Roach v. . Duckworth

95 N.Y. 391, 1884 N.Y. LEXIS 664

• Court: New York Court of Appeals
• Decided: April 15, 1884
• Status: Published

Opinion

Earl, J.

In April, 1873, the defendant’s testator, Isaac, loaned to the .¿Etna Iron Works, a corporation formed in this State, under the General Manufacturing Act of 1848, the sum of §6,000. In October thereafter, Birdsall Cornell, who was one of the trustees of the corporation, for the purpose of inducing the defendant to forbear the payment of his claim for the §6,000, delivered to him six bonds of the corporation of the par value of $6,000, dated in March, 1873, and due in March, 1874, to be held by him as collateral security for his claim. The bonds so pledged were valid bonds of the corporation, for which Cornell had paid to it full value.

The defendant’s claim against the corporation not having been paid, he sold the bonds which he held as collateral security at public auction in May, 1876, to John C. Croker, for the sum of $640. In June thereafter Croker commenced an action in the Supreme Court against the plaintiff Roach, as one of the trustees of the corporation, to enforce his liability to him on account of the bonds thus purchased, under section 12 of chapter 40 of the Laws of 1848, for not making the report specified in that section for the years 1874, 1875 and 1876. Afterward in February, 1877, Duckworth commenced an action in the ¡New York Common Pleas against Roach and the other trustees of the corporation, who are the plaintiffs in this action, to enforce their liability to him under the section referred to, on account of the debt due him for the money loaned to the corporation, as above stated, for not making the report specified in that section for the years 1874, 1875, 1876 and 1877. Both actions were defended, and the first resulted in a judgment for Croker in February, 1877, for the full amount of the bonds and costs, and the last resulted in a judgment for Duckworth in June, 1878, for the balance due him on account of his loan after deducting some interest which had been paid, and the $640, received upon the sale of the bonds to Croker, as above stated. Appeals were brought from both judgments, and afterward in January, 1879, Roach settled and procured the satisfaction of the first judgment by the payment to Croker of the sum of $1,300. The second judgment was affirmed in the General Term, and then upon further appeal, in this court, in April, 1880. Thereafter in the same month of April the plaintiffs commenced this action to restrain forever the collection of the three judgments, to-wit: the original judgment recovered against them by Duck-worth, and the two judgments recovered by him for- costs upon the appeals; and they based their right to relief upon the grounds that the sale of the bonds to Croker was a sham,. that he purchased them for Duckworth, and commenced and prosecuted the action for Duckworth, and solely for his benefit ; that Duckworth had but one debt of §6,000 against the corporation which he could enforce against the trustees, who were liable to him for but one penalty; that the first action and the recovery therein, if they had known the facts, could have been pleaded as a bar to any recovery in the second action ; but that they were ignorant of the facts, and did not discover them until March, 1879, and that Duckworth by the sham sale, and the prosecution of the action in Croker’s name for the purpose of recovering two judgments for the same liability, one in the name of. Croker and another in his own name, had perpetrated a fraud upon them which entitled them to the relief claimed. The trial court found the facts to be substantially as claimed by the plaintiffs, and granted them judgment, giving them the relief prayed for. That judgment has been affirmed, and has been brought here for review.

In 1876, Duckworth held against the corporation two claims, one for the money loaned and one on the bonds pledged to him by Cornell. Holding the bonds as collateral to his claim for money loaned, he could have sued the corporation and have recovered judgment against it upon the bonds, and whether that judgment was paid or not, he could subsequently have sued upon his claim for the money loaned. As between him and the corporation there would have been no defense to either action. So> he could have commenced both actions at the same time. The corporation could not have complained of, or in any way objected to the two actions, or two recoveries, because it owed and was liable to pay both debts. After receiv ing satisfaction of his claim, however, Duckworth would have been liable to account to Cornell for any balance received by him of the corporation, as such balance would have belonged to Cornell on account of his bonds.

The bonds were delivered to Duckworth before there was any default on the part of the trustees to make the report required by law, and hence if at that time he had purchased the bonds he would have held them as well as his claim for the money loaned against the corporation, and the liability of the trustees to him on account of their subsequent failure to make the report would have been co-extensive with that of the corporation. They would then have been liable to him for two penalties, one for the amount of the bonds and the other for the amount due for the money loaned, and he could have sued any one, or all of them, under section 12 of the act referred to, to recover the one penalty, and $my or all of them to recover the other. I know of no rule of law requiring that all the liabilities in such a case should be enforced in a single action. As many actions could be brought against the trustees as could be brought against the corporation. Section 12 makes all the trustees jointly and severally liable „for all the debts of the company in case of failure to make the report required, and a creditor may sue all the trustees successively until he shall obtain satisfaction, or he may at the same time commence a suit against each trustee, and no trustee could properly set up the pendency of a suit, or the recovery of a judgment, against any other trustee as a bar to a recovery against him. A judgment can be enforced only against the trustee sued, although under the section, as amended by chapter 510 of the Laws of 1875, all the other trustees are bound ratably to contribute to the amount recovered against and paid by the trustee sued.

