Opinion
April 8, 1910.
Maxwell C. Katz, for the appellant.
Waldo G. Morse, for the respondent.
The plaintiff appeals from an order granting a motion to set off a judgment obtained by plaintiff in this action against one heretofore obtained against plaintiff in another action and assigned to the defendant herein before the recovery of judgment herein.
It appears that on December 10, 1902, one Pasquale Pati recovered a judgment against the appellant Martin Kretsch for $1,478.64. This judgment was afterwards assigned to the defendant Salvatore Denofrio. In August, 1906, Denofrio, being advised that the judgment against Kretsch was one upon which a body execution could be issued, caused such an execution to be issued to the sheriff, by whom Kretsch was taken into custody. In September, 1906, the body execution was vacated and set aside by the court because it was unauthorized by law. On November 15, 1906, Kretsch began this action to recover damages for his false imprisonment, and on November 30, 1906, was, upon his own petition, adjudicated a bankrupt. Within a year after such adjudication Kretsch applied to be discharged of his debts and his application was referred to a referee in bankruptcy who, at the time the order appealed from was made, had not reported.
Kretsch recovered a judgment in this action for $931.46. The defendant seeks to set off this judgment against the judgment which he holds against Kretsch, and which was scheduled in the bankruptcy proceedings as one of Kretsch's liabilities. A former motion to the same effect was denied because of a restraining order issued out of the bankruptcy court forbidding any proceedings to collect defendant's judgment against Kretsch. That restraining order has now been vacated and offers no obstacle to the proposed setoff. The position of the parties, therefore, when the motion was made was, the defendant held a judgment against plaintiff, who had been adjudicated a bankrupt but had not been discharged from his debts, while plaintiff held a judgment for a smaller sum against defendant. The plaintiff appellant claims in the first place that his cause of action for false arrest was not an asset which passed to the trustee in bankruptcy. So much may be assumed (Remington Bankruptcy, 569); but that is not decisive of this application. He also claims, and with reason, that his judgment, being after-acquired property, does not pass to the trustee in bankruptcy, and cannot be applied in the bankruptcy proceedings to the satisfaction of his antecedent debts. ( Matter of Ghazal, 22 Am. Bank. Rep. 119.) He further claims that if his petition for a discharge of his debts is allowed, such discharge will date back to the adjudication of bankruptcy, and that defendant's judgment against him will be annulled and canceled; whence he insists that the order appealed from, or any order based on the motion to set off, should have been withheld until the determination of his application to be discharged from his debts. It is conceded that if plaintiff is not discharged from his debts the two judgments are proper subjects of setoff. It is not necessary to decide at the present time whether or not the appellant's discharge, if he should obtain it, will prevent the setoff which defendant seeks, for there are other reasons why the setoff should not be granted through a summary order made in this action. The right to set off judgments is a matter of equitable jurisdiction, and rests in the legal discretion of the court, constrained and regulated by certain established rules. It is true that the power is often exercised by motion in the action in which one of the judgments has been recovered, but only when the right to the desired setoff is clear. If the matter be at all complicated the parties are usually remitted to their action in equity, and especially when the rights of third parties may be affected.
In the present case certain third parties do assert claims which, if established, may defeat the proposed setoff wholly or in part. The attorneys who acted for Kretsch in this action claim a lien upon the judgment herein for their fees and disbursements, and their claim is supported by appellant's statement as to his arrangement with them. The defendant of course is not now in a position to contradict any of the statements upon which this claim is founded. He offers certain testimony of plaintiff upon the trial in this action as to fees paid to the attorneys, but from the brief excerpt furnished it is not clear that the payments there testified to did not refer to services in the earlier action. If the attorneys have a valid lien, it is superior to the right to set off the present judgment against the former one, for such a setoff would destroy the judgment to which the lien attaches. ( Smith v. Cayuga Lake Cement Co., 107 App. Div. 524; Agricultural Ins. Co. v. Smith, 112 id. 840; Webb v. Parker, 130 id. 92.) It is also claimed that after verdict, but before judgment, in the present action, plaintiff assigned the verdict, together with the judgment to be entered upon it, to his wife in consideration of moneys which she had advanced to meet and pay the expenses of the former action. This claim was looked upon with disfavor below, and practically ignored. It is very possible that upon investigation it will be found to be without merit, but as it stands now it is uncontradicted and must be treated as a serious claim. If it should turn out that the plaintiff did make such an assignment bona fide and for a sufficient consideration, it would prevent a setoff. ( Mackey v. Mackey, 43 Barb. 58; Perry v. Chester, 53 N.Y. 240. ) We are, therefore, of opinion that the motion for a setoff should have been denied and the respondent remitted to his action in equity, in which all parties claiming interest may be joined. In such an action, upon proper terms, the enforcement of plaintiff's judgment against defendant can be stayed until the conflicting rights can be determined.
The plaintiff, most unnecessarily, made a separate motion to stay the hearing and determination of the motion above discussed until the plaintiff's application to be discharged from his debts had been passed upon, and has taken a separate appeal from the order denying the motion for a stay. This was all unnecessary, because the question whether or not an order should be presently granted was one of the matters to be considered on the principal motion. To make a separate motion for a stay was merely to multiply applications.
The order setting off the judgments must, therefore, be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs, and the appeal from the order denying the stay must be dismissed, with ten dollars costs and disbursements.
INGRAHAM, P.J., McLAUGHLIN, CLARKE and DOWLING, JJ., concurred.
Order setting off judgments reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs, and appeal from order denying stay dismissed, with ten dollars costs and disbursements.