Case ID: nys_1/html/0250-01.html
Source: Caselaw Access Project
Author: {"author": "Daniels, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Easton Nat. Bank et al. v. Buffalo Chemical Works et al.
    
    
      (Supreme Court, General Term, First Department.
    
    May 18, 1888.)
    Judgment—Action to Set Aside by Subsequent Judgment Creditor—Logad Corporations.
    The rule that a judgment creditor cannot maintain an equitable action to set aside a prior judgment, without having had an execution issued on his own judgment, is not changed, so far as it affects judgments against local corporations, by Code Civil 3?roc. § 1879, which declares that section 1871, providing that, where an execution has been returned unsatisfied, the judgment creditor may maintain an action to discover the property of the debtor, does not apply to corporations organized under the laws of the state; nor has section 1784, providing a remedy against a local corporation where an execution has been returned Unsatisfied, any application to suits of this character.
    Appeal from judgment on report of referee.
    
      The Easton Hationa Bank and the First national Bank of Cooperstown held judgments against the Bushwick Chemical Works. The Buffalo Chemical Works held a prior judgment against the same institution. The banks then instituted this action to have such prior judgment annulled. The case was tried before a referee, who found for the defendants, and from the judgment entered thereon the plaintiffs .appealed. Section 1871 of the Code of Civil Procedure provides that where an execution against the property of a judgment debtor, issued out of a court of record, has been returned wholly or partly unsatisfied, the judgment creditor may maintain an action against the judgment debtor, and any other person, to discover the property of the judgment debtor. Section 1879 provides that this article does not apply where the judgment debtor is a corporation organized under the laws of this state. Section 1784 provides “that where final judgment for a sum of money has been rendered against a corporation created by or under the laws of the state, and an execution issued thereupon to the sheriff of the county where the corporation transacts its general business, or where its principal office is located, has been returned wholly or partly unsatisfied, the judgment creditor may maintain an action to procure a judgment sequestrating the property of the corporation, and providing for a distribution thereof, as prescribed in section 1793 of this act.”
    Argued before Van Brunt, P. J., and Brady and Daniels, JJ.
    
