Case Name: Marietta Ludington, Plaintiff, v. Daniel G. Thompson, as Receiver of Augustus Baus & Co., a Dissolved Corporation, Defendant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1896-04
Citations: 4 A.D. 117
Docket Number: 
Parties: Marietta Ludington, Plaintiff, v. Daniel G. Thompson, as Receiver of Augustus Baus & Co., a Dissolved Corporation, Defendant.
Judges: 
Reporter: Appellate Division Reports
Volume: 4
Pages: 117–123

Head Matter:
Marietta Ludington, Plaintiff, v. Daniel G. Thompson, as Receiver of Augustus Baus & Co., a Dissolved Corporation, Defendant.
Receiver — a loan to a receiver whose appointment was void is not enforcible — the secretary of a mporation may, after a receiver is appointed, waive notice of protest—the Statute of Limitations is suspended after possession is taken by the court.
In an action brought to recover upon certain promissory notes, either made or indorsed by a corporation known as Augustus Baus & Co., and an amount loaned to the receiver of such corporation, it appeared that the notes matured in September, November and December, 1887, and in January and March, 1888, and that iii October, 1887, Gustavus Baylies, Jr., the secretary of the • corporation, was appointed receiver thereof, and acted as such until February, 1888, and while acting as receiver he, in writing, waived protest of the notes. In November, 1887, the plaintiff loaned to the receiver §1,500, and took therefor his certificate as receiver, which recited that it was issued under an order of the Supreme Court authorizing its issue, entered October 21, 1888.
In February, 1888, the order appointing Baylies receiver, and all subsequent proceedings, were declared void, and in the same month the corporation was dissolved and the defendant was appointed receiver, with whom, in September, 1888, the plaintiff filed a claim for the amount of the notes and for the amount of the loan. In January, 1891, Baylies accounted as receiver, and a large amount was found due from him to the corporation. In 1891, the present defendant, as receiver, made a dividend, and at the same time disallowed plaintiff’s claim, to enforce which the present action was brought in May, 1895, by permission of the court.
Held, that the plaintiff could not recover the §1,500 loaned to Baylies, who was only a temporary custodian, the order appointing him receiver having been declared null and void, especially as there was no proof made upon the trial that Baylies had been authorized to borrow money or issue certificates;
That as the corporation had not been dissolved, Baylies, as its secretary, had power to waive notice of protest of the notes;
That the Statute of Limitations was not a defense to the notes, as where the property of a debtor is taken possession of by the court to be administered for the benefit of all creditors the statute does not run against any debts not barred at the time possession of the property is taken by the court.
Motion by the defendant, Daniel G. Thompson, as receiver, etc., for a new trial upon a case containing exceptions, ordered to be heard at the Appellate Division of the Supreme Court in the first instance, upon the verdict of a jury rendered after a trial at a Trial Term of the Supreme Court on the 6th day of February, 1896.
The action was brought upon eight promissory notes, some of which were made by the corporation of which the defendant is the receiver,-and others were made by third parties and indorsed by the corporation, and for money loaned and advanced to the receiver by plaintiff. The notes matured during the months of September, November and December, 1887, and January and March, 1888, and the money was loaned and advanced in November, 1887.
The corporation was engaged in the business of the manufacturé of pianos. October 12, 1887, the corporationn being insolvent^ proceedings for a voluntary dissolution were- commenced, and Gustavus Baylies, Jr., who then was, and always has been, the secretary of the corporation, was appointed receiver thereof by the Supreme Court'. He gave security, qualified, and on the same day took possession of the property of the corporation of value of upwards, of $100,000,' and continued to act as such receiver until February, 1888. While he was acting as such receiver, and before all the notes' had matured, he made and delivered to the plaintiff, who was the holder of all the notes, a writing, signed by him as secretary of the corporation, and also as receiver thereof, wherein he waived protest of the notes, and consented that the holder of them might receive part payment of the same, and.might extend the time for the payment of the balance without affecting the legal-liability of the corporation as indorser upon the notes. Some of the notes were duly protested. They were all made or indorsed by the corporation.
While Baylies was acting as receiver of the corporation, and November 11, 1887, the plaintiff loaned and advanced to him $1,500 and took .his certificates as receiver therefor, which provided for the payment of the money on- or before the first Monday of April, 1888, and recited that they were issued under an order of the Supreme Court entered October 21, 1888, authorizing the issue of the' certificates for amounts aggregating not to exceed $25,000 for’ the purposes specified in the order, and declared that the amounts of such certificates were debts of the ■ receiver, incurred for the benefit and protection of the property-of the corporation in the. hands of the receiver, and were a lien and charge upon the property prior to all other liens and charges. The order under which the certificates were said to have been issued was not put- in evidence, and the certificates were offered and received merely as. evidence of tlie receipt of the money by the receiver from the plaintiff.
