Field v. Chapman — 14 Abb. Pr. 133

Majority

p. 133

FIELD a. CHAPMAN.

Supreme Court, First District; Special Term,

April, 1862.

Headnote

Judgment against Joint-debtors on Service of Process on a part.—Form of Judgment and Execution.—Creditor’s Action.

Upon a judgment against joint-debtors in an action in which a part only have been served with summons, a creditor’s action can be maintained to reach joint property of all, when an execution against their joint property and the individual property of the defendants served has been returned unsatisfied.

It seem, that a creditor’s action may be commenced before the lapse of sixty days from the issuing of execution where it has been returned unsatisfied within that time.

Demurrers to the complaint in two actions.

These were two creditors’ actions: the first, brought by Alfred Field and others, against Isaac L. Hunt, George M. Chapman and Julia Ann Chapman: the second, by John Askham and others, against the same defendants.

The complaints in both actions were similar, and set forth in substance that the defendants Hunt and J. A. Chapman were partners, that the plaintiffs recovered judgments in form against both of them upon partnership demands, by the personal service of summons upon Hunt alone, that executions thereupon against property were issued and returned by the sheriff of the proper county unsatisfied; that Hunt and J. A. Chapman had transferred partnership property of the value of more than $100 to G. M. Chapman, which he still retained with the intent to hinder, delay, and defraud the plaintiff and other creditors.

Separate demurrers were interposed by the defendants J. A. and G. M. Chapman.

Chapman & Hitchcock and William Curtis Noyes, in support of the demurrer.

I. The complaints in these causes are founded upon judgment against Hunt alone. J. A. Chapman has had no opportunity to contest the alleged debts against her;

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no remedy at law has been attempted much less exhausted. (2 Rev. Stat., 173,174, § 38 ; Greenwood a. Broadhead, 8 Barb., 593 ; Crippen a. Hudson, 13 N. Y., 161 ; Rubens a. Joel, Ib., 488; Andrews a. Durant, 18 Ib., 496.)

II. It has been repeatedly and expressly adjudged, that before a judgment-creditor is authorized to file a creditor’s bill, he must make a bona-fide attempt to collect his debt against all the defendants before he can apply to the court of equity for relief. (Child a. Brace, 4 Paige, 309; Howard a. Sheldon, 11 Ib., 558; Kirby a. Schoonmaker, 3 Barb. Ch., 46 ; Hendricks a. Robinson, 2 Johns. Ch., 283 ; Wiggins a. Armstrong, Ib., 144; Brinkerhoff a. Brown, 4 Ib., 671.) The same rule has been held and adopted by the courts under the Code.

HI. The plaintiffs in this action are not judgment-creditors of J. A. Chapman. She has never been served with any process. The judgments set out in the complaint cannot even he read in evidence against her. (Oakley a. Aspinwall, 4 N. Y., 513 ; 1 Duer, 1 ; 13 N. Y., 500 .) In analogous cases, as where a stockholder is sued for a debt of the corporation, or a surety for the debt of his principal, the judgment is no evidence against him who is not a party to it. (Moss a. McCullough, 5 Hill, 131 ; Bonaffe a. Fowler, 7 Paige, 576; Thomas a. Hubbell, 15 N. Y., 405 .)

George N. Titus, opposed.

I. This is not an action in the nature of a mere creditor’s bill under 2 Rev. Stat., 173, § 38. It is an action by execution-creditors of the firm of I. L. Hunt & Co., having acquired a lien upon its personal property and choses in action, to set aside a fraudulent transfer, and to marshal the assets of the firm among the partnership creditors. I will consider this case,—1. As a creditor’s bill upon execution returned nulla bona. 2. As a bill by a partnership creditor to marshal the assets of a firm among the partnership creditors. In either aspect, the complainants are entitled to relief against both the defendants Chapman.

