A director of a corporation is an "officer," within General Corporation Act (22 Del. Laws, p. 780) § 57, giving employés of an insolvent corporation priority for wages, but declaring that the word "employe" shall not include any officer, and he is not entitled to priority as an employé for wages as a foreman. [Ed. Note. For other cases, see Corporations, Cent. Dig. §§ 2283-2286; Dec. Dig. § 566.* For other definitions, see Words and Phrases, vol. 3, pp. 2369-2377; vol. 8, p. 7649; vol. 6, pp. 4933-4951; vol. 8, p. 7737.] In the matter of the receivership of the Peninsula Cut Stone Company, an insolvent corporation. Proceedings by Harry R. Loose, a director, to establish a claim for services rendered as yard foreman. Exceptions to claim sustained. Harry R. Loose, a director of the defendant company, filed a claim against the funds in the hands of the receiver for services rendéred as yard foreman in the proof of which he claimed priority of payment. The cause was heard on exceptions filed by the receiver to the claim of priority. William W. Knowles, for claimant. Saulsbury, Ponder & Morris, for receiver. be employed, and priority was refused him. England's Ex'rs v. Beatty, 41 N. J. Eq. 470, 4 Atl. 307. In another case in New Jersey the word "employé" was construed to include a bookkeeper of the company, though he was also a director. Consolidated, etc., Co. v. Keystone, etc., Co., 54 N. J. Eq. 309, 35 Atl. 157. But the last clause of the above section of the Delaware statute is not a part of the New Jersey statute. The evident purpose and meaning of the last phrase of this section is to deny priority to every person who serves the company as an officer, whatever the character of the labor or service which he renders to the company. The director is clearly an officer. The General Corporation Act requires that every corporation shall have directors, and they are referred to in the act as officers. It is very clear, therefore, that the exceptions must be sustained and the priority of payment denied to the creditor, who though a foreman, and in that sense an employé, is still denied priority because, being a director, he was an officer of the company. Let an order be entered accordingly. (9 Del. Ch. 330) THOROUGHGOOD v. GEORGETOWN WATER CO. (Court of Chancery of Delaware. Jan. 24, 1912.) CORPORATIONS (8 557*)-APPOINTMENT OF RECEIVER. ter company alleged insolvency, and that the income of the plant for supplying water for municipal and private purposes was about $1,900, while the annual expenses of operation sary repairs and improvements of $1,300, were about $600, leaving a margin for neceswhich was more than absorbed by interest payable on bonds of the company, etc. It also charged that the plant was in great need of repairs, which could not be made, because there was no one within the state with authority to provide therefor, and that a failure to appoint a receiver would result in great detriment and loss to stockholders and cred An amended bill for a receiver of a wa By section 57 of the General Corporation Act (22 Del. Laws, p. 780), under which the Peninsula Cut Stone Company was incorpo-itors, and would leave the city without aderated, it is provided as follows: "Section 57. Whenever any corporation, formed under the provisions of this act, shall become insolvent, the employés doing labor or service of whatever character in the regular employ of such corporation, shall have a lien upon the assets thereof for the amount of the wages due to them, not exceeding two months' wages respectively, which shall be paid prior to any other debt or debts of said corporation; but the word 'employés' shall not be construed to include any of the officers of such corporation." quate water supply, etc. Held, that the bill was sufficient to justify the appointment of a receiver with limited powers. tions, Cent. Dig. 88 2227-2236; Dec. Dig. § [Ed. Note.-For other cases, see Corpora557.*1 Bill by William J. Thoroughgood against the Georgetown Water Company, for the appointment of a receiver. decree on amended bill taken pro confesso. Granted. See, also, 77 Atl. 720. On motion for a Whiley & Jones, for complainant. Charles W. Cullen, for defendant. THE CHANCELLOR. In this case, on September 19, 1910, I filed an opinion declining to appoint a receiver of the Georgetown Water Company, as prayed for in the The General Corporation Act was mainly taken from a similar statute in the state of New Jersey. In New Jersey it has been held in one case that the president of the company was not an employé, because it is a part of his business to employ and not to For other cases see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key No. Series & Rep'r Indexes 82 A.