Stephens v. . Meriden Britannia Co.

54 N.E. 781, 160 N.Y. 178, 1899 N.Y. LEXIS 1148

Opinions

Vann, J.

On the 19th of 27ovember, 1892, a foreign corporation, known as the McCall Publishing Company, gave to the Meriden Britannia Company, another foreign corporation, a bill of sale of certain printing machinery and materials to it belonging, for the purpose of securing the payment of $900, then owing by the former to the latter for rent past due and unpaid. This instrument, which in legal effect was a chattel mortgage, was not filed until December 7th, 1892, owing to the request of the mortgagor and the promise of the managing agent of the mortgagee, that he would withhold it from record" “ if it did not conflict with the security.” The property remained in the possession of the mortgagor until the 9th of January, 1893, when the mortgagee took possession of it by virtue of the mortgage, and twelve days later sold it to the firm of Page & Eingot for the sum of $900, its fair value.

"When the mortgage was given the McCall Publishing Company was owing one Walter Logan about $1,700, and on the 8th of‘February, 1893, he recovered judgment for the amount of his claim. Upon the basis of this judgment the plaintiff was appointed receiver of the property of the judgment debtor in proceedings supplementary to execution, instituted about the 20th of February, 1893, and on the 6th of May following he commenced this action against the Meriden Brittania Company and the persons composing the firm of Page & Eingot, to recover damages for the conversion of said property by them on-the 9th of January preceding.

Upon the trial of the action the foregoing facts among others appeared, and at the close of the evidence for the plaintiff, as -well as at the close of the entire evidence, the defendant’s counsel moved to dismiss the complaint upon the ground u that an action for conversion will not lie under the proof adduced, and that the plaintiff has mistaken his remedy.” This motion was denied, and the court directed a verdict in. favor of the" plaintiff for the sum of $900, with interest for three years, amounting in all to $1,062, the defendants duly excepting. Upon appeal to the Appellate Division, that court reversed the judgment and granted a new trial as to the defendants Page & Eingot, but affirmed it as to the Meriden Britannia Company, which now comes here.

As the mortgage was neither filed as required by law, nor accompanied by an immediate delivery, followed by an actual and continued change of possession of the property mortgaged, it was void as against judgment creditors of the mortgagor. (L. 1833, ch. 279; Stephens v. Perrine, 143 N. Y. 476; Sullivan v. Miller, 106 N. Y. 635; Jones v. Graham, 77 N. Y. 628.) It was not, however, absolutely void, for it was good as between the parties thereto and .as against creditors at large. It was only void as to judgment creditors, or creditors armed with some legal process authorizing the seizure of property. (Button v. Rathbone, 126 N. Y. 187.) It was not void as malum in se hut as malum prohibitum. It was valid as to all the world until attacked by a creditor standing upon an attachment or judgment. When the Meriden Britannia Company took possession of the property and sold it to Page & Bingot, the McCall Company could not have maintained trover or conversion, because it had transferred "the property by an instrument which authorized the sale, and was conclusive so far as that company was concerned. Mr. Logan, the creditor now represented by the plaintiff, could not, at that time, have questioned the transfer in any way because he was not then a judgment creditor, and no attachment had been issued in his favor. If either the giving of the chattel mortgage nor the taking of possession by virtue thereof and the transfer to third parties, conferred, at the date of such transfer, any right of action upon the McCall Publishing Company or upon Mr. Logan. Upon the recovery of judgment and the return of execution unsatisfied, Mr. Logan was still without power to maintain an action at law, but he could then have upheld a suit in equity to set aside the transfer, so far as it was an obstruction to the collection of his debt.

When the receiver was appointed the property of the judgment debtor became vested in him. He was then in a position to bring any action relating to that property which the judgment debtor or the judgment creditor could have brought and none other. The judgment debtor, for instance, could, have brought-an action at law against any one who had taken its property without its consent, while the judgment creditor could have brought an action in equity for taking the property of the judgment debtor even with its consent, provided such talcing was fraudulent as to creditors. The receiver, having the title of the judgment debtor, can maintain any action supported by that title, which the judgment debtor could have brought. Representing the judgment creditor, he can also maintain any action in equity to set aside a fraudulent transfer, which the judgment creditor could have brought. As he represents no one except the judgment debtor and the judgment creditor, he can bring no action except such as the one or the other could have brought. (Bostwich v. Menck, 40 N. Y. 383; Metcalf v. Del Valle, 64 Hun, 245; 137 N. Y. 545.) As was said by the court in Bostwich v. Menclc (supra), “ the appointment of the plaintiff as receiver of Beiser, made in the supplemental proceedings under the Code, vested in him the legal title to all the personal property of Beiser. (Porter v. Williams, 9 N. Y. 142; Becker v. Torrance, 31 N. Y. 631.) Such appointment conferred upon him the further right to prosecute such action, to set aside all transfers of property made by Beiser to defraud his creditors, as the creditors themselves could have maintained. * * * He acquires no right to the property by succession to the rights of the debtor, for the reason that the transfer is valid as against the debtor, and cannot be set aside by him as the debtor’s successor ; no rights other than those of the debtor are acquired. He does not acquire the legal title to such property by his appointment. That is confined to property then owned by the debtor, and the fraudulent transferee of property acquires a good title thereto as against the debtor, and all other persons except the creditors of the transferror ; the only right of the receiver is, therefore, as trustee of the creditors. The latter have the right to set aside the transfer and to recover the property from the fraudulent • holder, and the receiver is, by law, invested with all the rights of all the creditors represented by him in this respect. It is clear that the right of .the receiver representing the creditors, and acting in their behalf, is no greater than that of the creditors. What, then, are the legal and equitable rights of a creditor as to property fraud ulently transferred ? Manifestly only to treat as void and set aside such transfer, so far as shall be necessary to satisfy his debt and costs. He has no right to interfere with the transfer beyond this. When his debt and costs are paid, the transfer is as valid as to him as to other persons.”