II. Equity will lend its aid to enforce a judgment at law for the payment of money, whenever the legal remedy provided for its collection has been exhausted; to wit, an execution issued and returned unsatisfied. 1. This principle of equity existed before the Revised Statutes, and independent of any statute.

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In Hendricks a. Robinson ( 2 Johns. Ch., 296 ), the ground for the interference of equity was the incompetency of the common-law court to enforce its own judgment. The purpose of the interference of equity was to assist the execution of the judgment—to compel an application of that property of the debtor to the satisfaction of the judgment, which, but for some fraudulent acts, might have been taken upon the execution. 2. The foundation of the claim of an execution creditor to the aid of the Court of Chancery to enforce his judgments, was the return of a fi.fa. unsatisfied. (Hendricks a. Robinson, 2 Johns. Ch., 296 ; Brinkerhoff a. Brown, 4 Ib., 677; Hadden a. Spader, 20 Johns., 559 , 568; Spader a,. Davis, 5 Johns. Ch., 280 ; S. C., on appeal, 20 Johns., 554 ; Balch a. Wastall, 1 P. Wms., 445.) It is apparent from these cases that the power of the courts of of chancery was exercised “ to assist the execution of a judgment at law,” and that the return of an execution nulla bona, was proof that the legal remedy for its collection had been exhausted. 3. Chancery, in aiding the execution of the judgment, followed the law: mguitas seguitur legem was its maxim. It enforced the judgment as the common-law courts might have enforced it, if no fraudulent obstruction had been placed in the way of its execution, and in some cases enforced satisfaction in a manner unknown at law. (Story Eq. Jur., §§ 64, 1216 a, 1216 b.) It reached the property which the execution might have taken if it had remained with the defendants. It went beyond the reach of the execution,—laid hold upon choses in action, &e., of the defendants, and applied them to the satisfaction of the judgment. Its powers were exercised in aid of the execution and to effectuate the judgment. 4. This principle of equity, as thus adjudicated, was incorporated into the statute law of this State in 1828. (3 Rev. Stat., 669, original notes of revisors; 2 Ib., 173, §§ 38, 39; Child a. Brace, 4 Paige, 309.) Chancery would assist the execution of a judgment at law. 5. This principle has been preserved in full force under the present judicial system of this State. This old equitable remedy of an execution creditor by bill in chancery is now enforced by action in this court. (Hammond a. Hudson River Iron Co., 20 Barb., 378 .)

III. It is admitted by these demurrers, that these plaintiffs are judgment-creditors of Isaac L. Hunt and Julia Ann Chap-.

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man,—-that executions against their property were issued to the sheriff of New York and returned unsatisfied after the lapse of sixty days. The plaintiffs pursued their legal remedy for the collection of their judgments to every available extent, before the commencement of this action. These executions were issued against the property of these defendants Hunt and Julia Ann Chapman, on judgments at law, which had been regularly recovered against both of them. 1. These judgments were regularly recovered against Hunt and J. A. Chapman after service of summons upon her partner, and the executions thereon were issued against her property. These judgments against her are expressly authorized by statute. (Act of 1813, in note, 1 Johns., 62 ; 2 Rev. Stat., 377, § 1; Sess. Laws of 1833, ch. 271, § 3.) Such a judgment created a lien upon the joint property of both defendants. (Pardee a. Haynes, 10 Wend., 630 ; Lahey a. Kingon, 13 Abbotts’ Pr., 192.) Code, § 136, continues that practice, and authorizes expressly that the judgment may in such case be enforced against the joint property of both, &c. They have all the force and effect of record evidence against both defendants, so far as to bind their joint property. (See Ballou a. Hurlbert, 1 Johns., 61 ; Dando a. Doll, 2 Ib., 87; Bank of Columbia a. Newcomb, 6 Ib., 97; Oakley a. Aspinwall, 2 Sandf., 8 .) They have the same effect against the joint property of both defendants as they have against the separate property of the defendant served with the summons. (Code, § 136.) 2. These plaintiffs, upon a return of their executions unsatisfied, had a statutory right to the aid of this court by this action to enforce their judgments against the joint property of their partners. (Hammond a. Hudson River Iron Company, 20 Barb., 378 .) The statute, 2 Rev. Stat., 173, § 38, is, that whenever an execution against thq property of a defendant, &c. This remedy was not restricted to a specific class of judgments, but embraced every judgment authorized by law. Such a judgment, as clearly as any other, is within the spirit and policy of 2 Rev. Stat., 173, § 38. That statute excepts no judgments from the remedy it has provided. Chancery sustained creditors’ bills founded upon judgments at law and executions returned unsatisfied against joint-debtors, where one of them was not served with process in the suit at law. The debtor not served with process was a necessary party to the bill in chancery, and the bill was de

