Schloss v. Schloss

The facts in this - case do not differ materially from those which were made to appear in Re Thompson, 10 App. Div. 40 , 41 N. Y. Supp. 740 , which was an application by a judgment creditor of these same parties for the same relief which is here asked. We concluded, upon a careful examination of the facts in that case, that, as a matter of fact, they did not show insolvency on the part of the firm of Schloss & Sons, and that the judgment creditor should be permitted to collect his debt in

We have been referred, upon the argument of this motion, to the case of Myers v. Myers (cited at the special term) 43 hi. Y. Supp. 737. The rule laid down in that case does not différ from the Case of Thompson, and it proceeds entirely upon the ground that in the particular case the judgment debtors were insolvent and that the court was at liberty, in view of all the facts, to devote their property to the satisfaction of their debts pro rata among all their creditors. That is not the case here, and for that reason the case of Myers v. Myers does not apply. It was said in Re Thompson, supra, that, if it had appeared that Schloss & Sons were insolvent, it would have been good ground for denying the motion. It was not thought necessary in that case to go further than to examine the facts bearing upon the question of insolvency, because the conclusion reached upon those facts required the reversal of the order of the special term. For that reason no examination was made of the question whether, under all the circumstances, the mere fact of insolvency would be sufficient to warrant the denial of a motion like this, and it must not be understood from what was said in that case that insolvency is always, and under all circumstances, a perfect defense to such a motion. If it can be seen in any given case that a receiver has been appointed in an action actually pending for the purpose of winding up the affairs of the concern as rapidly as may be, so that the creditors may as quickly as possible be paid that which they are entitled to, those facts might be sufficient to induce the court to refuse to grant such relief to a judgment creditor as is asked for here, however much the court might disapprove of the practice which puts failing estates in the hands of a receiver to distribute under the control of the court, rather than in the hands of an assignee for the benefit of creditors. But that is not this case. It appears that the receiver was appointed in this case on the 20th of April, 1896. The action was brought, as is alleged, after the dissolution of the partnership, for the purpose of having the affairs of the partnership wound up. The receiver was appointed upon an agreement of all the partners. He was directed, in the order appointing him, to proceed and carry on the business, and was given all the powers necessary to enable him to ocarry on the business in precisely the same way as though it were car

This case illustrates the evils which may result from permitting a receiver to carry on the business which was pursued by the owners of the property before he was appointed. This receiver, as was said in Re Thompson, supra, was merely the agent of the firm. He was appointed as such by the court, and was to some extent under the control of the court; but the title to the property never vested in him, and his appointment caused but one substantial change in the nature of the business and the condition of affairs. That change was that the business could thereafter be conducted with perfect and entire freedom from any danger that creditors could compel the payment of their debts. However pressed the creditors might be for money, however honest their claims, and however long due those claims may have been, these parties, by the help of the court through their own selected agent, were able to carry on their business precisely as it had been carried on before, just so long as they wanted to. Receivers are not appointed for any such purpose. It is their duty to close out as rapidly as possible the business which they take, to reduce the assets to money, and to satisfy the creditors. If other duties are imposed upon them, there at once arises grave danger of impropriety. In the nature of things, the courts are not fitted for the conduct of business. They are not created for that purpose, and while there may be cases in which it is necessary, for a short time, to continue a business until it can be closed out, those cases are rare, and orders to that effect should be made, not only with reluctance, but never when it can be avoided. Such orders should never be made which give to the receiver the power, at his own will, to carry on the business indefinitely for the purpose of forcing a settlement or bringing about a compromise with creditors. Justification for such orders can only exist when it appears that the conduct of the business for a short time, having in view the closing of it out as quickly as possible, is absolutely necessary to prevent loss. Nothing of that sort was pretended here. The business was to be carried on precisely as it had been, and the receiver was vested with power to make unlimited purchases of new material, to pay all the expense of the business precisely as it had been paid by the firm, and there was no limit to his power, except

For these reasons, even if we were satisfied—which we are not— that this firm was insolvent, we should not deem this a proper case to turn away a diligent creditor, who seeks that which the law entitles him to have, so that it might be put in the power of

The order must be reversed, with $10 costs and disbursements,' and the motion granted, with $10 costs. All concur (INGRAHAM, J., not voting).