In re Stonebridge

The warrant against the appellant was issued at the instance of George H. Stonebridge, Jr., receiver of the New York Book Company, assuming to act under certain provisions of the Revised Statutes relating to trustees of insolvent debtors, which provisions are by law made applicable to receivers of •corporations. 4 Rev. Stat., Bank’s 8th ed., pp. 2524-2534, and p. 2682, § 72. No notice of the application for the warrant was given to the attorney-general. This is the first point made in the brief of the appellant, and it is fatal. The precise question has been determined by the court of appeals, in a case where'an application was made to me for a warrant of this kind, at the Kings county special term, in November, 1889. ■

The application was denied on the sole ground that no notice thereof had been given to the attorney-general as prescribed by the Haggerty act. Laws of 1883, chap. 378. The order refusing the warrant was affirmed by the general term, on this and other grounds; and was sustained in the court of appeals on the ground alone that the attorney-general should have had notice of the application, without considering the other questions discussed by the general term. In re Van Namee, 23 N. E. Rep., 1149 ; 29 N. Y. State Rep., 198.

The decision mentioned.is conclusive against the position of the respondent, and renders it necessary to reverse the order appealed from, without discussing the other interesting points presented by the appeal.

The respondent in this action on the 12th of February, 1889, was appointed receiver of the New York Book 'Company in proceedings taken to procure the sequestration of the property of said corporation for the purpose of paying the debts thereof. The said receiver qualified and published a notice requiring all persons indebted to the said corporation or having the property of said corporation in their possession to pay such debts or sums of money or to deliver the same to him at his office. This" notice was not signed by the receiver nor did it contain the name •of the receiver in any part thereof, and it was impossible to determine from the notice who had issued the same.

It being claimed upon the part of the receiver that the appellant Alden had certain property of the corporation in question in his possession, an application setting up these facts was made to the court for a warrant against the said appellant that he might be brought before the court for the purpose of being examined pursuant to the statute in such case made and provided.

In the foregoing statement of facts it has not been deemed necessary to state all the proceedings which have been taken in reference to the appointment of the receiver, nor to make any particular reference to the papers upon which the warrant in question was granted, except so far as it sets forth the point upon which this appeal may be determined.

By the provisions of the Revised Statutes, under which the proceedings in question were initiated, § 70, 2 R. S., 469, it is provided that the receivers immediately on their appointment, shall give notice thereof, which shall contain the same matters required by law in notices of trustees of insolvent debtors. By § 72, it is provided that after the first publication of the notice of the appointment of receivers, every person having possession of any property belonging to such corporation, and every person indebted to such corporation, shall account and answer for the amount of such debt and the value of such property to the said receivers. The section further provides that all the provisions of law in respect to trustees of insolvent debtors, the collection and preservation of the property of said debtor, the concealment and discovery thereof, and the enforcement of such discovery, shall be applicable to the receivers so apppointed and to the property of such corporation.

It will be seen by the provisions of this section that it is not until after the first publication of the notice of the appointment of the receiver, as provided by § 70, that it becomes obligatory upon the person indebted to the corporation to account and answer for the amount of such debt and the value of such property to the receiver.

In the case at bar, although an attempt to publish the notice’ required by § 70 is made, yet it contains no notice as to who has been appointed receiver nor to whom the property is to be delivered. Therefore the obligation created by § 72 did not spring into existence, as it is only after the publication of the notice of the appointment of the receiver, as already stated, that the duty to. account and answer for debts due to the corporation and property belonging to the corporation arises.

It is urged upon the part of the respondent that the publication of the statutory notice to creditors and debtors of the corporation was not a condition precedent to the receiver’s application for the warrant, because personal demand had been made upon Alden for the delivery of the property of the company before the application was made. It may be said in answer to these suggestions that where the statute provides one proceeding for putting a party in default,, provides for a particular way of giving a notice, a notice given in another way, although equally effectual, cannot establish such default. As already seen, the language of § 72 is explicit, after the-first publication of the notice of the appointment of the receiver, then the duty to deliver the property shall arise, and there is no provision whatever that it shall arise before.

But this provision is to be read in connection with the provisions of § 72, upon which it is engrafted by the. latter part of this section. It certainly was not intended that before the dutj of delivering over the debts and property of the company by reason of the publication of the notice, this provision in regard to examination should go into effect, because, under that very provision of the statute, until that notice was given the alleged debtor was not in default.

We think, therefore, that the necessary preliminary to the initiation of these proceedings was the putting of the debtor in default by the publication of the proper notice of the appointment of the receiver in order that the debtor might deliver over the property.