-44 bill, for reasons set forth in the opinion. [ I should not wait to do so until by reason of These reasons were, in effect, that being a deterioration the plant be disabled, but rathcorporation for public improvement insolven- er in some guarded way take charge of its cy alone was not a sufficient ground for affairs and require that the income from its granting the relief sought, and that there operation be applied to such repairs as inwere not such sufficient allegations of detri- sure its continued operation for the benefit ment to the stockholders or to the public of the municipality, even if this involved deshown as to justify me in taking the proper- lay in paying in full the interest on the ty and affairs of the company from the hands bonds of the company, for the private interof its officers. Since that time, by leave, an est must yield to the public need. amended bill has been filed. For want of an answer thereto a decree pro confesso is moved for by the complainant. In the amended bill the danger of loss to stockholders, creditors and the public is more strongly alleged than in the original bill. In substance, the allegations are that the annual income from the operation of the plant for supplying the town and the inhabitants thereof with water for municipal and private uses is about $1,900, while the annual expense of operation is about $600, leaving a margin for necessary repairs and improvements of $1,300. This margin is more than absorbed by interest payable on bonds of the company and by interest payable on judgments and other liens on the property of the company. It is not stated directly that the income is in fact so expended in payment of interest, so that an actual deficiency exists. Nor is any other explanation made in the amended bill why the income is not in fact applied to such repairs as are necessary in order to maintain the efficiency of the plant, other than the statement "that there is no one in the state with authority to provide for said repairs." This peculiar situation by itself might not be ground for appointing a receiver for the company. But the amended bill contains the further Therefore a receiver will be appointed, with powers much less in extent than those usually conferred upon receivers in this state. ASSETS-BOOKS AND RECORDS. allegation, not contained in the original bill: 3. RECEIVERS (§ 142*)-INSOLVENcy-Sale of "That if said repairs are longer neglected it will result in the great detriment and loss of your orator and of other stockholders and creditors of said company, and will leave the said town of Georgetown without an adequate water supply for domestic purposes and for the protection of the lives and property of the inhabitants of said town from possible conflagration." And "that the health, lives and property of the citizens of Georgetown will be greatly endangered, unless this honorable court shall, at once, intervene to protect the said creditors, stockholders and citizens, and take possession of and administer the property of the said defendant corporation." On receiver's sale of a corporation's assets, an insurance company purchased unconverted property and assets, consisting of claims for, claims for amounts due for subscriptions for stock subscriptions and notes given thereto the stock of the purchasing company and notes given for the same, and all other debts that the receivers had the corporation's books due. Prior to the sale, the purchasers knew and papers in their possession, and that it would be necessary that they should be delivered to such purchaser, in order that it be enabled to prove the facts to establish such claims, in order to collect the claims. Held, that the purchaser was entitled to have such books and records delivered to it by the receivers, subject to the corporation's right to and any other books and papers that were make copies of the minute book, stock ledgers, necessary to preserve evidence of the corporation's organization and continued corporate existence. [Ed. Note. For other cases, see Receivers, Cent. Dig. §§ 248-251; Dec. Dig. § 142.*] These new allegations justify the court in taking some step to protect the public, according to the views heretofore expressed by me in the opinion already alluded to. There is, under the allegations of the bill, no way by which the minority of the directors can protect the interest which the public has in the maintenance of the efficiency of the water supplying plant, other than by the intervention of an agent and officer of this court, Suit by Julius J. Hirschfield against the Reading Finance & Securities Company. On petitions by the Citizens' Life Insurance Company of America and defendant Securities Company for possession of the company's books and records. Books ordered delivered to the petitioning Life Insurance | evidence of its organization and continued Company. corporate existence, but to urge further that. Robert H. Richards, for petitioner Citi- to deprive it of these books and papers would zens' Life Ins. Co. of America. Saulsbury, Ponder & Morris, for petitioner Reading Finance & Securities Co. CURTIS, Ch. There are two conflicting applications pending before the Chancellor by which the ownership of the books and papers of the Reading Finance & Securities Company is claimed, one by the corporation and the other by the Citizens' Life Insurance Company of America. The Reading Finance & Securities Company has heretofore been adjudged to be insolvent in this court, and receivers for it have been appointed, and by order of the Chancellor all the property of the company and all its books, etc., were delivered to the receivers. Subsequently all its affairs were fully administered by the