Court Opinion

ID: 7341643
Source: CourtListenerOpinion
Date Created: 2022-07-25 23:55:58.223675+00
Date Added: 2024-06-11T16:20:16.168287
License: Public Domain

VAN BRUNT, P. J.
I concur in the opinion of Hr. Justice MCLAUGHLIN, but, in view of the dissenting opinion of Mr. Justice O’BRIEN, it seems to me that it may be proper to call attention in greater detail to the peculiar features of the authorities upon which he relies; and I think it will be seen that where language is quoted a meaning has been imputed to it which was far from the intention of the writer, and that isolated paragraphs are pressed into service without any consideration either of their context or of the subject in respect to which they were written. This is strikingly illustrated in the use attempted to be made of the case of Hirshfeld v. Bopp, 145 N. Y. 84, 39 N. E. 817. That was an action brought by a creditor of the Madison Square Bank, an insolvent banking corporation organized under the banking laws of this state, in the hands of a receiver, to enforce an alleged liability of the defendants, stockholders of said bank at the time of the appointment of the receiver, to the creditors of the corporation, under section 52 of the banking law (chapter 689, Laws 1892). The complaint alleged that the Madison Square Bank was a domestic banking corporation, but did not allege when it was organized. It alleged that on the 1st of August, 1893, the people commenced an action in the supreme court against the bank for its dissolution on the ground, among others, of insolvency, and that on November 24, 1893, judgment was entered thereon dissolving the corporation and forfeiting its corporate franchises, and providing for the distribution of its assets among its creditors, and restraining its several creditors from instituting any action against it, and appointing a receiver, etc. The complaint further contained an allegation in respect to the amount of the capital stock, and then alleged that at the time of the commencement of the people’s action and the rendition of the judgment the defendants were stockholders, holding, respectively, the number of shares set forth in the complaint. There was no allegation as to the time when the several defendants became stockholders, or whether they were stockholders at or prior to the enactment of the banking law of 1892. It further alleged that prior to the commencement of the people’s action the plaintiff had deposited with the bank moneys belonging to him, for which the bank was indebted to him on that day, and that, .although payment had often *714been requested of said bank, such payment had never been made. There was no allegation of the time when the deposit was made, except that it was prior to the commencement of the people’s action,, nor of the terms of the deposit,—whether special or otherwise,— nor of the time when a cause of action against the bank accrued. It alleged that the assets in the hands of the receiver were wholly inadequate to pay the creditors of the bank in full, and that after the application of all the assets to the payment of the debts there would remain a deficiency owing to creditors exceeding the sum of $500,000. The complaint then alleged that by reason of the premises the defendants had become individually liable to the plaintiff and the other creditors of the bank, equally and ratably, and not one for the other, for all the contracts, debts, etc., of the corporation to the extent of the amount of stock held by them at the time-of the commencement of the action, at the par value thereof, in pursuance of the provision of the statute in such case made and provided. It further alleged a request to the receivers to commence-an action to enforce the liability of the stockholders, and that they declined to do so,-and demanded judgment against the several stockholders. This complaint was demurred to by the defendants, and, among.other grounds urged in support of the demurrer, it was claimed that the. absence of any averment of the statutory requirement of the recovery of a judgment against the corporation for the debt, and the return of an execution unsatisfied in whole or in part, made the complaint fatally defective; and, although the demurrer was-sustained upon other grounds, the court discussed the question whether that was an objection which necessarily precluded the plaintiff from recovering, and held that where the court had interposed, and made it impossible for the plaintiff to comply with conditions-precedent of judgment, and execution returned unsatisfied, the creditor would be excused, in a suit brought against the stockholders, from the performance of such precedent conditions, notwithstanding the positive requirement of the law; and the learned chief judge-of the court of appeals, with a charming confidence in the stability of judicial decision, which an examination of the Reports would not seem to justify, says, “The decision in Hunting v. Blun, 143 N. Y. 511, 38 N. E. 200, puts at rest the question.” It will be seen that the whole foundation of this virtual repeal of the statutory requirement was because the action of the court itself had made it impossible for the party seeking redress to comply with' the conditions-precedent required by the statute. The books may be searched in vain for any other-class of cases which excuses a creditor seeking-to reach equitable assets from first obtaining a judgment and return Of execution unsatisfied, or filing his bill in aid of an outstanding execution, except the cases of Bank v. Wetmore, 124 N. Y. 241, 26 N. E. 548, Patchen v. Rofkar, 12 App. Div. 475, 42 N. Y. Supp. 35, Id., 52 App. Div. 367, 65 N. Y. Supp. 122, to which attention will -be hereafter called, and possibly the case of Lefevre v. Phillips, 81 Hun, 232, 30 N. Y. Supp. 709, which cite the case of Bank v., Wetmore as their sole authority for the proposition there enunciated. Each of these cases claimed exemption .from the ordinary rule re*715specting the procuring of a judgment and the return of an execution because a court of equity had inherent jurisdiction in cases of fraud, which is not the casé at bar.
