Hall v. City Park Brewing Co.

• Decision Date: 30 June 1928
• Docket Number: 217
• Citation: 143 A. 582,294 Pa. 127
• Parties: Hall, Appellant, v. City Park Brewing Co
• Court: Pennsylvania Supreme Court

143 A. 582

294 Pa. 127

Hall, Appellant, v. City Park Brewing Co

No. 217

Supreme Court of Pennsylvania

June 30, 1928

Argued May 15, 1928

Appeal, No. 217, Jan. T., 1928, by plaintiff, from decree of C.P. No. 1, Phila. Co., June T., 1927, No. 8753, refusing to appoint receiver, but retaining bill, in case of Albert Hall v. City Park Brewing Co. Affirmed.

Bill for receiver. Before KUN, J.

The opinion of the Supreme Court states the case.

Receivership refused but bill retained. Plaintiff appealed.

Error assigned, inter alia, was decree, quoting record.

Decree affirmed at cost of appellant.

Owen J Roberts, with him Marc Billet and C. Russell Phillips, for appellant. -- Insolvency is not a necessary condition to the appointment of a receiver: Cunliffe v. Consumers Assn., 280 Pa. 263.

Where a corporation has abandoned its purposes or where they have become impossible, a liquidating receiver will be appointed at the request of a minority stockholder: Schipper Bros Coal Mining Co. v. Coal Co., 277 Pa. 356; Treat v. Ins. Co., 203 Pa. 21.

A corporation is a "going concern" even though its assets are less than its liabilities, "if it be still prosecuting its line of business, with the prospect and expectation of continuing to do so": Garland v. Wilson, 289 Pa. 272.

Fred. W. Breitinger, with him Fred'k L. Breitinger, for appellee. -- The manner in which appellee managed its corporate affairs was lawful and does not warrant the appointment of a receiver: Hlawati v. Maeder-Hlawati Co., 289 Pa. 233.

The temporary cessation of manufacture is not an abandonment of corporate purpose: Shaaber's App., 2 Monaghan 435; Taylor v. Hoag, 273 Pa. 194; Whyte v. Faust, 281 Pa. 444.

The holding of real estate for sale is not a change of corporate purpose: Whyte v. Faust, 281 Pa. 444; Ardesca Oil Co. v. Oil & Mining Co., 66 Pa. 375; D., L. & W. Ry. v. Welser, 233 Pa. 154; Leazure v. Hillegas, 7 S. & R. 313; Seifert v. Rusch, 269 Pa. 53; Watts's App., 78 Pa. 370.

It is pertinent to note that laches can well be imputed to plaintiff: Bacon v. Wagon Co., 13 Pa. Dist. R. 16.

Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE KEPHART:

Appellee was incorporated for the purpose of manufacturing and selling malt and malt liquors, and dealing generally in real and personal estate necessary for the successful prosecution of that business. After the adoption of the Eighteenth Amendment and the passage of the Volstead Act in October, 1919, the company endeavored to manufacture and sell malt beverages which conformed to the provisions of the law, but the effort met with a heavy financial loss and the enterprise proved a failure. It then attempted to manufacture malt extracts. A separate corporation was organized for that purpose, all of the stock being owned by appellee; this also resulted in a further loss, and, in 1923, the directors decided to cease all corporate efforts. Since that time, the only business transacted has been the collection of accounts due, and the sale from time to time of real estate not connected with the main brewing plant. The company has distributed to its stockholders up to 1926 various sums out of surplus, which had accrued prior to 1913. Efforts have been made by the directors to sell the corporate assets, but they have been unavailing. Appellant, a minority stockholder, at the annual meeting in 1926, presented a resolution which, if adopted, would have forced a liquidation of the company. This was not approved by the majority. The present bill was then filed. It averred that the business of the company had been prohibited by the Constitution of the United States and by law, and the company could not fulfill its corporate duties for which it was incorporated; that the machinery and equipment had become obsolete, and had deteriorated and depreciated in value; and that the carrying charges of the real estate were steadily increasing; that the majority of the stockholders with the directors have refused to wind up its business or distribute the assets, and intend to keep it in being, though the company cannot legally transact the business for which it was incorporated. Appellant asked that a receiver be appointed to turn the assets into cash and make distribution among the stockholder.

