under the circumstances, without costs.

Yan Brunt, P. J., and Barrett-, J., concurred; O’Brien and Ingraham, JJ., dissented.

I concur with Mr. Justice Rumsey in his conclusion that, by the entry of the judgment in the Attorney-General’s suit, by which the corporation was dissolved, this proceeding abated, and that this special proceeding stood then in the same position as an action or special proceeding against an individual where the individual died. Ho further order or judgment could be granted in this proceeding until it was revived, if such revival were possible. The question, then, presented is, whether all former orders in the special proceeding were at once abrogated, so that the rights acquired under them were lost, because of the abatement of this proceeding. This corporation thus dissolved by the judgment entered in the action by the Attorney-General was, at the time of the commencement of this special proceeding-for a dissolution of the corporation, the owner of a large amount of property and liable to others in a large amount, being at that' time insolvent. When this proceeding was commenced, the court, having jurisdiction of the subject-matter and of the parties, appointed temporary receivers. By such appointment, the title to the property of the corporation was divested and vested in the receivers for the benefit of the creditors of the corporation, whose duty it was to protect the property until such further order of the court was made as should direct a proper disposition of it. Immediately upon the appointment of these temporary receivers, it became their duty to proceed to collect all of the property of the corporation that had vested m others. This question as to the rights vesting in a temporary receiver in such a proceeding was before the Court of Appeals in the casé of Nealis v. American Tube & Iron Company (150 N. Y. 44). It was there held that, upon the appointment of the receiver of a corporation in such a proceeding, the title of the *330property of the corporation vested in the receiver, and that he was at once authorized and it was his duty to commence actions or proceedings to recover the possession of such property,- either from the corporation itself or from such persons as had received such property in fraud of the rights of the creditors. The language of the court is: “ And it was the duty of its temporary receiver, who was vested with all its property, to sue, recover the money, if possible, and to hold it subject to the further order of the court. It is the evident policy of the statute to vest in the temporary receiver many of the important powers that are exercised by a permanent receiver, and this for the very obvious reason that, before final judgment in an action to procure the dissolution of a corporation, it is of vital importance that the title of the corporate property should be vested in' an officer of the court who has full authority to reduce it to possession wherever found and to maintain- any action or special proceeding necessary in the premises. In such an action, it- would be not only an empty form to make the insolvent corporation a defendant,, but would be inconsistent with the appointment of the temporary receiver, who, for the purposes of holding, protecting and reducing ■to possession the property and assets of the company, is vested with title and represents the corporation and its creditors as fully as a permanent receiver after final judgment of dissolution.” Thus, by ..the entry of this order appointing them, these temporary receivers, by virtue of their appointment, became vested with the title of the property for the purpose of holding, protecting and reducing it. to-possession, and for that purpose such receivers are vested with the title and represent the corporation and its creditors as fully as á permanent receiver.

Now, the abatement of this proceeding does not vacate this order, nor does it, in my opinion, divest these receivers of the title of the property vested in them by -operation of law upon their appointment. It is true they are still the mere custodians of the property until the permanent receiver is appointed, or until the court makes some direction as to the disposition that they shall make of the property; but it is as the holders of the legal title of the corporate property that has become, vested in such receivers by operation, of law that they are entitled to bring actions or take such proceedings as are necessary to reduce such property to possession, and to pre*331serve the same until the further order of the court. It is settled that by the abatement of an action in consequence of the dissolution of a corporation or the death of an individual a warrant of attachment granted in the action, which by such dissolution or death has become abated, is not vacated. (See Moore, Executor, v. Thayer, Administrator, 6 How. Pr. 47; Thacher v. Bancroft, 15 Abb. Pr. 243.) In the case of Burkhardt v. McClellan, reported in a note to the last case cited (15 Abb. Pr. 243), the Court of Appeals held that a warrant of attachment issued and served upon real estate of the defendant, a non-resident, was a valid lien upon the property, and as such continued until the final judgment was entered, and a sale upon execution on such final judgment vested a valid title in the purchaser, although the defendant in the attachment suit died immediately after the attachment was issued. I think that Mr. Justice Rumset fails to appreciate the distinction between an action by receivers, in whom, by their appointment, the title of the property vests, to reduce such property to possession, not as an affirmative act in the proceeding in which the order appointing them was entered, but an independent act taking possession of the property, the title to which has vested in them by the entry of the order of appointment, and a proceeding in the action or proceeding in which the order was made. Certainly the action commenced by the receiver in' the Nealis case (supra) to recover the possession of the property transferred by the corporation before his appointment was not a proceeding in the action or special proceeding in which the receiver was appointed. When the receiver commenced that action he commenced it as the owner of that property, the title to which had vested in him by operation of law; and the order appointing him temporary receiver was evidence to show that the title had by that order vested in the plaintiff. That action was no more a proceeding in the special proceeding in which he was appointed than was this motion in- the court below a proceeding in that special proceeding in which the order of appointment was entered. The order' appointing these respondents receivers operated when entered, and under it the title vested in these respondents, which gave them ' a right to apply to have the property of this corporation turned over to them to hold until the further order of the court.

