Harvey v. McDonnell — 16 N.Y. St. Rep. 513

Majority

p. 513

Elmer T. Harvey, who sues as well for Himself as for all other Creditors of John McDonnell, deceased, App’lt, v. Lucy McDonnell, Individually, and as Administratrix, and John McClumpha, Jr., as Administrator of John McDonnell, deceased, Resp’ts.

(Supreme Court, General Term, Third Department,

Filed May, 1888.)

Headnote

1. Executors and administrators — Creditor’s action — Fraudulent CONVEYANCE.

The plaintiff is a simple contract creditor of the decedent and brings this action against Lucy McDonnell, individually, and as administratrix, and John McClumpha, as administrator of John McDonnell, deceased, to set aside certain transfers as fraudulent, which were made by the testator to Lucy McDonnell. The administratrix and administrator had refused to bring this action. Some of the property in question had been transferred to Lucy McDonnell, the consideration for which was paid by the decedent. Meld, that although under section 53, 1 Rev. Stat., 738, a trust

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is created in such property for the creditors of the party, paying the consideration, yet that the administrators could not enforce this trust, as it is not derived through the debtor.

'3. Same—Administrator has no power to bring action on behalf of CREDITORS TO SET ASIDE A TRANSFER AS FRAUDULENT.

Held, that an administrator is not a trustee of the real estate of the1 deceased; over the estate of which the deceased dies seized the administrator has no power; and that he could not bring an action for the benefit of the creditors to set aside a transfer as fraudulent. Lichteiiberg v. Herdt felder, 3 M. Y. State Rep., 91, distinguished. Landon, J., dissenting.

'3. Judgment-creditors’ action — Action to set aside conveyance — Cannot be maintained by a simple creditor.

Held, that this action could not be maintained by the plaintiff, he being a simple creditor. That the creditor must first exhaust his legal remedies by judgment and execution or at least must have acquired by judgment or by execution a lien on the property alleged to be fraudulently transferred, Landon, J., dissenting.

This is an action brought by a simple contract creditor of John McDonnell, deceased, against his administrators for the purpose of declaring fraudulent, as against creditors, a certain conveyance of real estate made by McDonnell in his lifetime to one O’Brien, and a conveyance of the same made by O’Brien to said defendant McDonnell: also to recover from said Lucy McDonnell certain life insurance premiums paid by said McDonnell in his lifetime on policies upon his life, payable to said Lucy at his death, as also equitably belonging to his estate. The complaint avers that the deeds were not delivered during McDonnell’s life, or, if so delivered, that they were fraudulent as intended to defraud creditors. The complaint avers that all the other property of said McDonnell has been applied by the defendants to the payment of his debts, and that the administrators on request refused to bring this action.

The complaint also asks similar relief in regard to land alleged to have been purchased by McDonnell m his lifetime, of which the title was taken in the name of said Lucy. And it asks that the sums recovered be distributed among all creditors willing to come in and contribute to expenses.

The complaint was dismissed at the trial upon the ground that such an action could not be maintained by a simple contract creditor.

E. F. Bullard, for app’lt; N. C. Moak, for resp’ts.

The appellant admits that, if McDonnell were living still, an action could not be maintained except by a judgment-creditor. But he urges that, both before and since the Statute of 1858, chap. 314, the administrators might have brought this action ; hence, that on their refusal so to do he, as one of the cestuis que trust, may bring it,- making the administrators parties.

