text:
    In the matter of Kellogg, an infant.
    Hie investment or re-investment of the fund in the hands of a guardian, or trustee, or receiver, upon new securities from time to time, for the purpose of producing an income therefrom, is not such a paying out of the trust monies by him as to entitle him to commissions for paying out the money; neither can he charge new commissions for collecting, or receiving back, the principal of the fund which he has thus invested. But he is entitled to commissions upon the interest or income, produced by such investments, received and paid out by him.
    One half of the commissions specified in the statute are allowed for receiving and one half for paying out the trust monies; and where the guardian or other trustee performs one service and not the other, he is only entitled to half commissions.
    Upon passing the accounts of a guardian, receiver, or committee, periodically, during the continuance of his trust, he should be allowed one half commissions, at the rates specified in the statute, upon all monies received by him as trustee, other than the principal monies received from investments made by him on account of the trust estate, and one half commissions on all monies paid out by him, other than monies invested or reinvested by him ; leaving the residue of his half commissions for paying out the fund for fu. ture adjustment, when the fund shall have been disbursed by him, or when he makes a final settlement of his account upon the termination of the trust.
    This was an application to confirm the report of one of the vice chancellors, to whom it was referred by an order of the chancellor to pass the accounts of the guardian of an infant, periodically. From the report of the vice chancellor, which was made upon the passing of the first account of the guardian, it appeared that such guardian had received for a legacy due to his ward, including interest on the same, the sum of $11,036 48. On which sum the vice chancellor had allowed the guardian full commissions for receiving and paying out the same, although he had only paid out the sum of $516,36 ; the residue of the fund having been invested by the guardian upon bond and mortgage. The guardian had also received the further sum of $50,60, due to the .infant on a note, on which no commissions were allowed upon passing the account.
    September 18.
   The Chancellor.

The officer, in passing this a count, has erred in allowing to the guardian his full commissions, both for receiving and paying out the whole amount received for the legacy and interest; although the principal part of that fund still remains in the hands of the guardian in bonds and mortgages taken by him upon the reinvestment of the money. This mode of computing the commissions would be correct if the infant were now of age and this was a final.settlement of the account of the guardian, with a view to turn over the whole fund to his ward, as a balance due to the latter on such final accounting. But a different mode of computation must be adopted upen the periodical passing of the accounts of the trustee, where the trust still continues and the trust fund is to remain in his hands or under his control. In the case of Vanderheyden v. Vanderheyden, (2 Paige’s Rep. 287.) this court decided that where the master was directed to take the account with annual rests, for the purpose of charging the guardian or trustee with interest on the balances remaining in his hands from time to time, it was proper to compute his commissions upon his receipts and disbursements of each year, so as to credit such commissions in the annual accounts; for the purpose of ascertaining the true balance due from him annually upon which the interest was to be charged. And the same principle has been considered as applicable to the case of receivers and guardians, who actually render or pass their accounts periodically under the general rule, or in conformity with a special order made in the particular case. (See 6 Paige’s Rep. 216.) But it certainly was not the intention of the legislature, or of this court, to sanction the principle of allowing to the guardian or other trustee full commissions upon every receipt and reinvestment of the trust fund committed to. his care and management. The result of such a principle of computing the allowance for commissions, if the investments of the trust fund were made from year to year and the accounts were rendered or passed annually, would be to give the trustee his full commissions upon the principal of the trust fund every year, as well as upon the income thereof received and expended from time to time. And where the trust fund was less than SI000, if it did not produce more than five per cent interest, the whole income would not only be exhausted in payment of the commissions of the trustee, but in the course of time the commissions payable upon the receipt and disbursement of the interest annually would sink the principal also.

The investment or reinvestment of the fund, from time to time, upon new securities for the purpose of producing an income therefrom, is not such a paying out of the trust monies as entitles the guardian or trustee to commissions for paying out the same, within the intent and meaning of the statute on this subject; unless such securities are finally turned over to the cestui que trust as money, or otherwise applied in payment on account of the estate. Neither is the guardian or trustee entitled to charge anew commission for the collecting or receiving back of the principal of the fund which he has so invested. But he will be entitled to commissions upon the interest or income of the fund produced by such investments, and received and paid over by him.

The statute gives a certain allowance by way of commissions for receiving and paying out monies, by executors, guardians, &c., without specifying how much is to be allowed for receiving and how much for paying out the same. And it may sometimes happen, upon a loss of the fund without any fault on the part of the guardian or other trustee, or upon a change of trustees, that the guardian or trustee may be entitled to compensation for one service and not for the other. In such cases the language of the statute must be construed with reference to the decision of Chancellor Kent in the Matter of Roberts, (3 John. Ch. Rep. 43,) where he first established the allowance to be made in such cases, in conformity with the directions of the act of April, 1817; that is, to allow one half commissions for receiving and one half for paying out the trust monies. The proper rule therefore for computing the commissions upon the first annual statement, or passing of the accounts, of the guardian, receiver, or committee who is required to render or pass his account periodically during the continuance of the trust, is to allow him one half of the commissions, at the rates spe-

cified in the statute, upon all monies received by him, as such trustee, other than the principal monies received from in- . , , . , r vestments made by him on account of the trust estate. And he is also to be allowed his half commissions on all monies paid out by him, other than monies invested or reinvested by him in bonds and mortgages, stocks, or other securities, for the benefit of the trust estate under his care and management; leaving the residue of his half commissions upon the fund which has come to his hands, and which remains invested or unexpended at the time of rendering or passing such account, for future adjustment when such funds shall have been expended, or when the trustee makes a final settlement of his account upon the termination of the trust. And upon every other periodical statement of the account during the continuance of the trust, half commissions should be computed in the same manner upon all sums received, as interest or income of the estate or as further additions to the capital thereof, since the rendering or passing of his last account, and half commissions upon all sums expended except as investments.

In the present case the whole amount received by the guardian, for the benefit of his ward, previous to the 25th of July, 1838, the time of passing the account, was $11,087 08 ; and the amount of his expenditures, other than the monies invested by him upon bond and mortgage, was $516,36. He is therefore entitled to his half commissions, on the monies received, at the rate of two and an half per cent on the first $1000, one and a quarter per cent on the next $4000, and one half of one per cent on the residue thereof; amounting, in all, to the sum of $105,43. And he is entitled to the further sum of $12,90, for his half commissions, at the rate of two and a half per cent, upon the amount of his expenditures. Crediting him therefore the $10,600 which he has invested upon bonds and mortgages for the benefit of the estate, it will leave a balance due to him, upon the passing of his account, in July last, of $147,61 ; which sum, together with the taxable costs of passing the account and of this application to confirm the report, is to be allowed to him by the vice chancellor upon the passing of his next annual account. The register will therefore enter an order to confirm the report, with this modification thereof as to the commissions allowed to the guardian.


source: Caselaw Access Project

author: The Chancellor.

