§ 5228.Receivers.

Subd (a) of this section is new and is designed to replace the provisions relating to statutory receivers in supplementary proceedings largely contained in CPA §§ 804 through 810 and RCP 175 and 177.

The supplementary proceeding receivership comprises a distinct and complete enforcement system. It affords judgment creditors a separate method for discovering and applying the assets of a judgment debtor to the satisfaction of judgments and enables the creditors to acquire a lien and priority which they could not obtain by execution or supplementary proceedings alone. The use of a receivership permits different procedures for such matters as obtaining examinations, restraining transfers, collecting debts, selling personal property and determining adverse claims. With the expansion of supplementary proceedings, however, judgment creditors have obtained very nearly all of the tools for having property of the judgment debtor applied directly to the satisfaction of their judgments without the necessity of a receivership and the attendant expense and delay. Section 5239, providing for the determination of adverse claims, would further diminish the need for a receivership as a method of applying assets to the satisfaction of the judgment. Although the use of a receiver for this purpose has been described as “a legal vermiform appendix: an organ useful at one time, but since become only a situs for infection” (Cohen, Collection of Money Judgments in New York: Supplementary Proceedings, 35 Colum L. Rev. 1007, 1014 (1935)), there are situations in which the appointment of a receiver may be the most efficacious remedy and others where it may be the only one possible. This section contemplates a limited receivership which would provide for such cases without the cumbersome machinery and total enforcement system aspects of the former procedure.

A supplementary proceeding receivership has the secondary function of providing a creditor with a lien and priority. Although under former law this might have been its principal advantage to judgment creditors, this aspect of a receivership has been eliminated.

The lien acquired by the creditor who pursued this procedure under the former law was vastly superior to those obtained by execution or by the commencement of supplementary proceedings. The filing of a receivership order with the clerk of the county of the judgment debtor’s residence prevented the debtor from passing title to his personal property to anyone, including a bona fide purchaser for value. CPA § 807. Title of the receiver “extends back by relation” to the commencement of supplementary proceedings against any transferee who was not a bona fide purchaser or creditor without notice; the burden of proof rested with the transferee, although it was unclear whether he must have shown that he lacked notice of the judgment or of the supplementary proceeding. Id. § 808.

The creditor who obtains the appointment of a receiver is also afforded a priority over creditors who pursue other enforcement procedures. He need have little fear that other judgment creditors will thereafter be more diligent or have better fortune and deplete the judgment debtor’s assets. Even if other judgment creditors have already levied under an execution but have not sold the property, the receiver obtains priority over the executing creditor, if the receivership creditor commenced supplementary proceedings before the execution was delivered to the sheriff. Lawyer’s Cooperative Pub. Co. v Axelrod, 92 NY LJ 622 (N.Y.C. Ct. 1934). Moreover, where prior creditors commenced supplementary proceedings first, a receivership creditor has priority unless they have the receivership “extended” to themselves.

Should the receiver be appointed many years after the close of a supplementary proceeding, with no effort to satisfy the judgment in the interim, priority will still be determined from the original commencement of the supplementary proceeding. Herlihy v Watkins, 252 App Div 605, 300 NY Supp 242 (1st Dep’t 1948). If the receiver is appointed more than four months before the judgment debtor’s bankruptcy, he would be entitled to priority over the trustee in bankruptcy. See 11 USCA § 107(d); cf. Liens and Priorities Affecting Personal Property in New York Procedures for the Enforcement of Money Judgments at pp. 746–753, 782, infra.

To the extent that a judgment creditor should be able to obtain a lien that is good against a bona fide purchaser, he should not be required to utilize an anachronistic procedure which may involve substantial expense, and delay the satisfaction of the judgment, with little benefit other than the lien itself. If one creditor should be entitled to priority over all subsequent creditors, there is no apparent reason for limiting his priority to the receivership situation.

