Merchants' National Bank v. Hagemeyer

Patterson, J.: This is an appeal from an order made at the Special Term, by which" the assignee for the benefit of creditors of the defendants Hagemeyer was permitted, on his own petition, to be made a defendant, and an amendment of the summons and complaint by including such" assignee as a defendant on the record was directed. The action is upon á promissory note made by the defendants Hagemeyer as ■partners under their firm name of George Hagemeyer & Son, and — 54 — a judgment is also asked against one Chew, an indorser. The note is dated in November, 1894. On March 19, 1895, the defendants Hagemeyer made an assignment for the benefit of creditors to one Hutchinson, the petitioner. On the 22d of April, 1895, this action was begun. The defendants Hagemeyer have interposed an answer alleging that they received no cohsideration for the note, that it was usurious, and that' it was diverted from the purpose for which it was originally intended and givep. The, cause is now at issue awaiting trial.. The motion to be permitted to come in as a defendant is made on the ground that the assignee is interested in the sitbject of the action, and he claims the right, under section 452 of the Code of Civil Procedure, to be made a defendant in order that he may contest the plaintiff’s claim. The court below concurred in this view of his right, and made the order from which this appeal is taken. In a common-law action, where a money judgment only was sought, a plaintiff had the right to make defendants only such persons as were directly liable upon the contract or cause of action sued upon, and he could not be compelled to bring in any other persons. (Chapman v. Forbes, 123 N. Y. 532.) There is no inherent power in- the court to introduce a third party into the- controversy against the- objection of the plaintiff. But the second subdivision of' section 452 of the Code of Civil Procedure has made a new rule, which authorizes a third party, on his own application, but not' otherwise,, to become á defendant in an action at law under certain circumstances. ' (Rosenberg v. Salomon, 144 N. Y. 92.) The provision of .the- Code, referred to is as follows : “ And where a person not a party to the action has an interest in the subject-thereof, or in real property, the title to which may in any manner be affected by the judgment, and makes application. to the court to be made a party, it must direct him to be brought in by the proper, amendment.” The -question arising on this provision of the statute is one of construction. Is the- authority to intervene one applying to actions at law generally, or merely to actions in which either directly or incidentally the title to property may be affected ? . It is claimed by the appellant that the phraseology is susceptible of two constructions; that it. should be read as authorizing the- third party to intervene -Only when specific property is claimed. It is noticeable that all the — 55 — cases to which our attention has been called and in which the third party was permitted to come into the action related in some way to the title or to the possession of some specific property. Thus, Rosenberg v. Salomon (supra) was an action in replevin; and The People v. The Albany & Vermont R. R. Co. (77 N. Y. 232) involved the title of the defendant as a lessee of property. In Johnson v. The Hardwood Door & Trim Co. (79 Hun, 407) (where the point was discussed, but did not directly arise) the right to intervene was suggested as existing because attached property was involved. In Lee v. Pfeffer (25 Hun, 97) the disposition of specific property in the hands of an assignee in bankruptcy was involved. But in the case now before us there is no such situation presented. The right which the assignee, Mr. Hutchinson,, claims is based altogether upon the contention that he is interested in the subject of the action. It is clear he has no interest whatever as assignee in the note that is sued on, nor have his assignors by the assignment devolved upon him any direct liability for the indebtedness arising on that note. But he is interested in the subject of the action if a judgment obtained therein will be binding either prima faeie or conclusively upon him as fixing the amount of the Hagemeyers’ indebtedness to the plaintiff. The assets of the assigned estate in his hands must be devoted to the payment of the assignors’ debts as directed in the assignment; the pro rata shares of creditors will be increased or diminished according to the establishment or rejection of the plaintiff’s cause of action. That situation certainly indicates an interest of the assignee in the result of the action. When a debtor makes an assignment for the benefit of creditors, the assignee takes the legal estate and the creditors the equitable estate. They are protected by and through the assignee. If, therefore, the true construction of section 452 is as claimed by the appellant, there can be no ground whatever for the assignee intervening. But it seems-quite clear that the title referred to in that section means title to real estate, and that the provision as applicable to actions other than those in which real estate is involved makes the right to intervene, dependent upon the existence of an interest in the subject of the action. What is meant by the word “ subject ” in this connection might be doubtful but for the fact that the Court of' Appeals has given the definition. In H. B. C. Co. v. N. Y. C. & H. R. R. R. Co. — 56 — (145 N. Y. 396) it is said-: “In the case of Chapman v. Forbes (123 N. Y. 539) we held that in .an action at law pure and simple a'plaintiff could, not be compelled to bring in other parties where the determination of the subject-matter involved in the action itself could be completely had between the original parties, and where the judgment in that action would form no obstacle to any claim which a thi/rd party might thereafter make against the defendant in that ■action.. , In an action at law of that nature' and in- regard to the circumstances of that particular case we held that the sections of the Code (§§ 447 and 452) did not give to the defendant the right to have-another party-brought in as a party defendant where his presence Was not necessary to a complete determination of their rights as between the two parties to the action.” Here we have both a deli-; nition of the word, viz.,, that it means “ the subject-matter ” of the action; and a statement of the condition under which the