In the Matter of the Application for the Voluntary Dissolution of The Manoca Temple Association. Charles O. Hoagland and Others, Appellants

In the Matter of the Application for the Voluntary Dissolution of The Manoca Temple Association. Charles O. Hoagland and Others, Appellants. Third Department, November 25, 1908. Corporations — voluntary dissolution — petition by de facto directors — effect of reduction in number of directors — temporary receiver. Where stockholders elect directors with knowledge that they were not stockholders in fact but merely of record, such directors may join in a petition for the voluntary dissolution of the corporation. Although some of the directors of a' corporation were merely defacto officers by reason of the fact that they were not members of a benevolent order as required by the certificate of incorporation, á proceeding by the stockholders reducing the number of directors does not operate to vacate the office of those particular, directors as distinguished from others having membership in the order, but the reduction only becomes effective when the terms of 'office of a sufficient number of directors have expired. It follows that the cte faato directors may join in a petition for'voluntary dissolution. A temporary receiver should not be appointed on the voluntary dissolution of a corporation without a full hearing of persons representing the majority inter- . ests of stockholders and creditors. Chester, J., dissented. Appeal by the petitioners, Charles O. Hoagland and others, from an order of the Supreme Court, made at the Chemung Special Term and entered in the office of the clerk of the county of Tioga on the 11th day of June, 1908, vacating an order theretofore made herein, upon a petition for a voluntary dissolution of The Mañoca Temple Association. . In the year 1905 there existed and still exists a fraternal organization known as The Manoca Lodge, No. 219,I. O. O. F., having its headquarters at Waverly, N. Y. Among the members of said lodge was formed, this corporation, The Mañoca Temple Association. The object of the incorporation was to procure means of acquiring and maintaining a place for the sitting of the lodge. In the certificate of incorporation it was provided: “ The majority of the directors of this corporation shall be members of Manoca Lodge, No. 219,I. O. O. F., of Waverly, N. Y., so long as Manoca Lodge shall be in active existence.” After the organization of the corporation was completed they purchased a building in which a lodge room was fitted up and used until January 1, 1908, for the meeting place of the lodge. Seven hundred and sixty shares of the capital stock of this corporation are now outstanding. Of that number the lodge itself owns 230 shares. One Winters, one of the respondents here, owns 471 shares, and the remainder, about 60 shares, was owned mostly by other parties to this proceeding. The last annual meeting of the stockholders of the corporation prior to the application for dissolution was held on January 30, 1907. At this meeting eleven directors were elected, which is the number specified in the articles of incorporation. It may fairly be found that these eleven directors entered upon the duties of their office and assumed to act as such. At the time of the election of these directors some of them were not stockholders in fact, although they were stockholders on the record. The question was raised as to their eligibility to the office, and it was there stated that they were eligible, and in fact some of these very directors whose right' to act is now questioned were told prior to the sale of their stock by the respondent Winters that the stock would not be transferred upon the record, and that they would thereby be qualified to act. On August 30, 1907, a meeting of the stockholders of the corporation was called, and proceedings were taken to reduce the number of directors from eleven to five. • On January 23, 1908, the appellants, six in number, being a majority of those directors elected upon January 30, 1907, petitioned the court for the voluntary dissolution of the corporation. Upon this petition, which was upon notice to the Attorney-General, an order was made as required by section 2423 of the Code of Civil Procedure, appointing a temporary receiver and requiring all persons interested to show cause before a referee why the corporation should not be dissolved. On the day following these respondents procured an order to show cause, from the same justice who granted the former order, why the order granted should not be vacated, the contention being that the petition upon which the original order was made was not signed by a majority of the trustees of the corporation. Upon this application the original order was vacated, and from the order then made this appeal is taken. Hinman, Howard & Kattell, for the appellants. Frederick F. Hawkes and H. C. Mandeville, for the respondents. [MAJORITY — Smith, P. J.:] Smith, P. J.: The number of shares of stock represented by the appellants is. small. It would appear, however, that these appellants represent in fact the lodge itself, which owns 230 shares, of the capital stock. It is probably true that, not being stockholders, they never were de jure directors of this corporation. The situation was' apparently known, however, to all the stockholders at the time of their election, and within the authority of Matter of Santa Eulalia Silver Mining Co. (21 N. Y. St. Repr. 89) .they were authorized to sign this petition for a dissolution. That case Was affirmed upon the opinion below in 115 New York, 657. It is claimed, however, that the proceedings to reduce the number of directors in August, 1907, operated to vacate their office, as they were not properly qualified when elected. One: difficulty with this proposition is that of the directors who would be left as the directors of the corporation, the majority were not members of the lodge. If those appellants, therefore, were de facto directors the court .will not hold their offices vacated when the effect of such an •holding would be to leave a majority of the board disqualified as not being members of the Mañoca Lodge. The statute authorizing the reduction of the number of directors makes no provision as to how that reduction is to be effected after it lias been voted. It is. impossible. to say that certain of the directors have been ipso, facto deprived of office while others, rémained as directors of tlié corporation. Unless, therefore, the number can be reduced by the voluntary act of the directors themselves, it would seem that the proceeding- can only become- effective when the terms of' office of a sufficient number of directors expire. We think, therefore, that the petition was sufficient under, section 2419 to authorize the granting of the order to show cause. We are satisfied that a temporary receiver should not be appointed in this case unless upon full hearing of all parties, The respondents here represent the larger interests 'both of the stockholders and of the creditors, and they at least should be heard upon the question as to whether a temporary receiver should be appointed. The order appealed from should, therefore, be reversed, with ten dollars costs and disbursements, and the original order modified so as to strike therefrom the provision for the appointment of a temporary receiver, without prejudice, however,' to any of the parties to proceed upon notice to the respondents for the appointment of a temporary receiver if they should be so advised. All concurred.; Kellogg, J., concurring in. result; except Chester, J., dissenting. Order reversed, with ten dollars costs and disbursements, and original order modified so as to strike therefrom the provision for appointment of temporary receiver, without prejudice to motion on behalf of any of the parties, upon notice to the respondents, for appointment of temporary receiver if they should.be so advised. See Stock Corp. Law (Laws of 1892, chap. 688), § 21, as amd. by Laws of 1905, chap, 750; Gen. Corp. Law (Laws of 1892, chap. .687), § 5, as amd. by Laws of 1902, chap. 285.—[Hep.