license: Public Domain

text:
    Pratt and others, assignees, &c. vs. Rathbun and others.
    Where an insolvent debtor made an assignment of his property for the benefit of his creditors, giving a preference to certain classes, and a decree was made for the benefit of ail the creditors who should come in before the master and prove their claims upon the assigned fund, a preferred creditor who had neglected to come in and prove his claim within the time limited for that purpose by the master, as directed by the decree, was not allowed to come in afterwards and prove his claim; except on the terms of having his debt placed upon an equality with those of the creditors who were not preferred, in case there should be a surplus after paying the preferred debts already proved.
    Where creditors are required to come in and establish their claims under a decree, they are not holden to strict rules as to the time within which they shall come in and prove their debts, so long as it can be done without injustice to other parties.
    Upon an application by a creditor to come in and prove his debt after the time limited for that purpose has expired, the other creditors who are interest ed in the fund, and who have proved their claims, arc entitled (o notice of the application, if they have appeared in the cause. But to entitle a defendant in the suit, or a creditor who comes in under the decree, to such notice, his appearance must be entered with the proper officer, and notice thereof served on the complainant’s solicitor.
    The bill in this case was filed by the assignees of B. Rathbun, who were also some of his preferred creditors, for a construction of the articles of assignment, and to have the several preferred and other creditors come in and establish their claims, under the assignment, as well to priority as otherwise. Most of the creditors were made parties, and suffered the bill to be taken as confessed ; some after appearance and some without having appeared in the cause ; and a general decree was made for all the creditors to come in and establish their claims before the master, who was also directed to report as to the priorities of the several claims under the assignment. After the time allowed for proving the claims before the master, and while he was making up his report, Johnson, Hodge & Co. who" had proved their debt before the master, presented a petition, stating that they believed they had proved the necessary facts before the master to establish their right to be placed in the class of preferred creditors, but that the master had not taken down such proof; or that they had, through inadvertence, forgotten to examine their witness to that fact, or the master had neglected to take down that part of his examination. The petitioners also showed by their petition that they were entitled to be placed in the class of preferred creditors. They therefore prayed that they might be permitted to go before the master arid make proof of the facts. Notice bf the application was only given to the solicitor of the complainants.

      September 18

      The Chancellor decided that all the creditors who had come in and proved their claims before the master had an interest in the question, and had a .right to be heard upon the application if they had appeared in the cause ; that the preferred creditors were interested in not having the number of that class increased, which, in case of a deficiency, would diminish their respective shares of the trust fund ; and that those who were not preferred had also an interest in diminishing the amount of the preferred debts, "so that their shares of the surplus, if any, might thereby be increased. He therefore directed the application to stand over, and that a copy of the petition and a notice of the time and place of presenting the same should be given to the solicitors of such of the creditors as had appeared in the cause, as well as to the solicitor of the complainants. But he decided ' that those creditors who had come in and proved their claims before the master but had neglected to cause" their appearances to be entered, with the register or assistant register, were not entitled to notice of the application ; that this was an ordinary proceeding in the cause, within the meaning of the 16th rule which declares that no services of notices or papers in the ordinary proceedings in the cause shall be necessary to be made on a defendant who has not appeared therein ; and that to constitute an appearance, so as to entitle the party to service of notices and other papers which might affect his interests, he must cause his appearance to be duly entered, and must give notice thereof to the complainant’s solicitor, so that other parties may have the means of knowing on whom notices and papers were to be served.
    Due notice of the application having been given to the creditors who had caused their appearances to be entered, the application was renewed by,

      S. Stevens, for the petitioners.

      J. Rhoades, in behalf of the complainants and of the other creditors represented by them, opposed the application.
   The Chancellor.

The petitioners show that they have a right to be placed in the class of preferred creditors, and 1 think the excuse is sufficient to entitle them now to come in and establish the facts before the master. In creditors’ suits, or others where the creditors are required to come in before a master and establish their claims under a decree, it is not the practice of this court to hold them to very strict terms as to the time when they shall come in and prove their debts ; so long as it can be done without injustice to other parties. And in this suit I have already permitted some creditors, who had neglected to prove their claims within the time prescribed by the master, to come in and make their proof, upon payment of the extra costs occasioned by their negligence. The petitioners must therefore have leave to go again before the master for the purpose of establishing their right to be placed in the class of preferred creditors, so as to place them upon an equality with other preferred creditors in case the fund is not more than sufficient to pay the preferred debts. But as equality among creditors is equity, and the petitioners have made a slip, by which they have lost the priority which the assignor intended to give them, over other creditors who had an equal claim in equity to a rateable proportion of the assigned fund, they must be let in to establish their claim to be placed in the class of preferred creditors, upon the express condition that if the fund is more than sufficient to pay the preferred creditors, they are, as between themselves and the creditors who are not preferred, to be placed upon the terms of perfect equality in the distribution of the fund. They must also pay to the solicitors of the parties who have appeared on this application the extra expense caused by this motion, and the costs of such further proof; to be taxed and allowed by the master.


text:
    Rogers & Sagary vs. De Forest and others.
    An express power to sell on credit, contained in an assignment to trustees to sell the assigned property for the payment of debts, does not render the trust invalid, under the provisions of the revised statutes relative to- uses and trusts ; neither does it render the assignment fraudulent and void as against the creditors of the assignor.
    But an express trust to lease or mortgage the estate assigned for the benefit of creditors, is not authorized by the revised statutes ; and where the estate is assigned to the trustee upon such an unauthorized trust, no estate what, ever vests in the trustee under the assignment.
    An assignment of different kinds of property in trust may be valid in respect to some portions of the property and invalid as to other parts thereof. But whenever the legal effect of any provision of the assignment is to defraud the creditors of the assignor, the whole assignment is void.
    December 4.
    This was an application on the part of the complainants, in a creditors’ bill, for the appointment of a receiver; not only as to De Forest and T. Darling, the judgment debtors, but also as to the defendants L. Kip and J. F. Darling, the assignees of T. Darling. Cross applications were also made on the part of T. Darling, and also on the part of his as« signees and of De Forest, to dissolve the injunction.

      F. B. Cutting, for the complainants.

      S. Stevens, for the defendants.
   The Chancellor.

There is no ground whatever for the dissolution of the injunction, so far as it relates to the judgment debtors. The motions as to them must therefore be denied with costs. So far as relates to them also, and as to any property in their possession or under their power or control, it is a matter of course to appoint a receiver, and to require them to deliver over such property under oath. The fact that a receiver has already been appointed, at the suit of a creditor in another suit, is no answer to the application; as the 193d and the 194th rules have provided for the appointment of the same person as receiver in the subsequent suit, in such a case.

The only objection to the assignment of T. Darling which is deserving of consideration, is the express trust contained therein to mortgage the real estate assigned for the benefit of creditors, if the assignees think proper to do so, instead of selling the same. The express power to sell on credit, is a power which is usually implied in trusts of this description, and it is not a violation of the provisions of the revised statutes relative to uses and trusts. Neither does the creation of such a trust tend in any manner to delay or hinder the creditors of the assignor in the collection of their debts. For if the assignees do their duty, they will not sell the property on credit without obtaining therefor the diiFerence in value between a sale for cash and a sale upon credit. And the creditors, should they think proper to do so, have a right to insist that such securities should be immediately converted into money and applied towards the satisfaction of their respective debts, or as soon as they shall deem it for their interest to have it done. This court, therefore, upon a bill filed by the creditors to carry the trusts of the assignment into execution, could probably obtain the cash value of the assigned property by a sale of such securities, as readily if not more so than if the fund remained in the condition of real estate ; particularly if it was property in the country, or unimproved lithographic cily lots which would not soon be wanted for building purposes. The bonds and mortgages of responsible purchasers of such property would probably be worth more to capitalists than the land itself; as they would then have the personal responsibility of the purchasers in addition to the security of the land.

