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Whitney v. N. Y. & Atlantic R. R. Co.

would exist in subjecting a receiver appointed in a creditors' action to the watchful observance of the attorney general, as would require an action for the dissolution of a corporation to be placed under the same supervision. If it was necessary or proper in one case it was equally so in the other, and as the language

made use of was entirely appropriate to include [] both, and they were equally within the mischief

intended to be corrected, the section should be construed as attended with that effect. By section 1784 of the Code of Civil Procedure, the object to be accomplished by the creditors' action is the sequestration of the property of the corporation and the distribution thereof. And by section 1793 the judgment has been required for a just and fair distribution of the property and of its proceeds among the fair and honest creditors of the corporation. And the mode of accomplishing this result is through the appointment of a receiver under the authority of section 1788 of the Code. The language made use of as descriptive of the

object to be attained is identical with that of sec[] tion 8, chapter 378 of the Laws of 1883, which was made to include an order or judgment for a distribution of the assets of the corporation. And in its enactment the nature and functions of such a receivership seem to have been within the intention and contemplation of the legislature. Before the receiver in the creditors' suit, therefore, would be legally appointed, a compliance with this section of the act of 1883 was required on behalf of the judgment creditors, and that they wholly failed to observe. This section of the statute declared that a copy of all motion papers and a copy of any other application to the court, together with a copy of the order or judgment to be proposed thereon to the court, in every action or proceeding then pending or afterwards commenced, for the dissolution of a corporation, or a distribution of its assets,

Whitney v. N. Y. & Atlantic R. R. Co.

should in all cases be served on the attorney-general, in the same manner as provided by the law for the service of papers on attorneys who have appeared in the action; and it is further declared that any order or judgment granted in any action or proceeding men-¡ tioned therein, without such service upon the attorneygeneral should be void. The provisions are broad and sweeping in their terms and were intended by way of correcting and preventing abuses which at that time formed a subject of very general complaint, in the administration and distribution of the property of insolvent corporations. And as this section was not complied with, either in the proceeding for the temporary appointment of Henry as receiver or his permanent appointment, under the terms of the judgment both appointments within the terms of this section were void. This is plain and unequivocal language, and the courts are required to give it effect cccording to the import of the terms made use of. Anderson v. Roberts (18 Johns. 514) contained nothing in conflict with this conclusion. It was said in the opinion of SPENCER, Ch. J., in that case that "a thing is void which is done against law at the very time of doing it, and where no person is bound by the act " (Id. 528). The acts in controversy were acts of this character, and it was the evident purpose of this section of the statute to render them utterly ineffectual, where what has been so plainly directed shall not be

observed. The service of the papers upon the [] attorney-general was made jurisdictional, and a failure to make such service could not probably be corrected without an entirely new proceeding.

The motion which was made was an appropri[] ate means of setting aside and vacating the void appointments (Attrill v. Rockaway Beach Imp. Co., 25 Hun, 376).

And from the order denying the application the appeal was regularly brought to secure its reconstruc

Whitney v. N. Y. & Atlantic R. R. Co.

tion and correction (Seaman v. Whitehead, 78 N. Y. 306-308).

A receiver appointed in a creditors' action of the nature of that now in controversy has been declared to

have all the powers and authority conferred, and is [*] made subject to all the duties and liabilities imposed

upon a receiver appointed in the voluntary dissolution of a corporation (Code Civ. Pro. § 1788). The Code itself has not otherwise defined the powers, authority and duties of such a receiver, and the proceeding, therefore, still remaining in force is required to be consulted to ascertain these powers, authority and duties, and that law has been added by what is designated as appendices A and B* of the Code of Civil Procedure. And by that law such a receiver has been invested with the powers and authority, and subjected to the obligations and duties designated by what is there given as section 42,† appendix B. And by the succeeding section 67+ of the same appendix, such receivers

are declared to be vested with all the estate real ['] and personal of such corporation, and are also

further invested with the power and authority conferred by law upon trustees under an assignment of the estate of an insolvent debtor as they have been defined in chapter 5 of the second part of the Revised Statutes. Both the order and judgment making the

* Throop's edition of the Code, pp. 937–951. Appendix "A" relates to the powers and duties and liabilities of trustees of insolvent debtors, and consists of 2 R. S. pp. 39-51; Part 2, ch. 5 tit. 1, art. 8, as amended by Laws 1846, ch. 158, and Laws of 1862, ch. 373, also of Laws of 1830, ch. 258, and Laws of 1846, ch. 158.

