Opinion
09-07-1934
GALLANT et al. v. FASHION PIECE DYE WORKS.
G. Ralph Hendrickson, of Wyckoff, for complainants. Reuben H. Reiffin, of Paterson, for defendant.
Syllabus by the Court.
1. In order for the court to appoint a receiver under section 65, as amended by P. L. 1931, p. 545 (N. J. St. Annual 1931. § 47— 65) and section 66 (2 Comp. St. 1910, p. 1643) of the Corporation Act, it must appear that defendant is a corporation either de jure or de facto.
2. To establish the existence of a de facto corporation, it must be shown that there is a law under which a corporation with the powers assumed might be incorporated, that there has been a bona fide attempt to organize a corporation in the manner prescribed by the statute, and that there has been an actual exercise of corporate powers.
3. A party entitled to share in a dividend among creditors is generally qualified as a creditor to institute proceedings for the appointment of a receiver.
4. A guarantor of a corporation's debt, who has not paid the debt, is not a creditor within the meaning of section 65 of the Corporation Act, and is not qualified to file a bill for a receiver.
Complaint by George S. Gallant and another against the Fashion Piece Dye Works. On bill, etc.
Bill dismissed.
G. Ralph Hendrickson, of Wyckoff, for complainants.
Reuben H. Reiffin, of Paterson, for defendant.
BIGELOW, Vice Chancellor.
The bill is filed for the appointment of a receiver pursuant to section 65 as amended by P. L. 1931, p. 545 (N. J. St. Annual 1931, § 47—65) and section 66 (2 Comp. St. 1910, p. 1643) of the Corporation Act. In order that the court may exercise the powers given it by the statute, it must appear that the defendant is a corporation. It need not be a corporation de jure, but may be one de facto. McCarter v. Ketcham, 72 N. J. Law, 247, 62 A. 693, instances the appointment of a statutory receiver for a de facto corporation. The bill before me states that the defendant Fashion Piece Dye Works is an alleged corporation of the state of New Jersey; that its certificate of incorporation was filed in the county clerk's office June 2, 1934, but has not been filed in the secretary of state's office as required by law; that on July 14, 1934, one Joseph J. Carroll entered into a contract with one of the complainants, Gallant, whereby he agreed to transfer a certain lease "to a corporation to be known as Fashion Piece Dye Works," and Gallant agreed to help finance the corporation. It was thereby furtheragreed that, "immediately after the performance of the covenants and conditions herein set forth, a reorganization of the directorate and officers of the Fashion Piece Dye Works is to be held." The bill further states that on July 16 Fashion Piece Dye Works, acting through Carroll as its president, employed complainants to act as salesmen; that on August 9, Carroll admitted that the dye works had not had a meeting of directors to elect officers; that Carroll made a practice of indorsing the name Fashion Piece Dye Works on checks so drawn and depositing them in his personal account.
These allegations do not show the existence of a corporation. To establish the existence of a de facto corporation, it must be shown: That there is a law under which a corporation with the powers assumed might be incorporated; that there has been a bona fide attempt to organize a corporation in the manner prescribed by the statute, and that there has been an actual exercise of corporate powers. Stout v. Zulick, 48 N. J. Law, 599, 7 A. 362; Frawley v. Tenafly Transportation Co., 95 N. J. Law, 405, 113 A. 242, 22 A. L. R. 369; Paragon Distributing Corp. v. Paragon Laboratories, 99 N. J. Eq. 224, 129 A. 404. On the other hand, where there is merely an intention existing in the minds of certain parties to form a corporation but they have not put their purpose into operation, no de facto corporation exists. Federal Advertising Corp. v. Hundertmark, 109 N. J. Law, 12, 160 A. 40. The bill shows that no de jure corporation existed, and it fails to show a bona fide attempt to organize a corporation.
Counsel appeared for the alleged corporation and fully admitted its existence. This is not surprising, for if there is no corporation Carroll is personally liable for the debts created by him in the name of the dye works. This admission does not, as it seems to me, justify the court in assuming the existence of the corporation, in face of the facts recited and which are uncontradicted, and in the absence of proof of other facts which might help spell out a de facto corporation.
However, I will not rest my decision solely on the one point. Complainants allege that they are creditors to the extent of $458, but they do not show how the debt arose. Defendant presents an affidavit of Carroll denying that anything is owing to complainants. This issue must be decided in favor of the defendant. Complainants also allege that they have guaranteed the accounts of the dye works with half a dozen supply houses in various amounts up to $2,000. They do not claim that they have been called upon to make any payments on account of their guarantees.
The statute requires a bill of this character to be filed either by a stockholder or by a creditor. "It is settled," said Vice Chancellor Stevenson, "that the word 'creditor' is not used in our statute in a narrow, technical sense. It is used in a broad sense; and I think it is safe to say that the general intention is that, if a party is so related to the corporation and its assets as to be entitled to a share of what is divided among creditors—if the party Can come into the proceedings as a claimant, and prove his claim, so as to be entitled to a dividend—it must be generally true that he is qualified as a creditor to institute the proceedings which result in the distribution of the assets in part to himself." Gallagher v. Asphalt Co., 65 N. J. Eq. 258, 55 A. 259, 260. The same judge in Hoopes v. Basic Co., 69 N. J. Eq. 679, 61 A. 979, 981, suggested one modification to the statement of the ride in the earlier case; namely, "the party who claims to be a creditor, so as to be entitled to institute this action, must, I think, at the time he comes into court with his bill, be a creditor, as distinguished from being merely entitled to become a creditor by the proof of a claim for damages. * * * Of course, a man who has a claim for damages for a tort cannot meet that test" See, also, Allen v. Distilling Co., 87 N. J. Eq. 531, 100 A. 620. A guarantor is not a creditor within the above definition until he pays the debt which he has guaranteed. Until then, though he may prove a claim in the name of the creditor, he is not entitled to a dividend. Delaware, L. & W. R. Co. v. Oxford Iron Co., 38 N. J. Eq. 151; Nutz v. Murray-Nutz, 109 N. J. Eq. 95, 156 A. 668. In bankruptcy, also, a surety who has not paid the debt cannot be one of the petitioners for an adjudication against the principal. 7 C. J. 70. Upon payment, a guarantor is subrogated to the creditor's right to a dividend and acquires the status which qualifies him to sue for a receiver. Complainants do not come within the class of those who can maintain the statutory bill.
Lastly, the proofs indicate that the defendant is not insolvent.
The bill will be dismissed.