It appears clearly from the record in this case that no such notice was given. The appellant was not put in default by the demand because that was not the method provided by the statute for putting him in default, and not being in default in respect to delivery of this property, it is difficult to see how the court was justified in issuing the warrant for his examination.

The other points raised upon this appeal it does not appear to be necessary to consider, as the one suggested seems to be fatal.

The order should be reversed, with ten dollars costs and disbursements.

(dissenting) The point that the receiver cannot apply for this warrant until after the first publication of the notice of his appointment, as required 2 R. S., 469, § 70, is not, in my judgment, well taken. Under the Revised Statutes, Id., § 67, a receiver appointed upon the voluntary dissolution of a corporation became vested with its property from the time when his bond was filed. His right, thereafter, to sue for and recover such property, without regard to the notice, was specially recognized. It is true that § 72 provides that debtors shall account to the receivers, “after the first publication of the notice,” but the same section applies to the receivership all the provisions of law in respect to trustees of insolvent debtors and the collection and preservation of the property of such debtors. One of the latter provisions is that, “ notwithstanding any such notice, the trustees may sue for and recover any property or effects of the debtor, and any debts due to him at any time before the day appointed for the delivery or payment thereof. 2 R. S., 43, § 10.

This is in pari materia with the provision as to the. vesting of

But further, the provision as to the publication of notice is not jurisdictional. The object is to give the best practicable notice, but notice is the essential thing. Personal notice is not required because of the probability that the creditors and debtors are numerous. The form prescribed is the statutory substitute for actual notice. If, however, personal notice is given to every debtor and creditor, and that can be made to appear conclusively as matter of fact, what good reason can there be for delaying the execution of the receiver’s trust? It certainly seems unreasonable to permit a debtor who has actual notice, and who has, in fact, paid the receiver a part of his debt, to throw this representative of the creditors .out of court upon the trivial technicality in question, 'when that officer seeks to recover the balance of the debt. The present case is quite analogous to this illustration, for it appears that Mr. Alden not only had due personal notice of the receiver’s appointment, but that he actually delivered up to that officer the books of account of the corporation and then informed him that there were no other assets. There is still another answer to this objection, and that is, that the object of the proceeding is not the collection of a debt or the delivery of property, but simply the procurement of testimony.

Thus the statement in the petition as to notice was superfluous. For even if such notice was a prerequisite to proceedings to compel the delivery of property or the payment of a debt, there is no suggestion or implication in the statute of its being a prerequisite to the mere discovery of such property or debt. And certainly it is the bounden duty of the receiver to put himself in a position whereby, upon the publication of notice, he may advisedly invoke against debtors or bailees ordinary legal remedies. That the proceeding was “intended as an informal but prompt and effective substitute for the tedious and expensive process on a bill of discovery,” was explicitly held in Noble v Halliday, 1 Com., 333. The following observations of Buggies, J., who there delivered the opinion of the court, are quite appropriate to the present case: “ The necessity and utility of the proceeding are too obvious to require elucidation. The property of an insolvent corporation is usually in the hands of the 'officers and agents under whose management it has become insolvent. They are frequently its largest debtors; and the power of compelling them and all others to disclose its condition, and of ascertaining by that means where its property is, in whose hands, under what claim or pretense it is held, and who are its debtors, is indispensable to the in

The proceeding under the statute is terminated by the signature of the person examined to his deposition and the attestation thereof by the officer conducting the inquiry. 2 R S., 44, § 13. Such proceeding may be instituted even against a witness, § 12, who can testify concerning the concealment or embezzlement of property by any other person. The warrant is nothing more in substance than a subpoena, obedience to which is insured in the first instance. Modern legislation would probably have substituted the more genial process of a judge’s order, but the object to be attained is the'same, however brought about.

These views are emphasized by reference to the Code, §§ 1788, 1789. Under these sections, even a temporary receiver appointed in sequestration proceedings has power “to collect and receive the debts, demands and other property of the corporation * * * and to maintain any action or special proceeding for either of those purposes,” Such temporary receiver is not required to give the notice already referred to, yet clearly under the express authority of the statute above quoted he may proceed against debtors or bailees. How, this temporary receiver may be continued by the final judgment and thereupon he becomes in the language of § 1788 “ a permanent receiver, and has all the powers and authority conferred, and is subject to all the duties and liabilities imposed, upon a receiver appointed upon the voluntary dissolution of -a corporation.” It would certainly be strange if the same officer, who as temporary receiver is lawfully prosecuting debtors and bailees, should, the moment he is appointed permanent receiver, be compelled to pause until after the formality of this first publication has been gone through with. Upon the whole, I am of opinion that the petitioner had a right to institute the present proceeding as soon as he was appointed permanent receiver. He was not required by the court to furnish any additional security beyond that which he had already given as temporary receiver. Hor was the court called upon by any statutory provision to require him to furnish additional security. He was simply, in the language of the section, “ continuedhy the final judgment.” There was no break in the office. The receiver was receiver throughout, and his bond was effective throughout. The fact that he filed a bond when originally appointed is sworn to, and such proof is not negatived by the certificate of the clerk that no bond was filed after the 7th of Hovember, 1888.