The case of Hunting v. Blun, 143 N. Y. 511, 38 N. E. 200, was an action, under the general manufacturing act, to enforce the liability imposed by the act upon the stockholders of an insolvent corporation; and it appearing that an action had been brought by a creditor of the corporation to sequestrate its property and for the appointment of a receiver, and that judgment had been rendered granting that relief, and forbidding creditors from suing the company or interfering with its assets, and that this injunction, being the act of the court, had rendered the performance of the condition precedent practically impossible, such fact excused the omission to obtain a judgment and issue an execution as required by the statute. Similar to this was the adjudication in Hardman v. Sage, 124 N. Y. 32, 26 N. E. 354, where by the same operation of law the creditor had been unable to comply with the statute, and that was held to be an excuse. The same view was intimated in the case of Shellington v. Howland, 53 N. Y. 375; the whole basis of these adjudications being that, as the court had prevented the obtaining of the judgment and the issuing of the execution, the party seeking relief could not be held precluded by the terms of the statute. How these cases can be any authority for a deviation from the acknowledged rule requiring a judgment and an execution returned unsatisfied as the foundation of equitable interference in favor of creditors against equitable assets, it seems difficult to imagine.
It is next necessary to consider the case of Bank v. Wetmore, 124 N. Y. 241, 26 N. E. 548, which is the sole authority upon which all the subsequent cases cited depend, holding that in actions to reach equitable assets it is not necessary that the remedy at law should be exhausted. This was an action brought to set aside, as fraudulent, a deed from Abner 0. Wetmore, through a third person, to his wife, the defendant in the action, and for a sale of the land described therein, in order to pay a debt due to the plaintiff from said Wetmore. Objection was taken to the complaint upon the ground that it did not allege the recovery of a judgment and the return of an execution unsatisfied; and the court held, citing certain authorities which will be examined hereafter, that, courts of equity having inherent jurisdiction to reach assets which had been fraudulently transferred, the exhaustion of the remedy at law was not in such cases prerequisite, where some excuse was given for not having done so. In the opinion it is recognized that it has become the settled rule in this state not to dispense with those preliminary proceedings at law (referring to the recovery of a judgment and the return of an execution), although it may be made to appear by evidence that no benefit could result to a creditor from them; and the cases of Estes v. Wilcox, 67 N. Y. 264, and Adsit v. Butler, 87 N. Y. 585, are cited. The learned judge then goes on to say:
“This is not founded upon any purpose of the statute to repeal or curtail the common-law equity powers of the court, not, inconsistent with the stat*716■ute, to investigate the conduct of debtors in respect to their property in fraud of creditors, and to grant relief.”
And that is the sole ground upon which the learned judge founded the right of the court to entertain jurisdiction in such a case. He says:
“The subjects of fraud and trusts are peculiarly matters oí equity jurisdiction, which is very comprehensive where the other tribunals cannot afford relief, and its want of it is not to be inferred from the novelty of questions presented,”—citing the case of Hadden v. Spader, 20 Johns. 554, as an authority for the above proposition.
In Hadden v. Spader the question before the court was whether, in a case- where one John Davis, being largely indebted, and being possessed of a large stock in trade, and having debts due to him tor a large amount, for the purpose of defrauding his creditors combined with one Hadden to conceal the property so as to retain it for his own use, and delivered the same to Hadden, who still retained the same, or the proceeds thereof, with a view of concealing or disposing thereof to prevent the same from being levied on by execution on any judgment which might be obtained against Davis, Had-den could be compelled to pay that money to the judgment and execution creditors of Davis; and that was the case in which the language was used,—quoting Mr. Haddock (1 Madd. Ch. Prac. 8):
“In cases of trust and. fraud, courts of equity seem unwilling to set bounds to their jurisdiction and say how far they will go, evidently because fraud -and trust are peculiarly of chancery jurisdiction, and consequently its powers ought to be so exercised that no subtlety or cunning shall be able to prevent the detection of fraud or cause the failure of justice; that a trustee while acting fairly and honestly shall be sure of the protection of the court, but never be permitted to become the instrument of wrong."
