Barber v. Int'l Co. of Mexico

• Decision Date: 02 April 1901
• Court: Connecticut Supreme Court
• Parties: BARBER v. INTERNATIONAL CO. OF MEXICO.

48 A. 758

73 Conn. 687

BARBER

v. INTERNATIONAL CO. OF MEXICO.

Supreme Court of Errors of Connecticut.

April 2, 1901.

Appeal from superior court, Hartford county; Robinson, Judge.

Action by Clarence L. Barber against the International Company of Mexico for the appointment of a receiver and for dissolution and liquidation of the defendant corporation. From a judgment in favor of plaintiff, defendant appeals. Affirmed.

The facts averred in the complaint are sufficiently stated in the opinion. The claims for relief were as follows: "(1) That a receiver be appointed to receive and collect all debts due to and other assets and property and effects belonging to the International Company of Mexico, and to enforce any rights belonging to said company, and for any of the purposes aforesaid to bring and prosecute any actions, suits, or claims in the United States of America, or in Great Britain, or elsewhere, which may be necessary to obtain payment of the said debts or enforcement of the said rights of recovery of such assets, property, and effects. (2) That leave be granted to sue said the English company in the courts of Great Britain or elsewhere, either in the name of the plaintiff in this suit, or of such receiver, or of the American company, in order to enforce the rights aforesaid. (3) Any other and further relief to which, in the judgment of the court, the plaintiff may be entitled." The answer set up no new matter.

Edward D. Robbins, for appellant.

Charles E. Perkins and Lewis E. Stanton, for appellee.

BALDWIN, J The defendant was incorporated under a special charter from this state. Sp. Laws, X, 45, 433. The town of Hartford was thereby made its "legal location," and its capital was fixed at $500,000, with power to increase it to $20,000,000. The complaint stated this case: In 1887 the defendant, under a contract made with one Bates, for a valuable consideration received from him, amounting to about $40,000, was bound to convey to him certain real estate in Mexico. It refused to do this, and in bad faith sold and conveyed the property to third parties, whereby it became liable to pay him Just damages. In 1889 he sued it for these damages in the circuit court of the United States in California. It appeared and made defense, and he recovered final judgment, in 1892, for $121,282. Execution was issued and returned wholly unsatisfied. The defendant then was, and ever since has been, wholly insolvent. Shortly before the suit in California was brought, a company was organized in Great Britain by the name of the "Mexican Land & Colonization Company, Limited," which was located in London. It was organized mainly by the same persons who had been interested in the defendant company, and substantially for the same purposes. One of its objects was to acquire all the defendant's assets, and a contract between the two companies was immediately executed, whereby the defendant conveyed them to the English company, and agreed to take the necessary steps for winding up its affairs and its dissolution, as quickly as possible, acting subject to the approval and at the expense of the English company, which in turn agreed to assume and pay all the defendant's obligations. All business thereafter done by the defendant was to be considered as done for the benefit of the English company, and was to be under the direction of the chairman of that company. The shares of the defendant were to be exchanged for shares of the English company. This contract was fully performed at once, except that the English company has not wound up the defendant company, nor paid all its debts, though it has paid most of them. The defense of the California suit was conducted by, for, and at the expense of the English company, though in the name of the defendant. Since 1890 the defendant has had no stock, no stockholders, no office, no officers, and no funds, and has been substantially absorbed by the English company. The plaintiff, in 1892, became the legal owner of said judgment by assignment from Bates, made upon a valuable consideration. Due notice of the assignment was given to both companies, and the plaintiff has demanded payment of each, but it remains wholly unpaid. He has also requested the defendant to institute suit against the English company on its promise to pay the defendant's obligations, but this has been refused by collusion between the two companies. This promise is an asset of the defendant, and its only asset, and the plaintiff sues for the benefit of himself and all other creditors of the defendant. The English company is solvent, and able to pay all the defendant's obligations. The plaintiff brought suit in 1895, before the high court of Justice, chancery division, of Great Britain, against the English company, on said judgment, and also against the defendant; but it was therein adjudged that he could not maintain such a suit. The two companies have acted and are acting in collusion, in order to defeat the rights of the plaintiff and other creditors; and there is danger that the assets of the defendant will be wholly lost, and the rights of creditors completely defeated, unless a receiver be appointed by this court Such a receiver, under the law, comity, and practice of the courts of Great Britain, would be permitted to sue the English company therein as fully and effectually as could a resident suitor or a domestic corporation. The specific relief claimed was the appointment of a receiver of all debts due to and other assets of the defendant, with authority to bring any necessary suits in the United States, or Great Britain, or elsewhere, either in his own name or in that of the plaintiff or of the defendant.