Under this subdivision, the receiver will not obtain any “title” to the judgment debtor’s property. When specified in the order, he will have the right to pass the judgment debtor’s “title” to a third person—as in the case of an equity receiver or a sheriff pursuant to an execution. No lien will attach by the appointment of a receiver and no priority will be obtained thereby. This accords with §§ 5202 and 5203, which provide for liens and priority among judgment creditors that do not depend upon the particular method chosen for having the debtor’s assets applied to the judgment.

Removal of the lien and priority function of the receivership obviates the need for both the intricate, litigation-producing concepts of “vesting” and “relation back” of title in former §§ 807 and 808, and the special filing and indexing provisions in former §§ 809 and 810.

Under this subdivision, only where there is some particular advantage to be gained by having a receiver will one be appointed, and then only for particular functions. Thus, where the judgment debtor is a landlord, although the judgment creditor may be able to secure the rents by payment orders or by having the sheriff levy pursuant to execution, it might be much simpler to have a receiver appointed to collect them. The receiver may also be authorized to make repairs and improvements and to lease vacant apartments, methods of protecting creditors which may be secured under no other procedure. Even where all that is involved is the sale of personal property, there are instances in which it is preferable to have a sale by a receiver rather than by the sheriff. See Application of Myer, 273 App Div 387, 77 NYS2d 660 (1st Dep’t 1948) (sale of large block of securities). These situations would probably be much more frequent when real property is involved. “Sale of real estate today under execution is usually a nonrealistic form. Even under a ‘normal’ real estate market, a huge apartment house, or any parcel of urban realty, is not best disposed of at a sheriff’s sale, but after negotiation and bargaining with individual purchasers.” Cohen, supra at 1026.

While the term “property” has been used throughout the new CPLR to include both real and personal property, this subdivision expressly permits authority to sell real property, in view of the reluctance on the part of courts to give receivers such power. Although the Field Code provided for a receiver “of the property” of the judgment debtor and defined “property” as including both realty and personalty, and although the Code of Civil Procedure expressly provided that “[r]eal property vested in a receiver,” the courts have prohibited the sale of real property by a supplementary proceeding receiver. The culmination of this development was analyzed as follows:

The dictum in the Quackenbush case was thereafter used by the court in Faneuil Hall National Bank v Bussing [147 NY 665, 42 NE 345 (1895)] to warp the statute so as to deprive the receiver of any title to the debtor’s realty. In that case the debtor was possessed of certain premises when the receiver in supplementary proceedings was appointed. Thereafter the receiver obtained an order permitting him to sell the debtor’s interest. The owner of the property moved successfully to vacate the order for the sale. The court’s explanation was (a) that the section conferring title to the debtor’s realty on the receiver “cannot be taken literally” and should be read in the light of other statutes; (b) that the receiver’s title to realty was “a qualified one in the nature of a security for the plaintiff in the judgment.” It did not divest the debtor of the legal title. The receiver did not take such “absolute title” as would enable him to sell the property when it could be sold under an execution whereby the debtor would be granted power of redemption; (c) supplementary proceedings being a substitute for the old creditor’s bill, it is only when the legal remedy is exhausted that a creditor may resort to the “more effective remedies” found in equity; (d) therefore, since the property could have been sold under execution and was not (relying on the Quackenbush dictum), the receiver took no title.

Subsequent cases merely completed the job of denuding the receiver of all rights to the debtor’s realty, and of giving him, instead of “title,” a weird product of judicial sentimentality liberally sprinkled on the debtor. In actual fact the receiver does not get the “title” promised by the statute, but a “qualified title” by way of security, a security which the courts have not cared to explain. “Possession” is promised and when demanded, denied. If the premises have been leased Special Term is inclined to compel the tenants to attorn to the receiver, and to give him the power to collect the rents. The Appellate Division has held, however, that since a receiver has no title, he is not entitled to rent, and this despite the existence of a Code provision giving the receiver power to make leases. [ Cohen, supra at 1024–25 (footnotes omitted).].

The problem of a right of redemption after a receiver’s sale, a problem that particularly concerns the courts, is no longer important under the new CPLR since no right of redemption is provided. See preliminary note to § 5236.

