New York & Western Union Telegraph Co. v. Jewett — 24 N.Y. St. Rep. 560

Majority

p. 560

In the Matter of the New York and Western Union Telegraph Company, App’lt, v. Hugh J. Jewett, Receiver, etc., Resp’t.

(Court of Appeals,

Filed June 25, 1889.)

Headnote

1. Receivers—When not sued except by consent oe court.

A creditor having a claim against a railroad company, which is in the-hands of a receiver, cannot sue the receiver or obtain payment out of the-property of the company, except by the consent of the court, and upon application, the court, for the purpose of having the claim ajudicated, may authorize a suit against the receiver, or it may hear the claim upon a summary application, upon affidavits or oral evidence, or, where the claim, is disputed, it may order a reference.

2. Same—Discharge—When cannot be ordered to pay creditor.

After a receiver has been discharged there can be no further proceedings against him, and the court cannot thereafter make an order that he shall pay a creditor, he no longer having any funds out of which payment can. be made.

p. 561

3. Same — Power op court to discharge receiver and distribute PROPERTY WITHOUT NOTICE TO CREDITORS.

The court has power to discharge a receiver and take the property out of his hands and distribute the same in pursuance of its judgment, without notice to creditors who were represented in the actions in which the receiver was appointed.

4. Same—Remedy op creditor after discharge.

After the receiver is discharged, the sole remedy of a creditor is to apply to the court to vacate its order, so that his rights as a creditor may be protected.

Appeal from judgment of the supreme court, general term, first department, affirming an order made at special term.

Ira D. Warren, for app’lt; Wm. W. MacFarland, for resp’t.

In 1875, Hugh J. Jewett was appointed receiver of the Erie Railroad Company, and he continued to be such receiver, and to act as such, until he was finally discharged, on the 30th day of December, 1879.- On the 20th day of Eebruary, 1878, the President of the Hew York and Western Union Telegraph Company, the respondent here, made an affidavit showing that the Erie Railroad Company and the' receiver were indebted to the Telegraph Company for rent-of a line of telegraph, from the 1st day of April, 1865, to the-1st day of January, 1878, in the sum of $38,250, and upon that affidavit, a motion was made at the special term of the supreme court for an order directing the receiver to pay out. of the assets of the railroad company to the telegraph company, the rents set forth in the affidavit, or, in default, thereof, te surrender and deliver to the telegraph company, the telegraph lines and property specified in the affidavit.

That motion was opposed upon an affidavit made by Jewett, in which he denied any indebtedness for the rent claimed, and controverted the other material allegations contained in the moving affidavit. Thereupon the court made an. order appointing a referee to take the proofs of the parties-as to all the issues between them, and to report the same to the court, together with his opinion thereon.

If the telegraph company has a meritorious claim, it has. been exceedingly unfortunate in the prosecution thereof, for after a number of references, and several hearings at the special term, and appeals to the general term, it has been unable to procure a final adjudication that it has made a, case for the payment to it of any sum whatever, out of the assets of the Erie Railroad Company, in the hands of the-receiver; and it was in the end defeated at the general term, on the ground that the receiver had been finally discharged, and that all the property, under the direction of the court, had passed out of his hands.

In the actions commenced against the Erie Railroad Com-

p. 562

pony, the court had taken into its possession the property of the company, to dispose of, manage and administer it for the benefit of all parties interested therein, or having .any claims against the same, and the receiver was merely its officer, arm or agent, to take possession of the property and manage and dispose of the same under its direction, and subject to its control. He could, at any time, be discharged by the court and another receiver appointed, or the property could be taken out of his hands and restored to its ■owner, or otherwise disposed of under the judgment in the actions in which he was appointed. No creditors having a claim against the railroad company, or its property, could sue the receiver or obtain payment out of the property, except by the consent of the court. A creditor desiring payment out of the property, in such a case, is obliged to apply to the court, and for the purpose of having the claim adjudicated, it may authorize a suit against the receiver, or it may hear the claim upon a summary application, upon affidavits or oral evidence, or, where the claim is disputed, it may order a reference, and whether the proceeding be against the receiver, by action or by a summary application, the- purpose is to enable the court to determine whether the claim ought to be paid.

Obviously, after the receiver has been discharged and the property, by the action of the court, has all been taken out of his hands, there can be no propriety whatever in any further proceedings against him, because thereafter he ceases to represent anyone; he can no longer act for, or represent, the company or its creditors, or any other person interested in the property, and manifestly the court could not, thereafter, make an order that he should pay a creditor, he no longer having any funds out of which payment could be made. Farmers’ Loan and Trust Co. v. Central R. R. Co. of Iowa, 2 McCrary, 181 .

It would be a very singular proceeding to permit a -creditor to litigate his claim with a person who was formerly receiver, but who has ceased to be such and who is no longer the officer or agent of the court, or subject to its control.

But the claim is made on the part of the telegraph company that the receiver was discharged without any notice to it, and that it had no opportunity to be heard in the proceeding taken for his discharge. The discharge was granted on the 30th day of December, 1819, while this proceeding was pending.

But the court had the power to discharge the receive.i .and take the property out of'his hands, and distribute the same in pursuance of its judgment, without any notice to the telegraph company. The jurisdiction of the court and

p. 563

the validity of its order did not depend upon any notice to-the company. The general creditors of the Erie Railroad. Company were all represented in the actions in which Jewett was appointed receiver by the people, and their debtor, and they were not, as matter of law or of right, entitled to any personal notice of any of the proceedings in those actions. Herring v. N. Y., L. E. and W. R. R. Co., v. 105 N. Y., 340 , 376; 7 N. Y. State Rep., 547. _

_ It is possible that the claims of creditors in such a case-as this may be prejudiced and perhaps defeated by the discharge of the receiver, but such a result will rarely happen to vigilant creditors. In this case, the receiver was appointed on the 26th day of May, 1875, in actions and proceedings so notorious that they must have come to the early knowledge of all the creditors within this state, and yet, for nearly three years thereafter, this claim was not made. The creditor must have known that these actions, and proceedings were running to a termination, and that the time would come when the mortgages would be foreclosed, the property of the railroad company disposed of and the receiver discharged.

The sale, which must have been open and notorious, took place, and the receiver was discharged, after an accounting in public legal proceedings, on the 30th of December, 1879. If the telegraph company did not have knowledge of such discharge prior thereto, the fact was brought to the notice of its counsel by the affidavit of Jewett, made early in 1882, in which he alleged his.discharge, as a defense to this proceeding, and thereafter, during all the subsequent litigation, such discharge was set up and relied upon as a defense. After such discharge, the sole remedy of the creditor was to apply to the court to vacate its order, so that its rights as a creditor might be protected; and during the whole time since, the litigation has proceeded without any effort on its part to get any relief whatever from the court, vacating its order discharging the receiver. So long as that order stands, however unfortunate it may be to the creditor, it certainly cannot be entitled to the order which, it seeks in this proceeding.

We are, therefore, of the opinion that the order of the general term is right, and should be affirmed, with costs.

All concur.