Summary
In Becker v. Torrance (31 N.Y. 631) it was held that, as regards chattels subject generally to seizure on execution, the service of an order for the examination of the debtor in proceedings supplementary to execution, accompanied by an injunction clause, has not any effect to preclude any other judgment creditor from levying his execution on such chattels; and that such levy confers a right prior and superior to any acquired by the creditor obtaining that order.
Summary of this case from Matter of CloverOpinion
June Term, 1864
W. Woodbury, for the appellant.
C.C. Torrance, defendant, in person.
I am of the opinion that the plaintiff was entitled to recover, upon the proof before the referee, provided his title under the levy upon his execution was superior to that of the defendant as receiver in the actions of the other judgment creditors. The substance of the arrangement proved was, that if the deputy sheriff would not proceed to a sale under the plaintiff's execution, but would suffer the defendant to make sale of the goods as receiver, he would pay the plaintiff, or the deputy sheriff, for his use, the amount of the plaintiff's executions, if the plaintiff's levy was the prior lien. The deputy performed the conditions which formed the consideration of the defendant's promise, by virtually relinquishing the levy and allowing the defendant to sell the property. According to some of the witnesses, it was made a condition to the payment, that the defendant should be satisfied of the priority of the plaintiff's lien; but this could scarcely have been the understanding, according to the testimony of the defendant himself, who swore that he contemplated having the question of priority determined in some manner by the courts. It cannot be supposed that either the plaintiff or the deputy sheriff would have consented to permit the validity of the levy to depend wholly upon the judgment of the representative of the other creditors. One of the witnesses, Mr. Parker the judgment debtor, understood the arrangement to be that if the levy was good in law, as against the receiver, the defendant should pay the execution. I am well satisfied that this was the true character of the arrangement.
The promise was one which the plaintiff was entitled to the benefit of. Indeed, it may be considered as having been made to him, through the deputy as his agent. The plaintiff was informed of the agreement, and assented to the conditions by suffering the levy to be relinquished in favor of the title of the defendant as receiver.
The only question discussed in the opinion of the Supreme Court is the relative priority of the title of the plaintiff under the levy on his execution, and of the defendant under his appointment as receiver; and this, in my opinion, is the only disputable point in the case. The decision of the referee must have proceeded upon that view, as he nonsuited the plaintiff instead of passing upon the terms of the agreement, which it would have been his duty to do, if he had not found what he considered a decisive answer to the action in the supposed superiority of the defendant's title over that of the plaintiff.
It is to be considered certain that the assignment to F.B. Parker was fraudulent and void. It contained on its face a provision which the courts hold to be incontrovertible evidence of fraud; and it had, moreover, been determined to be fraudulent and inoperative by a judgment which the defendant himself gave in evidence, and which concluded him upon that question. ( Chautauque County Bank v. Risley, 19 N.Y., 369.) The assignee, however, did not concede the invalidity of his title, but set up the instrument as operative.
The property being personal chattels, and being the property of the judgment debtor as respects his creditors, was liable to be seized and sold under the execution; but it having been transferred by an instrument, valid as between the parties to it, it was competent for a judgment creditor, instead of causing it to be seized under the fi. fa., to bring the parties into court, with a view to procure a judgment against the title of the assignee, and then to have the judgment executed through the instrumentality of a receiver. The proceedings supplementary to the execution may be considered as the commencement of a process in equity, in the nature of the former suit by creditor's bill. The county judge had no right, it is true, to try the validity of the title of the assignee. His order, however, would invest the receiver with the rights of the creditor, and thus make him the formal party to the subsequent proceedings. The plaintiff elected to pursue the direct legal remedy, by seizing the goods on his execution, while the other judgment creditors suffered their executions to be returned unsatisfied, preferring to resort to appropriate proceedings in the nature of a suit in equity, to procure a judgment against the claims of the assignee, and then to have his judgment executed according to the forms applicable to that proceeding. One of the judgment creditors commenced his process a few days prior to the plaintiff's levy, by obtaining an order for the examination of the debtor. The other instituted his proceeding a few days after the levy. As to the latter, there is no doubt as to the plaintiff's priority. Whatever judgment should have been given as to the creditor who first proceeded before the county judge, the plaintiffs' rights were superior to those of the other creditor, and there ought, at all events, to have been a recovery against the defendant for the balance of the proceeds of the sale of the goods, after the payment of the judgment upon which the supplementary proceedings were first taken, if those proceedings established a priority in favor of the other creditors. There was no well founded formal objection to this. The defendant undertook to pay the plaintiff's judgment if his levy gave him superior claims over the creditors whom he represented. If that levy was prior to one of them and not to the other, there was no difficulty in regulating the recovery according to the merits of the case.
