Case ID: misc2d_71/html/0987-01.html
Source: Caselaw Access Project
Author: {"author": "\n      \n      Per Curiam.\n     Markowitz, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Colonial Press of Miami, Inc., Appellant, v. Bank of Commerce, Respondent.
    Supreme Court, Appellate Term, First Department,
    October 13, 1972.
    
      Steinberg & Wolff (Irving G. Wolff of counsel), for appellant. Arthur L. Webber and Gerald W. Flynnlox respondent.
   Per Curiam.

Judgment debtor is a wholly owned subsidiary of Intergeneral Industries, Inc., which was a customer of respondent bank. Intergeneral’s, vice-president, Mac Beagle-man, who was also vice-president of judgment debtor, was known to the bank. On his indorsement, the bank issued, in exchange for a certified check payable to the order of judgment debtor, its own check payable to the order of Natcontainer Corp., a creditor of another wholly owned subsidiary of Intergeneral. The bank acted in effect as a conduit without retaining any moneys belonging to judgment debtor. Had the form of the transaction been the opening of an account by judgment debtor with its own corporate resolution authorizing Mac Beagleman as vice-president to sign and indorse checks, judgment debtor then would have, issued its own check to Natcontainer Corp. and the bank would not have been involved.

The bank, however, acted without corporate resolution of the judgment debtor and without having an account of the judgment debtor and may have facilitated an unauthorized diversion of the judgment debtor’s funds to Natcontainer Corp. By the same token the judgment debtor is a wholly owned subsidiary of Inter-general, which did have an account at the bank, and which had assumed the obligations of all its subsidiaries, so that the transfer of judgment debtor’s funds in payment of an obligation of another subsidiary of Intergeneral may not have been improper. A determination of the propriety of this transfer or, rather, exchange, may well involve an inquiry into the entire intracorporate structure of the conglomerate, Intergeneral, which is already the subject of a chapter XI proceeding.

Petitioner obtained its judgment about three months after this exchange of checks. At time of attempted levy and of this special proceeding against the bank, it was not in possession or custody of money ór property of judgment debtor nor was it a transferee of money or property from judgment debtor. Thus, CPLB 5225 (subd. [b]) is not applicable. The question is whether CPLB 5227 is applicable by reason of the bank’s alleged indebtedness to judgment debtor arising out of its participation in the alleged conversion of the certified check payable to judgment debtor*

A debt against which a money judgment may be enforced by a special proceeding instituted under CPLB article 52 must satisfy the requirement in CPLB 5201 (subd. [a]) of “ certainty ” (cf. Glassman v. Hyder, 23 N Y 2d 354, 358-360). A greater degree of “ certainty” of the indebtedness is required than here demonstrated for this cause of action against the hank, which actually is a claim for facilitating an allegedly unauthorized diversion of corporate funds, properly to he asserted in a plenary derivative action by petitioner as a creditor on behalf of judgment debtor. While CPLR 5227 is fairly broad in scope and encompasses factual disputes to be resolved at a trial, issues of this nature, not involving possession of property of or indebtedness owing to a judgment debtor, were, in our view, not intended to be adjudicated in & summary-type special proceeding of CPLR article 52.

In none of the cases cited in the dissenting memorandum did the court deal with this type of situation. In Siemens & Halske GmbH. v. Gres (32 A D 2d 624) respondent, president of judgment debtor, had transferred to herself without consideration funds of judgment debtor rendering it insolvent, which she had in her possession at time of the special proceeding. In Matter of First Small Inv. Corp. v. Zaretsky (46 Misc 2d 328) respondent, daughter of judgment debtor, was the record holder of the stock of a corporation, of which judgment debtor was claimed to be the actual owner. V P Supply Corp. v. Normand (27 A D 2d 797) involved a debt owed to judgment debtor. Matter of Ruvolo v. Long Is. R. R. Co. (45 Misc 2d 136) also involved a debt owing to judgment debtor, the debt being created after stipulation settling his action for personal injuries. In Matter of Sumitomo Shoji v. Chemical Bank (47 Misc 2d 741) respondent bank disregarded the specification in the restraining notice served upon it by paying out funds in its possession belonging to judgment debtor.

