Downey v. May — 8 N.Y. St. Rep. 481

Majority

p. 481

John Downey v. Lewis May, as assignee, etc.

(Supreme Court, First District, Chambers,

Filed March, 1887.)

Headnote

1. Assignment—Suit by cbeditob to settle account of assignee and DISTEIBUTE TBUST FUND—WHEN AND ON WHAT TEBM8 CBEDITOB ALLOWED TO COME IN AND FBOVE CLAIM AFTEB THE FEBEMPTOBY DAY FIXED.

In a suit by a creditor in behalf of himself and all others to settle the account of an assignee for the benefit of creditors and distribute the trust fund, a creditor who has not received notice to prove his claim before the referee, or who, having received notice, did not understand the effect of it, will, after the peremptory day fixed by the referee, and before the final distribution of the fund, be allowed, on showing an excuse, to come in and prove his claim and contest the assignee’s account.

2. Same.

Ordinarily, terms will be imposed as a condition.

3. Rules.

The rules observed by courts of law on applications to open defaults are applied to the case of a creditor, who has omitted to prove his claim in a suit in equity brought by one creditor in behalf of himself and all others similarly situated.

The brief of the counsel for the moving creditor contains' a valuable collection of authorities in this class of cases.

Motion by Mrs. Hetty H. E. Green to open the report and refer this case back to William S. Keiley, referee, with liberty to prove her claim of $560,000 and file objections to the assignee’s account.

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On the 15th of January, 1885, John A. Cisco and Frederick W. Foote, bankers, composing the firm of John J. Cisco & Son, made an assignment for the benefit of their creditors to Lewis May. The assignment contained no preferences, except to employees. The inventory by the assignors of their estate was verified and filed February 2, 1885. The assignee filed his bond on the 3d of February, 1885. The nominal value of the estate, as stated in the inventory, was $3,294,448.78; the actual value, $2,467,370.70. The schedules of indebtedness exhibited the fact that a portion of the assets, consisting of railroad bonds and other securities, had been pledged by the assignors in the aggregate for $1,085,331.25, which, deducted from the $2,467,-370.70, left the aggregate actual value $1,382,039.45 as the net actual value of the estate as appeared by the assignor’s inventory.

This suit was brought by John Downey, as a creditor of the assignors, in behalf of himself and all other creditors, against Lewis May, the assignee and the assignors, for an accounting and distribution of the assets under the assignment.

On the 8th of May, 1886, the usual interlocutory decree was made, referring it to William S. Keiley, as referee, to take proof of the plaintiff’s claim and of all other creditors, and, to fix a peremptory day, and advertise once in each week for three weeks for creditors to come in and prove their claims by such day or be excluded from the distribu - tion of the estate. The referee fixed May 29, 1886, as the peremptory day, and published a notice'in two papers. The first insertion of such notice was on May eleven. Mrs. Green swore that she did not receive the notice and did not know anything about the suit until about December 26, 1886. On the 8th of January, 1887, the referee made his report by consent of the attorneys for the assignors and assignee. No claims were proved before the referee except the plaintiff’s. The assignee, however, filed with his report a list of the creditors of the assignors, stated to have been taken from their books. The assignee has credited himself in his account with $148,650, commissions, computed on what he claimed was the whole amount of his receipts, not deducting the sum for which a portion of the estate had been pledged. It appeared that the assignee had redeemed the securities which had been pledged by the assignors as security for money borrowed by them and had then sold the securities and claimed commissions on the aggregate received upon the sale. It also appeared by the assignee’s account that he had, prior to qualifying by giving security, collected $1,265,838.01, and paid out $398,546.22.

The grounds of Mrs. Green’s motion were the failure to

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publish the notice for creditors to come in and prove their claims as required by law; that she had not in fact received any notice of the suit; that the assignee’s account was informal, that it omitted many items on the debtor side with which he should be charged, and embraced many items on the credit side with which he should not be credited; that it did not appear by the referee’s report that any claims had been proved except the plaintiff’s, and hence that no decree could be entered for distribution.

Nelson Smith, of counsel for Mrs. Green.

First. The notice by the referee was not published three weeks, but only eighteen days, and was insufficient. Code of Civil Procedure, § 786; Market National Bank v. Pacific National Bank, 89 N. Y., 397 .

Second. The notice was defective. It did not show that the suit was for the benefit of all the creditors. It would not bind them unless it were. Kerr v. Blodgett, 48 N. Y., 67 .

Third. The notice did not reach Mrs. Green.

Fourth. It is a matter of course to allow a creditor who swears that he had no notice, or gives other excuse, to prove his claim after the peremptory day. Wilder v. Keeler, 3 Paige, 167; Angell v. Hadden, 1 Maddock’s Ch. Reps., 529; Mason v. Codwise, 6 Johns. Ch., 184 ; Hoffman’s Master in Chancery, 181, 182; Gillespie v. Alexander, 3 Russel, 130. Defaults in actions at law are opened on the same principle. Quinn v. Case, 2 Hilton, 467; Hanford v. McNair, 2 Wend., 286 ; Van Horne v. Montgomery, 5 How. Pr., 238 .

Fifth. In the absence of any provision in the Code of Civil Procedure, the old Chancery practice upon the subject of accountings is still in force. Wiggins v. Gans, 4 Sand., 646; Palmer v. Palmer, 13 How. Pr., 364 ; Ketchum v. Clark, 22 Barb., 319 .

