Reynolds v. Ellis — 2 N.Y. St. Rep. 786

Majority

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Mortimer F. Reynolds, App’lt, v. De Witt C. Ellis, as Assignee, etc., and others, Resp’ts.

(Court of Appeals,

Filed October 5, 1886.)

Headnote

Landlord and tenant—Lease giving lien on tenant’s goods—When FRAUDULENT AS TO CREDITORS—ASSIGNMENT—RIGHTS OF LANDLORD AND ASSIGNEE.

The assignor of defendant, Ellis, was a retail merchant and made a lease-containing a provi-ion that the lessor shall have a lien, as security for all rent * * * due from lessee upon all goods * * ® and all other personal property which are or may be put on the demised premises belonging to the lessee. It in terms permitted him to sell his stock in the regular course of business and re ieves so much of it from the lien. The lessor liad. notice that the stock of goods would fluctuate and there was no restraint upon the lessee in regard to it or the disposal of the money when the goods-were sold. Held, that while the agreement was valid between the parties, it wii fraudulent as to creditors and, therefore, void as to the ass'gaee for their benefit.

This is an equitable action, brought by the appellant for the purpose of subjecting the proceeds of certain chattels theretofore sold by the defendant Ellis, as assignee, etc., to the payment of rent due and to become due from the defendant, H. F. Van Bake. It appeared upon the trial that in March, 1879, the plaintiff, as lessor, and H. F. Van Bake, as lessee, executed a lease by which the former let, and the latter agreed to take, certain premises for a boot and shoe-store, for the term of five years, from the 1st of April, 1879, at the rent of $2,000 for the first year, and a greater sum thereafter, payable monthly in advance, with interest after three days from maturity; and in case of default in payment, or seizure of the goods and merchandise, or other personal property, in or upon the premises, by virtue of any writ, judgment, execution, assignment, or otherwise, the whole amount of such rent and interest agreed to be paid should immediately become due and payable, and to that should be added any sums due for water rates or gas. Then followed this clause: “And it'is further agreed that the lessor shall have a lien, as security for all the rent and interest, gas bills and water rates aforesaid, or for any damage to building due from lessee, upon all goods, wares, chattels, implements, fixtures, tools and all other personal property which are or may be put on the demised premises, belonging to the lessee, or to any one holding or claiming the demised premises, or any part thereof, under him, as •assignee, under-tenant, or otherwise ; and such lien may be enforced, on the non-payment of any of said rent, interest, water-rent, or gas-bills, by the taking of such property, and the sale thereof, in the same manner as in case of a

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chattel mortgage, on default thereof; such sale to be made upon six days’ notice, posted upon the demised premises, or served upon said lessee. Such lien, however, shall not be enforced against any property which, being a part of stock in trade, shall have been. sold in the regular course of business.”

It was found by the trial judge (eleventh finding) that at the time of the execution of this lease it was agreed between the parties thereto that the lessee “should remain in possession of the mortgaged goods in said store, and that he might sell the goods covered by said mortgage in said store, and use the proceeds in his business, buying other goods with the money, as opportunity offered, and using the proceeds of the sales to meet his liabilities, and in the prosecution of his business, and in supporting his family, and paying his hired help;” and also (twelfth finding) “that, at the time said chattel-mortgage lease was executed, the said Henry F. Van Dake was in possession of said store, and all the goods therein and thereafter continued in possession of said store, and of the mortgaged goods, and continued to deal with the said mortgaged property, consisting chiefly of boots and shoes, in which he was a retail dealer, as he had been accustomed to do before the giving of the chattel-mortgage lease, buying and selling boots and shoes as opportunity offered, and using the proceeds of his sales in the prosecution of his business, and in the support of his family, and in paying his hired help, in all respects as if no mortgage were in existence—all of which was done with the knowledge and approval of the plaintiff; and that the plaintiff never had possession of any of the goods covered by said chattel-mortgage lease.”

