Gustavus A. v. Sturgis — 23 N.Y. Super. Ct. 606

Majority

p. 606

Gustavus A. and Ernest Scheidt, Plaintiffs, v. William Sturgis, Jr., et al., Defendants.

Headnote

1. An application, by a stranger to a suit, to be allowed to intervene and be made a defendant, in order that he may litigate the plaintiff’s claim and set up a claim against the original defendants adverse to, and exclusive of, that of the plaintiff, is not a matter of strict right, but rests in the discretion of the Court.

2. Such an application should be denied where the applicant is prosecuting a separate action adapted to secure all the relief to which he claims to be entitled.

3. So, too, after he has prosecuted such separate action to a trial upon the merits, an application made by him to have a judgment recovered in the former action set aside, on the ground of fraud and collusion, should not be granted.

(Before Bosworth, Ch. J., and Robertson and Barbour, J. J.)

Heard, December 6;

decided, December 27, 1862.

This action was a creditor’s suit, brought by the plaintiffs against William Sturgis, Jr., Henry Shaw, William Shaw, Latimer Bailey and Robert Bennie, and it now came before the Court upon appeals taken by George. B., John R., and Stanton Blake and Gamaliel Bradford, composing the firm of Blake Brothers & Go., and also by the Bank of Mutual Redemption, from orders denying applications made by them respectively, to be made defendants, and to have a judgment which the plaintiffs had recovered, opened.

This action was commenced February 14,1862, in behalf of the plaintiffs, and all others in like position who might choose to come in and contribute to 'the expenses of the suit, to obtain a judgment to the effect that certain merchandise, described in the complaint, and which had been consigned by the defendant, Bennie, to the other defendants, comprising the firm of Sturgis, Shaw & Go., was, in equity, applicable to the payment of bills of exchange drawn by Bennie on Sturgis, Shaw & Go., and accepted by the latter one of which accepted bills is owned by the

p. 607

plaintiffs, and directing the said property and its proceeds to be so applied.

It-also sought to effect a similar application of a bond and mortgage, dated August 2, 1861, executed by said Bennie and his wife to Sturgis, Shaw, & Oo.,„ conditioned for the payment of $150,000.

On the 17th of February an order was made in the action, that it be referred to a Beferee to appoint a Beceiver of the said property; and such proceedings were had, that by order dated February 27, 1862, the appointment of Ogden Haggerty as such Beceiver was declared to be perfected.

On the 17th of March, 1862, the firm of Blake Brothers & Go., holders of certain of said accepted bills of exchange, applied to this Court, upon petition, for an order that they be made parties defendants in this action. They stated in their petition, that on the 18th of December, 1861, they commenced a suit in the Supreme Court against the present defendants, as drawers and acceptors of the said bills owned by them, and duly obtained thereon an attachment against the property of said Bennie as a non-resident debtor, and caused it to be served on Sturgis, Shaw & Co., with the intent and for the purpose of binding and attaching any property of Bennie then in their hands.

They claimed that they thereby obtained a lien on the merchandise and property in question, by virtue of which they were entitled to be paid, in preference to the plaintiffs, out of the said property and its proceeds. That motion was denied, by order dated the 29th of March, 1862, and from that order Blake Brothers & Co. appealed to the General Term.

The Bank of Mutual Bedemption also applied, upon like petition and on similar grounds, to be made defendants, which was denied by an order of the same date, and from the latter order the said bank appealed to the General Term.

On the 6th of October, 1862, this action was brought to a hearing, and an order or judgment was entered deciding

p. 608

and adjudging, inter alia, as prayed in the complaint herein, and directing a reference, for various purposes therein specified.

Blake Brothers & Co. and the Bank of Mutual Eedemption, on being informed thereof, applied by motion in this action, to set aside and vacate said order or judgment as collusive and as fraudulent, as against them, which motion was denied, by order dated November 8,1862, and from the latter order the Bank of Mutual Eedemption appealed to the General Term.

