Case ID: ny-super-ct_14/html/0459-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court. Slosson, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Charles A. Manning v. Patrick Monaghan, John Cavanagh, Leonard Gosling, and Edward Schenck.
    A Receiver, under supplementary proceedings, as a general rule, has no right to take possession of and sell the goods and chattels of the debtor which he knows are covered by a prior mortgage, unless he can show that, as against the judgment-creditor, the mortgage was fraudulent and void.
    If, by the terms of the mortgage, the debtor has a temporary right of possession, the Receiver, if authorized to sell at all, must limit the sale to such temporary right, and is bound to declare, that it is made subject to the mortgage.
    Nor has he any right, in such a case, to sell the mortgaged property in parcels, but is bound to sell the whole together, so as to enable the mortgagee to follow it in the hands of the purchaser.
    Where the Receiver makes the sale unlawfully, he is liable to the mortgagee for the amount of the mortgage debt and interest, provided such was the value of the mortgaged property; and in case he acts with the knowledge and by the direction of the plaintiff in the suit in which he was appointed, such plaintiff is equally liable. It is doubtful whether a Receiver can sell mortgaged properly at all, unless by an express order of the Court appointing him.
    When mortgaged goods are unlawfully sold by a Receiver, a purchaser who has no knowledge, actual or constructive, of the mortgage, as a hondfide purchaser is not liable to the mortgagee. See note f, post, p. 467.
    Judgment against defendants Monaghan and Cavanagh. Complaint dismissed as to the defendant Gosling.
    (Before Duer, Slossoít, and Woodruff, J.J.)
    Heard, April 6 ;
    decided, June 20, 1857.
    This action comes before the Court at General Term, on questions of law arising at the trial, and which were there ordered to be heard, in the first instance, at General Term. It was tried in November, 1856, before Mr. Justice Bosworth and a jury. It was brought by Charles A. Manning, as plaintiff, against Patrick Monaghan, John Cavanagh, Leonard Gosling, and Edward Schenck, as defendants.
    
      The complaint avers that the plaintiff, on the 5th of October, 1854, loaned. $1,000 to the defendant Schenck for one year, and took his note of that date, payable one year thereafter, for $1,070, and a chattel mortgage, executed by Schenck, upon his household furniture, as security for the payment of such note, which mortgage was duly filed on the 11th of October, 1854.
    That on the 5th and 8th of October, 1855, when the note became due, the plaintiff demanded payment of Schenck, who was then and since has been insolvent, and who did not then pay, and since then has not paid any part of it. He then demanded of Schenck the mortgaged property, and found that the other defendants had seized said goods,-in payment of a claim due them, or to one of them, from Schenck. That said other defendants, in the spring of 1855, seized said goods, then being in the possession of Schenck, and sold the same to divers persons unknown to the plaintiff, received the price thereof to their own use, and that they refuse to pay it to the plaintiff, or to give to him the possession of the goods, and that Gosling claims to have bought some of said goods from the other defendants, and refuses to give up possession of them.
    That, prior to such seizure and sale, the defendants knew of the plaintiff’s rights as such mortgagee, and in defiance thereof, did the acts before stated, and “have thereby deprived the plaintiff of all security for his said money, and of all power to obtain possession of said goods, or to sell the same, or to cause the same to be applied, in any manner, to the payment of said note, which is wholly due and unpaid.” It states a demand made upon Monaghan, Gavanagh and Gosling for the goods, and a refusal by them to deliver any part of the same, and that the plaintiff, in “consequence of the unlawful acts of, (Monaghan, Gavanagh, and Gosling,) has thereby sustained loss to the full amount of $1,070, besides interest, since the 8th of October, 1855, ” for which sum it “prays judgment against the defendants.”
    Monaghan, Gavanagh and Gosling put in separate answers. The printed case does not show that Schenck put in an answer, nor whether he had been served with the summons. The contents of the answers interposed by the other defendants, are not stated, as no question arose upon them.
    