We do not think it important to examine the rights of

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administrators in this respect prior to the act of 1858. And we may notice, in passing, that that act speaks of “estate or property so held in trust; and again of “property held by or of right belonging to any such trustee.” Whether an administrator in any such sense holds the real estate of the deceased that he can disaffirm conveyances thereof under this act we need not inquire at this time. It seems to be assumed in Lictenberg v. Herdtfelder ( 103 N. Y., 302 ; 3 N. Y. State Rep., 91), that the administrators may dis-affirm conveyances of real estate. In regard to the real estate conveyed by Morris to Lucy, and for which the consideration was paid by McDonnell, the plaintiff relies on section 52, 1 R. S., 728, creating a trust in such property for creditors. But it has been decided that a receiver in (supra) cannot enforce that trust. Underwood v. Sutcliffe, 77 N. Y., 58 . The opinion refers to the statute of 1858, and while it admits that a receiver may set aside fraudulent transfers, it holds that he cannot enforce this statutory trust. By analogy an administrator cannot. The creditor must enforce it directly by an action. Garfield v. Hatmaker, 15 N. Y., 475 . But only after exhausting his legal remedies. Ocean Nat. Bk. v. Olcott, 46 N.Y., 12 . Therefore, in respect to this part of the complaint it is plain that the plaintiff cannot maintain the action, both because the administrators could not have enforced the statutory trust created by section 52 (ut supra), as it is not derived through the debtor; and also because the plaintiff has not exhausted his legal remedies, as was decided in Estes v. Wilcox ( 67 N. Y., 264 .

Another claim of the complaint is that Lucy McDonnell, one of the defendants, has received from life policies, payable at the death of her husband, more than she might lawfully. Laws 1870, chap. 277. Now this money must have been paid after the death of the intestate. We do not see why any liability to account for such money could not have been heard by the surrogate in the accounting of the administrators. Code, § 2739; Shakespeare v. Markham, 72 N. Y., 400 ; Boughton v. Flint, 74 id., 476 . That accounting seems to be the proper place to determine the question as to the insurance money; whether it belongs to Lucy McDonnell individually or to her as administratrix. Then as to the real estate, of which McDonnell executed a deed to O’Brien and O’Brien to Lucy. According to the averment of the complaint, these deeds were not delivered in McDonnell’s lifetime. If so, it would seem to follow that, they never took effect, and the land descended according to law. Then the plaintiff should reach it as he would reach any land of a deceased person. But that is not the course he has taken in this action.

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If, according to another allegation, the deeds were delivered, but with intent to defraud creditors, then it is a settled rule that the creditor must first exhaust his legal remedies by judgment and execution, or at least must have acquired by judgment or execution a lien on the property said to be fraudulently assigned. Adsit v. Butler, 87 N. Y., 585 ; Estes v. Wilcox (ut supra); Genesee River Bank v. Mead, 18 Hun, 303 ; Reubens v. Joel, 13 N. Y., 488 ; Gardner v. Lansing, 28 Hun, 415 ; National Tradesman’s Bank v. Wetmore, 4 N. Y. State Rep., 823.

In the case of Bate v. Graham ( 11 N. Y., 237 ), the plaintiff was a judgment-creditor. He sued to recover for the estate certain personal property fraudulently transferred by the deceased. Now before the statute (1 Rev. Stat., 449, § 7), it had been held that where a fraudulent vendee had taken possession of goods prior to the death of the vendor, and remained in possession he might be charged as an executor deson tort, though there was a rightful executor. Hence it had been held that, after that statute, the executor might sue the fraudulent vendee for the goods thus taken. Babcock v. Booth, 2 Hill 181 . And the plaintiff’s action was sustained. He was, as above observed, not a simple contract creditor.

The cases of Dewey v. Moyer, 72 N. Y., 70 ; Fort Strawix Bank v. Leggett, 51 id., 554; Crouse v. Frothingham, 97 id., 105; and Sands v. Codwise, 4 Johnson, 536, were also cases of judgment-creditors.

The case of Bates v. Bradley ( 24 Hun, 84 ), was one of simple contract-creditors. The debtors had filed a petition in bankruptcy. And therefore the creditors could not put their claims into judgment. U. S., R. S. 5106.

