Court Opinion

ID: 3596633
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:43:51.689835+00
Date Added: 2024-06-11T13:59:09.074021
License: Public Domain

The plaintiff as a receiver in supplementary proceedings, representing a creditor of the McCall Publishing Company, recovered a judgment against the Meriden Britannia Company for nine hundred dollars and interest, the amount received on the sale of property belonging to the McCall Company, which the Britannia Company had wrongfully converted to its own use. The Appellate Division, first department, sustained the recovery, and I agree with the reasoning of that learned court.
The precise question here presented lies within a very narrow compass.
The chattel mortgage given by the McCall Company to the Britannia Company was "absolutely void as against the creditors of the mortgagor," in the language of the statute (Laws 1833, ch. 279, § 1), there having been neither actual and continued change of possession of the property, nor a filing of the instrument.
The plaintiff represents a judgment of about seventeen hundred dollars, and seeks to apply thereon the sum of nine hundred dollars in the custody of the fraudulent mortgagee, who took possession of the property under the provisions of the chattel mortgage and sold it.
It is to be observed that here is a question between a judgment creditor, as to whom the statute says this mortgage is "absolutely void," and a fraudulent mortgagee, who holds money to all of which the plaintiff is entitled, as it is less than the judgment he represents as receiver. There is no complaining creditor — no innocent third party — seeking to enforce his claim, and the bald question is whether the receiver, as between himself and the mortgagee, can treat this mortgage as "absolutely void," as the statute declares it to be, and reach the proceeds of a conversion in an action at law which is insufficient to pay his judgment, or whether he is driven to the empty from of an action in equity to set aside an instrument which, as to him under these peculiar circumstances, is waste paper. In other words, is the mortgage to be held voidable only as to him, although the statute says it is "absolutely void?"
I am of opinion that, as between this judgment creditor and *Page 187 
mortgagee, the title to the mortgaged property never, in law, passed out of the McCall Company, and if the latter had sold the same and received of proceeds twice the amount of the judgment now sought to be collected, the plaintiff could have recovered the full amount of the judgment and interest. (Bostwick v.Menck, 40 N.Y. 383.)
The counsel for the plaintiff did, indeed, sue for three thousand dollars, the alleged value of the property, but at the trial he limited the recovery to the amount of nine hundred dollars realized by the mortgagee at the sale, thus presenting the question, as between the judgment creditor and mortgagee, divested of the rights of third parties.
The language of Judge PECKHAM, in Stephens v. Perrine
(143 N.Y. 476), is very much in point.
That learned judge said, in referring to an unfiled chattel mortgage like the one at bar: "The mortgage, as to the creditors of the mortgagor, was always void. It continued to be void notwithstanding the fact that the mortgagee assumed to take possession under and to sell the property by virtue of such void instrument. As between these mortgagors and creditors, it was the same as if the mortgage did not exist, and the mortgagee could not, as against these creditors, obtain any rights under it. * * * As against them the mortgagee could not rightfully take the property by virtue of this void instrument, and if she did take in spite of the fact that the mortgage was void and no protection to her, how could she secure any further or greater right by the sale of the property and the receipt of its value? * * * If void, what right has the mortgagee, as against creditors, to take possession in her character of mortgagee and to sell or dispose of property described in it? Clearly she has none, and she does not acquire any by the celerity of her movements in seizing and selling property under it."
It is true that the precise question now presented to the court as to remedy was not up in the case last cited, but this fact does not render the reasoning in the foregoing quotation any the less cogent. *Page 188 
That action was brought by a receiver in supplementary proceedings to set aside a chattel mortgage and to recover the property covered by it or its value, and it was sustained.
Under the peculiar facts of the case at bar the statement that the mortgage was valid as between the parties and as to all the world, except creditors of mortgagor, has no controlling force — the plaintiff was entitled to all the proceeds of the conversion and no third party had a valid claim.