But I am of opinion that the plaintiff by his levy established a priority over both the other judgment creditors. The subject out of which the debts were to be collected was tangible personal property, generally liable to seizure and sale under the ordinary legal process of fieri facias, and it was none the less liable because the debtor had undertaken to screen it from the pursuit of his creditors by a fraudulent transfer. The plaintiff caused it to be seized under that process. The other creditor whose case we are now considering, had, just prior to that seizure, commenced proceedings, looking towards a suit in the nature of a creditor's bill. Those proceedings were only preliminary to a suit, for the officer could do nothing except to appoint a person who should represent the creditors by commencing and prosecuting such a suit. He could make no order subjecting property to a sale, where it was held adversely to the debtor. That proceeding was authorized by law, for the purpose of enabling a judgment and execution creditor to institute a suit to subject to the payment of his debt, property not vendible on execution, such as moneys due the judgment debtor, stocks, choses in action, or the like. As to these, the writ of fieri facias was inapplicable and powerless. As to such subjects, it was reasonable that the law, or the courts, should fix upon some stage of the creditor's process when the property which the debtor had in the subject should be affected with an equitable lien, so as to prevent a subsequent disposition of it to the prejudice of the creditor. One of the earliest judicial notices upon this point which I have met with in our courts was in ( Hadden v. Spader, 20 Johns. 554, 571,) where Mr. Justice WOODWORTH, in the prevailing opinion of the court for the correction of errors, assimilated the case to that of a suit against a trustee for a breach of trust. There the filing the bill and service of the subpœna, would affect the trustee with notice, and prevent any further dealing with the subject to the prejudice of the plaintiff. One owing another, or having moneys or property of his in his hands, is in some sense his trustee. This appears to me to be the foundation of the doctrine which attributes to the commencement of a creditor's suit, something in the nature of a lien upon the debtor's choses in action. It was a necessary supplement to the principle that such subjects might be reached in chancery by the creditor. The object of the suit of Hadden v. Spader, was to subject moneys owing by Hadden to Davis, the judgment debtor, to the payment of the plaintiff's judgment. Hadden was made a defendant with the judgment debtor, when the case was before Chancellor KENT, from whose decree the appeal was taken to the court of errors; he called the debt which it was sought to subject trust moneys, belonging to the debtor in the hands of the defendant Hadden, and he declared that all payments of the same by Hadden to Davis, subsequent to the filing of the bill containing notice of the creditor's right, and of his claim in pursuance of it, were made in his own wrong, thus putting it upon the ground of legal notice to the trustee not to deal further with the cestui que trust, and that the interest of such cestui que trust was claimed by his judgment creditor. The same doctrine is deducible from the case of ( Weed v. Pierce, 9 Cow. 722, 728-9.) The complainant, a judgment creditor of the defendant Pierce, sought to subject money which the other defendants owed him, to the payment of their judgment. The point decided was that the issuing of execution on the complainant's judgment did give a lien on the fund, but that it required the filing of a bill or some other decisive act, showing an intention to pursue the fund. The Judge (the late Chancellor WALWORTH, then circuit Judge,) considered that the giving notice of the claim by the plaintiff, and of his intention to pursue what he called the trust fund, would have the same effect to prevent the trustee disposing of it as a suit in equity. But such a notice certainly would not affect another judgment creditor who was pursuing a legal remedy. Something more than a notice, or a lis pendens, equivalent to actual notice, would be required to prejudice the levy of an execution. ( Edmeston v. Lyde, 1 Paige, 637), reiterates the principle laid down in the last mentioned case. ( Corning v. White, 2 Paige, 566), only decides that the judgment creditor who first files his bill in chancery obtains a priority in relation to the property and effects of the defendant, which cannot be reached by execution at law.
