La Société Française D'Epargnes et de Prévoyance Mutuelle v. Dist. Court of the Fifteenth Judicial Dist. , 53 Cal. 495 ( 1879 )

By the Court, Wallace, C. J.:

It appears by the return to the writ of certiorari issued in the cause that, on the 7th of October last, Thomas J. Gallagher, as plaintiff, filed in the office of the Clerk of the District Court of the Fifteenth Judicial District, in the City and County of San Francisco, a complaint (in which complaint the petitioner was ' the sole defendant) complaining on behalf of himself and of all others, creditors, depositors, and members of “ La Sociétó Frangaise d’Epargnes et de Prévoyance Mutuelle ” who should thereafter come in and seek relief by, and contribute to, the expenses of the action thereby instituted.

In this complaint it was alleged that the defendant therein is a corporation duly incorporated under the laws of the State of California for the purpose of receiving deposits of money, preserving the same from loss, and finding secure and profitable investments therefor—its principal place of business being at the said City and County of San Francisco. That the said defendant is indebted to the plaintiff in the sum of ninety-eight thousand seven hundred and fifty dollars in gold coin of the United States, for services by the plaintiff theretofore rendered, as the attorney of the defendant, at divers times between the 1st day of June, A. d. 1870, and the 5th day of October, A. D. 1878, in prosecuting and defending certain suits, in drawing and engrossing various instruments of writing at its request, in counselling and advising the defendant, for attendance in and about the business of the defendant, and for money paid, laid out and expended by the plaintiff at the request of the defendant in and about its suits and business ; that payment therefor had been duly demanded of the defendant by the plaintiff; but that the defendant had not paid to the plaintiff the said sum, or any part thereof.

It was further alleged in the complaint that the plaintiff is a depositor and voting member of the said corporation defendant; that the defendant is insolvent; that the Board of Bank Commissioners, proceeding under the Act of the Legislature of this State, approved March 30th, 1878, had examined the affairs of the said corporation defendant, and had reported that it had not sufficient funds to pay its depositors and creditors—there being discovered to be a large deficiency in its assets, and that its liabilities were in excess of its assets some eight hundred thousand dollars and upwards.

It was further set forth in the complaint that under the bylaws of said corporation every depositor having fifty dollars on deposit for six months becomes thereby a voting member of the corporation—has a vote in the election of its officers, and a vote upon any business coming before any meeting of its members; and it is further alleged,'in this connection, in the complaint, “ that there is great danger that designing and irresponsible men may obtain control of its affairs, and that the assets of said corporation may be squandered to such an extent that it can pay no part of its liabilities.” It is further alleged in the complaint that by certain by-laws of the corporation, adopted in the year 1860, it is provided that no voluntary liquidation of its affairs can take place unless desired by a majority of its members representing three-fourths in amount of the deposits; and it is averred that, in point of fact, members representing more than one-half of the deposits are resident beyond the limits of the United States, and principally reside in the Bepublic of France.

It is further set forth in the complaint that through the improper conduct of a late manager of said corporation, upwards of seven hundred thousand dollars had been paid out to depositors after the said deficiency of. eight hundred thousand dollars had occurred.

It is further averred in the complaint that under the existing by-laws of the corporation it is provided that its depositors shall be paid on demand from its first disposable funds, and that such demands are registered and paid pursuant to the order in which they have been presented; that, in point of fact, unpaid demands of this character are now registered upon the books of the corporation to the amount of upwards of nine hundred thousand dollars; “ that there is great danger that unless said corporation and its officers are restrained from paying these amounts, and a Receiver appointed herein, the remaining creditors and depositors will suffer great and irreparable injury, because of said deficiency of eight hundred thousand dollars,” and that by reason of the said existing deficiency the depositors who have been paid have in fact been overpaid, and that the holders of the registered demands will, under the operation of the by-laws referred to, also be preferred and overpaid, to the great loss and damage of the creditors, and of those of the unpaid depositors who have not registered their demands for repayment.

The prayer of the complaint is that the plaintiff have judgment against the defendant for the sum of ninety-eight thousand seven hundred and fifty dollars and costs of suit; that said corporation be declared insolvent, and that an injunction be issued restraining the managers of said corporation, their agents and servants, from paying out the funds thereof, or in any way interfering with the business thereof, and that said corporation be dissolved; that a Receiver be appointed to take charge of the business of said corporation, to wind up the affairs thereof, to take possession of the books, papers, property, evidences of indebtedness, and all the assets thereof; to collect all debts due said corporation; to pay all legal claims against the same; to employ all needed accountants, clerks, servants, and attorneys, and generally to do all and everything necessary to protect the rights of the creditors and depositors of said corporation, and “ for such other and further relief as may be just.” Immediately upon filing the complaint the following order wasj made and entered upon the minutes of the Court:

“ On filing the complaint herein, and good cause being shown therefor, it is ordered that Frederick F. Low be and he is hereby appointed Receiver, as prayed for in said complaint, on filing a bond therein in the sum of two hundred and twenty-five thousand dollars. Samuel H. Dwinelle,

“ October 7th, 1878. District Judge.”

