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Riddle v. Bank of Montreal

145 A.D. 207 Court First Department, Decision date 1911-06-02 English

Judges Ing-raham, P. J., Laughlin, Miller and Dowling,. JJ., concurred. '

Delivered by McLaughlin, J.:

Contents

Majority

p. 207
Maxwell Riddle, Respondent, v. Bank of Montreal and United States Banking Company, Appellants, Impleaded with John S. Shea, as Sheriff of the County of New York, and Others, Defendants.
First Department,
June 2, 1911.

Headnote

Bills and notes — bill of exchange —payment on demand — court — jurisdiction — foreign corporation — when cause of action arises here —pleading — complaint — failure to allege facts — debtor and creditor — preference — failure of debtor to set up counterclaims — failure to show existence of counterclaim — equity — compelling sheriff to do his duty.
A bill of exchange drawn on a bank, if payable on demand, is a cheek, and such a bill is payable on demand unless a specific date of payment is mentioned. . ' ■
p. 208
"Where ño specific date of payment is alleged in the pleading it will he assumed that the hill was payable on demand.
Where payment of a demand hill of exchange, drawn on a New York hank, is refused, a cause of' action arises in this State in favor of the holder against the drawer, and our courts have jurisdiction of the action, • although hoth par-ties aire foreign corporations.
An allegation in a complaint that all of certain “ proceedings and papers are void and of no effect, and were made, issued and filed as aforesaid, with the intent and for the purpose of hindering, delaying and defrauding the creditors” of one defendant, “which intent was participated . in” hy the other defendant, is a mere conclusion, and insufficient to raise the issue of fraud.
A complaint which alleges that prior to the recovery hy the plaintiff of two judgments against one of two defendants, the other defendant obtained a judgment against it hy default; that the sheriff made a levy under an attachment in that action; that the judgment and all proceedings therein were void for want of jurisdiction because hoth parties were foreign corporations and because the action, which was on a demand hill drawn hy defendant upon a New York hank, was not to recover damages for breach of a New York contract; that all proceedings therein were for the purpose of defrauding the creditors of the first defendant; that the sheriff refuses to apply the money realized hy the levies under the attachment and execution in that action to the satisfaction of plaintiff’s execution, is demurrable as not stating a cause of action where it appears from the pleading itself that the court did have jurisdiction of the [action between the two defendants, and no facts are alleged showing fraud in the obtaining of the judgment hy default.
Since the hill of exchange upon which, the second defendant obtained its judgment was given for full consideration, the judgment thereon and its payment did not defraud the other creditors of the drawer.
Even though a debtor is insolvent a creditor is entitled to tire preference acquired in the ordinary course of legal procedure.
It is error to overrule demurrers to the complaint on the ground that the drawer of the bill of exchange failed to set up certain counterclaims which could have been interposed in the action thereon where the complaint contains no allegations of facts showing that such counterclaims existed. An allegation that one did exist is a mere legal conclusion.
Allegations that the second defendant took possession of the first defendant’s hank during a run upon it at a time when it was insolvent, and that it dissipated the assets and-took large blocks of securities which it still retains, or has disposed of for its own account, aré insufficient to show a counterclaim in favor of the first defendant in the action on the hill of exchange in the absence of an allegation that the second defend-, ant’ acted without the consent of the first defendant or that the money and securities paid out were not for its benefit or the benefit of its creditors.
Even if the securities had been wrongfully converted, that would not have constituted a counterclaim in the action on the hill of exchange.
p. 209
It seems, that the sheriff is hound to levy under attachments in the order in which they are received. If he is not hound to do this, the remedy of one aggrieved by reason of his levying under another attachment first is by motion to compel the sheriff to do his duty and not by a suit in equity.
Appeal by the defendants, the Bank of Montreal and another, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of . New York on the 11th day of February, 1911, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the said defendants’' demurrers to the complaint.
John A. Garver, for the appellants.
Frederick Seymour, for the respondent.

The defendants, Bank of Montreal and United States Banking Company, separately demurred to the complaint upon the grounds: (1) That the court did not have jurisdiction of the sub.ject-matter of the action; and (2) that the complaint did not state facts sufficient to constitute a cause of action. The demurrers were overruled and each appeals.