In February, 1888, the court made an order annulling and setting aside the order of October 12, 1887, appointing Baylies receiver, on the ground that the petition upon which it was made was insufficient, and declaring the order to have been null and void, and quashing the petition and all subsequent proceedings thereon as null and void; and thereafter, and January 23, 1891, the court, upon an. accounting by Baylies as such receiver, ordered judgment against, him for $194,414.39.
February 29, 1888, this defendant was appointed receiver of the corporation which, was dissolved, and he has qualified and ever since-has been, acting as such receiver. September 10,1888, plaintiff filed, with this defendant receiver a claim for the amount of the notes,, and the money loaned and advanced to Baylies as receiver. In 1891 the defendant receiver, by order of the court, declared and distributed a dividend of twenty per cent to and among the creditors of the corporation, and, in his petition for 'such order, the receiver disallowed plaintiff’s claim, and refused to pay the plaintiff anything thereon. The plaintiff did not learn of the disallowance of his claim by the receiver until some time after the dividend of twenty per cent had been paid, but within two years thereafter.
May 25, 1895, the court, by order, allowed the plaintiff to bring: this action against the receiver, and the action was actually commenced June 5, 1895. The defendant, among other things, denied protest and waiver of protest of the notes and alleged payment of the claim, and set up the Statute of Limitations.
There was, on the trial, a conflict of evidence as to the payments alleged to have been made on account of the claim, and the jury were instructed to find the amount remaining unpaid, and to render a verdict therefor in favor of plaintiff, and accordingly rendered a. verdict for $7,516.21.
Lyman W. Redington, for the plaintiff.
George Putnam Smith, for the defendant.

Opinion:
Williams, J.:
We do not see how there could be any recovery upon the evidence given on the trial for the $1,500 loaned and advanced by the plain- 4iff to Baylies, who was acting as receiver. The order appointing him receiver was null and void,- and had been so declared by the •court. He was not, therefore, a lawful receiver when the loan and advance was made. He was simply a temporary custodian .appointed without authority of law; lie had no authority to bind the estate in .any way by the borrowing of money or the issue of certificates.. Moreover, it was not proven at the trial that there was any order of '.the, court authorizing or directing the borrowing of money or the .issue of certificates therefor. "Upon this state of facts the defendant: could hot be held liable for the $1,500 sought to be recovered as for money loaned and .advanced.
The notes were concedédly made or indorsed by the corporation before its dissolution. Some-of the indorsed notes were duly protested, and, as- to the others, there was a waiver signed by Baylies:, •both as secretary of the corporation and as its receiver. While he had no authority to bind 'the corporation as receiver, yet the corporation had not been dissolved. Baylies was its secretary, and we think he-had power and authority to make the waiver, and that such waiver was sufficient to bind the corporation and charge it as indorser upon the notes, and that no protest of the notes thereafter maturing was-necessary. The wai-ver was not a release or abandonment .of a substantial right or interest of the company. It was the waiver of a technical right, which was practically formal, and "really saved the company the small amount of protest fees ; and, further, when the waiver was made, the company being.in the hands of a receiver, it was well known that the notes were not going to be paid, and, therefore, the notice of protest would be of no valúe in view -of the situation.
The only -defense to these notes, if any, is the' Statute of Limitations. This action was not commenced until more than six years had elapsed after the maturity -of the notes, and it is, therefore, insisted, in behalf of the defendant, that the Statute of Limitations is a complete defense to the action so far as the notes are concerned. The present receiver was appointed February 29-, 1888, -and we assume that the corporation was dissolved at the same time. Some of the notes had then matured, some had not. The Statute of Limitations had then been running but a few months at most as "to any of the notes.. As to some of them it had not commenced to run at all. There has never been any injunction issued by the court restraining the commencement of. an action against the corporation or its receiver to recover any debts owing by the corporation. No action could have been brought against the corporation itself after its dissolution. An action could at any time have been commenced against the receiver, as plaintiff has finally done now. It would have been necessary, however, to obtain leave of the'court to bring an action against the receiver, as plaintiff did before eommencing this action.
