Voorhees v. Seymour

By the Court, Bacon, J. The plaintiff Voorhees, before the commencement of this suit, became the owner by assignment to him of a large number of judgments recovered against George F. Leitch, amounting in the aggregate to nearly the .sum of $40,000. Among these were two judgments, one in favor of Obadiah Thorne, and one in favor of Elias Thorne recovered on the 28th of February, 1850, upon which executions had been duly issued and returned unsatisfied. Upon the return of these executions and on an application pursuant to the 292d section of the code, an order was granted, on the 30th of April, 1850, for the examination of the judgment debtor Leitch; and the examination having been had before a referee, upon his report an order was made by the justice before whom the original proceeding was taken, appointing Talcott, the co-plaintiff, receiver of the property of Leitch. — 579 — This order was made on the 6th of September, 1850, but the security required on entering into the receivership was not approved until the 10th, and was not filed until the 19th of September, 1850. Prior to the recovery of any of the judgments now held by the plaintiff Yoorhees, Leitch was the owner of 1352 shares of the stock of the Bank of Auburn, of which 388 were pledged to the Auburn Theological Seminary, to secute a debt owing to the institution by Leitch; 366 to Henry Mills for a similar purpose, and upon the balance, the Bank of Auburn claimed to hold a lien by way of pledge to them for a large indebtedness of Leitch to the bank. In July, 1850 the Theological Seminary commeneed a suit against Leitch and various other parties, including the Bank of Auburn, the result of which suit established their claim; the stock pledged to them was sold, and a surplus arising from the sale was paid over to the bank, to apply on their indebtedness. Subsequently to this, and in the month of August, 1850, the Bank of Auburn commenced a suit to assert their lien on the shares of stock claimed to have been pledged to them, in which suit Leitch and his general assignees were made parties with other defendants. That suit was not defended by either Leitch or his assignees, and resulted in a judgment establishing the lien of the bank as claimed, and the stock, pursuant to the decree, was subsequently sold, and the proceeds passed into the hands of the bank, and were applied upon their indebtedness, leaving a large balance still due ; for which deficiency judgment has been duly docketed against Leitch. The ground upon which the plaintiffs claim to hold the stock, and assert a right thereto paramount to that set tip by the defendants by virtue of the judgments which established their claims, is, that by commencing the supplementary proceedings, and obtaining the order for the examination of the judgment debtor, before either the seminary or the bank suits had been instituted, Yoorhees, the owner of the judgments against Leitch, acquired a prior right to the stock, which — 580 — could not be' defeated by the subsequent suits to which neither he nor the receiver were made parties. It is insisted that under the code, the simple order for an examination tinder the 292d section gives the judgment creditor the same lien upon the debtor's equitable assets that was acquired by virtue of a creditor’s bill under the former chanceiy practice. The rule under the old system was well settled, that a creditor who had an execution returned unsatisfied would, by filing a bill and serving process upon the party, obtain a specific lien tipon the equitable assets of his debtor. (Edmeston v. Lyde, 1 Paige, 637.) And the creditor who first filed his bill and commenced his suit, obtained a priority over other creditors, who had only exhausted the legal remedy by the issuing and returning of executions unsatisfied. (Corning v. White, 2 Paige, 567.) The doctrine proceeded upon the ground of constructive notice ■ by virtue of an actual Us pendens, and this effect was given to the suit as the reward of superior diligence on the part of the creditor who initiated the proceedings. Can so broad an effect be given to the order fot examination of the debtor under the code ? An order, it must be remembered, which is obtained ex parte at chambers, without notice, and which may never, in any stage of the proceeding, become a matter of record. It must be conceded that neither in the section itself, nor in any other part of the code, is any such effect imparted to the order, and I find no case since the code that purports to establish or impliedly recognizes this doctrine, excepting the case of Porter v. Williams, (5 How, 441.) This appears to have been a special term decision by Judge Harris. In the course of his decision, the judge says, “ The code is silent as to the time when the judgment creditor shall be deemed to have acquired a lien upon his debtor’s equitable effects, hut I think the order for his examination made under the 292d section, should be construed to give the creditor the same lien which he acquired under the former practice by the "commencement of a suit by creditor’s bill.” If- this had been a carefully considered and deliberate opin — 581 — ion, and the point had necessarily arisen in the determination of the case, my habitual respect for the opinions of the learned justice would induce me to receive it without much doubt or question. In truth, however, it amounts to but little more than a suggestion of what the rule might he, and was not necessarily involved in the decision of the cause. The real and vital point in the case of Porter v. Williams was whether it was necessary in order to vest the title to the property of the judgment debtor in the receiver, that the debtor should execute a formal assignment, or whether he took this title and was invested with the interest by force of the appointment itself of receiver. This was all that it was necessary to decide to Uphold the right of the plaintiff in that case to set aside a fraudulent assignment theretofore made by the judgment debtor, and this point was very clearly ruled by 3udge Harris. The case went to the court of appeals, and the decision was there upheld upon this precise point; the court affirming the doctrine maintained by Judge Harris, that the order appointing the receiver had the effect, without an assignment by the debtor, to divest his title and to vest it in the receiver. [See 5 Seld. 142.) Other questions were discussed and decided in that case as to the extent of the title to property acquired by the receiver, hut they have no reference to the point we are now considering. It will he seen on reading the opinion of the court that the proposition suggested by Judge Harris as to the effect of the order for the examination of the debtor, was not passed upon in the court of appeals, as indeed it was not necessarily involved in the case. But the court do say that before the code, it was settled “ that the order appointing a receiver, when the appointment was completed, vested in him all the property and effects of the debtor, subject to the order, without an assignment.” This is in accordance with the decision in Mann v. Pentz, (2 Sand. Ch. Rep. 257,) and in Wilson v. Allen, (6 Barb). 542.) The implication from these decisions is very strong, if, indeed, the conclusion is not irresistible, that until — 582 — the order for a receivership is made, and the appointment perfected, no interest whatever of the debtor passes to the receiver, and no title to any thing whatever is acquired by him. It would be giving the naked order for an examination a very far reaching effect to hold that all the equitable assets of the debtor passed out of him eo instanti the order for his examination was made, and although there were no other party in existence that could take, they were to be held in abeyance until perchance, at some time thereafter, a receiver should he appointed in whom the title could vest. It may he, indeed, that as between two or more creditors who are upon the chase—“pedibus manibusque”—after the equitable assets of their, debtor, the one who procures the first order may acquire a sort of inchoate lien entitling him to an ultimate preference, provided he pursues his remedy diligently, and consummates the proceeding by an order for a receiver-, ship, and an appointment following thereon. But even in such a case, if the creditor obtaining the first order quietly folds his hands, and takes no farther step, hut permits a second order to be obtained, an examination to he had, and a receiver appointed and qualified, I should seriously question whether the latter would not override the first order, and the creditor obtaining it entitle himself to a preference not only on the ground of his superior diligence, but in accordance with the principle that it was the order for the receivership, completed by the appointment, that drew after it the title to the equitable assets and made them enure to the benefit of the party who procured the order, and perfected the appointment. This would he in harmony with the doctrine of the court of chancery, which gave the preference to the creditor whose execution was first returned, provided he followed it up .by a creditor’s hill, and the steps consequent thereon. “But,” as the chancellor says in Edmeston v. Lyde, “ if he abandons the pursuit, or lingers on the way, before he has obtained a specific lien, he has no right to complain if another creditor obtains a preference by superior vigilance.” The time honored max — 583 — im holds good here as elsewhere, “ Vigilantibus, non dormientibus leges subveniunt” It results from this conclusion, that when the Bank of Auburn commenced their suit against Leitch and others in August, 1850, the title to the stock, or the resulting equitable interest in it, still remained in him; or had passed to his general assignees, and they, together with Leitch, were made parties to the suit. It needs the citation of no authority to show that a judgment between these parties, in regard to the subject matter of that suit, was entirely conclusive upon them when sought to be again called in question, either directly or incidentally, before any other forum. But it not only concludes the_parties themselves, but is equally binding upon all who stand in the relation of privies to them. For, as Green-leaf states the proposition, (1 