§ 5239.Proceeding to determine adverse claims.

This section is new and is comparable to § 6221 which provides for the determination of adverse claims to attached property. It is designed to replace parts of subd 4, 5 and 6 of § 687-a, and parts of CPA §§ 696, 697, 698 and 795.

The multiplicity of separate actions, the complex procedures which must be followed before an adverse claim may be disposed of, and the special indemnification requirements, substantially increase the expense of enforcing judgments and often present unnecessary obstacles to persons with bona fide adverse claims. This section provides for the determination of such claims arising from any enforcement procedure upon a special proceeding. Cf. notes to § 6221. While the notice of petition is served in the same manner as a notice of motion, the proceeding is denominated a special proceeding rather than a motion to permit it to be commenced in the county where the property was levied upon and to permit an appeal from the judgment finally determining the property rights of the adverse claimant.

Former §§ 697 and 698 were virtually identical to §§ 925 and 926. Section 925 differed from § 697 only in the length of the period during which an action might have been commenced against the sheriff by an adverse claimant. The sole difference between §§ 926 and 698 was the provision in the latter section that the sureties must have been freeholders of the sheriff’s county, a provision which was in § 926 until 1940. Laws 1940, c. 625.

These distinctions are difficult to justify. Indeed, in subd 5 of § 687-a, where an adverse claim procedure was provided for debts and causes of action which had been levied upon under an execution, §§ 924, 925 and 926, relating to attached property, were specified as the procedure to be followed rather than the parallel execution provisions in §§ 696, 697 and 698.

Those methods provided in § 687-a for asserting and disposing of adverse claims that arose upon a levy on a debt or cause of action as well as those provided for adverse claims in supplementary proceedings, had substantially added to the confusion and complexity of this area. Thus, the adverse claim of the person against whom the levy was made might have been determined only by a separate action instituted by the judgment creditor after obtaining leave of court pursuant to subd 6 of § 687-a, but the claim of any other person might have been disposed of on motion pursuant to subd 5. Subd 5 also permitted such other person to intervene in an action between the judgment creditor and the purported garnishee, or, as previously noted, to proceed in accordance with the adverse claim procedure in the attachment article.

The differences between § 696 and subd 1 of § 924, its counterpart in the article on attachment, were more substantial. Under § 696, the adverse claim was asserted to the sheriff, who was given broad discretion to determine whether to seek indemnity from the judgment creditor and how long to detain the property or proceeds without indemnity. Under § 924(1), it was asserted to the court upon notice to the parties and the sheriff, and the court made the determinations. Section 696 provided that, in lieu of indemnity, the judgment creditor might have instituted a separate proceeding for the determination of the adverse claim. If the plaintiff failed to indemnify the sheriff under § 924(1), the claim was determined as an adjunct to the original action upon a showing that he was entitled to a hearing. Section 924(1) provided that the parties might have demanded a jury trial, while § 696 contained no such provision but provided merely that the judge, “in his sole discretion,” might have impanelled a jury.

In supplementary proceedings, if the right of the judgment debtor to the possession of property not in his control was “substantially disputed” on a motion for a payment or delivery order pursuant to former § 796, the motion was denied. It was not clear whether a person other than the one against whom the order was sought could dispute the judgment debtor’s right. In any event, the judgment creditor was apparently limited to issuing execution against the property whereupon the adverse claim would have been determined in accordance with §§ 696, 697 and 698. But in order for the sheriff to levy upon such property it might have been required that the judgment creditor or his attorney specify it and allege that it belonged to the judgment debtor, a risky course which might have subjected the judgment creditor to an action for damages.

Where an indebtedness was disputed by a purported garnishee on a motion for a payment order pursuant to § 794(2), however, the issue would have been determined on the motion unless the garnishee or the judgment debtor showed “such facts as may be deemed by the court sufficient to entitle . . . [him] to a trial of the issue in an action brought by the judgment creditor.” There was no provision regarding the manner in which a person other than the one against whom a payment or delivery order was issued or sought, pursuant to § 794(2), might have asserted an adverse claim and have had it determined.

In contrast to the former procedures in which a substantial dispute under § 796 and an issue of fact under § 794(2) resulted in the denial of the motion, claims or other issues arising on a proceeding for a payment or delivery order pursuant to §§ 5225 and 5227 will be determined in a manner similar to that provided by this section.

Under this section, when the court finds that a determination should be delayed, it is authorized to provide for indemnity and other terms and conditions required by the particular case. Cf. CPA §§ 696–698.

Formerly § 5238, add, L 1962, ch 308; renumbered § 5239, L 1962, ch 315, § 5; L 1965, ch 974, § 9; L 1994, ch 563, § 6, eff July 26, 1994.