Hovey v. . Elliott

23 N.E. 475, 118 N.Y. 124, 28 N.Y. St. Rep. 761, 73 Sickels 124, 1890 N.Y. LEXIS 952

• Court: New York Court of Appeals
• Decided: January 14, 1890
• Status: Published

Opinions

Bradley, J.

The case was determined by the court below in favor of the defendants upon the defense of the statute of limitations. And that is the main question for consideration upon this review.

By the contract, between the plaintiffs and McDonald, they were to have, for their services in aiding him in the proseen- • tian of his claim before the mixed commission on British and American claims, a sum equal to twenty-live per cent of the amount which should be allowed or awarded to him. And in their behalf “the payment of the said sum of twenty-five per cent was to be made' a lien upon the claim, and upon any draft, money or evidence of indebtedness which might be paid or issued thereon.”

After the award was made in favor of McDonald for $197,190 in gold, he assigned it to White, and thereupon, and while the award yet remained in the hands of the diplomatic representatives of the British Government, the plaintiffs filed their bill against McDonald and White, in the Supreme Court of the District of Columbia, to restrain them from disposing of, collecting or receiving more than three-fourths of the amount of the award, and for a decree establishing the plaintiffs’ lien, and a temporary injunction was issued in their behalf. Upon an order being made to that effect, and appointing George W. Riggs receiver, a portion of the fund was paid over to White, as assignee of McDonald, and the balance was taken by the receiver, with directions to invest it in a certain class of bonds of the District of Columbia, which he did. The defendants’ ■ demurrer to the plaintiff’s bill having been afterward sustained and decree entered dismissing the bill, the court ordered that the bonds held by the receiver be handed over to McDonald and White, which was done, and thereupon they transferred them for value to Riggs & Go., of which firm George W. Riggs was a member, and the firm thereupon surrendered those bonds and procured new ones to be issued to it, and after-wards sold them in the market to divers purchasers. In the mean time, the plaintiffs had Meen an appeal to the General Term of the Supreme Court of the District of Columbia, from the decree, dismissing their bill of complaint, and it was reversed in March, 1876, and the suit remanded to the Special Term, with leave to the defendants therein to answer, which they did. And those defendants having failed to pay into court to the credit of the suit, the sum of $49,297.50, as directed by its order, their answer was stricken out and from the files, and decree was taken jpro con/esso against the defendants, and on the I7tli day of April, 1878, a decree absolute was made, by which it was adjudged that McDonald and White pay to the plaintiffs the sum of $49,297,50, and that the latter have a lien upon the claim of .McDonald, against the United States, as awarded by the mixed commission on British and American claims and upon any draft, money, evidence of indebtedness or the proceeds thereof, with interest from April 17, 1878, This action was brought within six years after the decree last mentioned was made, and more than six years after such reversal of the decree dismissing the complaint.

The court below held that the statute of limitations commenced to run from a time not later than the time of such reversal, and holding that plaintiffs had a remedy by action at law against the defendants resulting from that sale, concluded that the right of action was barred on the expiration of six years. The defendants firm having purchased the bonds of McDonald and White or one of them pendente lite, charged with knowledge of the pending action and its purpose, were bound by the result of the litigation in the suit against McDonald and White as effectually as if they had been parties to it, so far as related to the lien of the plaintiffs upon the property. (1 Story Eq. Jr. § 405; Heatley v. Finster, 2 John. Ch. 158; Murray v. Lylburn, id. 441; Jackson v. Stone, 13 John. 447; Jackson v. Losee, 4 Sandf. Ch. 381; Tilton v. Cofield, 93 U. S. 163; Clark v. Farrow, 10 B. Monroe, 446; 52 Am. Dec. 552; Shelton v. Johnson, 4 Sneed, 672; Stone v. Connelly, 1 Met. [Ky.] 652; 71 Am. Dec. 499; Green v. Rick, 121 Penn. St. 130; 6 Am. St. R. 760.

