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Yorkville Bank v. The Zeltner Brewing Co.

YORKVILLE BANK, RESPONDENT, v. THE HENRY ZELTNER BREWING COMPANY, DEFENDANT. WILLIAM B. SUTHERLAND, AS TEMPORARY RECEIVER OF THE PROPERTY OF THE HENRY ZELTNER BREWING COMPANY, APPELLANT.

SUPREME Court--AppelLATE DIVISION. FIRST DEPARTMENT-MARCH, 1903.

§§ 431, 1810, SUBD. 3.

Resignation of Officer of Corporation-Service of Process Upon Officer After Resignation-Appointment and Authority of Receiver.

The resignation of an officer of a private corporation becomes valid and effectual without acceptance. Service of process upon such an officer, after his resignation, does not bind the corporation. The Supreme Court has jurisdiction to appoint a receiver of the property of an insolvent domestic corporation, at the suit of a stockholder thereof, to care for and preserve its assets, on the ground that its directors, president and treasurer had resigned, and the corporation had no officer empowered to hold its assets. The modification of an order appointing such a receiver, by relieving a particular creditor from the operation of an injunction contained therein, does not invalidate the receivership, and the receiver is authorized to move to vacate a judgment entered against the corporation.

(See Zeltner v. The Henry Zeltner Brewing Co., 33 N. Y. Civ. Pro. 298.)

(Decided March, 1903.)

Appeal from order denying motion by the receiver to vacate judgment.

Henry A. Forster, for appellant.
Moses Weinman, for respondent.

Yorkville Bank v. The Zeltner Brewing Co.

INGRAHAM, J.-The plaintiff commenced this action to recover the amount due on a promissory note made by the defendant corporation and indorsed by the other defendants. The summons and complaint was alleged to have been served upon the defendant by delivering copies thereof and leaving the same with William H. Zeltner, as president of the corporation, on the 4th day of February, 1902. On February 1, 1902, three days before this alleged service, William H. Zeltner executed the following instrument:

"I hereby resign my office as president of The Henry Zeltner Brewing Company, my resignation to take effect this first day of February, 1902.

"WILLIAM H. ZELTNER."

At the same time he also resigned as a director of the corporation.

On February 5, 1902, an action was commenced by William H. Zeltner individually and as executor of the last will and testament of Henry Zeltner, deceased, against The Henry Zeltner Brewing Company. It was alleged in the complaint that the plaintiff was a stockholder of the defendant corporation; that the corporation was insolvent and unable to pay its existing debts and obligations; that the directors and the president and treasurer of said defendant had resigned their offices severally, individually and respectively, which resignations had already taken effect, so that the positions of said officers and the directorships in said corporation were in fact each and all vacant and unoccupied, and that no other officer or director or board of directors remained or existed authorized or empowered to hold any of the assets and property of said defendant; and asking for the appointment of a receiver to preserve the property of the corporation; and an order to show cause was granted requiring the defendant and the attorney-general to show cause at Special Term of the Supreme Court in the County of Westchester, on the 7th day of February, 1902, why a reciver of the property of the corporation should not be appointed under section 1810 of the

Yorkville Bank v. The Zeltner Brewing Co.

Code of Civil Procedure. This motion coming on to be heard, no one appearing on behalf of the attorney-general, and counsel for the defendant corporation not opposing, William B. Sutherland was appointed receiver "of the property, both real and personal, stock, franchises, contracts, things in action, assets and effects of every kind and nature of the said defendant corporation." This order was entered on the 7th day of February, 1903, and contained an injunction restraining the creditors of the corporation from beginning any action or proceeding against the said corporation for the recovery of a sum of money or from taking any further proceedings in any such action or proceeding theretofore commenced.