All of these appeals were argued together

It appeared by the papers on which the last mentioned motion was made, that an action was then • pending in this Court, in which that bank was plaintiff, and the defendants in this action, and Blake Brothers & Co., and Ogden Haggerty, as Eeceiver and special assignee of Sturgis, Shaw & Co., were defendants; that it was tried on the 25th of June, 1862, and on the 15th of October, 1862, was undecided.

Upon the decision of the motions to be made defendants, the following opinion was rendered:

Robertson, J., (after stating the facts.) The determination of these motions must depend mainly upon the interests of Sturgis, Shaw & Co. in the merchandise consigned to them by Eennie, and their duties growing thereout to him, and the holders of the securities for which they have become bound upon the faith of such merchandise; the interest of Eennie in such merchandise; the effect of the actions in the Supreme Court by the present applicants, and the proceedings therein, upon such rights and interests; and the nature, object and effect of the present action.

It is very evident that Sturgis, Shaw & Co. held the merchandise in question in the double capacity of agents of Eennie for its sale, and as pledgees of the same, and the proceeds as security for any amount for which they might be liable upon the acceptances advanced by them;

p. 609

they could not use their power, or abuse their discretion as agents, in such manner as to sell the goods merely for the purpose of reimbursing themselves; and they could only sell as pledgees upon notice or foreclosure in equity; of course Rennie retained the ownership of the goods, subject to their hypothecation for such advances, and could at any time redeem them by relieving the pledgees from all liability. As between Rennie and Sturgis, Shaw & Co., therefore, the former had an interest capable of being seized upon attachment against him, or sold upon execution. But, by the peculiar character of the advances made by Sturgis, Shaw & Co., to secure which the goods in question were pledged, a third character has devolved upon them, that of quasi trustees for the creditors1 of Rennie, to whom they became liable on the strength of such merchandise.

It seems to -be a familiar and well settled principle in elementary works and digests, sustained by authorities applyiug it in various ways, in the Courts of England, this State, and our sister States, (4 Kent’s Com., 307, 6th ed.; 1 Story Eq., §§ 502, 638; Com. Dig., ch. 4; D.C. Mann, v. Harrison, 1 Eq. Ca. Abr., 93, K., 5; Dering v. Earl of Winchelsea, 1 Lead. Ca. Eq., 87, n.; Wright v. Morley, 11 Ves., 22; Yonge v. Reyneil, 9 Hare, 809; Baltic of Auburn v. Throop, 18 Johns., 505 ; Curtis v. Tyler, 9 Paige, 432; Tail v. Foster, 4 Comst., 312; Havey v. Foley, 4 Benn. Mo., 136; Houston v. Branch Bank, 25 Ala. R., 250; Bibb v. Martin, 14 Lin. & M., 88; Bush v. Stamps, 26 Miss. R., 463.; Dozin v. Lewis, 27 Miss. R., 677,) that creditors to whom a surety is liable upon a contract may reach any securities placed by the principal debtor in the hands of such surety to indemnify him, and have them applied to the payment of their debts, if not satisfied by the principal, but they would seem to be entitled to this course solely as representatives of the principal debtor claiming through him. (Ex parte Waring, 19 Ves., 349; Ex parte Hobhouse, 2 Deacon, 291; Bowles v. Hargrave 19 Law & Eq., 263; 8. C., 23 Id., 62, 63.)

p. 610

Whether there is any priority in such case, according to the time in which the creditors became such, and made their advances, or whether the making of the advances by the surety under a general agreement to make advances and hold the goods as security for whatever advances he might make, would place all to whom such surety should bind himself upon the same footing, does not clearly appear by any of the cases. Ho such agreement is alleged in the complaint, although it assumes that all the parties who had the acceptances of Sturgis, Shaw & Co. are to come in upon an equal footing. Hor does the relation appear by such cases exactly between the creditors and the surety in regard to the collateral securities. Jurisdiction is assumed by the Courts of equity upon the ground of a trust, and the surety is treated as a quasi trustee, to whom such securities are delivered to hold, not only for his own protection, but also for the benefit of the creditors. I apprehend, however, that he is to be considered only as pledgee in trust, not having a right of possession as entire owner, and that his interest in the goods only extends to the amount of his liability for the advances; the constructive trust in such case arising as those implied from frauds or otherwise arise, to prevent a failure of justice, because common law Courts furnish no adequate remedy. In such case, therefore, I apprehend an equity of redemption still remains in the mortgagor, liable to attachment and execution against him, and that his rights therein cannot be foreclosed without notice or an action.