Defendant, in its answer, did not deny the material averments, but asserted that the suspension of business was not permanent, but was to continue until the Volstead Act would bo so modified as to permit the brewing of beer which, while not in fact intoxicating nor contrary to the Eighteenth Amendment to the Constitution of the United States, would contain a higher alcoholic content, making it a potable malt liquor and profitable to manufacture. It also averred that since 1923 it has distributed $870,000, paying one dividend on October 11, 1926, of $150,000; that the liquidation has proceeded in an orderly manner, consistent with safety and reasonable dispatch; that the price set by the directors, $1,500,000, for the property is not unreasonable, and may eventually be obtained; while heavy losses were occasioned by obsolescence, this took place in 1918 and 1919, shortly after the war; though the brewing business has ceased, the corporation continues to function, conducting its corporate affairs in a lawful manner, collecting its loans, which were reduced from $433,890 in 1922 to $248,500 in 1926, and leasing its property; the greater part of its real estate holdings of sixty-two parcels owned after the war has been sold, and the remainder has increased in value; it has held directors and stockholders meetings regularly, and appellant has participated in all its actions, both as to the distribution of its property and the conduct of its business; and that the company has reserved the means and ability to pursue its corporate purposes when made lawful, and there is no danger or risk of loss inasmuch as the income exceeds any possible expenditures. The court below found the facts to be substantially as outlined in bill and answer, except that it found the rise in value of the real estate far exceeded any possible carrying charges. Upon these findings, the learned chancellor declined to appoint a receiver, but retained jurisdiction of the bill so that appellant, under proper circumstances, could renew the application in the future. This appeal followed.

The prayer of this bill is for the appointment of a receiver to liquidate a solvent corporation that is unable to carry on the business for which it was incorporated because of the adoption of the Eighteenth Amendment to the federal Constitution and the passage of the Volstead Act. The bill does not pray for dissolution of the company, but it is obvious that, if the purposes of the bill are carried out, there will be nothing left but the shell of corporate franchise. We have discussed at some length, in the case of McDougal v. Huntingdon & Broad Top Mountain R. & C. Co., 294 Pa. 108, filed this day, the underlying principles controlling the jurisdiction of the court to appoint a receiver.

The case in hand presents four questions for determination: (1) whether a court of equity has jurisdiction to appoint a receiver to distribute the assets of a corporation or wind up its affairs; (2) if so, do the facts here presented constitute sufficient ground for the appointment of a receiver; (3) is appellant barred by acquiescence or laches; (4) the propriety of the decree of the court below in retaining jurisdiction of the bill.

If we treat the proceeding as a bill for dissolution, the courts of many states hold that, in the absence of a statute, equity is without power to decree dissolution and a distribution of assets to wind up corporate affairs for any reason: 4 Pomeroy's Equity Jurisprudence 3615, section 1540; Fletcher's Cyclopedia of Corporations, section 5530; 14a C.J. 1087, section 3679. A complete summary of the cases on this subject may be found in 43 A.L.R. 288. The general rule above stated is not unchallenged; it represents the view of earlier cases and some recent ones, but the majority of the later decisions have modified this rule by stating that, ordinarily, a court of equity will not appoint a receiver to wind up the affairs of a corporation in the absence of a statute, even though it is based on fraud, mismanagement or dissension. The reason for withholding the relief in such case, in addition to want of power, is that the remedy, -- winding up the corporate affairs and distributing the assets, -- is very drastic. As representing the opposite view, a large number of cases hold that equity has jurisdiction to wind up the affairs of a corporation on the ground of fraud, mismanagement or dissension. The reason given is that the powers of a court of equity have been enlarged for the purpose of more fully protecting the rights of those owning minority interests. Even with the hesitancy to assume jurisdiction for these reasons, many of the earlier cases recognized the rule that, where there is a failure of corporate purposes, or where inevitable ruin will follow corporate acts, the affairs of a solvent corporation may be wound up at the instance of a stockholder through the appointment of a receiver: 43...