And for the purpose of the lien the defendants may be deemed to have held the bonds taken from McDonald and White and the re-issue to them, in trust for the plaintiffs'while they had them, (Murray v. Ballou, 1 John. Ch. 566); and in like manner the proceeds of the sale, (2 Perry on Trusts, § 838; Sadler’s Appeal, 87 Penn. St. 154; Pennell v. Deffell, 4 DeGex. M. & G. 372; Knatchbull v. Hallett, L. R. 13 Ch. Div. 696; 36 Eng. Rep. 779; Sheppard v. Taylor, 5 Pet. 675.)

In view of the relation of privity in which the defendants were placed, with McDonald and White, by force of the doctrine of Us pendens somewhat broadened by the fact of actual notice, on their part, of the situation, it became the duty of the defendants, when the decree was obtained against McDonald and White, to pay to plaintiffs, from the proceeds of the sale of the bonds, an amount sufficient to satisfy their lien upon them. If the defendants had then held the bonds, such decree may have been effectual to have reached them through the execution of the judgment.

The relation and situation of a purchaser pendente lite, is such that his protection against the result of the then pending action must be sought in it, and for that purpose he may step in and defend, or the plaintiff in it, to charge him in personam, may cause him to be brought in as a defendant. (Harrington v. Slade, 22 Barb. 161; Ex Parte Railroad Co., 95 U. S. 221. And when the purchaser is so brought in and made a defendant, he will be treated as such party from the time of the commencement of the action, and consequently the statute of limitations will in such case be no more available to him than to the original defendants. And such would be the effect of the judgment as one in rem, although the purchaser is not made a party to the action. (Harrington v. Slade, supra; Walden v. Bodley, 9 How. U. S. 34; Fletcher v. Ferrel, 9 Dana, 372; 35 Am. Dec. 143; Talbott v. Bell, 5 B. Monroe, 320; 43 Am. Dec. 126; Jackson v. Losee, 4 Sandf. Ch. 381.) This binding character and effect, are deemed essential to the proper administration of justice and to put an end to litigation. (Bellamy v. Sabine 1 DeGex. & J. 566, 578.) The defendants not having been made parties defendant in that suit, the decree as against them, could be treated only as a judgment im.rem, and, as they had disposed of the bonds, it was ineffectual as such for the purpose of its execution. And it may be that their duty to pay to the plaintiffs the proceeds of the bonds, was but a liability enforceable by action to charge them in personam.

