Case Name: DEL VALLE v. NAVARRO
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1887-11
Citations: 21 Abb. N. Cas. 136
Docket Number: 
Parties: DEL VALLE v. NAVARRO.
Judges: 
Reporter: Abbott's New Cases
Volume: 21
Pages: 136–145

Head Matter:
DEL VALLE v. NAVARRO.
N. Y. Supreme Court, Special Term;
November, 1887.
Pleading; inconsistent matter.] Under Code Civ. Pro. § 514, which ■ allows a reply to deny material allegations and also to set up new matter not inconsistent with the complaint constituting a defense to the counterclaim—a reply which denies the allegations of the counterclaim, does not, by setting up new matter in avoidance of it, admit those allegations.
(Corporation; sequestration and receivership.] The appointment of a receiver of a corporation or of its property does not work its dissolution, nor prevent it from joining in litigation affecting its indebtedness and being bound by any adjudication therein.*
„Receiver; parties to litigation on claims.] Under the provisions of 2 E. 8. 39, etc., allowing- trustees of the estates of insolvent debtors to agree on a reference with persons making claims against their estates, or against whom receivers make claims, a provision which is extended by 2 E. S. 469, etc., to receivers appointed on the voluntary dissolution of corporations, and by 2 E. 8. 463, to receiver, appointed on sequestration and on the dissolution of corporations —although there is no express provision allowing the corporation to be made a party to the reference, yet the corporation, if not dissolved, may be made a party, and if so will be bound by the adjudxation.*
* Otherwise of dissolution. After judgment dissolving a corporation and appointing a receiver, an action cannot be commenced against it by service of process on an officer. Com. Pl., Sp. T., 1877, Hetzel v. Tannehill Silver Mining Co., 4 Aid. 77. C. 40.
Pending an action against a corporation for specific performance, a receiver was appointed.—Held, that damages could not be awarded in lieu of performance. Stancliff v. Ross, 57 N. Y. 643.
The dissolution of a corporation terminates an action then pending against it, and all subsequent proceedings therein are void unless the action be continued by order of the court as provided by L". 1832, ■c. 295, to prevent the abatement of suits by or against corporations. McCulloch v. Norwood, 58 N. Y. 562; rev’g in part, 36 Super. Ct. (J. & S.) 180.
JParlies; informal joinder.] Such a corporation is made a party to the proceedings by uniting with the receiver in the consent to refer a claim, and appearing and taking part in the proceedings before , the referee.f
JFormer adjudication, referee's report.] As the statute provides that the report of the referee “shall be conclusive as to the rights of the parties if not set aside by the court” it is an adjudication, and concludes such corporation.^
* For the extension of the same powers to some other receivers, see mote in 19 Add. N. C. 363-367.
† The same principle is now applied in practice to creditors coming in to prove claims before a receiver or referee in an action to marshal ■assets.
‡ Judgment may be entered on the report. Austin v. Rawdon, 42 N. Y. 15S; Greenfield v. Mayor, &e., 28 Hun, 320.
I understand the receiver in the case in the text was appointed under section 36 of 2 R. S. 463, “of proceedings against corporations in equity” [corresponding very nearly to the present statute, Code Civ. Pro. §1784], ‘That section 36 is as follows: “ Whenever a judgment at law, or a decree in equity, shall be obtained against any corporation incorporated under the laws of this State, and an execution issued thereon shall have been returned unsatisfied in part or in whole, upon the petition ■of the person obtaining such judgment or decree, or his representatives, the supreme court may sequestrate the stock, property, things in action ■and effects of such corporation, and may appoint a receiver of the ■same.”
By the laws of 1852, c. 71, and of 1860, c. 403, [corresponding nearly to the present statute, Code Civ. Pro. § 1788] receivers appointed under the foregoing provision were, declared “to have and possess all the rights, power and authority, and be subject to the'same obligations and duties ” as provided by 2 R. 8. 469, etc., respecting receivers appointed in case of voluntary dissolution. - Same statute Throop’s Gode, Appendix B.; also 3 R. S. [7th ed.] 2399. For explanation of the history of these statutes see Note on Receivers in 19 All. N. C. 359.
