People v. St. Nicholas Bank

On the 26th of December, 1893, the applicant was appointed temporary receiver of the St. Nicholas Bank, in an action brought upon the relation of the attorney general, pursuant to §§ 1785 and 1786 of the Code of Civil Procedure, to dissolve the corporation because of its insolvency. At this date one Charles Kurzman had to his credit in the bank §1,145.14, and he was indebted to it upon three demand loans amounting to §3,000, which were secured by a pledge of collaterals. Kurzman notified the receiver that he was prepared to pay off the demand loans, upon the receiver applying such balance as an off-set. Thereupon, the receiver, being in doubt as to the propriety of granting such request, applied to this court for instructions as to whether he should make such application, and surrender the securities.

The court, while stating that a depositor who was indebted to the bank had a right to have the amount of his deposit offset against his debt, denied the application of the receiver, and refused to instruct him in the premises, for the reason, as stated in the opinion, that “ there is no necessity for the receiver to make a

“ Is a temporary receiver until final judgment is entered. A temporary receiver has power to collect and receive the debts, demands and other property of the corporation, to preserve the property and the proceeds of the debts and demands collected, to sell or otherwise dispose of the property, as directed by the court. * * * Unless additional powers are specially conferred upon him, as prescribed in the next section, a temporary receiver has only the powers specified in this section and those which are incidental to the exercise thereof.”

§ 1789 provides as follows:

“ A temporary receiver * * * is in all respects subject to-the control of the court. In addition to the powers conferred upon him (as temporary receiver), the court may, by the order or interlocutory judgment appointing him, or by an order subsequently made in the action, or by the final judgment, confer upon him the powers and authority and subject him to the duties and liabilities of a permanent receiver, or so much thereof as it thinks-proper, except that he shall not make any distribution among the creditors or stockholders before final judgment, unless he is specially directed so to do by the court.”

From a reading of these sections, we think it clear that the receiver, without the instructions and order of the court, would have no power to surrender the collaterals which were pledged as security for the loan, and permit the offset of the amount on deposit. Hence, the necessity, in a proper case, of applying to the court. As correctly argued by counsel for the receiver, the latter is an officer and representative of the court. He is at all times entitled to, and must receive, the advice and protection of the court. The provisions of the Code referred to, moreover, limit his powers, and expressly confer upon the court the duty of enlarging them from time to time as the exigencies of the situation may require. As said, therefore, by Danforth, J., People v. Security Life Ins. and Annuity Co., 79 N. Y. 270 :

“ Since the receiver is an officer, or, as he is commonly called, the ‘ hand,’ of the court, it would be singular if he could not at any time go to it with his complaint, or for instructions, in regard to matters touching the fund placed in his custody.”

It will be seen, moreover, that it was the view of the lawmakers that the assets of the corporation could be more wisely administered by not conferring general powers upon a temporary receiver, but by practically placing the corporation. in the hands of the court, and conferring upon the court the right to enlarge the powers of, or give additional authority to, the temporary receiver, when, in a given case, it was shown to be necessary for the wise •and proper administration of the affairs of such insolvent corporation. The theory of the law providing for a temporary receiver is that until the final judgment is entered in the action, declaring the corporation to be insolvent,and that its affairs are to be wound up, and its assets distributed, the temporary receiver may have to be discharged, and that he should only interfere with the assets, pending the litigation, just so far as is necessary to preserve them, and that he should not be allowed to sell or dispose of them, except from necessity, and then upon application to the court. With respect to the present application, the law was correctly laid down by the court, because the right of set off exists between the bank and its depositor upon cross demands, where both are due. Here, no demand having been made by the depositor, his claim was not due, unless such demand is excused by the insolvency of the bank. Now, it is not admitted or proved, in the case at bar, that the St. Nicholas Bank is or was insolvent. It has yet to be determined, and the temporary receiver lias nothing to say on that subject, nor ought he be called upon to admit or deny that allegation. Yet it is only in the case of proved or admitted insolvency that the person liable on the call loan can set off his deposit, where he had not demanded payment thereof. The denial of the motion of the receiver upon the ground that there was no necessity for any instructions was, in effect, a denial of his right, in a proper case, to allow a set off. Even though we assume that there was no doubt as to the right, upon the facts stated, of the depositor to the set off, the temporary receiver, being without power, could not allow it without the authorization of the court Hence, the necessity of the application, leaving it for the court to determine, upon the facts presented, whether it should grant or refuse it. But the refusal to either grant or deny the application of the receiver upon the ground that there was no necessity for it seems to us to have been error. The order appealed from should therefore be reversed, and the receiver is instructed to apply the balance due to Charles Kurzman, and, upon receiving the difference, surrender the securities.