The defendant places a good deal of reliance on Porter v. Williams (5 Seld., 142), which affirmed a judgment in the Supreme Court reported in 5 How., 141. The debtor Williams, before the plaintiff's judgment was recovered, had assigned his property, real and personal, for the benefit of his creditors according to certain classes of preference, and had authorized the assignee to sell the goods on credit. After the plaintiff had obtained his judgment, Williams executed to his assignee an instrument directing him to sell for cash only; but two days before the execution of that instrument the plaintiff had obtained an order for the examination of Williams in proceedings supplementary to execution. If that instrument was ineffectual to reform the assignment and to render it valid from the time the instrument was executed, that was nothing to preclude the plaintiff from prevailing in the action. If it had been held that the instrument had the effect to validate from the time of its execution the assignment which was unquestionably void, it would then become necessary to pass upon the effect of the order made in the supplementary proceedings; and the question would then be, whether that order so affected the debtor's title to his property that he could not subsequently assign it, so as to give the assignee a title superior to that of the plaintiff who, as a judgment creditor, had instituted the proceedings. All the judges who gave opinions in the two courts held that the instrument was wholly void and did not affect the title to the property in any way. The other principal question discussed in the case, whether the receiver, who was appointed sometime after the execution of the instrument, represented the creditors in such a sense as to entitle him to disaffirm the act of the debtor in executing the fraudulent assignment; and it was held that he did so represent them. Thus far it would seem that nothing was decided adverse to the pretensions of the plaintiff in the present case. But when the case was before the Supreme Court, Judge HARRIS, by whom the opinion was prepared, expressed an opinion that the order for the examination of the debtor, created a lien upon his property which he could not divest by the instrument executed to the assignee, even if it had been otherwise effectual; and there is an expression to the same effect in the opinion of Judge WILLARD when the case came here. After stating his opinion that by the original assignment the debtor had divested himself of all control over his property, and that he could neither revoke nor alter it, he adds: "and certainly not to the prejudice of a creditor whose lien on the property had attached by the institution of supplementary proceedings under the Code." But I am confident that this court did not intend to pass upon the effect of the order for the examination of the debtor; for we were all perfectly confident that the instrument by which it was intended to correct and validate the assignment, was ineffectual. The case, as it was disposed of here, is more fully reported in 12 Howard's Practice Reports under the name of Porter v. Clark and Williams. An opinion is there printed which does not appear in Mr. Selden's reports, in which the judgment is placed wholly on the invalidity of the subsequent instrument, and on the power of a receiver, after he was appointed, without any suggestion that a retrospective effect could be given to the appointment so as to create a lien from the time the first order was made.
I am of opinion that, as regards chattels subject generally to seizure on execution, the making of an order for the examination of the debtor in proceedings supplementary to execution, has not any effect to preclude another judgment creditor from levying his execution on such chattels; and that such levy confers a right prior and superior to any acquired by the creditor obtaining that order. If the opinion expressed by Judge HARRIS should be considered correct, it would only show that the debtor could not voluntarily do any act to impair the rights acquired under the order, but it would be very far from establishing that other creditors, proceeding in invitum to enforce their legal remedies according to the ordinary course of justice, could be defeated by the granting of such an order. It is unnecessary to determine whether such an order has any effect to qualify the debtor's own voluntary disposition of his chattels, for the reason that no such question is now presented, and also because an amendment of the Code, passed in the year 1862, declares that the receiver shall, in such cases, be vested with the property and effects of the judgment debtor from the time of filing and recording the order for his appointment. This definite provision for changing the title of the debtor's property by a just intendment, puts an end to the principle of relation by which an effect upon the property has been attributed to the preliminary order.
I am of opinion that the judgment in this case should be reversed, and a new trial ordered.
The plaintiff's execution having been placed in the sheriff's hands, and actually levied upon the goods, before the appointment of the defendant as receiver in the proceedings supplementary to execution, the sheriff acquired thereby a right to such goods superior to that of the defendant, by virtue of his appointment. ( Van Alstyne v. Cook, 25 N.Y., 489.) The right of the defendant, when he had perfected his appointment by the filing of his bond, only related back to the date of the order appointing him.
