Brunnemer v. Cook & Bernheimer Co. — 180 N.Y. 188

Majority

p. 188

John Brunnemer, as Receiver of the Property of James M. Connelly, a Judgment Debtor, Respondent, v. Cook & Bernheimer Company et al., Appellants, and Frank L. Entwistle, as Trustee of the Estate of James M. Connelly, Respondent.

Headnote

Supplementary Proceedings — Equitable Action by Beceiver to Set Aside Chattel Mortgage. A receiver, appointed in proceedings supplementary to an execution issued ona judgment against a mortgagor of chattels, may maintain an action for an accounting hy the mortgagee who has sold the mortgaged goods and become the purchaser, upon the ground that the mortgage was void because not filed in the proper county.

Brunnemer v. Gook & Bernheimer Go., 89 App. Div. 406 , modified.

(Submitted December 2, 1904;

decided December 30, 1904.)

Appeal from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered January 11, 1904, affirming a judgment in favor of plaintiff and of defendant Entwistle as trustee entered upon a decision of the court on trial at Special Term.

The nature of the action and the facts, so far as material, are stated in the opinion.

Moses Feltenstein for appellants.

The plaintiff, as a receiver in supplementary proceedings, cannot maintain this action. (Sheldon v. Wickham, 161 N. Y. 500 ; Stephens v. M. B. Co., 160 N. Y. 178 ; Castleman v. Pryor, 55 App. Div. 515 ; Stewart v. Cole, 43 Hun, 164 .) Neither the trustee’s pleading nor the findings in liis favor supports a recovery upon either of the three causes of action he sets out in his answer. (Muller v. Bruss, 8 Am. Bank. Rep. 442; Matter of N. Y. E. P. Co., N. Y. L. J. Sept. 20, 1901.) The finding in the terms of the decision in favor of the trustee for $396, the value of the liquor tax certificate, does not entitle the trustee to the judgment recovered. (Niles v. Mathusa, 162 N. Y. 547 : McNealy v. Wely, 166 N. Y. 124 ; Schreider v. C.

p. 189

Bank, 74 App. Div. 478 ; Benedict v. Deschel, 77 App. Div. 276 .) The judgment in favor of the trustee for the sum of $450, the difference between the amount secured by the mortgage and the price which the property realized at the sale, is sustained neither by the allegations of bis pleadings nor by the findings in the case nor is it Avar ran ted as a matter of law. (Stewart v. Platt, 101 U. S. 781 .)

I. Henry Harris for plaintiff, respondent.

A receiver in supplementary proceedings can maintain this action. (Bostwick v. Menck, 40 N. Y. 383 ; Gilbert v. Clarke, 10 Daly, 316 ; Kitchen v. Lowery, 127 N. Y. 58 ; Mandeville v. Avery, 124 N. Y. 377 ; Stephen v. Perrine, 143 N. Y. 476 ; Thompson v. Van Vechten, 27 N. Y. 568 .)

Augustus J. Koehler for respondent trustee.

The plaintiff is the receiver of James.M. Connelly, a judgment debtor, appointed in proceedings supplementary to executions issued on several judgments obtained against said Connelly. The appellant, the Cook & Bernlieimer Company, was the holder of a chattel mortgage for the sum of $2,050 made by said Connelly, Avliich covered the fixtures in his saloon. This mortgage, as found by the trial court, was not filed in the county where the mortgagor resided. Subsequently the appellant seized the mortgaged chattels, together with other property of the judgment debtor not covered by said mortgage, sold the same to satisfy the mortgage debt and at such sale became the purchaser. The claims of the various creditors whom the plaintiff represents accrued prior to the mortgage sale, but judgments were not recovered on them until subsequent to the sale. The respondent, defendant Entwistle, is the trustee in bankruptcy of the estate of said Connelly appointed as such subsequent to the mortgage sale, but prior to the recovery of the aforesaid judgments. The action originally Avas brought against the Cook & Bernheimer Company to-compel that defendant to account to

p. 190

the plaintiff for the value of the mortgaged chattels on the ground that said mortgage was void as against the plaintiff’s judgments because it was not properly tiled. After the commencement of the action the trustee in bankruptcy, on his own application and without opposition by the other parties, was made a party defendant thereto. He answered, making three claims against his co-defendant: First, for the excess in value of the mortgaged chattels over the sum for which they were sold. Second, for the value of the property seized by the appellant which was not included in its mortgage. Thwd, for the value of a liquor tax certificate transferred by the bankrupt to the defendant in fraud of the Bankruptcy Act. The trial court found the value of the mortgaged chattels exceeded $3,800, 'and awarded the plaintiff the amount due on the judgments which he represented, the smn of $2,670.22. It awarded, to the trustee in bankruptcy his second and third claims against its co-defendant. It disallowed his first claim, the value of the mortgaged chattels in excess of the price for which they were sold, but in lieu thereof awarded him the surplus arising on the sale, that is to say, the difference between the mortgage debt and the sum of $2,500, for which the property was sold. That judgment was unanimously affirmed by the Appellate Division and an appeal was taken to this court.