The judgment creditor represented by the plaintiff was, under the facts disclosed, entitled to act as if the mortgage never existed and treat the mortgagee as a naked trespasser in entering upon the premises of the McCall Company and converting its property. This was his statutory right and not a cause of action that he derived from the judgment debtor. The action before us is one in which the judgment debtor never had part or lot, and the fact that the mortgage was valid as between the mortgagor and mortgagee is immaterial.
In Mandeville v. Avery (124 N.Y. 376) this court held that the term "creditors" includes all persons who were such while the chattels remained in the possession of the mortgagor under the agreement, and their rights are not affected by the fact that they did not obtain judgment, or a specific lien, until after delivery of property to the mortgagee; that the right of the creditor to collect his debt out of the mortgaged chattels may not be defeated by the mortgagee, simply by selling the property. The court said (p. 387): "The mortgage being void, all proceedings under it were void, and although he" (the mortgagee) "may possess an honest claim, he cannot retain property obtained by him under a fraudulent mortgage against a pursuing creditor."
It is also true in the case last cited that the question now presented as to the form of the remedy was not up, but the reasoning proceeds upon the assumption that, as to the creditor, the mortgage is as if it never existed.
It was an action in equity to set aside the mortgage and compel defendant to account for proceeds.
It is insisted by the appellant that the case of Ward v. *Page 189 Petrie (157 N.Y. 301) is an authority against the maintenance of such an action as this. The precise question decided in that case was that a receiver in supplementary proceedings has no authority as such to maintain an action at law to recover damages from the judgment debtor and another for a fraudulent conspiracy to prevent the collection of the judgment creditor's debt, carried into effect before the entry of judgment and the commencement of the proceedings which resulted in the appointment of the receiver. It is true that in the opinion of the case last cited it is said: "The title to property, however, transferred by the judgment debtor in fraud of creditors, prior to the service of the order for examination upon him, is good as against the receiver until he has caused the transfer to be set aside by a decree in equity," and cites Bostwick v. Menck (40 N.Y. 383).
Bostwick v. Menck was an action brought to set aside a fraudulent assignment, and, consequently, the form of the action was not under consideration, and the situation in the case at bar did not exist. The point decided in that case was that a receiver in supplementary proceedings should be limited in his recovery to an amount sufficient to cover the judgment and interest, together with the costs of the proceedings, although the assigned property in the hands of the assignee was of much greater value. In the case before us this rule was observed.
It was held nearly fifty years ago in this court, in the case of Porter v. Williams (9 N.Y. 142), that "the receiver appointed under supplementary proceedings does not stand merely in the place of the debtor, but represents the creditors, and can thus impeach the fraudulent sales of the debtor. The assignment sought to be set aside in this case was good between the parties. The fraudulent grantor could not impeach his own grant. * * * But the receiver, succeeding to the rights of the debtor, represents other interests than those of the debtor. He comes in by the act of the law and not by the act of the party."
In the case at bar the receiver does not stand in the shoes *Page 190 
of the judgment debtor, but is seeking to enforce a remedy conferred upon him by the statute. (Laws 1833, ch. 279, § 1.)
In attacking voidable instruments a receiver is clothed with all the rights of the judgment debtor and judgment creditor, and as to instruments absolutely void as to creditors the receiver may, as the creditor might, as between himself and the fraudulent mortgagee, treat the instrument as waste paper, and proceed as if the property sought to be conveyed by it had never left the possession of the mortgagor or grantor except by the wrongful act of the mortgagee, and maintain an action for conversion.
I am of opinion that this plaintiff might rely upon the act of 1858 (Ch. 314) to sustain his present position, but do not deem it necessary to consider that question as his cause of action is complete without it.
This action is clearly maintainable on principle, and there is no case in this court that has been brought to my attention that is authority to the contrary.
I vote for the affirmance of the judgment.
PARKER, Ch. J., O'BRIEN, HAIGHT and MARTIN, JJ., concur with VANN, J., for reversal, etc.; GRAY, J., concurs with BARTLETT, J., for affirmance.
Judgment reversed, etc.