Opinion
Argued June 26, 1890
Decided January 22, 1891
H.R. Durfee for appellant.
S. Brown for respondent.
The question in limine is whether the plaintiff had any standing in court to enable it to attack, as fraudulent against the creditors of the grantor, the conveyance made by Abner C. Wetmore to his wife, the defendant, through a third person, of the land in question situated in this state; and that proposition arises on the fact that no execution had been issued and returned unsatisfied founded upon any judgment recovered by the plaintiff upon the debt due to it from such grantor. The action certainly could not; as a creditor's bill, under the statute, be maintained, because recovery of a judgment and the return unsatisfied of an execution issued upon it, are essential prerequisites for that purpose. (2 R.S. 173, § 38; Code, § 1871.) And it has become the settled rule in this state not to dispense with those preliminary proceedings at law, although it may be made to appear by evidence that no benefit could result to the creditor from them. ( Estes v. Wilcox, 67 N.Y. 264; Adsit v. Butler, 87 id. 585.) This is not founded upon any purpose of the statute to repeal or curtail the common-law equity powers of the court, not inconsistent with the statute, to investigate the conduct of debtors in respect to their property in fraud of creditors, and to grant relief. The statute did not purport to do that, but provided that "the powers and jurisdiction of the Court of Chancery are co-extensive with the powers and jurisdiction of the Court of Chancery in England, with the exceptions, additions and limitations, created and imposed by the Constitution and laws of this state." (2 R.S. 173, § 36.) In some of the states the issue and return of execution preliminary to the action in equity is not required when it clearly appears that it would be utterly fruitless; and the same doctrine has been declared in the United States Supreme Court ( Case v. Beauregard, 101 U.S. 690). The rule in this state, in some sense limiting the exercise of jurisdiction of the court so as to bring within its application all cases having in their purpose or relief sought, the nature of statutory creditor's bills does not necessarily rest upon a want of equitable power of the court or its denial, but rather is adopted as a rule governing and regulating the exercise by the court of jurisdiction within its equitable powers. It has the merit of uniformity, and in effect relieves a case from any uncertainty as to what would have resulted from the use of an execution if one had been issued. And it is founded upon the doctrine that a court of equity will not take cognizance of a controversy which can be determined at law, and not until the remedy there is exhausted. Such has quite uniformly been the rule of the common law applicable to equitable jurisdictions. ( M'Dermutt v. Strong, 4 John. Ch. 687; Hadden v. Spader, 20 John. 554.) But this rule is not so unrelenting as to deny to a party the interposition of the equity powers of the court when the situation is such as to render impossible the aid of a court of law to there take the preliminary steps and produce what ordinarily may be treated as the condition precedent to the application for equitable relief. This seems to be the position of the plaintiff in its relation to the remedy which it seeks by this action. The plaintiff is a bank in the state of Connecticut, and Abner C. Wetmore, who also resided there, was indebted to it. He became insolvent and made an assignment for the benefit of his creditors to a person residing in that state. The plaintiff commenced actions there to recover judgments on such debts against Wetmore, who died while they were pending, and the assignee was appointed administrator of his estate. The plaintiff sought to revive and continue the actions against the administrator, and thereupon the latter, as permitted by the law of that state, filed a plea in abatement, alleging that the estate of Wetmore was an insolvent estate in the course of settlement in the Probate Court; and that the plaintiff's causes of action were not for debts due the United States, or the state of Connecticut, or for the expenses of his last sickness or funeral charges. The court in which those actions were pending found that the allegations in abatement were true, and directed that the actions abate and be dismissed. This was a denial, pursuant to the law of Connecticut, of any right of the plaintiff to continue or maintain any action there against the administrator; and the only determination he could have of the claim against the estate was through the action taken in that respect by the Probate Court, in which jurisdiction, exercised in the manner provided by statute, was exclusive. According to the prescribed practice, that court appointed commissioners in insolvency upon Wetmore's estate, to whom the plaintiff's claim was presented, and they, by their report, allowed it at the sum of $6,177.64. This determination of the commissioners became conclusive and binding upon the trustee as effectually as if it had been a recovery by action against him in a court of law. ( Loomis v. Eaton, 32 Conn. 550; Bailey v. Bussing, 37 id. 349; First National Bank v. Hartford Life, etc., Ins. Co., 45 id. 22.) Nothing more remained for the plaintiff to do in that state. There was a small amount of preferred claims, while those unpreferred amounted to upwards of $28,000, and the assets were insufficient to pay the expenses of the settlement of the estate and the preferred claims. The trial court finding these facts, also found that the conveyance before mentioned was made by Wetmore after his indebtedness to the plaintiff accrued, and was made without consideration and with the intent to defraud his creditors; and that at the time of his death Wetmore had no title to any property real or personal in the state of New York. The case presented is one in which the plaintiff could recover upon his claim no judgment entitling him to have an execution issued and returned. It is not, therefore, a case within the contemplation of the statute relating to creditor's actions, and the support of the action is dependent upon the common-law powers of the court of equity. They not being taken away by the statute no reason appears why they are not available to give a party situated as the plaintiff is, a standing in court. ( Chautauqua County Bank v. White, 6 N.Y. 236; Scott v. M'Millen, 1 Littel, 302; 13 Am. Dec. 239.) The subjects of fraud and trusts are peculiarly matters of equity jurisdiction, which is very comprehensive where the other tribunals cannot afford relief, and its want of it is not to be inferred from the novelty of questions presented. ( Hadden v. Spader, 20 Johns. 564; Lining v. Geddes, 1 McCord's Ch. 304; 16 Am. Dec.; McCalmont v. Lawrence, 1 Blatch 232.)