Among the powers thus conferred is the power to settle any controversy arising between receivers and an alleged debtor or creditor of the corporation, by a reference. The statute is as follows:
“ Such receivers shall have the same power to settle any controversy that shall arise between them and any debtors or creditors of such corporation by a reference as is given by law to trustees of "insolvent debtors; and the same proceedings for that purpose shall be had, and with the like effect; and application for the appointment of referees may be made to any officer authorized to appoint such referees on the application of trustees of insolvent debtors, who shall proceed therein in the same manner, and the referees shall proceed in like-manner, and file their report with the like effect in all respects.” 2 R. S. 470, § 73 ; same statute 3 Id. [6th ed.] 756; 3 Id. [7th ed.] 2400.
This power to agree in a reference is thus defined by the statute as-to insolvent debtors.
“ § 19. If any controversy shall arise between the trustees and any other person, in the settlement of any demands against such debtor, or of debts due to his estate, the same may be referred to one or more indifferent persons, who may be agreed upon by the trustees and the party with whom such controversy shall exist, by a writing to that effect, signed by them.
“ § 20. If such referee or referees be not selected by agreement, then the trustees or the other party to the controversy may serve a notice of their intention to apply to the officer who appointed said trustee, or to any judge of the supreme court at chambers, residing in the same district with the trustees, for the appointment of one or more-referees, specifying the time and place .when such application will be made,' which notice shall be served at least ten days before the time-so therein specified.
“ § 21. On the day so specified, upon due proof of the service of such notice, the officer before whom the application is made shall proceed to select one or more referees, the same in all respects as they are now selected, according to the rules and practice of the supreme court.
“ § 22. When any witness to such controversy shall reside out of the county where the said trustees resided at the time of their appointment, the referee or referees appointed to hear said controversy shall have power to issue a commission or commissions in like manner as justices of the peace are now authorized to issue the same, and the testimony so taken shall be returned to the said referee or referees in the same manner and be read before them on a hearing in like manner as testimony taken on commission before justices of the peace.
Demurrer to reply.
Jose A. Del Valle brought this action against Jose F. Navarro and James Clyne alleging that the parties had entered into an agreement reciting that the Commercial Warehouse Company had been adjudged a bankrupt and a composition proposed at the rate of 50 per cent, and that the plaintiff, the party of the first part in the agreement, a creditor, was willing to accept the terms, but desirous of getting cash, and the parties of the second part were willing- ■ to purchase the notes which were to be given plaintiff under the composition, and agreeing on such a purchase at a discount of five per cent, per annum. The complaint further alleged that plaintiff accepted the composition and the Commercial Warehouse Company paid the part of the composition stipulated to be in cash, and delivered to plaintiff its notes or certificates contemplated by agreement, and that the-defendants had knowledge of these facts; that defendants refused to take the notes, although they were duly tendered and the amount to be paid demanded, that plaintiff thereupon gave defendants notice that the notes or certificates would be-sold at auction and the defendants held liable for any deficiency ; that they were so sold, expenses being specified, and plaintiff demanded judgment for the deficiency.
“ § 23. The officer before whom they shall be selected, shall certify such selection in writing. Such certificate, or the written agreement of the parties, shall be filed by the trustees in the office of a clerk of the supreme court, when the trustees were appointed under the first article-of this title; and in the said office, or in that of the clerk of the court of common pleas of the county, when the trustees were appointed under any other article of this title; and a rule shall thereupon be entered by such clerk in vacation or in term, appointing the persons so selected to determine the controversy.
“§ 24. Such referees shall have the same powers, and be subject, to the like duties and obligations, and shall receive the -same compensation, as referees appointed by the supreme court, in personal actions pending therein.
“ § 25. The report of the referees shall be filed in the same office-where the rule for their appointment was entered, and shall be conclusive on the rights of the parties, if not set aside by the court.”
2 R. S. 39-51, §§ 19-25, as amended in §§ 19-22, by L. 1862, c. 373.
The amended answer denied the tender and demand,, and also put in issue the allegation of sale, expenses and damages.