This case affords no foundation whatever for the doctrine which it was cited to support. It is perfectly apparent from this language that it was never intended to intimate that a court of equity had any jurisdiction in cases of trusts, except to enforce a trust or to grant some relief to parties who were beneficiaries of the trust, or in cases of fraud, except under the circumstances which existed in the case, from which the language is quoted, namely, the case of a creditor who has obtained a judgment, and an execution returned unsatisfied.
In Bank v. Wetmore the learned judge further says:
“In some of the states the issue and return of execution preliminary to the action in equity is not required when it clearly appears that it would be utterly fruitless, and the same doctrine has been declared in the United States ■supreme court,”—citing the case of Case v. Beauregard, 101 U. S. 690, 25 L. Ed. 1004.
Notwithstanding the fact that there was much discussion as to the rights of a creditor at large in that case, all that was decided was that whenever a creditor has a trust in his favor, or a lien upon property for a debt due to him, he may come into equity without exhausting his remedy at law. It further states (citing cases in other jurisdictions) that a creditor, without having first obtained a judgment at law, may come into a court of equity to set aside fraudulent conveyances of his debtor made for the purpose of hindering and delaying creditors, and subject the property to the payment of the *717debt due to him,—a rule which has never obtained in this state,, and had no authority to support it prior to the case of Bank v. Wetmore, supra.
Another case cited by the learned judge who wrote the opinion in Bank v. Wetmore is McDermutt v. Strong, 4 Johns. Ch. 687. There it was held that the court of chancery had power to assist a judgment creditor to discover and reach the property of a debtor which was beyond the reach of an execution at law; that to get possession of the equitable assets of the debtor, as a resulting trust in goods and chattels, a judgment creditor must come into that court, and before a judgment creditor can be entitled to the aid of the court against goods and chattels of his debtor, or against any equitable interest of a debtor, he must first have taken out an execution at law, and have caused it to be levied and returned, so-as to show a failure of his remedy at law. This case does not seem to sustain the proposition in support of which it is cited.
In the case of Wiggins v. Armstrong, 2 Johns. Ch. 144, it was-held that a creditor at large, or before judgment, was not entitled to the interference of the court of chancery by injunction to prevent a debtor from disposing of his property in fraud of such creditor. The learned chancellor says:
“This is the case of a creditor on simple contract, after an action commenced at law, and before judgment, seeking to control the disposition of the property of his debtor, under judgments and executions, upon the ground off fraud. My first impression was in favor of the plaintiffs; but upon examination of the cases I am satisfied that a creditor at large, and before judgment and execution, cannot be entitled to the interference which has been granted in this case. In Angell v. Draper, 1 Vern. 399, and Shirley v. Watts, 3 Atk. 200, it was held that the creditor must have completed his title at. law, by judgment and execution, before he can question the disposition of the debtor’s property; and in Bennet v. Musgrove, 2 Ves. Sr. 51, and in a case before Lord Nottingham, cited in Balch v. Westall, 1 P. Wms. 445, the- , same doctrine was declared, and so it was understood by the elementary writ'ers. Mitf. Eq. Pl. 115; Cooper, Eq. Pl. 149. The reason of the rule seems-to be that until the creditor has established his title he has no right to interfere, and it would lead to an unnecessary, and perhaps a fruitless and oppressive, interruption of the exercise of the debtor’s rights. Unless he has-a certain claim upon the property of the debtor, he has no concern with his-frauds.”
The case of Bank v. White, 6 N. Y. 236, is also cited as an authority, but it in fact established the contrary proposition. In that case it was a judgment creditor who was seeking to enforce his rights, and in the discussion which arose upon the rights of this-judgment creditor the court, in reference to the provisions of 2 Rev. tit. p. 174, §§ 38, 39, say:
“The common-law powers of the court in reference to fraudulent trusts and-conveyances are not touched by these provisions. Fraud and trust were-familiar heads of equity jurisdiction, independent of the statute. The creditor invoking the aid of the court must establish his title to its interposition by alleging a lien or quasi lien upon the real or personal property which was the subject of the trust; and he would then be entitled to relief, notwithstanding he had a remedy at law, by levy and sale upon execution. In-all cases of fraudulent trusts the court may, in its discretion, direct a sale-by a master, and compel the debtor and trustee to unite in the conveyance-to the purchaser,” etc.