Subsequently, and on the same day, the following order was made by the Judge of the District Court of the Fifteenth Judicial District, and entered upon the minutes of the Court:

“ Whereas, an order has been made in the foregoing action, appointing Frederick F. Low Receiver in the foregoing action, as prayed for in the complaint herein, on filing a bond in the sum of two hundred and twenty-five thousand dollars: and whereas, said Frederick F. Low has filed a bond in the said sum of two hundred and twenty-five thousand dollars, with good and sufficient sureties, which bond has been duly approved by me: Now, therefore, it is ordered that said Frederick F. Low be and he is hereby appointed the Receiver to take charge of the affairs of said corporation, to collect all money due the same, to pay all legal claims against- said corporation, to take possession of all books, accounts, papers, property, evidence of indebtedness, and all assets thereof, to employ all needed accountants, clerks, servants, and attorneys, and generally to do all and everything necessary to protect the rights of the creditors and depositors of said corporation.”'

These orders were made ex parte, upon application of the plaintiff, and before the corporation defendant had been summoned to answer the complaint. Subsequently, in the further progress of the cause, the corporation defendant appeared in the action and demurred to the complaint, filed an answer, and made an unsuccessful motion to set aside the order appointing the Receiver; but as, in the view entertained by us, the particular consideration of these proceedings would not aid in the solution of the general question before us, they will not be further noticed.

1. In support of the first point made by the counsel for the respondent, it is assumed by them that the correctness of the orders complained of b'y the petitioner might be considered here upon appeal from the final judgment, should one be hereafter rendered in the cause, and an appeal taken therefrom to this Court, and it is therefore claimed that they cannot be reviewed here upon this proceeding by certiorari.

The statute concerning this writ (sec. 1068) provides that it may be resorted to “ when * * there is no appeal,” etc. If there be an appeal, the writ of certiorari cannot be awarded; but no direct appeal is given by the statute, and we are of opinion that such an order is not subject to be reviewed on an appeal from the judgment under sec. 956 of the Code of Civil Procedure.

2. The case here not being in error but upon certiorari, the inquiry is of course to be confined to a consideration of the mere power of the District Court to appoint a Receiver in a case of this impression.

Irrespective of the effect of the fifth subdivision of sec. 564 of the Code of Civil Procedure, which will be presently considered, there is no jurisdiction vested in Courts of Equity to appoint a Receiver of the property of a corporation in a suit prosecuted by a private party. This is only to say that there is no jurisdiction vested in these Courts in such a case to dissolve a corporation; for the power of a Receiver, when put in motion, of necessity supersedes the corporate power. It necessarily displaces the corporate management and substitutes its own, and assumes, in the language of the order under review, “ to do all and everything necessary (in the judgment of the Receiver, under the advice of the Court) to protect the rights of the creditors and depositors of said corporation.”

This precise question was brought directly under consideration here in the case of Neall v. Hill, 16 Cal. 145, where, in a suit brought by a stockholder, a Receiver had been appointed by the District Court to take possession of the property of the “ Gold Hill and Rear River Water Company,” a corporation existing under the laws of this State. The opinion in. that case, rendered by Mr. Justice Cope, and concurred in by the whole Court, after referring to the adjudicated cases in England and in this country, uses this language: “This decree, if permitted to stand, must necessarily result in the dissolution of the corporation; and in that event the Court will have accomplished, in an indirect mode, that which, in this proceeding, it had no authority to do directly. It is well settled that a Court of Equity, as such, has no jurisdiction over corporate bodies for the purpose of restraining their operations, or winding up their concerns. We do not find that any such power has ever been exercised in the absence of a statute conferring the jurisdiction.”

Of course, it is not to be doubted that the trustees of a corporation, the persons who constitute its direction, and from time to time exercise the corporate authority in the management of its affairs, are subject to the control of Courts of Equity, or, as observed by Chancellor Kent, “ that the persons who from time to time exercise the corporate powers, may, in their character of trustees, be accountable to this Court [the Court of Chancery] for a fraudulent breach of trust; and,” he adds, “ to this plain and ordinary head of equity the jurisdiction of this Court over corporations ought to be confined.” (Attorney- General v. Utica Ins. Co. 2 Johns. Ch. 388.) And in exercise of these admitted equity powers of the Court, referable to the well-known grounds upon which its jurisdiction ordinarily proceeds, embracing the cognizance of fraud, accident, trust, and the like, the rights of natural persons injured or put at hazard through corporate proceedings unauthorized by-law, will find ample protection and redress.

But even in such a proceeding as that, the Trustees must of course be made parties defendant; and it will be observed upon looking at the complaint of Gallagher in this view that it is not substantially sufficient in its scope to put the equity powers of the Court in motion for any purpose. The corporation itself being the sole party defendant, the Trustees-—those persons upon whom the management of its affairs is devolved—are not parties, nor is any relief sought against them personally. That there is no inherent power in the District Courts, as being Courts of Equity, to appoint a Receiver in such a case as that presented by the complaint of Gallagher, is therefore apparent both upon principle and authority.