Subsequently the plaintiff in this action, as a creditor of the defendant corporation, applied to the Supreme Court to vacate and set aside the order appointing the receiver and for leave to enter judgment in its action against the defendants and to issue execution against the property of the defendants. That motion was denied by the Special Term, whereupon the plaintiff in this action appealed to the Appellate Division in the Second Department, where the order denying this motion was reversed, and the order appointing the receiver modified so as to relieve the Yorkville Bank from the operation of the injunction contained therein, and to permit said bank to prosecute its claims and to enforce any judgment obtained against the property in the hands of the receiver. Mr. Justice Bartlett, in delivering the opinion of the Appellate Division, recognized the general proposition that the acceptance of a resignation is ordinarily not essential to its effectiveness, citing Noble v. Euler (20 App. Div. 549), which sustains that proposition; holding, however, that the resignation of the officers of the defendant corporation did not free them. from the obligation which previously rested upon them in regard to the custody of that property until other officers should be duly appointed to care therefor; that they still remained officers empowered to hold the same within the meaning of subdivision 3 of section 1810 of the Code of Civil Pro

Yorkville Bank v. The Zeltner Brewing Co.

cedure. The court did not intimate that the order appointing the receiver was void, but that under such circumstances the order, so far as it enjoined the plaintiff in this action from proceeding in its action against the corporation, should be modified, and the plaintiff allowed to proceed in his action. against the corporation. The order appointing the receiver was not void. The Supreme Court had jurisdiction to pass upon the question as to whether or not there were officers empowered to hold the assets of the corporation, and having passed upon that question and determined that a receiver should be appointed, its determination was valid until reversed, and the receiver was vested with the title to the assets of the corporation until his appointment was revoked by the court. The Appellate Division in its order did not vacate the order appointing the receiver. Upon the plaintiff's motion as a creditor, it modified the order so far as to relieve the plaintiff from the effect of the restraining order therein contained, leaving the order appointing the receiver in other respects unaffected. The order of the Appellate Division was entered without notice to the attorney-general, and, so far as appears, he had no notice of the application to vacate or modify the order of February 7 appointing the receiver. The plaintiff thus being relieved from the injunction, entered judgment against the defendant corporation on the default of an answer or appearance by the defendant. Whereupon the receiver moved to vacate that judgment upon the ground that there was no service of the process upon the defendant corporation. Section 431 of the Code of Civil Procedure provides that "personal service of the summons upon a defendant, being a domestic corporation, must be made by delivering a copy thereof within the State to the president or other head of the corporation, the secretary or clerk to the corporation, the cashier, the treasurer, or a director or managing agent." It would seem to be quite clear that there was no service of the summons and complaint upon the corporation within the provision of this section. The person who was

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Yorkville Bank v. The Zeltner Brewing Co.

served had been the president and a director of the corporation, but before the service of the summons upon him had resigned as president and director thereof. At the time of the service of the summons and complaint he occupied no official position in the corporation, and the service of the summons and complaint upon him conferred no jurisdiction upon the court to proceed against the corporation. Applying the rule stated by the Appellate Division in the Second Department upon the appeal from the order denying the motion to vacate the order appointing the receiver, that the resignation of the officers of the corporation did not free them from the obligation which previously rested upon them in regard to the custody of the property until other officers should be duly appointed to care therefor, the officers who had resigned were not the officers upon whom the summons and complaint could be served under section 431 of the Code which would entitle the plaintiff to enter judgment against the corporation. In Noble v. Euler (20 App. Div. 548) it was said: "Although this resignation was not formally accepted until February, 1892, the referee correctly held that it became effective when tendered in the previous November"; and it was held that a report of that corporation, which the law required to be verified by the president, secretary and treasurer of the corporation, was sufficient when verified by the president, as by the resignation of the secretary and treasurer those offices became vacant. If, after such resignation, a summons had been served upon the secretary and treasurer who had resigned, it would seem to be clear that that service would not be a service of process upon the corporation. So in this case the service of process upon the person who had been president and a director of the corporation, but who had resigned, was not sufficient to justify the entry of judgment against the corporation.

The only remaining question is whether this receiver could move to vacate the judgment. By the order appointing him receiver he was vested with the assets of the corporation. It

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