The term “administer” in this subdivision is new. Although an equity receiver has the power to take possession of the debtor’s business with a view to operation, the courts have denied this power to a statutory supplementary proceedings receiver. See Ward v Petrie, 157 NY 301, 308, 51 NE 1002, 1004 (1898). The instances in which a court might appoint a receiver to “administer” the debtor’s property will undoubtedly be rare, but the term is used to give courts the extremely broad discretion which enforcement problems warrant.

RCP 175 and 177 enumerated powers which a receiver had unless they were explicitly denied him by order of the court, and also listed those which must have been granted by order. Since this section contemplates that a specific and limited authorization will be given the receiver, those provisions are not meaningful. The provision of former rule 180 regarding employment of counsel has been retained, however, in order to avoid abuse of receiverships.

The terms “collect” and “sell” are intended to cover settlement of claims of the judgment debtor by the receiver. In any event this power, when granted by the court, is encompassed within the term “or do any other acts designed to satisfy the judgment.” The limited nature of the receivership should result in a reduction of its cost since the receiver will only be entitled to commissions on the funds which he collects. Under the former receivership practice, once a receiver was appointed, the judgment creditor was required to turn over to the receiver funds which the creditor subsequently collected through his own efforts. See Civ Prac Act §§ 794, 796; Herlihy v Watkins, 256 A.D. 339, 10 N.Y.S.2d 7, 1939 N.Y. App. Div. LEXIS 4724 (N.Y. App. Div. 1939); Franklin Nat'l Bank v Madero, 4 Misc. 2d 144, 157 N.Y.S.2d 431, 1956 N.Y. Misc. LEXIS 1459 (N.Y. Sup. Ct. 1956). The receiver might then have been entitled to a commission on those funds although he was not instrumental in their collection. See CPA §§ 804-a, 1547.

Although the first sentence of CPA § 804-a dealing with commissions, was virtually identical to the first sentence of § 1547, which was applicable to receivers generally, the provision has been repeated here for convenience. Cf. R-W Realty Co. v Glatzer, 185 Misc 1021, 58 NYS2d 368 (NYC Ct 1945) (remainder of § 1547 held applicable to supplementary proceeding receivers). The second sentence of former § 804-a, however, has been deleted. It permitted the receiver to refuse to reduce a judgment debtor’s property to possession without a request and indemnification by the judgment creditor, and is not necessary under the new CPLR since the only action that the receiver may take is that requested by the judgment creditor and authorized by the court. The court will, of course, be able to condition its granting of the requested relief by requiring indemnification for the receiver’s expenses.

Under this subdivision, the appointment of a receiver is in the court’s discretion. Since the expenses and commissions of the receivership, which may be substantial, are ultimately to be paid by the judgment debtor if he has sufficient funds, the appointment should not be made unless some greater benefit to the judgment creditor than that which could be secured by other available procedures can be anticipated. In 1938, the earlier discretionary language of former § 804 was amended to provide that “the court must make an order appointing a receiver of the property of the judgment debtor upon application of the judgment creditor, whether or not it shall appear that the judgment debtor has property applicable to the payment of the judgment.” This strongly mandatory language was adopted to insure the judgment creditor against the transfer of hidden assets of the judgment debtor; the receiver’s “title” being good even against a bona fide purchaser. Despite the clear mandate of the statute, many courts have continued to deny receiverships where the judgment creditor cannot show that the judgment debtor has nonexempt property. For example, in Tosti v Sbano, 170 Misc 828, 830–831, 11 NYS2d 321, 323–24 (NYC Ct 1939), the court stated:

On the pending motion, which is for the reargument of a former motion for the appointment of a receiver, and which motion was denied, the only reason advanced by the judgment creditor’s attorney for the reversal of the court’s decision, is that it is in conflict with the mandatory provisions of CPA § 804, as amended by Laws 1938, chapter 605, in effect September 1, 1938.

A statute framed in imperative language may be construed as permissive, where it is evident from the entire act considered as a whole and from the surrounding circumstances that it was not intended to receive a peremptory construction. In such a case, the term “must” or “shall” will be interpreted in the sense of “may.” This is frequently the case where statutes provide for orders to be made by judges; if it appears evident that the judge should exercise a discretion in the granting of the order, the circumstance that the statute provides that the order “must” be granted will not deter him from exercising a discretion and denying the application if justice is thereby promoted.

