Opinion
December, 1903.
Moses Feltenstein, for the appellant.
I. Henry Harris, for the respondent Brunnemer.
Augustus J. Koehler, for the respondent Entwisle.
The appellant contends that a receiver in supplementary proceedings cannot bring this action to avoid a chattel mortgage made by the judgment debtor on the ground that it was not filed in the proper county. Stephens v. Perrine ( 143 N.Y. 476) is against him. The learned counsel would avoid it by contending that it has been shaken by subsequent judgments, namely, Sheldon v. Wickham ( 161 N.Y. 500); Stephens v. Meriden Britannia Co. (160 id. 178); Castleman v. Mayer ( 55 App. Div. 515; affd., 168 N.Y. 354). It is necessary to examine this contention. Stephens v. Meriden Britannia Co. ( supra) and the case at bar present the common features of plaintiffs of a similar status attacking a chattel mortgage not filed. But the difference, which is essential, is that Stephens sued for a conversion, an action at law, and this plaintiff sues to avoid the transfer, and thus enters the equity side of the court. That this difference discriminates is apparent from the language of VANN, J., in Stephens v. Meriden Britannia Co.: "The receiver cannot bring an action at law for the taking of property formally transferred before the recovery of the judgment, because neither the judgment debtor nor the judgment creditor could have brought it. He can, however, by a bill in equity remove any obstacle, such as a fraudulent transfer, which, until set aside, would prevent him from taking possession of the property, and thereupon sell it and apply the proceeds upon the debt which he represents." In Sheldon v. Wickham ( supra) the question was whether, in an action to foreclose a mixed mortgage, an assignee for creditors could defend on the ground that the mortgage was void as to personalty in that it was not filed as a chattel mortgage. The discrimination between Sheldon's case and the case at bar is in the difference between the status of an assignee who represents creditors, and that of a receiver who represents judgment creditors. This is quite apparent from the course of the argument of the learned judge and from several of his citations, as well as from this language of HAIGHT, J.: "We are thus brought to a consideration of the case of Stephens v. Perrine ( 143 N.Y. 476), relied upon by the court below. In that case one of the questions involved was as to whether a receiver in supplementary proceedings could maintain an action to set aside a chattel mortgage and to recover the property covered by it, or its value, which was alleged to be void by reason of a failure of the mortgagee to file. It must be borne in mind that in that case, the receiver represented a judgment creditor, and his position was very different from that of an assignee. In that case it was held that the action could be maintained. The opinion, however, makes no allusion to the statute of 1858 or of the question which we, in this case, have under consideration. We, therefore, are of the opinion that that case should not be regarded as controlling upon this question." As to the principle, it is said in Thompson v. Van Vechten ( 27 N.Y. 568, 582): "The mortgage cannot be legally questioned until the creditor clothes himself with a judgment and execution, or with some legal process against his property; for creditors cannot interfere with the property of their debtor without process." (See, too, People's Savings Bank v. Bates, 120 U.S. 562; Button v. Rathbone, Sard Co., 126 N.Y. 187.) Castleman v. Mayer ( supra) does not make for the appellant, as a reading of the opinion at page 519 shows.
I think that the evidence is sufficient to sustain the finding that the judgment debtor did not transfer the chattels to the defendant in payment of his indebtedness. There is no dispute but that a sale was contemplated, authorized, advertised and begun. The version of the plaintiff is that it was completed; of the defendant that it was arrested by the transfer then and there made by the mortgagee in accord with a prior understanding. The plaintiff's witness, the judgment debtor, is contradicted by several witnesses and corroborated by several witnesses. We have no warrant within the rule to upset the finding of the learned trial court. ( Lowery v. Erskine, 113 N.Y. 52.)
Rulings of the learned court are criticised by extended comment backed by many citations. But it must be remembered that this is an equity action and that the old chancery rule still obtains on review, namely, that exceptions which do not affect the merits are disregarded. ( Townsend v. Bell, 167 N.Y. 462, 470; Vermilyea v. Palmer, 52 id. 471.) Many learned counsel are apt to forget the obvious difference between the chancellor and a jury. The chancellor is supposed to know the rules of evidence, and, when he comes to deliver judgment, to base it upon the legal evidence in the suit. This supposition is only overthrown when the record shows specific instance to the contrary. Thus, if the judgment could not be supported unless by evidence which was not legal evidence, then the appellate court would reverse it. Or if the chancellor erroneously excluded evidence which, if taken and credited, might logically tend to overcome or to rebut, then also the appellate court would regard such error as capital. But unless the rulings affect the very pith and marrow of the issue, they may be disregarded. On the other hand, the jury properly believe that all testimony admitted is evidence, and has not the right, if it had the learning, to discriminate.
The refusal of the court to permit the counsel for the defendant to examine the judgment debtor as to his competency to testify to the value of the chattels did not affect the merits. The witness had qualified to an extent, the court was the judge of his fitness, and it had the right, in its discretion, to shut off further inquiry.
