Case ID: ad_85/html/0224-01.html
Source: Caselaw Access Project
Author: {"author": "Houghton, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Oliver C. Latimer, Respondent, v. Frank H. McKinnon and Walter R. Burrows, Defendants, Impleaded with Joseph H. Clark, as Trustee in Bankruptcy of Frank H. McKinnon and Walter R. Burrows, Appellant.
    (No. 1.)
    
      Bankruptcy proceedings against defendants in a pending• suit — leave granted to continue the suit and bring in the trustee in bankruptcy as a party thereto and serve a supplemental complaint — what such complaint must allege — the relation of the trustee to the litigation, considered —judgment where dn answer' is served.
    
    During the pendency of an action brought in the Supreme Court of the State of New York, the defendants therein, who had served an answer, were adjudged bankrupts. An order was made in the bankruptcy proceedings, authorizing the plaintiff in the action to prosecute the same for the purpose of liquidating his claim and directing him to make the trustee in bankruptcy a party defendant. The plaintiff thereupon obtained an order from the Supreme Court, permitting him to bring in the trustee and to serve a supplemental complaint containing an allegation setting forth the bankruptcy of the defendants and the appointment and qualification of the trustee and other proper and necessary allegations.
    A supplemental complaint, setting forth the proceedings in bankruptcy and the appointment and qualification of the trustee, was thereafter served.
    
      Held, that the permission granted by the court was to serve a supplemental pleading, in addition to the former pleading, and not one in place of the former pleading;
    That it was sufficient that the original and supplemental complaints stated a cause of action against the original defendants and contaihed appropriate ' allegations showing why the trustee was made a party to the action;
    That the trustee in bankruptcy was made a party simply that he might see that the litigation against parties whom he represented was properly conducted;
    That it was not necessary that the supplemental complaint, considered alone or in connection with the original complaint, should state a cause of action against the trustee in bankruptcy and that he was not entitled to demur to either of such complaints;
    That the trustee in bankruptcy stood, with respect to the litigation, in the same position as the original defendants, and was bound by the issues tendered by such defendants in their original answer and could not raise any issue which they could not raise;
    That section 1207 of the Code of Civil Procedure, providing that no judgment shall be taken more favorable to the plaintiff than that demanded in the complaint, applies only where no answer has been served.
    Appeal by the defendant, Joseph H. Clark, as trustee in bankruptcy of Frank H. McKinnon and another, from an interlocutory judgment of the Supreme Court in favor of -the plaintiff, entered in the office of the clerk of the county of Chenango on the 28th day of November, 1902, upon the decision of the court, rendered after a trial at the Broome Special Term, overruling said defendant’s demurrer to the plaintiff’s original and supplemental complaints.
    
      James B. Ba/umes and William H. Johnson, for the appellant.
    
      Wordsworth B. Matterson, for the respondent.
   Houghton, J.:

This action in various phases has been before this court many times. In 1894 the defendants McKinnon and Burrows suffered default, and a judgment was entered by the plaintiff against them. On an application to-open the default, and in consideration" of the consent of the plaintiff’s attorney thereto, James R. Baumes, defendants’ attorney, of record, executed and delivered to the plaintiff 'an agreement.that he,-would pay any judgment, not collected by execution, which.might finally be -awarded • against, the defendants . after the.same had been, tested by appeals. A trial was had on ‘the opening of said default, a judgment rendered, which was subsequently reversed- by. the Court .of Appeals,, and ..the case sent back for a new-trial. . Meantime the-.-defendants became .bankrupts, and the defendant Clark was duly appointed, their trustee in bankruptcy.