But the express trust, which is also contained in this assignment, to mortgage the assigned property for the benefit of creditors, is a trust prohibited by the article of the revised statutes relative to uses and trusts. Although in some cases of common /aw trusts, a power to sell real estate for the purpose of raising money thereon might be deemed to include a power to mortgage, which in England was considered as a species of sale as it transferred the legal estate to the mortgagee, it can hardly be considered so here where the mortgage is considered as a mere security for money; so much so, indeed, that a payment of the debt, even after the day of payment is past and without any reconveyance, leaves the legal title in the mortgagor. At all events, the difference in language adopted by the legislature in the first and second subdivisions of the fifty-third section of that article, shows that it could not have been intended by the lawmakers that the trust to sell lands, as authorized by the first subdivision, should include a trust to mortgage and lease the same ; which by the second subdivision they have expressly authorized to be created for other purposes. If the object of both subdivisions was to authorize a trust of the same character in all icspects, then it is impossible to perceive any good reason why one subdivision was not made to embrace the trust to sell, lease or mortgage lands, for the benefit of creditors, as well as the trust to sell, lease or mortgage the same for the benefit of legatees, or for the purpose of satisfying any charge thereon. It was only necessary in the first case to authorize the creation of a trust to sell; and the legislature probably did not intend to hold out any inducement to a debtor in failing circumstances to place his property beyond the reach of creditors, by creating a trust estate in the hands of his assignee which might delay the collection of their debts. This could not be done by a simple conveyance in trust to sell, although the time of sale should, by the trust deed, be postponed to a distant day; as by the provisions of the 62d section, (1 R. S. 727,) the estate in the mean time would remain in the debtor, and could be reached by the executions of his creditors, as a legal estate. But if the conveyance authorized the trustee to lease or to mortgage the estate immediately, the fee would necessarily pass from the debtor at the time of the conveyance, and the creditor could not sell it on execution against the debtor. In that case, by the provisions of the sixtieth section, the whole estate, legal and equitable, is declared to be in the trustee; so that no execution could reach it, although not mortgaged for its full value, or not'leased in fee. In the case of a trust to sell, mortgage or lease lands for the benefit of legatees, or to satisfy a charge thereon, it was necessary to give to the trustee more extensive powers; as it would frequently be necessary, in the case of infant legatees, &c. to give to the trustees a power to accumulate the rents and profits for their benefit, or to apply them to the use of the legatees, whether infants or adults, for their support. But even in the cáse of trusts to sell or mortgage lands for the benefit of legatees, or to satisfy charges thereon, the legislature has been careful not to vest the legal estate in the trustee, except when it was necessary for him to have such an estate for the purpose of receiving the rents and profits. (1 R. S. 727, § 56.) These suggestions also seem to correspond with the views of the revisers, as expressed in their notes upon these sections. Upon the whole, therefore, I am satisfied it was never the intention of the legislature to vest the legal estate in the trustee, under the first subdivision of the fifty-fifth section, for any other purpose than that of an immediate sale for the benefit of creditors; which estate would necessarily carry with it, as an incident to the estate, the power to receive the rents and profits until such time as the trust could be executed by a sale. But it would not authorize the trustee to lease or mortgage the estate, except by a lease thereof at the will of the trustee or until the trust could be executed by a sale, which the creditors might insist upon at once. An express trust, therefore, to lease or mortgage the trust estate for the benefit of creditors, is a trust not authorized by the revised statutes; and the express trust to mortgage the assigned property in this case, being an express trust not authorized by the revised statutes, no estate vested in the trustees by the assignment, according to the positive declaration of the statute itself. (1 R. S. 729, § 58.) The legal estate in the assigned property in this case would, therefore, be in the assignor, were it not for the absolute conveyances of the land executed at the time of the assignment. Those conveyances if considered a part of the assignment convey no title whatever to the trustees, for the reasons before stated ; and if considered as separate and distinct instruments, they are void as against these complainants, being absolute conveyances of the debtors’ property without consideration.

In regard to the application for a receiver it is perfectly immaterial whether this assignment can or cannot be sustained as a power in trust; for if it is good as a power in trust the legal estate is still in the judgment debtor; and a receiver is necessary to collect and preserve the rents and profits of the premises until the title of the assignor shall be divested by the execution of the power in trust, if that power is valid. Upon that point I give no opinion at the present time, as I wish the benefit of a more full argument of that question at the hearing, before I attempt to decide the same. In the mean time I will endeavor to make such an order in the premises as will not deprive the trustees of any right they may derive from the execution of the power, if it is valid. A receiver must therefore be appointed of the rents and profits of the real estate assigned which is situated within this state, with liberty to lease the premises for terms not exceeding one year. And the tenants must attorn to such receiver and pay over to him the rents already due or to become due from them respectively; which leases the assignees must give their assent to, if required by the tenants. The assignees must also deliver over to the receiver, on oath before the master, all the monies received by them for the rent of the premises, except such as had been received by the assignor himself before the commencement of this suit; or which the assignees had paid out in pursuance of the trust before that time. And the receiver must deposit all rents received by him, from time to time, in the trust company, to accumulate until the further order of the court, after deducting his charges and commissions. The reference must be to the same master who appointed the receiver in the case of Selden, if he is still in office.

The injunction must be so far dissolved as to authorize the trustees to sell the real estate, either for cash or on credit upon bonds and mortgages of responsible purchasers, whenever the receiver shall be satisfied that such sales are made for the fair cash or credit value thereof, as the case may be ;' the purchase money being deposited at the time of such sales in the Trust Company, in the name of the assistant register, to accumulate for the benefit of such persons as may be hereafter adjudged entitled thereto, and subject to the further order of the court. And if the sales are upon credit, the bonds and mortgages must be taken in the name of the assistant register, and deposited with him in the same manner. Should the receiver and the trustees disagree as to what is the fair value of any part of the real estate which the latter may have an opportunity of selling, the master must decide between them ; and his decision thereon is to be conclusive, without liberty to either party to except to the same.

Where a deed or instrument is declared void by statute on account of some illegal or fraudulent provision contained therein, all the provisions of such deed or instrument must fall together. But the provisions of the revised statutes which I have been considering do not declare the instrument creating the estate void, so as to render other provisions in the same instrument absolutely inoperative. It is merely declared that where the estate is granted upon an unauthorized trust no estate whatever shall vest in the trustee ; and I do not at present see any legal objection to the trust as to the personal property in the hands of the trustees in this case. The injunction, so far as relates to that, is therefore dissolved ; but without prejudice to the rights of the complainants, even as to that part of the trust fund, upon the final hearing. The costs upon these cross applications, as between the complainants and the assignees, are not given to either party as against the others.


text:
    Gihon and others vs. Albert & Shaw.
    Where a defendant has been examined on oath before a master upon a reference to appoint a receiver upon a creditor’s bill, his examination may he given in evidence by the adverse party, upon the hearing of the cause, to contradict the defendant’s answer; although the master required him to answer questions which he was not legally hound to answer.
    If illegal or improper questions are put to a defendant upon his examination before a master ho is not bound to answer them, but may appeal from the decision of the master to the court. But if he improperly refuses to answer questions which are relevant and proper, he will be compelled to pay the costs of an application to the court to compel him to answer; and he may be otherwise punished for the contempt.
    December 4,
    This was an appeal from an order of the vice chancellor of the first circuit, denying the application of the defendants to suppress the examination of one of the defendants before a master, as an exhibit to be used as evidence on the hearing of the cause. The defendants had been required to answer the allegations in the complainants’ bill; to which answer a replication had been filed. And upon the taking of the testimony before the examiner, the complainants offered in evidence the examination in question as an exhibit to be used on the hearing to falsify the allegations in the answer; which examination was taken before the master upon a reference under an order of the court to appoint a receiver in the cause, and requiring the judgment debtor to deliver over his property to the receiver under oath, before the master, in the usual form.