While an action in equity might be maintained to charge the defendants as trustees of the fund, and for an accounting as for the proceeds of the bonds, for the purpose of relief founded upon the lien, it is contended that the plaintiffs had ample remedy by action at law for destruction of their lien, or as for money had and received by the defendants to the plaintiffs’ use. The question whether an action at law accrued to the plaintiffs against the defendants more than six years before this was commenced, is an important one in this case. For if that was the situation, although this action, as brought, was properly equitable in form, the statutory limitation of six years was applicable upon the well settled principle, that when there is a concurrent remedy at law and in equity, the limitar tian is the same in both forms of action, and the statutory bar of that at law controls. (Borst v. Corey, 15 N. Y. 505; In re Neilley, 95 N. Y. 383.) The plaintiffs may have maintained a suit in equity against the defendants, joining McDonald and White as co-defendants, for the purpose of perfecting their lien and to charge Riggs & Co. personally, after, as well as before, the sale by the latter of the bonds. But it is by no means clear that an action at law would have been maintainable by the plaintiffs against the defendants in this action, founded upon the lien to recover the amount of their claim prior to the recovery of the decree against Me Donald and White. The plaintiffs’ right to a lien existed in contract, entered into before the award was made by the commission, by the terms of which, the payment of their claim for services was to be made a lien upon it. This was an equitable lien. It was neither jus ad rem nor jus in rem. It constituted no estate or property in the subject of it, nor any right which could be the basis of a possessory action. It was simply an encumbrance <-r charge upon it. The legal title remained in McDonald. (2 Story Eq. Juris. § 1215; 3 Pomeroy Eq. Jur. § 1233.) For the purposes of the lien, the proceeds of the sale took the place of the bonds, and the enforcement of it was exclusively within the province of a court of equity by suit, in which McDonald was a necessary party 'defendant until as against him the lien was perfected. And although the assignment must be deemed to have been taken by White, subject to all the equities against his assignor (Bush v. Lathrop, 22 N. Y. 535) it could not be assumed that he had no right to be heard. The contract upon which the plaintiffs relied for the lien, was executory, and the effectual perfection of it was dependent upon performance upon their part, of that required of the plaintiffs, to entitle them to payment. In equity it had effect as a lien, dependent on such performance, upon the principle that what is agreed and ought to be done is regarded as done. And if anything was requisite to accomplish it, the court could have directed specific performance of the contract. (Pomeroy Eq. Jur. § 1237; In re Howe, 1 Paige 125, 130; Hale v. Omaha Nat. Bank, 49 N. Y. 626; McCaffrey v. Woodin, 65 id. 459; Payne v. Wilson, 74 id. 348; Seymour v. C. & N. F. R. R. Co., 25 Barb. 284; Mitchell v. Winslow, 2 Story, 630; Metcalfe v. Archbishop of York, 1 Mylne & C. 547.) The only means for the enforcement of the lien was in equity. (Pinch v. Anthony, 8 Allen, 536, 539; Milliman v. Neher, 20 Barb. 37.) It would have been otherwise if the contract had contained an assignment of the claim of the plaintiffs. That might have furnished a right of action at law, if the claim may be said to have had a potential exist ence at the time it was made. (Jones v. Mayor, etc., 90 N. Y. 387.) And as held in McCaffrey v. Woodin (supra), and Gregory v. Morris (96 U. S. 619), when with the equitable lien is given the right to take the property, the exercise of such right perfects the lien, and enables the jrarty to assert it as a defense or in support of an action founded upon the right resulting from the execution of such power, and is supported by the lien. And in the like case of Wisner v. Ocumpaugh (71 N. Y. 113), the defendant was protected in the exercise of such right and the defense resting- upon the lien, Avas deemed equitable. In Hale v. Omaha Nat. Bank, (supra) no right by the terms of the contract, for the lien, seems to have been given to take the property, and the possession, as there appeared, was taken by the ^defendant Avitliout any right. The question of parties was not raised in that case. Nor did the court, hold that an action at Daa-, could be maintained by the plaintiff, but it Avas held that the facts alleged Avere sufficient to support the action as equitable in character. And on the revieAV of a subsequent trial of the same action (64 N. Y. 550) notliing to the contrary was held. In Husted v. Ingraham, (75 N. Y. 251) the plaintiffs had an equitable lien, and it Avas held, that the only relief to aa-McIi the plaintiffs were entitled AA-as equitable, and consequently they could not recover in the action for alleged conversion off the property, although it had been sold by the receiver of the parties, avIio had the title, but that