Cahall v. Lofland

• Decision Date: 23 January 1920
• Citation: 108 A. 752,12 Del.Ch. 162
• Court: Court of Chancery of Delaware
• Parties: JOSEPH L. CAHALL, Receiver of Lewes Fisheries Company, v. WILLIAM C. LOFLAND, AND OTHERS

108 A. 752

12 Del.Ch. 162

JOSEPH L. CAHALL, Receiver of Lewes Fisheries Company, v. WILLIAM C. LOFLAND, AND OTHERS

Court of Chancery of Delaware, Kent

January 23, 1920

Action by Joseph L. Cahall, receiver of the Lewes Fisheries Company against William C. Lofland, James T. Lank, Harland M. Joseph William E. Tunnell, Robert Penington, and the Lewes Oil &amp Chemical Company, and others. A joint demurrer was filed by the first four named defendants and a joint demurrer by the two last named defendants.

Demurrer overruled as to the other grounds alleged.

Henry Ridgely, for complainant.

George N. Davis, for Robert Penington and Lewes Oil & Chemical Company.

Richard S. Rodney and John M. Richardson, for William C. Lofland, James T. Lank, Harland M. Joseph, and William E. Tunnell.

OPINION

THE CHANCELLOR

The bill demurred to was filed by the receiver of Lewes Fisheries Company, heretofore appointed by this court, and it was there alleged in substance, that seven of the defendants, as directors, had fraudulently acquired assets of the company and had passed them over to the other two defendants, who had notice of, or were also parties to, the transactions. Later a proceeding was taken for a voluntary dissolution and after almost all of the assets had been converted and distributed the receiver was appointed in place of the directors.

The illegal and fraudulent acts of the directors complained of were the issue to themselves of shares of stock without lawful consideration, the payment to themselves of certain salaries, and the scheme to turn over to a new corporation the Lewes Oil & Chemical Company, owned by them, and Robert Penington, practically all of the assets of the company, to the injury of the other stockholders. There were allegations of wrong done in several details of carrying out the scheme. The purpose of the bill was to impound for the benefit of all of the stockholders of the Lewes Fisheries Company property so fraudulently obtained from it.

Of the nine defendants, four directors filed a joint demurrer and Robert Penington and Lewes Oil & Chemical Company also filed jointly a demurrer to the bill. One ground in common to both demurrers is, that there is no allegation in the bill that the receiver had authority to bring this suit. It is true, as contended for by the demurrants, that the suit which the receiver has instituted is one of a kind which should not be brought without authority of the tribunal which appointed him as its executive arm. The purpose of the bill of the receiver demurred to was not to administer what has been called primary assets, being the property belonging to the company and standing in its name, or due it as a debt or liability liquidated or unliquidated. When a receiver is appointed for a corporation on the ground of its insolvency, the statute enumerates certain powers, which may be and quite usually are given to the receiver, and they relate to administering these primary assets. Among those powers is a general right and power given to the receiver to bring suits in the name of the corporation, or of the receiver, to reduce to money primary assets. Special authority by special order of court to bring such suits is not required.

In addition to these primary assets of a corporation there are other assets recoverable by a receiver. One kind is conditional in character, viz. the statutory liability of a stockholder for the unpaid par value of his shares to pay creditors of the company when the assets of the company are insufficient for the purpose. Manifestly there must be a preliminary determination by the court that there is such a deficiency and the amount thereof before particular authority to make an assessment and the amount thereof is given by the court to the receiver as well as orders or instructions as to the recovery thereof by suit. All this was done in administering the affairs of the Arlington Hotel Company in this court. Cooney Co. v. Arlington Hotel Co., 11 Del.Ch. 286, 101 A. 879. See, also, Fell v. Securities Co. of North America, 11 Del.Ch. 234, 100 A. 788. A suit at law or in equity in any other court by the receiver to enforce this liability should, and probably must, aver the appointment of the receiver and his authority to bring the suit for the benefit of the creditors of the company. Such was the decision in Simmons v. Taylor, 106 Tenn. 729, 63 S.W. 1123, cited by the defendants, and the reasons therefor were sufficient.

But this court is bound to take notice that the receiver of the Lewes Fisheries Company was appointed in a suit in this court brought by a stockholder of the company, wherein all of the defendants in this present case, except Penington and Lewes Oil & Chemical Company were defendants, and the main purpose of that suit, as declared in the bill filed therein, was for help from this court to right the wrong set out in the bill now demurred to. None of the defendants to the first suit can urge as an objection to the form of the present bill by the receiver that the bill does not aver the authority of the receiver to bring the suit, for they were parties to the suit wherein this same court appointed this receiver to bring this kind of a bill to afford the relief asked for there and here. No authority has been cited to support this point in the brief of the solicitors for the four directors who were parties to the stockholder's bill.

There are, however, defendants in the present bill who were not parties in the other suit, viz. Penington and Lewes Oil & Chemical Company. As to them a different principle applies. They are entitled before answering the bill to know by averment therein that it was filed by the authority of the court appointing the receiver, and the simple allegation of the appointment of the complainant as receiver is not sufficient. The receiver in his bill must allege his authority to sue those not a party to the suit in which he was appointed. This seems to be settled by the case of Simmons v. Taylor, 106 Tenn. 729, 63 S.W. 1123. The demurrer of Penington and Lewes Oil & Chemical Company should be sustained on this point.

Inasmuch, however, as this court takes judicial notice of the fact that it has heretofore given such authority to this receiver, or authority to bring a bill to effect the purposes and objects of this present bill, the complainant will be allowed to so amend the bill as to add allegations showing authority to bring this present bill. It might be otherwise if there never had been given authority to the receiver to sue to right this particular wrong.

Another ground of demurrer is that the bill is multifarious, in that (1) it embraces two several and distinct actions relating to several and distinct matters, and founded on two several and distinct causes; and (2) it is brought against several defendants, as to some of whom there are certain causes of action alleged, and as to others of whom there are certain other and different causes of action alleged, and no common relief asked for as to all of the defendants. The complainant contends that according to the bill there was in effect a conspiracy to defraud the Lewes Fisheries Company by its officers and directors, and that the defendants were (1) those who at various times and in various...