Case ID: abb-pr-ns_9/html/0347-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.— George G. Barnard, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Matter of HARMONY INSURANCE COMPANY.
    
      Supreme Court, First Department, First District; Special Term,
    1869.
    
      Again, General Term, October, 1870.
    Proceedings to wind ue Corporation.—Prooe oe Claims.—Action against Receiver.
    Where an order has been made under section 56 of article 2 of 3 Rev. Stat., 467,—limiting the time for creditors of an insolvent corporar tion to exhibit their claims,—and the time thus fixed has expired, claims not presented and not in suit, are barred; and the court will not, on motion and excuse shown, require the receivers subsequently to take proof of such claims.
    An order of the court at special term, denying a motion to require the receivers to allow such creditors to prove their claim, rests in the discretion of the court, and is not the subject of an appeal.
    Appeal from an order.
    In this case William McLoon appealed to the court at general term, from an order made by Mr. Justice Ihgeahah in December, 1869, denying a petition presented by the appellant that he be let in, after the time limited by the statute and the notice to creditors, to prove his claim against the Harmony Eire & Marine Insurance Company, a corporation, of the property of which receivers had been appointed. When McLoon presented his claim to the receivers, they objected that it was not in time, and refused to file it; and the order appealed from was subsequently made upon an order to show cause why he should not have leave to come in, notwithstanding the time had expired, and why the referee should not be directed to examine and pass upon his claim, &c.
    The facts were briefly these. The petitioner, having procured insurance on his vessel, by the Harmony Insurance Company, presented his claim against the company after the loss of the vessel in 1866. The company filed á bill in equity against him in Massachusetts, alleging fraud in the insurance and in the loss, and seeking to cancel the policy. Issues of fact framed in this suit were determined in favor of the defendant, the present petitioner, and the bill was dismissed in January, 1869. Meantime, but after the appointment of receivers, McLoon sued on the policy, in Massachusetts, and recovered judgment against the company. NT ot being able to collect his judgment by execution in Boston, he sent his claim to New York about July 1,1869, and then for the first time ascertained that proceedings had been taken in equity against the company under the second article of the chapter of the Revised Statutes relating
    
      thereto (2 Rev. Stat., 462, §§ 39-41), to sequester its property and wind up its affairs, and that receivers had been appointed.
    The six months’ notice of publication to creditors (§ 56), commenced on or about October 1, 1868, and in June, 1869, upon the report of the referee stating the claims which had been proved before him, an order was made pursuant to the notice published, precluding from the benefit of any decree in the proceedings, all creditors who had not then exhibited their claims. A dividend had previously been made of twenty per cent., and upon the confirmation of the report, and after the petitioner’s offer to prove his claim, the court directed a second and final dividend of twenty-eight per cent.
    The petitioner alleged that the receivers had a surplus of assets, sufficient to make the same dividend on the petitioner’s claim as had been paid on the other-claims, and the receivers’ answer substantially admitted the existence of such a surplus.
    A similar petition was presented by Robert J. Hubbard and Andrew J. Hennion, assignees in bankruptcy of the Hew York Mail Steamship Company.
    Mr. Justice Ihgbaham, before whom the petitions were heard, denied them, assigning his reasons as follows :
    Ingraham, J.—My opinion is adverse to granting this motion. The statute excludes all claimants who do not present their claims within the time fixed by the second notice. The statute imposes a limitation to presenting claims to the receiver, and disposes of the funds to other parties.
    If claims can be admitted afterwards, the receiver is prevented from complying with the statute in this respect.
    The case may be a hard one, but not more so than
    
      in cases of banks, where the bills are required to be brought in within a certain time, or be excluded.
    
    Motion denied, without costs.
    Prom the orders thus made, the petitioners appealed.
    
