Since November 30, 1908, the superintendent of banks of the state has been in the possession of the property, business and assets, for the purpose of liquidating the affairs, of the plaintiff, a domestic banking corporation, pursuant to the provisions of section 19 of the Banking Law. (Laws of 1892, ch. 689, § 18, as amended by Laws of 1908, ch. 143; Laws of 1909, ch. 10, § 19, as amended by Laws of 1910, ch. 452.) On December 6, 1912, the superintendent of banks, in behalf and in the name of the plaintiff, and the defendant entered into a contract, subsequently approved by the Supreme Court, for the sale by plaintiff and purchase by defendant of lands owned by the plaintiff, the fee of which it was to convey, upon fulfillment by the defendant, free from all incumbrances. The defendant refused upon a proper tender of the deed to fulfill the contract upon the ground that between the time at which the superintendent took possession of the plaintiff's property and the time of the tender of the deed certain money judgments were recovered against the plaintiff and docketed in the office of the clerk of Kings county, in which the lands are located. Otherwise, the lands and fee title are unincumbered. The only question which the court is asked to determine is whether or not the deed tendered will convey a marketable title free from all incumbrances.
Originally section 19 was added to the Banking Law as section 18. (Laws of 1908, ch. 143, § 3.) In the Consolidated Laws it became section 19 of that law. (Laws of 1909, ch. 10, § 19.) It was amended by chapter 452 of the Laws of 1910, and, although the superintendent took possession of the property and business of the plaintiff in November, 1908, the effect of his possession depends upon its present provisions. I will quote or refer to such parts only as seem to me to be relevant to the present question. It provides:
"Whenever it shall appear to the superintendent that any corporation or individual banker to which this chapter *Page 292 is applicable has violated its charter or any law of the state, or is conducting its business in an unsafe or unauthorized manner, or if the capital of any such corporation or individual banker is impaired, or if any such corporation or individual banker shall refuse to submit its books, papers and concerns to the inspection of any examiner, or if any officer thereof shall refuse to be examined upon oath touching the concerns of any such corporation or individual banker, or if any such corporation or individual banker shall suspend payment of its obligations, or if from any examination or report provided for by this chapter the superintendent shall have reason to conclude that such corporation or individual banker is in an unsound or unsafe condition to transact the business for which it is organized, or that it is unsafe and inexpedient for it to continue business, or if any such corporation or individual banker shall neglect or refuse to observe an order of the superintendent specified in section seventeen of this chapter, the superintendent may forthwith take possession of the property and business of such corporation or individual banker, and retain such possession until such corporation or individual banker shall resume business, or its affairs be finally liquidated as herein provided. * * * Such corporation or individual banker may, with the consent of the superintendent, resume business upon such conditions as may be approved by him. Upon taking possession of the property and business of such corporation or individual banker the superintendent is authorized to collect moneys due to such corporation or individual banker, and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof as hereinafter provided. The superintendent shall collect all debts due and claims belonging to it, and upon the order of the supreme court may sell or compound all bad or doubtful debts, and on like order may sell all the real and personal property of such corporation or individual banker on such terms as *Page 293 the court shall direct; and may, if necessary to pay the debts of such corporation, enforce the individual liability of the stockholders. For the purpose of executing and performing any of the powers and duties hereby conferred upon him, the superintendent may, in the name of the delinquent corporation or individual banker, prosecute and defend any and all suits and other legal proceedings and may, in the name of the delinquent corporation or individual banker, execute, acknowledge and deliver any and all deeds, assignments, releases and other instruments necessary and proper to effectuate any sale of real or personal property or sale or compromise or compound authorized by the court as herein provided; and any deed or other instrument, executed pursuant to the authority hereby given, shall be valid and effectual for all purposes, as though the same had been executed by the officers of the delinquent corporation by authority of its board of directors, or by the individual banker personally. * * * The superintendent shall cause notice to be given by advertisement, in such newspapers as he may direct, weekly for three consecutive months, calling on all persons who may have claims against such corporation or individual banker to present the same to the superintendent, and make legal