Crews v. United States Car Co. the receivers merely conserved assets and converted them into money. Before 1898 it became clear that the entity, named the United States Car Company, would be abandoned by the stockholders. Another company was organized in 1897, under the laws of this state, in behalf of those who had been pecuniarily interested in the United States Car Company, with the purpose to buy the assets and continue the business of the United States Car Company. Prior to the year 1898 that new company hired the use of the plants of the old company pending their inevitable sale under foreclosure and commenced its business. It purchased at the foreclosure sale, and, continuing its business as successor to the United States Car Company, paid its franchise tax to this state for the year 1898. The question to be determined now, I understand, is whether the receivers must pay the franchise tax of 1898, imposed upon the worthless and abandoned entity, out of the proceeds of sale of the assets held by them for distribution to creditors. The tax was imposed in June, 1898 (P. L. of 1892 p. 140, Franchise Tax Act § 5), eight months after the adjudication of insolvency and passage of the assets of the insolvent company to the receivers in trust, as has been indicated. I do not think that it is an indebtedness entitled to share in the receivers' distribution. The creditors who share in the distribution are those who were existent at the adjudication of insolvency. The Corporation act, in its eighty-sixth section, provides that debts not due, making rebate of interest, when they do not bear interest, may share in distribution and, in its seventy-fifth section, authorizes the court of chancery to limit the time within which creditors shall present their claims to the receivers and prove them. By the seventy-fourth section the receivers are required to make an inventory which shall contain an account of all the debts of the insolvent corporation. By the eighty-third section a lien for labor and services performed is given, limited to services rendered within two months preceding the date at which the proceedings in insolvency shall have been actually instituted. These provisions all contemplate creditors existent at the date of the adjudication of insolvency or prior thereto. Crews v. United States Car Co. No provision is made for creditors who shall thereafter come into existence. The authority for limitation in the presentation of claims does not contemplate debts to arise in the future. The receiver's inventory cannot contain future debts. The protection of workmen is brought down to the commencement of proceedings in insolvency. I do not find anywhere in the statute any recognition of the right of a debt which comes into existence after the insolvency is adjudged to share in the distribution of the assets taken by the receiver. Nor do I find nor am I referred to any adjudication upon this subject. There is a suggestion of this question by the present chief-justice, in Linn v. Dixon Crucible Co., 30 Vr. 33, but the question is not discussed. Prior to the Corporation act (Rev. of 1896) our courts differed as to the amount of title a receiver took in the assets of an insolvent corporation. One line of cases, led by Willink v. Morris Canal and Banking Co., 3 Gr. Ch. 377, 400 (1843), held that the property of the corporation did not vest in the receiver but that he was substituted in the management of the corporation for the purpose of settling up and closing its affairs, with power, among other things, to take charge of the property and sell it. In this line I find also New Jersey Southern Railroad Co. v. Railroad Commissioners, 12 Vr. 249 (1879); Receiver of State Bank v. First National Bank of Plainfield, 7 Stew. Eq. 450, 455 (1881); Kirkpatrick v. Corning, 10 Stew. Eq. 54, 59 (1883). Another line of authorities held that the title of the corporation was divested by the adjudication and appointment of the receiver. Corrigan v. Trenton Delaware Falls Co., 3 Hal. Ch. 489, 496 (1849); Freeholders of Middlesex County v. State Bank, 2 Stew. Eq. 268, 273 (1878); Minchin v. Second National Bank, 9 Stew. Eq. 436, 442 (1883). See, also, Harrison v. Maxwell, 15 Vr. 319, for a similar reasoning. I think that the exact status of the title to the property of an insolvent corporation prior to 1896 was stated by the late ChiefJustice Beasley, in the supreme court, in Wilkinson v. Rutherford, 20 Vr. 241 (1887). Wilkinson was appointed receiver of the insolvent Newark Savings Institution, under statutes relating to savings banks, and brought suit in his own name as receiver Crews v. United States Car Co. upon a bond to the savings institution. Question arose as to whether he could do so. The statutes pointed out his duties but were silent as to his title in the assets. The chief-justice said: "I cannot agree to the doctrine that a receiver is a mere custodian of the property of the person whom, in certain respects, he is made to supplant, for it would seem that he is an assignee of the assets within the scope of his office. There seems to be no reason why his power should not be held to be co-extensive with his functions, and it is clear that he cannot conveniently perform those functions unless upon the theory