Hoerle v. McIlhargy — 61 N.Y. Super. Ct. 184

Majority

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JUSTUS HOERLE, Plaintiff v. JOSEPH McILHARGY, Defendant. EDWARD JACOBS, Receiver, Respondent in the appeal on the motion or petition of the McFARLAN CARRIAGE CO., Appellant.

Headnote

Partnership, action for the dissolution and appointment of a receiver, etc.

—Distribution of estate—Preference of creditors.

In this case, after the appointment of a receiver of the co-partnership property, the appellant being a judgment creditor, applied to the court at special term in the original action for an order that the receiver pay out of the funds in his hands the amount of the judgment. The court below denied the petition, and from such denial this appeal was taken.

Held, that the application was properly denied. In a case like this the court should consider and determine whether the applicant had a right to a preference over other creditors of the co-partnership. . If it appeared

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that the estate was certainly solvent, leave might he granted, but if insolvent, and there was nothing in the claim that should give priority or preference, the application should be denied. In this case there was no reason why the appellant should not share equally with the other creditors.

Before Sedgwick, Ch. J., and McAdam, J.

Decided May 2, 1892.

Appeal from order denying appellants’ motion for payment by the receiver of a judgment.

William King Hall, for appellant, argued :—

I. A judgment obtained adversely against partners is entitled to priority against the assets of the firm, although an action has been previously commenced by one of the partners for a dissolution and an accounting, in which a receiver has been appointed. Warring v. Robinson, Hoff. Ch., 524, citing Pratt v. Robinson, July, 1839 ; Adams v. Hackett, 7 Cal., 187 ; Ib. v. Woods, 8 Ib., 153 ; 9 Ib., 24. The case of Holmes v. McDowell, 15 Hun, 585 , aff’d without opinion, in 76 N. Y., 596 , may appear adverse to our contention, but, upon careful consideration, it will be found not to be so. It reviews the above authorities and distinguishes them. West-brook, J., says: “ The object of the action was to adjust the affairs of the partnership, which was insolvent, and to divide the property equally among its creditors. * * * But the cases cited are unlike the present. In all of them, the suit was instituted by the one partner against the other for his own protection against the ■alleged fraudulent conduct of such other. They all lacked the elements of admitted insolvency. * * * It is possible, though it is not fully conceded to be sound, that when one partner seeks the aid of the court against the other, and the tribunal invoked simply holds the property for the benefit of its owners, it may permit one

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creditor to obtain ‘priority over another.” We insist that the distinction made applies to our case, and shows us entitled to the priority claimed. See also, Keeney v. Home Ins. Co., 71 N. Y., 396 , which held: “ A receiver pendente lite is a person appointed to take charge of the fund or property to which the receivership extends while the case remains undecided. The title to the property is not changed by the appointment. The receiver acquires no title, but only the right of possession as the officer of the court. The title remains in whom it was vested when the appointment was made.” Cited in U. S. Trust Co. v. N. Y. W. S. & B. R. Co., 101 N. Y., 483 ; Ogden v. Arnot, 29 Hun, 146 , citing Finke v. Funk, 25 Hun, 616 , which held: “ A receiver appointed in a partnership case pendente lite has no powers except such as have been conferred by the order appointing him. He is a common law receiver, and his duty is to protect the property during litigation. The order appointing him effects no change in the title to the property.”

II. It is correct practice for the judgment creditor to bring his lien to the attention of the court in this action, and ask to have the execution satisfied out of the moneys in hands of the receiver. Walling v. Miller, 108 N. Y., 173 .

Michael Jacobs, for respondent, argued :—

I. The mere recovery of the judgment does not give the creditor a preference. “ Equality in the payment of debts by a receiver is the rule of law, unless by diligence or some special reason, a preference is declared of one creditor, or of one class, over creditors generally. No such circumstance exists in this case, and the judgment is to be regarded as determining simply the validity of the plaintiff’s claim.” * * * “ His debt is adjudged to be valid, but it must take its chance of payment with other valid debts in the general adminis

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tration of the estate.” Clark v. Brockway, 1 Abb. Ct. App., 351 .

II. The estate being personal, vested in the receiver from the time and by virtue of his appointment, Chautauqua Co. Bk. v. Risley, 19 N. Y., 374 . And as the creditor did not commence his suit until two months thereafter, he certainly can have no lien on the copartnership’s assets. The property is in the custody of the law for distribution equally among all the creditors. Noe v. Gibson, 7 Paige, 513; Walling v. Miller, 108 N. Y., p. 173.

III. The receiver is not affected by a judgment to which he was not a party. People v. Knickerbocker Life Ins. Co., 106 N. Y., 623 .

IV. The attempt of the creditor is to obtain a preference over other creditors and should not prevail. If it does prevail, the appointment of a receiver in a copartnership controversy becomes a mere formality and of no practical value whatever.

V. The case of Walling v. Miller, 108 N. Y., 173 , cited by the appellant in the court below, in no way' aids it. On the contrary, it is an authority in support of the contention of the receiver. In that case it will be seen (at p. 177), the receiver was appointed “ two days after the levy by virtue of the execution,” while in the case at bar the receiver was appointed several months before the suit in the district court was even instituted.

The action is for a dissolution of a partnership and for an accounting. In it a receiver had been duly appointed and had taken possession of the partnership property. After this the appellant began an action against the partners for a partnership indebtedness, and recovered judgment in the sum of ninety dollars. Qn these facts the appellant made petition to the court below, that the receiver pay out of the funds

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in his hands the amount of the judgment. The court denied the application, and this appeal is taken from that denial. The decision was correct. There was no legal lien on the property through the judgment and execution. The property was in custody of the law and was inaccessible to an execution or its usual consequences. The sheriff, to levy, would be obliged to ask the leave of the court to that end. As the receiver had not taken possession, after the execution had issued, the court would not be pressed by the consideration that there was a legal lien. In a case like this the court should look into the whole case and find whether, substantially, the applicant had a right to a preference. If the estate were certainly solvent, leave might be given. But if insolvent, and there was nothing in the nature of the claim that should give priority, the court should deny the application. In this case there was no reason why the applicant should not share equally with other creditors.

Order affirmed, with ten dollars costs.