This action cannot be supported as in the nature of a creditors' bill, for it is not alleged that the plaintiff has obtained any judgment upon his demand against the defendant in this state, nor does he now ask for any. Tube Works v. Ballou, 146 U. S. 517, 13 Sup. Ct. 165, 36 L. Ed. 1070; Vail v. Hammond, 60 Conn. 374, 22 Atl. 954. Nor can it be upheld as a proceeding by a mere general creditor for winding up the defendant's affairs. For such a purpose it would be necessary to invoke the jurisdiction of a proper court of insolvency or bankruptcy. Rules of Court, § 63. The simple fact of the insolvency of a corporation does not convert its assets into a trust fund for its creditors. Pondville Co. v. Clark, 25 Conn. 97. In the absence of a statutory enlargement of equity jurisdiction, a receiver of a corporation will not be appointed unless the same relief would be given when claimed in an action against an unincorporated association of natural persons. It is not the office of a court of equity to appoint receivers as a mode of granting ultimate relief. They are appointed as a measure ancillary to the enforcement of some recognized equitable right. Such a right appears from the complaint to belong to all the defendant's remaining creditors. The assets to which they would naturally have looked for payment have been transferred in exchange for the written obligation of the party receiving them. This party is virtually the defendant, passing under another name, and residing in another country. Hibernia Ins. Co. v. St. Louis & N. O. Transp. Co. (C. C.) 4 McCrary, 432, 13 Fed. 516. The obligation runs to the defendant, but it creates a security, which, while directly for its benefit, is indirectly for the benefit of its creditors. The defendant is not asking its performance. On the contrary, it is colluding with the other party to the contract to defeat any recovery of their demands by the creditors who are yet unpaid. Their rights against this third party are wholly derived from the contract. They have no lien on the assets transferred. Lamkin v. Manufacturing Co., 72 Conn. 57, 62, 43 Atl. 593, 1042, 44 L. R. A. 786. A release by the defendant to the English company would effectually discharge its legal obligation. It would be clearly inequitable, under present circumstances, to give such a release. Any creditor could ask for an injunction to prevent it. A claim for that relief might well have been made in the present action. But the remedy of an injunction, like that of the appointment of a receiver, presupposes the existence of some actionable right, to preserve or enforce which an injunction or a receivership is necessary. Such a right may be a legal one, as in the case of a judgment creditor moving by a creditors' bill. But in the present case it is purely equitable, since the legal remedy by reason of the assumption of the debt due to the plaintiff by the English company under the contract of merger belongs to the defendant only. To the extent of the assets received and not hitherto appropriated to paying the defendant's creditors, those of them who remain unpaid may have an equity enforce able against the English company, to establish a charge upon the funds, or otherwise secure its performance of the contract, made, in a certain sense, for their benefit. Warfield v. Canning Co., 72 Iowa, 666, 34 N. W. 467, 2 Am. St. Rep. 263; Grenell v. Gas Co., 112 Mich., 70, 70 N. W. 413. But they also have an equity enforceable against the defendant to compel it to lend its aid and do its part towards working out their beneficial rights. Collusion on its part to defeat these rights is constructive fraud. Story v. Railroad Co., 24 Conn. 94, 113. Regarded in view of these principles of equitable jurisprudence and procedure, the plaintiff's complaint was properly adjudged sufficient. It is, in substance, an appeal to a court of equity to secure the enforcement of a contractual right which the defendant holds in what, under the circumstances, may fairly be regarded as a fiduciary capacity, and which it collusively refuses to enforce for the benefit of those who are equitably entitled to claim its benefits. 2 Mor. Priv. Corp. § 787. The general creditors of the defendant occupy that position. Marr v. Bank, 4 Cold. 471, 484. None of...