receivers, the property sold, collected and converted, and the proceeds paid over to its creditors, and the only now remaining duty of the receivers is to hold the books and papers of the company which so came into their possession until the conflicting claims thereto are settled. At the sale by the receivers they sold the then remaining and unconverted property and assets of the company in three lots, all of them being purchased by the Citizens' Life Insurance Company of America, one of the petitioners, and the chief creditor, and these lots were described as follows: (1) Claims for amounts due subscriptions to the capital stock of the Reading Finance & Securities Company, and notes given for the same. (2) Claims for amounts due for subscriptions to the capital stock of the Citizens' Life Insurance Company of America, and notes given for the same. (3) All other debts due and property of the Reading Finance & Securities Company remaining in the hands of the receivers. [1, 2] By its application the purchaser asserts that it knew prior to the sale that the receivers had these books and papers and that it is necessary that it should have them to enable it to realize on the claims mentioned in lots Nos. 1 and 2, above mentioned, by suits and in other litigations pending. These allegations are not denied by the insolvent company, but the latter asserts that the books were delivered to the receivers to enable them to administer the affairs of the insolvent company, and as that purpose has been concluded the books and papers are the property of the company and should be returned to it; and it is further urged that the books are not property, the ownership of which this court has power to decide. is correctly urged by counsel for the insolvent company that it was not dissolved by the appointment of the receivers. It is also probably true that some of the books contain It in effect work a dissolution of the company, is an untenable conclusion. Even if there was danger of this result, the evidence could be perpetuated in some way in the order awarding delivery of the books, etc., to the purchaser, for instance, by allowing sworn copies thereof to be made. But [3] It is further urged by the insolvent corporation that these books and papers, being the private books and papers of the company, are not goods and chattels which could have been levied on by an execution against the company. In the case of Oystead v. Shed, 12 Mass. 506, it was held that private papers or account books of the defendant were not subject to attachment. while the taking possession of the property and affairs of an insolvent corporation by a receiver appointed by the Chancellor is in some respects like an equitable execution, still it has a wider scope and property which could not be reached by any process of the courts of the law by creditors may be seized and realized on by sale or collection for the benefit of all the creditors of the insolvent corporation. It is the purpose and object of such a proceeding to apply every scrap of its property and assets of every kind to the payment of its creditors. the case of American Construction Company v. Jacksonville, etc., Co. (C. C.) 52 Fed. 940, the court held that an order to the officers of the company to deliver to the receiver of the company all the property, effects, etc., of the company, included the corporate seal and all books relating to the past transactions of the company. This case does not necessarily mean that the receiver has a right to sell the corporate seal, but probably would be an authority that the custody of the seal should' be given to the receiver to be used for whatever proper purpose it may be found useful in winding up or administering affairs and assets of the company. In Attached to the petition of the insolvent company is a list of the books and papers held by the receivers and of these books and papers it is not likely that more than three kinds of books would be of any use to preserve evidence of its corporate existence, viz., the minute book and the two original stock ledgers. All the other books and papers apparently relate to past transactions of the company in the prosecution of its business and not to its corporate existence. As hereinabove indicated the order awarding all the books and papers to the purchaser could either exempt these books or the corporation could be allowed to have sworn copies of them. In either of these ways it may be protected from possible detriment. The application of the Reading Finance & Securities Company does not ask for the delivery to it of the corporate seal, but it is so manifestly necessary to it in the execution | 2. CORPORATIONS (§ 563*)-INSOLVENCY-ACof certain corporate powers that it should TION AGAINST DIRECTORS AND OFFICERS. remain with the company and upon applica-ly liable for the expense of litigation against The fact that petitioners would be primarition it will be so ordered. officers and directors of a corporation for alleged mismanagement, and that delay and loss of evidence would be avoided, and that the company's receiver was not entirely favorable to the suit, was not ground for the granting of permission to petitioning stockholders to institute and maintain the action. But the purchaser the Citizens' Life Insurance Company of America claims ownership of the books, or at least asserts its right to have them now delivered to it, because it purchased them as part of the "property" of the Reading Finance & Securities Company [Ed. Note.