Summary
In Hillyer v. LeRoy, supra (179 N.Y. 369, 72 N.E. 238, 103 Am.St.Rep. 919), we find this statement as to the entry of judgment: 'The effect was to impress upon the real estate of the judgment debtors a lien not only as to such which was then actually held by them, but as to any that had been transferred by them in fraud of their creditors * * * ', but the expression there is in a sense obiter since the creditor's action was brought long before the filing of the petition.
Summary of this case from In re HenryOpinion
Argued October 17, 1904
Decided November 15, 1904
Alfred L. Becker and Tracy C. Becker for appellants.
Charles E. Rushmore for respondents.
I think the determination of the learned Appellate Division to have been correct; with this exception, however, that the judgment in the trial court appears to have included as within the lien of the original judgment the mesne rents and profits of the real estate from the time of the fraudulent transfers. That would be incorrect. The accountability for the rents and profits should be from the time of the commencement of the present action in equity to annul the transfers; at which time an equitable lien upon the fund was acquired. ( Collumb v. Read, 24 N.Y. 505.)
To take up the discussion of the main question presented by this appeal, the appellants argue that the judgment recovered by the plaintiffs upon the indebtedness of A. LeRoy Son created no lien against the property transferred, which survived the institution of bankruptcy proceedings. Further, they argue that, by bringing this action, the plaintiffs had waived and abandoned the lien of their original judgment, if it was one not within the reach of the Bankruptcy Act. They, also, say that what right of action may have been in the plaintiffs was lost to them and had become vested in the trustee in bankruptcy. No question is raised by the appellants as to the conclusiveness upon this court of the determination below, that the transfers in question were fraudulent and void as to the respondents.
By section 67, (subdivision f), of the Bankruptcy Act of 1898, it was provided that "all levies, judgments, attachments, or other liens, obtained through legal proceedings against the person who is insolvent, at any time within four months prior to the filing of the petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt," etc. The declaration of the section is distinct that the lien therein referred to is, only, invalid, where it has been obtained by the creditor within four months prior to the filing of the petition in bankruptcy, and equally distinct is its meaning that the validity of a lien obtained prior to that interval of time will be recognized. That construction has been given to the statute by the United States Supreme Court. ( Metcalf v. Barker, 187 U.S. 165.) It was observed in the opinion in Metcalf v. Barker, and the observation may be quoted, pertinently to the present case, that "a judgment or decree in enforcement of an otherwise valid pre-existing lien is not the judgment denounced by the statute, which is plainly confined to judgments creating liens." The plaintiffs' judgment upon the indebtedness of LeRoy Son to them was recovered, and docketed, considerably more than four months prior to the filing of the petition in bankruptcy. The effect was to impress upon the real estate of the judgment debtors a lien; not only as to such which was then actually held by them, but as to any that had been transferred by them in fraud of their creditors. That is a proposition, which is too firmly settled by the decisions of the courts of this state to be now questioned. The property of a debtor, which has been transferred by him in fraud of creditors, still remains, as to them, the debtor's property and the lien of the creditor's judgment attaches to the real estate. The judgment creditor may enforce his judgment by a sale of the land under execution; or he may bring an action to remove the obstruction caused by the debtor's fraudulent act and proceed to enforce his judgment by a sale of the land, unembarrassed by the cloud of the transfer. ( McElwain v. Willis, 9 Wend. 548; Crippen v. Hudson, 13 N.Y. 161, 166; Chautauque County Bank v. Risley, 19 ib. 369, 375; White's Bank of Buffalo v. Farthing, 101 ib. 344.) I assume that this doctrine would receive the assent of the federal court; so far as applicable to cases arising within the state. ( Bucher v. Cheshire R.R. Co., 125 U.S. 555, 583.) The situation, upon the recovery by the plaintiffs of their judgment against LeRoy Son, was one where they could elect to stand upon their lien and, summarily, sell the lands upon execution, which their debtors had fraudulently conveyed away; or where, proceeding more cautiously, they might invoke the aid of a court of equity in compelling the satisfaction of their debt. They elected to bring the present action to clear away the obstruction, interposed to the collection of their original judgment through the previous transfers, and they have accomplished their purpose through the present judgment. What they sought for, and what they have obtained, is a decree, which adjudges the transfers to have been void; which compels the fraudulent transferees of the real estate to account to them to the extent of their claim and which appoints a receiver to enforce their rights by a sale of the lands, or so much thereof as may be necessary, to satisfy the claim. In the case of Chautauque Co. Bank v. Risley, ( supra), upon which some reliance seems to be placed by the appellants, the result of the creditor's action was, not only, to set aside the fraudulent transfer, but to compel a conveyance of the lands by the debtor to a receiver, whom the court appointed for that purpose. In that case, the title to the land had vested in the receiver through the conveyance and had no relation to the original judgment. He then held as a trustee for creditors generally. As it was observed in the opinion in that case, "When the creditor takes this course, instead of falling back upon his legal remedy, he abandons the lien of his judgment and seeks a satisfaction of his debt out of the debtor's property generally." In the present action, the plaintiffs abandoned none of their legal rights to have their claim paid from the proceeds of the real estate fraudulently transferred by their judgment debtors. The bringing of this action cannot be regarded as constituting any waiver, or abandonment, of the benefit of their original judgment; for it was, purely, to remove the obstruction in the way of collecting it. ( Erickson v. Quinn, 50 N.Y. 697.) The judgment, now appealed from, has relation, only, to the rights of the plaintiffs under their original judgment and narrows the office of the receiver to a sale of the real estate and the application of the proceeds to the satisfaction of the indebtedness. The receiver took no title to the real estate, nor acquired any rights in the land for the benefit of creditors generally.
Nor did the right to maintain this action become vested in the trustee in bankruptcy. I do not think that the appellants were in any situation to interpose such an objection; inasmuch as such a defense was not pleaded. They had obtained leave to serve a supplemental answer, setting up their discharge in bankruptcy and they did so plead, simply. ( Dewey v. Moyer, 72 N.Y. 70, 77.) But independently of that consideration, I think that the plaintiffs, having a lien, which was not within the operation of the Bankruptcy Act, were at liberty to pursue any remedy they had for the enforcement of that lien, unfettered by the bankruptcy adjudication.
The judgment appealed from is affirmed, with the modification that any accountability for the rents and profits of the real estate affected shall be from the time of the commencement of this action. No costs should be awarded to either party.
CULLEN, Ch. J., BARTLETT, HAIGHT, MARTIN, VANN and WERNER, JJ., concur.
Judgment accordingly.