Case Name: People of the State of New York v. E. Remington & Sons
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1887-07
Citations: 12 N.Y. St. Rep. 335
Docket Number: 
Parties: People of the State of New York v. E. Remington & Sons.
Judges: 
Reporter: New York State Reporter
Volume: 12
Pages: 335–341

Head Matter:
People of the State of New York v. E. Remington & Sons.
(Supreme Court, General Term, Fourth Department,
Filed July, 1887.)
Receiver of insolvent corporation—Power of court to ascertain AMOUNT AND VALIDITY OF CLAIMS MADE AGAINST ESTATE OF.
This action was brought by the attorney-general to procure a judgment dissolving the defendant (a corporation) because of its insolvency. Temporary receivers were appointed pursuant to law, and an injunction order was issued pursuant to Code of Civil Procedure, section 1806. At this time certain banks held defendant’s notes which were guaranteed as security for which certain chattels were pledged by defendant to the banks and said guarantors. A motion was made for an order permitting the property pledged to be sold which was resisted by the receivers, but was granted'. After the payment of one of the notes certain rifles which were pledged as security for it were sold, and the guarantors claimed to hold them as security for their liability upon the other notes, which claim was resisted by the receivers and a second injunction was obtained restraining the banks and the guarantors from selling the rifles; but after a i eference it was held that the rifles were pledged as security for all said notes, and the injunction was vacated. Thereupon the banks and the guarantors asked for an order directing the receivers to pay such a sum as would indemnify them for their counsel fees and expenses in litigation, which was denied by the special term on the ground that the court had “ no power or jurisdiction to grant such allowance in this proceeding.” Hid, error. That the special term clearly had power to ascerta'n by a reference whether these claimants, or either of them, had a valid claim against the estate and if they had to fix the amount. Boabdman, J., dissenting.
April 20," 1886, this action was brought by the attorney-general to procure a judgment dissolving the defendant (a corporation created under the laws of this state), because of its insolvency, and April 21, 1886, Addison Brill and Albert N. Russell were appointed temporary receivers, pursuant to section 1788 of the Code of Civil Procedure, and at the same time an injunction order was issued pursuant to section 1806, restraining creditors from suing defendant, and all persons from interfering with its property. At this time, three banks held defendant’s notes, amounting to $17,000, which were guaranteed by R. J. Dean & Co. as security, for which certain chattels were pledged by defendant to the banks and said guarantors. The banks and the guarantors asked the receivers to pay the notes and take the property, or consent to a modification of the injunction, so that the chattels pledged might be sold to pay the notes, but the receivers declined to do either. A motion was made for an order permitting the property pledged to be sold, which was resisted by the receivers, but was granted. After the payment of one of the notes, five hundred rifles, which were pledged as security for it, were unsold, and the guarantors claimed to hold them as security for their liability upon the two other notes, which claim was resisted by the receivers and a second injunction was obtained restraining the. banks and the guarantors from selling the rifles; but after a reference it was held that the rifles were pledged as security for the three notes, and the injunction was vacated. Thereupon the banks and the guarantors asked for an order directing the receivers to pay such a sum as would indemnify them for their counsel fees and expenses in the litigation, which was denied at special term: “On the ground that the court has no power or jurisdiction to grant such aEowance in this proceeding.” From this order the banks and the guarantors appeal.
Blandy & Hatch, for the banks and guarantors, app’lts; Thomas Richardson, for the receivers, resp’ts.

Opinion:
Follett, J.
It is conceded that the receivers, by denying and resisting, by injunctions, the rights of the banks and guarantors, caused them considerable expense. A principal is liable to indemnify his surety, or guarantor, for such damages as directly flow from the principal's misconduct. Under this rule, the estate represented by the receivers is hable to the guarantors for such damages as were caused by the action of the receivers. Whether the estate is hable to the banks for damages is not, from the facts now before the court, entirely clear. Lawton v. Green, 64 N. Y., 326; High on Inj., § 962. The appeal book does not show whether the injunctions were issued with or without security; as the first, at least, might have been under sections 1806 and 1990 of the Code of Civil Procedure. The damages caused by an injunction should be determined by the court or by reference. Code Civ. Pro., § 623; High on Inj., § 962.
The special term did not deny the application of the banks and guarantors for indemnity, upon the ground that the estate was not liable, but upon the ground that the court had not power in this proceeding, or upon a motion, to award the claimants their damages. The court seems to have been led to this .conclusion by the mistaken assumption of counsel that the sums claimed were by way of "costs" in the proceeding or motion. The claimant's right to indemnity does not rest upon, nor is it controlled by the sections of the Code regulating the allowance of costs. The motion for indemnity seems to have been denied solely upon the ground that it must be sought by action. Section 1807 of the Code requires creditors of the corporation to prove their, claims before a referee. The validity and amount of claims against an estate in the hands of receivers, which arise from the acts of the receivers, are not usually determined by action, but by reference. Then leave is sought to sue receivers for such claims. It is the usual practice to deny the application and order a reference, as the cheapest and most expeditious mode of determining the controversy. No reported exception to this practice has been found when the claimant has been willing to refer, unless the facts out of which the claim arose were so intricate, the law supposed to be applicable so uncertain, and the claim so large, as to render this summary mode of trial unsuitable. But this is not such a case The special term clearly had the power to ascertain by a reference whether these claimants, or either of them, had a valid claim against the estate, and if they had, to fix the amount. De Groot v. Jay, 30 Barb., 483; S. C., 9 Abb., 364; In the Matter of the Receivers of the Globe Insurance Co., 6 Paige, 103; Holbrook v. Receivers, id., 220, 226; The Guardian Savings Institution v. The Bowling Green Savings Bank, 65 Barb., 275; 1 Wait's Pr., 199, 200; 2d id., 255.
That part of the order denying the application of the claimants to have their damages determined and paid, is reversed, with ten dollars costs and disbursements.
Merwin, J.
If the claim of Dean & Co. was simply for an extra allowance of costs, then I can see how the order at special term would be perfectly proper; but if it be deemed, as it may be, a claim for expenses, that would be a hen on the collaterals, or a claim for indemnity as between surety and principal, or a claim for damages by reason of the injunction, then, it seems to me, there would be no doubt about the jurisdiction of the special term. The question is not-whether a separate proceeding would be more appropriate, for the order was not placed on that ground; nor is the question here as to what provision shall be made for the payment of the claim, if allowed. That is a matter for the special term in the first instance to determine. Both proceedings, as to the injunction against Dean & Co. were before the special term. The existence of the claim was set up in answer to the last order to show cause, and either party could have given evidence about it before the referee. It seems to me that the court there had jurisdiction over it.
As the only question here is as to the jurisdiction and power of the special term, I think I must agree With Judge. Follett to the reversal of the order.