The plaintiffs in this action have no other interest in the goods in question, than, jointly with others similarly situated, including the present applicants, to take the place of Sturgis, Shaw & Co., as the makers of advances in regard thereto, and that no proceedings in this action can divest Mr. Bennie, or any one claiming under him, by an attachment, or levy under execution, of his equity of redemption therein ,v it is simply an action to protect the plaintiffs, and others similarly situated, against the consequences of the insolvency of Sturgis, Shaw & Co., and to

p. 611

transfer to a Receiver, or new Trustee, the rights and possession of the latter, for the benefit of those who prosecute such action. Such Receiver or Trustee stands in no better light than an assignee of Sturgis, Shaw & Co., and the plaintiffs, and all others to whom such firm is liable, and, therefore, cannot deprive Mr. Rennie, or his attaching creditors, of their right or lien on the goods, without notice or foreclosure.

The applicants stand in the double relation of cestui que trusts of Sturgis, Shaw & Co., of so much of the value of the goods in question as would be necessary to indemnify the latter, and attaching and execution creditors of Rennie, as to his equity of redemption; in th§ latter capacity they have no interest in taking the property out of the hands of Sturgis, Shaw & Co., to preserve it for those to whom the latter are liable, and, therefore, their attachment, judgment, and execution in their Supreme Court actions confer on them no equity in this, as they cannot be prejudiced by anything done in it; on the contrary, in one of these actions, they seek to sweep away the obstacles interposed, by the interest and possession of Sturgis, Shaw & Co., which this action seeks to reach, to a sale under their attachment and execution, aud sell the property by virtue thereof. Should they succeed in doing so, I apprehend they would be compelled to abandon any rights thereby acquired, before they would be allowed, in any proceeding for the marshaling of securities, to come in upon a footing of equality in the distribution of the interest of Sturgis, Shaw & Co. in such property or its proceeds.

The applicants, in their petition, assume a hostile attitude to the plaintiffs, and allege that this action is brought collusively, to transfer the possession from Sturgis, Shaw & Co. to a Receiver of their choice, to embarrass the applicants; possibly that might furnish a ground for defeating the action, if the applicants were already defendants, but it can furnish none for admitting them, as such, when their only right to come in is founded upon a readiness to further the action, and a common interest in the

p. 612

relief to be obtained in it; the very fact of making of the application, on such a ground, before a judgment for the distribution of any proceeds by a Receiver or Trustee, when no further defense can be interposed in it, and until which time the action can be withdrawn by the prosecuting parties, shows the intent to be to defeat, not promote, the action. If any rights could be acquired by a Receiver or Trustee appointed in this action adverse to those of the petitioners, such collusion might be good ground in a new and independent action by them to prevent any judgment therein from prejudicing them, if necessary, in a case where they are not parties.

As a mere participant in the interest of Sturgis, Shaw & Co. in this fund, the petitioners are premature in applying to be made parties before judgment, nor do I think that the Code has altered this rule. The 122d section, which requires the Court to cause all parties to be brought in, without whose presence “ a complete determination of the controversy cannot be had,” is inapplicable to this case, for these reasons: 1st. A determination can be had without the presence of the applicants, until the judgment for distribution, under the 119th section, which allows a suit or defense by one of all having a common interest. 2dly. The present applicants are brought in by the judgment, if they avail themselves of its benefits. And, lastly, there are no persons whose rights are to be settled before the rights of those who are the parties to the suit, and the application is not by a defendant. (McMahon v. Allen, 12 How., 39 .)