The receiver cannot bring an action at law for the taking of property formally transferred before the recovery of the judgment, because neither the judgment debtor nor the judgment creditor could have brought it. He can, however, by a bill in equity remove any obstacle, such as a fraudulent transfer, which, until set aside, would prevent him from taking possession of the property, and thereupon sell it and apply the proceeds upon the debt which he represents. If the property has been consumed, or for any reason cannot be identified or followed, he can, in the same action, compel those legally responsible to account for it and pay over the value thereof to the extent necessary to satisfy the debt or debts represented by him, as well as the costs and expenses. He cannot, however, uphold an action at law for the conversion of property transferred, even in fraud of creditors, before he was appointed receiver, because that is not “ the property of the judgment debtor ” within the meaning of section 2468 of the Code of Civil Procedure, which is the source of his power. (Ward v. Petrie, 157 N. Y. 301; Pettibone v. Drakeford, 37 Hun, 628.)

The title of the plaintiff is not strengthened nor is his power increased by the act of 1858 “ to declare and extend the powers of executors, assignees, receivers and other trustees.” (L. 1858, ch. 314; L. 1894, ch. 740.) While the language of the statute is general in form, it obviously includes only such trustees as take the entire estate for the benefit of all the creditors, whereas a receiver in supplementary proceedings represents simply the creditor who brought about his appointment and such as caused the receivership to be extended to their claims, each of whom is entitled to payment in full in the order of diligence in instituting proceedings. (Code Civ. Pro. §§ 2466, 2469.) The object of the one statute is to secure distribution of all the effects of an insolvent, without any preference except such as is required by law, and of the other to simply collect the debt of a single creditor in full, and if there is^anything left another creditor by prompt action, may secure enough to pay his debt, and so on in the order in which proceedings are begun. The legislature, by classifying certain receivers with executors and others, who take the entire estate for the benefit of all creditors, indicated an intention to include only such receivers as take all, for the benefit-of all, and not those who take all or a part, as the case maybe, for the benefit of one only. (Bostwick v. Menck, supra.) The statute provides that “ any executor, administrator, receiver, assignee or trustee of an estate, or the property and effects of an insolvent estate, corporation, association, partnership or individual, may for the benefit of creditors or others-interested in the estate or property so held in trust, disaffirm, treat as void, and resist all acts done, transfers, and agreements made, in fraud of the rights' of any creditor, including themselves and others, interested in any estate or property held by or of the right belonging to any such trustee or estate.” As was said in Pettibone v. Drakeford(supra), “ these words necessarily imply a receivership of the whole estate and not of a part.” This theory is confirmed and the method of attack is indicated by the next sentence of the act, which provides that “any creditor of & deceased insolvent debtor, having a claim or demand against the estate of such deceased debtor exceeding in amount the sum of $100, may, in like manner, for the benefit of himself and other creditors interested in the estate or property of such deceased debtor, disaffirm, treat as void, and resist all acts done, and conveyances, transfers and agreements made, in fraud of the right of any creditor or creditors, by such deceased debtor, and for that purpose may maintain any necessary action to set aside such acts, conveyances, transfers or agreements; and for the purpose of maintaining such action, it shall not be necessary for such creditor to have obtained a judgment upon his claim or demand, but such claim or demand, if disputed, may be proved and established upon the trial of such action.”

We think that the act of 1858, as amended in 1894, does not apply to receivers appointed in proceedings supplementary to execution.

The claim of the respondent, that the judgment should be affirmed because the evidence is sufficient to support a bill in equity, is not well founded. The complaint is in the form of a pure action at law to recover damages for the conversion of personal property with no allegation to suggest a court of equity as the forum resorted to, except those essential to show the appointment of the plaintiff as receiver, and hence that he had a legal capacity to sue. The plaintiff alleged that the defendants took possession of the property in question and “ unlawfully converted and disposed of the same to their own use,” and that the damages sustained thereby amounted to $3,000. The only relief demanded is for the recovery of that sum and costs. There is not even a prayer for general relief. The trial was had without objection, in the usual way, before a jury ; the verdict rendered was simply for a definite sum of money, and when the defendants moved to dismiss because the plaintiff had mistaken his remedy, as an action at law would not lie, no suggestion was made that the court should grant relief in equity, and no such relief was granted. The fact that the judgment roll, execution and return thereof were read in evidence without objection did not authorize the court to award equitable relief, as such evidence was not received for that purpose, but simply to show that the plaintiff was duly appointed receiver. No motion was made to amend the complaint, and it stands as it was drawn, a pleading in. a strict action at law.

The theory of the action as gathered from the complaint, the method of trial and the practice followed throughout the history of the case have fastened it unchangeably on the law side of the court. It was brought there and tried there, and there it must remain so far, at least, as this appeal is concerned.

We think that the judgment should be reversed and a new trial granted, with costs to abide the event.