The order should be affirmed, with $10 costs.

Markowitz, J.

(dissenting). Petitioner, a judgment creditor, brought this special proceeding (CPLR 5225, subd. [b] and CPLR 5227) for an order requiring respondent bank to pay petitioner the unpaid balance of petitioner’s judgment against Catalog Workshop, Inc., in the amount of $6,726.06, with interest and Marshal’s fees. The petition was dismissed below on motion.

Catalog Workshop, Inc. (Catalog) had received a certified check to its own order for $13,000 from Pootsaver Building Corp. Catalog had no account with the bank. Nevertheless, the bank exchanged the certified check for the bank’s own check to the order of Natcontainer Corp., an entirely different corporation. Absent proof that Catalog owed Natcontainer Corp. the amount of the bank check, this constituted a conversion of Catalog’s money in which the bank participated and for which the bank may be found liable to Catalog.

As well put in Weinstein-Korn-Miller, New York Civil Practice (Yol. 6, par. 5227.04):

1 Under the Civil Practice Act, the scope of the word ‘ indebtedness ’ was characterized as rather all-inclusive ’. CPLR 5227 should be given a similar interpretation in view of the sweeping definition of debts that are subject to enforcement of a money judgment appearing in CPLR 5201(a). * * * The fact that broad application of CPLR 5227 will result in an overlap between ‘ property ’ and indebtedness ’ in certain cases is of no consequence. ’ ’

(See, also, the examples ” summarized under this paragraph by the authors,)

CPLR 5227 provides that in a special proceeding commenced by a judgment creditor ‘ ‘ against any person who it is shown is or will become indebted to the judgment debtor, the court may require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it may direct that a judgment be entered against such person in favor of the judgment creditor. * * * Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to interyene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 5239.”

Section 5239 is entitled ‘ ‘ Proceeding to determine adverse claims.”

The section, thus makes provision not alone for the disposition of any issues between the judgment creditor and the third party, but also of any adverse claims by the judgment debtor as well as by any other claimant to the fund.

Section 5225 (subd. [b]), which deals with money or property of a judgment debtor in the possession or custody of a third person, and with a person who is a transferee of money or personal property from the judgment debtor, is of like tenor.

In Siemens & Halske GmbH. v. Gres (32 A D 2d 624) which involved a special proceeding under CPLR 5225 (subd. [b]) against a person who was a transferee of money from the debtor, our Appellate Division held that the proceeding “ obviates the necessity for a plenary action (N. Y. Legis. Doc. 1962, No. 8, p. 486; see Matter of Sumitomo Shoji, New York v. Chemical Bank N. Y. Trust Co., 47 Misc 2d 741, 745).”

The eases cited by the Appellate Division (Matter of Sumitomo Shoji v. Chemical Bank, 47 Misc 2d 741, 745; Matter of First Small Inv. Corp. v. Zaretsky, 46 Misc 2d 328, 330) make this even clearer. Substantial factual disputes may be adjudicated in the special proceedings instituted under the authority of either CPLR 5225 (subd. [b]) or CPLR 5227 (Matter of First Small Inv. Corp. v. Zaretsky, 46 Misc 2d, at p. 330; Matter of Ruvolo v. Long Is. R. R. Co., 45 Misc 2d 136,146-147'; see, also, V P Supply Corp. v. Normand, 27 A D 2d 797, 798) and there is no need to relegate the parties to a plenary suit.

I find no reason why the issue of the bank’s liability to Catalog cannot be disposed of in the special proceeding brought by Colonial as judgment creditor of Catalog. As held in V P Supply Corp. v. Normand (27 A D 2d 797, supra) the disputed issues can be tried in the proceeding brought by petitioner, with the burden of proof resting with Colonial as judgment creditor. To do otherwise is to exalt form over substance, to impose unnecessary additional legal expense on the parties, and to delay disposition of the matter.

Hence the proceeding should not have been dismissed; facts sufficient to sustain the proceeding are alleged in the petition.

I, therefore, dissent and vote to reverse the order and to deny the motion to dismiss.

Gold and Street, JJ., concur in Per Curiam opinion; Markowitz, J. P., dissents in memorandum.

Order affirmed, etc.