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murrable, if he were omitted, for want of parties. (Van Cleef a. Sickles, 5 Paige, 505; Commercial Bank of Lake Erie a. Meach, 7 Ib., 449.) Chancery had undoubted jurisdiction in such cases over joint-debtors and their joint property, under 2 Rev. Stat., 173, § 38, where but one was served with process in the suit at law. The statute does not state in terms, nor by implication, that such judgments may be enforced only by execu tion:—the language of the Code is, that the judgment may be “ enforced against tits joint property of all,” without stating how it shall be enforced. Although the statute relating to proceedings against joint-debtors (2 Rev. Stat., 377, 3 ed.), declared “ the mode and manner of executing such judgment by legal process,”—the power, of chancery to aid such legal process is not to be sought for in that statute, as it was given by 2 Rev. Stat., 173, § 38. Oakley a. Aspinwall ( 4 N. Y., 513 ), was wholly unlike the present action.

IV. These plaintiffs had exhausted their “ legal remedy” for the collection of their judgments before the commencement of this action; they had made a bona-fide attempt to collect them by execution to the sheriff of the county of Hew York, and failed. 1. The “ legal remedy” which chancery required should be exhausted, is simply an execution against the defendant’s property. It did not mean the judgment, but the execution to enforce it. ( 2 Johns. Ch., 296 , and cases above cited.) Chancery required the creditor only to exhaust his legal remedy to collect such judgment as he had, and when that was done, lent its aid to the execution. 2. The return of nulla bona to these executions, is proof that the plaintiffs have made a bona-fide attempt to collect their debts by execution at law. That is sufficient to entitle them to the aid of this court to enforce their judgments, unless the defendants aver by answer and establish by proof that they, or one of them, had visible property, known to these plaintiffs, within reach of these executions. (Child a. Brace, 4 Paige, 309: Howard a. Shelton, 11 Ib., 558.) The defendants, in those cases, answered and proved that the legal remedy had not been exhausted. In the present case, in addition to the return of nulla bona, the demurrers admit that all the firm property, except choses in action, were fraudulently transferred by Julia to George. 3. If no application to defend is made, the presumption is that the firm owed the debts, and

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the judgment should be enforced. Ho such application has been made in this case, and the justice of the debts stands confessed. By her fraudulent transfer, J. A. Chapman has prevented their collection by execution, and rendered this action necessary. Any rule which would require judgment and execution against her separate property, before this equitable relief can be asked, would be in aid of a fraudulent debtor, rather than of an honest creditor. The legal remedy in the Field case was exhausted, although the executions were returned before the expiration of 60 day's. (Morange a. Edwards, 1 E. D. Smith, 414; Engle a. Boneau, 2 Sandf., 679 ; Messinger a. Fisk, 1 Code R., 107.) The executions in the Askham case were returned after the expiration of 60 days.

Y. The demurrers admit that'the defendants Chapman have in their possession notes and accounts receivable of the firm to the amount of about $30,000, which they are collecting, and refuse to apply towards the firm debts. The case stated in the complaint, entitles the plaintiffs to relief in respect to these choses in action.

