Court Opinion

ID: 5199247
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:48:56.914827+00
Date Added: 2024-06-11T08:27:10.257407
License: Public Domain

McLENNAN, P. J. (dissenting) :
. This is an appeal from an interlocutory judgment overruling a demurrer interposed to the complaint upon the ground that it failed to state facts sufficient to constitute a ca'use of action, entered in the office of the clerk of Seneca county on the 2d day of 'January, 1906, upon a decision of the Special Term of the Supreme Court held in and for said county.
The action was commenced on the 16th day of October, 1905, on behalf of the plaintiff and all others similarly situated, to compel certain real and personal property, its' income, rents and profit's, conveyed by their debtor to the defendants for the purpose of securing the payment of his indebtedness, to be applied to such purpose; and in this action, .the defendants having, as alleged, failed to perform tlieir duty in the premises, she asks to be permitted to follow such property and to have it devoted to the pur-, pose for which her debtor conveyed the same, in accordance‘with the rules and practicó of a court of equity.
We think the judgment appealed from is correct. Indeed, its *592correctness lias practically been declared by the unanimous decision of .this court rendered at the .January, 1906, term, wherein in this .action an order appointing, a. receiver of the property in -question pendente lite was. unanimously affirmed-' (111 App. Div. 908.) Of course, if the complaint -does not state a cause of action, such order was erroneous; Upon that appeal precisely the same question was raised. ■ as upon this, and was decided adversely to appellant’s contention. It follows logically that, the court as then constituted considered that the complaint stated a good cause of action. I am of the opinion that the -court should adhere to its former -decision, unanimously made, both because it was right, and also because such course will tend to- promote the orderly administration of justice.
If, however, it is-deemed advisable, tb j consider the question- de novo, we are prepared to state the reasons which led us to ássent to the former decision and which lead us to dissent from the contrary decision about to be made by a majority of the court-i
In substance it is alleged in the complaint that one Edwin C. Pierson about the year 1897 was indebted to the plaintiff in the sum. of $2,600, and to thirty-nine other persons in various amounts, in all aggregating $36,589.73.; that for the purpose of securing the j)ay-men't of .such indebtedness Edwin conveyed and transferred ..all his property, consisting of valuable; nursery lands, nursery stock-' and other personal property located at Waterloo, 1ST. Y.,' to the defendants Albert EL and. Frank J. Pierson, wdthout any consideration except their agreement to pay the plaintiff and his other/ creditors in full; to give their promissory notes to said creditors for the amount of their claims respectively, and to convey the property and business transferred by Edwin to them to the defendant Clark as trustee by the execution and delivery' of a trust deed or mortgage,, which should provide for the-p’ayment of such notes and also such sums as might be borrowed by Edwin’s grantees with the consent of - the trustee to "enabler them to carry on the business,. not to exceed $4,Q00. per annum. It is alleged that Edwin' so- Conveyed and transferred all his property to the defendants Albert,H. and'Frank J. Pierson; that' they received and entéred into possession of the same; that they executed and delivered to the plaintiff their promissory note for the amount of her claim, and to each of the other *593creditors of Edwin for the amount of their claims respectively; that then they executed and delivered the mortgage or trust deed to the defendant Clark, conveying to him all the property received by them from Edwin. It is claimed that such trust instrument contains conditions which prevent the plaintiff and those similarly situated from following such property and having the same applied to the payment of her or their claims, it being insisted that by one clause of such agreement, properly interpreted, the plaintiff was precluded from enforcing the payment of her past due note because she could not or did not procure a majority in amount of the holders of such notes to join with her in demanding of the defendant trustee that the property .conveyed by her debtor should be applied for such purpose. It is alleged in the complaint that plaintiff’s note has been past due for more than five years; that the interest upon it has not been paid for two years last past; that Edwin’s grantees, who are the defendant.Clark’s grantors, had been permitted by the 'trustee and are still permitted “ to continue in the control, management, possession and enjoyment of said property, to the loss and detriment of the plaintiff and said claimants and creditors, the beneficiaries under and named in said mortgage or trust deed.” It is also alleged that the property is inadequate security for the payment of the mortgage debt, and that a portion thereof is perishable. It is tiowhere suggested that the plaintiff knew of or assented to the terms or conditions of the agreement by which her debtor assumed to convey his property to the defendants Albert H. and Frank J. Pierson for the purpose of having it applied to the payment of his indebtedness, or that she knew of or assented to the terms and conditions of the trust agreement by which Edwin’s grantees assumed to convey such property to the defendant Clark, their alleged trustee.