The provision as to the property vesting in the trustees of a dis*332solved corporation, where no receivers are appointed to distribute it, does not apply when the title to such property has vested in' other, receivers appointed by the court prior to the dissolution of the corporation. It is well settled that valid contracts made by a corporation survive its dissolution by voluntary surrender or sale of its corporate franchises, and that the creditors of the corporation, notwithstanding such surrender or sale, may still enforce their claims against the property of the corporation, as if no such surrender or sale had taken place. Moneys derived from the sale and transfer of the franchises and capital stock of an incorporated company are assets ■of the corporation, and as such constitute a fund for the payment of its debts, and if held by the corporation itself, and so invested as to be subject to legal process,. the fund may be levied on by such process; but if the fund has been distributed among the stockholders, or passed into the hands of other than bona fide creditors or purchasers, leaving any debt of the corporation unpaid, the established rule in equity is that such holders take the fund charged with the trust in favor of the creditors, which a court of equity will enforce, and compel the application of the same to the satisfaction of their debts. (Railroad Company v. Howard, 7 Wall. 410.) Now, upon the appointment of these temporary receivers, they represented the stockholders and creditors.of the corporation, and, for the purposes of holding, protecting and reducing to possession the property and assets of the company, were vested with title, and represented the corporation and its creditors as fully as a permanent receiver after1 final judgment of dissolution. (Nealis v. American Tube & Iron Co., supra.) As representing these creditors, this fund, as a trust fund for the payment of the debts of this insolvent corporation, had vested in these receivers. To say that the mere abatement of the proceeding divests these creditors and their receivers of the title to this trust fund, which belongs to such creditors, and which was a fund for the payment of their demands, and thus, leaves this, large fund, consisting- of money and property, without a legal custodian, without any one to protect it, and subject to be wasted and lost for the want of a. proper custodian, until the court can determine the method by which it shall be distributed, seems to me to be a great injustice. In consequence-of a dispute as to the particular officers of the court who should distribute the property of this insolvent cor*333poration among the creditors, this large amount of property, the only fund to which these creditors can look for any payment of their demands, has been for month after month without even a responsible-custodian with authority to protect it. These receivers (respondents) have been adjudged to be legal receivers in whom this property is. vested. By the action of this court in this case the property is-again placed in a position with no legal custodian. The persons who had been appointed receivers in the Attorney-General’s action certainly have now no title to the property, no right to its posses- ' sion. They have no power to collect any claim due to the bank by legal proceeding. The order appointing them receivers has been, reversed, and the final judgment by which they were appointed vacated. They' can have no possible right to the possession of this-property; and, unless these respondents have such right, as I think it clear they have, for the reasons before stated, this property is now in a situation that it can be appropriated by any one with impunity,, and where no one is in the position to protect it. 1 am not willing to be responsible for a decision which will produce that result,, especially when it seems to me that for the reasons before stated this property has vested in these temporary receivers as custodians-until the further order of the court.

I, therefore, dissent from the proposed action of the court upon this appeal.

Order reversed, without costs.