PEOPLE v. E. REMINGTON & SONS

PEOPLE v. E. REMINGTON & SONS. N. Y. Supreme Court, Fourth Department, General Term ; July, 1887. 1. Receivers of corporation ; indemnity for expense of litigation against receive?•.] In an action to dissolve a corporation as insolvent, temporary receivers were appointed, and a general injunction issued against interference with the corporate property. The holders and guarantors of a corporate note applied for and procured against the receiver’s opposition a modification of the injunction so as to permit them to sell property of the corporation held as collateral to the note. Held, that the special term had power upon motion to ascertain by a reference whether the holders and guarantors, or either of them, had a valid claim against the receiver’s estate for counsel fees and other expenses incident to such litigation with the receiver, and if they had, to fix the amount. The remedy is not limited to an action against the receiver. 2. The same J The claimants’ right to indemnity does not rest upon, nor is it controlled by, the sections of the Code of Civil Procedure regulating the allowance of costs. Appeal by tbe Importers’ & Traders’ Nat. Bank, tbe Chemical Nat. Bank, tbe American Loan and Trust Co. and B. J. Dean & Co., from that portion of an order dated August 7, 1880, made at special term and entered in the clerk’s office of Herkimer Co.-, in tbe above entitled action, by which tbe appellants were refused tbe counsel fees incurred by them in procuring a modification of a general injunction order served upon them, obtained by tbe receivers of the defendant, an insolvent corporation. April 20, 1886, -this action was brought by tbe attorney general to procure a judgment dissolving tbe defendant (a corporation created under tbe laws of this State), because of its insolvency, and April 21,1880, Addison Brill and Albert N. Russell were appointed temporary receivers, pursuant to section 1788 of tbe Code of Civil Procedure, and at tbe 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 defendants’ notes, amounting to §17,000, which were guaranteed by B. 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 hanks and the guarantors from selling the rifles ; but after a reference it was lield 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 allowance in this proceeding.” From this order, the banks and the guarantors appeal. Blandy & Hatch, for the banks and guarantors, appellants. Thomas Richardson, for the receivers, respondents. [MAJORITY — Follett, J.] 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 conduct. Under this rule, the estate represented by the receivers is liable to. the guarantors for such damages as were caused by the action of the receivers. Whether the estate is liable 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. When 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. Ho 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 largo 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 this estate, and if they had, to iix the amount (De Groot v. Jay, 30 Barb. 483; S. C., 9 Abb. 364; Matter of Receivers of Globe Ins. Co., 6 Paige, 102; Holbrook v. Receivers, Id. 220, 226 ; Guardian Savings Inst. v. Bowling Green Savings Bank, 65 Barb. 275 ; 1 Wait's Pr. 199, 200; 2 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. [CONCURRENCE — Merwin, J. (concurring)] Merwin, J. (concurring) If the claim of Dean & Co., was simply for an extra allowance of costs, then I can: see how the order at Special Term vvould be perfectly proper. But if it be deemed, as it may be, a claim for expenses, that would be a lien 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 bo 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 this claim was set up in answer to the last order to show canse, 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. [DISSENT — Boardman, J. [dissenting. After stating the facts]] Boardman, J. [dissenting. After stating the facts] Tlie only question, then for decision is the power of the court to grant the appellants counsel fees and expenses in the proceedings had and taken by them. These proceedings consist-of an application by appellants to set aside or modify the original general injunction, and an opposition by them on the order to show cause why the .second injunction should not be continued. These were both in legal effect motions. In the first case no costs were asked •■or granted. In the last the, court gave appellants $10 costs, .and the referee’s charges were ordered paid by the receivers. This seems to us in strict accordance with the provisions of the Code of Civil Procedure, §§3236, 3251. (3). We find no ■ other provisions giving costs in such cases. The right to ■ costs is purely statutory, and unless given by the statute no •court has power to award them (3 Wait Pr. 453; Sup’rs of Onondaga v. Briggs, 3 Den. 173). What the appellants seek to obtain by way of allowance in costs is in fact the damage which they have suffered by the interference of the principal debtor through its receiv■ers with their use and disposition of the collateral security .according to the contract. Such damages are in no sense ■costs or expenses to be recognized or allowed upon motions •or in the orders made upon motions. They constitute dam-rages which Dean & Co., may, as sureties, be entitled to recover by action against, and out of the assets in the hands -of, the receivers. It is the contract of defendant to indemnify Dean & Co.,- against loss, costs, charges. and expenses which they as sureties for defendant may suffer, which cou-,stitutes the basis of a claim if any exists (L. 1858, c. 314, § 3, as modified by Code Civ. Pro. § 1916). Thompson v. Taylor, 72 N. Y. 32, was in effect an action to marshall assets and out of them pay creditors, and among others Mat.tison, who as surety had incurred certain reasonable and necessary costs and expenses in excess of costs included in his judgments. It was held that the action was proper, and such costs and expenses were properly allowed to him. It is not an authority for allowing such costs, or expenses, as a part of the costs of a motion. Undoubtedly Dean & Co., if sureties of the defendant, were entitled to full indemnity against the consequences of the failure of the defendants or its receivers to pay these notes. They were also entitled to he repaid such costs and expenses as they necessarily incurred in securing the property pledged for the debt, so that it might be applied to the payment of such notes (Thompson v. Taylor, supra). But such costs and expenses, like notary’s fees, charges for the storage of the rifles, etc., were damages to be deducted from the proceeds of the sale of the collaterals or recovered in an action (Griggs v. Howe, 2 Abb. Ct. App. Dec. 291 ; Sheldon v. Raveret, 49 Barb. 203). We apprehend the rule would be still stronger than the cases cited in favor of a surety. Such damages arose by virtue of the contract setting apart the property as collateral, which provided for deducting all expenses of collection and sale from the proceeds, and applying the balance only upon the debts. The obligation, therefore, arises upon an express contract as well as upon the implied contract of indemnity in favor of the guarantors. Such an obligation can not be enforced by an arbitrary allowance of costs upon a motion, however just and equitable in itself. The appellants, or Dean & Co., must resort to their action if the assets in their hands have proved insufficient for their protection. We concur with the learned justice at Special Term that the court had no power or jurisdiction to grant the allowances of counsel fees and expenses as claimed by the appellants. The order must be affirmed with $10 costs—printing disbursements. Order reversed with $10 costs, and disbursements.