Case Name: The People of the State of New York, Plaintiff, v. The Federal Bank of New York, Defendant; In the Matter of the Claim of The Selma National Bank, Appellant; Leo Schlesinger, as Receiver of the Federal Bank of New York, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1907-12-13
Citations: 122 A.D. 810
Docket Number: 
Parties: The People of the State of New York, Plaintiff, v. The Federal Bank of New York, Defendant. In the Matter of the Claim of The Selma National Bank, Appellant; Leo Schlesinger, as Receiver of the Federal Bank of New York, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 122
Pages: 810–817

Head Matter:
The People of the State of New York, Plaintiff, v. The Federal Bank of New York, Defendant. In the Matter of the Claim of The Selma National Bank, Appellant; Leo Schlesinger, as Receiver of the Federal Bank of New York, Respondent.
First Department,
December 13, 1907.
Corporation — claim against insolvent bank — liability of insolvent not diminished by liability of third party — reference of claim — right to review — practice — exceptions to referee’s report.
A claim of a bank against an insolvent .bank in which it had deposited moneys is not diminished because the depositing bank took the note of its. president, who made the unauthorized deposit, under an agreement that he -was to be liable thereon only to the amount of loss caused by the insolvency of the bank of- deposit. This, because the liability of the' depositing bank was direct and primary and unaffected by the fact that the depositor had held its president liable for any loss caused by his unauthorized acts.
When a creditor of an insolvent bank, whose claim has been referred pursuant to section 5 of chapter 60 of the Laws of 1902, has had no notice of the referee’s • decision' or opportunity to review the same prior to an application by the receiver to have his accounts, including the claim referred, confirmed by the court, it is the duty of the receiver to bring the claim to the attention of the court.so that a final order of distribution be not made until the validity of the claim is fully determined; and when the tilaimant has had no opportunity to review the referee’s decision prior to the confirmation of the receiver’s accounts, tie is not concluded by an order for the distribution of funds in the receiver’s hands.
Under chapter 60 .of the Laws of 1902 the_determination, of a referee as to the validity of a claim is not final" and the right to review such determination stall exists-. The claimant may file and serve exceptions to the referee’s report pursuant to the 30th General Rule of Practice and bring the same to a hearing before the Special Term.
Appeal by the claimant, The Selma National Bank, from an order of the Supreme Court, made at the New York Special Term, and entered in the office of the clerk -of the county of New York on the loth day of April, 1907, overruling the appellant’s exceptions to the determination by a referee of certain disputed claims and denying-its motion to set aside the report of the said referee.
Francis G. Caffey, for the appellant.
George W. Glaze, for the respondent.

Opinion:
Laughlin, J.:
This action was brought by the Attorney-General for the dissolution of the charter of the Federal Bank of ¡New York, a domestic banking corporation. Pending the action, the respondent, Leo Schlesinger, was appointed temporary receiver, and by the judgment of dissolution he was made permanent receiver in December, 1904. Pursuant to the receiver's notice, duly given, for the presentation of claims, the appellant duly filed with him on the 2d day of May, 1905, proof of claim for a balance of money on deposit on April 14,1904, the date upon which the Federal Bank suspended payment, of $7,271.14, and by an indorsement thereon receipted for a dividend of twenty per cent, paid by the temporary receiver, making the balance claimed $5,816.92. The receiver disputed the claim and on the 14th' day of. September, 1905, procured the appointment of a referee pursuant to the provisions of section 5 of chapter 60 of the Laws of 1902, to hear and determine this and other disputed claims. Upon the hearing before the referee the claim was proved as filed, but the Attorney-General and the receiver contended that it should be reduced by the sum of $3,000 on account of the fact that the Selma ¡National Bank had taken and held a note given by one John Carra way, president of that bank, to cover the loss which it was estimated, in a settlement between the Selma ¡National Bank and its president, would be sustained on account of its money having been deposited by him with, out authority in the Federal Bank, it having been expected at the time of such settlement that the Selma Bank would receive on account of its claim against the receiver about sixty per cent thereof. This contention was successful before the referee, who decided that, on account of receiving the note of its president for this anticipated loss, the claim of the Selma ¡National Bank against the receiver should be reduced by $3,000, and that it had, therefore received on the twenty per cent dividend on the entire claim $600 . more than twenty per cent of its claim as thus reduced, and he accordingly decided that it should refund to the receiver the $600 or that the same should be credited upon subsequent dividends. The learned referee, in an exhaustive opinion, carefully reviews the authorities upon tlie question as. to the effect of the payment by one party of another party's indebtedness; -but we' are of opinion that that question is, not presented by. the facts, with respect to this claim. The president of the claimant did not pay or intend to pay any part of - the indebtedness of the Federal Bank to his bank. There is no question but that the Federal Bank received the money belonging to the Selma National Bank, and gave it credit therefor. It understood that the deposit was made by tlie Sólma National Bank, and the money deposited came directly from the funds of tlie latter. The liability of the Federal Bank, therefore, to the