Hannigan v. Italo Petroleum Corp. of America

• Decision Date: 03 December 1935
• Citation: 181 A. 660,37 Del. 227
• Court: Delaware Superior Court
• Parties: MARTIN G. HANNIGAN v. ITALO PETROLEUM CORPORATION OF AMERICA, a corporation of the State of Delaware

181 A. 660

37 Del. 227

MARTIN G. HANNIGAN v. ITALO PETROLEUM CORPORATION OF AMERICA, a corporation of the State of Delaware

Superior Court of Delaware, New Castle County

December 3, 1935

Superior Court for New Castle County, No. 105, January Term 1935.

Case heard on demurrer to the defendant's amended sixth plea to the plaintiff's declaration.

Action on two promissory notes made by the defendant company payable to the order of Fred Shingle, Syndicate Manager, and subsequently assigned by him, after maturity, to Martin G Hannigan, the plaintiff. One of these notes was for $ 9,476.13, dated January 20th, 1929, and the other was for $ 35,222.25, dated April 20th, 1929.

The material allegations of the plea demurred to, and the reasons for such demurrer, will sufficiently appear in the opinion of the court.

For the opinions of the court on two prior demurrers to pleas in the same action, see (Del. Super.) 6 W. W. Harr. (36 Del.) 442, 178 A. 589; (Del. Super.) 7 W. W. Harr. (37 Del.) 180, 181 A. 4.

The plaintiff's demurrer is sustained.

John Biggs, Jr., and Stewart Lynch for plaintiff.

Ivan Culbertson (of the office of Hugh M. Morris) for defendant.

HARRINGTON J., sitting.

OPINION

HARRINGTON, J.

The sixth plea, as amended, in substance, alleges:

1. That on December 13th, 1930 one Clay Carpenter was appointed receiver for Italo Petroleum Corporation of America, the defendant in this action, and of all of its property, wherever situated, by the District Court of the United States for the Southern District of California, Central Division.

2. That on June 4th, 1931 that court duly entered its order, requiring all creditors of Italo Petroleum Corporation of America having claims against that corporation, of whatsoever nature, to file them on or before July 15th, 1931.

3. That, pursuant to such order, Fred Shingle, Syndicate Manager, on July 14th, 1931 filed his claim on the notes sued on in this action.

4. That on or about August 27th, 1931, Clay Carpenter, the receiver for the defendant company, "disallowed the said claim of Fred Shingle, Syndicate Manager, and gave to the said claimant written notice of the rejection and disallowance of his said claim; such rejection and disallowance being based on the contention that the said Fred Shingle, Syndicate Manager, had no valid or subsisting claim against Italo Petroleum Corporation of America by reason of the said promissory notes; that thereupon a full and complete opportunity was afforded to the said Fred Shingle, Syndicate Manager, to litigate his rights in the said Federal Court for the Southern District of California, Central Division."

5. "That thereafter the said United States District Court for the Southern District of California, Central Division duly entered its order confirming the act of the said receiver in rejecting the claim of Fred Shingle, Syndicate Manager."

6. "That prior to the confirmation by the said United States District Court of the act of the said receiver in rejecting the claim of Fred Shingle, Syndicate Manager, the court put down for hearing the report of the said receiver, including his action in rejecting the claim, as aforesaid, and gave notice to the said Fred Shingle, Syndicate Manager, to show cause, if any he had, why the said report should not be confirmed, or to show cause, if any he had, why the said report should be rejected, and the said Fred Shingle, Syndicate Manager, was personally served with said notice."

7. "That Fred Shingle, Syndicate Manager, failed to contest the rejection of the said purported claim by the said receiver, or the confirmation by the said court of the action of the said receiver, nor did the said claimant appeal from the said action of the said court, or take any steps, whatever, to set aside either the said rejection or confirmation thereof."

8. That the plaintiff was the assignee or endorsee of such notes after maturity, and was not a holder in due course, or for value.

In most jurisdictions, the appointment of a receiver for a corporation by a court of equity is an ancillary remedy, and necessarily presupposes the existence of a primary suit, which directly involves the rights of the parties to it. Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 43 S.Ct. 454, 67 L.Ed. 763; 1 Clark on Receivers, 58, 60, 104, 748, 749; 2 Clark on Receivers, 1023, 1552.

By statute a somewhat different rule applies in Delaware (Rev Code 1915, § 3883, 19 Laws of Del., c. 181, p. 359; 2 Clark on Receivers, 1024, 1059; Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 43 S.Ct. 454, 67 L.Ed. 763); but under either rule persons, not originally parties to the bill, may, also, have rights which, on taking the proper steps, will enable them to share in the corporate assets, in effect impounded by the court. Barber v. International Co., 74 Conn. 652, 51 A. 857, 92 Am. St. Rep. 246; Riehle v. Margolies, 279 U.S. 218, 49 S.Ct. 310, 73 L.Ed. 669.