The situation being- presented to the bankruptcy court on the 27th of April, 1901, that'court ordered that the plaintiff should be permitted and authorized to proceed in the courts of .the State .of Hew York to liquidate, his .claim against the bankrupts, and that he- make James H. Clark, the trustee in bankruptcy of the -defendants, a party defendant therein, and enjoined the prosecution of the action in the State court until the trustee should be made .a party. Thereupon the plamtiff applied to the State court, at Special Term,, for an order ■ making the trustee a party, and an order to that effect -was made at the Broome Special Tferm. on the 2d d'áy of July, 1901. The 'defendants appealed from that order to. this court, where the order was modified by inserting" therein a .direction that a supplemental summons and complaint issue and be served on the defendants,, and as so modified the order was affirmed.. Subsequently, on...motion of .the defendants, the order originally entered on ■ such affirmance and modification .was further modified by directing that the supplemental complaint contain.,an allegation setting forth the bankruptcy of .the said defendants McKinnon and Burrows, .and the appointment and qualification of said Clark, as trustee^ -and-other proper, and necessary allegations. ' .

A supplemental complaint was served, and the defendants, moved to be allowed to serve a supplemental answer alleging their discharge in bankruptcy obtained since-the action was commenced. That motion was denied by the Special Term by an order entered on the 30th.day of. Rovember, .1901, and.on appeal that,, order, was affirmed by "this" court... (Latimer v. McKinnon, 72 App. Div. 290.). This court there held that .the refusal to allow the service.-of. a supplemental answer setting up the discharge of C.the ¡defendants in bankruptcy as a defense, in View of the peculiar equities in favor of the plaintiff, arising from the agreement to pay whatever judgment he might obtain, was proper, especially in view of the fact that other defenses were contained in the defendants’ answer by' reason of which the bankruptcy court treated the claim as unliquidated and directed that the action be continued in the State courts, so that it-might be determined how much the trustee in bankruptcy should allow upon the claim in distribution of assets.

The supplemental complaint served by the plaintiff alleged, in •substance, that the defendants McKinnon and Burrows filed on the 10th of January, 1901, a petition in bankruptcy, and were thereupon adjudged bankrupts, and that "thereafter the defendant Clark was appointed trustee in bankruptcy of such defendants, and qualified and entered upon the discharge ■ of his duty as such, and closed with a prayer for judgment for the amount claimed in the original complaint.

The demurrer served states that the defendant Clark, as trustee, “ demurs to the complaint and to the supplemental complaint herein upon the ground that neither they, nor either of them, contain facts sufficient to constitute a cause of action against him, the said Joseph H. Clark, as trustee.” It is from an order overruling this demurrer and interlocutory judgment entered thereon that the defendant Clark appeals.

If, under the peculiar circumstances under which Clark was brought into the action, the plaintiff is required to state in his supplemental complaint a cause of action against • Clark, as trustee, then the demurrer was well taken. If, however, the plaintiff is only required by his original and supplemental pleading to state a good cause of action against McKinnon and Burrows, with appropriate allegations as to why Clark, as trustee, is made a defendant, without stating a cause of action against him, then the demurrer was properly overruled and the judgment entered thereon should be affirmed.

The theory upon which the bankruptcy court directed that the trustee appointed by it should be made a party to the action in the State court was manifestly because it desired that'its officer should know of the various steps taken in the action sb that he might guard against an excessive or collusive judgment.

By section 544 of the Code of Civil Procedure supplemental pleadings may be “either in addition to or in place of” the former pleading. The order of this court directing the supplemental complaint stated that it should contain an allegation setting forth the bankruptcy of said defendants and the appointment and qualification of the trustee, and other proper and necessary allegations. The only thing specifically pointed - out was the bankruptcy and the appointment of the trustee. The' leave,, therefore, granted by this court was to serve a supplemental pleading in addition to the former pleading, and not one in place of the former pleading.

In Hayward v. Hood (44 Hun, 128) a demurrer was interposed to a supplemental complaint. The court had given leave to the plaintiff to file a supplemental complaint, and one was filed alleging certain facts additional to. those which were contained in the original complaint. In considering the demurrer, the court said: “ It is undoubtedly true that the supplemental complaint did not set up a cause of action.' as against the defendants. It was not intended so to do. It was the mere • allegation of additional facts to those which had been alleged in the original complaint for the purpose of supplementing that complaint. It is also true that the order gave the defendants the right to answer or demur to said supplemental complaint. But as the supplemental complaint did not pretend to. set ■ out an independent or different cause of action from that contained ■ in the original complaint, it was to be read as part and parcel of the complaint, and if the two contained a cause of action which was not demurrable an answer upon the part of the defendants was required.”

