Sumitomo Shoji New York, Inc. v. Chemical Bank New York Trust Co.

• Citation: 263 N.Y.S.2d 354,47 Misc.2d 741
• Parties: , 47 Misc.2d 746, 2 UCC Rep.Serv. 1088 SUMITOMO SHOJI NEW YORK, INC., Petitioner, v. CHEMICAL BANK NEW YORK TRUST COMPANY, Respondent.
• Decision Date: 05 August 1965
• Court: United States State Supreme Court (New York)

Page 354

263 N.Y.S.2d 354

47 Misc.2d 741, 47 Misc.2d 746, 2 UCC

Rep.Serv. 1088

SUMITOMO SHOJI NEW YORK, INC., Petitioner, v. CHEMICAL BANK NEW YORK TRUST COMPANY, Respondent.

Supreme Court, Special Term, New York County, Part I.

Aug. 5, 1965.

Beer, Richards & Haller, by Stewart W. Richards, New York City, for petitioner.

Cravath, Swaine & Moore, by John W. Barnum and Harold F. McGuire Jr., New York, City, for respondent.

ABRAHAM N. GELLER, Justice.

This proceeding involves the novel and interesting question of the effectiveness of a restraining notice served upon a bank specifying an account held in a name other than that of the judgment debtor as a debt owed to the judgment debtor or as property in which he has an interest.

After examining the individual judgment debtor in enforcement proceedings a restraining notice was served on respondent bank specifying several bank accounts, including two corporate checking accounts. Several days later checks closing out these corporate accounts signed by judgment debtor and payable to cash were honored by the bank, taking the position that there had been no adjudication as to judgment debtor's interest in the corporate accounts and that judgment creditor's mere specification in a restraining notice was unavailing as against the obligation placed by New York Uniform Commercial Code §§ 4-302 and 4-402 upon a bank to promptly honor checks duly drawn or render itself liable to its customer for damages caused by wrongful dishonor.

Judgment creditor thereupon brought this proceeding seeking judgment against the bank. The court held on the return day of the application that, by disregarding the restraining notice, the bank had taken the risk of liability for the damages sustained and contempt proceedings if the judgment creditor could establish that the specified accounts constituted debts owed to judgment debtor or property in which he had an interest. It directed that such issues be set down for trial.

In the meantime, basing its action on the judgment, judgment creditor brought on a motion pursuant to CPLR 3213 for summary judgment in lieu of complaint as against the two corporations, which was granted on the ground that 'the judgment debtor has consistently treated the corporate monies exclusively as his own.'

Judgment creditor now moves to reargue, stating that the issues have been determined and that it is entitled to judgment against the bank in this proceeding. However, the bank was not a party to the CPLR 3213 action and is not bound by its determination. It is entitled to have the issues herein determined after a trial in which it has a right to participate.

The bank has cross-moved for reargument, urging that the restraining notice was ineffective as of the time of its service with respect to the corporate checking accounts and that, in any event, the questions presented cannot be resolved in a special proceeding but must be the subject either of a plenary action for damages or a motion to punish the bank for contempt.

The legislative history of the specification provision, confirmed by a 1965 amendatory bill and veto relating to it, clearly establishes the legislative intent in the enactment of the pertinent CPLR provisions to make a creditor's specification of a debt or property in which he claims debtor has an interest effective to prevent payment or transfer until order or determination of the court.

Under the Civil Practice Act a specification was provided for only with respect to an attachment (see Civ.Prac.Act § 910). The Advisory Committee in the Third Report proposed a broader specification provision for attachment and at the same time added a similar specification clause for a restraining notice. The Senate Finance Committee in the Sixth Report clarified the meaning of the specification clause, made more specific reference to the statement which the judgment creditor may include in the restraining notice, and added a provision for liability by a judgment creditor erroneously specifying a debt or property to the true owner for damages sustained by reason of the restraint. Significantly, it inserted the phrase, 'including any specified in the notice,' in two places in the sentence reading (N.Y.Legis.Doc., 1962, No. 8, p. 582):

'All property in which the [judgment debtor] is known or believed to have an interest then in and thereafter coming into the possession or custody of such a person, including any specified in the notice, and all debts of such a person, including any specified in the notice, then due and thereafter coming due to the [judgment debtor], shall be subject to the levy.'

The attachment provision, CPLR 6214(b), was likewise amended and a similar specification was added for the first time in the execution section, CPLR 5232.

The person served with a restraining notice, execution or attachment 'is forbidden to make or suffer any sale, assignment or transfer of, or any interference with, any such property, or pay over or otherwise dispose of any such debt, to any person other than the sheriff, except upon direction of the sheriff or pursuant to an order of the court' for one year or until the judgment is satisfied or vacated, whichever first occurs (in the case of a restraining notice) or for ninety days or until payment or transfer is made, whichever first occurs (in the case of an execution or attachment). In all three sections there is the identical provision making the creditor liable for an erroneous specification to the true owner for the damages caused by such restraint of payment or transfer imposed on the person served.

In 1965 the Legislature passed a bill amending these three CPLR sections to provide for a bond to indemnify a bank against liability to a third person whose bank account has been specified in a...