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Page 504
99 A.2d 504 
34 Del.Ch. 44
BANKS
v.
CRISTINA COPPER MINES, Inc.
Court of Chancery of Delaware, New
Castle County.
Sept. 9, 1953.
Page 505
James L. Latchum and William S.
Potter, of the firm of Berl, Potter &
Anderson, of Wilmington, and Edgar Allen
Poe, Sr., and Edgar Allen Poe, Jr., of the
firm of Bartlett, Poe & Claggett, of
Baltimore, for plaintiff.
George T. Coulson and Edwin D.
Steel, Jr., of the firm of Morris, Steel,
Nichols & Arsht, of Wilmington, for
defendant.
BRAMHALL, Vice-Chancellor.
Defendant's motion is based upon
its contention that defendant is not
insolvent within the meaing of Title '8',
Code of 1953, § 291. Plaintiffs'
cross-motion is based upon the contention
that defendant is unable to pay its debts as
they mature in the usual course of business,
is therefore insolvent within the meaning of
the statute and that this court should
exercise its discretion and [34 Del.Ch. 46]
appoint a receiver to protect its assets.
Since my determination of these motions must
be based upon the facts presented by the
pleadings, affidavits, and depositions, a
discussion of the essential facts will be
necessary.
In the complaint of plaintiffs
filed on October 17, 1952, it is alleged
that the defendant is insolvent in the sense
that it is unable to pay its debts in the
ordinary course of business as they mature
and the appointment of a receiver is
requested. In particular it is averred that
defendant is indebted to the law firm of
Bartlett, Poe & Claggett in the sum of
$4,497.20, for which payment has been
demanded, and that defendant has outstanding
obligations for salaries for its officers, a
bill for defendant's accountant, and other
indebtedness, totaling the sum of
approximately $122,000.
In defendant's answer filed on
November 24, 1952, it is denied that
defendant is unable to pay its current
maturing obligations as alleged in the
complaint. It is contended by defendant that
payment of the items of loans payable by the
corporation to certain of its officers and
directors, amounting to approximately
$77,000.00, is not demanded by them, as
evidenced by letters from the obligees and
depositions offered by defendant, to the
effect that no demand for payment has been
made and that they have no intention of
pressing these claims until such time as the
defendant can eventually pay them. Defendant
further asserts that the item of $4,497.20
alleged to be due to the firm of Bartlett,
Poe & Claggett is in serious dispute; that
it was agreed that this firm should
represent the defendant before the
Securities and Exchange Commission for a
retainer of $1,000, plus $200 per diem, but
that the entire fee was not to exceed $2500;
that the compensation alleged to be due to
this law firm was contrary to certain
resolutions on the minutes of defendant, of
which this law firm had knowledge, one of
its
Page 506 members then being a member of defendant's
board of directors and having prepared the
same; that other obligations of defendant
presently due were paid by the issuance of
stock of defendant to the creditors or by
payment in cash advanced by certain of the
officers and directors of defendant; that
defendant can pay promptly the obligation of
the law firm of Bartlett, Poe & Claggett
upon determination[34 Del.Ch. 47] of the
amount, if any, which may be due and owing
by defendant to this firm.
Insolvency is a jurisdictional
fact, proof of which must be clear and
convincing and free from doubt.
Kenny v. Allerton Corporation, 17 Del.Ch.
219, 151 A. 257;
Manning v. Middle States Oil Corporation, 15
Del.Ch. 321, 137 A. 79. If the court
should entertain any serious doubt, a
complaint asking for the appointment of a
receiver should be denied. Kenny v. Allerton
Corporation, supra. Even when insolvency is
shown, the appointment of a receiver will
not follow as a matter of course. Whether
the appointment should be made is always a
question which rests in the sound discretion
of the chancellor. Kenny v. Allerton
Corporation, supra;
Freeman v. Hare & Chase, 16 Del.Ch. 207, 142
A. 793;
Jones v. Maxwell Motor Co., 13 Del.Ch. 76,
115 A. 312.
The balance sheet of defendant as
of August 31, 1952, shows the total assets
of the company to be $1,309,501.53, with the
total liabilities amounting to $122,813.29.