      C. Edwards & C. T. Cromwell, for the appellants.

      James W. Gerard, for the respondents.
   The Chancellor.

The exhibit which the vice chancellor has refused to suppress is the examination of one of the appellants upon oath, It is therefore evidence of the strongest character against him and ought not to be suppressed, unless it is wholly irrelevant to the matters in issue between the parties, or was obtained under such circumstances that it cannot be legally used as evidence for the complainants on the hearing. I think there can be no reasonable doubt as to the relevancy and materiality of this examination, as evidence to support the complainants’ case upon the matters in issue between the parties. If it tends in any manner, either alone or in connection with any other evidence which may be introduced at the hearing, to show that the alleged assignment from Shaw to Albert was fraudulent, or was intended to delay or hinder the creditors of Shaw in the collection of their debts ; or to show that Albert is indebted to Shaw, or that he has any property of the latter in his hands, the exhibit cannot be rejected as irrelevant. And as the complainants could not use one part of the examination as evidence and reject other parts thereof as immaterial, without the consent of the adverse party, the fact that much of the examination is wholly immaterial to the questions in issue between the parties fornis no ground for suppressing such examination.

Upon the view I have taken of another question in this case it is not necessary for me to inquire whether there are not many things in this examination which were irrelevant to the matters upon which the master was authorized to examine the defendant Albert on oath upon the reference. In the case of Fitzhugh v. Everingham, (6 Paige's Rep. 30,) it was decided that under the common order of reference to appoint a receiver, &c. upon a creditor’s bill, the complainant was only entitled to examine the.defendant on oath in relation to the subject matter of the reference. And the pi op-er course is there pointed out which the defendant is to pursue, if he is advised by his counsel that questions put to him are improper or irrelevant to the matters referred to the master; but which the master decides it is proper for him to answer. He is to refuse to answer. Which refusal is in the nature of a demurrer to the interrogatory. And then the question will be brought before the court upon an application to compel him to answer, and to punish him for the contempt in refusing to answer if the interrogatory was not an improper one. Counsel should be careful, however, in advising their clients not to answer in such cases, unless the question is clearly irrelevant or improper; as the client will be charged with the costs of the application to the court if it turns out that he is in the wrong, and may be further punished, in the discretion of the court, for his contempt in refusing to answer. And in such case if the counsel has advised him not to answer, where there was no real doubt as to the propriety of the question, or where the answer could not prove injurious to the client if he was an honest man, the counsel will himself be liable to his client for the damage the latter has sustained by such improper advice.

Where the question is relevant, and proper in relation to the subject matter of inquiry before the master, the defendant must answer it, although he may have been required to answer as to the same matter on oath in response to the allegations in the bill; and though he has not given a written consent under the 191st rule, so as to entitle the complainants to insert a clause in their order of reference to take his examination on° oath as to all the matters in the bill, as a substitute for an answer in the usual form. Whether the questions which the defendant has answered before the master upon this reference as to a collateral matter were proper or improper, in relation to the subject of that reference, I do not see any legal principle upon which he can object to the use of his examination as evidence against him, upon the hearing the same cause upon pleadings and proofs, or pi any other proceeding in the cause as to which the examination is material and relevant. As well might a party who had answered a bill of discovery which he was not legally bound to answer, afterwards object to the answer being used against him upon a trial at law, on the ground that he was not legally bound to answer the bill but might have demurred to the same successfully.

The decision of the vice chancellor was therefor right in refusing to suppress the exhibit as improper testimony for the complainants on the hearing. And the order appealed from must be affirmed, with costs.


text:
    Lawyer and others vs. Cipperly and others.
    In a bill filed against the trustees of an incorporated religious society to re. strain them from ejecting the clergyman from the parsonage and depriving him of tho right to preach in the church, it seems the corporation itself should be made a party to the suit.
    The act of 1784 for the incorporation of religious societies recognized three distinct classes or bodies as existing in the incorporation of a Christian church; viz: the church or spirtual body consisting of its office bearers and other communicants; the congregation or electors, embracing all the slated hearers or attendants on divine worship; and the trustees who were to have the control of the temporalities of the society for tho benefit of the stated hearers and the communicants.
    The church, as to its doctrines, goverment and worship is to bo governed by its own peculiar rules which neither the congregatron or trustees can interfere with. But whether the church can, with the assent of the congregation and the trustees, change its government, discipline, mode of worship or standards of faith; quiere ?

    The minister of an incorporated religious society cannot he called and settled by the church or communicants only; but the assent of the trustees must be obtained, to authorize him to preach in a building belonging to the corporation or to occupy the glebe and parsonage. And if he is to reejive a support or compensation for his services from pew rents, or from the subscriptions or ordinary contributions of the stated hearers of the congregation, the payment of such stipend must be authorized by the electors of tho congregation at a regular meeting called for that purpose.
    If the trustees of a religious corporation should without reason refuse to employ a minister, against the wishes of the great body both of the church and tho congregation, it seems it would be such a breach of trust as to authorize the court of chancery to interfere to remove the trustees and to allow the congregation to elect others in their places. But the trustees would not be guilty of a breach of trust by withholding their assent to tho call of a minister whose employment would probably destroy the peace and harmony of the church, or of the congregation.
    This was an application by John D. Lawyer, a clergyman, and a part of tho elders and deacons of Zion church, an incorporated Evangelical Lutheran society, for an injunction to restrain the defendants, who were the trustees of the corporation, from interfering with or impeding the complainants and their adherents in the occupation of the church belonging to such corporation, for public worship and the administration of religious ordinances; and from expelling the complainant Lawyer from the possession of the parsonage and tiie glebe lands belonging to such corporation, or from proceeding at law to recover the same. The grounds upon which the application rested, were as stated in the bill, that Lawyer had been duly nominated by the church council and elected by a majority of the male members of the church and congregation ; but that the defendants, the trustees of the corporation, refus.d to sanction such election or to suffer him to preach and administer the ordinances in the church, and were about to disturb him in the enjoyment of the parsonage and glebe. On the part of the defendants the regularity of the election was denied. And they also insisted that Lawyer and his adherents had abandoned the faith and doctrines of the Evangelical Lutheran church, by refusing to adhere to the Augsburgh confession of faith, in many particulars stated in the answer. It also appeared that Lawyer and his adherents had withdrawn themselves and were endeavoring to withdraw that church from the Hartwick synod, a superior church judicatory to which Zion church had attached itself many years before.

      December 4.