that some interest in the property akin to that of assignee passes to him. The receiver is to discharge the executory duty of collecting the debts and taking into his possession, even against antagonistic claims, the tangible property, and after his appointment a sale of such property by the insolvent would, it is presumed, be absolutely void; and yet if the interest in the property thus transferred was not vested in the receiver it would be difficult to find ground on which to invalidate the transaction. These embarrassments, as well as many others of a like kind, are obviated by the adoption of the doctrine that, virtute officii, a receiver becomes a provisional assignee of the property committed to him." Later, in Merchants' National Bank v. Pennsylvania Steel Co., 28 Vr. 336 (1894), the doctrine thus stated was again held by the supreme court. * * The present Corporation act (Rev. of 1896), by its sixty-eighth section, gives the legal title to the assets of an insolvent company to its receiver. Still, the beneficial ownership is in his cestuis que trustent, ascertained by other parts of the statutes and the orders of the court. So far as the question under consideration is concerned, the statute's express gift of the legal title to the receiver does not change the status of the cestuis que trustent. Before he was expressly given the legal title, as has been seen, he took enough title to enable him to protect the assets for the purposes of his trust. But the same section of the Revision of 1896 gives him, also, "all the franchises, rights, privileges and effects" of the insolvent corporation and divests the corporation of the title thereto. Crews v. United States Car Co. Does this casting of the title to the franchises upon him charge all assets in his hands with the duty of maintaining the franchise by paying the franchise taxes imposed after the insolvency? Is the franchise tax in question payable from the assets as an expense of the receiver? It is apparent that the receiver of an insolvent corporation is trustee for two classes of cestuis que trustent-creditors and stockholders. He takes the property of the corporation, charged primarily with the existent debts of the corporation. His first duty is to so manage that property that it will, if possible, yield enough to pay those debts. If there be a surplus, that surplus only is to go to the stockholders. The franchises are given to him to equip him to manage his trust-to use, if necessary, in the disposition of the property or to return to the corporation represented by the stockholders. Holding them, it is perhaps his duty to pay the tax upon them, not, however, as part of the general expense of his trust, out of whatever assets he may have, but from the surplus after the payment of creditors, unless they shall be used for the benefit of the creditors. Where he is to use them and sell them with the property, or where he does use them for the benefit of creditors, it is but equitable that the creditors shall pay for their preservation, but where they are utterly worthless to creditors I fail to see why the assets held in trust for the payment of creditors should be mulcted and perhaps exhausted in their maintenance. In such a case they are held for the stockholders representing the corporation from whose funds, if any there be, the cost of their preservation should come. In this case the creditors have not had and could not have had any use or value of the corporate franchise, and they should not be compelled to pay the franchise tax in question. My conclusion is that the claim was properly rejected as one entitled to payment from the funds in the receivers' hands, those funds being insufficient to pay the creditors. Joseph M. Smith Co. v. O'Brien. THE JOSEPH M. SMITH COMPANY and BRUEN & MORRIS บ. JEREMIAH O'BRIEN and EDWARD L. BOISAUBIN. [Decided October 12th, 1898. Filed June 10th, 1899.] A debtor, in order to defeat judgment creditors, transferred land to one who had knowledge of the facts. A portion of the price was paid on a mortgage on the land, and another portion paid on a bona fide debt of the grantor. The balance was secured by a promissory note made payable to a member of the grantor's family to satisfy an alleged debt which was not proven to exist.— Held, that the deed would be decreed a mortgage to secure the two payments made and set aside as to the balance. On final hearing on bill, answers and proofs. Mr. Charles A. Rathbun, for the complainants. Mr. John E. Fennell and Mr. Willard W. Cutler, for the defendants. PITNEY, V. C. The bill is filed by two several judgment creditors of the defendant Boisaubin, to set aside a conveyance of land by him to the defendant O'Brien, on the ground that it was made for the purpose of defrauding the complainants. The complainants each recovered two judgments against the defendant Boisaubin, two of which were recovered in a justice's court on the 26th of March, 1898; the others were recovered later in the circuit court of the county. The conveyance was made on the 25th of March, 1898. The consideration was $4,000, which included a mortgage for $2,000, with arrears of interest thereon, and two small judgments, amounting to about $300, besides the taxes, so that the 57 365 157 455 |