It was not error to receive the memorandum of the chattels. The witness testified that it was correct in its details and prices to the best of his belief at the time of the foreclosure; that he had made and lost the original, of which this was a copy, several years before. The latter part of subdivision 3 of the opinion in Hardow v. McDonough ( 77 N.Y. 592) sustains the ruling.
The evidence of Mr. Connelly and of Mr. Moses was sufficient to sustain the finding as to the value of the chattels. If it were error to exclude the prices paid by the witness Mr. Leibenger, when he subsequently bought the chattels, it was substantially cured by the admission of his testimony as to their value.
It was entirely competent to cross-examine Mr. Sanders as to any alleged statements which varied with his testimony in chief, and to contradict him if he denied the statements. ( Patchin v. Astor Mutual Insurance Co., 13 N.Y. 268; Squier v. Hanover Fire Ins. Co., 162 id. 552.) As he had testified on the direct that there was, in effect, no consummated sale, his statements, if made, were inconsistent with his testimony. I think that his attention was sufficiently called to the occasions of his alleged conversation. ( Wiberg v. Nassau Electric R.R. Co., 54 App. Div. 541. )
I think that the contract between Connelly, the judgment debtor, and the defendant, made prior to the execution of the mortgage, was admissible to show his residence at the time in question. (Jones Ev. § 245.) In any event, there is other evidence sufficient to sustain the finding.
So far as the defendant Entwisle, the trustee in bankruptcy of the judgment debtor, is concerned, I think that his judgment is warranted by the facts and may be sustained in law. If he could not attack the chattel mortgage on the ground taken by the receiver ( Stewart v. Platt, 101 U.S. 731), he was entitled to recover any property of the bankrupt. He has recovered the excess of the proceeds of the sale over the debt due to the mortgagee, and for the conversion of certain chattels by the mortgagee which were not covered by the mortgage, and for the value of the liquor tax certificate which was transferred to the said company defendant for the express purpose of payment of a debt of the bankrupt. The third cause of action, relating to the said certificate, as pleaded by the trustee, is based upon a preference. To this the defendant neither answered nor demurred. The court based its judgment not only upon the alleged preference, but also upon the ground I have just indicated. Now, Mr. Connelly, the judgment debtor and bankrupt, testified without objection that when he was asked to transfer the license to the defendant corporation he refused, on the ground that he owed the Liebmanns for it, that the representative of the defendants then agreed that if he would transfer the same they would have to pay the Liebmanns $1,000, and that they would pay to the Liebmanns the balance which Connelly owed to them, and that this was so stipulated. I think the finding was within the powers of the court. ( Gillies v. Improvement Co., 147 N.Y. 420; Farmers' L. T. Co. v. Housatonic R.R. Co., 152 id. 251.)
The learned counsel for the appellant does not always remember that the trustee is not suing to set aside the chattel mortgage, but for the conversion of certain chattels which were not covered by the mortgage, but which were taken when the mortgagee took possession under the foreclosure. The appellant argues that the trustee has no right to sue upon this claim. The trustee pleads that Mr. Connelly, the bankrupt, assigned all his right, title and interest in the conversion cause of action to Mr. Douras, prior to the adjudication in bankruptcy, in trust for his (Connelly's) benefit, and that Mr. Douras thereafter reassigned to the said trustee. The petition in bankruptcy was filed in March, 1900, and the said assignment to Mr. Douras was made in December, 1899. It does not appear when the reassignment by Mr. Douras was made. At least, this is the record now before us. I fail to find adequate proof that the assignment to Mr. Douras was for the benefit of Mr. Connelly. But the codefendant has no title to such chattels and as against him they belong to Mr. Connelly, the original owner, or to whosoever stands in his shoes. The argument advanced is that if the assignment to Mr. Douras was absolute, then his assignment to the trustee represented property acquired after the adjudication in bankruptcy. But the trustee does not make title merely by virtue of his office, but by this express assignment. The defendant has no legal interest, save that he may not be compelled to pay twice over. ( Sheridan v. Mayor, 68 N.Y. 30; Stone v. Jenkins, 176 Mass., 544; 4 Am. Bank. Rep. 568.) Now, the claim belongs either to Mr. Connelly, Mr. Douras or to the trustee. But Mr. Douras could not sue in the face of his assignment and of the estoppel of his testimony that he had assigned all of his rights as plaintiff, and to the claim. And Mr. Connelly could not be heard again despite the recovery by his trustee, for the reason that even if that recovery represented his own property, the court would undoubtedly hold that the present action was maintained by the consent of the bankrupt. ( Stone v. Jenkins, supra.) In order to interpose any proper defense, the debtor, as was said in Mitander v. Sonneborn (29 Hun, 407), might prove that the demand was still the property of the original creditor. But there was no attempt made to do this thing.
The judgment and orders should be affirmed, with costs.
GOODRICH, P.J., WOODWARD, HIRSCHBERG and HOOKER, JJ., concurred.
Judgment and order affirmed, with costs.