Selma National Bank was primary and direct. It did hot concern and does not concern the Federal Bank, which thus received the funds of the Selma National Bank, that the latter had' a claim on account of this' transaction against its' president for making the deposit, without authority. The Selma National Bank called its president to account, and in the adjustment of his liability to it for his negligent or unauthorized acts it was anticipated that it would sustain a total loss of about forty per cent of this deposit, making' approximately $3,000, and this amount was included in the note given by Oarraway to his bank in settlement of its claim against, him. The note, however, has not been paid. It appears by the evidence that it was expressly understood when it was given that lie was not to become liable thereon' in excess of the loss actually sustained by the Selma .National Bank on its claim against the Federal Bank. If the note had been paid and the' assets of the Federal Bank were sufficient to pay more than sixty per cent, of the claim of. the Selma National Bank,, that would not relieve- the Federal Bank from its liability for the forty per cent balance, and the only question that could! arise would be as to whether the claim could be enforced by the Selma National Bank as trustee for. Carraway, or .whether Oarraway himself would .be deemed subrogated to the claim to that extent and be obliged to prosecute it in lxis own name; but that question does not arise upon this record, for the undisputed evidence shows that, it-would be the duty of tlie claimant. to apply any-amount it receives upon its claim against the receiver of the Federal'Bank in excess of sixty per cent in reduction .of Carraway's note.; Payment in the circumstances to the Selma National Banjz will release the liability .of the receiver from any claim by Carraway; and in view of the fact that Carraway has made no claim against the Federal Bank, it is difficult to understand •any theory upon which the receiver of the Federal Bank is concerned with the claim of the Selma National Bank against its president upon a secondary liability for this claim.
The learned counsel for the respondent further contends that the appellant is concluded by an order for distribution of the funds on hand by the receiver, made upon an accounting by the receiver pursuant to the provisions of sections 6 and 8 of chapter 60 of the Laws of 1902. The determination of the referee was filed on the 31st day of Jnly, 1906, and a copy thereof served upon the attorney for the appellant on the 10th day of- October, 1906, prior to which time he had no notice of the determination. It appears by affidavit of the attorney for the respondent that on the 18tli day of June, 1901, an order was made by the Supreme Court requiring the receiver to file an account of his proceedings; that pursuant thereto he tiled an account on the 6th day of August, 1906, in which he set forth, among other things, the claim of the appellant, and that it had. been disputed by.him and referred to the referee, and.the determination of the referee thereon; that within ten days thereafter notice was given to the appellant by mail of the tiling of said account and of the service thereof upon the Attorney-General and that the same would be presented to the court " for passage and settlement, and for instructions relative to the disposition of the balance in the hands of the receiver " on the 6th day of September, 1906; that on the return of that motion the appellant failed to appear and thereafter an order was made and entered on the 26th day of November, 1906, " passing, settling, ratifying and confirming said accounts in all respects as filed, including the action had with respect to the Selma National Bank." That order has not been vacated nor has any appeal been taken therefrom. This is the order which it is claimed is binding upon the appellant and concludes it from reviewing the determination of the referee. It appears by affidavit of the attorney for the appellant that he appeared for the appellant generally in this proceeding on the 1st day of September, 1905, and served a notice of appearance on the attorneys for the receiver and on the Attorney-General, and demanded that a copy of all papers and a notice of all .proceedings be served upon him, but that he received no notice of the order requiring the receiver to account, or of the filing of the receiver's account, or of an application for the allowance thereof; .and had no knowledge thereof until the l'3th day of December, 1906, when the affidavit of the attorney for the respondent, setting forth those facts, was submitted to the court on the hearing on appellant's exceptions to the referee's determination of the disputed claim. ¡Neither the proceedings on the accounting nor the order of the court therein, nor the notices of appearance are in the record. The respondent contends that the appearance was not an appearance in the action, which was brought for the dissolution of the corporation, and that it did not make' the appellant a party thereto, but that it was merely an appearance in the proceeding with respect to the disputed claim. The theory of the learned counsel for the respondent is that the proceedings with respect to the receiver's accounting were, in the action and that upon the accounting the' appearance for the appellant was properly ignored and notice was only required to be given in accordance with section 8 of said chapter 60 of the Laws of 1902, which provides for giving notice by mail to creditors. Section 6 of said act provides for a final' accounting by a receiver upon his own motion or upon order of the court on application of the Attorney-General or of a creditor or interested party. The accounting having been made pursuant to an order of the court, it may be assumed, although it does not definitely appear, that it was not a voluntary accounting; and yet, since the statute authorizes the court to require the receiver to file , an intermediate account, it does not clearly appear that it was an order for a final