In Pierson v. Cronk (13 N. Y. St. Repr. 556) Van Brunt, P. J., says: “ The office of a supplemental complaint is to bi’ing before the court material facts which have occurred since the service of the original pleading, and only such should be contained therein.”

But it is said that the original complaint and the supplemental complaint do not state a cause of action as against the trustee. This was not necessary. The title to the defendants’ property, passed to him.' He stands in the same position as the defendants with respect to the litigation, and can raise no issue that they could not raise, and in addition is bound by the issues tendered by them in their original answer.

In American Life Ins. & Trust Co. v. Sackett (1 Barb. Ch. 585) the action was to foreclose a mortgage against Bayard Brothers, The Bayards put in an answer, and before the case was tried they' became bankrupts and an assignee in bankruptcy was appointed. A supplemental bill was filed alleging this fact. Speaking of the situation of the assignee in regard to the action the chancellor says: “ And as the assignee, in bankruptcy, who is brought before the court by the supplemental bill, stands in the place of the Bayards and represents the same right and interest which was in litigation in the original suit, he is in the same situation as an heir at law or a devisee would have been if the suit had abated by the death of the original defendants. * * * But in such cases the only matter proper to be put in issue upon the supplemental bill, unless some new matter of defense has arisen since the joining of the issue in the original cause (which was allowed to be pleaded), is the supplemental matter which is stated in the new bill to show the transmission of interest from the original party to the new party who is brought before the court by the supplemental bill.”

It is true that an action to foreclose a mortgage differs from an action on contract with respect to the rights of a trustee in bankruptcy. But the bankruptcy court ordered that the trustee be made a party and stayed the prosecution of the action in the State courts until he should be made a party. He was not made a party because there was any cause of action against him, but merely that he might see that the litigation against the parties whom he represented was properly conducted. He could not change the admissions of the original defendants in their answer, nor could he admit away by his own answer any defense which they might have.

In Forbes v. Waller (25 N. Y. 430) the action was in aid of an execution and a receiver of the defendants had been appointed who was made a party by order. The court says: “ He (the receiver) could not by his answer to the supplemental complaint change the issue already formed in the action or withdraw or nullify admissions already made upon the record. His allegation of ignorance of a fact already admitted by the record did not put thsjt fact in issue, as a like averment in the original answer would have done. The only thing that could properly be put in issue by the answer to the supplemental complaint was the matter showing the transmission of interest from the-original party. The new party was bound by the ■acts and admissions of-.the .original .parties -to whose rights he had succeeded:”

Here,-again, the cause, of action was-not like one on contract. But it seems to us that, considering the relations of - the trustee- with the litigation,-and -the reasons for his:being brought.into,the-action,.and the position in winch he stands, it was not necessary-that a-good • cause of action be.alleged against him and that he could not demur hecause-none was alleged.

■The fact that-the prayer to the supplemental complaint .'demands the same-judgment as the original complaint does not. change the situation. The plaintiff,cannot take judgment on the supplemental complaint alone. There is an answer in the. case, and the provision of section 1207 of the Code of .Civil Procedure, .That ho - judgment shall be taken more favorable to the plaintiff than that -demanded •in the complaint, applies only when there is no-answer served. The same section provides that -where there is an ¡answer the ¡court may permit the plaintiff to take any judgment. consistent with .the case made by the complaint and embraced within ¡the issue. If there •shall ever come a time when judgment is obtainedln this case, ;the trial court will see that no improper judgment against ¡the trustee -is entered. The averments of the original , and supplemental -complaints clearly-show that he-is sued in his representative capacity, and not as an individual, which is. sufficient. (Scrantom v. Farmers & Mechanics' Bank of Rochester, 33 Barb. 527.)

'Our conclusion is that the.order and judgment .of the Special 'Term overruling the demurrer should be affirmed, with costs'.

All concurred.

Judgment and order affirmed,-with-costs.