      
      Thomas H. Hubbard, for the appellant McLoon.—
    I. McLoon’s claim has the strongest equities, was established in a litigation obstinately contested, and he is chargeable with no laches. Who can oppose his claim on principles of equity? Not the receivers. They are trustees for the creditors. They must have known of the litigation in Boston, and that McLoon did not intend to waive his claim. Not the stockholders. Them rights are subservient to those of all creditors. Not the creditors, whose claims are admitted. They have already received a final dividend. They can no more profit by the surplus fund than McLoon can, unless the order of June 30 is modified (Gillet v. Moody, 3 N. Y. [3 Comst.], 476; James v. Woodruff, 10 Paige, 541, 549; 3 Rev. Stat., 5 ed., 772, § 92) [§ 81].
    II. The orders and notice in pursuance of section 56, art. 2, ch. 8, title 4, part 3 of the Statutes, do not compel the court to deny the appellant relief. That statute is not peremptory. The order is merely a direction of this court as a court of equity, which the same court may at any time modify to promote justice. Its object is merely to foreclose, as against funds actually distributed, the equitable lien which every creditor of an insolvent corporation has upon its assets, and to afford the receivers, in case of future actions brought by creditors, a plea that they have administered such funds according to law (3 Rev. Stat., 5 ed. 767, § 65; Judson v. Rossie Galena Co., 9 Paige, 597, 600; Matter of City Bank of Buffalo, 10 Id, 378, 382; Russell v. Lane, 1 Barb., 519, 523; Pratt v. Rathbun, 7 Paige, 269; Warner v. Hoffman, 4 Edw. Ch., 381, 389; Greig v. Somerville, 1 Russ. & M., 339; Angell v. Haddon, 1 Madd., 529; Lashley v. Hogg, 11 Vesey, 602).
    III. If there there is any other objection to the relief, it is to be found in original sections 81, 82 and 83 of article 3, ch. 8, title 4, part 3, of the Revised Statutes (vol 3, p. 772, 5 ed.). .But these sections present no conclusive objection, for—1st. The proceedings against the company were taken under article 2. The provisions of this article and its purposes are distinct from article 3 ; and sections 81, 82 and 83 of the latter are not applicable. The only limitation to the power of the receivers to pay McLoon from the surplus in their hands, is the order of June 30, made under section 56 of article 2. 2nd. If sections 81, &c., of article 3, are binding, then the receivers must follow section 83, and distribute the surplus (however large it may be) among the stockholders. Thus, in an equitable proceeding, instituted to pay an insolvent corporation’s creditors, the creditors go unpaid, and the stockholders, instead of being made personally liable, get the assets. 3rd. But section 81 of article 3 (vol. 3, p. 772, 5 ed. Rev. Stat.), directs that “every creditor who shall have neglected to exhibit his demand before the first dividend, and who shah deliver his account to the receivers before such second dividend, shall receive the sum he would have been entitled to on the first dividend, before any distribution be made to the other creditors.” McLoon asked the benefit of this provision before the second dividend, and the receiver, Mr. Glover, refused Ms request. The receivers cannot object that the petitioner did not file his claim when they refused to let Mm do it. If they rely on the limitations of sections 81 and 82, they must also perform what those sections require, and they require payment of both ^dividends to McLoon (3 Rev. Stat., 5 ed., 764, § 51 [sec. 42]; p. 770, § 79 [sec. 68]; p. 121, § 46 [sec. 41]; p. 772, § 92 [sec. 81]).
    
      John McDonald, for the assignees, Hubbard and Hennion, submitted the following additional points.—
    I. The petitioners’ claim that although they did not present their claim within the time limited by the order, they have a right still to do so, is sustained by the practice in chancery, and also by a strong current of authorities (Gillet v. Moody, 3 N. Y. [3 Comst.] 479; 2 Atk., 15; 3 Id., 564; Sharp v. Carter, 3 P. W., 379, Lashly v. Hogg, 11 Vesey, 602; Angell v. Hadden, 1 Madd., 529; Newl. Pr., 3 London ed., p. 534; Matter of City Bank of Buffalo, 10 Paige, 379, 384).
    II. These provisions of the Revised Statutes are intended to protect the receiver, and not to work any wrong to the creditor, and are but the expressions of decisions under the practice of early American and the English courts, where, if a creditor did not come-in to prove his claim till after the executor had paid away the residue of the money, he was not without remedy, though he was barred the benefit of the decree.. He-could sue the legatee to bring back the fund, but he-could not affect the executor at all (Gillespie v. Alexander, 3 Russ., 136; Sawyer v. Birchmore, 2 M. & C., 611; Marsh v. Russell, 3 Id., 31).
    III. The orders and notice which the court is called upon to make and cause to be given under section 56, of article 2, ch. 8, title 4, part 3 of the Revised Statutes, are not by the statute such as to "preclude the court. from granting relief in any other manner than that specified by the order, or to any persons than those who may come in and participate in the distribution made under the decree. The real meaning of the section is to foreclose the lien which creditors may have upon the fund actually distributed, and to protect the receiver from future actions. This order is of no greater effect than the final decree in the case of a creditor’s bill, which does not prevent a creditor from taking steps to have after discovered assets applied to the satisfaction of his debt. The same principle obtains in relation to the practice in cases of estates of deceased persons (sections 39 and 40, article 2, ch. 6, part 2, of Revised Statutes). But creditors, other than those who have come in and proved their claims under the order for distribution, have been allowed to come in after the decree, and share in the unexpended or after-acquired surplus, provided the creditors are already paid are not placed in a worse condition than if those who came in last had proved their claims within the time limited by the order. To say that this section should be construed to mean that after the distribution there could be no relief to those creditors who had failed to come in under the order, would be to assert that under the statute relative to. equitable proceedings against corporations, this court had no power to grant equitable relief (Matter of City Bank of Buffalo, 10 Paige, 378, 382; Judson v. Rossie Galena Co., 9 Id., 597, 600; Pratt v. Rathbun, 7 Id., 269, and cases cited in point II. of this brief).
    
