261 U.S. 491 (1923), 431, Pusey & Jones Co. v. Hanssen

Docket Nº:No. 431
Citation:261 U.S. 491, 43 S.Ct. 454, 67 L.Ed. 763
Party Name:Pusey & Jones Co. v. Hanssen
Case Date:April 09, 1923
Court:United States Supreme Court

Page 491

261 U.S. 491 (1923)

43 S.Ct. 454, 67 L.Ed. 763

Pusey & Jones Co.



No. 431

United States Supreme Court

April 9, 1923

Argued February 27, 1923




1. In the absence of a statute, a suit for a receiver of an insolvent corporation cannot be maintained in the district court by an unsecured simple contract creditor. P. 497.

2. A remedial right to proceed in a federal court in equity cannot be enlarged by a state statute. P. 497.

3. Section 3883 of the Revised Code of Delaware, 1915, empowering the Chancellor to appoint a receiver for an insolvent corporation "on the application and for the benefit of any creditor," etc., does not confer upon the creditor a substantive right but merely provides a new remedy, which cannot affect proceedings of the federal courts in equity. P. 498.

4. A decree confirming and continuing a receivership of a corporation, entered without equity jurisdiction on the application of a simple unsecured contract creditor, could not be cured by the mere intervention afterwards of another party claiming to be a creditor with a mortgage lien on the corporation's property. P. 501.

279 F. 488 reversed.

Certiorari to a decree of the circuit court of appeals affirming a decree of the district court confirming and continuing a receivership.

Page 494

BRANDEIS, J., lead opinion

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

Section 3883 of the Revised Code of Delaware of 1915 (which embodies the Act of March 25, 1891, c. 181; 19 Del.Laws, p. 359) provides:

Whenever a corporation shall be insolvent, the Chancellor, on the application and for the benefit of any creditor or stockholder thereof, may at any time, in his discretion, appoint one or more persons to be receivers of and for such corporation, to take charge of the estate, effects, business and affairs thereof, and to collect the outstanding debts, claims, and property due and belonging to the company, with power to prosecute and defend, in the name of the corporation or otherwise, all claims or suits, to appoint an agent or agents under them, and to do all other acts which might be done by such corporation and may be necessary and proper; that powers of such receivers to be such and continued so long as the Chancellor

Page 495

shall think necessary; provided, however, that the provisions of this section shall not apply to corporations for public improvement.

Whether the federal court sitting in equity has, by reason of the above statute, jurisdiction to appoint a receiver of an insolvent Delaware corporation upon application of an unsecured simple contract creditor is the main question presented.{1}

Invoking the power conferred by the statute, Hanessen, a subject of Norway, brought in the Federal Court for the District of Delaware this suit in equity against the Pusey & Jones Company, a corporation organized under the general laws of that state. The bill, which was prosecuted on behalf of all creditors and stockholders, alleged that the corporation was insolvent, that plaintiff was a creditor, holding promissory notes issued by it, and that he was also a stockholder. It prayed that a receiver be

Page 496

appointed.{2} The bill was filed on June 9, 1921, receivers were appointed ex parte, and an order issued that the defendant show cause, on June 18, why the receivers should not be continued during the pendency of the cause. On June 11, the defendant moved to vacate the receivership. The motion was denied. Then, by answer, the defendant objected that the court had no jurisdiction either at law or in equity, denied that plaintiff was either a creditor or a stockholder, denied that defendant was insolvent, and asserted that defendant was entitled under the federal Constitution to have determined in an action at law the question whether plaintiff was a creditor.

Upon a hearing of the order to show cause, had on bill, answer, affidavits, and exhibits, a decree was entered confirming the appointment of the receivers and continuing them pendente lite. 276 F. 296. This decree was affirmed by the Circuit Court of Appeals for the Third Circuit, 279 F. 488. Neither the district court nor the circuit court of appeals passed upon the question whether Hanessen was a stockholder. Both courts held that, by reason of the state statute, the federal court sitting in equity had jurisdiction and power to appoint a receiver of a Delaware corporation upon application of a simple contract creditor, whose claim had not been reduced to judgment and who had no lien upon the corporate property. Both courts held that the controverted question whether the plaintiff was a creditor could be determined in the equity suit, and both held (upon the evidence submitted by affidavit) that the plaintiff was a creditor. The case is here on writ of certiorari.

Page 497

That this suit could not be maintained in the absence of the statute is clear. A receiver is often appointed upon application of a secured creditor who fears that his security will be wasted. Kountze v. Omaha Hotel Co., 107 U.S. 378, 395. A receiver is often appointed upon application of a judgment creditor who has exhausted his legal remedy. See White v. Ewing, 159 U.S. 36. But an unsecured simple contract creditor has, in the absence of statute, no substantive right, legal or equitable, in or to the property of his debtor. This is true whatever the nature of [43 S.Ct. 456] the property, and although the debtor is a corporation and insolvent. The only substantive right of a simple contract creditor is to have his debt paid in due course. His adjective right is, ordinarily at law. He has no right whatsoever in equity until he has exhausted his legal remedy. After execution upon a judgment recovered at law has been returned unsatisfied, he may proceed in equity by a creditors' bill. Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371. Compare Swan Land & Cattle Co. v. Frank, 148 U.S. 603; National Tube Works Co. v. Ballou, 146 U.S. 517; Pierce v. United States, 255 U.S. 398, 403. He may, by such a bill, remove any obstacle to satisfy his execution at law, or may reach assets equitable in their nature, or he may provisionally protect his debtor's property from misappropriation or waste, by means either of an injunction or a receiver. Whether the debtor be an individual or a corporation, the appointment of a receiver is merely an ancillary and incidental remedy. A receivership is not final relief. The appointment determines no substantive right, nor is it a step in the determination of such a right. It is a means of preserving property which may ultimately be applied toward the satisfaction of substantive rights.

That a remedial right to proceed in a federal court sitting in equity cannot be enlarged by a state statute is likewise clear. Scott v. Neely, 140 U.S. 106; Cates v. Allen,

Page 498

149 U.S. 451. Nor can it be so narrowed. Mississippi Mills v. Cohn, 150 U.S. 202; Guffey v. Smith, 237 U.S. 101, 114. The federal court may therefore be obliged to deny an equitable remedy which the plaintiff might...

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