*718• It is a familiar branch of equitable jurisprudence that where there is a lien it may be enforced in equity, and all that was said in respect to a creditor not exhausting his remedy at law by levy and sale upon execution depended upon the existence of a lien which he had a right to enforce in equity.
The case of Patchen v. Rofkar rests entirely upon the authority, of Bank v. Wetmore; and, as already stated, even those cases only claim that the prerequisites of a judgment and execution returned unsatisfied do not apply to a case where equitable interference is asked for upon the ground of fraud perpetrated upon the creditor.
Mr. Justice O’BBIEISi, in referring to the case of Russell v. Clark, 7 Cranch, 89, 3 L. Ed. 271, quotes certain language as supporting the contention of the respondent in this case. The language is:
“If a claim is to be satisfied out of a fund which is accessible only by the aid of a court of chancery, application may be made in the first instance to that court, which will not require that the claim should be first established in a court of law.”
It is perfectly apparent that this language refers to a case where a fund has been created for the purpose of satisfying the claim, to enforce which the intervention of the court of chancery is sought; and that was the question which was being considered by the court in Russell v. Clark.
It is thus seen how inapplicable the authorities cited in Bank v. Wetmore and Patchen v. Bofkar are to sustain even the limited proposition laid down in those cases. The cases are (I had almost said) innumerable which hold that in no case can a creditor reach property not liable to be levied upon by 'execution in an action in equity unless he is a judgment creditor, with an execution returned unsatisfied, or files his bill in aid of an outstanding execution. In addition to the cases to which attention has heretofore been called, we might cite McElwain v. Willis, 9 Wend. 549, in which it is held that, to entitle a judgment creditor at law to the aid of a court of chancery to obtain satisfaction of his judgment against the defendant out of property not liable to be levied upon by execution, he must show not only an execution issued, but returned nulla bona, and no state of facts will excuse such return, and that a bill in chancery may be filed to remove a fraudulent or inequitable obstruction or embarrassment to the satisfaction of a judgment by execution; but the bill in such case must distinctly and specifically allege that there is real estate which is subject to the judgment, or personal property liable to the execution. In Allyn v. Thurston, 53 N. Y. 622, and Estes v. Wilcox, 67 N. Y. 264, it was held that a creditor at large could not maintain an action to enforce a resulting trust in land purchased and paid for by Ms debtor, and by Ms direction conveyed to another person. In the case of Adee v. Bigler, 81 N. Y. 349, it was held that, to entitle a creditor to the aid of a court of equity in reaching assets, there must be a judgment, an execution issued thereon, and a return thereof unsatisfied; and the fact that the debtor is an insolvent corporation, and has conveyed its property in contravention of the statute, does not authorize a resort to equity until the remedy at law has been thus exhausted; nor can *719an equitable action be upheld on the ground that the appointment oí a receiver is necessary to preserve the property from misappropriation and waste pending the litigation. In that case there was a demurrer to the plaintiff’s complaint, which was to set aside a conveyance fraudulently made by the corporation in contravention of the statute: and the demurrer was sustained because the complaint did not contain an allegation in regard to the obtaining of a judgment, and the return of an execution unsatisfied. In Adsit v. Butler, 87 N. Y. 585, it was held that in an action by a judgment creditor to set aside, on the ground of fraud, a conveyance of real estate by the debtor, the complaint must allege the issuing of an execution upon the judgment; that the return of an execution unsatisfied is essential to give the court jurisdiction, or the action must be brought in aid qf an execution then outstanding; and that allegations that the debtor is dead, and from the time of the rendition of the judgment was wholly insolvent, are not sufficient. This was another case of a demurrer to the complaint, and the demurrer therefore admitted the fact of insolvency and the rendition of the judgment, and that the debtor was dead, and that plaintiff could not issue an execution; and yet it was held that because he had not an execution, either outstanding or returned unsatisfied, his complaint was defective, although he sought .relief upon the ground of fraud. The same principle is enunciated in the case of Carpenter v. Osborn, 102 N. Y. 553, 7 N. E. 823, where it was held that although the court, having acquired jurisdiction in regard to other matters, had authority to render money judgments for certain amounts which were not already' in judgment, the rule which precludes a court of equity from entertaining jurisdiction of an action to set aside a fraudulent conveyance at the suit of a simple-contract creditor had rendered the judgment erroneous so far as it