Opinion
Argued January 4, 1911
Decided February 14, 1911
George Clinton and Augustus G. Striker for appellants. Thomas H. Larkins for respondent.
On December 11, 1908, the plaintiff recovered a judgment against the defendant for the sum of $16,338.62, upon which an execution was duly issued and returned unsatisfied. Prior to this time a suit had been instituted against the defendant by George Clinton, as trustee, for its bondholders to foreclose a mortgage on the corporate property; and in this foreclosure action William E. Carroll had been appointed receiver pendente lite with power to continue the business of the corporation so far as might be necessary to protect its property and to secure the rents, issues and profits thereof during the continuance of the suit. Judgment of foreclosure and sale was obtained in the foreclosure action, but the sale under the judgment was prevented by the institution of a suit by the plaintiff to vacate and set aside such judgment in which a preliminary injunction was granted restraining all proceedings thereunder. In this condition of things the plaintiff as judgment creditor of the South Shore Natural Gas Fuel Company obtained an order extending the receivership of William E. Carroll, the receiver in the foreclosure suit, to her action "and the judgment and proceedings had and taken therein." Thereafter and upon notice to the defendant, the trustee and the receiver, the plaintiff obtained an order at a Special Term of the Supreme Court that William E. Carroll, the receiver of the defendant judgment debtor, the South Shore Natural Gas Fuel Company, pay the plaintiff's judgment for $16,338.62 within ten days, unless in the meantime the defendant should give an undertaking in writing in the sum of $25,000 to the effect that if said judgment which had been appealed from or any part thereof was affirmed by the Court of Appeals, the defendant would pay the sum recovered or directed to be paid by the judgment debtor, or the part thereof as to which it should be affirmed.
This order of the Special Term has been affirmed by the Appellate Division, two members of which, however, dissented upon the ground that the payment of the judgment could not be compelled in this summary way.
We agree with the view entertained by the dissenting justices in the Appellate Division. All the property of the defendant corporation was in the possession of the receiver in the foreclosure suit. The learned counsel for the plaintiff contends that this was more than sufficient to satisfy the claims of the bondholders and that there was a surplus in the hands of the receiver properly applicable to the payment of this client's judgment. This allegation, however, was by no means conceded, but was distinctly controverted by the papers read in behalf of the receiver on the motion, according to which the receiver had in hand only $7,000, against which there were chargeable claims immediately payable amounting to $5,000. The question as to what and how much of the property held by Mr. Carroll as receiver was properly applicable to the claims in the foreclosure action and how much remained for the liquidation of the plaintiff's judgment was a question which could not be determined until the end of the foreclosure suit unless the facts were all conceded so that it distinctly appeared that there was a surplus out of which the plaintiff's judgment could be paid. This was a controverted issue upon the motion and the mere fact that there was a dispute about it should have led to a denial of the application.
Under section 2447 of the Code of Civil Procedure where it appears from the testimony taken in supplementary proceedings that a person has in his possession or under his control money or other property belonging to the judgment debtor an order may be made directing such person immediately to pay the money or deliver the property to the sheriff or to the receiver in supplementary proceedings in case one has been appointed. Such an order can be made, however, only when the judgment debtor's right to the possession of the money or property is not substantially disputed. If there is a real controversy in this respect it cannot be settled in supplementary proceedings, but must await determination in an appropriate action. ( Rodman v. Henry, 17 N.Y. 482; Barnard v. Kobbe, 54 N.Y. 516.) The application in the present case was analogous to a motion under the section cited. Mr. Carroll was a receiver in two capacities: First, in the foreclosure suit; secondly, in the proceedings supplementary to the plaintiff's execution. In the latter capacity his receivership was subordinate to his receivership in the mortgage foreclosure suit. The effect of the order which the plaintiff sought to obtain and did obtain at Special Term would be to compel him to apply to the payment of the plaintiff's judgment a sum equal to the amount thereof whether there was any such surplus over the amount legally recoverable in the mortgage foreclosure suit or not. In other words, it was equivalent to an order under section 2447 commanding a third person to pay money to a receiver in supplementary proceedings which as we have already seen cannot be made unless the right of the judgment debtor thereto is substantially undisputed. Here the right of the South Shore Natural Gas Fuel Company to any surplus sufficient to satisfy the plaintiff's judgment was disputed, for Mr. Carroll denied that he had in his hands enough money to pay the plaintiff's claim over and above prior claims in judgment against the property in his possession. It has long been a feature of our procedure supplementary to execution that no summary order shall be made therein for the application of money or property to the payment of the judgment unless the judgment debtor's right to the immediate possession of such money or property is substantially undisputed.
There was another legal objection to granting the application embodied in the order under review. The plaintiff after the judgment of foreclosure began an action to have the mortgage declared fraudulent as against her, and also actions to set aside as fraudulent a number of judgments obtained against the corporation after the commencement of the foreclosure suit and prior to her own judgment. These suits were all pending and yet by the decision of this motion in her favor she obtained all the pecuniary benefit she could acquire if she had been successful in all of them.
The order appealed from should be reversed and motion denied, with costs to the appellants in all courts.
CULLEN, Ch. J., VANN, WERNER, HISCOCK, CHASE and COLLIN, JJ., concur.
Order reversed, etc.