Flinn v. Hanbury — 157 A.D. 207

Majority

p. 207

Thomas F. Flinn, Respondent, v. Harry A. Hanbury, Defendant. George Johnston, Receiver of the Copartnership of Hanbury & Flinn, Appellant.

Second Department,

May 16, 1913.

Headnote

Receiver of partnership—removal for failure to commence action to recover property — indemnity for costs and expenses — right of receiver to appear on motion for removal.

Prior to the commencement of a suit for the dissolution of a partnership, a deed of a large portion of the real property and a bill of sale of substantially all of the personal property of the partnership had been made by one of the partners to a creditor as collateral security for a partnership debt which was in excess of all of the assets of the partnership. The • creditor refused to surrender the property to the receiver of the partnership. Although the affidavit of the plaintiff’s attorney, used as the basis of a motion for the removal of the receiver appointed in the suit, contains a statement that the trial justice contemplated that the creditor should make a deed of the property to the receiver, and also that the bill of sale should be set aside, thereby transferring to the receiver possession of said real estate and personal property, the judgment did not so provide.

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Held, that the receiver should not be removed for failure to commence an action for the recovery of such real estate and personal property where it appears that his actual and necessary disbursements exceed anything which he has realized from the assets of the partnership or is likely to realize, and he has been refused indemnity for costs and expenses of the proposed action.

A receiver regularly appointed, whose removal is sought upon the ground of incompeteney or lack of integrity, may appear and be heard in his own defense.

Appeal by George Johnston, receiver, etc., from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of Kings on the 14th day of March, 1913, directing the removal of George Johnston as receiver and appointing another in his place.

William H. Good, for the appellant.

John C. Judge, for the respondent.

“The power of removal being incident to the power of appointment, the court, whose officer the receiver is, may, in a proper case, direct his removal.” (Beach Receivers [Aid. ed.], 847.) But where removal is sought upon the ground of incompetency or lack of integrity of the receiver, there must be not only specific charges, but the accompanying proof must clearly and convincingly sustain those charges. (Farmers’ Loan & Trust Co. v. Northern Pacific R. Co., 61 Fed. Rep. 546 .) In the decree settling the partnership account the fact of the indebtedness of the firm to Helena I. Meht was established, so far as the parties to this action are concerned, at a sum exceeding $46,000. But this indebtedness was treated as a partnership debt and not as an individual liability of Han-bury, and the property, real and personal, used by the firm in the conduct of its business was treated as a partnership asset, although the title to the real property had been taken in' the individual name of Hanbury, and some months before the commencement of this action a deed of conveyance of the greater portion of the real property and a bill of sale of substantially all of the personal property had been made by him to Mrs. Meht. While the judgment entered in this action determines the rights of the partners as between themselves, such judg

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ment did not purport to and could not determine the nature or extent of Mrs. Meht’s claims to said property. She had the record title to the greater portion of the realty, and possession of the personalty, and whether she held this as security for the indebtedness due to her or absolutely, and whether her claim was greater or less than that specified in said judgment, could only be determined, so far as she was concerned, in some action or proceeding to which she was a party. In the affidavit of the attorney for the plaintiff, which is the basis of the motion for the removal of the receiver, the statement is made that it was contemplated by the trial justice who made the judgment in this action that Mrs. Meht should make a deed of the property to the receiver, and also ‘ ‘ abrogate and set aside the hill of sale” so that the receiver could come into possession of said real estate and personal property. Whatever may have been contemplated, the judgment did not so provide, and for the reasons above suggested could not.

There are also statements in one of the letters from said attorney, attached to said affidavit, that upon the trial of the action the attorney for Mrs. Meht stated that the bill of sale would he disregarded, and that the learned justice presiding at the trial of this action, stated that the conveyance was fraudulent. Whatever the fact may be, there is no adjudication to this effect, and it appears without dispute that Mrs. Meht, holding the title to all the real property except a piece thereof which has been sold under foreclosure of a mortgage, and in possession of the personal property, declines to surrender the same to the receiver. The receiver in this case is a common-law receiver, appointed by the court in pursuance of its equitable powers, to hold, the assets of the partnership and dispose of them as the court shall direct. (Bogert v. Turner, 135 App. Div. 530 .) All that the firm of Hanbury & Flinn had when the judgment in this action was entered was a cause of action against Mrs. Meht to set aside such conveyances. That is all that the receiver has. The receiver ha,a consented, provided permission can be obtained from the court, to begin actions to set aside such conveyances, upon being given proper indemnity for the costs and expenses thereof. In view of

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the fact that his actual and necessary disbursements at the present time exceed in amount anything that he has realized from the assets of the concern or is likely to realize, his position in-requiring indemnity before beginning such actions is perfectly justifiable. He may, it is true, offer for sale as part of the assets of the partnership the cause of action above referred to. It does not appear that he has refused to do this, nor that the plaintiff desires that he should. He certainly cannot be expected, at his own expense and without further evidence of the fraudulent character of the conveyances than is here disclosed, to embark upon a hazardous litigation.

The order was improperly made, but respondent contends that the appellant is not a party aggrieved, but is a stranger to the litigation. A receiver regularly appointed, whose removal is sought upon the ground of incompetency or lack of integrity may appear and be heard in his own defense. (Bruns v. Stewart Manufacturing Co., 31 Hun, 195 .) Not only does the order in this case fail to protect the receiver against the expense which he has incurred, but, if permitted to stand, is a reflection either upon his competency or integrity, or both. We think, therefore, that he has an undoubted right to review the action of the court at Special Term in removing him, and that the order appealed from should be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs.

Thomas, Carr, Rich and Stapleton, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.