Case ID: ad_14/html/0371-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, J.„:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Mortimer Stiefel, as Receiver of the New York Novelty Company, Appellant, v. New York Novelty Company, Defendant; Isabella Schwab, Sophia Schwab and Ada Schwab, Respondents.
    ffopporation— transfers by it of money and notes in fraud of creditors—they justify equitable relief— an objection that a ca/use of action is legal must be raised by answer or demurrer — right of a temporary receiver to sue.
    
    A complaint made by a receiver of a domestic manufacturing corporation, appointed July 25, 1894, alleged that on July 17, 1894, the corporation confessed-judgment to an individual who, by execution, took possession of and sold the tangible assets of the corporation; that on July 16, 1894, while insolvent and in contemplation of insolvency, and with intent to prefer one of the defendants who was then a shareholder, it paid her. a sum of money, and in like manner, made similar payments to two other shareholders; that when these payments and alleged preferences were made, the corporation had refused payment of its notes and other obligations; that the payments in question were made, and were accepted, with intent to hinder, delay and defraud the creditors of the corporation, and in violation of the statute (§ 48 of chap. 688 of 1892). Meld, that the complaint stated a cause of action;
    That the causes of action were not legal in their nature, although the property . transferred was merely money and notes, as the assets of the corporation con- . stituted a trust fund for the payment of creditors and stockholders, and illegal transfers of such a fund, made in contravention of the statute and in fraud of t creditors, are well-recognized subjects of equity jurisdiction;
    That, even if- it appeared that the only relief practicable -was the awarding of a money'judgment, the court having taken jurisdiction of the action in equity, should'fétain it and award damages.
    
      Semble, that in any event an objection that the causes of action were not equitable in their nature, but were legal, for money paid and received in violation of the statute, could be .raised only by answer or demurrer, and not having been - so raised, such objection must be deemed to have been waived.
    The plaintiff in such an action is entitled to the relief that the transfers of the money and notes be declared void; that the money and notes be accounted for and turned over by the defendants to the plaintiff; that the plaintiff hold the money1 and property, subject to the order of the court, and that injunctions be granted restraining the defendants from disposing of the property.
    
      Semble, that the court will not consider, for the first time, upon an appeal the . question whether or not such an action was begun before or after the plaintiff was appointed permanent receiver.
    
      Semble, that a temporary receiver may maintain such an action.
    Appeal by the plaintiff, Mortimer. Stiefel, as receiver of the New York Novelty Company, from a jüdgipent, of the Supreme Court in favor of the defendants Sophia Schwab and others, entered in the office of the clerk'of the county of New York on the. 24th day of March, 1896, upon the decision of the court rendered after a trial at the New York Special Term dismissing the complaints.
    
      Edgar G. Lau&r, for the appellant.
    
      Edwin T. Taliaferro and Benjamin Tusha, for the respondents.
   Williams, J.„:

The complaints were dismissed at the.trial on the motion of the defendants without any evidence being taken. The two actions-were, by order of the court, consolidated and to be tried as 6ne upon their respective pleadings already made. The amended complaint in the action against Sophia and Isabella Schwab alleged that, on and prior to July 17, 1894, the defendant company was a domestic manufacturing corporation; that on July 25, 1894, in pm .action in the Superior Court, New York, wherein Frank King was-plaintiff and the defendant company was the defendant, plaintiff was, by order, appointed temporary receiver of the property of the defendant company, and duly qualified as such and executed and filed his bond," as required by the order; that on the 14th of September, 1894, by the final decree in the same action, plaintiff was appointed permanent receiver of the defendant company, and is now acting as such receiver; that on July 17, 1894, the defendant company confessed judgment to one Edward- P.' Hatch, and under such judgment and an execution issued thereon Hatch took possession of the tangible assets of the defendant company and caused them to be sold at auction; that on July 16, 1894, the defendant company, while insolvent and in contemplation of insolvency, and with intent to give á preference to the defendant Sophia Schwab, paid to her $5,950 ; that at the time of such payment Sophia Schwab was a shareholder and otherwise interested in. the corporation ; that on July 16, 1894, the defendant company, while insolvent and in contemplation of insolvency, and with intent to-give a preference to the defendant Isabella Schwab, paid to her $13,500 ; that at the time of such payment Isabella Schwab was a shareholder and otherwise interested in the corporation; that when these paym.ents and preferences were made the corporation had refused payment of its notes and other obligations, and such pay-merits were made by the defendant company and accepted by the ■defendants Sophia and Isabella Schwab with intent to hinder, delay and defraud the creditors of the defendant company, and in violation of the statute respecting payments by domestic corporations, and judgment was demanded that such payments be declared to have been made in violation of the statute, in fraud of creditors, and to be null and void; that the defendants Sophia and Isabella Schwab be compelled to account for the moneys so received by them, and be directed to turn the same over to the plaintiff ; that they be enjoined, pending the action, from disposing of the moneys, ■except to the plaintiff, and for such other relief as might be just.

The complaint in the action against Ada Schwab was of similar import, except that the property transferred to this defendant was alleged to be the notes of third parties, of the value of $2,500, and there were some other allegations in the complaint not found in the former one referred to.