As a separate defense the defendants alleged that up to-' the time of the contract and of the performance of the -composition of the Commercial Warehouse Company, plaintiff represented to defendants, and to that company, that he was a creditor of the company to the amount alleged, and that relying on these representations defendants made the contract, and the company paid the cash part of -the composition; but that on the contrary plaintiff had previous to the contract ceased to be a creditor, was entitled to nothing from the company and the agreement was void by reason of the false representations, and the certificates . were void for want of consideration, and that until recently the defendants were ignorant of the falsity; that the defendants were respectively vice president and secretary of the company, and the company was until subsequently to the payment ignorant of the facts, and further alleged that plaintiff had been enabled to deceive the defendants and the -company by reason of the fact that he had been a creditor by agreement in the nature of suretyship, on which there was at one time due to plaintiff the sum represented, but by reason of collections from third persons plaintiff had been paid in full and the company discharged, which fact plaintiff •concealed.
As a third and separate defense allegations relative to the transactions in question were made, and damages sustained by the company by plaintiff’s course were claimed to be an offset.
As a further answer the foregoing allegations were re-alleged as a counterclaim. The answer demanded judgment, that the agreement might be given up by the plaintiff and decreed void and fraudulently obtained, and that the ■complaint be dismissed with costs.
The amended reply of the plaintiff denied that he had •ceased tc be a creditor, that the agreement was void, that he made any false representations, that by reason of collections he had received payment, that he had concealed or falsely represented as alleged, and alleged that he was such creditor and had never been paid. Further replying he traversed the allegations in which the answer set forth the transaction between the parties.
The reply then continued as follows, this being the portion of the pleading drawn in question by the demurrer and passed upon by the decision :
“ And plaintiff further replying to said amended answer alleges that in the year 1875, in an action in the supreme-court of the state of New York, wherein James D. Fowler and George M. Fowler were plaintiffs and the said Commer- - cial Warehouse Company was defendant, an action to dissolve-the defendant as a corporation, a receiver was appointed of the property of said company who filed an inventory of the-effects of said company.
“ That pending said action and while said receiver held the assets of said company, some of the creditors, in the year 1878, filed a petition in bankruptcy against the said Commercial Warehouse Company, in the said district court of the United States for the Southern District of New York, which finally terminated in a composition with its creditors,, out of which composition the notes or certificates set forth in the complaint herein were issued as therein stated.
“ That the receiver in said action was removed in 1884, and James Clyne, one of the defendants herein, was appointed receiver of said defendant in said action in the place ánd stead of said first mentioned receiver; and upon being pressed by this plaintiff for his said claim, he, the said Clyne,. as such receiver, disputed and rejected plaintiff’s said claim, whereupon pursuant to the statute in such case made and provided, the plaintiff’s claim was referred to Hon. Hamilton Cole of this city, as referee, to hear and determine the validity thereof.
“ That upon the consent of the plaintiff in said action, the consent of the said receiver, of the defendant, the Commercial Warehouse Company, the attorney-gen eral of the State of New York and of this plaintiff, an order was entered in this court in said action referring the plaintiff’s claim as aforesaid.
“ That the matters set up in the eighth and ninth paragraphs of the defendants’ amended answer herein were litigated upon said reference.
“ That such proceedings were had upon said reference, upon which the Commercial Warehouse Company appeared and took part as well as the said receiver, that upon December 31,1885, said referee made his report, wherein he found there was due from the said Commercial Warehouse Company to this plaintiff, the sum of $87,341.85, for which he was ■entitled to judgment.
“ That said report was duly filed in the office of the clerk of the City and County of New York, and is in full force, never having been vacated or set aside.
“ That by reason of the foregoing matters the said Commercial Warehouse Company is stopped from litigating the questions set up in the eight and ninth paragraphs of the amended answer of the defendants herein.
“ The plaintiff denies that the Commercial Warehouse ■Company has sustained any damages by reason of any m'atters set up in the amended answer herein. On the contrary the plaintiff has received property to the amount of $33,203.99 ■on the sale of land in Cuba, under the proceedings to foreclose the mortgage against his mother, hereinbefore mentioned, and which amount was allowed by the said referee, Hamilton Cole, upon said reference, and the balance $87,341.85 reported still due to the plaintiff.
“ And thé plaintiff re-alleges all the allegations herein-before made as a further reply to the counterclaim set up in the said ninth paragraph of said amended answer.”
The defendants demurred to so much of the reply of the plaintiff as contained an avoidance of the defense or counterclaim set up in the answer.
