1. The principle which accords great weight to the decisions of
the Supreme Court of Puerto Rico in matters of local law applies
where the question respects the power of that court to appoint a
receiver and is dependent upon a construction of local statutes,
and
a fortiori where the question concerns merely the
propriety of an exercise of that power. P.
315 U. S.
646.
2. A decision of the Supreme Court of Puerto Rico affirming its
power to place a receiver in control of the property of a
corporation the dissolution of which it had decreed for violations
of a law forbidding corporations to hold more than 500 acres of
land is entitled to great weight as an exposition of the local law,
and, not being plainly incorrect, should not have been reversed by
the Circuit Court of Appeals, although § 182 of the local Code of
Civil Procedure, upon which the insular court relied, appears to
conflict with §§ 27-30 of the Private Corporation Law. P.
315 U. S.
646.
3. The Supreme Court of Puerto Rico, having decreed the
forfeiture of the charter and the dissolution and winding up of a
corporation which, in violation of the law and its charter
restrictions, had acquired more than 500 acres of land appointed a
receiver of all its property, which was operated as a unit in the
production of sugar, and directed him to manage the property as a
going concern until Puerto Rico should exercise its statutory
option either to confiscate the real estate unlawfully held or to
have it sold at public auction.
Held:
(1) That the appointment was discretionary, for the purpose of
preventing confusion and needless litigation which might result if
the directors of the corporation should attempt to convey interests
in the property pending the exercise of the option. P.
315 U. S.
646.
(2) That, as the receivership was to be terminated upon the
exercise of the option, it was sufficiently definite in time; nor
was it too broad in not being restricted to the land in excess of
the 500 acre maximum, since to separate the land from the machinery
and other personalty pending the exercise of the option would have
resulted in economic waste. P.
315 U. S.
647.
118 F.2d 752 reversed.
Page 315 U. S. 638
Certiorari, 314 U.S. 589, to review the reversal of a decree of
the Supreme Court of Puerto Rico appointing a receiver. For earlier
phases of the litigation,
see 106 F.2d 754;
309 U. S. 309 U.S.
543.
MR. JUSTICE BYRNES delivered the opinion of the Court.
By Joint Resolution of May 1, 1900, the Congress provided
that
"every corporation hereafter authorized to engage in agriculture
[in Puerto Rico] shall by its charter be restricted to the
ownership and control of not to exceed five hundred acres of land.
[
Footnote 1]"
This limitation was carried over into the present Organic Act of
Puerto Rico enacted on March 2, 1917. [
Footnote 2] In 1935, the Legislative Assembly of Puerto
Rico enacted two laws to provide the means of enforcing the
Congressional prohibition. Act No. 33 conferred upon the Supreme
Court of Puerto Rico exclusive original jurisdiction over
quo
warranto proceedings instituted for violations of the 500-acre
law. [
Footnote 3] Act No. 47
authorized the Attorney General of Puerto Rico or any district
attorney to bring such
quo warranto proceedings in the
Supreme Court of Puerto Rico against any corporation violating the
Organic Act, and provided further that, when any corporation is
"unlawfully holding . . . real estate in Puerto Rico, the People
of Puerto Rico may at its option, through the same proceedings,
institute in its behalf the confiscation of such property,
Page 315 U. S. 639
or the alienation thereof at public auction, within a term of
not more than six months counting from the date on which final
sentence is rendered. [
Footnote
4]"
This is a
quo warranto proceeding brought in 1937
against respondent corporation by the Attorney General of Puerto
Rico under these statutes. The complaint alleged that respondent
corporation was organized in 1927 under the laws of Puerto Rico for
the purpose of acquiring and working sugar cane farms and
plantations, that its articles of incorporation restricted it to
the acquisition of 500 acres, that it nevertheless had acquired,
and that it owned and was working at the time of the filing of the
complaint, some 12,188 acres of land. The answer conceded that the
500-acre restriction was contained in the articles and that the
respondent had nevertheless acquired the 12,188 acres, but
interposed several defenses. On July 30, 1938 the Supreme Court of
Puerto Rico entered judgment for the petitioner. It ordered "the
forfeiture and cancellation" of the license and articles of
incorporation of respondent, "the immediate dissolution and winding
up of the affairs" of the corporation, and the payment of a $3,000
fine and costs. On the same day, petitioner moved that a receiver
be appointed to handle the dissolution and disposition of the
respondent's property, pursuant to subsections 4 and 5 of § 182 of
the People of Puerto Rico Code of Civil Procedure. [
Footnote 5]
Page 315 U. S. 640
The motion for the appointment of a receiver was held in
abeyance pending an appeal to the Circuit Court of Appeals for the
First Circuit. That Court reversed the judgment of the Supreme
Court of Puerto Rico on the ground that Acts Nos. 33 and 47
exceeded the authority of the Legislative Assembly under the
Organic Act. 106 F.2d 754. We granted certiorari, 309 U.S. 642, and
on March 25, 1940 reversed the judgment of the Circuit Court of
Appeals and reinstated that of the Supreme Court of the Island.