The complaint, in substance, charges that on the 8th of July, 1910, plaintiff recovered two judgments against the United States Banking Company, amounting to between $47,000 and $48,000, and on the following day executions were issued thereon to the sheriff of the county of New York and the same are still outstanding; that on April 13, 1910, the Bank of 'Montreal entered a judgment by default against the United States Banking Company for $215,000, and on the same day issued an execution thereon to the sheriff in an action in which the summons was personally served on the defendant and in which an attachment was issued on the 14th of February, 1910; that under the attachment issued in that action the sheriff levied upon a debt of $208,000, owing to the United States Banking Company, and when this plaintiff’s warrant of attachment was issued the sheriff had in his possession the proceeds of the debt; that under the plaintiff’s writs of

p. 210
attachment, and after the issnance of execution by. the Bank of Montreal upon its judgment,, the sheriff levied upon and collected another debt owing to the United States Banking Company in the sum of $19,000, which he refused to apply, towards the payment of plaintiff’s judgments because the same were claimed by the Bank of Montreal; that the attachment, judgment and execution of the Bank of Montreal are void-and of no effect and were made, issued and filed with the intent and for the purpose of hindering, delaying and defrauding the creditors of the defendant, the United States Banking Company, which intent was participated in by the Bank of Montreal; that the court acquired no jurisdiction in that action to issue the attachment; that the judgment and execution were void for want of jurisdiction because both the plaintiff and defendant were foreign corporations and. the action was not brought to recover damages for the breach of a contract made within the State of New-York.or relating to property situate within the State at the time of the making thereof, but that the same was brought upon a bill of exchange made and delivered outside of .the State, where the cause of action arose; that the Bank of Montreal wrongfully insists that its attachment, judgment and execution are valid and constitute a prior lien upon the funds referred to; that for that reason the sheriff -has refused to.pay plaintiff’s execution out of the property in his hands and threatens to apply the whole thereof to the payment of the judgment of the Bank of Montreal; that the attachment, judgment and execution constitute an equitable obstruction to the enforcement of plaintiff’s executions; and that the United States Banking Company has- failed to take any steps to vacate or annul the same of record, but by collusion and agreement with the Bank of Montreal is conspiring to have the same sustained and such money applied to the payment of the claim of the Bank of Montreal in pursuance of • an agreement by which the money now held by the sheriff shall be used and applied for the benefit .of ,the United- States Banking Company in procuring its reorganization. Then fol- : lows allegations to the effect that the Bank of Montreal took possession of certain securities of the United States Banking .Company which it still retains and has in its possession, or -has
p. 211
disposed of • for its own account; that by reason of that fact there existed in favor of-the United States Banking Company against the Bank of Montreal — at the time the latter procured its attachment, brought its action and entered judgment —■ various counterclaims which, by reason of the arrangement and agreement before stated were not interposed or pleaded. The judgment demanded, among other relief, is that the attachment, judgment and execution of the Bank of Montreal he declared void, and that this plaintiff he decreed to have a prior lien upon all the funds now held by the sheriff.

I am of the opinion the demurrers should have been sustained, for the reason that the complaint does not state facts sufficient to constitute a cause of action. The cause of action attempted to he set out is mainly predicated upon the fact that the court did not have jurisdiction of.the subject-matter of the action brought by the Bank of Montreal against the United States Banking Company. The court had jurisdiction because the instrument sued on was that kind'of a bill of exchange which is drawn on a bank, and if payable on demand was a check. (Neg. Inst. Law [Consol. Laws, chap. 38; Laws of 1909, chap. 43], § 321.) It was payablé on demand unless there, was a specific date of payment mentioned. (Id. § 26.) It is not alleged in the complaint that there was a specific date.of payment, and, therefore, it must, be assumed it was payable on demand. It was drawn on a New York bank. It was not paid when presented. "When payment was refused a cause of action arose in the State of New York in favor of the Bank of Montreal against the drawer, the United States Banicing Company. (Hibernia National Bank v. Lacombe, 84 N. Y. 367 ; Amsinck v. Rogers, 189 id. 252; Bank of Montreal v. United States Banking Co., 139 App. Div. 906 .)

The other ground upon which it is claimed the plaintiff is entitled to the relief asked is that the attachment, judgment and execution thereon in the action by the Bank of Montreal against the United States Banking Company constituted a fraud upon this plaintiff’s rights as a creditor. It is alleged that “ all such proceedings and papers are void and of no effect, and were made, issued and filed as aforesaid with the intent and for the purpose of hindering, delaying and defrauding the

p. 212
creditors of the defendant, The United States Banking Company, which intent was participated in by the defendant Bank of Montreal.” This allegation is a mere conclusion of the pleader. No facts are stated from which the court can see that any fraud was committed.