proof thereof at a place and within a time, not earlier than the last day of publication, to be therein specified. The superintendent shall mail a similar notice to all persons whose names appear as creditors upon the books of the corporation or individual banker. If the superintendent doubts the justice and validity of any claim, he may reject the same, and serve notice of such rejection upon the claimant either by mail or personally. An affidavit of the service of such notice, which shall be prima facie evidence thereof, shall be filed with the superintendent. An action upon a claim so rejected must be brought within six months after such service. Claims presented after the expiration of the time fixed in the notice to creditors *Page 294 shall be entitled to share in the distribution only to the extent of the assets in the hands of the superintendent equitably applicable thereto. * * * The moneys collected by the superintendent shall be from time to time deposited in one or more state banks of deposit, savings banks or trust companies, and, in case of the suspension or insolvency of the depositary, such deposits shall be preferred before all other deposits. At any time after the expiration of the date fixed for the presentation of claims the supreme court may by order authorize the superintendent to declare out of the funds remaining in his hands after the payment of expenses one or more dividends, and after the expiration of one year from the first publication of notice to creditors he may declare a final dividend, such dividends to be paid to such persons, and in such amounts, and upon such notice, as may be directed by the supreme court in the judicial district in which the principal office of such corporation or individual banker is located. Objections to any claim not rejected by the superintendent may be made by any party interested by filing a copy of such objections with the superintendent, who shall present the same to the supreme court at the time of the next application to declare a dividend. The court to which such application is made shall thereupon dispose of said objections or may order a reference for that purpose, and should the objections to any claim be sustained by the court or by the referee, such claim shall not be allowed by the superintendent until the claimant shall have established his claim by the judgment of a court of competent jurisdiction. * * * Whenever any such corporation or individual banker, of whose property and business the superintendent has taken possession as aforesaid, deems itself aggrieved thereby, it may, at any time within ten days after such taking possession, apply to the supreme court in the judicial district in which the principal office of such corporation or individual banker is located to enjoin *Page 295 further proceedings; and said court, after citing the superintendent to show cause why further proceedings should not be enjoined, and hearing the allegations and proofs of the parties and determining the facts may, upon the merits, dismiss such application or enjoin the superintendent from further proceedings, and direct him to surrender such business and property to such corporation or individual banker. Whenever the superintendent shall have paid to each and every depositor and creditor of such corporation (not including stockholders), whose claim or claims as such creditor or depositor shall have been duly proved and allowed, the full amount of such claims, and shall have made proper provision for unclaimed and unpaid deposits or dividends, and shall have paid all the expenses of the liquidation, the superintendent shall call a meeting of the stockholders of such corporation by giving notice thereof for thirty days in one or more newspapers published in the county where the principal office of such corporation was located. At such meeting the stockholders shall determine whether the superintendent shall be continued a liquidator and shall wind up the affairs of such corporation, or whether an agent or agents shall be elected for that purpose * * *."
The statute makes five conclusions clear and certain. (1) The plaintiff is not dissolved and has retained the title to all of its property. (2) Neither the possession nor the power to liquidate evidences that the plaintiff was or is insolvent. (3) Legal actions and proceedings against the plaintiff are not forbidden or enjoined. (4) The section contemplates that the plaintiff could be sued. (5) The docketing of any judgment against it is not inhibited, and there is no express restraint upon the legal effect or enforcement of any judgment. Certain and clear, also, is it that the statute is the sole source and definition of the powers of the superintendent.
Even if the statute by the provision "the superintendent may, in the name of the delinquent corporation or *Page 296 individual banker, prosecute and defend any and all suits and other legal proceedings" did not expressly permit suits and other legal proceedings against the plaintiff, the law, as established, did. Banks or corporations which are in the possession of a receiver because of their insolvency even may have judgments docketed against them. (Pringle v. Woolworth, 90 N.Y. 502;Chemical Nat. Bank v. Hartford Deposit Co., 161 U.S. 1; Bankof Bethel v. Pahquioque Bank, 14 Wall. 383.)