My notion is that the law is well settled that the property of a debtor conveyed to "another for the purpose of paying his debts may" be followed'by the creditor and its application to such purpose compelled, wholly independent of any limitations which may be sought to be imposed by an agreement between the debtor and his grantee where the question of the purchaser’s bona fides is not involved. In my view the plaintiff states a perfect cause of action when she *594alleges in her complaint tliat the defendants .have property which belonged to her‘debtor and which he conveyed to them for the purpose of securing the payment of her debt in the manner agreed, to by them, and that they' failed to perform such agreement on' their part. Upon such failure, as I Understand the law, she had a perfect right to ask a court of equity to decree that such property so conveyed, or its proceeds, be devoted to the purpose for which-it was conveyed, and so entirely independent of any agreement made between the- grantor and ^grantee which might seek to limit such, right. We think .it is. not the law in'this State that a debtor may convey his property to another, and by agreement with him prevent' the creditor from following stich property and demanding that it' be -applied to the payment of the debt, where such creditor does not consent to or is not a party , to such alleged agreement. The contrary suggestion involves . the proposition that a debtor may convey his property to another who agrees to pay his debts, and so fix it by ' agreement between them tliat the creditor may not. com-pel"th¿ application of the property transferred to the payment of' the debtor’s indebtedness in reasonable manner. We think such conténtion is not the law but is .contrary to judicial decision. . . •
' But assuming the>plaiütiff is bound by the conditions of the mortgage or deed of trust which is annexed to and made a part of the "Complaint, to which, so far as appears, she did not. assent, or of .which she had no knowledge, but solely because she is seeking to enforce its conditions so ■ far as favorable to her, we think she is entitled to maintain this action within the express- terms of such agreement. The. only objection to her right hi that regard is that a majority in amount of the note holders, the Creditors of Edwin C. Pierson, did not join with her in requesting the trustee Clark to . commence an action of foreclosure." The language of the mortgage or trust deed is specific, that such request may be.made by “ any one on whose note default shall have been made.’’ Default had been made in the payment of. plaintiff’s note; she made request to have the trustee foreclose-the mortgage; he refused, and thereupon she .brought tliis action.' The plaintiff complied with the requirements of the trust deed as expressed by the literal meaning of the language employed. We think paragraph 2 of such agreement ought, hot. to be construed as limiting the right of any holder of a note past due *595to commence an' action of foreclosure to enforce the payment of such note until a majority in amount of the holders of such notes should acquiesce or join in demanding that such action of foreclosure be instituted. ■ Such a construction of the trust agreement might practically destroy plaintiff’s rights in the premises. Her note has been due and unpaid for five years; the interest thereon for the last two years has not been paid. The property which was transferred by her debtor for the purpose of securing the payment of her debt has not been applied to such purpose, and yet it is insisted that she is without remedy because she cannot secure a majority in amount of those similarly situated with her to join in a demand that the payment of their debts be enforced. If such an interpretation of the meaning of the. trust mortgage or deed, is to prevail, then a majority in amount of the creditors of' Edwin C. Pierson may forever prevent the plaintiff from enforcing the payment of her claim and from compelling the property transferred by her debtor to be applied in payment of her debt. The plaintiff was not a party to any agreement which restricted' her right to follow the property of her debtor and to have it applied in payment of her debt; the provision in the trust mortgage or deed specifically provides that-it shall be so- applied in case default is made in the payment of her note, and she demands that such action be taken by the trustee; and in default thereof she seeks to maintain this action on behalf of herself and of others similarly situated.
,We conclude that wholly independent of the conditions or provisions of the mortgage or deed of trust which is made a part of the complaint, but to which the plaintiff was not a party, she had a right to follow the property conveyed by her debtor for the purpose of securing the payment of her debt and to have it applied for that purpose, into whosesoever hands it' came, there being no question of bonafides.
We also conclude that under the specific terms of the mortgage or deed of trust the plaintiff was entitled to demand that such instrument be foreclosed because of default haying been made in the payment of her note; and the trustee having failed to comply-with her request to foreclose in that regard, she was entitled to maintain an action in her own name, and on behalf of all others similarly situated, for that purpose. Any other decision involved *596the proposition that a majority,in amount of the creditors of Edwin 0. Pierson, plaintiff’s debtor, may prevent her indefinitely from' collecting the debt due from him to her.
-The decision about to be rendered seems to be based upon the principle that the holders of bonds secured by railroad or other corporate mortgage, and. which refer to such trust instrument, are bound by the conditions and limitations therein contained. We think those cases are n'ot analogous; There the holder of the bond purchases or owns it with full knowledge of and assenting to all the conditions and limitations, and, therefore, is bound by the same. In .the case .at hhr nothing of the kind is disclosed, by the complaint. Here the plaintiff only seeks to have the property of her debtor applied to the payment of her debff and she insists that her right ■ in the premises should not he hampered because of any agreement ■ which her debtor made, with the person to whom lie transferred his ■ property. ■ That such rule is reasonable could not be better illustrated than by tile facts in this case. Under the mortgage or deed of trust the grantees were given permission, with the consent of the trustee, to borrow $4,000 per annum, and if such option has been availed of there is a total of $36,000 of debts .placed under the mortgage or deed of trust in addition to the debits of tlm plaintiff and those similarly situated with her. Also, if the other .creditors are situated as is the plaintiff in the circumstance that the interest has. not been paid upon .their claims for the. two years last past, there are many thousand dollars more added to such mortgage •indebtedness. We think the contention is not reasonable that the plaintiff should be compelled to sit still and see" the indebtedness secured by such mortgage increased to such amount, practically doubled, and without power to protect her interests; in the premises, she not being able to procure a majority in amount • of the holders of notes similar to hers to join with her in enforcing, her right..
We conclude that the interlocutory judgment is right; that it has been practically so decided by the unanimous decision of tliis court, and that it should be affirmed, with costs, with leave to the defendants to plead over upon payment of the costs of. the demurrer and of this appeal. .
Kruse, J., concurred in separate memorandum.