the plaintiffs had a remedy in equity against the receiver founded upon the lien, to obtain the proceeds of the sale. The character of the equitable lien, resting in the contract betAveen McDonald and the plaintiffs, aa’us such that it gave the latter the right to folloAV the subject of it, and apply a remedy, Avliich Avould have operated directly upon it, to realize the purpose of its creation. This Avas the purpose of the suit brought against McDonald and White. That suit Avas founded upon the contract, and its purpose AA-as to perfect and execute the lien. This could be done in equity only. The existence of the lien and the right to enforce it Avere contested by McDonald. And treating, as we do, the defendants as pur chasers pendente lite, charged with notice of the action between the parties to the contract and its purposes, the rights of the parties to this action or to the subject in controversy, were dependent upon the result of that suit, and the final judgment there was conclusive upon them. It would, therefore, seem that during its pendency, the statute of limitations would not run in favor of such a purchaser as against the party who successfully establishes his right as against the pendente lite seller. Otherwise the doctrine of Us pendens might be defeated, and thus the result of a litigation rendered ineffectual. It would result in a multiplicity of suits for the protection of rights dependent upon the final determination of the litigation pending between the primary parties to the controversy. The theory of the doctrine of Us pendens is to preserve the situation, as it is when the original litigation is commenced, until its termination, that the successful party may then take tile fruits of it without interruption from another, who may have, during its pendency, sought to obtain some right to the property in controversy. (Tilton v. Cofield, 93 U. S. 163; Lamont v. Cheshire, 65 N. Y. 36, and cases there cited.) Bennett, in his work on Lis Pendens (212), states the rule to be that in the ordinary case of a pendente lite purchaser of the subject of litigation, the statute of limitations cannot be invoked as against the successful litigant to avoid the results of the application of the rule of Us pendens. This is in harmony with the situation of privity existing between the litigating seller and the pendente lite purchaser, with the fact that the latter is bound by the determination of such pending action, and with the ¡irinciple enunciated in Harrington v. Slade (22 Barb. 161); Walden v. Bodley (9 How. U. S. 34); Tilton v. Cofield (93 U. S. 163). Any action which the plaintiffs could maintain against the defendants, must be founded upon their equitable lien. And it would, therefore, seem that the situation of the defendants in their relation to the primary suit, was such that during its pendency the statute of limitations would not run in their favor to bar any form of action having for its object the satisfaction of the plaintiff’s claim, founded upon the security afforded by such hen. If that Anew is correct, it follows that no right of -action at kw either for the destruction of the lien or for money had and received, accrued to the plaintiffs against the defendants prior to the time of-the recovery of the decree against McDonald and "White. And assuming that there was a destruction of the lien produced either by the surrender of the old and talcing the new issue of bonds or by the sale of the latter, it does not necessarily follow that an action atlaAv Avould at any time lie against the defendants to recover damages for such destruction. It was not found that the defendants so surrendered the bonds or sold those reissued to them Avith the intent to defraud or injure the plaintiffs in their lien or Avith any purpose to defeat it. (Yates v. Joyce, 11 Johns. 136; Lane v. Hitchcock, 14 id. 213; Gardner v. Heartt, 3 Denio, 232.) The case last cited was an action by a mortgagee for an alleged negligent destruction of his lien, by doing injury to the mortgaged premises,which had that effect. The court held that fraudulent intent was essential to support the action, and that, as the lien of the mortgagee gave him no title to the land, the defendant was not liable to him for injury to it caused by his negligence, although it resulted in the destruction of his lien. That is within the principle of those earlier cases. They are all cited in Van Pelt v. McGraw (4 N. Y. 110), and their doctrine is there applied to afford a remedy. The facts found in the present action, as represented by the decision of the court, do not within that principle establish the existence, at any time, of such a cause of action against the defendants. The cause of action for the purpose of such a remedy is in tort. Its gravamen is a fraudulent intent or wrongful purpose to impair or destroy the lien, and to support such an action the facts must be such as to Avarrant the inference to that effect. Ko different doctrine was necessarily recognized in Hale v. Omaha Nat. Bk. (64 N. Y. 550), or in Husted v. Ingraham (75 N. Y. 251). The plaintiffs liad no title to the bonds, and in the strictly legal sense