Sullivan County Railroad v. Connecticut River Lumber Co.

Any judgment which has been either fraudulently obtained, or so improvidently entered that it is against equity and good conscience to make claim under it, may be set aside at a subsequent term, upon the application of any person interested and aggrieved, and due notice to all parties to the record. The remedy is not confined to parties to the suit. It is open to any one whose legal or equitable rights were directly invaded by the judgment.Tyler v. Aspinwall, 73 Conn. 493, 499.

General Statutes, § 3351, empowers the Superior Court, under certain conditions, to wind up and dissolve any business corporation, at the instance of shareholders owning not less than one tenth of its capital stock. In 1899 the Connecticut River Lumber Company, then owning more than one tenth of the capital stock of the Connecticut River Manufacturing Company, a corporation located in Hartford county, united with it in an application to the Superior Court in that county, under this statute. No others were made parties, and no order of notice was procured. Three days later, on an ex parte hearing, the allegations in the application were found by the court to be true, a receiver was appointed, and a time limited for the presentation to him of claims against it. He was directed to give notice of this limitation of time by an advertisement published for four weeks in a Hartford newspaper. The advertisement was properly given. No claims were presented, and the receiver found no assets of the company. His returns of all these facts, made on April 12th, 1900, a few days after the time limited had expired, having been accepted and found true by the court, final judgment, dissolving the corporation, was rendered on the same day.

If in fact the Connecticut Manufacturing Company had, on that date, any valuable property or rights of action, and was under a liability to any person who, by reason of any intentional act or omission of the plaintiffs in the action in which those proceedings were had, had no knowledge of its pendency, it is evident that such person was aggrieved by the judgment. He would not, indeed, be a party to the action, and aggrieved as such. His grievance would be that he was not made a party to the action, nor given any opportunity to protect, by becoming such, interests of his which it might directly affect.

The proceedings, under our statutes, if the judgment stands, constitute a bar to any claim against the Connecticut Manufacturing Company, which the plaintiff may have. They also put that company out of existence, and so preclude it from enforcing any cause of action in its favor. The plaintiff alleges, and the trial court has found, that the manufacturing company had a valid cause of action against the lumber company to compel the payment of all legal claims existing against it, by that company. It is also found that the president of the lumber company and of the manufacturing company knew that the plaintiff had a claim for substantial damages against the manufacturing company at the time when the winding-up suit was instituted, and intentionally concealed its existence from the court and the receiver. By a vote of the directors of the manufacturing company he had been directed to cause that suit to be brought, for the expressed purpose of procuring its dissolution, and causing its debts to be paid and its remaining assets distributed among its shareholders. For what he did and said, while acting under this authority, in directing the course of the suit, each of the companies of which he was the president is justly responsible. The receiver naturally applied to the officers of the manufacturing company for information as to the existence of creditors. The concealment from him of the circumstances out of which the plaintiff's claim had arisen, while not found to be fraudulent, was obviously inequitable and against good conscience. Had they been made known to the receiver, it would have been his duty to mail notice of the limitation of time for presenting claims, to the plaintiff, and presumably this would have been done. Not having been made known to him by those who should have made them known and who controlled the cause, the judgment in the cause was improvidently entered under a misapprehension of fact on the part of the court, wrongfully induced by their silence as to a matter concerning which it was incumbent on them to speak.

There are 189 assignments of error, and the printed record on appeal covers over 2,200 pages. Most of the exceptions taken relate to questions pertaining to the finding that the plaintiff had, at the date of the judgment appealed from, a valid claim against the manufacturing company for substantial damages. This was made after a full hearing occupying several weeks, as to all the circumstances leading up to the injury to the bridge.