Appendix "B" relates to the duties and liabilities of receivers of corporations and consists of 2 R. S. p. 464, Part 2, ch. 8, tit. 4, art. 2, § 42, and of 2 R. S. pp. 468-72, Part 2, ch. 8, tit. 4, art. 3, §§ 66-89, and of Laws of 1844, ch. 239; Laws of 1845, ch. 87; Laws of 1852, ch. 71; and Laws of 1858, ch. 314.

† 2 R. S. 464, § 42.

2 R. S. 468, § 67.

§ 2 R. S. 39, et seq.

Whitney v. N. Y. & Atlantic R. R. Co.

appointment of Henry as receiver exceeded the bounds of this authority. For beyond investing him with the property, contracts, things in action, and effects of the corporation, they in terms invested him with the stock, bonds and franchises of the corporation, for which there was no authority, either in the original appointment, or the continuance of the office of the receiver, What the creditors were entitled to through the intervention of their receiver was the property, real and personal, things in action, contracts and effects of the corporation, so far as they were owned by it at the time of his appointment. And this property could not legally include that which, by the force and effect of the mortgage, had been charged as security for the bonded indebtedness of the railroad company. To that extent, as the mortgage itself has no tbeen assailed, it was a legal and valid incumbrance upon the railroad company, and in the action brought to foreclose it, the court was empowered to appoint a receiver to take charge of all the property, franchises and effects included within the terms of the mortgage. Over that subject the creditors by means of their suit had no control. For the title had, previous to their judgment, been incumbered in favor of the trustees named in the mortgage for the benefit of the bonded creditors of the company. For this reason, also, the order and judg ment directing the appointment of Henry as receiver and his continuance in the office, required to be corrected and so limited in any event as to restrict his receivership to the property, contracts and effects of the company not included in nor incumbered by the mortgage. And as that will secure the complete protection of the receiver appointed in the foreclosure action, it is probably as far as the court in these proceedings can be required to go in correcting the order and judgment in the creditors' suit. To that extent certainly the receiver under the mortgage is entitled

Whitney v. N. Y. & Atlantic R. R. Co.

to be relieved for the purpose of rendering his functions and office as efficient as they are required to be to carry into effect the security of the mortgage. Beyond that this receiver has no interest in resisting the proceedings prosecuted by the judgment creditors.

It has been suggested that as no notice was given to the attorney-general of the application for the ["] appointment of a receiver in the foreclosure suit,

that the order for his appointment was inoperative under § 8, chapter 378 of the Laws of 1883. But that result does not follow from the omission to serve the motion papers for his appointment upon the attorneygeneral, for he was not appointed a receiver in an action or proceeding for the dissolution of the corporation or the distribution of its assets; and they are the only actions or proceedings in which the motion papers are required to be served upon the attorney-general. The authority to make his appointment as receiver is derived from the mortgage, and its object was to secure to the bonded creditors the benefit and effect of the mortgage security. With such a receivership these provisions of this part of the statute seem to have nothing to do.

The orders from which the appeals have been taken denying the motion made by the receiver appointed under the mortgage should be reversed, with the usual costs and disbursements, and the order and judgment appointing Henry as receiver should both be corrected by striking out from the order the words "its stocks, bonds and franchises," and by striking out the same words from the judgment entered in the creditors' action; and the appointment of Henry should also be restricted to such property of the corporation as has not been incumbered by the mortgage, or to the property and effects of the corporation subject to the mortgage, and the rights of the appellant in them under his appointment, for that is the utmost extent to which

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