      Joseph H. Ohoate, for the respondents.
    I. The petitioner is, by the express provision of the statute and by the order and-notice published under it, absolutely precluded from all benefit of the decree which shall be made in this proceeding, and from any distribution which shall be made under it (2 Rev. Stat., Edm. ed., 466, § 56. (a.) The scheme of liquidation and distribution by the statute is unique and consistent, and does not admit creditors who have failed to come in and exhibit their claims prior to the second dividend, to come in afterwards, and disturb the plan of distribution on which that dividend was declared and paid. Each step pointed out by the statute is necessary to the successful operation of the scheme, and entirely inconsistent with the admission óf claims like the present. (5.) The receivers, immediately upon their appointment, must (§ 70) give notice thereof, and require all creditors to deliver their respective accounts and demands to them within a time specified. Having reduced the assets into money, they are, by section 78, prior to making the first dividend, if any suit be pending against the receiver or the corporation for any demand, to retain the proportion which would belong to such demand if established, and the necessary costs, to be applied according to the event of such suit, or to be distributed in a second or other dividend. By section 79, they are to distribute the residue of the moneys in their hands among all those who shall have exhibited their claims as creditors, and whose debts shall have been ascertained. By section 80, if the whole estate be not distributed on the first dividend, the receivers shall within one year make a second dividend of all the moneys in their hands among the creditors entitled, of which, and that the same will be a final dividend, public notice is to be given. By section 81, the second dividend is to be made in all respects in the same manner as the first; and no others shall be made thereafter among the creditors of such corporation,.except to the creditors having suits against it or against the receivers pending at the time of such second dividend, and except of the moneys which may be retained to pay such creditors; but any creditor who shall have neglected to exhibit his demand before the first dividend, and shall deliver his account to the receivers before the second dividend, shall receive a dividend. By section 82, after such dividend the receivers are not answerable to any creditor, unless his demand shall have been exhibited to them in detail and in writing before or at the time specified by them in their notice of a second dividend, (c.) There can be no doubt of the intention of the statute to make the date of the making of the second dividend the absolute limit of a short statute of. limitations. This limitation the court has no power to alter or abolish, (d.) Again, the receivers had given notice under section 56. The case was deemed necessary and proper by the court; the order was made, and notice published; and the petitioner made default, and was expressly precluded. There is no power in the court, even under this proceeding, after the petitioner has once been barred and precluded, to give him a further opportunity for presenting his claim, (e.) The petitioner is clearly in default under either mode of proceeding. If he claims to come in to the special proceeding instituted by the receivers, he did not present his claim to them or to the referee before June 23, 1869, and was therefore expressly precluded. If he appeals to the general powers of the court as a court of chancery, supervising the statutory proceedings of the receivers, his application must be denied, for he did not deliver his account and demand to the receivers within the time prescribed by their original published notice; nor had he a suit pending against the company or the receivers at the time of the second dividend ; nor had he exhibited his demand to the receivers in detail and in writing before or at the the time specified by them in their notice of the second dividend, viz: July 24, 1869. Petitioner’s counsel came with a paper in his hand, said an execution on petitioner’s claim had been sent to him to collect, and asked leave to present it to the referee nunc pro tuno, which was refused. And even if it had been an exhibition of the claim, such as section 82 contemplates, yet as he had no suit against the receivers or the company pending at the time of the second dividend, it is by section 81 rendered absolutely impossible to admit him to any dividend. The action against the company in Boston, referred to in the petition, was wholly nugatory, and the pretended record of it is no record. It is alleged to have been commenced in 1868, a year and more after the receivers were appointed, and after the company had been dissolved, and it, and all its officers had been enjoined from exercising any corporate functions. It was wholly unauthorized by the receivers, and unknown to them. Besides, it was not a suit pending at the time of the second dividend, as required by section 81, to save the limitations of the statute. So that if it were not an utterly void proceeding, as being wholly unauthorized by the receivers, as judgment is claimed to have been finally entered in it in May, 1869, two months before the making of the second dividend, it was no longer pending at that date. (/.) It is essential to the safety of receivers in such cases, that they should have the strict protection of the provisions of the statute. If you go at all beyond the limitations there prescribed, and give any latitude to the admission of straggling claims, where shall the end be % g. The plan of the statute is, to afford a prompt, speedy and practicable winding up of the affairs, and a distribution of all the assets within reach of the court, among all creditors who can be brought in by the modes and within the times prescribed. The right of any creditors, who are so negligent or so unfortunate as not to come in in time, to proceed against the other creditors for a contribution, is not impaired or affected.
    II. All the questions raised at special term as to the constitutionality, the regularity and the expediency of providing for the prompt and speedy liquidation of the affairs of an insolvent insurance company, by such proceedings and such a reference as were contemplated in the order of Judge Ihobaham, of October 27, 1868, have been .heretofore, in analogous cases substantially disposed of (Matter of Empire City Bank, 8 Abb. Pr., 192; S. C., 18 N. Y., 210; Sands v. Kimbark, 27 Id., 147; Slee v. Bloom, 19 Johns., 456; Briggs v. Penniman, 8 Cow., 387).
    