of the term, their lien is said not to be property, although analogous to property. (3 Pomeroy Eq. Jur., § 1234.) And a lien is generally recognized at law to exist only when it is connected with the possession or the right to the possession of the subject of the lien. (2 Story Eq. Jur., § 1216.) The defendants had the legal title to the bonds transferred to them, also to those taken in their stead by the new issue made to them, and which they afterwards sold. It may be that they made such surrender, took the new bonds and sold the latter in good faith - in fact, and without any intent to impair or defeat the plaintiff’s lien. While the right of the plaintiff, as against the defendants, resulting from the final decree, was not affected by the decree and direction founded upon the sustaining of the demurrer, the fact of such decree dismissing the complaint first obtained in their suit with McDonald and White, was a circumstance bearing upon the good faith of the defendants by way of relief from the imputation of actual purpose to impair the plaintiff's lien by the disposition made of the bonds. In view of the doctrine before stated, and as declared in Gardner v. Heartt, the defendants may not be chargeable in an action as for impairment or destruction of the plaintiffs’ lien. And, therefore, upon the facts found as represented by the decision of the trial court, the conclusion is not warranted that any right of action at any time arose as for the destruction of the lien. But on the contrary, the facts so found are consistent with good faith, in fact, on the part of the defendants, in purchasing the bonds and disposing of them. So far as the contention on the part of the defendants is dependent for its support upon their bad faith in the transaction, it is.not sustained. And the assertion by a party of his wrongful act by way of protection against liability will not usually be taken for his advantage further than the facts fairly require. The plaintiffs do not assert the destruction of their lien. The question also arises, was the lien destroyed, in the sense sought to be applied, by the disposition made by the defendants of the bonds so as to enable them to assert the destruction of it by way of relief from liability ? It is true that the opportunity to reach the bonds held by the receiver, is denied to the plaintiffs by the surrender of them at the time the new ones were issued to the defendants. The latter bonds represented the former, and so did the proceeds of the sale in the currency received by the defendants. There is no propriety, either legal or moral, in the assertion of the defendants, for the purpose of putting themselves in the wrong, that those new bonds or the money derived from the sale, was not a substitute for those held by the receiver which they purchased. An equitable lien has the nature of or is analogous to a trust, and it is not for the party making the conversion into other securities to thus defeat the trust. He cannot derive any such advantage, but the substituted securities or proceeds in his hands are subject to it. And for the purpose of relief he is treated as having made the substitution for the benefit of the beneficiary if the latter elects to so treat it. This was the situation of the defendants in their relation to the plaintiffs, and that is the situation in which the plaintiffs seek to treat the defendants. The sale of securities held in trust or subject to an equitable lien, might be thought judicious by the holder under some circumstances. He might deem it so in case of a falling market or of an apprehended decline in value, or for the purpose of realizing a larger income from the fund represented by them. It would hardly be claimed that from a sale, in such case, a liability would arise as for a destruction of the lien, although he might be liable to account for the value of the securities if his action in malcing the sale was not justified or ratified. Nor would the party, in that relation, making such sale, or in case of conversion of the securities into others, be permitted to successfully assert that he had committed a wrongful act, which plight have produced a remedy to the beneficiary of the lien or trust, so as to deny to the latter the right of affirmance of the act of conversion and substitution. The plaintiff’s claim does not rest upon the assertion of any wrong on the part of the defendants in making the disposition they did make of the bonds. The action was brought to enforce their lien upon them and without knowledge of the sale, and afterwards having learned of the disposition of the bonds, the plaintiffs proceed in affirmance of the sale, and seek through an accounting by the defendants for the proceeds of the sale, the relief to which the plaintiffs, by virtue of their lien, may be entitled by way of satisfaction of their claim of which such lien is the incident. When the plaintiffs obtained the decree against McDonald and White, it became the duty of the defendants to hand over to them such proceeds, and concurrently in time with the arising of such duty accrued to the plaintiffs the right to demand its performance.