      D. Buel & S. Stevens, for the complainants.

      H. Z. Hayner & H. P. Hunt, for the defendants.
   The Chancellor.

I am inclined to think that the objection is well taken that the corporation is not made a party to this proceeding to deprive its trustees of the control of the temporalties of the church. The objection to such a proceeding is that a decision against these individual trustees will not be binding upon their successors, who will represent the corporation only. Neither will a decision in their favor settle the right claimed by the complainants as against the corporation : for the new trustees could not set up a decree against the complainants in favor of the present defendants, in bar of a new suit to try the same question over again. It is not necessary for me, however, in this case, to put my decision upon that technical ground. Neither shall I attempt to decide the question as to which party, if either, has departed from the original standard of faith which existed in this society at its original formation. If that standard was the first or original edition of the Lutheran confession of faith as drawn up by Philip Melancthon, the friend and fellow laborer of the great German reformer, to be presented to the diet of Augsburgh in 1530, then it is probable that the complainants and their adherents have departed from that standard, in some particulars at least. But if the standard of Zion church at the time of its incorporation, or rather at the time of its original formation, was the Augsburgh confession as afterwards modified by Melancthon himself, and as explained by Francke, the celebrated professor in the university of Halle, nearly two centuries afterwards, the complainants and those who are acting with them are perhaps as near to that standard in doctrine as their opponents. It probably is not questioned by cither party that the principal doctrines of the Augsburgh confession are and ever have been considered as the standard of faith in all the Evangelical Lutheran churches in the United States. But whether all the churches of that denomination of Christians, either here or elsewhere, have literally adhered to the doctrine of consubstantiatioh or the mystical impanation or union of the real body and blood of Christ with the unchanged elements of bread and wine in the eucharist, or to the doctrine of a limited auricular confession and of private absolution, or of the necessity of baptism to salvation, certainly admits of some doubt. It is well known that a great diversity of opinion existed between the early Bohemian, German and Swiss reformers in relation to the presence of the Saviour in the sacrament of the Lord’s supper. The Hussites may have believed in the doctrine of transubstantiation. But if they did, they still differed with the Romanists; who held that the real body and blood was contained in each element, and therefore refused the cup to the laity as unnecessary. Luther and Melancthon both originally held to the doctrine of impanation, or consubstantiation. Zuinglius understood the words “ this is my body” in a figurative sense only; while Calvin, who repudiated the doctrine of the real presence in the consecrated emblems, insisted upon the special spiritual presence of our Saviour during the administration of the sacrament. - And against all these doctrines the anathema maranalhas of the Papal church were directed, by the cannons of the council of Trent. It is believed, however, that Molancthon himself, some years before his death, adopted the Calvinistic doctrine on that subject; as did many other Lutheran divines who did not adopt the principles of the German Reformed Church generally. And it is not improbable that this and some of the other questions which have produced the recent schism, have continued as disputed or unsettled points of doctrine in many of the Lutheran churches down to the present day. 1 cannot perceive, however, why this difference of opinion should necessarily lead to a division in this branch of the Christian church. One of the doctrines inculcated by Luther and Melancthon, and by all the other reformers who joined in the original Augsburgh confession, and which was also the doctrine afterwards taught by the pastor of Glaucha in his biblical lectures at the university of Halle, allowed for a difference of opinion in minor particulars in reference to all human creeds. And they adopted the sacred scriptures alone as ihe only infallible standard of faith and practice. And such now is, or at least ought to be, the doctrine of all Evangelical Lutheran churches which profess to be based upon the reformation principles contained in the confession of faith promulgated by the German reformers, at the diet of Augsburgh, on the memorable 25lh June, 1530.

In the case of The Baptist Church of Hartford v. Withcrell, (3 Paige’s Rep. 296,) I had occasion to explain my views of the difference between the officers and communicants of a church as a spiritual body, and the trustees and congregation of the church or society as the owners of the temporalities thereof, under the general provisions of the act relative to the incorporation of religious societies. This society was incorporated under the act of 1784, (1 Greenl. Laws, 71,) which, in respect to Presbyterian and other churches not particularly specified, is not materially variant from the subsequent statutes as re-enacted in the several revisions of the laws. The tenth section of the act of 1784, provides that the trustees, who by a previous section have the control and management of all the property and temporalities of the church, shall not thereby be adjudged to have the power to fix the salary of the minister ; but the salary shall be fixed by the electors of the congregation, at a meeting to be called for that purpose. And the salary or stipend, when so fixed, is to be ratified and confirmed by the trustees by an instrument under the corporate seal; after which the trustees are authorized to pay the same out oí the revenues of the church, congregation, or society. The eleventh section, which I believe is not found in the subsequent revisions of the act, declared that nothing in the act contained should be construed or adjudged to abridge or affect the rights of conscience or private judgment, or to change the religious constitution or government of the church, congregation, or society, so far as respected or in any wise concerned the doctrine, discipline or worship thereof. The statute therefore recognized three distinct classes or bodies as existing in the religious corporation, and defined their relative powers and duties: the church, or spiritual body, consisting of the office bearers and communicants ; the congregation or electors, embracing all the stated hearers or attendants on divine worship who are competent to vote for trustees; and the trustees of the corporation, who have the control of all its temporalities, to be improved, used, and managed by them for the benefit of all the stated hearers and the communicants, as far as is practicable. The church, or spiritual body, as to its doctrine, government and worship, is to be governed and regulated by its own peculiar rules, which neither tho trustees nor tho congregation have any right to interfere with or alter without the consent of the church itself. Whether the church, as such, has a right to change its government, discipline or mode of worship, or its standards of faith, with the consent of the trustees and congregation, is a question which docs not arise here; as it is denied that the trustees or the congregation have ever assented to a change in this respect, if any has in fact been made by the complainants and their adherents. But to authorize the calling and settling of a minister, if he is to preach ap^l administer the ordinances inabuilding bolonging to the congregation, or is to have the use of the parsonage and glebe or any other part of the corporate property, it is not sufficient that he should be called or elected by the church only, as the spiritual body, according to its general usages; but his employment must also be sanctioned by the trustees as the representatives of the temporal rights of the whole congregation. And if he is to receive any support or compensation for his services, either from pew rents or from subscriptions or other ordinary contributions by all or any of the stated hearers of the congregation, which sub-' scriptioris or , ontributions for the support of a settled minister are a part of the revenues of the congregation or society within the intent and meaning of the statute, the payment of such stipend must also be authorized by the electors at a regular meeting called for that purpose; or the trustees will violate their duty by suffering him to be thus employed and paid.

It will be seen, from this view of the subject, tfyat the provisions of the statute are well adapted to preserve harmony between the communicants of the church and the other members of the congregation ; which latter class it is of more importance to conciliate, and to bring within the hearing and under the influence of the gospel, than it is to impart spiritual benefit to those who are already members of the church as office bearers or communicants..

If the trustees without any reason whatever should obstinately refuse to employ a minister who was every way acceptable to the great mass not only of the church but also of the congregation, and who had not in their opinion departed materially from the standards of faith adopted in such church, I am not prepared to say this court would not correct such a flagrant breach of trust by removing them from their office as trustees ; so as to allow the congregation to elect others in their places. It must, however, be a case of a palpable breach of trust which will authorize this court to interfere; and it should not be done in any case where the church and congregation were very nearly equally divided as to the propriety of employing any particular person as their minister. And it is the right if not the duty of the trustees to withhold their assent, where there is reason to believe that the employment of the individual selected by the majority of the church, be he orthodox or not, will destroy the peace and harmony of the congregation or of the church. In such cases also ministers of religion, who profess to be the disciples of Ilim who taught the religion of peace and good will in all the relations of life, should not suffer themselves to be the means of fanning the flame of discord or sowing the seeds of strife in any church or congregation with which they are connected.

For these reasons, and without intending to decide the question as to which party is right in the religious controversy which is unfortunately distracting the Evangelical Lutheran church in this part of the United States, I am satisfied that the defendants have not abused their trust. The complainants therefore are not entitled to any relief which it is in the power of this court to give.