      
      On the application of another petitioner in the case of the same corporation, it was held that creditors, who had suits pending at the time of the application for appointment of receiver, are not prevented from receiving a dividend if they succeed in their action, although proof of the claim was not previously presented. The pendency of the suit relieves the creditor from the necessity of proving his claim before the referee. But the claimant may be allowed, if he elect, to apply and prove Ms claim instead of prosecuting Ms action, or may have leave to substitute the receiver as defendant in place of the corporation.
      
        Mathews & Betts, for the petitioners.
      
        Ifocwts, Southmayd & Ohoate, for the receivers.
      Bvgbaham, P. J.—Those creditors who had suits pending at the time of the application for appointment of receiver, are not prevented from receiving a dividend if they succeed in their action. The section (78),—which requires the receiver to retain a sum which would belong to such demand if established, and the costs, to be applied according to the event of such smt, &c.,—does not require the proof of the claim, as required in other cases. The intent of the statute was to require that amount to be retained until it was ascertained whether the claimant could establish his claim in the action, and the receiver was to pay that proportion to the claimant in the event of his recovery. So, by section 81, creditors having suits against the company or receiver, are excluded from the second dividend, and the money retained for these creditors is reserved from such dividends.
      The whole scope of the statute excludes from any participation in the funds, all persons having suits against the company or the receivers, until the sMts are decided; and I think relieves them from the necessity of proving their claims before the referee.
      If the claimant so elect he may have an order allowing him to present such claim to the referee instead of prosecuting this action, and, on proof thereof, to be paid the dividend the same as if the claim had been presented before the second dividend. Section 82 only refers to creditors who have not taken proceedings, either before the referee or by action, to collect their claims.
      If the claimants decline this privilege, they may have an order allowing them to substitute the receivers as defendants instead of the company. There is no reason for keeping the company as a defendant, and adding the receiver.
      As the statute directs the amount to be reserved by the receivers, it can hardly be necessary to have an order forbidding them from parting with such moneys, but such order may be made if desired by the claimants.
      Ordered accordingly.
    
   By the Court.— George G. Barnard, J.

The provision of the statute relied upon by the respondents, prescribes a bar which precludes creditors from proving their claims after the lapse of the specified time. The petitioner in this case did not apply within the time prescribed, and was therefore technically guilty of negligence. The petition was an application to the court to relieve him from the effect of that negligence and allow him to prove his claim' after the time had passed. This was an application to the discretion of the court to relieve the petitioner from the strict bar of the statute, and the court refused to grant the application.

The order is one which rested in the discretion of the court, and is therefore not appealable. 
      
      Present, G. G. Barnard and Cardozo, JJ. In this ease, Ingraham, J., having made the order appealed from, did not sit.