Such would have been the position, and such the rights of Duckworth if he had purchased the bonds of Cornell at the time he took them in pledge. But as pledgee his rights were not precisely the same. The pledgor, Cornell, was also one of the trustees, and liable with the others for not making the reports. Hence he could not have sued any of his co-trustees for failure to make the reports, and Duckworth could enforce the bonds against the trustees only so far as was necessary to his indemnity. If he went further that would be for the benefit of Cornell, and could not be allowed. He had the same right to sue the trustees as he would have had if he had owned the bonds, and they could make no defense which the company could not make, except by paying the amount due Duckworth for his loan to the company. Whenever he obtained satisfaction of his debt for that loan he could go no further, because' if he received more, it would be for the benefit of Cornell. He could in his own name have sued upon the bonds and recovered judgment, and if that were paid it would as to him have ended the liability of the trustees, because his debt would have been satisfied. But if he failed to collect or obtain payment of that judgment he could then have sued any or all of the trustees to enforce their liability for his debt, and the recovery in the former action would have been no bar to a recovery in the latter. If he thus obtained two judgments, he could only recover upon either or both the amount due him for his loan, and the costs. He could have commenced both actions at the same time, and the only way to prevent his recovery in both would have been for one or more of the trustees to tender him the amount due for his loan and the costs. So his rights as pledgee of the bonds were precisely the same as they would have been as owner, except that as pledgee he could enforce payment only of the amount due him for his loan.

It does not, therefore, appear that any damage or wrong, whatever, was done to the plaintiffs, or any of them, by commencing one of the actions in the name of Oroker, as they were not deprived 'of any defenses Avhich they could have interposed if both actions had been commenced in the name of Duckworth as plaintiff. Assuming that Oroker represents Duckworth, and stands for him as plaintiff in the one action, all the trustees were required to do was to pay, or tender upon one or both of the judgments, the amount due Duckworth for his loan, and the costs, and then, by motion to the court, they could have required him to satisfy both . judgments, or have obtained perpetual stay of executions to enforce them.

Roach, as above stated, paid $1,300 in satisfaction of the 'first judgment. He paid that to Croker who had no right as between him and Duckworth to take it or to satisfy the judgment. Croker acted fraudulently toward' Duckworth, and kept the money. Duckworth received no benefit, whatever, from the payment, and now the plaintiffs claim that they must have the same benefit as they would have had if that judgment had been paid in full. It is impossible for us to comprehend upon what principle such a claim can be founded. The $1,300 was paid, as we must assume, in good faith to Croker, without knowledge of Duckworth’s rights, and hence he must be bound by it. But how can he be bound for more ? lie received that sum upon his collaterals. ' It was not paid in satisfaction of his debt against the corporation, but in satisfaction of the judgment upon the collaterals. Suppose he had gone to Roach with his collaterals, and Roach had paid him that sum for the collaterals, or in satisfaction of them; or suppose he had gone to Roach with his judgment upon the collaterals and Roach had paid him for that, or in satisfaction of it the $1,300, it would have satisfied only so much of the amount due him for his loan. It certainly would not have satisfied the loan.

The case then stands thus. Duckworth has received $1,300, less the costs in the Croker judgment, which he was bound to allow as a payment upon the amount due him for his loan. The sum of $640, bid by Croker at the sale of the collaterals, has been allowed, and the balance of the $1,300, after deducting that sum and the costs, should be allowed as a payment upon the Duckworth judgment. The balance due thereon, after allowing such payment, is justly due Duckworth, and there is no reason in law or equity why he should not be permitted to collect the same.

My reasoning so far has been upon the theory that the sale of the bonds to Croker was a mere sham, and did not bind Cornell or cut off his right in the bonds as pledgor. It is un doubtedly the rule that the pledgee cannot, at a sale by him of the property pledged, himself legally become the purchaser. (Bryan v. Baldwin, 52 N. Y. 232.) But the sale in such case is not absolutely void, but voidable only at the election of the pledgor. He may ratify the sale, and if he elects to do so then the sale becomes perfectly valid and effectual. If, in this case, Cornell without fraudulent collusion with Duckworth assented to this sale, or with knowledge that Duckworth was really the purchaser in the name of Crolcer ratified the sale, then it was effectual and valid as against him, and Duckworth became the absolute owner of the bonds with a title as good against the whole world as he would have if he had purchased them at the time he took them in pledge. It does not appear in the record whether Cornell did or did not ratify the sale, and hence the case may here be disposed of upon the assumption that the sale was not binding upon him.

It is difficult to perceive how Duckworth can possibly be charged with any fraud upon the plaintiffs. He certainly as yet has done them no harm, and deprived them of no rights. They have not yet been subjected to any liability, or to the payment of any money which was not justly due from them. He may have been mistaken as to the effect of his sale of the bonds to Croker. He may have supposed that in that way he could obtain valid title to the bonds, and thus enforce payment of them as his own. But he had the right to foreclose his lien upon the bonds, and thus acquire full title to them if he could, for any sum he would have to pay, and then enforce them for his own benefit for the amount due upon them; and all this he could do, Cornell not complaining, without being guilty of any fraud. There is no finding or proof that he was colluding with Cornell to enforce the bonds for his benefit.

The result of this discussion is that Duckworth has a judgment for a few hundred dollars more than is due him and more than he has any right to collect. The remedy of the plaintiffs is to tender or pay the sum due, and then if Duckworth refuses to cancel the judgment, they can apply to the court by motion to compel cancellation or to stay execution. A suit in equity is not needed, and is not the proper remedy. (Lansing v. Eddy, 1 Johns. Ch. 49.) As to the two judgments for costs upon the appeals, there can be no relief against them.

The judgment of the General and Special Terms should he reversed, and as there is no aspect, upon the facts alleged and found, in which this action can be maintained, the complaint should he dismissed, with costs.

The judgment should be affirmed.

All concur with Earl, J., except Miller and Daneorth, JJ., dissenting, and Andrews, J., not voting.

Judgment affirmed.