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Kelley v. Kremer

74 A.D. 456 Court N.Y. App. Div. English

Delivered by Hatch, J.:

Contents

Majority

p. 456
M. Edward Kelley, as Trustee in Bankruptcy of Louis Danis and Isaac Shapiro, Composing the Firm of L. Danis & Co., Appellant, v. Benjamin M. Kremer and Others, Respondents.

Headnote

Security for costs — when of right and when discretionary — action by a trustee in* bankruptcy to set aside fraudulent assignments—ex parte application — applica tian after service of answer.
In an action brought by a trustee in bankruptcy to set aside assignments by which certain creditors were given an unlawful preference, the defendants are not entitled, as a matter of right, under section 3268 of the Code of Civil Procedure, to require the plaintiff to file security for costs, as that section only- . applies where the cause of action existed prior to the adjudication in bankruptcy.
The court may, however, under section 3271 of- the Code of Civil Procedure, in, its discretion, require the trustee to give security for costs.
The court is not justified in exercising such discretion upon an eos parte application or where the defendants, without a sufficient excuse, neglect to make the-application until after the service of the answer.
Appeal by the plaintiff, M. Edward Kelley, as trustee in bankruptcy of Louis Danis and Isaac Shapiro, composing the firm of L. Danis & Go., from an order of the Supreme Court, made at the-Hew York Special Term and entered in the office of the clerk of the county of Hew York on the 24th day of April, 1902, denying-his motion to vacate an order compelling him to file security for costs..
Mark H. Ellison, for the appellant.
Benjamin Patterson, for the respondents.

The plaintiff, a trustee iir bankruptcy, brings this action to set-aside certain assignments which gave an unlawful -preference to certain creditors in violation of the provisions of the Bankruptcy Law (30 U. S. Stat. at Large 562, § 60). After the joinder of issue by; the service of an answer, the defendants applied for and obtained, an ex parte order under section 3268 of the Code of Civil Procedure, requiring the plaintiff as such trustee to file security for costs, The plaintiff thereupon moved to vacate such order upon the ground that as no cause of action existed in favor of anybody-prior to the appointment of the plaintiff as trustee, the provisions, of section 3268 did not apply.

p. 457
There is no doubt as to the correctness of the plaintiffs contention, in this respect. (Rielly v. Rosenberg, 57 App. Div. 408 .) It is, only where the cause of action has existence prior to the adjudication in bankruptcy that the defendant becomes entitled to require, security for costs as matter of right. (Schreier v. Hogan, 70 App. Div. 2 .) The cburt below denied the motion to vacate upon the, ground that by virtue of section 3271 of the Code of Civil Procedure there existed the right to grant the order requiring security for costs to, be filed in its discretion. It is undoubtedly true that; the court possesses such power and may exercise it in a proper case, but the application under this section cannot -be made ex parte. Notice is required and application must be made to the court. (Pursley v. Rodgers, 44 App. Div. 139 .) It is clear, therefore, that, the first order was improperly granted, and the plaintiff became, entitled to have his motion granted unless the court was authorized., upon the motion to vacate to hear and determine the question upon the merits, treating the same as though motion had been made therefor, as the parties were then all before the court. There is authority for such conclusion, and in a proper case the court may consider and dispose of the question of the right to the security for costs as a discretionary matter upon a motion made to vacate the ex pañete order. (Corbett v. Brantingham, 65 App. Div. 335 .) It is the settled rule, however, that the defendant must make his motion to file, security for costs before service of the answer, as by such service, he waives the right to such security. (Henderson, Hull & Co. v. McNally, 33 App. Div. 132 .) In the present case, therefore, the.plaintiff was entitled to relief upon two grounds, first, the Code did not authorize an ex parte application, and, second, there was waiver - of right to security by the service of the answer.

The court, however, had power to relieve from the latter condition upon the defendants showing facts which excused their default in not moving earlier and relieved them from the effect of the-waiver. It is the claim of the respondents that they showed them-, selves entitled to such relief. The affidavit in excuse, however, shows that the defendants served their answer with full knowledge.of what its effect would be. They aver as an excuse that they could obtain no extension of time to answer, and that the court for ex pa/rte business was not in session, so that they could not obtain.

p. 458
Bn extension of time. It is not disclosed by the affidavit that they made the slightest effort to procure an order extending their .time to answer. Such order could be granted by any judge, either in or out of court. There is not a word in the defendants’ affidavit to show that they ever prepared a paper or sought to find a judge to obtain an order of extension,-but relying upon the fact that the court was not in session served their answer and took their chances of being relieved from the condition in which .such act placed them. There is, therefore, not the slightest excuse shown entitling the defendants to relief from the waiver which the service of the answer involved. Hor did they attempt to take immediate action to secure such result, but on the contrary applied ex porte and as matter of right. There, was no ground, therefore, upon which the court was authorized to exercise its discretion under section 3271 of the Code.

The order should, therefore, be reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs.

Van Brunt, P. J., Patterson, Ingraham and Laughlin, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.

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