Follett, J., concurs.

(dissenting). The petitioner herein was appointed'in December, 1893, temporary receiver of the St. Nicholas Bank, and he thereupon duly qualified, and entered upon his duties. On the - day of January, 1894, said receiver

It is admitted by the appellant that, if the petitioner was a permanent receiver, there would be no necessity for the application to the court; but it is claimed that what the receiver desired to-do in reference to the receipt of this loan he was not permitted to do, under his appointment as temporary receiver, because he had no right to assume to dispose of the property of which he was the temporary receiver. I am unable to see that, by the procedure which was desired by the temporary receiver, there is any dispositionunade of any property of the corporation. On the contrary, he is simply collecting debts due to the corporation, which he is in duty bound to do, whether he is temporary or permanent receiver. By the provisions of the ‘ Code,'§ 1788, under which temporary receivers are appointed, a temporary receiver has power to collect and receive the debts, demands, and other property of the corporation; to preserve the property and the proceeds of the debts and demands collected ; to sell or otherwise dispose of the propérty as directed by the court; to collect, receive, and preserve the proceeds thereof (namely, of such sales); and ‘to maintain any action or special proceeding for any of those purposes (namely, for the collection, receipt, etc., of the debts, demands, and other property of the corporation, or for the collection,' receipt, and preservation of the proceeds of any sales of property of the corporation made by direction of the court). Now,'the temporary receiver having the right to, maintain an action to recover a debt due the corporation, what would be the judgment which the temporary receiver could procure, in case he brough suit to recover the loan in question?

The idea, in obtaining an order of the court, undoubtedly, is to protect the receiver under all circumstances. But it is only where there are doubtful questions that the receiver is entitled to come to the court for instructions. Where, upon a given state of facts, his duty is plain, there is no more reason for a receiver coming to the court for instructions than there is for any other trustee, and gross abuses have grown up because of the facility with which the courts have granted these orders in particular cases. If a receiver is entitled to any instructions, they should be in the nature-of a rule of action, and not a direction to do a particular thing in a particular case. The court is supposed to know what it is doing when it lays down a rule of action, but it by no means follows when it directs a particular thing to be done in a particular case. It is undoubtedly true that a temporary receiver is a mere custodian, standing in the place of the court, and is not in any way a trustee for the creditors of the corporation. But he is supposed to be an intelligent custodian, able to manage the ordinary affairs of collecting and preserving the assets of a corporation without specific directions from the court, in individual instances, as to what should bé done. Great stress is laid upon the remarks of Judge Danforth in the case of People v. Security Life Ins. & Annuity Co., 79 N. Y. 267 . At page 270 he says:

“ Since the receiver is an officer sometimes called the 1 hand of the court,’ it would be singular if he should not at any time go to it with his complaint, or for instructions in regard' to any matter touching the fund placed in«his custody; and more especially when, as in the case before us, it is in danger, through his own error, of being unfairly distributed.”

This language is to be construed, having in view the facts of

In the case at bar, it being conceded that a permanent receiver would have had the right to do that which the petitioner asks to be directed to do, the manifest course to pursue would have been, in any event, to do nothing more than confer upon the temporary receiver the powers of a permanent receiver in respect to tiro sub