The question to be decided by us is, are the judgments recovered against the plaintiff incumbrances against or upon its title to the real estate; do they create in the judgment creditors any interest or right in or claim or lien upon the land which would curtail the full ownership or enjoyment of it by the defendant or diminish its value? (Forster v. Scott, 136 N.Y. 577. )
It is a general rule that a judgment against an insolvent corporation after the appointment of a receiver of its property, business and assets for the purpose of ratable distribution among its creditors or against the receiver does not give the creditor who obtained it a preference over general creditors in the distribution of the corporate assets. (National Bank ofCommonwealth v. Mechanics' Nat. Bank, 94 U.S. 437; Denton v.Baker, 79 Fed. Rep. 189; Earle v. Penn., 178 U.S. 449;Clark v. Bacorn, 116 Fed. Rep. 617.)
The authority of the superintendent is somewhat analogous (but with differences) to that of a receiver of a national bank appointed by the comptroller of the currency. The receiver of a national bank is appointed only upon the insolvency of the bank, that is, when it "has refused to pay its circulating notes * * * and is in default." (U.S. Rev. Stat. §§ 5234, 5236, 5237.) The receiver pays over all moneys to the comptroller, and (§ 5234) the comptroller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satisfaction or adjudicated *Page 297 in a court of competent jurisdiction," and pay over the surplus, if any, to the shareholders. (§§ 5235, 5236.) It is likewise a general, and I think a universal, rule that the law does not take the assets and business of a corporation into its protection against the enforcement of the corporate debts unless it be or is assumed to be insolvent and a ratable distribution of its assets is directed to be secured and effected, or unless it seeks dissolution. No case has come under my observation which holds that the law will, through a receiver or other agent or officer, deny to vigilant creditors of a solvent corporation the right to secure their debts through the ordinary and authorized remedies. In Pringle v. Woolworth (90 N.Y. 502, 510) the action was against a receiver of an insurance company upon a judgment recovered in Pennsylvania against the company after the appointment of a receiver. This court held that the action could be maintained, and said: "The only evidence as to the character of the receivership of the defendant, is found in the admission in the answer of the allegation in the complaint, that the defendant Woolworth was duly appointed receiver of the estate, property and effects of the Homestead Fire Insurance Company. * * * Whether it (the judgment) would give a priority in respect to payment of the claim, is another and quite independent question. * * * It will be for the court to direct the receiver in respectto the payment of creditors, and their respective priorities." There are other decisions of like effect. (Ellicott v. U.S.Ins. Co., 7 Gill [Md.], 307; Decker v. Gardner, 124 N.Y. 334;Moore v. Southern States Land Timber Co., 83 Fed. Rep. 399.)
By section 1251 of the Code of Civil Procedure each of the judgments docketed against the plaintiff "binds and is a charge upon, for ten years after filing the judgment roll," the real estate in question. The statement in the opinion of the majority of the court that when the superintendent of banks assumed possession of the property *Page 298 and business of the plaintiff he became in equity the owner of the real estate then held by it contradicts the language and intention of the statute. The statute empowers the superintendent, a proper condition therefor appearing to him to exist, to take and retain the possession until the corporation shall resume business or its affairs be finally liquidated as it provides. While in possession he acts in the name and behalf and as the agent or representative of the bank, subject to the control of the court as prescribed, and has no rights or authority except such as the statute confers. The corporate existence is not suspended or terminated or the corporation interfered with beyond the scope defined by the statute. That neither the legal nor equitable title to the corporate property was given him is clear and certain from the entire language of the section, and especially from the provisions that he may withdraw from the possession at any time, that he may prosecute and defend all suits and other legal proceedings, and execute and deliver all instruments affecting the disposition of the real and personal property in the name of the corporation, and that when the claims of the corporate creditors shall have been satisfied the stockholders shall determine whether he "shall be continued as liquidator and shall wind up the affairs of such corporation, or whether an agent or agents shall be elected for that purpose." The reading of the decisions cited in the prevailing opinion will, I think, disclose that they are not apposite.
