Opinion
November Term, 1902.
Walter L. McCorkle, for the appellant.
William L. Cahn, for the respondent.
The plaintiff brings this action as trustee in bankruptcy to set aside transfers made to the directors of the bankrupt corporation on the ground that they were without consideration and were made at a time when the corporation was insolvent. The defendant made a motion for security for costs which was denied, and from the order so entered he has appealed.
The question thus presented is whether under the construction to be given to section 3268 of the Code of Civil Procedure, the defendant is entitled as matter of right to an order requiring the plaintiff to give security for costs. It appears that the alleged cause of action arose prior to the assignment or adjudication in bankruptcy or the appointment of the plaintiff as trustee, and the Special Term, relying no doubt upon what was said by this court in the case of Joseph v. Makley ( 73 App. Div. 157), and assuming, therefore, that the granting of security for costs was discretionary, denied the application.
In the Makley Case ( supra) the Special Term had denied the application upon the ground of want of power, and the question presented was as to whether that order was right; and we held that the court had power and sent the motion back to the Special Term so that the judge there might have the opportunity to examine into the facts and determine the application on the merits. In discussing the construction to be given to section 3268 of the Code of Civil Procedure, however, we fell into error in stating that the granting of security for costs is discretionary, it being apparent from a re-examination of that section that it is mandatory, and that with respect to causes of action arising prior to the adjudication in bankruptcy, the defendant, assuming he is not guilty of laches, is entitled as matter of right to security for costs.
The discussion in the Makley Case ( supra) was unnecessary to our decision, which in itself was right. But the discussion, whether necessary or not, was wrong so far as it was therein stated that applications under section 3268 of the Code were addressed to the discretion of the court. Where the application is made under section 3271 there it is discretionary, while, as we have said, in cases falling under section 3268 it is mandatory on the court where the application is properly and seasonably presented.
The distinction between sections 3268 and 3271 of the Code of Civil Procedure has been clearly stated in Welch v. Gaffney (1 How. Pr. [N.S.] 146) as follows: "Where an official assignee of a debtor sues upon a cause of action arising `before the assignment,' he may be required by the defendant as of right to give security for costs. (Code, sec. 3268.) Where the cause of action comes to the assignee `subsequent' to the assignment, it is discretionary with the court whether it will require the plaintiff to give security or not. (Code, sec. 3271.) This is the feature which distinguishes these two sections. If for example, the defendant had bought goods from the assignee `subsequent' to the assignment, or if he had taken property from the assignee's possession, the case would have been brought under the provisions of section 3271 ( supra). In the present instance the cause of action arose `prior' to the assignment and the assignee must give security for costs." This distinction also was recognized by this court in the case of Rielly v. Rosenberg ( 57 App. Div. 408) and Kelley v. Kremer (74 id. 456).
The present application, therefore, falling as it does within section 3268 of the Code of Civil Procedure, should have been granted as the defendant was entitled as matter of right to have the plaintiff file security for costs. It follows that the order appealed from must be reversed, with ten dollars costs and disbursements, and the motion granted.
VAN BRUNT, P.J., McLAUGHLIN and LAUGHLIN, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and motion granted.