accounting. Section 8 of the act requires the receiver, among other things, to file his account and to serve a duplicate thereof upon the Attorney-General, who is authorized to serve objections thereto and requires the receiver to mail to each creditor, within-ten days after filing the account, notice of the time and place of presentation of the accojmt to the court. The section further provides that unless objections are made to the items of the account by a creditor or on behalf of the Attorney-General, no referee shall be appointed to pas's thereon, but the same- shall be examined and settled by the court, and that in case objection is. made a referee may be appointed " to take the testimony and report the same to the court." At the time the order for the. accounting was made, the reference of the appellant's claim was pending, but before the account was filed the determination of the referee had been filed. The appellant, however, had no opportunity to review the determination of the referee as its attorney had no notice of the determination of the referee until after the application from the appeal of the receiver's accounts had been made, or of the filing of the receiver's account until after the order approving the same was made. The order of reference on the' claim of. the appellant, which was disputed by the receiver, was made pursuant tó the provisions of section 5 of said act, which made it the duty of the receiver to apply to the .court upon notice to parties whose claims he rejected " for the appointment of a referee to hear and determine as to the allowance thereof." If it were intended by the Legislature that the court, on a proceeding for an accounting by the receiver, should review the determination of a referee with respect to a disputed claim, or pass upon claims disputed by the receiver and pending undetermined before a referee, or in other words that all references should be superseded by. the accounting proceedings, then it is clear that the notice of appearance by the appellant required that notice of the application for the approval of the accounts of the receiver be given to its attorney, which was not done. If the order for the accounting did not supersede all references óf disputed claims and the court, on the accounting, could not review these determinations of the referee, then the order of the court approving the accounts of the receiver should not conclude the appellant. The receiver and his attorneys knew that the appellant was asserting the claim before the referee, that it had not been given notice of his determination and had not been afforded an opportunity to review such determination. It was the duty of the receiver and of his attorneys in the circumstances, to bring the matter to the attention of the court to the end that a final order of distribution should not be made until the validity of the claim of the appellant was finally decided. It does not clearly appear that the order made was a- final order of distribution, nor does it appear that distribution has been made théreunder. It does not appear that any order has beep entered confirming the determination of the referee, or that any judgment has been . entered thereon. The appellant followed the practice prescribed by rule 30 of the General Bules of Practice and tiled and served exceptions to the report of the refereé within eight days after service of notice of filing the same, and thereafter duly brought his exceptions, to a hearing at Special Term and has taken an appeal from the order overruling the same. The receiver does not object to the hearing of the merits on the appeal from the order overruling the exceptions upon"the theory that no appeal lies from this order and that appellant's remedy is to appeal from an order confirming the report of the referee, or from a judgment to be entered upon the determination of the referee; .As already observed, it does- not appear • that any such order or judgment lias beqn entered or that the receiver contemplates entering the same. • The objections are that, the determination of the ref-' eree is final and also that the appellant is' concluded' by the order approving the accounts of the-receiver. If the Legislature intended that the determination of the referee should be final with respect to all rejected claims, that would be such.a hew and unusual departure that we would expect to find hi the act language clearly expressing such intent. W e find nothing in the statute to indicate that the Legislature intended to deprive claimants of- the right to have the rejection of their clainSs by the referee reviewed by tlie court, or of the receiver to have claims allowed over his objection-reviewed by the court. We are, therefore,' of the .opinion that the right to review the determination of the referee by either party continued as before, the act of 1902 and that the practice followed by tlié appellant in filing and serving exceptions to the report of the referee and bringing the same to a hearing at the • Special Term .was proper and in' accordance with the decision of this court in People v. American Loan & Trust Co. (87 App. Div. 139; mod., 177 N. Y. 231 ; Id. 469), which upon that point I do not understand to have been affected by the reversal in .the Court' of Appeals. This court has held that such a determination of a referee under the act of 1902 is final and conclusive unless set aside' by the court. (Matter of Eustace v. N. Y. Building-Loan Co., 98 App. Div. 97. See, also, Austin v. Rawdon, 42 N. Y. 155 ; Del Valle, v. Nevarro, 21 Abb. N. C. 136, and note.) As the material facts are undisputed, there is no necessity of a further reference.
It follows that .the order' should be reversed, with ten dollars costs and disbursements, and the exceptions sustained and claim allowed in full, with costs, at Special Term, and costs of the hearing before the referee to appellant.
Patterson, P. J., Ingraham, Clarke and Houghton, JJ., concurred.
Order reversed, with ten dollars costs and disbursements; order directed as stated in opinion. Settle order on notice.