The issuing and service of the order requiring the judgment debtor to appear and be examined touching his property, created no lien or interest in the property discovered by such examination, in favor of the party who instituted and carried on the proceeding, as against other creditors who might in the meantime discover property liable to execution, and cause the same to be actually seized by such process. ( Voorhees v. Seymour, 26 Barb., 569.)
The proceeding supplementary to execution, is a proceeding for the discovery and sequestration of the debtor's property, for the purpose of satisfying and discharging the judgment. But no right is acquired, as against other creditors pursuing different remedies, until the appointment of the receiver.
When the receiver is appointed and has filed his bond, he becomes vested with the title to the property, for the purpose of paying and discharging the debt. He then acquires a right analogous to that of a sheriff, who has taken property in execution; a right to sell and transfer the title for the purpose of raising money to pay off and satisfy the indebtedness. If his appointment as receiver is subsequent to a valid levy by a sheriff, at the instance of another creditor of the debtor, the receiver takes, subject to the right acquired by such levy. That was clearly the case here. The promise was to pay the plaintiff's execution out of the proceeds of the sale of the property, provided the levy was valid and would hold as against the proceedings supplementary.
It did not depend upon the defendant's belief, or mental assent, as to the existence of the right created by the levy, but upon the existence in fact and in law of such right, which, as we have seen, is entirely clear. There can be no doubt that the consideration for this promise is abundantly sufficient. It was the relinquishment by the sheriff of a clear legal right, which gave to the defendant a complete and perfect title to the goods which he had not previously, and thus enable him to dispose of them, free and clear of such prior and superior claim. The promise is not affected in the least, by the statute of frauds. It is not a mere promise to pay the debt of a third person, but a promise to pay off and satisfy a valid lien and claim upon property, on condition that the party promising may take and sell the property discharged from such lien and claim. I do not perceive that the question of the validity of this promise is in any way affected by the circumstance that the creditors whom the defendant represented had proceeded by action, and caused the assignment to be set aside and declared void. That action did not affect the plaintiff's levy. He was not a party to the action, and might have proceeded to sell had he seen fit while it was pending. The promise was made, and the right under the levy relinquished, after the decree declaring the assignment fraudulent and void as to creditors had been obtained. No question was then raised by the defendant, as to whether the plaintiff had not lost his right by having slept too long upon it, or anything of that nature. The only question was whether any legal right could have been acquired by taking the property in execution, between the time of the issuing and service of the order for the examination of the judgment debtor, and the order for the appointment of the defendant as receiver. The promise was made to depend upon the existence of that right only, and it is too late now to raise the question of laches in not proceeding to sell under the execution. But there was in truth no laches which affected the plaintiff's rights under his execution. The goods were locked up safely in the store, and the sheriff insisted upon his right to sell, and control them, the moment the defendant undertook to exercise his rights as receiver. The sheriff was not prevented by the injunction in the order for the examination of the judgment debtor, from proceeding to sell the goods. That order did not enjoin him from proceeding as a public officer to execute his process. The defendant cannot insist that it had that effect, because that would be fatal to the argument that the plaintiff's rights had been affected by the laches. So far as appears, the delay was the mere voluntary act of the sheriff, which affected no one's rights injuriously.
The promise being a valid one, I do not see why this action for the money may not be maintained upon it. The defendant has sold the property and realized a sum of money for it much more than sufficient to pay and satisfy the plaintiff's judgment. It was this money which he promised to pay, when he should sell the property and obtain it. The promise was for the plaintiff's benefit exclusively, and although not made to him directly, is available to him upon the principle established in Lawrence v. Fox ( 20 N.Y., 268), and Brown v. Beers (24 id., 178). Having adopted it he may maintain his action upon it instead of proceeding against the sheriff.
I am of the opinion, therefore, that the action was properly brought, and the plaintiff entitled to recover. The judgment should consequently be reversed and a new trial granted, with costs to abide the event.
DAVIES and HOGEBOOM, JJ., were for affirmance. All the other judges being in favor of reversal,
Judgment reversed.