309 U. S. 543.
The mandate of this Court reached the clerk of the Supreme Court
of Puerto Rico on May 13. On the same day, the Attorney General
entered a request for a hearing on petitioner's pending motion for
the appointment of a receiver. The respondent then filed its answer
and briefs were submitted by both parties. In its answer and brief,
respondent raised numerous objections to the appointment of a
receiver. Chief among these objections were: (a) that, on March 28,
1940, respondent corporation had been dissolved by vote of its
stockholders and its property conveyed to a partnership consisting
of all the stockholders, so that nothing remained to be done, and
(b)
Page 315 U. S. 641
that the statutes applicable to this case are certain sections
of the Private Corporations Law, [
Footnote 6] rather than § 182
Page 315 U. S. 642
of the Code of Civil Procedure, [
Footnote 7] that, under the terms of the former, "the
directors shall be the trustees . . . pending the liquidation" of
any dissolved corporation, and that the court was consequently
without jurisdiction to appoint a receiver under § 182. The insular
court resolved all the issues in petitioner's favor, appointed a
receiver of all the property of the respondent, and directed the
receiver to handle the property as a going concern until the People
of Puerto Rico should exercise the option granted to them by § 2 of
Act No. 47 of August 7, 1935, either to confiscate the real estate
unlawfully held by respondent or to have it sold at public auction.
[
Footnote 8]
Page 315 U. S. 643
From this order, respondent took a second appeal to the Circuit
Court of Appeals, making the two contentions which have been noted,
as well as many others which require no discussion here. The
Circuit Court of Appeals disposed of several of these contentions
unfavorably to the respondent. However, it reversed the judgment of
the Supreme Court of Puerto Rico on the ground that the order
appointing the receiver was "improvidently issued." In the opinion
of the Circuit Court, §§ 27, 28, and 30 of the Private Corporation
Law are unquestionably applicable to the dissolution of a
corporation by court order as a result of a violation of its
charter and the laws, although the insular court had declared them
"applicable only to a voluntary dissolution agreed upon by the
shareholders of a corporation or by expiration of the term fixed
for its duration." With respect to § 182 of the Code of Civil
Procedure, upon which the lower court relied, the Circuit Court of
Appeals determined that it permitted the appointment of a receiver
only "upon proper showing by an interested party, agreeably to the
usages of courts of equity." It concluded that the option granted
by Act No. 47 of 1935 did not afford the People of Puerto Rico an
interest sufficient for this purpose. It observed that the option
relates only to the excess acreage, whereas the order had sought to
place the receiver in charge of all the property of the respondent,
both real and personal. If the People of Puerto Rico should elect
to have the land sold at public auction, [
Footnote 9] the Circuit Court asserted, a master can be
appointed for that purpose, and, in the meantime, a
Page 315 U. S. 644
notice of
lis pendens which was filed with the Registry
of Property will prove adequate to protect the People's
interest.
The Circuit Court's opinion leaves it uncertain whether it meant
to hold that the insular court wholly lacked power to appoint a
receiver for a judicially dissolved corporation or merely that it
abused its discretion in this case. In any event, the questions for
our determination seem to be these: (1) does it lie within the
power of the Supreme Court of Puerto Rico to appoint a receiver for
the assets of a corporation whose dissolution has been judicially
ordered because it has violated its articles of incorporation and
the laws of Puerto Rico and the United States; (2) did that court
abuse its discretion in appointing a receiver under the
circumstances of this case, and (3) did the scope of the order
exceed the court's authority?