3. We proceed, therefore, to inquire whether the jurisdiction of the Courts of Equity, in the respect referred to, has been enlarged by any statute of this State. The only statute brought to our attention, which is supposed to have that effect, is sec. 564 of the Code of Civil Procedure, which is as follows:

“ Sec. 564. A Receiver may be appointed by the Court in which an action is pending, or by the Judge thereof:

“ 1. In an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property, or fund to his claim, or between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or any party whose right to or interest in the property or fund, or the proceeds thereof, is probable, and where it is shown that the property or fund is .in danger of being lost, removed, or materially injured.

“ 2. In an action by a mortgagee for the foreclosure of his mortgage and the sale of the mortgaged property, where it appears that the mortgaged property is in danger of being lost, removed, or injured, or that the condition of the mortgage has not been performed, and that the property is probably insufficient to discharge the mortgage debt.

“3. After judgment, to carry the judgment into effect.

“ 4. After judgment, to dispose of the property according to the judgment, or to preserve it during the pendency of an appeal, or in proceedings in aid of execution, when an execution has been returned unsatisfied, or when the judgment debtor refuses to apply his property in satisfaction of the judgment,

“5. In cases where a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights.

“ 6. In all other cases where Receivers have heretofore been appointed by the usages of Courts of Equity.”

That the case brought into the District Court of the Fifteenth Judicial District is not included in the sixth subdivision of this statute has been determined already; and the appointment here not having been made “ after judgment,” of course the third and fourth subdivisions can have no application. The first and second subdivisions provide for the appointment of a Receiver in an action brought by a vendor to vacate a fraudulent purchase ; in aid of a creditor’s bill; also, in proceedings involving questions between partners; also, in suits of foreclosure brought by mortgagees when the security is likely to be lost or seriously impaired. These subdivisions do not assume to create a substantive right of action where none existed before. Their aim is to provide a more efficacious remedy in the conduct of actions, the right to bring which already exists, and are elsewhere provided for. The action by a vendor to vacate a fraudulent purchase, or by a mortgagee to foreclose a mortgage, is not created by the statute we are now considering—they exist independently of its provisions, and would continue to exist if this statute were repealed.

The particular subdivision, however, which is supposed to confer the power in question and to authorize the District Court to appoint a Receiver of the property of this corporation, is the fifth—being the only portion of the statute in which corporations are named—“ A Receiver may be appointed * * * * in the cases when a corporation * * * * is insolvent.” There is, of course, no such thing as an action brought distinctively for the mere appointment of a Receiver—such an appointment, when made, is ancillary to or in aid of the action brought. Its purpose is to preserve the property pending the litigation so that the relief awarded by the judgment, if any, may be effective. The authority conferred upon the Court to make the appointment necessarily pre-supposes that an action is pending before it, instituted by some one authorized by law to commence it. But there is no statute of this State, none to which we have been pointed, which undertakes to confer upon a private person, either as stockholder or creditor, the right to maintain an action to dissolve a corporation upon the ground that it is insolvent, or to obtain relief by seizing its property out of the hands of its constituted management, and placing it in the hands of a Receiver.

The statute of this State (sec. 564) is copied from the Code of Procedure of the State of New York, (sec. 244) the fifth subdivision of ours corresponding in part with the fourth subdivision of theirs. But the fourth subdivision of their statute provides : “ A Receiver may be appointed * * * * * (4) In the cases provided in this Code and by special statutes, when a corporation has been dissolved, or is insolvent,” etc. The words in italics are omitted from subd. 5 of our Code of Civil Procedure. There were no such cases provided.

The difference between the two statutes is very material, and involves the precise point which we have been considering, in reference to the construction to be placed upon our statute; for the statutes of the State of New York contained independent provisions to the effect that a Receiver of the property of a corporation might be appointed uponapetition of the execution \plaintiff., when an execution issued upon a judgment rendered against the corporation had been returned unsatisfied in whole or in part; that a corporation should be adjudged to be dissolved when it Had remained insolvent for one whole year, or for that length of time had neglected or refused to pay its notes or other evidences of debt, or had for one year suspended its ordinary business. These statutes, independently of the section of its Code of Procedure from which subd. 5 of sec. 564 of our Code of Civil Procedure was extracted, created rights of action in favor of private persons, and correspondingly enlarged the powers of the Courts of Equity by directly and in terms authorizing them in such cases to appoint Receivers of the property of corporations, upon application made to them by creditors, stockholders, and other private parties instituting proceedings for that purpose.

We are, therefore, of opinion that the said orders of October 7th, 1878, assuming to appoint a Receiver in the case of Thomas J. Gallagher v. La Société Frangaise d’Epargnes et de Prévoyance Mutuelle, were in excess of the jurisdiction of the District Court, and that they be annulled. So ordered.

Mr. Justice McKinstrt expressed no opinion.