The petitioner was appointed on the 3d of Hovember, 1888, and the bond was undoubtedly filed between that date and the 7th of Hovember. If not, the appellant should have shown the omission by the certificate covering the period commencing with the appointment. It is not necessary to decide whether the receiver was bound to file the oath required of trustees of insolvent debtors, 2 R. S., 41, § 5, for the proof that such oath was filed is quite satisfactory, and we e'ven find a copy of the oath among the papers used in opposition to the motion to vacate. The point is made that the warrant was void because no notice

This, however, would probably not have answered but for what followed. All the papers upon the application for final judgment, and for the continuance of Mr. Stonebridge as permanent receiver, were duly served upon the attorney-general, together with a copy of the proposed judgment, in which this language was used : Second, that George H. Stonebridge, Jr., Esq., heretofore appointed receiver of the said corporation, is hereby continued as the permanent receiver thereof, with the usual powers and duties, ■etc.’’ This proposed judgment also recited that “ copies of all the preceding papers” in the action had been served upon the attorney-general, and that Stonebridge had been, by order entered therein on the 11th day of October, -1888, duly appointed receiver of all the assets of the company, and had duly qualified and entered upon his duties as such receiver, and was then, at the date •of the judgment, the receiver of the corporation.

The provisions of the act of 1883 were thus substantially complied with, and the validity of Mr. Stonebridge’s appointment cannot now be successfully attacked, certainly not by a party or witness in this collateral proceeding.

It is also claimed that the proceedings should have been dismissed, because in their institution and conduct the receiver employed the attorneys for one of the creditors of the corporation. This is carrying the rule that a receiver should not employ the attorney of either of the parties to the suit entirely too far. These gentlemen were not even attorneys for the plaintiff in the action wherein the receiver was appointed. They happen to represent one of the creditors of the corporation who, if the receiver secures

“ The undertaking to act as solicitor or counsel for the receiver under such circumstances would,” as was said by the chancellor in Ryckman v. Parkins, 5 Paige, 545, “ frequently cast upon the person thus assuming to act inconsistent and conflicting duties, both of which duties could not properly be discharged by the same person.” Here, however, there can be no such conflict of ■duty. The receiver, representing all the creditors, who, regardless of individual zeal, must share alike, cannot well be placed in a false position by availing himself of the knowledge acquired by the counsel of any one of such creditors. A question may ultimately arise with regard to compensation, but so far as the present proceeding is concerned there is no ground for dismissal.

The question of the constitutionality of the act was sufficiently ■considered by Mr. Justice Daniels, in his dissenting opinion on the previous appeal in this matter. 53 Hun, 549 ; 25 N. Y. State Rep., 425. There is nothing in the prevailing opinion there to indicate that the majority differed with him on this head. The question, too, seems to be reasonably free from doubt. There is here no attempt to punish any one or to deprive any one of property without due process of law. The party or-witness is simply brought before the officer to be examined upon proof sufficient to warrant the inference of concealment or embezzlement If, upon such examination, the officer was authorized summarily to overrule a claim of title and to compel the delivery of the property discovered, the case of Matter of Beebe, 20 Hun, 462 , would be applicable. But the act there under consideration is plainly distinguishable from the present in that it “ was not passed,” as Mr, Justice Boardman observed, “for the purpose of the examination, but to get possession of the property claimed, if the examination proved favorable.”

Here, discovery is alone the aim and end of the proceeding. It will be observed, too, that the constitutionality of the law was not even questioned in Noble v. Halliday, supra, while the practical working of the act was commended.

The verification of the petition is certainly informal, but it should not, under the circumstances, be treated as an absolute nullity. The venue, though absent in its usual place, may properly be gleaned from all that appears on the face of the petition. This petition is entitled in the supreme court, “ city and county of Hew York,” and it purports to have been-verified before “ Hicholas Schloeder, Notary Public (153), N. Y. Co.” The words “ City and County of Hew York ” in the title have no legal relation to the proceeding, and are superfluous except as indicating

There are still other objections to the proceeding upon the appellant’s brief, but they need not be specially considered. They are of a trivial and technical character, suggestive of a desire to evade the examination at all hazards and upon the most trumpery grounds.

Upon the facts there was ample to warrant the examination.

The order should therefore be affirmed, with costs.

Order reversed, with ten dollars costs and disbursements.