The appellant challenges the right of the plaintiff to maintain the action at all. He concedes that the case of Stephens v. Perrine ( 143 N. Y. 476 ) is an authority in support of the action, but insists that that case has been overruled, or at least its authority seriously impaired, by the subsequent decisions of this court in Stephens v. Meriden Britannia Company ( 160 N. Y. 178 ) and Sheldon v. Wickham ( 161 N. Y. 500 ). We think otherwise. The Stephens case decided that though the creditor could not attack an unfiled chattel mortgage until he recovered a judgment on his claim, still that a seizure and sale by the mortgagee prior to a recovery' of any judgment did not vest title in him and that he was liable to account for the value of the property to the creditor. It was also held

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that the action was properly brought by a receiver in supple» mentary proceedings. All that was decided in the Meriden Britannia case was that an action at law for the conversion of the mortgaged chattels could not be maintained by the receiver. It is not an authority for the proposition that the mortgagee was not liable in equity to account to the creditor or his receiver. The Sheldon case merely decided that an assignee for the benefit of creditors could not maintain the action because he had no other rights than those of his assignor, as to whom the untiled mortgage was valid, except as those rights had been further extended by the statute, which was not broad enough to include such a case. The authority of Stephens v. Perrine, therefore, stands in full force.

We cannot see any principle, however, on which the surplus realized on the sale of the mortgaged chattels over the amount of the mortgage debt could be justly awarded to the trustee in bankruptcy. The mortgage seems to have been good as against him (Stewart v. Platt, 101 U. S. 731 ), or at least the ruling of the trial court to that effect has not been challenged b^ either respondent. Doubtless if there were in reality a surplus on the mortgage sale the trustee in bankruptcy would be entitled to it, but the surplus was entirely fictitious. The property brought only $2,500, the mortgage was $2,050. Had the title to the property been unincumbered there would have been a surplus of $450. But the chattels instead of being unincumbered were subject to the claims of creditors, which the very judgment before us establishes at $2,600. This exceeds the sum for which the chattels were sold, and the result is that, instead of there having been a surplus, the appellant, by the sale, realizes nothing on its mortgage debt. The trial court made some errors in its rulings on evidence, but we do not think they are of such vital importance as to require a reversal of the entire judgment.

The judgment appealed from should be modified by deducting from the recovery awarded Entwistle, as trustee in bankruptcy, the sum of $450, with interest thereon from Novem

p. 192

her 18th, 1899, and as modified affirmed, with costs to the plaintiff respondent, but without costs to respondent Entwistle, trustee.

Cullen, Ch. J., Gray, O’Brien, Bartlett, Haight, Martin and Vann, JJ., concur.

Judgment accordingly.

Cases cited

Brunnemer v. Cook & Bernheimer Co. 89 App. Div. 406 N.Y. App. Div. 1903-12-30 p. 188
Sheldon v. Wickham 161 N. Y. 500 N.Y. 1900-01-09 p. 188, p. 190
Stephens v. Meriden Britannia Co. 160 N. Y. 178 N.Y. 1899-10-03 p. 188, p. 190
Castleman v. Pryor 55 App. Div. 515 N.Y. App. Div. 1900-11-20 p. 188
McNeeley v. Welz 166 N. Y. 124 N.Y. 1901-02-26 p. 188
Schreyer v. Citizens' National Bank 74 App. Div. 478 N.Y. App. Div. 1902-07-08 p. 189
Benedict v. Deshel 77 App. Div. 276 N.Y. App. Div. 1902-12-12 p. 189
Bostwick v. Menck 40 N. Y. 383 N.Y. 1869-06-11 p. 189
Stephens v. Perrine 143 N. Y. 476 N.Y. 1894-11-27 p. 189, p. 190
Thompson v. Van Vechten 27 N. Y. 568 N.Y. p. 189
Stewart v. Platt 101 U. S. 731 SCOTUS p. 191