Opinion
February Term, 1902.
William J. Barr, for the appellants.
Otto H. Droege, for the respondent.
The action was brought by a receiver appointed in supplementary proceedings to test his title to property of the judgment debtor, which was levied upon by the defendants under execution and sold. The order in supplementary proceedings was issued on August 21, 1901, after entry of a judgment and the return of an execution thereupon unsatisfied. On August 26, 1901, the defendants obtained a judgment against the judgment debtor, and execution was issued the same day, and property in his possession was levied upon and subsequently sold by the city marshal to the defendants. Thereafter, on September 4, 1901, the plaintiff herein was appointed receiver in the supplementary proceedings referred to and demanded of the defendants the proceeds of the sale, which demand was refused, whereupon this suit was brought. To the complaint, which set forth these facts, the defendants demurred, but the demurrer was overruled, and, from the interlocutory judgment so entered, the defendants appeal.
The junior execution was one issued out of a court not of record, and the order in supplementary proceedings was served upon the judgment debtor under the senior judgment prior to the levy and sale under the junior judgment. The question presented for our determination, therefore, is: Can a receiver in supplementary proceedings, instituted upon a senior judgment and execution, recover from an execution creditor the proceeds received by said execution creditor from a sale of tangible personal property of the judgment debtor under a junior judgment and execution where the levy and sale of the tangible personal property took place before the appointment and qualification of the receiver?
Section 1408 of the Code of Civil Procedure provides: "But an execution issued out of a court not of record * * * if actually levied, has preference over another execution issued out of any court of record or not of record which has not been previously levied." It is insisted, however, that this section is superseded and controlled by sections 2468 and 2469 of the Code of Civil Procedure, wherein it is provided, in section 2468, that "the property of the judgment debtor is vested in a receiver, who has duly qualified, from the time of filing the order appointing him or extending his receivership, as the case may be;" and, in section 2469, that, "where the receiver's title to personal property has become vested, * * * it also extends back, by relation, for the benefit of the judgment creditor, in whose behalf the special proceeding was instituted, as follows: 1. Where an order requiring the judgment debtor to attend and be examined * * * has been served before the appointment of the receiver or the extension of the receivership, the receiver's title extends back so as to include the personal property of the judgment debtor at the time of the service of the order. * * * But this section does not affect the title of a purchaser in good faith, without notice, and for a valuable consideration, or the payment of a debt in good faith and without notice."
These two sections of the Code are new and are derived in part from section 298 of the former Code of Procedure. In construing the language of that section (§ 298) the Court of Appeals, in Becker v. Torrance ( 31 N.Y. 640), held 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." And sections 2468 and 2469 of the Code of Civil Procedure were construed in McCorkle v. Herrman ( 117 N.Y. 302), wherein it was said: "By section 2469, when an order for the debtor's examination has been served, the receiver's title, when vested pursuant to section 2468, `extends back so as to include the personal property of the judgment debtor at the time of the service of the order,' except as against bona fide purchasers, or against creditors who have meanwhile received payment from their debtor in good faith and without notice. The words `personal property,' in this section, include money, chattels, things in action and evidences of debt (§ 3343). Section 2469 is a new provision, not found in the former Code, and appears to have been inserted to change the rule declared in Becker v. Torrance ( 31 N.Y. 631), to the effect that no equitable lien was acquired by a creditor on the property of his debtor by the commencement of supplementary proceedings and that when a receiver is appointed his title relates to the date of his appointment, and is subject to any lien on the debtor's property acquired by third persons intermediate the commencement of the proceedings and the appointment of the receiver." (See, also, Matter of Clover, 8 App. Div. 561.)
In the case of McCorkle v. Herrman ( supra) the question related to the title to intangible assets of the judgment debtor, and not tangible assets subject to execution as in the case at bar. The language of Judge ANDREWS, however, who wrote the opinion in that case, justifies the conclusion reached by the learned judge at Special Term, that the sections quoted were intended and are to be construed as intending to abolish the distinction formerly existing, and "to give a receiver the same title by relation back after his appointment, to the tangible assets or those subject to execution at law, as to the intangible assets, otherwise denominated things in action and equitable assets."
Although we should have had some doubt as to this being the correct construction to be given to the sections referred to, our respect for the able judge who delivered the opinion in the McCorkle Case ( supra) requires that we should not attempt to disturb it until the subject is again reviewed by the court of which he was formerly a member.
Assuming, however, without deciding, that this is a correct exposition of these sections of the Code of Civil Procedure, we are still of the opinion that we should answer the question presented for our determination in the negative, thinking as we do that the defendants are entitled to retain the sum realized upon the levy and and sale of the property because protected by that part of section 2469 which refers to "the payment of a debt in good faith and without notice." Here the creditors, without knowledge of the pendency of the proceedings supplementary and in good faith, took steps to secure the payment of their debt, and, to that end, obtained judgment, made levy, and by sale under the execution divested the debtor of his title to the tangible assets levied upon and sold, and realized a sum which was applicable to, and which they must be held to have received in payment of their debt, since to the extent of the money obtained it was discharged. As to the property itself, the fact that it was bought in by the creditors presents no different condition with respect to the title thereto than if it had been purchased by a third person. It follows that the defendant creditors, as well as a third person, had the latter intervened and bought at the sale, would, as against the receiver, have good title to the property under the express language of section 2469, for they thus became purchasers "in good faith, without notice and for a valuable consideration."
The rights and remedies of the receiver, therefore, so far as the property itself is concerned, were forever gone; and all that remained, if anything, was a right to the proceeds realized from the sale of the property. These, however, had been applied in "the payment of a debt, in good faith and without notice;" and, although the payment was one, so far as the debtor was concerned, which was involuntary, we do not think that there is any good reason for holding that the creditors got any other or different title to such proceeds than if the debtor had sold the property and turned over the moneys to the creditors in payment of the debt in good faith. The creditors having pursued their legal remedy and divested the title of the debtor upon the sale under the execution, and applied the proceeds in payment of their debt in good faith and without notice, we do not think the receiver's title to those proceeds — giving full force and effect to the sections upon which he relies — is superior to that of the defendants.
It follows from this conclusion that the demurrer to the complaint should have been sustained. The judgment, accordingly, is reversed, with costs to the appellant to abide the event, and the demurrer sustained, with costs, but with leave to the plaintiff within twenty days to amend his complaint, upon payment of costs in this court and in the court below.
VAN BRUNT, P.J., and PATTERSON, J., concurred; LAUGHLIN, J., dissented.
Judgment reversed, with costs, and demurrer sustained, with costs, with leave to plaintiff to amend on payment of costs in this court and in the court below.