The case of Overton v. Olean ( 37 Hun, 48 ), was an action for an injunction to restrain the village from permitting a railroad company from erecting a permanent structure in the street. Of course there could be no prior judgment. It was not a case of contract but of tort. It is no exception then to the doctrine we have stated. It may be asked why should a judgment first be obtained ? Because a court of equity is not a place in which to recover or to establish debts. The existence and the amount of the debt should be established in a court of law, and legal remedies to collect should be taken before resort is had to equity to remove fraudulent obstructions. So it was said, Estes v. Wilcox (ut supra), at page 266, that the reason of the rule “does not fail by the death of the debtor before judgment recovered for the debt.” The judgment “would conclude the creditor as to the amount of the debt.” The plaintiff’s argument is that the administrators are trustees for the creditors, and if the administrators will not act, the creditors may. It is

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rather a new doctrine that an administrator is a trustee of the real estate of the deceased. Even over the real estate of which the deceased was seized at his death, the administrator has no power. He can institute proceedings to subject it to to the payment of debts; so can creditors.

It seems somewhat strange that an administrator, who is not trustee of the real estate of which the deceased died seized, should be called trustee of that of which the deceased did not die seized. And a careful examination of the section of 1858, will show that the right of the administrator as of other trustees, is limited to such property as is held by, or of right belonging to, such trustee or estate. So it was held in Underwoods v. Sutcliffe (ut supra), that the statutory trust did not belong to a receiver, and could not be enforced by him; although it might be enforced by a judement creditor. So in the present case, if there had been no conveyance of McDonnell to O’Brien, and of O’Brien to Lucy, would the land belong to the administrators? They could not even allow the claims of creditors against heirs and deviseees. Matter of Haxtun, 102 N.Y., 157 ; 1 N. Y. St., 164. If not, how can the execution of those deeds make the land belong to the administrators? Or how can the setting aside the deeds as fraudulent, give the administrators any title thereto, which they would not have had if the deeds had never existed? It seems inconsistent to say that a trustee may disaffirm acts, which, when disaffirmed, give him no more property or rights than he had before. It was however held in Barton s. Hosner ( 24 Hun, 467 ), that an administrator might bring an action to set aside a fraudulent conveyance of land. It may be said that Lichtenberg v. Herdtfelder (ut supra), decides that even if a judgment had been recovered, the action could not be maintained. What was said as to action by administrators," was not necessary to the decision. It is not strictly necessary for us here to consider how relief is to«be obtained in regard to land fraudulently transferred by the deceased. But we may remark that the statute makes such transfer void. 2 R. S., 137, § 1. That a creditor recovering a judgment during the life of the debtor, may, under execution, sell the land just as if no transfer had been made, and may then test the question of fraud by ejectment; or he may, after obtaining a lien, bring an action to set aside the fraudulent conveyance. If the conveyance made with fraudulent intent is void, then it would seem that, at least as to creditors, the land, at the death of the debtor must be treated as going to his heir or legatee. And that the creditor, treating the conveyance as void as to him, must reach the land as he would any other land which had belonged to the deceased at his death. Seq. 2749. and sec-tion, or section 1843, and seq. section 2762, in the former proceeding, seems to provide opportunity for a litigation with', the fraudulent grantee over the alleged fraud prior to any sale. In the other proceeding, a lis pendens can be filed-;

Dissent

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section 1853, which probably would be a sufficient ground for an action against the fraudulent grantee; should the creditor prefer not to wait till he acquires a title under the sale by virtue of his judgment. But this is a matter we do not decide.

Judgment affirmed with costs.

Ingalls, J., concurs.

(dissenting) The complaint alleges that the plaintiff was a general creditor of John McDonnell, who died intestate, and of whose estate the defendants are administrators; that a portion of plaintiff’s debt has been paid by the administrators in part from the personal property, and in part from the sale by the surrogate of the real estate of the intestate; that the intestate, in his life-time, transferred to the defendant, Lucy McDonnell, certain property in fraud of his creditors, and that all of his assets have now been applied towards the payment of his debts, except the property thus fraudulently transferred to the defendant, Lucy McDonnell; that she claims to own such property, and refuses, though requested, to apply the same, or to pay the balance of the debt due the plaintiff; that the plaintiff has requested defendants to bring an action to set aside such conveyances, which they decline to do; that the only property applicable to plaintiff’s debt is that thus transferred by the intestate to the defendant, Lucy McDonnell; the complaint does not allege that plaintiff recovered any judgment against the intestate or the administrators.