      The material facts, proved on the trial, exclusive of those found by the jury, are as follows, viz:
    “The plaintiff held a chattel mortgage executed by Schenck for $1000, dated the 5th day of October, 1854, and payable at the expiration of one year with interest, ..the mortgage was upon furniture in Schenck’s house. It was duly filed on the 11th day of October, 1854, but a copy of the mortgage and a statement of the mortgagee’s interest were not filed within the year after the first filing, pursuant to the statute, nor were they filed at all. The mortgage was executed to secure the payment of a note, of the same date as the mortgage, for $1,070, payable one year after its date, and given by Schenck, for money lent to him, by the plaintiff.
    On the 27th day of Hovember, 1854, Monaghan recovered a judgment in the Marine Court against Schenck for $492 on which an execution was issued, after a transcript of such judgment had been filed and the judgment docketed in the office of the clerk of the city and county of Hew York.
    Ho levy however was made on this property, but the execution was returned unsatisfied, and supplementary proceedings were thereupon instituted, under which Oavanagh was appointed a receiver of Schenck’s property.
    Oavanagh, as receiver, applied to a judge of the Court of Common Pleas for an order, directing Schenck to show cause why he should not deliver to him the mortgaged property, at the return of which Schenck appeared by counsel, but the Judge refused to make the order for such delivery. Oavanagh thereupon, at the instance and by the direction of Monaghan, forcibly took the property, embraced in the mortgage, (with other property) from Schenck’s house, in his absence, and without his consent.
    This was in February, long before the mortgage fell due.
    Manning thereupon immediately applied to a Judge of the Court of Common Pleas, of the city and county of Hew York, and obtained an order that the receiver show cause why the property should not be returned to Schenck or to Manning, and in the mean'time, and until the final disposition of the motion, the receiver was restrained from selling or disposing of it.
    This order was returnable on the 3d day of March.
    
      Cavanagh appeared by attorney at the return of the order, and the motion was adjourned to the 7th day of March, and after-wards to the 10th day of March.
    Between these two dates a consent was drawn up, by the counsel of Monaghan and Cavanagh, and handed to the counsel of Manning, assenting to the sale of the property, &c., the proceeds to be deposited, to abide the order of the Court. It was . signed by Manning, but not by the defendants, or either of them, and it never was delivered, or exchanged between the parties.
    Ko further hearing was had in respect to the injunction, and no further order made thereon.
    The property when taken from Schenck was removed to an auction store, in Canal street, and there retained until the 21st day of April, when it was taken to the auction store of Mr. ' Irving, in Pine street, where it was sold'at public auction with a variety of other property. The property mortgaged, produced at such auction sale the sum of $674.44 over and above all expenses of the sale and all charges of the receiver in relation to such property.
    Gosling became a purchaser, at this sale, of a portion of the property and paid for it.
    When the note, which the mortgage was made to secure, fell due, Schenck was insolvent, and since then has been insolvent.
    When Monaghan and Cavanagh took the property they had notice of the mortgage and of the plaintiff’s claim, and had a copy of the mortgage with them, and Cavanagh acted under the direction of Monaghan.
    The only demand, made by the plaintiff of Gosling, that he should give up the possession of the goods he bought, was made in January, 1856.
    The Judge submitted certain questions, in writing, to the jury to be answered by them, saying that he should order the legal questions which might arise on such special verdict, and upon the facts proved, which were not the subject of dispute, and 1 upon such exceptions as were taken to the decisions of the Court on said trial, to be heard, in the first instance, at the General Term.
    The questions, so submitted, and the answers of the jury thereto, are as follows, viz:
    
      1st Q. Was the mortgage in question, which was executed by Schenck to Manning, made in good faith, and without any intent to hinder, delay or defraud the creditors of Schenck ?
    A. Yes.
    2d Q. What was the fair value of the mortgaged property taken by Cavanagh at the time it was removed from Schenck’s house by Cavanagh ?
    A. Twelve hundred dollars.
    3d Q. How much would its value be depreciated by a careful use of it, as it is customary to use such property, between the time Cavanagh took it and the 8th of October, 1855 ?
    A. Seventy-five dollars.
    4th Q. Was the property damaged between the time Cavanagh took it and its sale by Irving, in consequence of any misuse of it, or a failure to take proper care of it by Cavanagh or his agents ?
    A. Yes.
    Q. If it was so damaged, to what amount?
    A. Two hundred dollars.
    5th Q. If it was so damaged, was the misuse or failure to take care of it, caused by the conduct of Cavanagh acting solely upon his own sense of duty as receiver, or by conduct of Cavanagh caused by his acting in pursuance of and in conformity with the requests or directions of Monaghan ?
    A. By directions of Monaghan.
    6th Q. Did the plaintiff consent that the receiver Cavanagh might sell the mortgaged property free and discharged from the lien of his mortgage and all claims under it?
    A. No.
    7th Q. What was the fair value of that part of the mortgaged property bought by Mr. Gosling at the time he bought it?
    A. One hundred and forty-three dollars and twenty-five cents.
    8th Q. How much would a careful use of it, (as it is customary to use such property), up to the 8th of October 1855, depreciate such value.
    A. Twenty dollars.
    9th Q. Had Mr. Gosling any knowledge or notice before he paid for the property bought by him of the existence of the mortgage in question?
    
      A. Ho.
    10th Q. How much has Monaghan received as and from the proceeds of the sale of the mortgaged property, over and above the amount of his judgment and interest thereon and expenses of the receiver in relation to such property?
    A. One hundred and thirty-four dollars and twenty-two cents.
    The Court thereupon directed the questions of law arising in the case to be heard in the first instance at the General Term, that judgment be there applied for in the first instance, and that the entry of judgment in the meantime be suspended.”
    On the 6th of April, 1857, the plaintiff moved the Court, at General Term, for judgment for the amount of his claim, secured by the said mortgage.
    
