Opinion
Submitted December 2, 1904
Decided December 30, 1904
Moses Feltenstein for appellants. I. Henry Harris for plaintiff, respondent.
Augustus J. Koehler for respondent trustee.
The plaintiff is the receiver of James M. Connelly, a judgment debtor, appointed in proceedings supplementary to executions issued on several judgments obtained against said Connelly. The appellant, the Cook Bernheimer Company, was the holder of a chattel mortgage for the sum of $2,050 made by said Connelly, which covered the fixtures in his saloon. This mortgage, as found by the trial court, was not filed in the county where the mortgagor resided. Subsequently the appellant seized the mortgaged chattels, together with other property of the judgment debtor not covered by said mortgage, sold the same to satisfy the mortgage debt and at such sale became the purchaser. The claims of the various creditors whom the plaintiff represents accrued prior to the mortgage sale, but judgments were not recovered on them until subsequent to the sale. The respondent, defendant Entwistle, is the trustee in bankruptcy of the estate of said Connelly appointed as such subsequent to the mortgage sale, but prior to the recovery of the aforesaid judgments. The action originally was brought against the Cook Bernheimer Company to compel that defendant to account to the plaintiff for the value of the mortgaged chattels on the ground that said mortgage was void as against the plaintiff's judgments because it was not properly filed. After the commencement of the action the trustee in bankruptcy, on his own application and without opposition by the other parties, was made a party defendant thereto. He answered, making three claims against his co-defendant: First, for the excess in value of the mortgaged chattels over the sum for which they were sold. Second, for the value of the property seized by the appellant which was not included in its mortgage. Third, for the value of a liquor tax certificate transferred by the bankrupt to the defendant in fraud of the Bankruptcy Act. The trial court found the value of the mortgaged chattels exceeded $3,800, and awarded the plaintiff the amount due on the judgments which he represented, the sum of $2,670.22. It awarded to the trustee in bankruptcy his second and third claims against its co-defendant. It disallowed his first claim, the value of the mortgaged chattels in excess of the price for which they were sold, but in lieu thereof awarded him the surplus arising on the sale, that is to say, the difference between the mortgage debt and the sum of $2,500, for which the property was sold. That judgment was unanimously affirmed by the Appellate Division and an appeal was taken to this court.
The appellant challenges the right of the plaintiff to maintain the action at all. He concedes that the case of Stephens v. Perrine ( 143 N.Y. 476) is an authority in support of the action, but insists that that case has been overruled, or at least its authority seriously impaired, by the subsequent decisions of this court in Stephens v. Meriden Britannia Company ( 160 N.Y. 178) and Sheldon v. Wickham ( 161 N.Y. 500). We think otherwise. The Stephens case decided that though the creditor could not attack an unfiled chattel mortgage until he recovered a judgment on his claim, still that a seizure and sale by the mortgagee prior to a recovery of any judgment did not vest title in him and that he was liable to account for the value of the property to the creditor. It was also held that the action was properly brought by a receiver in supplementary proceedings. All that was decided in the Meriden Britannia case was that an action at law for the conversion of the mortgaged chattels could not be maintained by the receiver. It is not an authority for the proposition that the mortgagee was not liable in equity to account to the creditor or his receiver. The Sheldon case merely decided that an assignee for the benefit of creditors could not maintain the action because he had no other rights than those of his assignor, as to whom the unfiled mortgage was valid, except as those rights had been further extended by the statute, which was not broad enough to include such a case. The authority of Stephens v. Perrine, therefore, stands in full force.
We cannot see any principle, however, on which the surplus realized on the sale of the mortgaged chattels over the amount of the mortgage debt could be justly awarded to the trustee in bankruptcy. The mortgage seems to have been good as against him ( Stewart v. Platt, 101 U.S. 731), or at least the ruling of the trial court to that effect has not been challenged by either respondent. Doubtless if there were in reality a surplus on the mortgage sale the trustee in bankruptcy would be entitled to it, but the surplus was entirely fictitious. The property brought only $2,500, the mortgage was $2,050. Had the title to the property been unincumbered there would have been a surplus of $450. But the chattels instead of being unincumbered were subject to the claims of creditors, which the very judgment before us establishes at $2,600. This exceeds the sum for which the chattels were sold, and the result is that, instead of there having been a surplus, the appellant, by the sale, realizes nothing on its mortgage debt. The trial court made some errors in its rulings on evidence, but we do not think they are of such vital importance as to require a reversal of the entire judgment.
The judgment appealed from should be modified by deducting from the recovery awarded Entwistle, as trustee in bankruptcy, the sum of $450, with interest thereon from November 18th, 1899, and as modified affirmed, with costs to the plaintiff respondent, but without costs to respondent Entwistle, trustee.
CULLEN, Ch. J., GRAY, O'BRIEN, BARTLETT, HAIGHT, MARTIN and VANN, JJ., concur.
Judgment accordingly.