Opinion
02-28-1910
TOMPKINS v. TRANSIT FINANCE CO.
E. M. Colie, for the motion. T. C. Simonton, opposed.
Bill by Calvin Tompkins against the Transit Finance Company. On motion to strike the cross-bill and part of the answer. Motion granted.
E. M. Colie, for the motion.
T. C. Simonton, opposed.
HOWELL, V. C. The defendant, Transit Finance Company, is a New Jersey corporation, which was organized on May 20, 1902, for the general purpose of furnishing funds with which to carry on large enterprises. On January 18, 1908, the corporation was dissolved by the proclamation of the Governor under the provisions of the statute relating to remedies against corporations for nonpayment of taxes due to the state, and thereupon the directors in office became trustees under the statute.
The bill in this case was filed for the purpose of removing the said trustees. There is also a prayer that the corporation may be declared insolvent, and that a receiver may be appointed according to the form of the statute in such case made and provided, in the place and stead of the directors, to settle the affairs of the corporation and to collect and distribute its assets. Upon the filing of the bill an order to show cause why a receiver should not be appointed was made, and upon the return day thereof John R. Lee, one of the defendants, appeared by counsel and filed an answer, in which he alleged that the complainant was not the bona fide holder of the stock of the corporation with respect to which he had filed his bill, and that the complainant had therefore no standing in court. Nevertheless this defendant joined in the prayer of the bill for the appointment of a receiver to wind up. the affairs of the corporation. The same defendant filed a cross-bill, in which he alleged that the complainant Tompkins had in his possession certificates issued by the defendant corporation by virtue of which he would be entitled in certain events to receive bonds of the Buffalo, Lockport & Rochester Railroad Company, and that the certificates held by him were much larger in number than he was in justice and equity entitled to, and he prayed that, if a receiver should be appointed in the action, such receiver should be directed to compel all persons who were certificate holders or who had exchanged their certificates for bonds or stock of the Buffalo, Lockport & Rochester Railroad Company to deliver up the bonds or stock or the market value thereof, to the end that the bonds, stock, or market value thereof might be equally distributed to all persons who might be entitled to receive stock or bonds of that railway company. Upon the hearing, a decree was made removing the trustees and appointing Frederick T. Johnsou as receiver.
A motion is now made to strike out so much of this answer as calls in question the good faith of the ownership by the complainant of the stock of the defendant corporation by virtue of which he files his bill, together with the allegation that the complainant paid no value for the stock that he holds. No objection is taken to this form of procedure, and I shall consider that part of the motion as if it were on a hearing on exceptions to the answer. The motion likewise extends to the striking out of the cross-bill on the ground that the suit is not of a character which will permit a cross-bill to be filed by a defendant against the complainant, and that it tenders issues not proper to be litigated in the suit.
Whether the motion now made shall prevail or not depends quite largely upon the nature of the proceeding in hand. The complainant insists that it is a proceeding analogous to that provided by the statute for administering the affairs of insolvent corporations. The defendant John R. Lee claims that it is an ordinary bill for the administration of a trust, and that there is no analogy between that and the proceedings taken to wind up an insolvent corporation. If the proceeding is as is claimed by the complainant, in such case the defendant would have no standing in court except to question the competency of the complainant as a stockholder to bring the suit. This question is at rest for the reason that the court has already recognized the complainant's position as a proper one, and on his motion has removed the statutory trustees and appointed a receiver. Besides the claimmade by the answer that the complainant is not a bona fide stockholder is entirely inconsistent with the attitude of the same defendant over the appointment of a receiver. But I shall go farther. The allegations of the bill satisfy me that the corporation was insolvent at the time the bill was filed, and that it was proper to them appoint a receiver on the ground of insolvency, and that it is now proper to treat the corporation as an insolvent corporation in process of liquidation. This holding brings the case within the decision of Vice Chancellor Stevenson in Pierce v. Old Dominion Smelting Company, 67 N. J. Eq. 309, 58 Atl. 319, and completely justifies the complainant in making his present motion. Again, it now appears that Mr. John R. Lee was made a defendant by mistake, that a month or more before the bill was filed he had resigned his place as a director of the corporation, and was not one of its trustees at the time of the filing of the bill, and therefore was not removed, nor is there any prayer against him which is now effective. He states these facts in his answer, and, so far as affirmative relief on this cross-bill is concerned, it seems to me that he has stated himself out of the court.
I will therefore advise an order granting the motion, but think that it should not be with costs.