third party will be allowed to come in, viz., when the judgment will form an. obstacle to any claim which- a third- party may make against the defendants, which includes both-a personal claim and one against property -to be applied to the payment of a defendant’s debts. The petitioner in this case has brought himself • within the terms •of, the statute as construed by the Court • of Appeals. He is interested "in, the subject-matter of the action, because that subject-matter :is the. recovery of an alleged indebtedness; upon a promissory notej which'indebtedness, if established, will be the ultimate measure of the, right - of the .plaintiff to; share in the proceeds of the assigned ■estate. ■. It .will constitute an obstruction pro tanto to the other creditors of the assignors, that is to say, it will diminish their dividends by as much as would be paid to the plaintiff on.account of this ■claim, and the assignee holding the legal title to the assets is the only-person who can Intervene on behalf of the other creditors, the amount •of whose dividends would be affected by the establishment of the plaintiff’s disputed claim. It all depends, of course, upon the,position; in which the assignee would be placed by the recovery of a judgment in this action. If that judgment would not be binding upon him either .presumptively or conclusively, he has no interest in -the “ subject ” or “ the subject-matter ” or “ in the event of the Action.” If a. judgment would be binding merely prima facie,-it would throw upon him the burden of showing that the claim was — 57 — not a valid one, and, if conclusive, of course, he could not attack it at all. Hence, we are compelled to consider the question as to the. effect of such a judgment upon the assignee, and we think that question is settled in this State by what was held in the case of Candee v. Lord (2 N. Y. 269). Such a judgment as would be obtained here, presented to the assignee, would really give rise to a simple question between creditors entitled to share in the fund, and in the case cited the following observations were made which seem to be final upon the subject: . . “In creating debts or establishing the relation of debtor and creditor, the debtor is accountable to no one unless he acts mala fide. A judgment, therefore, obtained against the latter without collusion is conclusive evidence of the relation of debtor and creditor against others: 1st, because it is conclusive between the parties to the record who, in the given case, have the exclusive right to establish it; and, 2d, because the claims of other creditors upon the debtor’s property are through him and subject to all previous liens, preferences or conveyances made by him in good faith. Any deed, judgment or assurance of the debtor, so far at least as they conclude him, must estop his creditors and all others. Consequently, neither a creditor nor' stranger can interfere in the bona fide litigation of the debtor, or retry his cause for him, or question the effect of the judgment as a legal claim upon his estate. A creditor’s "right, in a word, to impeach the act of his debtor does not arise until the latter has violated the tacit condition annexed to the debt; that he has done and will do nothing to defraud his creditors. Where, however, fraud is established, the creditor does not claim •through the debtor, but adversely to him, and by a title paramount which overreaches and annuls the fraudulent conveyance or judgment by which the latter himself would' be estopped. It follows from the principles suggested that a judgment obtained without fraud or collusion, and which concludes the debtor, whether rendered upon default, confession or after contestation, is upon all questions affecting the title to his property conclusive evidence against Ms creditors to establish, first, the relation of creditor and debtor between the parties to the record; and, second, the amount — 58 — of the indebtedness.” The case of Candee v. Lord was decided in 1849 and was recognized as authority, and its principle stated in 1891 in Brooks v. Wilson (125 N. Y. 261), where the. court says: “ The defendants, rely upon a class of cases which hold that a judgment recovered for a debt establishes not. only the relation of debtor and creditor between the parties, to the judgment, but also as to third;'persons, so as to preclude them, in the absence of fraud or collusion, from questioning the validity of the judgment or denying that the debt upon which it was rendered actually existed.. The cáse of Candee v. Lord (2 N. Y. 269) is a leading authority upon this point. That was a judgment creditor’s action, charging that the defendants had, undér fraudulent judgments, sold the debtor’s property and received the proceeds, and the defendant sought to assail the plaintiff’s, judgment on the. ground that the indorsement upon which the action was brought was forged. No fraud, or collusion was alleged or shown between the parties in the procuring of that judgment, and it was held that the defendants were bound and could not relitigate the question of forgery in the creditor’s action. In several subsequent cases of the same general character, brought to set aside transfers in fraud of creditors, it was held that the defendants could not, in the absence of. fraud or collusion, impeach the consideration of . the judgment upon which the - action was founded, or be permitted to. show .that the. contract upon which it was rendered had in fact no existence, or was not enforcible. (Burgess v. Simonson, 45 N. Y. 225; Carpenter v. Osborn, 102 id. 552; Decker v. Decker, 108 id. 128.)” ■ It is immaterial whether the judgment' was recovered before or after the assignment was made. In Candee v. Lord the plaintiff’s judgment was recovered in 1844 and the judgment attacked was recovered in 1843, and the property conveyed was also transferred prior to the recovery of the plaintiff’s judgment. The cases cited establish the- rule as to the binding force of the judgment . except where, it is recovered by fraud or collusion. And it may be said in addition that such a judgment could be made the basis of a: creditor’s bill to set aside the assignment' and could.not be questioned.by the assignee, and he.would be powerless to.protect the assigned estate against - it. (Young v. Heermans, 66 N. Y. 374.) — 59 — We think for the reasons above given the order appealed from should be affirmed, with costs. O’Brien and Williams, JJ., concurred; Van Brunt, P. J., and Ingraham, J., dissented.