The stipulation as to the facts is silent upon the question of the solvency of the plaintiff and we can draw no inference from the facts as stipulated. (Bradley v. Crane, 201 N.Y. 14, 20;N.Y. Tel. Co. v. Siegel-Cooper Co., 202 N.Y. 502, 506.) As already stated, the possession of the superintendent does not, as a matter of law, evidence that the plaintiff is insolvent. The direction or power to liquidate the affairs of the corporation does not necessarily imply or connote that the corporation is insolvent. *Page 299 By far the greater number of the causes justifying the possession have no necessary connection with and do not involve insolvency. The recalcitrancy or delinquency or hostile officering or management of a corporation permits the possession of it, for the purpose of liquidation, although abundantly and unquestionably solvent. It is common knowledge that not infrequently solvent individuals, partnerships, associations or corporations wind up their business affairs by getting in the assets, settling with debtors and creditors and appropriating the surplus. The section 19 is in part, although a minor one, a statute for regulation and control of the corporation itself and the corporate business. From its double function the embarrassment in the present case arises. Not only may the superintendent under it take possession of a solvent and prosperous corporation, but he may keep the possession for weeks or months, simply caring for and conserving its assets and performing its necessary activities and then withdraw, whereupon it resumes the business. His possession is to continue until the corporation "shall resume business, or its affairs be finally liquidated as" provided in the section. He may liquidate a solvent corporation as truly as an insolvent one. There is not sound reason in nor precedent nor authority for a decision that a possession by the superintendent of a solvent corporation is such a custody of the law as bars the application to a judgment recovered during such possession of section 1251 of the Code.
Neither does section 19 provide for a ratable distribution of the assets among the creditors. The moneys collected by the superintendent shall be from time to time deposited in a bank and the Supreme Court may by order authorize the superintendent to declare dividends, "such dividends to be paid to such personsand in such amounts as may be directed by the supreme court." This is a statutory application of the principle enunciated inPringle v. Woolworth (supra), "it will be for the court to direct *Page 300 the receiver in respect to the payment of creditors and their respective priorities."
The effect of section 19, as applied to the facts here, is: The superintendent might have defended each of the actions in which the judgments were docketed; therein he might, in case the plaintiff was insolvent and the cause of action was not disputed, have applied to the court for and obtained an order restraining each action, or, in case the cause of action was disputed, obtained the order restraining the action and compelling the submission of it as provided in the section, or allowing it to proceed to judgment for the purpose of establishing the claim. He did not defend the actions and the judgments were obtained and he entered into the contract for the sale. The sale must be "on such terms as the court shall direct." In applying for the direction of the court, notice of the application should have been given to the judgment creditors. They were deeply interested in the subject-matter of the application. Their judgments and the charge thereof upon the real estate, if any, could not be affected by an order obtained ex parte by the superintendent or upon notice to the defendant only; nor will the result of the present action affect them. The court upon the proper application for leave to make the sale and the terms of it might have directed that the sale be subject to the judgments, or that the judgments did not charge the land, or that the charges of the judgments, if any, should be transferred to the avails of the sale, their validity or priorities to be determined by the court when application for declaration of dividends was made.
For the reasons stated, the judgment should be reversed and the controversy be dismissed, without costs to either party.
CHASE, J., concurs with HOGAN, J.; CARDOZO, J., concurs with MILLER, J.; WILLARD BARTLETT, Ch. J., and WERNER, J., concur with COLLIN, J.
Judgment affirmed. *Page 301