First: whether or not it is within the power of the
Supreme Court of Puerto Rico to place a receiver in control of the
property of a corporation which has been dissolved for violation of
law is a question whose answer must be found in the statutes of the
Island. As we have said, § 182 of the Code of Civil Procedure
provides:
"A receiver may be appointed by the court in which an action is
pending or has passed to judgment,
Page 315 U. S. 645
or by the judge thereof: . . . (4) In the case when a
corporation has been dissolved, or is insolvent, or in immediate
danger of insolvency, or has forfeited its corporate rights. (5) In
all other cases where receivers have heretofore been appointed by
the usages of courts of equity."
It seems hardly debatable that, if nothing more were shown,
these provisions would strongly support the assertion of power by
the insular court to appoint a receiver for respondent's property.
But respondent urges that the provisions of §§ 27, 28, 29, and 30
of the Private Corporations Law compel the opposite conclusion.
Section 27 provides that
"all corporations, whether they expire through the limitation
contained in articles of incorporation or are annulled by the
Legislature, or otherwise dissolved, shall be continued as bodies
corporate for the purpose of prosecuting and defending suits by or
against them, and of enabling them to settle and close their
affairs, to dispose of and convey their property and to divide
their capital, but not for the purpose of continuing the business
for which they were established."
Section 28 declares that, "upon the dissolution in any manner of
a corporation, the directors shall be the trustees thereof pending
the liquidation." And Section 30 authorizes the appropriate
district court of Puerto Rico,
"on application of any creditor or stockholder, . . . at any
time either [to] continue the directors as trustees as aforesaid or
[to] appoint one or more persons to be liquidators of such
corporation to take charge of the assets and effects thereof. . .
."
Again, if nothing more than these sections were before us, we
think it clear enough that, upon the dissolution of a corporation
"in any manner," the directors would remain in charge of the assets
as trustees until some "creditor or stockholder" moved a district
court -- not the Supreme Court of the Island -- to remove them.
Page 315 U. S. 646
A frank recognition that the statutes appear on their face to
conflict and to overlap permits us to avoid the lengthy and
technical arguments which have been advanced by both parties in
this Court and in the courts below. The Supreme Court of Puerto
Rico resolved this conflict in favor of its power to appoint a
receiver by holding that the pertinent sections of the Private
Corporations Law do not apply to judicially ordered dissolutions,
but that § 182 of the Code of Civil Procedure does apply. In recent
years, we have had occasion to announce that the decisions of the
courts of Puerto Rico with respect to the interpretation of the
Island's statutes and to matters of local law are to be accorded
the greatest weight.
Sancho Bonet v. Yabucoa Sugar Co.,
306 U. S. 505;
Sancho Bonet v. Texas Co., 308 U.
S. 463. We cannot say that an interpretation placed by
the Supreme Court of Puerto Rico upon statutes whose meaning is so
open to doubt is plainly incorrect. Accordingly, though the
interpretation suggested by the Circuit Court of Appeals may be
equally plausible, it erred in reversing the judgment of the
insular court.
Second: assuming that, under § 182, the insular Supreme
Court has the power to appoint a receiver for a judicially
dissolved corporation, the question remains whether it has abused
its discretion in appointing a receiver in this case. The Circuit
Court of Appeals, after indicating its belief that the power to
appoint a receiver is a drastic one and that it should be sparingly
employed, concluded that its use was not warranted by the
circumstances of this case. Its reasoning was that the sole
interest of the petitioner was its option either to confiscate the
excess acreage or to have it sold at public auction.
"The People do not need a receiver to protect the option. If and
when the time comes for the court to decree a sale of the land at
public auction, a master can be appointed to carry through the
sale. The land will still
Page 315 U. S. 647
be there. Meanwhile, the interest of the People is protected by
a
lis pendens notice which was entered in the Registry of
Property shortly after the institution of the
quo warranto
proceedings, which notice the corporation unsuccessfully sought to
have cancelled."