It was unnecessary for the plaintiff to do more than to satisfy the court that it had a claim for substantial damages, which was a proper subject for judicial investigation and determination in appropriate proceedings. If it had any valid claim at all, there could be no dispute that it was one for a considerable sum. It was enough to show that it had an interest in a bridge which had been partly destroyed by force of an unusual rush of water caused by an extraordinary jam of logs belonging to the manufacturing company, and that it asserted in good faith that the company was negligent in allowing such a jam to accumulate at such a place. Whether the bridge was a lawful structure, and whether that company was in fact responsible for the injury to it, were questions to be settled on another occasion. The hearing on the present application was simply for the purpose of ascertaining if an opportunity ought to be given to raise these questions where they could be so settled. It called for no further inquiry into the merits of the plaintiff's claim than would have been requisite if, before the judgment of dissolution but after the time limited for the presentation of claims had expired, it had appeared and moved to have further time allowed for that purpose.

The finding, therefore, of the trial court, which is embodied in the judgment appealed from, that a valid claim for substantial damages to compensate the plaintiff for an injury done to its bridge by the manufacturing company on June 10th, 1897, was established and exists, legally imports nothing more than that sufficient proof of the existence of such a claim was made to support the application to open the judgment in the winding-up suit, and the orders leading up to it, so far as they barred the presentation of the claim to the receiver. It concludes the parties to the present action to that extent only, and leaves the receiver free to disallow the claim, if presented to him, should he, on full investigation, deem it unfounded.

It follows that most of the reasons of appeal are immaterial, and require no further consideration.

It is contended that there was error in the declaration in the judgment that the manufacturing company is "in existence, the same as before said decree of dissolution was passed."

The analogy between the death of a natural person and the dissolution of an artificial person is an imperfect one. Behind the artificial person stand and survive the other persons, natural or artificial, who really composed it.

The artificial person known as the Connecticut River Manufacturing Company never existed save in contemplation of law. When it sought dissolution by means of a judicial action, and assumed the position of an ordinary suitor, it became entitled to all the benefits and subject to all the burdens that are incident to that position. A corporation which resists unsuccessfully a stockholder's application for its dissolution could not be precluded by the judgment from appealing for errors in law, notwithstanding the judgment pronounced its existence at an end. It would remain in existence for the purpose of protecting itself against that judgment, the operation of which the appeal would meanwhile suspend. Giles v. Stanton, 86 Tex. 620. So if it procure a judgment of dissolution, third parties ought not to lose a remedy against it, or one which can only be enforced through it, if, as to them, that judgment is one that, in equity, cannot stand, and to open it and reinstate the corporation in life would smooth the way towards making that remedy effectual.

A corporation is called into existence and invested with the attribute of personality by the sovereign power of the State. If created for a limited term, and for that only, or if constituted subject to conditions the performance of which becomes impossible, a franchise thus expiring may be extended in duration or renewed by subsequent action on the part of the sovereign, even if that be had after a dissolution has occurred. Colchester v. Seaber, 3 Burr. 1866; Rex v. Pasmore, 3 T. R. 199; Bleakney v. Farmers Mechanics Bank, 17 S. R. (Pa.) 64. See Wilcox v. Continental Life Ins.Co., 56 Conn. 468, 477. This does not create a new artificial person. It is a revival of the original corporation, and a revival after it had once ceased to exist. The harsh doctrine of the common law, that the absolute and unqualified dissolution of a corporation extinguished ipso facto alike all its property rights and all its obligations was never received in equity. Those really interested in them — its members or its creditors — can always rely on obtaining adequate protection from the courts. Every moneyed corporation is, in a sense, a trustee for those who own its capital or have a right to look to it for security. A trust never fails for want of a trustee, and whenever necessary the State, in some form of proceeding, can and will supply one.

It follows from these principles that when the legislative power has committed to the judicial power jurisdiction to dissolve corporations by judgments rendered in winding-up proceedings, so long as the control of the court over those proceedings continues according to the ordinary course of judicial procedure, so long may it open and set aside such a judgment, for sufficient cause duly shown, and at the same time reinstate the corporation in life for the purpose of enabling that to be done properly which had been undone because done improperly. The Superior Court opened the judgment because the affairs of the manufacturing company had not been properly wound up. That they might now be properly wound up, it was within its power to revive the company and thus facilitate at once resistance to any unjust demands against it, and the enforcement of all just demands in its favor. Its right of action on the contract of the lumber company to pay all its just liabilities was, in a court of law, personal to itself. Baxter v. Camp, 71 Conn. 245, 71 Amer. State Rep. 169; Morgan v. Randolph Clowes Co., 73 Conn. 396. Since, however, by other provisions of that contract, all its property passed to the lumber company, any recovery in such an action would be treated in equity as a recovery for the use of those in whose favor the liability might exist, and the proceeds of the judgment would be impressed with a trust to that effect. The equities attaching to this trust relation can be best worked out by putting the manufacturing company back in a position to sue for whom it may concern, should such a form of action be deemed preferable, in any case, to proceedings by the receiver. Barber v. International Co., 73 Conn. 587, 593; 74 id. 652, 657.