In Eppley v. Kennedy ( 131 App. Div. 1 ) this court said: “ The burden of charging as well as proving fraud is on the party alleging it, and facts constituting the alleged fraud must be set forth, in order to entitle a party to introduce evidence of it. Mere conclusions of law are not enough.”

And to the same effect are Wood v. Amory ( 105 N. Y. 278 ); Cohn v. Goldman (76 id. 284 ), and Booth v. Dodge ( 60 App. Div. 23 ).

Not a single fact is set forth which shows, or tends to show, or from which it can even be inferred, that the plaintiff or other creditors of the United States Banking Company were hindered, delayed or defrauded; on the contrary, the only inference that can be drawn from the facts pleaded is that the check upon which the Bank of Montreal obtained its judgment was given for full consideration. If this be so then the judgment which it obtained thereon and its payment could not operate to defraud creditors any more than the payment of any just debt. (Beards v. Wheeler, 76 N. Y. 213 ; Wood v. Amory, supra.) The fact that the Bank óf Montreal enforced its legal rights and obtained a judgment upon a debt, justly due could not defraud any one. A creditor is entitled, even though the debtor be insolvent, to the preference acquired in the ordinary course' of legal procedure. (Lopez v. Campbell, 163 N. Y. 340 .) The plaintiff seems to recognize this rule, .because it is trying to do precisely what the Bank of Montreal did — get a preference. The allegation to the effect that the Bank of Montreal and the United States Banking Company had previously agreed that the money paid by the former might be used- by the latter in bringing’ about a reorganization is immaterial. If the money obtained Were used for that purpose it would tend, at least to the amount of it, to make the banking company solvent, which would be to the interest of all its creditors.

The ground upon which the court overruled the demurrers,

p. 213
as appears from the opinion delivered, was the failure of the banking company to set np certain counterclaims which could have been interposed in the action against it by the Bank of Montreal. No facts are stated showing that there then existed any counterclaim. The assertion that one existed is a conclusion of law and nothing else. It is true the complaint alleges in this connection that in January, 1910, there was a run upon the United States Banking Company by its depositors; that the Bank of Montreal went into possession of the bank and took' control of its assets, posted a notice upon the' doors that it would pay all of the depositors; that it subsequently refused to do so, and thereupon the bank was closed and the depositors have not been paid; that at the time the Bank of Montreal took possession of the assets the banking company was insolvent and unable to pay its obligations; that,.notwithstanding that fact, the Bank of Montreal took possession, dissipated and paid out all of the cash and easily convertible assets, and then surrendered possession; and that when it did so took large blocks of securities of the banking company, which it still retains or has disposed of for its own account. It is not alleged that whatever the Bank of Montreal did was without the consent of the banking company, or that the money paid out was not for its benefit or the benefit of- its creditors, and the same is true as to the securities. If the securities were wrongfully taken and appropriated, that would not have constituted a counterclaim in the action by the Bank of Montreal. (Code Civ. Proc. § 501.)

Finally it is claimed that, irrespective of the questions considered, the complaint states a cause of action as to the $19,000. What the complaint alleges as to this fund is that the sheriff received warrants of attachment in the actions commenced by the plaintiff and levied upon this fund, which he refuses to pay over because the Bank of Montreal has notified him it has a lien or claim thereon; that the Bank of Montreal has no lien upon this fund, nor has any levy been made thereon. The complaint, however, shows the issuing of the attachment by the Bank of Montreal prior to the plaintiff’s attachments, and it would seem that the sheriff was, therefore, bound to levy in the order in which the attachments were received. (Code Civ.

p. 214
Proc. §§ 697, 1406.) But if it be assumed that the sheriff was not bound to do this, but on the other hand was obliged to levy-under the plaintiff’s attachments, then the remedy of the plaintiff is not in equity, but by motion to compel the sheriff to do his duty,

My conclusion, therefore, is that the interlocutory judgment appealed from should be reversed, with costs, and the demurrers sustained, with costs, with leave to serve an amended complaint upon payment of costs.

Ing-raham, P. J., Laughlin, Miller and Dowling,. JJ., concurred. '

Judgment reversed, with costs, demurrers sustained, with-costs, with leave to plaintiff to serve amended complaint upon payment' of costs.

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