The remedy of the applicants to protect themselves from .injury could only'be by making the Receiver in this case a party to their action in the Supreme Court, if they can ido so, or applying there for relief for any violation by Sturgis, Shaw & Co. of the orders of that Court, by anything done in this suit.

I do not think the applicants have made out a case for the interference of this Court at present, and the motion must be denied, with seven dollars costs in each case.

p. 613

J. M. Van Cott and J. W. Edmonds, for the appellants.

As to the relative rights of the applicants (appellants) and the plaintiffs, cited Bank of Auburn v. Throop, ( 18 Johns., 505 ;) In re Smith, (16 Id., 102;) Robbins v. Cooper, ( 6 Johns. Ch., 186 ;) Hill v. Beach, (1 Beasley, 44;) Bran tingham v. Brantingham, (Id., 160;) Ex parte Waring, (19 Vesey, 349;) Powles v. Hargreaves, (19 Eng. L. & Eq., 263; 23 Id., 62, 66;) Marine Bank v. Jauncey, ( 3 Sandf., 257 ;) Winter v. Drury, (Id., 263, note;) Cowperthwaite v. Sheffield, (3 Comst., 243;) Greene v. Breck, ( 32 Barb., 73 ;) Artizan's Bank v. Treadwell, (34 Id., 553;) Skinner v. Stuart, (13 Abbotts’ Pr., 442;) and,

As to the necessity of making the applicants' parties, cited Story’s Eq. Pl., ch. 10; Calvert on Parties, ch. 1, §§ 1-3; Hallett v. Hallett, (2 Paige, 22;) Grace v. Terrington, (2 Colly., 53;) Code, §§ 118, 122; General Mut. Ins. Co. v. Benson, ( 5 Duer, 168 ;) Dean v. Chamberlin, (6 Id., 691.)

Mathews & Swan, for plaintiffs, respondents.

I. If the petitioners are willing to stand upon an equal footing with the plaintiffs, they are already parties to the suit in posse, and will be in fact, at their option, after decree.

II. This action is commenced upon the notion of an equality among all the acceptance creditors, touching the fund in question, and is instituted to prevent “ selfish ” creditors, by future proceedings at law, acquiring liens which equity could not disregard. (2 Paige, 567; 3 Id., 517; 34 Barb., 553 .) To compel the plaintiff in such a suit as this to litigate with the petitioners their conflicting-claims against the defendants, would be, in effect: 1st. To vex the plaintiffs unnecessarily with a litigation in which co-defendants will be settling among themselves a controversy foreign to the purposes of the suit; and, 2d. To wrest this action from the equitable designs for which it was instituted.

III. The petitioners have elected to pursue an independent remedy, and there is, therefore, neither necessity nor

p. 614

propriety to authorize their being made parties to this action.

IV. If the petitioners seek a preference over the plaintiffs, they may make the Receiver a party to their other actions.

V. The petitioners’ affidavits fail to show they have acquired any legal lien by regular attachments. (Brownell v. Carnley, 3 Duer, 9 .)

VI. There is no authority by law to make the petitioners parties to this suit upou their own motion. They have no standing in Court.

1. This privilege given to strangers (by section 122 of the Code) is limited, by the terms of the statute, to actions of ejectment and replevin. (Judd v. Young, 7 How., 79 ; 9 Id., 508.)

2. The other parts of the statute (section 122) relate to the power of Courts when causes are on trial, and it appears to the Court that it cannot “ determine the controversy between the parties before it,” “ without prejudice to, or by saving the rights of others,” if any. (Tallman v. Hollister, 9 How. Pr., 508 .)

3. In this case, when the cause is brought to trial, “ a complete determination of the controversy can be had without the presence of other parties.”

The defendants do not complain that there is a defect of parties; but the application that other persons be made parties defendants comes from strangers to the action, viz., Blake Brothers & Co., and the Bank of Mutual Redemption, the present appellants.