Davies Cole & Rappallo, attorneys for defendants.
Gilbert & Hulse, attorneys for plaintiff.

Opinion:
Ingraham, J.
The answer in this action alleges that the agreement sued on was obtained by the false and fraudulent representations that the Commercial Warehouse Company was indebted to the plaintiff, and asks as affirmative relief that the agreement be decreed void and can-celled, and to this a reply was necessary.
Under section 514 of the Code such reply may contain a denial of each material allegation of the answer, and also new matter not inconsistent with the complaint constituting a defense to the counterclaim, and by section 517 of the Code the reply could contain two or more distinct avoidances to the same counterclaim.
As an avoidance the reply alleges an adjudication in a proceeding, in which the Commercial Warehouse Company was a party, that the company was indebted to the plaintiff on the demand in settlement of which'the certificates which the defendants agreed to buy were issued, and if this is true and the adjudication was binding upon the company, it would be a complete avoidance of the counterclaim, unless the defendant could prove that subsequent to such adjudication" the claim was in some way satisfied or discharged; for it would establish that the representations made by the plaintiff that he was a creditor were true, and would in any action brought by the plaintiff upon such certificates against the company, be a bar to a defense that the company was not indebted to the plaintiff at the time of such adjudication.
Under the express provisions of section 514 of the Code, before referred to, the plaintiff could deny the allegation constituting the counterclaim, and also set up the new matter constituting the avoidance.
The plaintiff, therefore, by pleading the avoidance, did not.admit the allegations constituting the counterclaim.
The question presented, therefore, is whether the adjudication set up in the reply is binding upon the corporation.-
The appointment of a receiver of the corporation or of its property does not dissolve the corporation; it can still be sued, and a judgment obtained against it, is binding upon, it. Its property has been sequestered by the appointment, of the receiver,-but the corporation still retains its identity.
The receiver may not be bound by any such judgment against the corporation subsequent to his appointment, but that fact- would not prevent the corporation from joining in the litigation affecting its indebtedness, and being bound by an adjudication in such litigation.
The statute provides how the receiver shall distribute the property which comes into his hands as such receiver, and has provided a means of determining the validity.of the claims against the corporation which would be entitled to share in the distribution of the property in his hands as receiver. That provision is that on the consent of the parties, a referee can be appointed, and the statute then provides that the report of the referee shall be filed in the clerk's office where the rule for the appointment was entered, and shall be conclusive on the rights of the parties if not set aside by the court.
There is no express provision allowing the corporation to be made a party to the proceeding, but it is apparent that it has an interest in the result of the distribution. If the claim against .the receiver was allowed it took away so much of the assets in the hands of the receiver which belonged to the corporation or stockholders after the payment of its debts, and if the corporation applied to be made a party to that proceeding before the referee appointed under the statute and the parties consented, there is no reason why such an application should not be granted, and having been made a party to the proceeding it would as one of the parties be concluded by the report of the referee.
In this case the allegation of the reply is that the order of reference was entered on the consent of the corporation and the receiver and the plaintiff, and on the proceedings before the referee, the corporation appeared and took part. This would, I think, make the corporation a party to the proceeding, and under the provisions of the statute would make the report of the referee conclusive as to the right of the corporation as well as the right of the plaintiff and the receiver.
I think, therefore, that the report of the referee that there was due from the corporation to the plaintiff the sum of $87,341.55, was an adjudication binding upon the corporation and the receiver, that that amount was due the plaintiff. The fact that the company did not immediately move to set aside the report of the referee is no reason for not holding it a binding adjudication as long as it stands. There is no relation of principal and surety between any of the parties to the proceeding. The defendants agreed! to buy from the plaintiff obligations of the corporation off which the defendants were officers, and as between the parties, there is no possible objection to such a transaction, and it is a novel proposition that on its appearing that the defendants had made a bad bargain they are to be relieved' because they are the trustees of the corporation whose obligations they agreed to buy.
The objection that irrelevant matter has been inserted in the reply, or that the reply is not sufficiently definite or certain, cannot be taken by demurrer. In such case the proper remedy is by motion.
I think the demurrer should be overruled and judgment ordered for plaintiff on the demurrer with costs, with leave to defendant to withdraw the demurrer within twenty days on payment of costs.
Ordered accordingly.