This condition of affairs continued until the 5th of January, 1881, when H. F. Van Dake made a general assignment, to De Witt 0. Ellis, of all his property, including that upon the leased premises, for the benefit of his creditors, among whom, as a preferred creditor, was the other defendant, Harriet . S. Van Dake. On the same day, and without notice, actual or constructive, of any claim on the part of the plaintiff, Ellis, as assignee, took possession of the property, and soon thereafter sold and converted it into money, realizing, over and above expenses, about $2,000. After-wards, but before the commencement of this action, the plaintiff demanded of the assignee either payment of the rent accrued and due, “ or delivery of the stock of goods, fixtures, and other personal property in the store, to him, as such lessee; claiming a right and hen under said lease prior and superior to that of said Ellis under the assignment.”

Mrs. Van Dake’s debt accrued prior to the lease, and is greater than the proceeds of the assigned property. The

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plaintiff asked judgment that he be declared to have a prior lien upon the assigned property and its proceeds, and that he be paid therefrom $1,833.33, rent actually due, and $6,966.66, which became due by reason of default on the part of the lessee.

The trial court, as conclusions of law, found: “First, that the said plaintiff had no hen on the goods in said store at the time the said assignment was made, as against the said assignee and the creditors of the defendant Henry F.

' Van Dake; second, that the said chattel-mortgage clause in said lease was absolutely void, as against the assignees and creditors of the defendant Henry F. Van Dake; third, that said chattel-mortgage clause in said lease is fraudulent in law, as against the assignee and creditors of the said Henry F. Van Dake; fourth, that the complaint be dismissed, with costs, against the plaintiff.”

■ The plaintiff excepted to these several conclusions of law, and, after judgment, appealed to the general term, where it was affirmed.

T. A. Stull and Benton & Dickenson, for app’lt; John M. Davy, for resp’t.

Upon this appeal the expectation of success seems to rest chiefly upon a supposed distinction between the clause in question and a chattel mortgage. It is upon the appellant’s points styled a “hen clause,” and the contention is that, as it does not purport “to pass the title to the property, it cannot be said to be a mortgage, or a conveyance intended to operate as a mortgage,” within the provisions of law in regard to the filing of chattel mortgages (Laws 1833, chap. 379 ; Laws 1879, chap. 418), or those which relate to fraudulent conveyances or transfers of personal property. 2 Rev. St., tit. 2, par. 2, chap. 7, p. 136, § 5.

No question upon such supposed distinction appears to have been presented upon the trial; but, upon the contrary, the complaint asks that payment “be made out of the mortgaged chattels,” “that the assignee be enjoined from disposing of said mortgaged chattels,” and that “a receiver lof such mortgaged chattels, and the proceeds thereof be appointed.” So while it is impossible to tell from the record .how much of the complaint is admitted, or what is denied, it is apparent that such was the understanding of the defendants ; for the instrument is repeatedly referred to as “a chattel mortgage lease,” and the goods as “mortgaged goods;” and want of filing of the instrument, and the agreement made at the time of its execution that, notwithstanding its provisions, the lessees might continue to deal with the property in all respec s “as if no mortgage was in existence,” are set up as affirmative defenses.

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In the same language the trial judge deals with the case in his findings, and there was no request for any different finding or interpretation. But I do not think it is material to inquire how the paper may be characterized. Its form was no doubt devised in order to give, by contract, to the landlord of the demised premises, that priority for the collection of rent which once existed by statute, but which the-legislature had at the time in question abolished (Laws 1846, chap. 274), thus leaving the landlord to take his place with other creditors, and a debt for rent to be enforced like other obligations. What then, is the effect of the contract, as, expressed by the clause lying at the bottom of this controversy. It cannot be doubted that it was, as between the lessor and lessee, good as a contract, not only as to property in existence and on the demised premises when the lease was executed, but as to that afterwards acquired and brought on to tiiem. A similar agreement was examined in McCaffrey v. Woodin ( 65 N. Y., 459 ), and a taking by the lessor of property not in existence when the lease was made, justified. upon the ground that, in substance, it had in equity all the characteristics of a mortgage, or of an equitable hen, which, for the purposes of that case, was said to be its equivalent. There the adverse party was the lessee. That doctrine was applied in a similar action in Wisner v. Ocumpaugh ( 71 N. Y., 113 ), against a person whose relation to the demised premises precluded him from acquiring any rights adverse to those of the lessor, and who, therefore, was in no better position than the lessee.

