Case ID: ny-st-rep_37/html/0327-01.html
Source: Caselaw Access Project
Author: {"author": "Haight, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James G. Kitchen, App’lt, v. Samuel S. Lowery et al., Resp’ts.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed April 28, 1891.)
    
    Assignment for creditors—Preferences—Chattel mortgage.
    The fact that an assignment for the benefit of creditors contains preferences of just debts secured by chattel mortgages which are referred to therein does not render such assignment fraudulent, although such chattel mortgages were void as to other creditors by reason of non-filing within the statutory time.
    Chattel mortgage—Waiver of rights by creditors.
    Although chattel mortgages may be void as to creditors for the reason that they were not filed at the time their credits were given, yet if creditors neglect to avail themselves of the means provided by the statute to secure the payment of their claims until the mortgagor has transferred his interest to an assignee for creditors, they thereby lose the advantage which they otherwise might have gained.
    Appeal from a judgment of the general term, fourth depart-en!, affirming a judgment entered upon a decision of the court the Oneida special term, dismissing the complaint.
    
      D. C. Stoddard, for app’lt; A. M. Mills, for resp’t Sheard; W. Matteson, for assignee Harvey; William E. Lewis, for resp’t ryn.
    
      
       Affirming 25 N. Y. State Rep., 252.
    
   Haight, J.

This action was brought by the plaintiff as a judgcreditor of Samuel S. Lowery and George N. Lowery to set aside a general assignment for the benefit of creditors and two chattel mortgages made by them.

Samuel S. and George N. Lowery were copartners doing business under the firm name of S. S. Lowery & Son, and on the 24th day of December, 1883, they executed and delivered to the defendant Sheard a chattel mortgage on certain machinery and; other personal property owned by them to secure him for hisj ac-j commodation endorsements for the firm. The mortgage was filed August 24, 1885. The defendant Sheard at their request endorsed the notes of the firm to the amount of $15,000, which notes at their maturity were protested and thereafter taken up and paid by him. On the 1st day of September, 1884, the firm executed and delivered to the defendant Nora K. Lowery a chattel mortgage on the same property, which by- its terms was made subordinate to the Sheard mortgage. It was given to secure ar indebtedness from the firm to her which has not been paid. This mortgage was also filed August 24, 1885.

On the 24th of August, 1885, the defendants, Samuel S. anc George N. Lowery, made a general assignment of- all their prop erty to one Bartlett in trust for the benefit of their creditors This assignment was recorded on the same day, but after the fil ing of the chattel mortgages given to Sheard and Nora K. Low ery. The debt of Nora K. Lowery is preferred in the assignmenl it being stated therein that she holds as collateral security th chattel mortgage above referred to, subject, however, to the prio mortgage to Sheard. The assignors delivered to the assignee al of their property, including that covered by the chattel mor gages, and. thereafter made and filed an inventory and schedule in which they stated that the debts of Sheard and Nora K. Lov ery were secured by the two mortgages, and that the propert described in the mortgages was encumbered by such mortgage; On November 19, 1885, the defendant Sheard took the propert under his mortgage, advertised and sold it at public auction fc the sum of $8,000.

The trial court found that the mortgages and assignment wei made in good faith for an honest purpose, without any intent 1 hinder, delay or defraud the creditors of the firm of Samuel Í and George N. Lowery individually.

It is contended on the part of the appellant that the assignmei is fraudulent for the reason that it in effect transferred to the a signee the mortgaged property subject to the payment of the cha tel mortgages as though they were in all respects valid, while : fact and in law they were void as to the plaintiff’s debt for tl reason that they were not filed as required by the statute. A suming the effect to be as stated, we do not understand that tl assignment would be fraudulent. Whilst the mortgagee of chi tels is deemed the owner and has the right to reduce them to pc session, the mortgagor has the right to redeem before sale or receive the surplus, if any, that shall arise upon a sale. lie h an interest in the property which is assignable, and such intere under a general assignment for the benefit of creditors passes the assignee. Sullivan et al. v. Miller, 40 Hun, 516-519 ; 1 N. State Rep., 464; S. C. 106 N. Y., 635-642; 11 N. Y. State Rep., 312.

It follows that whatever interest the firm had in the mortgaged property passed to the assignee under the assignment. As to the mortgagors, the mortgages were valid and subsisting liens. The indebtedness which they were given to secure was honest and just, and the same could lawfully be paid out of the assets of the firm, and the assignors had no right or power to deprive the mortgagees of the lien which they had acquired by virtue of their mortgages.

It remains to be determined whether this action can be maintained by the plaintiff to set aside the mortgages and compel the mortgagee Sheard to account for the property taken under his mortgage.

They may be void as to creditors for the reason that' they were rot filed at the time their credits were given, but if creditors íeglect to avail themselves of the means provided by the statute ¡o secure the payment of their claims until the mortgagor has ransferred his interest to an assignee they therebv lose the advantage which they otherwise might have gained. In such a case he assignee acquires a superior right to the individual creditor ,nd takes the same in trust for all the creditors. Before such ransfer the creditor upon obtaining judgment might have secured lien upon the personal property of the judgment debtor by the ivy of an execution thereon. He might also have obtained a en by a like levy upon the property covered by the mortgage, 'he mortgage being void as to' him the property would be rearded as that of the judgment debtor and the levy would have re same force as if no mortgage existed. But waiting until after le assignment he loses his right to acquire a lien by levy.

As we have seen the plaintiff has neglected to perfect any lien as rainst the mortgaged property by the levy of an execution lereon. The commencement of this action does not operate to ■eate a lien upon such property ; -whilst the commencement of an ition in the nature of a creditor’s bill creates a lien upon the loses in action and equitable assets of the judgment debtor, it )es not create a lien upon his tangible personal property subject to a vy by an execution, unless he procures a receiver to be appointed. Ibany City Bank v. Schermerhorn, 1 Clarke’s Ch., 214; Davenort v. Kelly, 42 N. Y., 193-198 ; Storm v. Waddell, 2 Sand. Ch., 94-516; Lansing v. Easton, 7 Paige Ch., 364; Knower v. Central National Bank, 37 N. Y. State Rep., 89.

A creditor can only avail himself of the omission to file a mortgage Iren he has a judgment and proceeds upon that to obtain a lien ion the property either by a levy of an execution or the comencement of an action in which he obtains the appointment of a ceiver. Jones v. Graham, 77 N.Y., 628; Thompson v. Van Vechten, id., 568; Niagara County National Bank v. Lord, 33 Hun, 7-564; Sullivan v. Miller, 106 N. Y., 635-641; 11 N. Y. State Rep., 312 ; Southard v. Benner, 72 N. Y., 424 ; Geery v. Geery, id., 256.

The mortgagors, by their assignment, have transferred all of their interest therein to the assignee. The mortgagee Sheard has taken the property under his mortgage and sold it. The property mortgaged has now passed into the hands of the purchasers under such sale, and whatever rights the plaintiff may have had, none remain that are available to afford him relief.

These views render it unnecessary to consider the question as to whether the action can be maintained by the plaintiff without first demanding of the assignee that the action be brought by him as trustee for the creditors under chapter 314 of the Laws of 1858.

The judgment should be affirmed, with costs.

All concur, except Brown, J., absent.