Rule 85, General Rules of Practice, adopted December 19, 1883.

Sixth. The list of creditors filed by the assignee was not evidence of their claims, nor of their election to prove them. It is for the creditor to elect whether he will prove his claim. Kerr v. Blodgett, 48 N. Y. 66 -69.

Seventh. A creditor coming in under a decree of this description must make affidavit to his claim, that it has not been paid and that he has no security. Morris v. Mowatt, 4 Paige, 142; Hulbert v. McKay, 8 id., 654; Hoffman’s Master in Chancery, 182; 2 Smith’s Ch. Pr.

Eighth. On proving his claim, a creditor is, in a legal sense, a party. Neve v. Weston, 3 Atk., 557; Hoffman’s Master in Chancery, 183, 184; the same principle applied to

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creditors in bankruptcy; ex parte O'Neil, in re James L. Fowler, 1 Lowell’s Dec., 163.

Ninth. It is not incumbent upon Mrs. Green, to entitle her to come in, to show the assignee’s account erroneous. Upon proving her claim, she may examine the assignee to discover errors, and then file objections to his account from time to time, as advised. 2 Daniel’s Ch. Pr., 4th ed., 1223, 1224.

Tenth. But it does appear that the assignee’s account is erroneous. The payments out by him before he filed his bond are presumptively invalid. Brennan v. Willson, 71 N. Y., 502 ; Woodworth v. Seymour, 22 Hun, 245 .

Eleventh. The assignee is not entitled to commissions on any sums except those actually received. Matter of Hulbert, 89 N. Y., 259 .

As respects the hypothecated securities, he was only entitled to .commissions on the sums he received in excess of the amount he paid to redeem them, or, in other words, for the assignor’s equity.

Twelfth. As the assignment contained no preferences, the credits in the assignee’s account, for payments to some creditors in full, were improperly allowed.

Thirteenth. The assignee is not entitled to be credited for moneys paid to redeem securities, where they brought less upon a sale by him, than he had paid to redeem them. This is the case in several instances.

Fourteenth. The assignee is not entitled'to credit for the sums paid to redeem securities which had been borrowed by the assignors.

Dos Passos Brothers, for the Defendant May; Childs & Hull, for the Defendant Cisco; A. D. Williams, for the Plaintiff Downey.

The affidavits submitted in support of this motion conflict with those submitted in opposition to it upon important points, and leave many matters in doubt. It is difficult to determine when Mrs. Green, or her counsel, or friends, first knew of the pendency of this action, or of the pendency of the reference which was ordered. Even if the conclusion were reached that Mrs. Green is mistaken when she swears that, to the best of her recollection and belief, the first that she ever heard of Downey, or of any suit by Downey, was about the twenty-sixth or twenty-..eighth of December, 1886, it is not entirely clear that she knew the object of the suit, or what the effect of the referee’s report would be if confirmed by the court. The affidavits made by Mrs. Green, and others on her behalf, are also so at variance with those submitted upon the other side as to leave it doubtful what authority any person or

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persons had to represent her, what examination of the. assignee’s accounts was made by any one on her behalf, and what knowledge or information she had as to the nature of the objections which had been made before the referee to such accounts.

It appears that these objections were of a serious character, and that a contest followed, lasting for several months. As I understand the affidavits these objections were not passed upon by the referee, but the whole matter was disposed of by a compromise, made by the attorneys of Mr. Cisco, the assignee and the plaintiff Downey. No creditor except the plaintiff was represented before the referee, and Mrs. Green, who is a very large creditor, is dissatisfied with the compromise.

It is claimed by the counsel of Mrs. Green that the assignee’s accounts are made out in such a manner that it is difficult to understand them, or to follow and trace out the various transactions which are covered by them. "It is also strenuously insisted that the account omits many items on the debtor side, with which the assignee should be charged, and embraces many things on the credit side with which he should not be credited; and it would be very difficult, if not impossible, for me, upon the papers now presented, to decide whether this contention on the part of Mrs. Green’s counsel is, or is not, to some extent well founded.

The matters about which question is so raised involve several hundreds of thousands of dollars, and Mrs. Green swears that if the referee’s report shall stand she will be-injured to at least the sum of from fifty to one hundred thousand dollars. She also swears that no one was ever authorized by her to say that she did not propose to contest the assignee’s accounts, and that she does not believe any one ever assumed to say so on her behalf.

It does not appear that Mrs. Greén ever assented to the compromise, or knew the nature of the report of the referee, or of the decree, until after the report had been .made and the decree had been signed.

Applying to this motion the rules which are usually followed by courts in cases of this character, it would seem that even if Mrs. Green was not as vigilant as she should have been, and even if she wap informed that proceedings of some sort were pending before the referee, but failed to appear on the reference, through misapprehension as to the nature of such proceedings, or through any excusable mistake, carelessness or procrastination on her part, she nevertheless ought to have a hearing, and is entitled to relief upon suitable terms.

After a careful consideration of the motion, I have concluded, though with some hesitation, that the whole matter

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should be sent back to the referee for a further hearing, in the same manner and with the same effect as if Mrs. Green had appeared upon the reference, before the report was made, with leave to file such objections to the assignee’s accounts and to offer such evidence as she may see fit.

An order to this effect will, therefore, be made, but only on condition that she will stipulate that, if substantially unsuccessful, she will pay all the expenses of the further proceedings to be had before the referee, and that she will proceed with reasonable speed.

The order may be settled upon two days’ notice.