The prayer for relief is the usual one in a creditor’s bill, except that the amount realized be distributed among all the creditors who come in, etc.

Upon the trial the plaintiff offered to prove the facts set forth in his complaint, and to prove the decree of the surrogate’s court, directing the sale of the intestate’s real estate, not including that described in the complaint, to pay his debts, the sale, the application of the proceeds, and the balance unpaid upon the plaintiff’s claim, and that a large amount of other debts of the intestate were not fully paid.

The court, upon the objection of defendant’s counsel to the evidence as insufficient to establish a cause of action against the defendants, and, upon their motion, that the complaint and facts offered to be proved did not constitute a cause of action against them, dismissed the complaint; the court holding that the plaintiff as a general creditor, without judgment and execution, could not maintain the action.

We think the court erred in supposing that the principles applicable to creditors’ bills, or actions in the nature of creditors’ bills, governed this case.

The single question presented is whether a general creditor of an intestate, all of whose property has in the due course of. administration been applied to the payment of .his debts/except' the property which it is charged that he

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transferred to defraud his creditors, can, under chapter 314 of the Laws of 1858, upon the refusal of the administrators to bring the action in .behalf of the creditors of the intestate to set aside such fraudulent transfer, himself bring the action in behalf of himself and the other creditors, joining the administrators as parties defendant.

We think he can. The statute cited confers the right upon the administrator to bring the action “for the benefit of creditors.”

The authorities are conclusive that this means creditors at large, not merely judgment creditors. Southard v. Benner, 72 N. Y., 424 ; Potts v. Hart, 99 id., 168.

The right to bring the action is not merely given by the statute, but the duty is enjoined. Litchenberg v. Hertfelder, 103 N. Y., 302 ; 3 N. Y. State Rep., 91. The administrator is the trustee of the creditors for the purpose of enforcing such rights and remedies in their favor as may be needful to protect them. Bate v. Graham, 11 N. Y., 237 . If the administrator, as such trustee, refuses to do this duty upon request of the creditor, the latter may bring the action, making the trustee, a party. Id. Bates v. Bradley, 24 Hun, 84 ; Overton v. Village of Olean, 37 id., 48; Sands v. Codwise, 4 Johns., 536 , 601; Crouse v. Frothingham, 97 N. Y., 114 ; Fort Stanwix Bank v. Legyett, 51 id., 554; Dewey v. Moyer, 72 id., 70, 78.

The relation of trustee and cestui que trust existing between the administrator and the creditors, equity has plenary jurisdiction to enforce the proper performance of "the trust. Bate v. Graham (supra).

It seems incongruous to insist that the general creditor must, before he can resort to such a remedy, obtain judgment and proceed to execution thereon, when the statute which gives this remedy gives it in favor of creditors at large. It is further incongruous, for the reason that the remedy is given in favor of all creditors alike, not in favor of the vigilant or the execution creditor. Lichtenberg v. Hertfelder, supra.

If the argument in defense of the necessity of becoming a judgment-creditor is valid, it is valid only as to form, for if one creditor obtains his judgment and proceeds to execution, he can pursue this remedy in behalf of himself and of other creditors who remain creditors at large. It is obvious that since the general creditor would be entitled to share in whatever assets the administrator might realize by such an action, his claim or right to promote the action cannot be enhanced or improved by exhausting his legal remedies in other directions.

The statute gives this remedy in favor of the general •creditor ; he, therefore, need not cease to be such before he

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can resort to it. It is a manifest mistake to suppose that, the mere incident of some of the actions under this statute is a condition precedent to all of them.

Lichtenberg v. Hertfelder is cited in opposition. But, that action failed because the plaintiff brought it for himself alone, and did not make the administrators parties. The case recognizes the principles upon which this action is based. The court, however, in the discussion of a question not before it, remark that the surrogate has ample power under section 2481 of the Code of Civil Procedure to compel the administrators to bring such an action. No doubt that is true, but the power given by the Code to direct the action of administrators- in this respect is not exclusive of that general jurisdiction of trusts which the constitution confers upon the supreme court.

The judgment should be reversed, new trial granted,, costs to abide the event. '