In the Matter of the Voluntary Dissolution of The Wendler Machine Company, a Corporation. J. Rogers & Co. and Others, Appellants; Patrick Phillips, as Receiver, etc., Respondent

In the Matter of the Voluntary Dissolution of The Wendler Machine Company, a Corporation. J. Rogers & Co. and Others, Appellants; Patrick Phillips, as Receiver, etc., Respondent. Corporations— receivers—notice to creditors who make themselves pa/rties—proof m to the validity of a moi'tgage ■— consent of stockholders to he shown receiver may contest an invalid mortgage —• sale set aside — Gode of Givil Procedure, §§ 799, 2428. Upon an appeal by creditors of the Wendler Machine Company from an order confirming a sale of its real and personal property it appeared that the property was struck off to the highest bidder for $125 “ subject to all legal liens thereon;”' that certain creditors had made themselves parties to the proceeding before the close of a hearing on an application to dissolve the company which took place about two months before the sale; that the papers tended to show that the corporation was organized under the statute relative to manufacturing corporations; that the real and personal property of the company was subject to mortgages given to secure $50,000 worth of its bonds; that at the time of the sale there was nothing to show that two-thirds of the stockholders had. consented that the mortgage should be given as required by statute; that none of the bonds had been sold outright and that all of them had been pledged for debts; that the receiver of the corporation himself held in this way about §9,000 worth of bonds. It further appeared that at times during a period of about six months before the sale the value of the property had been estimated by persons having knowledge thereof at from §60,000 to §107,000, and that the sale in question was had without notice to the creditors who appealed. ¡Beld, that the creditors were entitled to notice of the application for a sale of the property; That the court had power to reverse and would reverse the order which confirmed the sale; That if the mortgage was invalid the receiver had power to contest it and should have done so; That it was improper to sell the property under any terms of sale, by which the purchaser could not know whether he would be bound to pay antecedent liens. Appeal by J. Rogers & Co. and others from an order of the Supreme Court, made at the Jefferson Special Term and entered in the office of the clerk of the county of Jefferson on the 19th day of September, 1895, ratifying and confirming a sale of real and personal property of the Wendler Machine Company, which sale took place on the 22d of August, 1895, pursuant to. a postponement of sale noticed to take place on the 15th of August, 1895. The property was struck off to the highest bidder, “ subject to all legal liens thereon, for the sum of $125.00.” Motice of the application to confirm the sale was given to the Attorney-General and to the attorney for Rogers & Co. and others, creditors, and to Richten and others, stockholders, who were heard in opposition to the application to confirm. The parties opposing the motion raised the preliminary objection that “ the order for sale had been granted without notice ” to them. That objection was overruled and the order of confirmation was made after reading the petition and the affidavits of Jones, Van Allen and B. J. Mullen, verified September 7, 1895. The petitioner states that he exposed the property of the corporation for sale, “ except bonds held by said company and accounts receivable, * * * subject to all legal liens thereon; subject to the approval of the court upon terms of sale ” which are stated. It appears by the affidavit of the attorney who opposed'the motion that on the 17th day of June, 1895, prior to the close of the hearing ■ of the application to dissolve the company, he- filed in the office of ■the clerk of Jefferson county a notice of appearance for creditors, ‘ :and also served á copy thereof upon the attorney, for the petitioner, :and that no notice of the application for an order authorizing the receiver to sell was served upon the attorney so- appearing for the creditors. /'• . The affidavit of Mr. Van Allen, sworn to September 7,. 1895,, states' that' he has searched the records of the county clerk’s office of Jefferson county, “ and has been unable to find any consent of stockholders or certificate of meeting of stockholders of said company to issue any mortgage on said property, filed or recorded.” The affidavit of Jones states "that he is a stockholder and director of the company, and that the company was organized in September,• 1894, “ and that $50,000 in bonds were issued • by said Wendler Machine Company October 1, 1894, and that a mortgage was executed upon its real estate, and also a chattel mortgage executed upon its personal property to sedure the said bonds. That none of the said bonds have, been sold by-the" said company or any of its officers.” It appears hy his affidavit that the bonds were issued “ and allowed to remain at the First National Bank of Carthage as collateral security for the sum of $24,400,, except $9,000, which were turned over to Pat Phillips as security for an indebtedness to him from' the ■company, leaving $41,000 in bonds at said First National Bank of Carthage.” And that the bank' “ claims to .hold said bonds to secure between $28,000 and $30,000.” Jones’ affidavit further s'tatbs ■“ That the property sold was, in ■ deponent’s judgment, ■ worth $100,000, and ought to sell at forced sale, and' deponent believes could be sold, for from $65,000 to $70,000.” It appears that in January, 1895, an appraisal of the property of the company was made, in which the total value of it was stated to be $107,000. . It appears in the affidavit of B; J. Mullin that he, on several occasions, had conversations with Phillips, the receiver; who stated: “That the company was'to be reorganized, with C. H. Remington at the- head, and that the property was to be sold, hnd Remington to be the buyer or do the bidding, and! that the Carthage creditors Were ■ to be paid in full,” and' that the adjúürñment-Was had from the fifteenth of August to the twenty-second of August on the ground ■“ that said Remington .was not quite ready, and asked for postponement for one week.” The affidavit further states that the receiver had told the affiant “ that the property was worth $75,000,” and receiver also told deponent that he (Phillips) did not want said sale confirmed, and did not think it would he.” He also states in his affidavit: “ That negotiations had been and are pending to reorganize said company, and take said property and pay the debts, but that sufficient time has not existed since it was known that Remington was not going to complete the arrangements of the purchase of the property to effect such reorganization.” In the testimony given by Phillips before Judge Emerson, June 18, 1895, he states, viz.: “I think the property will sell for from $60,000 to $70,000. ■* * * The indebtedness of company amounts to about $70,000.” TV. B. Van Allen, for the appellants. George 8. Hooker, for the respondent. [MAJORITY — Hardin, P. J.:] Hardin, P. J.: It seems that Rogers & Co., who were creditors of the Wendler Machine Company, made themselves parties to the proceeding, and after becoming such parties to the proceeding, they were entitled to notice of any application subsequently made therein. (Code Civ. Proc. §§ 799, 2428.) * It seems by the affidavits that the receiver was interested, as he held some $9,000 of the bonds secured by a mortgage. Although it is stated in the terms of sale, issued by the receiver^ that the sale would be made subject to the approval of the court, there is nothing in the terms prescribed by the receiver requiring the purchaser to pay the antecedent liens upon the property, nor does the record before us show any undertaking on the part of the purchaser to pay the antecedent liens. Good faith was due from the receiver to all parties interested in the corporation and he ought not to be allowed in any way, by statements or by his conduct, to mislead interested ' parties to further his own private interests. He had, undoubtedly, power to contest the bonds and the mortgage. ( Vail v. Hamilton, 85 N. Y. 453; Pittsburg Carbon Co. v. McMillin, 119 id. 46.) However, it is not necessary at this time to determine that the receiver acted in bad faith and in collusion with parties in interest. It seems to be well settled that the appellate court has power to vacate or reverse an order made to confirm a sale. (Syracuse Savings Bank v. Syracuse, C. & N. Y. R. R. Co., 88 N. Y. 110.) Arid that an appeal is allowable by creditors who have an interest in the assets affected by the order confirming the sale; The learned counsel for the respondent, in his points, states that prior to the execution of the mortgage “ a consent to mortgage was. properly executed and acknowledged by the owners of all but twenty of the fifteen hundred shares of the capital stock. The consent was. not filed, however, till after the property of said company was sold by its receiver in August, 1895. The mortgage was recorded immediately after its. execution and before the indebtedness of the company to appellants was incurred.” - We find in the appeal book no proof of this .statement. We, therefore, have before us an order which confirms a sale presumptively made subject to the mortgage, without-any evidence before the Special Term that the mortgage for $50,000 was valid. While it does-not clearly appear under what statute the corporation was organized, it is infer-' able from the appeal papers that it was organized under the statutes relating to manufacturing corporations. Therefore, in order to have the mortgage valid, it was essential that the stockholders 'owning two-thirds of the stock of the corporation should have given their, consent tó the mortgage and that such consent should be filed in the proper clerk’s office. ( Vail v. Hamilton, 85 N. Y. 456;. Rochester Savings Bank v. Aver ell, 96 id. 467; Martin v. N. F. P. Mfg. Co., 122 id. 165. See Rochester Savings Bank v. Averell, 26 Hun, 643.) Manifestly the object of the Legislature in requiring such an assent was the protection of stockholders against improvident, collusive and unwise acts of trustees in incumbering the corporate property. (Greenpoint Sugar Co. v. Whitin, 69 N. Y. 333.) Although it has been intimated in Paulding v. Chrome S. Co. (94 N. Y. 334) that none but stockholders can complain that the statutory consent was not given, yet in the proceedings now brought in review it appears, the creditors .‘appeared in opposition to the motion to confirm* and before their objection to the confirmation was overruled it was incumbent upon the receiver, who petitioned for confirmation, to furnish evidence that the mortgage lien, was valid, as it manifestly would affect the bidders at the sale. While the order in some sense was addressed to the discretion of the court'( White v. Coulter, 1 Hun, 357; Kellogg v. Howell, 62 Barb. 280), we think upon the papers presented in the appeal book the learned Special Term judge fell into an error in confirming the sale, and that the order made at Special Term' should be reversed, without prejudice, however, to a new application, if the petitioners shall be so advised upon additional proofs. All concurred, except Ward, J., not sitting. Order reversed. with ten dollars costs and disbursements, payable Out of the fund, without prejudice to a new application.