The application for an injunction must be denied with costs to be taxed. And the temporary injunction agreed on by the counsel of the parties is dissolved.


text:
    Sedgwick vs. Cleveland and others.
    Where the defendant in a suit was ordered to attend before a master and to assign and deliver over 1ns property to a receiver, on oath; and previous to the time appointed by the master’s summons the complainant made an as signment to a receiver, of all his interest in the subject of the suit, under an order made in another cause ; Held, that the suit had become defective, so that the complainant could not proceed therein before the master to compel the defendant to make the assignment, until the complainant’s assignee was made a party, by a supplemental bill in the nature of a bill of revivor.
    As a general rule, the real persons in interest must be the parties to a suit in chancery; and where the complainant, after the commencement of a suit, makes an assignment of his interest, under the insolvent laws or otherwise, the assignee must be made a party before the suit can be further proceeded in.
    Where the complainant assigns his interest in the suit pendente lite, if the defendant wishes to have the suit brought to a termination his proper course is, to apply to the court for an order that the assignee proceed and file a supplemental bill in the nature of a bill of revivor within such time as shall be prescribed by the court, or that the bill in the original suit be dismissed. And due notice of the application should be given to the assignee as well as to the solicitor of the complainant.
    If a defendant voluntarily assigns his interest in the subject of the suit pendente lite, the complainant is not bound to make the assignee a party, unless he thinks proper to do so. Aliter where the assignment is by operation of law; as in cases of bankruptcy or assignment under the insolvent arts.
    Whether, if the adverse party proceeds in the suit after he has a knowledge that it has become defective by reason of an assignment, it will be a waiver of his right to have the assignee made a party; quosre ?
    December 4.
    This was an application for an attachment against Cleveland, one of the defendants, for not attending before a master and assigning and delivering over his property to the receiver appointed in this suit, according to the order of the court. The order was made in June, 1838, upon a creditor’s bill; but the summons to attend before the master and make the assignment was not taken out and served upon Cleveland until about the 20th of October, returnable on the'29th of the same month ; on which last day, and upon subsequent adjournments, Cleveland neglected to appear. In answer to the complainant’s application, Cleveland showed that, previous to the issuing of the master’s summons, a judgment creditor’s bill had been filed against Sedgwick, the complainant, before the vice chancellor of the first circuit, at the suit of Thomas & Card,; that an order for the appointment of a receiver had been made in that suit, under which order the complainant in the present suit had, on the I3ih of October, 1838, made a general assignment of all his property, effects, and things in action, both legal and equitable, to the receiver in the suit before the vice chancellor; and that such receiver, on the same day, had served upon Cleveland a notice of such assignment, and required him to pay all monies due to the complainant in the present suit, to such receiver. The counsel for Cleveland therefore denied the right of the complainant to proceed in this suit, or to compel an assignment to the receiver appointed therein ; but Cleveland submitted the question to the court and offered to obey the decision and direction of the chancellor in the premises.
    A. Taber, for the complainant.
    J. Wilkin, for the defendant.
   The Chancellor.

If this had been the case of an assignment by the complainant under the insolvent acts, there could have been no possible doubt that the suit had abated ; or rather that it had become so defective that the complainant could not proceed any further in his own name against the defendant, if the latter had thought proper to raise the objection. This court requires the real parties in interest to bring the suit, except in certain cases where the complainant represents the rights of those for whom the suit is brought, both legally and equitably, as in the case of executors, or of trustees, or assignees under the insolvent acts. And where the sole complainant, who originally brought the suit in his own name and not in auter droit, is discharged under the insolvent acts and makes an assignment of his property for the benefit of his creditors, the assignee must be made a party before the suit can be further proceeded in. (Williams v. Kinder, 4 Ves. Rep. 387.) The proper course for the defendant, in such a case, if he wishes to have the suit proceeded in or put an end to, is to apply to the court for an order that the assignee file a supplemental bill, in the nature of a bill of revivor, within such time as shall be prescribed by the court for that purpose, or that the complainant’s bill be dismissed. And notice of such application should be served upon the assignee as well as upon the complainant in the original suit. (Porter v. Cox, 5 Mad. Rep. 80.) This proceeding is in analogy also to the statutory direction in case of the abatement of a suit, by the death of the sole complainant, where his representatives neglect to revive the suit. (2 R. S. 185, § [118] 124.) From the report of the case of Massey v. Gillelan, (1 Paige’s Rep. 644,) it would seem to have been decided that the suit might be continued, as at law, in the name of the original complainant, upon his giving security for costs. The question, however, as to the right of the complainant to proceed without bringing the assignees before the court by a supplemental bill, was neither raised nor considered in that case; as the defendant merely asked that the suit should not be permitted to proceed in the name of the insolvent debtor unless security for costs was filed. But in the subsequent case, of Garr v. Gomez, in the court for the correction of errors, (9 Wend. Rep. 649,) the principle that the suit becomes defective in such a case and cannot be proceeded in, if objected to by the defendant, until the assignees are brought before the court, is distinctly recognized. It is proper also to remark, that in the case of an assignment under the bankrupt or insolvent acts the suit is not strictly abated, even as to the complainant; but is merely become.so defective that he cannot proceed therein until the assignee is brought before the court. And the assignee becomes so far the legal and equitable representative of the rights of the complainant, that upon a new and supplemental bill in the nature of a bill of revivor and supplement being filed by the assignee, to continue the-proceedings in his own name, it is not necessary to make the former complainant a party thereto ; which would be necessary in the case of an assignment of only a part df the interest of the complainant in the subject matter of the suit. The complainant, however, w'ho has still art interest in having his debts paid out of the assigned property, or at least has an interest in the surplus if there should be any, is not obliged to abandon the suit absolutely, if the suit is necessary for his protection ; although the assignee refuses to proceed therein, without making any compromise of the suit with the defendant. In that case the complainant may proceed in his own name; but as the assignee has become a necessary party as to all subsquent proceedings in the suit, the complainant must bring him before the court by a supplemental bilí. (Milf. Pl. 66, 4th Lond. ed. Story’s Eq. Pl. 282, n. 2 John. Ch. Rep. 18.) In such a case, however, the complainant might be required to file security for costs, as directed by the third subdivision of the first section of the title of the revised statutes relative to security for the payment of costs. (2 R. S. 620.)

In the case of defendants whose interest in the subject matter of the litigation becomes vested in others, pendente lite, without an actual abatement of-the suit, a distinction is very properly made between the transfer of that interest by the mere voluntary act of the defendant, as in the-case of a sale or assignment in the ordinary course of business, and a transfer of that interest by operation of law, as upon an assignment in bankruptcy or under our insolvent acts. In the first case the complainant is not bound to make the assignee a party, although he may do so if he deems it essential to the relief to which he may be entitled against such assignee. But in the last case the assignee who has become such by operation of law, has a right to be heard, and must be made a party before the suit can be further proceeded in. The reason of the distinction is obvious. In the first case the assignee who is a mere voluntary purchaser, pendente lite, cannot defeat the complainant’s rights or delay his proceedings by such purchase; for if he could do so, the litigation, by successive assignments, might be rendered interminable. He therefore has no right to be heard, unless he brings himself before the court by a supplemental bill in the nature of a cross bill; which he may sometimes do to protect his rights as such assignee. And the decree in the original suit to which such assignee was not a party will bind the assigned property in his hands. Neither can the defendant who has made such voluntary assignment subsequent to the commencement of the suit, urge that as a reason why the suit should not proceed against him in the same manner as if no such transfer had been made. In the other case the assignee, upon whom the interest of the defendant has been cast by operation of law for the benefit of others, has a right to be heard for the protection of that interest. And the whole legal and equitable interest therein which formerly belonged to the defendant being vested in such assignee by the mere operation of the law itself, he will not be legally or equitably bound by a decree to which he is not a party. (Deas v. Thome, 3 John. Rep. 544.) The reasons for this difference between the two cases do not exist in relation to the transfer of the interest of the complainant; and where the adverse party makes the objection to his proceeding in his own name without bringing the assignee before the court. The party whose interest in the subject matter of the suit has become divested pendente lite can only object to the proceedings of his adversary in the suit, where such interest has become vested in another by operation of law and not by his own mere voluntary act. But where the party who has assigned the whole or a part of his interest in the subject matter of the suit attempts to take any active proceeding therein, the adverse party may object to such proceeding; on the ground that the suit has become abated or defective as to such assignor, so that the same cannot be proceeded in until the assignee is made a party. Perhaps there may be some exceptions to this rule, particularly where the adverse party, after he becomes acquainted with the fact of such assignment, does some act or takes some proceediug in the cause, on his part, which amounts to a legal waiver of his right to urge the objection that the suit had abated or become defective by reason of the transfer of interest.