118 F.2d 752, at 759-760.
It may be true that the procedure suggested by the Circuit Court
would have been adequate to the needs of the case. It may even be
true that an injunction restraining the directors of respondent
from disposing of the property pending the People's choice would
have been sufficient. But the same considerations that compel
restraint on the part of appellate courts where the question is one
of power apply with double force where the question merely concerns
the propriety of its exercise. The Supreme Court of Puerto Rico was
in the best position to determine what the situation demanded. The
attempted transfer of the corporate assets on March 28, 1940, may
have been a
bona fide effort to comply with the earlier
decree of dissolution, as respondent insists. But the fact that the
transfer was made to a partnership whose members had been the
stockholders of the dissolved corporation might suggest a
disposition on the part of the directors to obstruct the effective
exercise of the option afforded the People by Act No. 47. Certainly
it would not have been unreasonable for the insular court to
suspect that this was so. No doubt the
lis pendens notice
would prevent the directors from conveying an interest in any of
the property which would be superior to that of a purchaser at a
subsequent public auction conducted pursuant to Act No. 47. But the
sale and resale of the property, or its encumbrance, could only
result in confusion, misunderstanding, and needless litigation. It
was clearly within the discretion of the Supreme Court of the
Island to avert these difficulties.
Third: respondent insists and the Circuit Court held,
finally, that the order was too broad to be sustained. It is
Page 315 U. S. 648
argued that it was not confined to the land which was actually
in excess of the 500-acre maximum, but included all the properties
of the respondent, and that it authorized the continued operation
of the business by the receiver for an indefinite period. To treat
the latter objection first, an examination of the order appointing
the receiver reveals that paragraph 7 specifically contemplates the
exercise of its option by the People of Puerto Rico. A fair reading
of the order requires us to conclude that the period of the
receivership was definite enough, since it was clearly regarded as
a preliminary to the exercise of the option. The receiver was
expressly directed to surrender the properties whenever the People
had indicated its choice. As to the provision of the order
consigning the whole of respondent's properties to the receiver, it
is enough to say that everyone concedes that the properties
constitute a working unit in growing, cutting, and grinding sugar.
To separate the land from the machinery and other personalty
pending the People's election between alternative procedures would
have been inexcusable economic waste. It was altogether proper for
the Supreme Court to recognize these realities and to permit the
receiver to preserve the enterprise as a going concern pending a
final settlement. Nothing in § 182, upon which it relied for
authority to appoint the receiver, requires that it limit the
receivership in the manner suggested by respondent.
The order of the Supreme Court of Puerto Rico should be
sustained in full.
Reversed.
THE CHIEF JUSTICE and MR. JUSTICE ROBERTS are of the opinion
that the court below correctly held, for reasons stated in detail
in Judge Magruder's opinion, 118 F.2d 752, that the appointment of
a receiver by the Insular court in the circumstances of this case
was an abuse of discretion, and that it was the duty of the Circuit
Court of Appeals, in the exercise of its appellate authority, to
set the appointment aside.
[
Footnote 1]
§ 3, 31 Stat. 715.
[
Footnote 2]
§ 39, 39 Stat. 951, 964, U.S.C. Title 48, § 752.
[
Footnote 3]
Act of July 22, 1935, Laws of Puerto Rico, Special Session,
1935, p. 418.
[
Footnote 4]
Act of August 7, 1935, Laws of Puerto Rico, Special Session,
1935, pp. 530-532.
[
Footnote 5]
"Section 182. -- (564 Cal.) A receiver may be appointed by the
court in which an action is pending or has passed to judgment, or
by the judge thereof:"
"1. In an action by a vendor to vacate a fraudulent purchase of
property, or by a creditor to subject any property or fund to his
claim, or between partners or others jointly owning or jointly
interested in any property or fund, on the application of the
plaintiff, or of any party whose right to or interest in the
property or fund, or the proceeds thereof, is probable, and where
it is shown that the property or fund is in danger of being lost,
removed, or materially injured."
"2. After judgment, to carry the judgment into effect."
"3. After judgment, to dispose of the property according to the
judgment, or to preserve it during the pendency of an appeal, or in
proceedings in aid of execution, when an execution has been
returned unsatisfied, or when the judgment debtor refuses to apply
his property in satisfaction of the judgment."
"4.
In the case when a corporation has been dissolved,
or is insolvent, or in imminent danger of insolvency,
or has
forfeited its corporate rights."
"5.
In all other cases where receivers have heretofore been
appointed by the usages of courts of equity."
(1933 ed., italics added.)
