Hoyt v. . Thompson's
19 N.Y. 207 (1859)
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Rule of Law:
A state's insolvency statute will not be given extra-territorial effect out of comity to divest the title of a bona fide purchaser who, for valuable consideration and without notice, acquired corporate assets in another state from a seller whose own title was derived from a valid corporate transfer.
Facts:
- The Morris Canal and Banking Company, a New Jersey corporation, owned a $60,000 bond and mortgage issued by the Long Island Railroad Company.
- Owing a large debt to the State of Michigan, Morris Canal's executive officers executed an agreement on December 9, 1840, transferring the bond and mortgage and other securities to Michigan in exchange for a long-term extension on its debt.
- The company's by-laws authorized a quorum of five directors to conduct 'ordinary business.'
- A quorum of five directors was aware of the negotiations and, on December 31, 1840, passed a formal resolution ratifying the agreement with Michigan.
- In May 1843, Abraham G. Thompson, a citizen of New York, purchased the bond and mortgage from an agent of the State of Michigan at a public auction in New York for $20,000.
- In August 1841, creditors initiated proceedings against Morris Canal under a New Jersey insolvency statute, and receivers were appointed in January 1842.
- On November 13, 1845, the receivers of Morris Canal assigned their claim to the same bond and mortgage to Sanxay, who was acting as an agent for the plaintiff, Hoyt.
Procedural Posture:
- Hoyt sued Thompson's Executor in a New York trial court.
- The trial court, with Justice Hoffman presiding, found in favor of the plaintiff, Hoyt.
- The defendant, Thompson's Executor, appealed to the Superior Court of the city of New York, an intermediate appellate court.
- The Superior Court reversed the trial court's judgment and ordered a new trial.
- The plaintiff, Hoyt, as appellant, appealed the order for a new trial to the New York Court of Appeals, the state's highest court, stipulating that final judgment be entered against him if the order was affirmed.
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Issue:
Does a transfer of corporate assets, made in contemplation of insolvency and voidable as to creditors under a New Jersey statute, invalidate the title of a subsequent bona fide purchaser who acquired the asset for value in New York without notice of the statute or the initial transfer's circumstances?
Opinions:
Majority - The Court (Comstock, J.)
No. The title of a subsequent bona fide purchaser, acquired for value in New York without notice, is not invalidated by the extra-territorial application of a New Jersey insolvency statute. The court first determined that the initial transfer from the Morris Canal company to the State of Michigan was a valid corporate act. The company's by-law, which allowed a quorum of five directors to transact 'ordinary business,' was a valid delegation of the board's power. Securing a large debt to ensure the company's continued operation, while a significant transaction, falls within the scope of 'ordinary business.' Furthermore, the company's subsequent acquiescence and the board's formal resolution constituted a ratification of the transfer, making it equivalent to an act with original authority. Second, the court held that Abraham G. Thompson was a bona fide purchaser for value without notice. He acquired the security in New York, and there was no evidence he knew of the New Jersey insolvency statute or the circumstances that might make the original transfer voidable to creditors. While New York courts may extend comity to the laws of other states, this principle does not compel them to enforce foreign laws that would divest the validly acquired property titles of their own citizens. Thompson's title, derived from a voluntary corporate assignment valid where made, is superior to Hoyt's title, which relies on the involuntary operation of a foreign statute.
Analysis:
This decision reinforces two key legal principles: the broad authority of corporate directors to delegate powers and the territorial limitations of state laws. By defining 'ordinary business' to include significant financial restructuring aimed at corporate survival, the court provides flexibility for corporate governance. More importantly, the case establishes a strong protection for bona fide purchasers by limiting the doctrine of comity. It clarifies that while a state may recognize foreign legal proceedings, it will not enforce a foreign insolvency statute to the detriment of its own citizens who have acquired title to property in good faith within its borders, thereby prioritizing local commercial certainty over the extra-territorial reach of another state's creditor-protection laws.