It is said, however, in behalf of the plaintiff that upon the dissolution of the corporation, and the appointment of a receiver, the Statute of Limitations ceased to run upon these notes until the rejection of the plaintiff's claim thereon, presented to the receiver and the refusal by him to allow the same or to pay a dividend to plaintiff, which was certainly as late as 1891, and within six years prior to the commencement of the action. This contention is based upon the claim that the receiver was a trustee for the benefit of the creditors of the estate and that the Statute of Limitations did not run in his favor against the creditors, his cestui que trusts, until the-rejection of and the refusal to pay these claims. In Kirkpatrick v. McElroy (41 N. J. Eq. 555) it is said by Depüe, J.: " As á general rule the mere appointment of a receiver to take charge of property in dispute will not suspend the operation of the Statute (of Limitations) nor will it interrupt the possession of a stranger so as to prevent the statute conferring title on him or suspend the running of the statute against a stranger. But where the receiver is appointed to take charge of an estate for the purpose of administering it, as for instance the settlement of the affairs of a partnership and the payment of firm debts, the suit being substantially for the benefit of all the creditors, in analogy with an ordinary creditor's bill, the appointment of a receiver with such powers will suspend the running,of the statute, and the lapse of time before proceeding against the receiver in the court by which he was appointed will be regarded only on the question whether the creditor has been guilty of laches in delaying the prosecution of his demand."
In Von Sachs v. Kretz et al. (72 N. Y. 548, 556), Andrews, J., said: "The assignee of a bankrupt stands in a position of trustee for his creditors, and the Statute (of Limitations) did not run against their claims against the estate of the bankrupt not barred at the time of the adjudication." (Citing Parker v. Sanborn, 7 Gray, 191; Ex parte Ross, 2 Glyn & Jameson, 330; Minot v. Thacher, 7 Metc. 348.)
In Parker v. Sanborn (supra) (a Massachusetts case) Metcalf, J., said : " After the property of an insolvent debtor has been assigned under the insolvent laws and thus sequestered and placed in the custody of the law in trust for his creditors, the Statute of Limitations does not run against their claims upon his estate in the hands of his assignee. ^ The assignee in bringing a suit upon a demand which was due to the insolvent before the- commencement of proceedings in insolvency, represents the-estate, and in such suit all claims of the defendant may be set off which existed at the time of the first publication" of notice. A claim against the estate of the debtor in the hands of his assignee stands upon a different ground, in • this respect, from the right of action against the debtor personally. That right is not taken away or suspended by the proceedings in insolvency and is, therefore, barred by the lapse of the usual period of limitation."
In Minot v. Thacher (supra) (also a Massachusetts case) Dewey, J.j said: " By force and effect of the appointment of a messenger (in. proceedings in insol vency) and the publication thereof conformably to-the statute, the property of the insolvent is sequestered for the benefit of all the then-existing creditors. After such publication a suit by a creditor would be of no avail, as the property is all transferred to an assignee, and the body of the debtor is to be discharged from' arrest o-mexecution1: The;debts'rpr.esented for. allowance against-the insolvent' are to be considered, with reference to their validity at the ".date of the-publication by the messenger. If. they are found to be barred by the Statute of Limitations at that period, it would of course be competent for the assignee to object to their allowance."
In Ex parte Ross (supra) the vice-chancellor said that " After a commission" (in bankruptcy) issued, the Statute of Limitations did not run against a creditor; that the commission was a trust for the benefit of all the creditors, and it was a known principle that the statute did not run against a trust," and on appeal the chancellor asserted the same doctrine."
These cases appear to lay down the rule that where, by any form, of proceedings, the property of a debtor is taken possession of by the court, to be administered for the benefit of all his creditors, and to be distributed among them in payment for their debts, the statute does not run against any debts which were not barred by the statute at the time possession of the property was taken by the court, and this rule would seem to be applicable to the appointment of the receiver in this case. The receiver here was appointed in proceedings for the dissolution of the corporation. He took possession of all the property and held it in trust, to be distributed among all the creditors existing at the time of the appointment of the receiver, and the true rule is under such circumstances that the running of the statute is suspended from the time of the appointment of the receiver.
Our conclusion is that the Statute of Limitations does not constitute a defense to the plaintiff's right of action upon the notes. The plaintiff was, therefore, entitled to recover upon the notes, but was not- entitled to recover for the $1,500 loaned and advanced to Baylies while he was acting as receiver of the corporation.
It was erroneous to permit the jury to render a verdict for the amount of money loaned and advanced, and such verdict shduld be set aside and á new trial ordered,'with costs to abide event, unless the plaintiff stipulates that the verdict be reduced so as to cover the amount due upon the notes alone.
The plaintiff should have an opportunity, if he desires, to retry Ms case and to give further proof than he gave upon this trial with reference to his right to recover the moneys loaned and advanced.
Van Brítnt, P. <L, Barrett, Rumsey and Patterson, JJ., concurred.
Verdict set aside and new trial ordered, with costs to abide-event, unless plaintiff stipulates as directed in opinion.