declared such debt a lien upon the property. And, if later authorities than these are necessary, we might refer to the case "of Prentiss v. Bowden, 145 N. Y. 342, 40 N. E. 13. That was an action brought by a judgment creditor, in his own behalf simply, to set aside a conveyance of land made by his debtor on the ground that it was made in fraud of creditors; and the court distinctly held that the plaintiff must show that he has exhausted his remedy at law against the debtor by the issue and return of an execution unsatisfied in whole or in part. Thus it is seen that, in cases even where the intervention of a court of equity is sought upon the ground of fraud, it has been held over and over again that it is a prerequisite that the plaintiff should show that he was a judgment creditor, and had an execution either outstanding or returned unsatisfied. The situation of the plaintiff in the case at bar is certainly not so favorable to the obtaining of jurisdiction as that of the plaintiff in the case of Prentiss v. Bowden, who was seeking to recover his own debt, and to reach equitable assets as a general creditor; and yet it was held that, although a man under such circumstances might have obtained a judgment, .if he had not issued his execution he could not get relief. This case is conclusive upon the question that a creditor seeking relief upon his own behalf against a fraudulent transfer by his debtor must be *720a judgment creditor with an execution returned unsatisfied or outstanding, the case oí Bank v. Wetmore not being overlooked in the making of that decision. It is decisive of the question involved in the case at bar.
There seems to be another objection which in an action like the present is fatal to the right of the plaintiff to maintain the same; and that is the constitutional right of certain of the defendants to a trial by jury as to the validity of the claim which has been presented against them, and for the payment of which property to which they are entitled is to be appropriated. In an action in equity a defendant cannot claim a trial by jury as matter of right upon any issues except such as are directed by positive statutes to be thus tried. It is because of this direction in the statute prior to the adoption of the constitution in 1822 that the right to a trial by jury of the issue of adultery in an action for divorce became fixed. When actions of this kind were tried in the ecclesiastical courts, all the is-sues were tried without a jury. When the court of chancery was given jurisdiction to try actions for divorce upon the ground of adultery, there was a positive enactment that the chancellor should frame a feigned issue upon the question of adultery, and have the same submitted to a jury. And this was the condition of the law at the time of the adoption of the constitution of 1822, which provided that trial by jury in all cases which have been heretofore used shall remain inviolate forever; and, as this language has been continued substantially in all subsequent constitutions, the right to trial by jury has necessarily been maintained. The act under which it is sought to charge certain of these defendants in this action came into existence in 1826, and the legislature was powerless, after the adoption of the constitution of 1822, if it attempted so to do, to give a court of equity jurisdiction to determine a question of indebtedness between the parties, unless as an adjunct to some branch of equity jurisprudence which had been in existence at the time of the adoption of this constitution. The right of a court of equity to interfere in cases like the one at bar was first created in 1826, as above stated. Consequently, for the purpose of the establishment of the debt, certain of these defendants have a constitutional right to a trial by jury; and, as has already been seen, in equity, unless there is a positive direction in the statute, there is no trial by jury upon any issue as a matter of right. It may be said in answer to this proposition that then in all cases under our lien law a party is entitled to a trial by jury as to the question of the amount which may be due; but it is to be borne in mind that courts of equity have always had jurisdiction of the question of liens and their enforcement', and a lien is nothing more than a statutory mortgage. This was a class of jurisdiction which courts of equity have exercised since their institution. But the jurisdiction which was conferred upon courts of equity by the act under which the plaintiff in this action is seeking to enforce his claim was a new jurisdiction, unheard of prior to the passage of the act of 1826. In the dissenting opinion it is said that if this view is sound it would equally apply to every suit brought by attachment which resulted in a judgment after the *721publication of summons against nonresident defendants. The learned justice in making this illustration forgot that the action in which an attachment is issued, and which results in a judgment, is an action at law, which the defendant may come in and defend, and have his defense passed upon by a jury. In the case at bar no such right exists upon the part of any of these defendants. I concur,, therefore, with Mr. Justice McLAUGHLIN, that the order should be reversed.