      Edwards Pierrepont, for the plaintiff.
    
      F. Byrne, for defendants, Monaghan and Cavanagh.
    
      J. Dimmick, for defendant, Gosling.
   By the Court. Slosson, J.

Unless the receiver in the present case stands in the position in which the Sheriff would have stood, had he levied upon, taken possession of and sold the property under an execution, his sale, especially in the manner in which it was conducted, was a wrongful act, to the injury of the rights of the plaintiff, and for which both he and Monaghan are liable as trespassers.

In the case of Hull v. Carnley, (1 Kernan’s Rep. 501,) on which these defendants rely, the complaint was that the Sheriff by levying upon and taking the property in the hands of the mortgagor, who was in possession under a similar license or authority to that contained in the mortgage in the present case, and by selling it without referring to, or recognizing the plaintiff’s lien on it by virtue of the mortgage, had illegally deprived the plaintiff of its possession. The property, (in that case,) was sold all together, and no injury was shown to have accrued to the property itself. The Court held, that as the mortgagee, the plaintiff had, at the time of the levy, taking and sale, no right of possession, no injury was done to the plaintiff by the act of the Sheriff, and that he was justified in what he did by his process, and this, notwithstanding the Sheriff had full notice of the existence of the mortgage, and that nothing had been paid on it.

In the case at bar, the receiver after the refusal of the Judge to grant an order directing Schenck to deliver over the property to him, forcibly, and without Schenck’s consent, and in his absence, took it away from his dwelling house, and afterwards, and while an injunction against its sale was pending, and unrevoked, sold it at public auction, in parcels, to different parties, at a sale where other articles were also sold indiscriminately with them, and without giving any notice of the mortgage, or of the nature of the interest which he was selling, though he had full knowledge of the mortgage and its contents. He not only acted,, without any authority from the Court which had appointed him, b]¿t in express violation of its order. His office clothed him with no such power.

Strictly, the act of taking and selling was not an injury to the plaintiff’s right of possession, for at that time he had no such right, and could not then have maintained trover for the property, whatever right, if any, Schenck might, under .the circumstances, have had to such an action. But the receiver had no right to sell more than Schenck’s temporary right of possession, if he had any right to sell at all, and he was bound to sell the property all together, so that when the mortgage fell due, the plaintiff might, if his debt was not paid, find the property and take possession of it.

If he had a right to take the property, he could not lawfully do anything with it, which should defeat or impair this ultimate right of the plaintiff.

But in truth, the taking and sale were both unjustified, and as respects the receiver, wholly illegal and void, as against the plaintiff. The receiver acted on his own motion, under direction of Monaghan throughout, and the consequence of his acts to the plaintiff, has been the loss of his security under the mortgage.

What would have been the Receiver’s position had he acted-under the authority of the Court, it is needless to enquire. It is enough for the present case to know that he acted not only without such authority, but in express violation of an order of the Court which had enjoined him from selling. He has no such justification of process, as the Sheriff had in the Hull and Carnley case.

The action is not brought for an injury to a right of possession in the plaintiff at the time the property was taken and sold, but to recover damages for the illegal and wrongful act of the Eeceiver and Monaghan, in taking and selling the property without reference to or recognition of his rights under the mortgage, in consequence whereof he has lost his security.

If the Eeceiver can in any sense be said to be justified in taking the property, he was bound to keep it until the mortgage became due, or if he sold it, to sell only the right of Schenck in it, which was a mere right of temporary possession, with an equity of redemption. He could have or acquire no better or greater right in the property than Schenck had, and is as much a trespasser as Schenck would have been, had he then undertaken to sell the property in parcels and appropriate the proceeds.

We are clearly of opinion that the plaintiff is entitled to recover against these defendants, as damages, the full face of his mortgage and interest, with interest on the aggregate amount from the time it became due. '

In respect to the defendant Gosling, the only demand made of him for the delivery of the property purchased by him was made in January, 1856, some three months after the mortgage fell due.

Gosling was a bond fide purchaser without notice of the existence of the mortgage.

It is contended, on his behalf, on the strength of Gregory v. Thomas (20 Wendell Rep. 17), that as a copy of the mortgage was not refiled within the 80 days before the expiration of the year after the first filing, which was on the 11th day of October, 1854, the mortgage as against him had ceased to be valid. (2 E. S. 136, marg. § 11.)

In the case relied upon, a first mortgagee who had neglected to refile his mortgage, took possession of the property some three months after his mortgage fell due, and the Court held that his mortgage would have been void as against the plaintiff who was a subsequent mortgagee of the same property if it had not been proved, that when he took his mortgage, he had actual notice of the existence of the first (defendant’s) mortgage, and the Court held by reason of such actual notice he was not a subsequent mortgagee “in good faith ” within the meaning of the. Statute.