      C. Bainbridge Smith, for appellants. Jesse Johnson, for respondents.
   Daniels, J.

Each of the plaintiffs recovered a judgment against the Bush-wick Chemical Works. These judgments were subsequent to a large judgment recovered against the same defendant by the Buffalo Chemical Works. And to maintain the action it was charged that this prior judgment had been fraudulently recovered, and the object of the action was to secure a judgment determining that fact, and vacating and annulling the prior judgment. The ultimate object of this relief it is evident would be to enable each of the plaintiffs to collect their judgments out of the property of the Bushwick Chemical Works, the judgment debtor. It was alleged that its real estate was not sufficient to pay their judgments and the preceding judgment of the Buffalo Chemical Works; and, to enable them to obtain satisfaction out of the property of the debtor, it would be necessary to set aside and vacate this preceding judgment. But no execution was issued upon either of the judgments recovered by the plaintiffs, and for that reason the referee before whom the action was tried decided that it could not be maintained. And his opinion contains an elaborate discussion of the cases affecting this question, and which were deemed to sustain the conclusion adopted by him. But in support of the appeal the plaintiff’s counsel has insisted that an action may be maintained by these judgment creditors without first issuing an execution to vacate this preceding judgment as fraudulent; and Dimon v. Waterman, 17 N. Y. 9; Chappel v. Chappel, 12 N. Y. 215; Kendall v. Hodgins, 1 Bosw. 659; Daly v. Mathews, 20 How. Pr. 267; Norris v. Denton, 30 Barb. 117,—are mainly relied upon to support this position, but they do not sustain it. In Dimon v. Waterman it did not appear, neither was any point made as to the fact, whether an execution had been issued or not. And in Chappel v. Chappel the application was by way of motion to the court in which the judgment had been recovered. And so it was in the other two cases immediately following them in the order in which they have here been given. That is a remedy which a junior judgment creditor, as well as a purchaser of the property under execution, may follow to avoid a preceding fraudulent or illegal judgment. And the court will award the appropriate relief by way of vindicating its own records and process, thereby preventing any abusive use being made of the latter. The remedy stands upon established legal principles, supported by these authorities, as well as by White v. Tommey, 4 H. L. Cas. 313. And so also may a fraudulent or unlawful judgment be avoided in a contest concerning the disposition of surplus moneys, as was the case in. Norris v. Benton, for the claimant of such moneys may prove, as a fact, that the judgment or claim of any other contestant has no legal foundation to rest upon, and for that reason is not entitled to payment of any part of the surplus. These cases all rest upon peculiar principles applicable to the proceedings upon which they were decided. They have no application whatever to an action in equity, brought, as this has been by these plaintiffs, to vacate and set aside the preceding judgment of the Buffalo Chemical works. The action which the plaintiffs have brought is practically in aid of their executions, which may be issued upon their judgments, to enforce and collect them. If that was not its object, then no useful end could be secured by maintaining it. To set aside the prior judgment for any other purpose than to enable the plaintiffs to collect their own judgments out of the property of their debtor would be an act entirely useless to them, and for which a suit in equity could not be expected to be maintained. But to render it serviceable at all, as it must have been expected to be by the plaintiffs, an execution for the seizure and sale of the debtor’s property would necessarily follow. And where that is the relief intended to be secured the action to obtain it must be founded upon the legal principles applicable to this class of litigation. And by those principles it has become well settled that no such action can be sustained, unless an execution has"previously been issued against the property of the debtor. When that has been done, and the execution is rendered ineffectual by a preceding judgment or other incumbrance upon the property which is fraudulent as against the execution creditor, then he may commence a suit of this description to set aside the preceding judgment or incumbrance, and remove it out of the way of the sale of the debtor’s property under the execution for the payment and satisfaction of the judgment on which it has been issued. In such an action, a preceding fraudulent judgment will be vacated and removed as an impediment m the way of the creditor’s execution. State v. Bank, 33 N. Y. 9, 27; Mandeville v Reynolds, 68 N. Y. 528, 544-546. But before the action for that object can be maintained, it is indispensable that an execution upon tlie judgment or judgments shall have been issued. Adsit v. Butler, 87 N. Y. 585; Lichtenberg v. Herdtfelder, 33 Hun, 57; Bowe v. Arnold, 31 Hun, 256; Gardner v. Lansing, 28 Hun, 413; Bostwick v. Scott, 40 Hun, 212; Bank v. Bakin, 51 N. Y. 519; Jones v. Green, 1 Wall. 330. In this last case it was said that “'a court of equity exercises its jurisdiction in favor of a judgment creditor only when the remedy afforded him at law is ineffectual to reach the property of the debtor, or the enforcement of the legal remedy is obstructed by some incumbrance upon the debtor’s property, or some fraudulent transfer of it. * * * In the second ease the equitable relief sought rests upon the fact that the execution has issued, and a specific lien has been acquired upon the property of the debtor by its levy, but that the obstruction interposed prevents a sale of the property at a fair valuation. It is to remove the obstruction, and thus enable the creditor to obtain a full price for the property, that the suit is brought. ” Id. 331, 332. In Crippen v. Hudson, 13 N. Y. 161, a remark was made in the course of the opinion which, if it had been a correct exposition of the law, would sustain the plaintiffs’ right to maintain the action without first issuing execution upon the judgments. Id. 166. But that has not been followed by the courts, but the rule has been rigidly applied that the least which will answer the requirements of a court of equity for maintaining a creditors’ action of this description is that an execution upon the judgment must have been issued, and either to be outstanding or returned unsatisfied.

It has been argued by the plaintiffs’ counsel that this rule no longer applies to a judgment recovered against a domestic corporation; but section 1879 of the Code of Civil Procedure was not intended to refer to or include an action of this description. What it has declared is that the article containing this section does not apply where the judgment debtor is a corporation created by or under the laws of this state. But this article includes only the class of actions known generally as creditors’ suits to reach the property, debts, and equitable interests of the judgment debtor. This has been clearly defined by section 1871, the first section of this article. Neither that section, nor anything else contained in that article, has any application to a suit of this description; nor has section 1784, providing the remedy to be pursued against a corporation created under the laws of this, state, where an execution against its property has been returned wholly or partly unsatisfied. This action, which is simply to remove an impediment which prevents the plaintiffs’ judgments from becoming liens upon the real estate of defendants, depends wholly upon the established rules of courts of equity; and they do not permit an action by a judgment creditor to be maintained in aid of or to render an execution effectual by the removal of an impediment fraudulently placed in its way, unless the execution itself has been issued upon the judgment, and is outstanding at the time the action is commenced, or may have been returned afterwards unsatisfied. The plaintiffs’ action is not within the authorities sustaining this principle. The judgment was consequently right, and should be affirmed, with costs.

Van Brunt, P. J., and Brady, J., concur.