[
Footnote 6]
"Section 27. --
Corporate existence pending
dissolution. All corporations, whether they expire through the
limitation contained in the articles of incorporation or are
annulled by the Legislature, or otherwise dissolved, shall be
continued as bodies corporate for the purpose of prosecuting and
defending suits by or against them, and of enabling them to settle
and close their affairs, to dispose of and convey their property
and to divide their capital, but not for the purpose of continuing
the business for which they were established."
"Sec. 28 (as amended by Act No. 24 of 1916, p. 68). --
Directors as trustees pending dissolution. Upon the
dissolution in any manner of a corporation, the directors shall be
the trustees thereof pending the liquidation, with full power to
settle the affairs, collect the outstanding debts, sell and convey
the property and divide the moneys and other property among the
stockholders, after paying its debts, so far as such moneys and
property shall suffice. They shall have power to meet and act under
the bylaws of the corporation, and, under regulations to be made by
a majority of the said trustees, to prescribe the terms and
conditions of the sale of such property, or may sell all or any
part for cash, or partly on credit, or take mortgages and bonds for
part of the purchase price for all or any part of the said
property. In case of a vacancy or vacancies in the board of
directors of such corporation existing at the time of dissolution
or occurring subsequently thereto, the surviving directors or
director shall be the trustees or trustee thereof, as the case may
be, with full power to settle the affairs, collect the outstanding
debts, sell and convey the property, and divide the moneys and
other property among the stockholders, after paying its debts, as
far as such moneys and property shall enable them, and to do and
perform all such other acts as shall be necessary to carry out the
provisions of this Act relative to the winding up of the affairs of
such corporation and to the distribution of its assets."
"Sec. 29. --
Powers and liabilities of Trustees in
Liquidation. The directors constituted trustees as aforesaid
shall have power to sue for and recover the aforesaid debts and
property by the name of the corporation, and shall be suable by the
same name, or in their own names or individual capacities for the
debts owing by such corporation, and shall be jointly and severally
responsible for such debts to the amount of the money and property
of the corporation which shall come to their hands or possession as
such trustees."
"Sec. 30. --
Judicial appointment of liquidators. When
any corporation shall be dissolved in any manner whatever, the
district court having jurisdiction of the place where its principal
office in the Island of Porto Rico is situated, on application of
any creditor or stockholder, may at any time either continue the
directors as trustees as aforesaid, or appoint one or more persons
to be liquidators of such corporation to take charge of the assets
and effects thereof, to collect the debts and property due and
belonging to the corporation, with power to prosecute and defend in
the name of the corporation, or otherwise, all suits necessary or
appropriate for the purposes aforesaid, or to appoint an agent or
agents under them, or to do other acts that might be done by such
corporation if in being that may be necessary for the final
settlement of its unfinished business, and the powers of such
trustees or receivers may be continued so long as the courts shall
think necessary for such purpose."
Appendix to Code of Commerce of Puerto Rico (1932 ed.) p. 327 at
p. 355.
[
Footnote 7]
See note 5
supra.
[
Footnote 8]
Section 2 provides, in part:
"When any corporation, by itself or through any other subsidiary
or affiliated entity or agent, is unlawfully holding, under any
title, real estate in Puerto Rico, The People of Puerto Rico may at
its option, through the same proceedings, institute in its behalf
the confiscation of such property, or the alienation thereof at
public auction, within a term of not more than six months counting
from the date on which final sentence is rendered."
"In every case, alienation or confiscation shall be through the
corresponding indemnity as established in the law of eminent
domain."
[
Footnote 9]
According to the Circuit Court's opinion, on August 28, 1940,
after the order appointing the receiver had been entered, the
Attorney General filed with the insular court the following
statement:
"Therefore, The People of Puerto Rico elects to have all the
lands in the possession of the respondent sold at public auction,
and prays this Court to order the sale at public auction of the
said real property by the receiver already appointed by this Court,
after the same is assessed in conformity with the provisions of the
Condemnation Proceedings Act now in force."
In the Circuit Court, the respondent argued that the option
provided by Act No. 47 could not be exercised in this manner, but
only by an Act of the Legislative Assembly. We share the Circuit
Court's view that this and other problems relating to the actual
exercise of the option must first be passed upon by the Puerto
Rican Supreme Court.