The question relating to an action at law for destruction of the lien, seems to require here no further'consideration. Some further attention may be given to the question, whether the plaintiffs had a right of action at law against the defendants as for money had and received by them to the use of the plaintiffs. And, if so, when the right to such action accrued to them. When one party receives or has money to which another is entitled, an action in that form, may be maintained, and the law will imply assumpsit for its support. And although the action rests upon a legal right, the nature of the remedy afforded by it, is such as to raise for determination the question as to which party in equity and good conscience is entitled to the money in controversy. Hence, it is called an equitable action. (Buel v. Boughton, 2 Denio 91; Hathaway v. Cincinnatus, 62 N. Y. 447.) The plaintiffs were equitably entitled to the proceeds of the sale of the bonds, to the extent of their claim, by reason of their lien upon them. The right of such action accrued when it became the duty of the defendants to pay the money over to them. That duty and liability of the defendants were dependent upon the effectual establishment of the lien against McDonald. A defeat of the plaintiffs, upon the merits, in the suit against McDonald and White, would have denied to the former the right to assert any lien as against the defendants. Such was the effect of the judgment on the demurrer dismissing the bill, so long as it remained unreversed. The liability of the defendants in such an action, was therefore dependent upon the result of that suit, and if they had paid the plaintiffs the amount claimed by them, and that suit had resulted in favor of McDonald, it is not seen that the defendants would have had any remedy against their assignor, of the bonds, for reimbursement. It would have been treated as a payment without any duty or liability to make it. McDonald had the right to contest the plaintiffs’ alleged claim of lien, and it was not in the power of the defendants to deny to him that right, or'to render his successful denial of .it ineffectual. This was the situation of the defendants in their relation to the other parties interested, until the final decree was obtained against McDonald and White, and until then the defendants could not assume that they were at liberty to pay anything to the plaintiffs from the proceeds of the sale of the bonds. When then did the-right of action at law accrue to the plaintiffs against the defendants ? As before suggested the lien upon which the plaintiffs relied existed in executory contract, and was cognizable in equity only, until it was perfected either by recognition or contract of McDonald, in terms making it so in presentí after performance by the plaintiff, or by decree to that effect. It being a lien in equity, and subject to equitable cognizance only, it furnished no support to an action at law for affirmative relief until it was in some manner perfected or established. (Field v. Mayor, etc., 6 N. Y. 179, 187; Chase v. Peck, 21 N. Y. 581; Payne v. Wilson, 74 N. Y. 348; Otis v. Sill, 8 Barb. 102.) Reference is also made to the cases before cited. The contract in question may be treated as an agreement to give the plaintiffs a lien dependent upon the terms and condition of the contract, and while it attached as a lien in equity upon the award when made, it was not by force of the contract made a specific lien inpresentí, or recognizable at law until it was perfected by the decree. And even then no right of action at law upon the lien as such existed to obtain the possession of the property or its proceeds as that remedy is equitable only, but then, if at all, the right of action at law, founded upon the right to the fund supported by the lien, accrued to the plaintiffs to treat the proceeds as money had and received to their use by the defendants, and to demand its payment, because then, and not until then, it became the duty of the defendants to recognize the right of the plaintiffs in that respect. Up to that time the lien was not only not recognized by McDonald, but was contested by him. And until then the plaintiffs’ remedy must have been founded solely upon the alleged lien, and enforceable in equity only. The action would necessarily have been to charge the property or its proceeds with it, and for consequent relief. This is apparent for the reason, if no other, that the defend ants were by their purchase pendente lite placed in privity with McDonald and bound by the result of the then pending suit; and their right and duty, as related to the plaintiffs, were involved in it, dependent upon its result and determined by it. It was not until then that the duty of the defendants arose to discharge the plaintiffs’ lien, or that the latter could enforce the performance of that duty by an action as for money had and received to their use.

The case of Pierson v. McCurdy (33 Hun 521; affirmed 100 N. Y. 608), has not necessarily any essential application to the question here. There the fund in controversy belonging to the company represented by the plaintiff, had been wrongfully paid to and taken by the defendant. There was in that case the legal title to support an action for money had and received, and the right to maintain it arose when the money was thus unlawfully appropriated. Reference is also made to what has already been said on the subject of the right of action against the defendants as bearing upon the question lastly considered.

These views lead to a conclusion that the judgment should be reversed and a new trial granted, costs to abide the event.