They do not ask to be made parties defendants on the ground that their interests are like those of the plaintiffs, and to the end that it is important that they may be in a position to see that they are properly protected; but they ask to be made parties to the end that they may litigate the plaintiffs’ right to maintain any action, and may also establish their own claim to be paid out of the property

p. 615

in question, to the exclusion of all creditors standing in the position occupied by the plaintiffs.

The objection for want of parties must, as the general rule, proceed from the defendant. The plaintiff cannot, as the general rule, take an objection for want of parties, against the will of the defendant. (Innes v. Jackson, and Jackson v. Innes, 16 Ves., 362.) There are exceptions to the rule, and there are cases where the defect is so palpable and serious, that the Court may order a cause to stand over, that other persons may be made parties.

If it be conceded that the present is a case in which the Court might direct the appellants to be brought in as defendants, it must also be admitted that an appropriate remedy is a suit by the appellants against the present defendants, and the Receiver, as such. Whether it would be expedient to also make the present plaintiffs defendants in such an action need not be considered. The appellants, the Bank of Mutual Redemption, resorted to such a remedy, and made defendants all the persons above suggested, except the plaintiffs in this action.

In that suit all the relief can be granted, and all the questions settled, that could be granted or settled if they were defendants in this action.

It is inferable, from the proceedings had, that that suit was instituted after the orders of March the 29th, 1862, were made, or that in a suit then pending, Haggerty, as Receiver, and Blake Brothers & Co., have been made defendants.

If it had appeared, in answer to the applications resulting in those orders, that such a suit, with such parties, was then pending, that fact would have justified a denial of the applications, for it would then have appeared that the applicants had decided to proceed by action, instead of availing themselves of their remedy as interveners in this action; and clearly, they were not entitled to both remedies, when they could have obtained complete justice in the action brought by them.

It could not be important to the appellants, (if they

p. 616

had, when these applications were made, a suit pending, brought and adapted to securing all the relief to which they were entitled,), that they should be permitted to intervene in this suit, and raise and litigate in it the same questions.

If that suit is yet undecided, it must be presumed that if these appellants have established their lien upon the fund, a judgment will be rendered which will enable them to enforce it.

If it has been decided, and decided adversely to their claims, there is no reason why they should be allowed to intervene, and litigate the same matters anew in this action.

If the present plaintiffs were defendants in that action, a judgment in it, on the merits, in favor-of the appellants, would conclude the present plaintiffs, and a judgment dismissing the complaint in that action, would conclude the present appellants.

The appellants have not moved their appeals from the orders of March 29, 1862, until after a suit brought by them, in accordance with the practice declared in Tallman v. Hollister, ( 9 How. Pr., 508 ,) has been tried, (and perhaps decided,) nor until the present action has been prosecuted to a decision. Over eight months have intervened since those orders were made, and before the appeals from them were argued.

The appellants were not entitled to an order requiring the plaintiffs to make them parties, as a matter of strict right.

The Court, in the exercise of a sound discretion, might deny the application, and leave them to their remedy bjl action. (Creagh v. Nugent, Mos., 354; Ball v. Tunnard, 6 Mod., 170; Harrison v. Morton, 4 Hen. & Munf., 483.) With the discretion of the Court thus exercised, the Court should not interfere on an appeal not brought to argument, until after such a remedy has been taken, and the action brought has been tried on its merits.

The orders of the 29th of March, 1862, should be affirmed.

The motion resulting in the order last made, was not

p. 617

presented to the Court, until after the appellants’ action had been tried, (if, not decided.)

After bringing an action to establish their claims, and trying it on the merits, they must abide by the judgment rendered, or that may be rendered in it, or by the results of a review of it on appeal.

If they have failed, after a trial on the merits, they, presumptively, have no interest in the subject of the present action, beyond that which is protected by the judgment or order'that has been entered in it.

The order of the 8th of November, 1862, should also be affirmed.