YI. This action is not in the nature of a mere creditor’s bill under 2 Rev. Stat., 173, § 38. 1. All the visible property of this insolvent firm was transferred by one partner to her brother, on account of her individual debt to him, in violation of the copartnership agreement, and in fraud of the rights of the partnership creditors. That transfer was fraudulent and void as against them, as well as the partner Hunt. (Wilson a. Robertson, 21 N. Y.., 587 ; Jackson a. Cornell, 1 Sandf. Ch., 348 ; Greenwood a. Broadhead, 8 Barb., 593 ; Murrill a. Med-sons, 8 How. U. S., 414; Yale a. Yale, 13 Conn., 185 ; Topliff a. Vail, Harr. Ch., 340.) The defendants, by their demurrers, admit their fraudulent intent in this transfer—that the firm was thereby reduced to insolvency. 2. The plaintiffs were creditors of this firm before that transfer was made, and are entitled to have it vacated. (Cooke a. Smith, 3 Sandf. Ch., 334 .) They have acquired an equitable lien upon the property thus fraudulently transferred, and the remaining assets of the firm and the right to have the same applied to the payment of the firm assets. They have reduced their debts to judgment against the partners and issued executions thereon, which created a lien upon the personal property of the firm. (Greenwood a. Broad-

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head, 8 Barb., 593 .) The fraudulent acts of these defendants obstructed the execution and compelled the plaintiffs to seek relief in equity. They had acquired a lien or were in a situation to enforce one, which they seek to do by this action. 3. This lien of partnership creditors will be enforced in equity at the suit of the judgment and execution creditors of the firm. Relief in cases of this nature is administered in equity on behalf of all the partnership creditors. (Kirby a. Schoonmaker, 3 Barb. Ch., 46 ; Wilson a. Robertson, 21 N. Y., 587 .) 4. This firm property may be reached in the possession of George M. Chapman, and applied to the payment of the firm debts. (2 Story Eq. Jur., § 1253; Cooke a. Smith, 3 Sandf. Ch., 334 .) Chapman is not a bona-fide purchaser, but has acquired possession of the property of this firm by fraud.

I do not think a long opinion, in any case, certain evidence that the author very carefully examined the questions discussed, or that the conclusions arrived at are sound, and shall therefore write a short one in these cases.

Each complaint in these actions shows that the defendants Hunt and Julia Ann Chapman were partners; that the plaintiffs recovered judgments, in form, against both of them, upon partnership demands, by the personal service of the summons only upon Hunt; that executions thereon, against property, were issued, and returned by the sheriff of the proper county unsatisfied; and that Hunt and Julia Ann Chapman transferred partnership property of the value of more than $100 to the defendant George M. Chapman, which he still retains, with the intent to hinder, delay, and defraud the plaintiffs and other creditors.

The executions authorized the sheriff to seize and sell any goods that belonged to Hunt alone, or to him and Julia Ann Chapman as partners, but none that were the separate property of the latter.

It is provided by subd. 1 of section 136 of the Code, that, if the action be against defendants jointly indebted upon contract, the plaintiff, when the summons has not been served on all the defendants, may proceed against those served, unless the court otherwise direct; and if he recover judgment, “it may be entered against all the defendants thus jointly indebted, so far only

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as that it may be enforced against the joint property of all, and the separate property of the defendants served.” The Revised Statutes contain provisions quite similar. (See 2 Rev. Stat., 377, §§ 1 to 4, inclusive.)

The statutes authorizing judgment-creditors to maintain equitable actions, after they have failed to collect their judgments by execution, contain the following provisions, namely: “ Whenever an execution against the property of a defendant shall have been issued on a judgment at law, and shall have been returned unsatisfied in whole or in part, the party suing out such execution may file a bill in chancery against such defendant, and any other person, to compel the discovery of any property or thing in action belonging to the defendant, and of any property, money, or thing in action due to him, or held in trust for him.” (2 Rev. Stat., 173, § 38.) The court shall have power, among other things, to decree satisfaction of the sum remaining due oh such judgment, out of any property, money, or things in action belonging to the defendants, whether the same were originally-liable to be taken in execution at law or not. (Ib., § 39.)