-For other cases, see Corporations, Action by Pierre S. Du Pont against the Standard Arms Company. Petition of Harvey S. Knight and others for leave to sue certain officers of the defendant company for mismanagement. Denied. See, also, 81 Atl. 1089. included in parcel No. 3, or else because hav-Cent. Dig. §§ 2280, 22802; Dec. Dig. § 563.*] ing purchased certain subscription claims included in lots Nos. 1 and 2, it must have these books and papers as evidence to enforce these claims. This latter allegation is not denied and seems reasonable and is to be considered to be true. This allegation includes all the books and papers. In the absence of some controlling or potent reason to the contrary, the court, having by its receivers sold certain claims which can be collected only by suits thereon, should give the purchaser of the claims that which the purchaser needs in order to realize upon the claims. This seems manifestly clear and the Chancellor made thereon. The conclusion is that the Citizens' Life Insurance Company of America, the purchaser of the claims, and property of the company, referred to in the petition, is entitled to have delivered to it all the books S. Hilles and Robert H. Richards, for re- ceiver. THE CHANCELLOR. Sev Standard Arms Company was appointed by A receiver of the this court on the ground of its insolvency, just and any other view would be unfair to and the receiver has sold all its property the purchaser. This reason being a sufficient and assets, and is about ready to make one it is not necessary to decide whether the its creditors as preliminary to a winding distribution of the proceeds thereof among books and papers were included within the description of the word "property," mention-eral stockholders have filed a petition to be up of the administration of its estate. ed in the return of sale and the orders of allowed to sue some of the officers of the affairs by a class bill, with the corporation insolvent company for mismanagement of its and the receiver as formal defendants. The basis of this application is the alleged refusal of the receiver to bring the suit, and and papers of the Reading Finance & Secur- and the receivers on the subject is made the correspondence between the petitioners ities Company held by the receivers, for the part of the petition to show the refusal. reasons hereinabove assigned. But to avoid It is not necessary to consider this correseven the possibility of injury to the Reading pondence, except to state that it contains Finance & Securities Company, it will, upon a request that the receiver bring the suit application and before an order is made for by counsel selected by the petitioners and the delivery of the books and papers to the with them in control of the litigation, or purchaser, be allowed to make copies of the that the receiver resign, and that the receivminute book and stock ledgers and any other disclaimed hostility to the petitioners and er books and papers that may be shown to offered to bring the suit upon being shown be necessary to preserve evidence of its or- the basis therefor. ganization and continued corporate existence. (9 Del. Ch. 324) DU PONT v. STANDARD ARMS CO. (Court of Chancery of Delaware. Jan. 22, 1912.) 1. CORPORATIONS (§ 563*)-Directors-OffICERS-MISMANAGEMENT-PERSONAL LIABILITY-RIGHT TO SUE. [1] There does not seem to be 'a real difference of opinion between counsel for the petitioners and for the receiver as to the law applicable to the situation. It seems settled, that the right and duty to enforce the personal liability of directors or other officers of a corporation for gross mismanagement of the affairs of the company is with the receiver of such company appointed to administer its affairs on the ground of its insolvency, when there is such a receiver. The receiver has broad, general powers, sufficient for the performance of this duty and the exercise of this right, whether the pow er be acquired by the statute of the state or be inherent in or incident to the office and [Ed. Note. For other cases, see Corporations, a result of the appointment by the ChancelCent. Dig. §§ 2280, 22802; Dec. Dig. § 563.*]| lor. The right to sue its officers for mis The right to sue officers and directors of a corporation for mismanagement, resulting in insolvency and receivership, is a right belonging to the corporation, and is to be enforced by the receiver for the benefit of all those whom the court shall ultimately adjudge to be entitled to the estate. (9 Del. Ch. 336) management of its affairs is a right of the corporation; if money be recovered it be- EQUITABLE GUARANTEE & TRUST CO. v. BOWE et al. (Court of Chancery of Delaware. Feb. 8, 1912.) TINGENT. longs to the corporation; and if the corporation becomes insolvent and a receiver of all its estate and effects is appointed, the receiver is the proper person to bring the 1. WILLS (§ 630*)-LEGACY-VESTED OR CONsuit, for by the appointment of the receiver the court assumes jurisdiction of all the estate and affairs of the corporation, through its receiver, for the benefit of all those whom the court shall ultimately adjudge to be entitled to such estate. 