Leadbetter v. N. H. Leadbetter, Ltd. — 34 N.Y. St. Rep. 929

Majority

p. 929

Annie C. Leadbetter, Pl’ff, v. N. H. Leadbetter, Limited, Def’t.^[1]

(Court of Appeals,

Filed January 13, 1891.)

Headnote

1. Chattel mortgage—Rights and priorities as between mortgagee, JUDGMENT CREDITOR AND RECEIVER OB MORTGAGOR.

A chattel mortgage given as security for notes falling due at different times provided that if any instalment was not paid, or if any judgment was entered against the mortgagor, the whole sum would become due, and that the mortgagee could take possession and sell on giving five days’ notice. One of the notes fell due, and was unpaid, and three judgments were recovered, and executions levied on the mortgaged property three days before a receiver of the mortgagor was appointed. By consent of all parties the receiver sold the property, the proceeds to be held subject to the rights of the respective parties. ' Held, that the judgment creditor took nothing by his levy, for the reason that the defendant in the execution had no interest upon which the lien of the execution could attach.

53. Same.

After default, the mortgagor has no interest in the mortgaged property that can he sold on execution against him, and the event had happened which made the mortgage instantly due, and there was no right of possession in the mortgagor when the levy was made.

p. 930

3. Same—Notice.

The condition in the mortgage in regard to notice applied only to the time and place of the sale under the mortgage, and the notice was not necessary in order to perfect the default.

Appeal from judgment of the supreme court, general term, first department, affirming order of special term confirming report of referee.

Z. 8. Sampson, for app’lt; Joseph F. Bosworth, for resp’t.

The order from which this appeal is taken determined the right of two claimants to a certain fund which both claimed to be entitled to. The party who succeeded in the courts below is the receiver of the defendant, and the other claimant who failed and brings this appeal is a judgment and execution creditor of the defendant.

The undisputed facts upon which the question arises are these: The defendant is a corporation organized under the limited liability act. In proceedings in this action to dissolve it, by reason of insolvency, the respondent, William Gk Shailer, was appointed receiver on the 28th of October, 1889. Previous to this, and on the 13th day of February, 1889, the defendant duly executed and delivered and procured to be filed in the proper office a chattel mortgage for $3,000, to secure the payment of its notes to that amount for money borrowed. The condition of the mortgage was that the defendant should pay the notes as they became due, and that in case of default in the payment of the notes, or any of them, when due, or in case the mortgagor before the notes, or any of them became due, should remove any of the goods or suffer any attachment or other process against property to be issued against it, or any judgment to be entered against it, then the said sum of $3,000 should become instantly due and the mortgagee or his assigns should have the right to take possession of the goods and carry them away and sell the same for the best attainable price, on five days notice to the mortgagor, and from the proceeds pay the amount unpaid on the notes and render the sum remaining to the mortgagor or his assigns. Some of the notes, to secure which the mortgage was given, were paid. Before the receiver was appointed, two of the notes became due and remained unpaid, one on the 10th of August, 1889, and another on the 10th of October, 1889.

On the 25th of October, 1889, William E. Hardy, who brings this appeal, recovered a judgment against the defendant for $4,823.42, and on the same day procured execution to be issued thereon and a levy to be made on the property covered by the mortgage. This levy was made, as will be seen by the dates, three days before the receiver was appointed. On his appointment there were three parties claiming the property, namely : The holder of the chattel mortgage and the unpaid notes to'secure the payment of which it was given, Hardy, the judgment and execution creditor, and the receiver. In this condition of affairs an order was entered in the action to dissolve, upon the consent of the receiver, the mortgagee and the judgmént creditor, the plaint

p. 931

■iff’s attorney in the suit not objecting, that the property be sold by the receiver, and that “ the proceeds arising from such sale or sales be substituted for and take the place of the property sold and be subject to the same liens as existed against the property, and the rights of all the parties remain in full force arid effect as they were at the time of the sale.” This order also, upon the ■same consents, appointed a referee “to hear and determine the rights, liens and priority of claims to said property or proceeds,” the expenses of the sale to be paid first from such proceeds, and the balance to be paid over on the coming in and confirmation of "the referee’s report as therein provided. The referee found that the net proceeds of the sale, after paying expenses, was $4,107.83 ; "that the amount due on the notes secured by the mortgage was $2,000, and interest thereon from February 7, 1889 ; that out of the net proceeds of sale there should be paid first to the holder of the notes and mortgage the amount so found due. That as there was default in the payment of the mortgage when the levy "was made by the judgment creditor, both by reason of the nonpayment of the notes and the entry of the judgment, the mortgagor had no legal interest in the property, and that the receiver was entitled to the balance remaining after payment of the mortgage. The report was confirmed by the court and the order entered thereon affirmed on appeal by the general term.

We think that the appeal of the judgment creditor cannot be sustained. Though he made the levy three days before the receiver was appointed, yet he took nothing by it for the reason that the defendant in the execution had no interest upon which the lien of the execution would attach. The law seems to be settled in this state that after default the mortgagor has no interest in the mortgaged property that can be sold on execution against him. Hull v. Carnley, 11 N. Y., 502 ; Hall v. Sampson, 35 id., 274; Galen v. Brown, 22 id., 37; Manchester v. Tibbetls, 121 id., 223; 30 N. Y. State Rep., 721. The event had happened that made the mortgage instantly due, and there was no right of possession in the mortgagor when the levy was made. The condition in the mortgage in regard to notice applies only to the time and place of the sale under the mortgage, and notice was not necessary in order to perfect the default.

The order should be affirmed, with costs.'

All concur.