Here the question is in equity, and is raised by the lessor against an assignee for the benefit of the creditors of' the lessee. In the cases cited the lessor bad obtained possession of the things in dispute, and the first decision turned upon the validity of the agreement as to non-existent property ; the other, upon the priority of the plaintiff. So, in Hale v. Omaha Nat. Bank ( 49 N. Y., 626 ), there was an agreement for a future hen, and this was held to be sufficient against a defendant who made no title to the property as purchaser, creditor, or otherwise, and had nothing but a naked possession, tortiously acquired. In other words, the defendant showed no right to question the plaintiff’s claim. Here the assignment to the defendant is conceded to be valid, and it is found that under it he had taken possession of the property, and actually sold it without notice of the plaintiff’s claim, or the agreement upon which the claim was made; but, notwithstanding all this, he has still the avails of the property in his hands, and, if the appellant is right in his contention that the defendants’s position is not better than that of the lessee, the plaintiff’s hen will, upon general principles of equity'follow those proceeds.

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We cannot agree, however, in that contention.

The defendant represents creditors, and may treat as void all agreements made in fraud of their rights. Laws 1858, _ chap. 314. He has greater power for this purpose than the creditor himself. The creditor can assert no right until, by judgment and execution, he has a lien, or a right to a lien, upon the specific property; but in favor of an assignee for his benefit, the legislature have substituted a statutory right in place of these conditions. Southard v. Benner, 72 N. Y., 424 . The defendant availed himself of this right, and, upon the facts found by the trial judge, his action in so doing must be upheld. There was not only no delivery or change of possession of the things covered by the agreement, but it was understood between the parties that there should be neither. It was therefore void, both at common law, Twyne’s Case (3 Coke, 80), and by statute. 2 Rev. Stat., p. 136, § 5. It is true, as the appellant says, that the clause is not, in the express terms, characterized as a mortgage, nor are the words “sale,” “transfer” or “assignment” to be found therein; but that does not matter. It takes effect as a mortgage, and the “lien as security,” is given by agreement; or to take the exact words, “it is between the parties, further agreed ” to that effect. While its object may have been to give one creditor priority over another creditor, it also involves a secret trust in favor of the owner of the goods, and forms the very cover of fraud which the statute condemns, by declaring that “every assignment of goods and chattels, by way of mortgage or security, or upon any condition whatever,” unaccompanied by delivery, “and followed by no actual and continued change of possession, shall be presumed to be fraudulent as .against the creditors of the vendor.” Nor is it of any consequence when the debt provided for by the assignment was created, whether before or after the lease was executed. It is enough that the relation of debtor and creditor existed at some time while such goods and chattels remained in possession of the vendor or assignor. 2 Rev. Stat., 136, § 6. It is inconsistent, not only with this statute, but with the principles of equity, that such a lien should be successfully set up, to the exclusion of bona fide creditors, and we are referred to no case where it has been done. The equity of the defendant, as a mere representative of creditors, is, at least, equal to that of the plaintiff, while the former has superadded to his equity the legal advantage of possession, and the statutory authority to treat as void a conveyance in fraud of the rights of creditors. In these respects his position is better than that of the lessee, and equal to that of a creditor with judgment and execution.

But the learned counsel for the appellant argues that

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"there was no evidence to sustain the eleventh finding (supra), viz., that showing a fraudulent arrangement at the time of the execution of the lease, and therefore that the provisions of the act of 1858, as to the powers of assignees, are not brought into operation. Conceding it to be valid between the parties, as we have done, we think it fraudulent upon its face as to creditors, and therefore void as to the plaintiff, their assignee. The lessee was a retail merchant. The lease, in terms, permits him to sell his stock in- the regular course of business, and relieves so much of it from the hen. He, in fact, carried on the business the same after the lease as before. The stock of foods fluctuated, and the plaintiff had notice that it would o so. when he gave the lease. He also knew that the defendant was to and did continue the business in that way. There was no restraint upon him in regard to it, or the disposition of the money when the goods were sold. We think the finding was fully justified by Edgell v. Hart ( 9 N. Y., 213 ), and Gardner v. McEwen (19 id., 123).

The argument for the appellant suggests no ground upon which a court of equity can interfere in his favor. The judgment should therefore be affirmed.

All concur, except Heller, J., absent.