Stephens v. Meriden Britannia Co.

On the 19th of 27ovember, 1892, a foreign corporation, known as the McCall Publishing Company, gave to the Meriden Britannia Company, another foreign corporation, a bill of sale of certain printing machinery and materials to it

"When the mortgage was given the McCall Publishing Company was owing one Walter Logan about $1,700, and on the 8th of‘February, 1893, he recovered judgment for the amount of his claim. Upon the basis of this judgment the plaintiff was appointed receiver of the property of the judgment debtor in proceedings supplementary to execution, instituted about the 20th of February, 1893, and on the 6th of May following he commenced this action against the Meriden Brittania Company and the persons composing the firm of Page & Eingot, to recover damages for the conversion of said property by them on-the 9th of January preceding.

Upon the trial of the action the foregoing facts among others appeared, and at the close of the evidence for the plaintiff, as -well as at the close of the entire evidence, the defendant’s counsel moved to dismiss the complaint upon the ground u that an action for conversion will not lie under the proof adduced, and that the plaintiff has mistaken his remedy.” This motion was denied, and the court directed a verdict in. favor of the" plaintiff for the sum of $900, with interest for three years, amounting in all to $1,062, the defendants duly excepting. Upon appeal to the Appellate Division, that court reversed the judgment and granted a new trial as to the defendants Page & Eingot, but affirmed it as to the Meriden Britannia Company, which now comes here.

As the mortgage was neither filed as required by law, nor accompanied by an immediate delivery, followed by an actual

When the receiver was appointed the property of the judgment debtor became vested in him. He was then in a position to bring any action relating to that property which the judgment debtor or the judgment creditor could have brought and none other. The judgment debtor, for instance, could, have brought-an action at law against any one who had taken its property without its consent, while the judgment creditor could have brought an action in equity for taking the property

The receiver cannot bring an action at law for the taking of property formally transferred before the recovery of the judgment, because neither the judgment debtor nor the judgment creditor could have brought it. He can, however, by a bill in equity remove any obstacle, such as a fraudulent transfer, which, until set aside, would prevent him from taking possession of the property, and thereupon sell it and apply the proceeds upon the debt which he represents. If the property has been consumed, or for any reason cannot be identified or followed, he can, in the same action, compel those legally responsible to account for it and pay over the value thereof to the extent necessary to satisfy the debt or debts represented by him, as well as the costs and expenses. He cannot, however, uphold an action at law for the conversion of property transferred, even in fraud of creditors, before he was appointed receiver, because that is not “ the property of the judgment debtor ” within the meaning of section 2468 of the Code of Civil Procedure, which is the source of his power. (Ward v. Petrie, 157 N. Y. 301 ; Pettibone v. Drakeford, 37 Hun, 628 .)

The title of the plaintiff is not strengthened nor is his power increased by the act of 1858 “ to declare and extend the powers of executors, assignees, receivers and other trustees.” (L. 1858, ch. 314; L. 1894, ch. 740.) While the language of the statute is general in form, it obviously includes only such trustees as take the entire estate for the benefit of all the creditors, whereas a receiver in supplementary proceedings represents simply the creditor who brought about his appointment and such as caused the receivership to be extended to their claims, each of whom is entitled to payment in full in the order of diligence in instituting proceedings. (Code Civ. Pro. §§ 2466, 2469.) The object of the one statute is to secure distribution of all the effects of an insolvent, without

The claim of the respondent, that the judgment should be affirmed because the evidence is sufficient to support a bill in equity, is not well founded. The complaint is in the form of a pure action at law to recover damages for the conversion of personal property with no allegation to suggest a court of equity as the forum resorted to, except those essential to show the appointment of the plaintiff as receiver, and hence that he had a legal capacity to sue. The plaintiff alleged that the defendants took possession of the property in question and “ unlawfully converted and disposed of the same to their own use,” and that the damages sustained thereby amounted to $3,000. The only relief demanded is for the recovery of that sum and costs. There is not even a prayer for general relief. The trial was had without objection, in the usual way, before a jury ; the verdict rendered was simply for a definite sum of money, and when the defendants moved to dismiss because the plaintiff had mistaken his remedy, as an action at law would not lie, no suggestion was made that the court should grant relief in equity, and no such relief was granted. The fact that the judgment roll, execution and return thereof were read in evidence without objection did not authorize the court to award equitable relief, as such evidence was not received for that purpose, but simply to show that the plaintiff was duly appointed receiver. No motion was made to amend the complaint, and it stands as it was drawn, a pleading in. a strict action at law.

The theory of the action as gathered from the complaint, the method of trial and the practice followed throughout the history of the case have fastened it unchangeably on the law side of the court. It was brought there and tried there, and there it must remain so far, at least, as this appeal is concerned.

We think that the judgment should be reversed and a new trial granted, with costs to abide the event.

The plaintiff as a receiver in supplementary proceedings, representing a creditor of the McCall Publishing Company, recovered a judgment against the Meriden Britannia Company for nine hundred dollars and interest, tlfe amount received on the sale of property belonging to the McCall Company, which the Britannia Company had wrongfully converted to -its own use. The Appellate Division, first department, sustained the recovery, and I agree with the reasoning of that learned court.

The precise question here presented lies within a very -narrow compass.

The chattel mortgage given by the McCall Company to the Britannia Company was “ absolutely void as against the creditors of the mortgagor,” in the language of the statute (Laws 1833, ch. 279, § 1), there having been neither actual and continued change of possession of the property, nor a filing of the instrument.

The plaintiff represents a judgment of about seventeen hundred dollars, and seeks to apply thereon the sum of nine hundred dollars in the custody of the fraudulent mortgagee, who took possession of the property under the provisions of the chattel mortgage and sold it.