In the present case Gosling was a purchaser without notice, and therefore a purchaser “in good faith,” and I do not see why the principle of that decision does not fully protect him, unless the fact that in that case the goods when taken were in the actual possession of the mortgagor and had been so for the whole period after the mortgage fell due, and in the case at bar, the property had been long taken from the mortgagor’s possession, shall be held to constitute a controlling difference.

The statute (section 9,) requires the mortgage to be filed in all cases where the property remains in the hands of the mortgagor, as was the case in the present instance.

Section 11 provides, that “ every mortgage filed in pursuance of this act shall cease to be valid as against the creditors of the person making the same, or against subsequent purchasers or mortgagees in good faith after the expiration of one year from the filing thereof, unless within .thirty days next preceding the expiration of said term of one year a true copy,” &c., be again filed, &c.

The necessity for the original filing having once existed, and the mortgage, in consequence, having once been filed, I do not see how we can hold that the fact, that before the year expires the property has been taken from the possession of the mortgagor, relieves the mortgagee from the necessity of refiling a copy, if he wishes to retain his lien as against a subsequent purchaser or mortgagee without violating the letter of the statute.

We think therefore that as against Gosling the complaint should be dismissed, and judgment rendered in his favor.

Judgment was ordered in favor of the plaintiff against the defendants, Monaghan & Cavanagh, and the complaint, as to the defendant Gosling, was dismissed. 
      
       Was the mortgage void as against Gosling, merely because it was not refiled within thirty days before the expiration of a yeaf from the filing thereof with such a statement as the statute prescribes? Must'he not have been a purchaser after the expiration of the time for the refiling of the mortgage, to enable him to say it had become void as to him, as a subsequent purchaser in good faith? Does not the word “subsequent,” as used in the act of 1833, p. 402, mean subsequent to the time when the mortgage should have been refiled? See Meech et al. v. Patchin, 14 New York R. 71.
     
      
       At the November General Term, 1857, on the authority of the decision in this case, it was also held by this Court in Goulet v. Asseler & Meyer, that a sale of per
        aortal properly, covered by a valid chattel mortgage, in parcels, out and out, to different purchasers, in disregard of the mortgagee’s right, subjected the execution creditor of the mortgagor, by whose direction such sale was made, in an action by the mortgagee brought after the mortgage became due, to damages equal to the value of the property, less such deduction for its use during the time the mortgagor had a right to possess and enjoy it, as was just. In the opinion delivered in that case, Mm el al. v. Balleston et al, 8 Eng. L. and Eq. 483, was cited as a case in point, and appears to be a decision of the precise question. Since then Hull v. Carnley, after a second trial had in this Court, has been a second time before the Court of Appeals. (17 N. Y. R. 202.)
      On the second trial it was proved, that although the Sheriff sold the property in parcels and absolutely, instead of merely selling the mortgagor’s interest, it was all sold to one person, and it appeared that all of the prd^erty was in the possession of the mortgagor when the action was commenced, he having hired the use of it from the purchaser.
      The Court of Appeals, held that the Sheriff was not liable as a trespasser for seizing the property, nor for a conversion of it, although he sold it absolutely in parcels, on the ground that, at the time of such seizure and sale the mortgagee was neither in possession nor entitled to the possession of the property. The opinion of the Court concludes thus: “We would not be deemed as holding, at this time, that a mortgagee has any action at law against the Sheriff, in such case, but if he has any, it would be for consequential damages for the injury to his lien; and if such an action had been brought it could not have been maintained in this case, for the reason that, although sold in parcels, it was all bid in by one man, and remained in the possession of the mortgagor at the time of the commencement of this suit. It is manifest, therefore, that he sustained no actual damage.”—III. 204-205.
      Whether a mortgagee, who has been wholly deprived of his security by reason of a sale and delivery of the mortgaged property to different purchasers, under such circumstances that the mortgagee is unable to find it, and compel its application to the payment of the mortgage debt, is a question that may be regarded as not affected by the decision last made by the Court of Appeals, in Bull v. Carnley (17 IT. T. B. 202).
      And the question remains, whether Cavanagh, as receiver, considering the circumstances under which he seized and sold the property, is entitled to the protection which the law extends to a Sheriff in executing a valid process, which it is his duty to execute?
      The question of Cavanagh’s liability to the mortgagee, for impairing the value of his security by an abuse ofthe mortgaged property, is not affected by the decision in Bull v. Carnley. Whether Monaghan, or Cavanagh, as against the plaintiff, can, in any event, retain the excess for which the property was sold, over and above the amount of Monaghan’s judgment against Sehenek, may be a question of some importance, when properly presented for the judgment of the Court.