In the present case the assignment of the complainant’s property and effects, to the receiver in another suit, certainly was not voluntary; inasmuch as it was made under the order and direction of a tribunal having jurisdiction and authority to compel obedience to such order. Neither can it be considered strictly as a transfer by operation of law merely; as there is no statute vesting the debts and other choses in action of the assignor in the receiver so as to authorize him to maintain suits in his own name, in courts of law, any further than a mere voluntary assignment would have enabled him to do so. But in this court, and in reference to the principle I have just been discussing, it must be considered as a transfer of the complainant’s interest, pendente lite, by operation of law; so as to enable the receiver to file a bill in his own name for the purpose of continuing the proceedings, in this suit, for the benefit of the trust with which he has been invested. And in such a bill it will not be necessary to make the present complainant a party; as the receiver, in this court, fully represents his rights so far as the defendants have any interest in that question. Whether the bill which the receiver is thus authorized to file, in his own name, is properly denominated an original bill in the nature of a bill of revivor, or a supplemental bill in the nature of a bill of revivor, is not very material. Perhaps it may be more appropriately termed an original bill in the nature of a bill of revivor and supplement. It is an original bill in the. nature of a bill of revivor, so far as it seeksto revive or continue the former proceeding in the name of a new complainant upon whom the right to continue the proceedings is not cast by the operation of law merely, but one upon whom the right is conferred by the operation of law, in connection with an alleged act of the former complainant, the validity of which act may be controverted by the defendant. And it is certainly supplemental in its nature, so far as it seeks to supply defects in a suit, which is not actually abated, by bringing the proper parties before the court to remedy such defects; so that the original suit may be continued and proceeded in to a decree or final termination. Like an ordinary bill of revivor and supplement, it may be filed by the assignee of the complainant without leave of the court previously obtained.

Upon a full view of the subject I am satisfied that the defendant is right in supposing that the complainant, in the present situation of this suit, has no right to proceed upon the order, to compel him to assign his property to the receiver, until the receiver appointed in the suit before the vice chancellor has made himself a party to this suit, by filing such a bill as has been suggested ; or until the present complainant has brought such receiver before the court by supplemental bill, upon an allegation of the neglect or refusal of such receiver to proceed; after he has had a reasonable time to make himself acquainted with the facts and to proceed in his own name, or to compromise the suit with the defendants if he thinks proper to do so. In either case the proceedings to compel the defendant to deliver over his property to the receiver appointed in this suit need not long be delayed ; for as soon as the necessary parties are before the court, by the filing of the supplemental bill and the service of process, an application may be made for leave to proceed upon the order already made.

The application for an attachment is of course denied, as Cleveland has done no act which can be considered as a legal waiver of his right to make this objection to the complainant’s proceedings subsequent to the 13th of October. But as this is a new question, and the complainant’s solicitor was probably misled by the defendant’s letter, asking for an adjournment without apprising him of his intention to raise this objection to the regularity of the proceedings, I shall not give to the defendant the costs of opposing the application.

       See Holt v. Hardcastle, 3 Young & Coll. Rep. 236.


text:
    Ward and others vs. The Sea Insurance Company.
    Where a company which had been incorporated for the purpose of making marine insurances, and of lending money upon bottomry and respondentia securities, suspended the business for which it had been incorporated, for more than a year, under a formal resolution to that effect by the board of directors; Held, that the corporation had forfeited its charter, and was liable to be dissolved under the provisions of the revised statutes; although the company in the mean time had attended to the adjustment of losses upon risks previously assumed, and to the business of collecting in and securing F the Corporate funds.
    The directors of a corporation, even with the consent of the stockholders, are not authorized to discontinue the corporate business and to distribute the capital stock among the stockholders, unless they' are specially authorized to do so by a legislative act, or by a decree of the court of chancery dissolving the corporation in the manner prescribed by the revised statutes.
    Where the directors of a corporation do any act which works a forfeiture of the charter of the company, it is such a violation of the law incorporating the company as to authorize a creditor, or a stockholder of the corporation to institute proceedings against it, for the purpose of having a receiver appointed to close up the concerns of the company, under the provisions of the "revised statutes relative to proceedings against corporations in equity.
    An intentional neglect on the part of the officers of a corporation to notify and hold the annual election for directors, as required by the act of incorpo_ ration, is such a violation of the provisions of the charter of the company as will authorize the court of chancery to appoint a receiver, and to decree a dissolution of the corporation.
    December 4.
    This was a petition of some of the stockholders of the Sea Insurance Company for the appointment of a receiver of the property and effects of the company, with the usual powers of a receiver to close up the affairs of the company, in conformity to the provisions of the article of the revised statutes relative to proceedings against corporations in equity ; and for an injunction to restrain the officers and directors of the company from collecting, receiving, disposing of, or in any way interfering with the property or effects of such company. The petition stated, among other things, that the company was incorporated in May, 1834, with a capital of $250,000, with the power to make marine insurance upon vessels, goods or merchandize, freight, bottomry interests, and all marine risks, and upon inland navigation and transportation, and to lend money upon bottomry and respondentia. And the petitioners complained, among other things, that the company, in January, 1837, resolved to suspend the business of the company, and had since that time committed the care and management of the estate and effects of the company to the president and secretary, aided by three of the directors; that the directors had neglected to make a statement of the property and affairs of the company, for the inspection of the stockholders, previous to the time appointed for the last annual election of directors, as required by the act of incorporation; that the petitioners had also been refused an inspection of the books of the company for the purpose of ascertaining the situation of its affairs ; that the business of the company had been suspended for more than a year; and that no election for directors had been held at the time appointed by law for the last annual election. Various acts of fraud on the part of the commissioners and others, in obtaining subscriptions of stock in the company, were alleged in the petition, but denied by the affidavits in opposition thereto; which allegations were considered by the chancellor as irrelevant to the subject of the petition. An order for the directors and officers of the company to show cause why the prayer of the petitioners should not be granted having been made, and notice thereof having been served on the president and secretary of the company and upon the attorney general, the directors and officers of the company put in affidavits in opposition to the application. In those affidavits all the material allegations in the petition were denied, except the allegations that the company neglected to hold the annual election in January, 1838, for the election of directors, and that the company had not taken any new risks since the passage of a resolution of the board of directors, in January, 1837, by which it was determined or agreed to suspend making any further insurances, and to close up the affairs of the company as soon as it could be done.