It is to be observed that here is a question between a judgment creditor, as to whom the statute says this mortgage is “ absolutely void,” and a fraudulent mortgagee, who holds money to all of which the plaintiff is entitled, as it is less than the judgment lie represents as receiver. There is no complaining creditor — no innocent third party — seeking to enforce liis claim, and the bald question is whether the receiver, as between himself and the mortgagee, can treat this mortgage as “ absolutely void,” as the statute declares it to be, and reach the proceeds of a conversion in an action at law which is insufficient to pay his judgment, or whether he is driven to the empty form of an action in equity to set aside an instrument which, as to him under these peculiar circumstances, is waste paper. In other words, is the mortgage to be held voidable only as to him, although the statute says it is “ absolutely void ?”

I am of opinion that, as between this judgment creditor and

The counsel for the plaintiff did, indeed, sue for three thousand dollars, the alleged value of the property, hut at the trial he limited the recovery to the amount of nine hundred dollars realized by the mortgagee at the sale, thus presenting the question, as between the judgment creditor and mortgagee, divested of the rights of third parties.

The language of Judge Pegkham, in Stephens v. Perrine ( 143 N. Y. 476 ), is very much in point.

That learned judge said, in referring to an unfiled chattel mortgage like the one at bar: “ The mortgage, as to the creditors of the mortgagor, was always void. It continued to be void notwithstanding the fact that the mortgagee assumed to take possession under and to sell the property by virtue of such void instrument. As between these mortgagors and creditors, it was the same as if the mortgage did not exist, and the mortgagee could not, as against these creditors, obtain any rights under it. * * * As against them the mortgagee could not rightfully take the property by virtue of this void instrument, and if she did take in spite of the fact that the mortgage was void and no protection to her, how could she secure any further or greater right by the sale of the property and the receipt of its value ? * * * If void, what right has the mortgagee, as against creditors, to take possession in her character of mortgagee and to sell or dispose of property described in it ? Clearly she has none, and she does not acquire any by the celerity of her movements in seizing and selling property under it.”

It is true that the precise question now presented to the court as to remedy was not up in the case last cited, but this fact does not render the reasoning in the foregoing quotation any the less cogent.

Under the peculiar facts of the case at bar the statement that the mortgage was valid as between the parties and as to all the world, except creditors of mortgagor, has no controlling force — the plaintiff was entitled to all the proceeds of the conversion and no third party had a valid claim.

The judgment creditor represented by the plaintiff was, under the facts disclosed, entitled to act as if the mortgage never existed and treat the mortgagee as a naked trespasser in entering upon the premises of the McCall Company and converting its property. This was his statutory right and not a cause of action that he derived from the judgment debtor. The action before us is one in which the judgment debtor never had part or lot, and the fact that the mortgage was valid as. between the mortgagor and mortgagee is immaterial.

In Mandeville v. Avery ( 124 N. Y. 376 ) this court held that the term “ creditors ” includes all persons who were such while the chattels remained in the possession of the mortgagor under the agreement, and their rights are not affected by the fact that they did not obtain judgment, or a sjieciiic lien, until after delivery.of property to the mortgagee; that the right of the creditor to collect his debt out of the mortgaged chattels may not be defeated by the mortgagee, simply by selling the property. The court said (p. 387): “ The mortgage b'eing void, all proceedings under it were void, and although he ” (the t mortgagee) “ may possess ah honest claim, he cannot retain property obtained by him under a fraudulent mortgage against a pursuing creditor.”

It is also true in the case last cited that the question no.w presented as to the form of the remedy was not up, but the reasoning proceeds upon the assumption that, as to the creditor, the mortgage is as if it never existed.

It was. an action in equity to set aside the mortgage and compel defendant to account for proceeds.

It is insisted by the appellant that the case, of Ward v.

Bostwick v. Menck was an -action brought to set aside a fraudulent assignment, and, consequently, the form of the action was not under consideration, and the situation in the •case at bar did not exist. The point decided in that case was that a receiver in supplementary proceedings should be limited in his-recovery to an amount sufficient to cover the judgment .and interest, together with the costs of the proceedings, .although the assigned property in the hands of the assignee was of much greater value. In the case before ns this rule was observed.

It was held nearly fifty years ago in this court, in the case of Porter v. Williams ( 9 N. Y. 142 ), that “ the receiver appointed - under supplementary proceedings does not stand merely in the place of the debtor, but represents the creditors, and can thus impeach the fraudulent sales of the debtor. The assignment -sought to be set aside in this case was good between the parties. The fraudulent grantor could not impeach his own grant. * * * But the receiver, succeeding to the rights ■of the debtor, represents other interests than those of the debtor. He comes in by the act of the law and not by the net of the party.”

In the case at bar the receiver does not stand in the shoes

In attacking voidable instruments a receiver is clothed with all the rights of the judgment debtor and judgment creditor, and as to instruments absolutely void as to creditors the receiver may, as the creditor might, as between himself and the fraudulent mortgagee, treat the instrument as waste paper, and proceed as if the property sought to be conveyed by it had never left the possession of the mortgagor or grantor except by the wrongful act of the mortgagee, and maintain an action for conversion.

I am of opinion that this plaintiff might rely upon the act of 1858 (Ch. 314) to sustain his present position, hut do not deem it necessary to consider that question as his cause of action is complete without it.

■ I vote for the affirmance of the judgment.

Parker, Ch. J., O’Brien, Haight and Martin, JJ., concur with Vann, J., for reversal, etc.; Gray, J., concurs with Bartlett, J., for affirmance.

This action is clearly maintainable on principle, and there is no case in this court that has been brought to my attention that is authority to the contrary.

Judgment reversed, etc.