The plaintiffs’judgments established their right to collect the moneys therein mentioned out of the joint property of Hunt and Julia Ann .Chapman (Code of Pro., § 136; 2 Rev. Stat., 377, § 4); and I am unable to perceive any good reason why the plaintiffs are not entitled to have such judgments satisfied out of the partnership property that those defendants fraudulently transferred to George M. Chapman. (See 2 Rev. Stat., 137, § 1.) The executions issued on such judgments were as efficacious against the joint property of those defendants as they would have been if the judgments had bound the latter personally. The plaintiffs have not only exhausted their remedy by execution upon such judgments, but also all remedy they could have, by that process, against the partnership property of Hunt and Julia Ann Chapman, upon any judgment they could obtain against them in any legal action.

The statute only requires that “an execution against the property of a defendant” be returned unsatisfied, in whole or in part, to entitle the plaintiff to maintain an equitable action, to reach choses in action belonging to th¿ defendant, or any property held in trust for him, or fraudulently transferred by him to a third person.

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It seems to me to be not only just but clear, that whenever the remedy by execution for enforcing a judgment is duly exhausted, the plaintiff may maintain an equitable action to recover any property, money, or things in action, that ought to be applied to the satisfaction of the judgment.

I would ask why the plaintiffs in these cases should be compelled to go back and recover judgments that would bind Julia Ann Chapman personally, before being allowed to invoke the equitable powers of the court to obtain the joint property that she and her partner owned and fraudulently transferred to George M. Chapman? The judgments they now have show their legal right to seize and sell on execution any goods that Hunt and Julia Ann Chapman have as partners. And I am unable to see that the legal right of the plaintiffs to have their judgments satisfied by execution out of partnership property, has been greater at any time than their equitable right now is to have them satisfied out of like property. I cannot construe the statute authorizing judgment-creditors to maintain suits in equity after the return of executions unsatisfied, so as to deprive the plaintiffs of this equitable remedy. I think it would be unjust to do so; and that neither the language of the statute, nor any adjudged case prior to the decision of Mr. Justice Allen in these, requires such a construction.

I think Mr. Justice Allen came to a wrong conclusion, when these cases were before him, upon the motions for the appointment of a receiver (13 Abbotts' Pr., 320), and that he erred, almost in the beginning of his opinion, in saying: “ No judgment at law has been recovered against Julia Ann Chapman, and no execution has been issued against her upon any such judgment.” For the judgments are against her as a partner of Hunt, and executions against her, as such partner, were issued upon the judgments, and returned unsatisfied. Besides, his opinion does not show that he considered the fact, that one material object of the actions is to reach property that Julia Ann Chapman and Hunt had owned as partners and fraudulently transferred; and the cases are now stripped of the affidavits which formed a part of them when they were before him.

I regret that my views and Mr. Justice Allen’s are in conflict, especially because of his great ability and learning. But I cannot concur in his opinion; and as it is not controlling, I shall

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act up to my own convictions of right in the cases, and the general term must determine which of us is wrong. I hardly need to say I concur in his views so far as they show that the separate property of Julia Ann Chapman, in which Hunt never had any interest as her partner, cannot be reached in these actions. But I do not agree to his dictum, that actions like these cannot be brought unless the executions issued on the judgments, remain sixty days in the hands of the sheriff before he returns them unsatisfied. I have repeatedly held the contrary, and so has the general term in the sixth district, and some, if not all, of the justices of this court in the first district.

My conclusion is, that each complaint in these actions states facts sufficient to constitute an equitable cause of action against the defendants, and that, consequently, the demurrers to the complaints should be overruled with costs; but with leave to the defendants to answer on payment of the costs occasioned by the demurrers.