People v. St. Nicholas Bank ( 1894 )

VAN BRUNT, P. J. (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 presented his petition to this court, alleging that one Charles Kurzman was indebted to the bank upon certain demand loans aggregating $3,000, for the payment of which he had deposited certain collateral securities. He also alleges, inferentially, that said Kurzman was . a depositor in said bank, and that at the time said bank ceased to do business there was standing to his credit, as such depositor, the sum of $1,145.14. The petition further shows that on the 28th of December, 1893, he was notified by said depositor that he was prepared to pay off said loans, applying his balance with said bank as an offset against said loans. The petitioner further alleges that, being in doubt as to the propriety of granting the request of said Kurzman to pay off said loans, and allow the offset of the balance of his deposit as against the amount due and owing by him to said bank on account of said loan, and1 to return said collaterals, he prays the instructions of the court in the premises, and with said petition submitted an order which he desired, directing him to make such offset, and to surrender said securities, upon payment of the balance remaining due upon said demand loans. The court below refused to make the direction, holding that, if the books of the bank showed the facts above set forth, the receiver would be protected, in the absence of any suggestion of fraud, and therefore it could see no reason for granting the order applied for in this case; and an order was thereupon entered, denying said application, and from such order this appeal is taken.

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 disposition made 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 cither 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; 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 brought suit to recover the loan in question? Clearly, for the balance which would be due to the bank after* offsetting the amount of the depositor’s balance, upon payment of which the receiver would be required to give up the securities pledged as collateral. Now, he having the power to collect and the power to sue, it is difficult to see why he has not power to receive payment upon the same terms which he could get by suit. If a receiver has no. power, independently of special directions of the court in each particular case, to surrender the collaterals pledged for a loan with the bank of which he has been appointed temporary receiver, many of the securities of the corporation would be placed in great jeopardy. If a receiver holds notes indorsed, for the payment of which negotiable collaterals have been pledged, in order to charge the indorser the receiver must not only present the notes, but have the col-laterals in readiness to be surrendered in case the maker pays the notes and unless these conditions are complied with the indorser is discharged. Bank v. Faut, 50 N. Y. 474. If, upon payment of loans due to the bank, the collaterals held as security for these loans cannot be surrendered by the temporary receiver, how many indorsers may be discharged? This illustration simply shows that a temporary receiver has ample authority to receive payment of loans, and surrender collaterals held as security, and he needs no direction from the court to perform these duties.

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 be 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 ‘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 the case. In that case, because of the faulty advice given by the receiver, certain creditors were in danger of losing their claims; and the receiver applied to the court to know what should be done, and the court pointed out the way in which the rights of these creditors might be secured. It was this question which was being discussed, and in such a case the court held that the receiver was justified in coming to the court for instructions,—a case very different from those which continually arise in the ordinary administration of the affairs of a corporation in the process of liquidation. That this is the policy of the law is strikingly evidenced by the provisions of section 1789 of the Code, which provides that, in addition to the powers conferred upon him by the provisions of the last section, 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. This language clearly shows that if the necessity exists that the temporary receiver should have the powers of a permanent receiver, in addition to that which he enjoys as a temporary receiver, the proper course is for the court to give him such powers, and not to direct him to do a particular thing which he would be able to do if he were a permanent receiver. A temporary receiver is no more under the control of the court, and is no more an officer or hand of the court, than a permanent receiver. And it being conceded that, if the petitioner were a permanent receiver, he would have the authority to do that which he, by his petition in this proceeding, asks the court to direct him to do, it seems evident that, if any order were necessary (which it seems to me clear it was not), the proper course would have been to confer upon him the powers of a permanent receiver in respect to the subject involved. As already suggested, this is the clear intention of section 1789. It says that, in addition to the powers conferred upon him by the last section (referring to the section which treated of the powers of a temporary receiver), the court may confer upon him the powers and authority of a permanent receiver, or so much thereof as it thinks proper, except that he shall not make any distribution among the creditors and stockholders before final judgment unless specially directed so to do by the court. And this is the only case in which special directions are contemplated to a temporary receiver in respect to subjects over which a permanent receiver would have authority by virtue of his appointment. I repeat that it seems to me clear that it was the intention, in the framing of this section, to prevent applications in special cases by a temporary receiver, and to provide, where necessary, that his powers should be enlarged by conferring upon him the powers of a permanent receiver.

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 the subject involved. And the court was entirely right in refusing to grant the order asked for, directing the receiver to do a specific thing in a specific case. But, as already stated, it seems to me to be ap-. parent that the temporary receiver had just as full authority to act as any permanent receiver could have had. The view that it was the intention of the Code that, in case additional authority was to be conferred upon the temporary receiver, it was by giving him the power of a permanent receiver, and that, for the purposes of the collection of the debts due to the corporation, the temporary receiver had the right to do everything that a permanent receiver could do, is further evidenced by the provisions of section 1788. It is there provided that unless additional powers are specially conferred upon him, as prescribed in the next section (the next section prescribing how additional power is to be conferred upon the temporary receiver, viz. by giving him the powers of a permanent receiver), a temporary receiver has only the powers specified in this section, and those which are incidental to the exercise thereof. What does this last clause mean? Evidently, that the temporary receiver has the right to do everything which is ordinarily necessary to be done in order to collect the debts of the corporation of which he is the receiver. And one of the necessary powers, in order to collect such debts, is to be at liberty to surrender the col-laterals pledged for the debts; and another is to allow the credits and offsets to which the debtor is by law entitled. I think, therefore, that the order appealed from should be affirmed.