Mechanics' National Bank of New York v. Landauer

LyoN, J. The general question to be determined on this appeal is, Should the county court have granted leave to the appellants to sue the receiver in the proposed creditors’ suit ? The rules of practice which must control the answer to this question are thus stated by Mr. High in his valuable treatise on the Law of Eeceivers: “ The more common practice, and that which has been generally commended by the .courts, is to hear and determine all rights of action and demands against a receiver by petition in'the cause in which he was appointed, without remitting the parties to a new and independent suit; and it rests wholly within the discretion of the court to grant leave-to bri-ng an independent action against its receiver, or to determine the controversy upon petition in the original cause,-directing, if necessary, an issue to be tried by a jury as to questions of fact or of damages. . . . So, if an equitable right or title is asserted in property which is in the custody of a receiver, the court will not ordinarily permit an action to be brought against him, but will require the claimant to proceed by petition; and persons having a claim or lien upon a fund in a receiver’s hands should assert such claim by petition, rather than by an action against the receiver.” Sec. 2545. This is undoubtedly a correct statement of the rules of practice in this behalf which now prevail. It rests, therefore, in the discretion of the court to allow [48] a party claiming rights against its receiver to bring an independent action against Mm, or to compel such party to proceed against him by petition in the action in which he is receiver. With the exercise of such discretion this court cannot interfere on appeal, unless there has been a manifest abuse of it. In the present case, if the appellants can obtain the same relief against the receiver by petition in the action in which the receiver was appointed that they seek in the creditors’ suit, it certainly was no abuse of discretion to deny the petition for leave to sue the receiver in the latter suit. It appears from the statement of facts herein that the objects of the proposed creditors’ suit are (1) to compel the judgment creditors of Davis & Michelbacher, who received the proceeds of the execution sales of the stock of goods, to pay over the amount thereof to the two banks, the appellants, to apply on their judgments against Davis & Mich-elbacher; (2) to obtain an appropriation of the accounts of that firm in the hands of the receiver, the respondent, and the moneys collected by him thereon, to the payment of their demands; and (3) to enforce payment of a reasonable sum by the respondent for the good-will of such firm, to be applied in like manner. All other relief prayed is only subsidiary to or in aid of these general objects. Can these objects, so far as they affect the receiver, be as well accomplished by petition in the action to dissolve the partnership of Davis & Michelbacher, in which he was appointed, as they can be in an independent action against the receiver? If so, the order refusing leave to sue should-be affirmed, 1. The receiver, as such, has no concern with the claim against the judgment debtors of Davis & Michelbacher for the proceeds of the execution sales. He is not a necessary party to the proposed creditors’ suit to enable the appellants to reach that fund. If he was a party to the conspir [49] acy and fraud which resulted in pdtting that fund in the hands of such judgment creditors, as is charged, such fraud and wrong has no connection with his receivership, and any liability therefor by him to the appellants is purely a personal liability. In order to maintain a personal action against- him on account of such liability (if any exists), no leave of court is necessary. . . 2. If the appellants succeed in establishing a prior lien upon the assets of the firm, to wit, the accounts of the firm and the money collected thereon by the receiver, the court may enforce that lien by its order made in the action of Davis v.' MioJidbaoher to dissolve the partnership and wind up its affairs. The receiver was appointed to preserve the assets of the firm pendente lite, which includes the collection of its accounts, and to hold the same for the ultimate disposal thereof by the court according to the rights and priorities of all parties interested. He took no title to the property, and has no lien upon it. The title thereto remains, as it was, before his appointment, in Davis & Michelbacher, subject to the control of the court. High on Receivers, sec. 5. Hence the receiver is not a necessary party to the creditors’ suit to enable the appellants to establish, if they can, their prior right to;the assets in his hands, or to obtain the appropriation thereof to the payment of their demands. 8. If, as charged, there was a valuable good-will pertaining to the business of the firm when the receiver was appointed, which he might and ought'to have sold, but which he suffered to be lost, the court,, by a proceeding in the partnership suit, Avill hold him to account for its value, and order the same paid to the person who shows the paramount right to the money. 4. A proceeding for the removal or suspension of the receiver must necessarily be taken in the case in which he is receiver. ■ 5. We are strongly pressed to determine whether the [50] transaction set out in the complaint in the proposed creditors’ suit constitutes a voluntary assignment for the benefit of creditors, with preferences to the persons to whom the judgment notes were given. But we do not reach that question, for, in the view we have taken of the case, it is immaterial on this appeal which way the question is answered. Hence we leave it undetermined. It follows from, the foregoing views that the l’efusal of the county court to grant leave to sue the receiver was not an abuse of its discretion. By the Court.— Order affirmed.