      J. Blunt & D. Lord, jun. for the petitioners.

      W. C. Noyes, for the directors and officers of the company.
   The Chancellor.

The resolution of January, 1837, followed as it has been by a general suspension of the business of insurance, and of loaning money upon the marine risks of bottomry and respondentia, for more than a year previous to the presenting of the present petition, was a suspension of the ordinary business of the corporation within the meaning of the 38th section of the article of the revised statutes relative to proceedings against corporations in equity. (2 R. S. 463.) The ordinary and lawful business of the corporation, as contemplated by the revisers who framed and the legislature that adopted that statutory provision, was not the mere adjustment of losses upon risks previously assumed by the company, nor the collecting in of its corporate funds with a view to the final closing up of its concerns. But the business referred to in that section, as applicable to this corporation, was the business for which the company was incorporated ; as specified in the fifth section of the act incorporating the company. (Laws of 1834, p, 524.) The safe investment of the surplus capital, and other funds of the company which were not wanted to pay losses or to loan upon marine securities, the settlement and adjustment of losses, the collection or payment of debts due to or by the company, and the conversion of the corporate property, securities and effects into money, when necessary for the corporate purposes, were powers merely incidental to the ordinary business of the company for the transaction of which it was incorporated. The exercise of some of those incidental powers, by the officers of the corporation, within the year and during the time when the ordinary husiness for which the corporation was created remained suspended, will not prevent a dissolution of the corporation upon a proper application for that purpose. Neither were the directors of the corporation, even with the assent of the stockholders, authorized to discontinue their corporate business and wind up the affairs of the corporation, or to distribute the capital among the stockholders; unless by the authority of a special act of the legislature, or under a decree of this court dissolving such corporation, in the manner prescribed by law. Every corporation is, or at least in legal contemplation is supposed to be, created on account of the benefit which the public at large, or some particular section or class of the community, will derive from the exercise of its corporate powers; as well as for the individual benefit of the stockholders of the company. And although this principle is too often overlooked by legislators, so that corporations are sometimes created to the real injury of the public, instead of the benefit of any one except the corporators themselves, the principle itself must not be lost sight of in giving a proper construction to the provisions of the article of the revised statutes relative to proceedings against corporations in equity. The 38th section of this article, which contains the provision relative to the suspension of the ordinary business of the corporation, and is applicable to proceedings against corporations generally, does not appear to be directly connected with the four succeeding sections ; which latter sections are confined to monied corporations as defined in a previous part of the revised statutes. It is therefore insisted on the part of the directors and officers of the company, in the present case, that although this is a monied corporation within the legislative definition thereof, the case made by the petition is not one which can authorize the attorney general, or a creditor or stockholder of the corporation, to apply for an injunction, and for the appointment of a receiver of the property and effects of the corporation, for the purpose of closing up its concerns. I am of the opinion, however, that it was the intention of the legislature, that when a monied corporation should have conducted itself in such a manner as to have forfeited its corporate franchises and privileges, so as in law to be deemed to have surrendered them, this should be considered such a violation of the provisions of its act of incorporation as to authorize this proceeding, on the part of any of thé stockholders of the company, under the 39th and 40th sections oí the same article. Indeed, I can see no reason why the 38th section was introduced into this article of the revised statutes relative to proceedings against corporations in equity, unless it was intended to give this court jurisdiction to declare the corporation dissolved for any of the causes specified in that section; and also to enable this court, in such a case, to appoint a receiver to close up the affairs of the company and to distribute its surplus funds, if any, among its stockholders.

But if there is any doubt as to the power of the petitioners to proceed in this manner on account of the suspension of the business of this company, the intentional neglect of the directors to hold the annual election, on the first Tuesday of January last, was a violation of one of the positive provisions of the act of incorporation; and that, by the express terms of the 39th section, above referred to, (2 R. S. 464,) authorizes this court to grant an injunction and to appoint a receiver upon the petition of a stockholder. The 6th section of the act of incorporation requires the election of the directors to be held annually, on the first Tuesday of January, and that notice of the time and place of the elec-, tion shall be published for ten days previous thereto. The directors are also required to appoint five or more stockholders to be inspectors of the election. .These are not provisions of the act of incorporation which the directors in office may comply with or not as they may deem proper; although the corporation does not immediately cease to exist if the directors are not elected upon the day appointed. And where the legislature has directed an act to be performed by the directors and corporators of a corporation, it is no excuse for them to urge that they deemed a compliance "with such legislative requirement unnecessary. The 8th section of the act was intended to provide íbr a case where the annual election had not been held, at the appointed time, through mere inadvertence or forgetfulness; but certainly not to justify the directors in office for an intentional neglect of their duty, in not appointing inspectors and giving notice of the election as required by the act of incorporation. In this case, I presume, the directors had no intention to disregard their duty in that respect; and that they acted under an honest belief that a new election would be entirely useless to the stockholders. But as it was a violation of one of the provisions of the charter which was sufficient to give the court jurisdiction, and as it also appears that the business for which the company was incorporated has been abandoned without any intention of resuming it, I think it is a proper case for the appointment of a receiver to close up the affairs of the corporation.

It appears also, by a paper annexed to the affidavits in opposition to this application, that about four-fifths of the stockholders, in amount, are willing and anxious to have the affairs of the company closed under the direction of the committee already appointed by the directors for that purpose ; under the contemplated arrangement with one of the trust companies. And it would probably be for the benefit of all that some arrangement should be made to prevent the sacrifice of property wdiich must be made, if the securities are to be sold and turned into money within the time contemplated by the provisions of the revised statutes for the final distribution of the funds of the company among its stockholders, after paying the debts. The counsel for the petitioners, however, insists upon a decision on this application, and I have no authority to make any order in the case wdiich is not authorized by the strict rules of law. It must therefore be referred to Master Codwise, to appoint one or more receivers, not exceeding three, of the property and effects of the corporation, as he in his discretion may deem proper; and to take from such receivers security, in the sum of $20,000, for the faithful discharge of the duties of the trust. The attorney general, or any creditor or stockholder of the company, is to be at liberty to appear before the master and to propose a receiver or receivers ; for which purpose the master is to give ten days public notice in two of the daily papers of the city of New-York, of the time and place of hearing before him on such reference. And upon the confirmation of the master’s report as to such appointment, and the filing of the security taken by him with, the register, such receiver or receivers are to be invested with all the powers and authority conferred by law upon receivers appointed under and in virtue of the 41st section of the article of the revised statutes relative to proceedings against corporations in equity, and are to discharge the duties of such receivers according to law in such cases. An injunction must also be issued, restraining the corporation and its officers from exercising any of its corporate rights, privileges or franchises, and from receiving any debts or demands, and from paying out or in any way transferring or delivering to any person any of the monies, property or effects of the corporation, until the further order of the court; except that the officers of the company, until the appointment of the receiver is perfected, may proceed, in the name of the corporation, in the collection of any debt due to the company, and deposit the money in the Trust Company to the credit of the receiver who may thereafter be appointed, or may pay the same out in discharge of the liquidated debts of the corporation, but not otherwise. The receiver is also to deposit all monies which may come to his hands, beyond what are necessary to discharge the current expenses of the trust, in the New-York Life Insurance and Trust Company, without delay, to accumulate; until the same shall be wanted by him to discharge the debts due from the corporation, or to distribute among the stockholders thereof according to law. He is also to pay to the solicitor for the petitioners the taxable costs of this application and of the reference to the master out of th'e funds of the company.

       The corporation appealed from this decision to the court for the correction of errors; but that court having determined that such appeal did not stay the proceedings, unless security for the effects of the corporation had been given, as required by the statute, (2 R. S. 606, § 83,) the appellants abandoned their, appeal and submitted to the decision of the chancellor.