It was upon these complaints that the motion to dismiss was made. ‘The ground upon which the court granted the motion and dismissed the complaints was that the causes of action were not equitable in their nature, but were merely for money paid and received in violation of a statute. This was not a sufficient ground for the dismissal ■of the complaints. It is' well settled that this question must be raised by answer or demurrer, and cannot be raised for the first time at the trial. (Town of Mentz v. Cook, 108 N. Y. 504; Ostrander v. Weber, 114 id. 95, 102; Hyatt v. Ingalls, 124 id. 93, 105; Watts v. Alder, 130 id. 646-648; W. 8. Bank v. Town of Solon, 136 id. 465, 473; Lough v. Outerbridge, 143 id, 271-276.)

These cases, we think, lay down the rule clearly applicable to this. ■case. Other eases are cited by counsel, but they are distinguishable from this case and the cases above cited, and, we think, are not applicable here. There was a waiver by the defendants of the right to try .these actions as actions at law by the failure to raise the question by demurrer or auswer.

We think, moreover, that the learned trial judge erred in holding that the causes of action alleged in the complaints were not equitable in their nature. The actions were brought to set aside illegal transfers of trust property and to recover such property. The transfers were not only alleged to have been made in contravention of • the statute (§ 48, chap. 688, Laws of 1892), which provided, among other things, that “'.every person receiving by means- of any such prohibited act or deed any property of the corporation shall be bound to account therefor to its -creditors or Stockholders or- other trtistees,” but were also alleged to have been made in fraud of credritors. It is well settled that the- assets of a corporation constitute a trust, fund for the payment of -creditors hnd stockholders. (Bartlett v. Brew, 57 N. Y. 587; Cole v. M. I. Co., 133 id. 164.)

An action to set aside such illegal transfers made in contravention of the statute and in fraud of creditors, and to reco ver -such - assets-, presents well-recognized subjects of equity - jurisdiction. In this case the property transferred was money and notes, but the plaintiff was entitled to the ¡same relief as in case pf the transfer of real estate or personal property' other than moneys and -notes. The relief asked for was entirely- proper. 1. That the transfers of the money and the notes be declared . void. 2. That the money and notes be accounted for ¡and turned over by the; defendants to the plaintiff. 3. That the .plaintiff hold the money-.and property subject to the order of the court. 4. That injunctions be granted restraining-defendants from disposing of the property. 5. For such further-relief as might be just and equitable. If these actions had related to real property or specific articles of personal property, it could not be doubted that the suits were properly in equity. - There -.can- be-no-distinction by feason-of the property being money and notes. The-plaintiff could not be limited to a money judgment against the defendants; The actions and the relief ¡sought therein were in théir nature -equitable, and the court having taken jurisdiction ’ of the actions as equitable, was not justified in dismissing the1, complaints, even if it appeared that the only relief practicable was the awarding-of money judgments. It vras said in Dudley v. Congregation, etc. (138 N. Y. 459), When facts are made out which bring (he case within the. general jurisdiction of equity, the court will no( allow the case to fail, because the specific relief , prayed for is no longek practicable, but in Such a case, as a substitute for the relief demanded, will award an equivalent in damages, thus ending the controversy, instead, of sending the. parties, td®.-court of law for that purpose.”' (Citing Valentine v. Richardt, 126 N. Y. 277; Lynch v. M. E. R. Co., 129 id. 274; Van Rensselaer v. Van Rensselaer, 113 id. 213.)

It is apparent, therefore, that the decision ordering judgment upon the ground stated therein was erroneous. It is said, however, that the judgment should not be reversed, but the decision should be sustained upon another ground, not considered or relied upon by the court, to wit, that the actions were brought while the plaintiff was merely a temporary receiver, and before his appointment as permanent receiver, and that he could not maintain the action in his capacity as" temporary receiver. This question seems to have been determined by the Court of Appeals adversely to the respondent’s contention in Nealis v. American Tube & Iron Co. (150 N. Y. 42). Moreover, the two actions were in fact commenced, were questions of fact, and did not appear upon the face of the complaints upon which the trial was had. . No proof was given upon this subject, and no concession was made as to the facts at the trial. Indeed, the court did not consider this question at all, and we should not attempt to settle "these facts here. It seems, that the summons in both actions were served after the plaintiff was-appointed permanent receiver. As to the action against Ada Schwab,, there can be no doubt that it was commenced long after such appointment, and no proceedings of any kind were had therein before such appointment. As to the action against Isabella and Sophia Schwab,, tlie summons was served after the appointment as permanent receiver, but it is claimed that the summons.and complaint and an affidavit were made and presented to the court, and an order to show cause granted thereon, including a temporary injunction, before such appointment. None of these papers were, however, served until after such appointment had been made. None of these papers were presented to the trial court, and the learned judge did not consider them nor pass upon this question here raised.

Our conclusion is that the judgment appealed from should be reversed and a new trial ordered, with costs to the appellant to abide event.

Van Brunt, P. J., Patterson, O’Brien and Ingraham, J J., concurred.

Judgment reversed, new trial ordered, costs to appellant to abide event.