4 Thomp. on Corp. 8 4635; Porter v. Sabin, 149 U. S. 473, 13 Sup. Ct. 1008, 37 L. Ed. 815. [2] What reasons are assigned why the petitioners, rather than the present or substituted receiver, should bring the suit for the alleged mismanagement by the officers of the company? Beyond asserting that the petitioners would be primarily liable for the expense of the litigation, and so relieve the estate in the hands of the receiver therefrom, and that delay and loss of evidence would be avoided, no reasons are set out in the petition. These reasons do not strongly appeal to the court. There will be no serious delay. As to the expense, if a new receiver should be appointed in the place of the present receiver, the substituted receiver will have from the estate ample funds to carry on the litigation in question. If in his judgment the proposed litigation is without rea sonable basis and likely to be unprofitable, indemnity to the estate against costs of the litigation may be required of those stockholders who desire the litigation. In this way the court will have, as it should have, control over the litigation; if it be fruitful, its benefits belong to all creditors and stockholders and not to those petitioning stockholders only. The probability, if any there be, of loss of evidence is a reason why the books and papers of the company should be retained by a receiver of the court for the purpose of the suit, and so be under the control of the court through its receiver. It is urged for the petitioners that from correspondence there appear reasons why the present receiver should not bring the suit, but assuming this to be true, it is not sufficient reason why the petitioning stockholders should have leave to bring the suit. The affairs of the receivership are practically settled, and very speedily the duties of the present receiver will be so concluded as that the receiver will be allowed, according to its commendable offer, to resign and another receiver be appointed, and the person so chosen will be a person free from even a lack of sympathy with the object sought by the petitioners. In this way it seems that all the rights of persons interested will be conserved. As at present advised, then, the court will deny the prayer of the petition for leave to bring the suit referred to therein. Let an order be entered accordingly. Where the time for, or condition to, the payment of a legacy is annexed to the substance of a gift, and not merely to the payment, the legacy is contingent; but where interest, either by way of maintenance or otherwise, is given to the legatee in the interim, the legacy will, notwithstanding the postponement, vest immediately on the death of the testator. [Ed. Note.-For other cases, see Wills, Cent.. Dig. 88 1464-1480, 1486, 1487; Dec. Dig. § 630.*] 2. WILLS (§ 630*)-Legacy-VESTED OR CON TINGENT. A will bequeathed a sum of money to a trustee for each of certain grandchildren of the testator, "to provide for some of my sons who have a greater number of children than the others," the money to be invested and the income to be expended for the maintenance and education of the grandchildren and the principal to be paid to them as they arrived at the age the grandchildren at testator's death. of 30 years. Held, that the legacies vested in [Ed. Note.-For other cases, see Wills, Cent. Dig. §§ 1464-1480, 1486, 1487; Dec. Dig. S 630.*] Bill by the Equitable Guarantee & Trust Company, trustee under the will of William Bowe, against Mary Josephine Bowe and others, for the construction of a will. Will construed. Saulsbury, Ponder & Morris, for next of kin of William Bowe. Charles F. Curley, for administrator of Margaret Bowe. THE CHANCELLOR. The bill is filed by the Equitable Guarantee & Trust Company, trustee under the will of William Bowe, deceased, for construction of item 13 of his will, and all the parties in interest that could be affected by the interpretation of the clause have been made parties and are represented by counsel. The item under consideration is as follows: "Thirteenth. To provide for some of my sons who have a greater number of children than the others, I give and bequeath to the Equitable Guarantee & Trust Company, the sum of dollars, being ten thousand dollars for each of my grandchildren, the children of James H. Bowe, Joseph A. Bowe and William S. Bowe, to hold and invest the same in good incomeproducing securities, with full power to call in and reinvest, to collect the income arising therefrom, and, after deducting a reasonable sum for its care and trouble, to pay over the net income for the maintenance and education of said grandchildren until they arrive at the age of thirty years, and as they respectively arrive at the age of thirty years to pay over to them the share of the principal sum to which they are entitled, free and discharged from all trusts." •For other cases see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key No. Series & Rep'r Indexes |