Greenl. Ev. § 523,) “ to give full effect to the principle by which parties are bound by a judgment, all persons who are represented by the parties, and claim under them, or in privity with them, are equally concluded by the same proceedings.” The extent of this rule is comprehensively stated by Spencer, J., in Case v. Reeve, (14 John. 81.) “A verdict or judgment in one action upon the same matter, directly in question, is evidence for or against privies in blood, privies in estate, such as feoffee, lessee, &c., and privies in law, as tenant by curtesy, &c. and others who came in by act of law in the post.” It is very clear that the general creditors of Leitch were in no respect entitled to be made parties to that suit, and of consequence Voorhees, as the assignee of the judgments, was not a necessary party. Talcott, the receiver, succeeded to the rights of Leitch alone, or to those of Leitch and his creditors, and he so succeeded to those rights on the 19 th of September, 1850. If Leitch had then made an actual assignment to Talcott, the latter would have been a privy in estate; if he succeeded to the rights .of Leitch, by the order appointing him receiver, he became a privy in law, and in either case his title accrued — 584 — after the suit had heen commenced against Leitch, and consequently as being in privity with him he was bound by the proceeding, for privity means mutual or successive relationship to the same right of property. (Greenl. Ev. § 129.) But it is claimed that when the Bank of Auburn was apprised of the existence of the receivership, Talcott should at once have been made a party, and that unless so brought in, he could not be concluded by the judgment in that suit. The answer to this is, that the bank had no notice of his position, until the 16th of November, long after-the suit had been commenced ; for it can hardly be pretended that the bank was chargeable with such notice, from the mere fact that Seymour, the cashier, had been examined before the referee, under the order for the examination of the judgment debtor. He was not acting, on this occasion, as the representative or agent of the bank, and - any information he may have thus gained was notice of no fact by which the bank could be bound. The acts of a director or other officer of a corporation, unless official, or in respect to his agency, are no more operative against the corporation than the acts of any ordinary corpora-tor. (National Bank v. Norton, 1 Hill, 579.) But there is no principle of law which required the plaintiffs to bring in any party who had succeeded to the rights of a defendant pendente lite. In case of death, marriage, or other disability, the plaintiff may have the suit continued against the personal representative or successor in interest, by motion, or supplemental complaint, but the code expressly provides that in case of any other transfer of interest, the action shall be continued in the name of the original party, or the court may allow the person to whom the transfer is made, to be substituted in the action. (Code, § 121.) The receiver, on making such application, would doubtless have been allowed to come in as a defendant in the suit, but the plaintiff was under no obligation to move on his behalf, and standing in the position that the receiver did to Leitch, the proper party on the record, — 585 — he was bound by the adjudication in relation to the subject matter of the suit. This result, it seems to me, necessarily follows from such a judgment, whether rendered upon default, confession, or after contestation; and it can in no way be impeached, except upon an allegation that it was obtained in bad faith, or by collusion between. the parties. This principle is well and strongly stated by Gardiner, J., in Candee v. Lord, (2 Comst. 275.) “ In 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; first, because it is conclusive between the parties to the record, who in the given case have the exclusive right to establish it; and second, 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.” In this case no fraud or collusion whatever is alleged in the complaint, and the plaintiffs have not put themselves in any position to challenge the judgment upon this ground. Without discussing the other point urged on the part of the defendant—that the proceeding of the Bank of Auburn to enforce the specific lien claimed, upon the stock, was a proceeding in rem, and was therefore conclusive, not only upon the parties litigating the cause, but upon all other parties whatever, no matter what position they occupied—I think the referee properly held that the actions prosecuted by the Theological Seminary and by the Bank of Auburn, were conclusive against the right of action asserted by the plaintiffs, and established, incontrovertibly, the claim of the defendant in this suit to the stock, and the avails thereof, and — 586 — that the judgments could not he collaterally impeached in this suit. [Onondaga General Term, October 6, 1857. The judgment rendered upon the report of the referee must consequently he affirmed. Pratt, J., dissented. Judgment affirmed. Wm. F. Allen, Bacon, Pratt and Hubbard, Justices.]