Fortunately, the problem presented by this court’s approach may be avoided under this subdivision, since a lien— the reason for the present mandatory language—is not created by the limited receivership.

This subdivision provides that if a judgment creditor is appointed receiver, he must serve without compensation. Permitting a judgment creditor to be so appointed was recommended in the 1934 Report of the Commission on the Administration of Justice in New York State at page 363:

In an early case the judgment creditor was appointed receiver in supplementary proceedings, Chamberlain v Greenleaf, 4 Abbott’s New Cases 92, but apparently not since then.

This recommendation has frequently been made. Its purpose and value should be apparent. The 1932 Committee on Practice and Procedure in the City Court of the New York County Lawyers’ Association endorsed this idea. 1932 Year Book, New York County Lawyers’ Association, page 283. It said:

“A study was made of the laws of other jurisdictions with reference to receivers, and your Committee recommends that, unless some good reason to the contrary is shown, the judgment creditor should be made the receiver in supplementary proceedings, under a bond in a sum approved by the court, on condition that he serve without compensation. As such receiver he should be authorized to bring actions in his own behalf and in behalf of all other judgment creditors appearing and contributing to the expense of the proceedings. This is the general practice in Great Britain where it seems to have worked successfully. Certainly no one is more interested in pursuing the judgment debtor with zeal than the judgment creditor himself and the judgment debtor is benefited and protected by the fact that the receiver will act without fees and be under bond.” Where the judgment creditor is a corporation, one of its officers should be appointed receiver upon the same terms as stated in the quotation.

Despite these recommendations, the proposal was never adopted, probably because the broad discretion given the receiver presented too great an opportunity for abuse and harassment. Under this receivership procedure, however, in which the particular function and the manner in which it is to be performed is prescribed by the court, the likelihood of abuse is sharply reduced. Furthermore, this subdivision allows the court, in its discretion, to determine that a disinterested third person should be appointed in a particular case. Thus, while appointment of the judgment creditor to collect rent or to lease property may present little likelihood of abuse, the court may find it more advisable to have a third person negotiate settlements or sales.

The extensive notice provisions in former § 804(1) and 805 have been replaced by the second sentence of this subdivision. The phrase, “As far as practicable” amply covers the former complicated provisions.

The requirement of § 804(1) that supplementary proceedings be commenced before a receiver may be appointed has been deleted. Unlike the former provisions, a subpoena for examination does not commence a supplementary proceeding under this article. Moreover, if the judgment creditor knows of the debtor’s assets, this subdivision permits him to move for the appointment of a receiver without any preliminary step.

Former § 806, which dealt with the extension of an existing receivership to other judgment creditors, is treated in subd (b).

The undertaking provision in former § 809 is covered by § 6403, which is incorporated into this subdivision by reference. While former § 809 indicates that the court has discretion in determining whether to require a bond, in practice, a bond is required in every case. See 8 Carmody-Wait, Cyclopedia of New York Practice 295 (1954). Despite the mandatory language in § 6403, the court, in effect, will still have discretion since it is authorized to set the amount of the undertaking.

Subd 3 of former § 804 is covered by § 6404 which is also incorporated by reference.

The provision in former § 794(1), 794(2), 796 and 797(2) that an order, ordinarily directing delivery or payment to a sheriff, shall direct delivery or payment to the receiver if one has been appointed, are covered by the next to last sentence of this subdivision.

Subd (b) of this section is derived from the second sentence of CPA § 806. Where a receiver has already been appointed, extension of the receivership should be obtainable ex parte and as a matter of course.

The remainder of former § 806 has been deleted as unnecessary. If a judgment creditor considers that other judgment creditors are being unfairly preferred, or are controlling or directing the receiver to his prejudice, he may apply for an order under § 5240 to protect his interest.

Formerly § 5227, add, L 1962, ch 308; renumbered § 5228, L 1962, ch 315, § 5, eff Sept 1, 1963.