Linville v. Hadden & Co.

Fowler, J., delivered the opinion of the Court. The plaintiffs, Hadden & Co., a New York firm, were creditors of the Natchaug Silk Company. The latter became insolvent and James E. Hayden was appointed its receiver by a decree of the Superior Court of Wind-ham County, Connecticut, on the 26th of April, 1895. On the 27th of December of the same year the plaintiffs caused to be issued from the Superior Court of Baltimore City a foreign attactment against the Silk Co., and it was laid in the hands of the appellant, Charles H. Linville, as garnishee.

We held in the former appeal, Hadden & Co. v. Linville, Garnishee, 86 Md. 210 , growing out of this same attachment proceeding, that the transfer from the-Silk Co. to the First National Bank of Willimantic, Connecticut, also a creditor of the Silk Co., was invalid, because it was made without the authority of the board of directors. We also held in the former case that the transfer we have just mentioned which was relied on to defeat the attachment, being invalid, the plaintiffs were entitled to maintain their attachment, and the judgment in favor of the garnishee was reversed and the case was remanded for a new trial. The first step which appears to have been taken in the Court below after the case was remanded was a motion to quash the attachment, filed by James E. Hayden, receiver of the Silk Co., on the ground that the plaintiffs had voluntarily made themselves parties to the suit in the Connecticut Court by filing their claim there against the Silk Company, and that they were therefore estopped from proceeding in the Maryland Courts. But the Court below overruled this motion, and the receiver has failed to appeal.

However, the same question is presented by the fifth and sixth exceptions of the garnishee, and we will consider it when we discuss them. The judgment below was for the plaintiffs against the garnishee, and the latter has appealed. The first exception of the garnishee was to the refusal by the Court to allow him to prove that Mr. Chaffee, the president and general manager of the Silk Company, had directed the secretary and treasurer of the ⁵⁹⁶ Silk Company to transfer to another creditor several thousand dollars worth of goods in payment of a debt, and that the goods were in fact shipped, and that Mr. Chaffee’s action in this matter was never questioned thereafter by any member of the board of directors, although it came to their knowledge very soon. It appears very clear in view of the conceded facts that the ruling complained of was correct.

The transfer to the New York creditors was made on the 22nd of April, but it was not until the 29th of that month that Chaffee informed his board what he had done, saying that he had transferred all the goods of the Silk Company in New York, Chicago and Baltimore to the bank. But the board refused to ratify Mr. Chaffee’s action, upon the ground that the decree of the Connecticut Court of the 26th of April appointing a receiver for the Silk Company deprived them of all power to act. The transfer in Baltimore,to the garnishee was not made until the afternoon of the 26th of April and therefore after the receiver had been appointed and had taken possession of the Silk Company’s affairs. Therefore, even if the board of directors had attempted after the appointment of the receiver to ratify the act of Mr. Chaffee in transferring the property of the Silk Company to the garnishee or to any other creditor, their action would have been.futile.

For it is text-book law “that the appointment of a receiver over a corporation is generally equivalent to a suspension of its corporate functions, and of all authority over its property and effects, and is also equivalent to an injunction restraining its agents and officers from intermeddling with its property.” High on Receivers, sec. 290. This must necessarily be so— otherwise both the receiver and the board of directors would be competent to exercise the rights, privileges and franchises of the corporation and endless confusion would be the result. If, therefore, we are correct in the conclusion reached in the former case that the transfer by Chaffee of the Silk Company’s property in Baltimore was invalid, it follows that the evidence offered to show that the directors of that company acquiesced ⁵⁹⁷ in it or ratified it after they ceased to have any power to act, as well as all the evidence which was offered for the purpose of showing that the transfer was made to continue the Silk Company as “ a going concern ” — was clearly inadmissible. The invalidity of the transfer being established, all evidence tending to prove the good faith of Chaffee in making it, or the valuable consideration which the bank offered for it, was wholly immaterial and irrelevant.

We need say nothing further to show that in our opinion the rulings of the Court below which form the first four exceptions are free from error. But it was urged that the plaintiffs being non-residents have no standing in our Courts, and that they will not be allowed to set up a claim again the title of the Connecticut receiver. The decree appointing the receiver in Connecticut had no extra-territorial force, and therefore, although while a citizen of that State might not be allowed to set up a claim either there or here which ignored the validity of that decree; yet citizens of this State, or of other States than Connecticut are not bound by it, outside of the last named State, and, in spite of the Connecticut decree, either our own citizens or the citizens of third States may proceed here to collect their debts. The general principle is thus expressed in Beach on Receivers (Old Ed.), sec. 268, and supported by the citation of many authorities: “ Because of the principle of ‘ judicial comity,’ a phrase of well defined and accepted meaning, a receiver of one State or jurisdiction will be recognized and permitted by the Courts of another to do all that is necessary to take and possess the property of the debtor there located, provided that to do so will not violate any law or policy of the latter, or embarrass or do injustice to any of its citizens, or those of a third State who have come there to enforce the payment of their claims against the debtor.” It cannot be doubted that if the plaintiffs were citizens of Maryland the inchoate lien and rights secured