The company is not operating. Its total
source of revenue has been through the sale
of stock, as to which a stop-order was
issued by the Securities & Exchange
Commission. The assets consist of leaseholds
in mining property in the Republic of Cuba,
together with stock in at least one
subordinate company. The liabilities of
defendant consist of loans made by certain
officers and directors of defendant in the
sum of approximately $77,000, and
obligations for attorney's fees,
accountants, etc., totaling approximately
$122,000. The obligation of Bartlett, Poe &
Claggett is the only obligation presently
due and payable as to which there has been a
demand for payment. That claim, says the
defendant, is disputed. At the time of the
filing of the complaint, there were other
obligations of defendant in which the
creditors were demanding payment. These
obligations were paid largely through the
issuance of stock of the corporation to the
creditors. Admittedly, defendant has been
unable to maintain its existence other than
through the sale of its stock and by means
of substantial loans made by certain of its
officers and directors. Nevertheless, the
fact that the money which was used to pay
defendant's debts was borrowed money does
not constitute an inability to pay its
obligations as they mature, which is the
ground of [34 Del.Ch. 48] insolvency as
alleged here. Freeman v. Hare & Chase,
supra. While insolvency must be shown at the
time the bill is filed, yet if thereafter
the condition of insolvency, that is, the
inability of defendant to pay its
obligations as they mature, no longer
continues to exist, a receiver should not be
appointed. Freeman v. Hare & Chase, supra.
It is strenuously contended by
plaintiffs that the dispute as to this claim
is without merit and was never raised until
subsequent to the filing of this complaint.
Be that as it may, there is substantial
evidence to support defendant's contention,
at least in part. In a motion for summary
judgment a court can determine only whether
or not there is a genuine issue as to a
material fact. It cannot try the issue. See
3 Federal Practice and Procedure (Rules
Ed.), Sec. 1231, p. 69. Defendant contends
that there was an agreement that the fee
under no circumstances would exceed $2500.
It has by affidavits and depositions set
forth evidence to substantiate this
contention. Defendant has also set forth
certain legal defenses by reason of
resolutions on the minutes of defendant, of
which defendant alleges that the claimant
had knowledge.
As to part of this claim, I
conclude that there is a genuine dispute
between the parties. As to any portion of
this claim
Page 507 which may not be in serious dispute, I
conclude that a receiver should not be
appointed by reason thereof. When certain
creditors of defendant asserted their claims
defendant was able to pay them, largely, it
is true, by the issuance of its stock to the
creditors. As to other obligations, these
have been met by loans to the company from
certain of its officers and directors.
Defendant asserts that it is in a position
to pay at once any amount which may be
determined to be due under this claim. The
balance sheet of defendant shows assets of
more than a million dollars over the amount
of its total indebtedness. While it might be
that the value of these assets are grossly
overstated, and that it might be
problematical as to whether or not funds
could be raised upon the security thereof,
nevertheless, in the exercise of my
discretion, I feel that after the exact
amount, if any, which may be determined to
be due on this claim is finally determined,
the defendant should be able to raise
sufficient to pay in full the claim of
Bartlett, [34 Del.Ch. 49] Poe & Claggett. If
a defendant which is charged to be insolvent
only in the sense that it cannot pay its
current bills has sufficient credit upon
which to raise funds to pay those bills, a
court ought not generally to appoint a
receiver. McKee v. Standard Minerals Corporation, 18
Del.Ch. 97, 156 A. 193; Freeman v. Hare
& Chase, supra.
Plaintiffs contend in support of
their complaint that the defendant will
never be successful under its present
management in its effort to develop the
properties which it holds under leases and
that it has been able to maintain its
existence only by the selling of additional
stock and by advances made by certain of its
officers and directors. Assuming this to be
a fact, it has no bearing upon the present
complaint as disclosing insolvency necessary
for receivership. See McKee v. Standard
Minerals Corporation, supra. Moreover, a
court will not, in the absence of bad faith
on the part of the management, appoint a
receiver for a corporation merely because a
minority of stockholders thinks it is
undesirable for the corporation to continue
in business or because he is dissatisfied
with the manner in which it is being
conducted. Lewis v. Commonwealth Security,
D.C.Del., 51 F.Supp. 33. No mere differences
of opinion among stockholders or directors
as to business policy or methods pursued by
the corporation can of themselves constitute
a legitimate ground for the appointment of a
receiver. Carson v. Allegany Window Glass
Co., C.C.Del., 189 F. 791.
I conclude that insolvency within
the meaning of our statute has not been made
out. Defendant's motion for summary judgment
will be granted.
An order will be signed, on
notice, in accordance with this opinion. |
