Jones v. Maxwell Motor Company

• Decision Date: 02 November 1921
• Citation: 13 Del.Ch. 76,115 A. 312
• Court: Court of Chancery of Delaware
• Parties: HOLMES JONES, v. MAXWELL MOTOR COMPANY, a corporation of the State of Delaware

115 A. 312

13 Del.Ch. 76

HOLMES JONES, v. MAXWELL MOTOR COMPANY, a corporation of the State of Delaware

Court of Chancery of Delaware, New Castle

November 2, 1921

BILL FOR APPOINTMENT OF RECEIVER. The cause was heard on bill amendments thereto, answer and supplemental answer, under Rule 44 of the Court of Chancery, for a decree notwithstanding answer. The facts are sufficiently set forth in the opinion of the Chancellor.

Motion for a decree notwithstanding the answer denied.

Holmes Jones, in propria persona.

Herbert H. Ward, for the defendant.

OPINION

THE CHANCELLOR

The complainant, as a stockholder of the defendant, filed his bill in this cause on December 11, 1920, praying that a receiver be appointed for the defendant. The prayer for a receiver was not predicated on an allegation of insolvency. In deed, the original bill was constructed on the theory that the defendant was solvent, but fraud and mismanagement were charged on the part of the officers.

After the filing of the original bill, to-wit, about January 14 1921, three several suits were filed against the defendant in the District Courts of the United States for the Eastern District of Michigan, Southern Division, for the District of Indiana, and for the Southern District of Ohio, Western Division, seeking the appointment of receivers on the ground of insolvency.

About April 8, 1921, a receiver of the defendant was appointed by each of said courts (the same individual being appointed by each court), and a sale was ordered by said courts of all the property of the defendant. By the orders of said courts the defendant was required to assign and convey all of its property and assets whereever situate and of whatsoever kind unto the receiver; sale of the same was decreed to be made and creditors directed to file their claims. Thereupon the defendant company made the assignment and conveyance of all its property and assets to the receiver as required.

It appears from the answer of the defendant filed in this cause that at the time of the above proceedings in the United States Courts the defendant was insolvent within the meaning of Section 3883 of the Revised Code of Delaware of 1915.

While the original bill in this cause did not allege insolvency yet, after the actions in the west, the complainant obtained leave to amend and did, on April 23, 1921, amend his bill alleging for the first time insolvency.

Some discussion has been had as to the situation in which the pleadings were left by this amendment and as to the proper theory of relief which the amended bill is to be regarded as having set up. This phase of the case is not regarded as of moment at this time, and statement of the details in connection with it is therefore omitted.

After further amendment and the disposition of two demurrers the cause is finally at issue on amended bill and amended and supplemental answer. The complainant now moves for a decree notwithstanding answer under Rule 44 of this court.

While the answer does not expressly admit insolvency yet, as conceded by the solicitor for the defendant, it may be fairly said that insolvency is in substance admitted. At all events, such is assumed to be the case for the purpose of disposing of the present motion.

The answer, though conceding insolvency, takes issue with the bill in the matter of the valuation of the assets, and particularly in the averment that the company possesses one asset in the form of a chose in action against the officers of the company for a large sum of money. The answer further states that all the property and assets of the corporation were duly sold by the foreign receiver, to whom transfers and conveyances thereof had been made, as required by the orders of the western courts; that these sales took place on May 12, 1921; were in a few days thereafter confirmed; and on May 28, 1921, a deed in conformity with the courts' directions was duly executed and delivered to the purchaser.

It appears from the answer that the defendant has no property of any kind in the State of Delaware; that all its property was located in the jurisdictions of the three United States Courts above mentioned; that this property was of very considerable value; and that the receivership and sale in the Federal Courts of Michigan, Ohio and Indiana were not only justified by the insolvent condition of the company, but were approved by a reorganization committee representing a large majority of creditors and of each class of stockholders of the defendant. It appears also that all the debts of the defendant were due and payable in one or the other of the three said districts where all of its property was and where the receiver was appointed.

When a motion for a decree notwithstanding answer is made under Rule 44, "the facts set forth in the answer shall be taken to be true for the purposes of such motion only." The motion, therefore, is in the nature of a demurrer to the answer, and as observed by the learned Chancellor who revised the rules of this court in 1917, it supplies the complainant with a way "to test the legal sufficiency of the defense set up by the answer." A denial of the motion is no more fatal to the complainant than is a judgment overruling a demurrer to a bill fatal to the defendant.

Because of the rule, the court must look to the answer for the facts on which to base its ruling. Any fact alleged in the bill and not denied or put in issue by the answer and all facts set up in the answer, whether ultimately found to be true or false, constitute the case for present consideration under the rule.

Whatever might be the true light in which to view the complainant's case as he frames it in the language of his amended bill, for the purpose of this motion I shall proceed on the assumption most favorable to him, viz.: that the bill seeks the appointment of a statutory receiver under the provisions of Section 3883 of Revised Code of 1915, which provides, as follows:

"3883. Section 40. Insolvent Corporations; Receivers of; How Appointed; Powers; Duties; Continuance of; Excepted Corporations; --Whenever a corporation shall be insolvent, the Chancellor, on 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; the powers of such receivers to be such and continued so long as the Chancellor shall think necessary; provided, however, that the provisions of this Section shall not apply to corporations for public improvement."

It should be said that the defendant contends that the prayers of the bill do not justify the view that the complainant has properly invoked the remedies of the section referred to. It is not necessary for me to pass on this contention, for the reason that it may be disposed of in favor of the complainant and yet, as will appear, I would still deny the present motion.

I, therefore, assume for the purposes of this motion, the utmost of the complainant's contention, viz.: that the defendant is a corporation not for public improvement; that the complainant is a stockholder thereof; that the defendant is insolvent; and that the prayers are so framed that a statutory receiver may, if in the Chancellor's discretion it is deemed a proper case, be appointed. These assumptions, I repeat, are for the purposes of the present motion only.

The sole question with which the court now concerns itself is whether under the facts now appearing, the court's discretion ought to be exercised in favor of the appointment of a receiver.

The statute defines certain jurisdictional prerequisites which must exist before the Chancellor may appoint a receiver in the cases of insolvent corporations. As above noted, I assume these jurisdictional prerequisites to exist in this case. But it is to be noted that the statute does not require in absolute terms that the Chancellor shall in every case where the jurisdictional facts are made out appoint a receiver. The language is, that he "may, at any time, in his discretion" make the appointment. I cannot understand this language to mean other than that the decree naming a receiver is not to follow as a matter of course upon the mere showing of the insolvency and the other jurisdictional facts. The Chancellor is to act in the matter as he, in his discretion, may determine. The discretion thus exercised will not be, and ought not to be, a capricious one. That the Chancellor will, the bare jurisdictional facts appearing, as a matter of course appoint a receiver, has never been determined. Indeed, all the discussions by the courts touching the statute in question have been predicated on the theory that even though all the jurisdictional facts specified in the statute have been made out, yet the appointment of a receiver will not as a matter of course follow, it being recognized that the case must be such as will make a favorable appeal to the discretion of the Chancellor. And in one case it was held that while the bald allegations of the jurisdictional facts may be sufficient to save the bill from demurrer, yet in such cases grounds for the exercise of the judicial discretion would not be shown. Sill v. Kentucky Coal, etc., Co., 11 Del.Ch. 93, 97 A. 617.

There can be no doubt that though in the instant case it appears that the complainant is a stockholder of the...