The possession of such assets, through the agency of its receiver, gives to the court appointing him jurisdiction over and the exclusive right to distribute the corporate property, or its proceeds, to its creditors, whose claims have been duly proved and allowed, and to those persons only. Riehle v. Margolies, 279 U.S. 218, 49 S.Ct. 310, 73 L.Ed. 669; Cherry v. Insull Investments (D. C.), 58 F.2d 1022; Nolte v. Hudson Nav. Co. (C. C. A.), 31 F (2d) 527; Attorney General v. Supreme Council, American Legion H., 196 Mass. 151, 81 N.E. 966; 1 Clark on Receivers, 715, 748, 753, 921, 1009.

In fact, the appointment of a receiver for a corporation is not intended to defeat the substantive rights of creditors [Eyton v. Denbigh (1868), 6 L. R. Eq. 14; 1 Clark on Receivers, 914, 915], and does not dissolve its corporate entity. DuPont v. Standard Arms Co., 9 Del. Ch. 315, 81 A. 1089; Hirschfield v. Reading Finance Co., 9 Del. Ch. 344, 82 A. 690; Venner v. Denver Union Water Co., 40 Colo. 212, 90 P. 623, 122 Am. St. Rep. 1036; 8 Thomp. on Corporations, 469; 1 Clark on Receivers, 838, 1161; 2 Clark on Receivers, 1033.

It does, however, materially affect the remedies of such creditors, at least while the receivership proceedings are pending. Roseboom v. Whittaker, 132 Ill. 81, 23 N.E. 339; Attorney General v. Supreme Council, Amer. Legion H., 196 Mass. 151, 81 N.E. 966; Grosscup v. German Savings & Loan Soc. (C. C.), 162 F. 947; Quinn v. Bancroft-Jones Corporation (D. C.), 12 F.2d 958; Cramer v. Iler, 63 Kan. 579, 66 P. 617; 1 Clark on Receivers, 835, 836, 844; In re Lord & Polk Chem. Co., 7 Del. Ch. 248, 44 A. 775.

When the corporation is insolvent, it has been said that such a proceeding is somewhat in the nature of the levy of an equitable execution on its assets for the benefit of all such creditors as may be found to have valid claims against it. DuPont v. Standard Arms Co., 9 Del. Ch. 315, 81 A. 1089; Nolte v. Hudson Nav. Co. (C. C. A.), 31 F.2d 527; see, also, 1 Clark on Rec. 80, 82.

At any rate in most cases the appointment of a receiver finally results in the sale of the corporate property for the benefit of its creditors. This usually ends the business activities of the corporation and takes away any possible chance of its accumulating other property from which a creditor could hope to collect his debt by the use of the ordinary and usual legal process in an action against it, after the termination of the receivership. By reason of that fact, creditors usually file their claims and take such other steps as may be necessary, to enable them to share in the assets in the hands of the receiver.

But if a creditor does not take the necessary steps to accomplish that purpose, it seems that he is not necessarily barred from exercising both his legal rights and remedies against the corporation when the receiver shall have been discharged, even though all creditors were notified to file their claims. See In re Bement's Sons, 150 Mich. 530, 114 N.W. 327; Pringle v. Woolworth, 90 N.Y. 502; Syracuse Trust Co. v. Keller, 5 W. W. Harr. (35 Del.) 304, 165 A. 327; Venner v. Denver U. W. Co., 40 Colo. 212, 90 P. 623, 122 Am. St. Rep. 1036; see, also, 1 Clark on Receivers, 837, 848, 850, 914, 918. Most of these citations relate to suits against the corporation while the receivership proceedings are pending but the principle involved is the same. ^[1]

Bankruptcy is entirely regulated by statute, and it is, therefore, apparent that in some particulars the rights of a creditor against a corporation, for which a receiver has been appointed by a court of equity, materially differ from his rights against an adjudicated bankrupt. See Tardy's Smith on Receivers, 1661; 1 Clark on Receivers, 848.

There are occasional cases where adjustments are made, and the assets and property of the corporation are not sold, but are returned to it in specie, the receiver discharged, and the business continued. See 1 Clark on Receivers, 995.

This seems to be a case of that character, and in such cases suits against the corporation for the collection of claims, ante-dating the receivership, are not infrequent.

All of this is, apparently, conceded by the defendant company, but it contends that the facts alleged in the amended plea take this case out of the general rule and bar the plaintiff's right of action.

Where it clearly appears that the particular question before the court, whether it be of law or of fact, has been litigated and determined in a prior judicial proceeding in an action in personam between the same parties, it is a well settled general rule that both such parties and their privies in interest are bound thereby. Hannigan v. Italo Petroleum Corporation, 7 W. W. Harr. (37 Del.) 180, 181 A. 4; Williams v. Daisey, 7 W. W. Harr. (37 Del.) 161, 180 A. 908.

The same general rule, also,...