The defendants contend that the judgment appealed from is erroneous, because the relief asked for and granted could be of no benefit to the plaintiff. Their argument is that, as between the two companies, their contract of 1899 made the lumber company the party really liable, if any one was, for the damage suffered by the plaintiff, and relegated the manufacturing company to the place of a surety; that the receiver has no rights which the manufacturing company did not possess; that a surety cannot sue until damnified; and that as the manufacturing company has not paid this damage, there can be no action to secure reimbursement.

A surety cannot sue at law until he has been damnified, but he and those for the debt to whom he is surety can have relief in equity when, as in this case, he has, as part of the contract of suretyship, placed all his property in the hands of the principal debtor, and for that cause cannot himself respond in the first instance to his creditors' demands.

It is claimed that since the plaintiff alleged in its complaint, but failed to prove, that the contract of 1897 was made with an intent to defeat the collection of its claim, the judgment is unwarranted by the pleadings. It was enough to support it that the plaintiff also alleged and did prove that the pendency of the dissolution proceedings was concealed from it by the lumber company with that intent, and that the transfers of property under the contract were made before those proceedings were instituted, in order to prevent the coming of any assets into the hands of the receiver.

This is so, notwithstanding the fact that the averments above mentioned, which were not found true, were in part the ground on which a demurrer to the complaint was overruled. The complaint was sufficient without them. Nor is the judgment erroneous because these averments were put into the complaint by an amendment, to avoid the effect of a previous ruling sustaining a demurrer for want of them. In determining the sufficiency of a complaint to support the judgment, interlocutory rulings under which it may have been remoulded are immaterial.

It is further claimed that the finding that, in December, 1897, other officers of the manufacturing company besides Van Dyke knew of the existence of the plaintiff's claim against it, was made without evidence. It was a fact fairly inferable from Van Dyke's knowledge. His position as president of both companies made it his duty, before the contract between them was submitted to their boards of direction for execution, to communicate what he knew as to this claim to those acting with him in the management of the affairs of each; and the trial court was warranted in concluding that he fulfilled this obligation.

There was also sufficient ground for the inference made by the trial court that the property of the manufacturing company was conveyed to the lumber company to prevent it from coming into the hands of a receiver. It naturally had that effect, and the relations of the two companies to each other were such as to make it, to say the least, probable that they intended that result.

The defense of laches on the part of the plaintiff was properly overruled. The only substantial defendant was the lumber company. As already stated, it does not lie in its mouth to accuse the plaintiff of fault in not learning earlier of the winding-up proceedings, and there is ample evidence to support the finding that the mistake in suing the wrong party for the injury to the bridge was a natural and excusable one.

The defendants asked the Superior Court to rule that it was not the legal duty of Van Dyke to tell the plaintiff who owned and drove the logs which formed the jam against the bridge. A ruling on this point was properly refused. It was not material whether such was or was not his duty. The question was whether, in the absence of correct information from any quarter, the plaintiff, under the circumstances of the case, had slept upon its rights.

Of the numerous exceptions taken to the finding and to refusals to find as the defendants requested, it is enough to say that there was evidence on which each finding made can be supported, and on which each of the refusals complained of could have been properly rested. The trial court could rightfully take into account the substantial identity of the lumber company and the manufacturing company, after the contract of December, 1897, had done its work. One artificial person had been virtually transfused into another artificial person, with the same head in their common president. Courts have no less power than juries to infer facts from facts, in disposing of an issue of fact.

There is no error.

In this opinion the other judges concurred.