In Adsit v. Butler, the principle applicable to equitable suits to reach property disposed of in fraud of creditors, upon which the practice is founded, is recognized to be that the remedy at law must first be exhausted, and reference is made to Bank v. Olcott ( 46 N.Y. 18), where the rule is well stated. And it is upon that principle that such requirement in the nature of a condition precedent must be observed before seeking relief in equity. But when a party has done all that is possible for him to do to prepare the way for his case to equitable cognizance, he is not to be denied access to the only tribunal capable of granting relief, merely because he had proceeded no further than he was, without any fault or laches on his part, permitted to go. That would be repugnant to the maxim that "there is no wrong without a remedy." And while that maxim is not absolutely true, it expresses a principle, and it is for that rather than precedent that courts will seek in considering whether any or what remedy may be had in the administration of justice.
And analagously applicable to the question under consideration is the doctrine announced in Shellington v. Howland ( 53 N.Y. 371) ; Kincaid v. Dwinelle (59 id. 548) to the effect that when the right to recover a judgment against a corporation and the issue and return of execution, which is a condition precedent to the liability of a stockholder under the statute (L. 1848, chap. 40, 89 N.Y. 334) is defeated without fault of the creditor, the condition precedent is dispensed with. In Shellington v. Howland is cited Loomis v. Tifft (16 Barb. 541), which may not be in harmony with the later cases, but the question as there decided was applicable in principle to that in the case in which it was cited. That principle is broad enough to embrace within it for the purpose of remedy, the variety of cases to which it may be applicable. The statute provides that an action may be brought by executors, administrators, assignees or other trustees to reach property transferred in fraud of creditors (L. 1858, ch. 314), yet if such officer or trustee refuses to do so, a creditor beneficially interested may bring the action, including in it as a party defendant, him so refusing. This is upon the principle of the maxim before mentioned. ( Harvey v. McDonnell, 113 N.Y. 526. ) And this rule prior to that statute was applicable to an action by a creditor of a deceased debtor represented by an executor or administrator. ( Bate v. Graham, 11 N.Y. 237; Hagan v. Walker, 14 How. [U.S.] 29.) For the purpose of such an action by a creditor no judgment or execution is preliminarily essential. ( Harvey v. McDonnell, supra.)
The plaintiff's debt was as much the subject of adjudication as it could be made so in the state of Connecticut, and as effectually against the administrator as if rendered by a court of law. The denial to the plaintiff of equitable relief cannot, therefore, under the circumstances, rest upon the fact that he had no judgment in such court, execution thereon and its return unsatisfied.
The plaintiff had no remedy available through the Connecticut assignment or assignee, in respect to the subject-matter of this action. As a rule a statutory assignee or trustee in one state takes no title to the real estate of the assignor situated in another state. ( Osborn v. Adams, 18 Pick 245; Hutchinson v. Perkine, 15 N.J. Ch. 167.) The rule may be otherwise in respect to personal property which in legal theory has no situs distinct from the domicil of its owner. It is, however, unnecessary to pursue the consideration of the nature of that assignment further than to say, that its effect is so far controlled by the statute of Connecticut, to the effect, that real estate not within that state was excepted from the operation of the assignment made as it was with a view to insolvency. It follows that the assignment would not have covered the land in question if, at the time it was made, the title had been in the assignor. And assuming that the conveyance to the defendant was fraudulent as against the creditors of the assignor, the defendant became a trustee ex maleficio for them in respect to the property; and the theory upon which relief is granted to creditors is that as between the debtor making the conveyance and his creditors the fraudulent grantee takes by it no title. ( Moncure v. Hanson, 15 Penn. St. 385; Chatauqua County Bank v. Risley, 19 N.Y. 369.)
Since this property did not come within his trust it is unnecessary to inquire whether, if it had been otherwise he may, as the representative of the creditors, have come into the court of this state under the act of 1858, although he could not have been required to do so.
While the right of an assignee in this state to thus represent the creditors of his assignor and in their behalf seek such relief, is given by statute, it is a mere enlargement of his powers in respect to property only, which, but for the conveyance, would, unaided by the statute, come within his trust.
Inasmuch as this land could not, for any purpose, be treated as within the subject-matter of the trust created by the assignment amplified by the statute, there could be no support for remedy through the action of the Connecticut assignee in the courts of this state. This would be so if there were no limitation to that effect expressed in the statute. But it does, by its terms, thus confine the action of an assignee for such relief to the subject of the trust within the assignment, as such trust is broadened in its effect and in the power of its execution, but not extended beyond the limits of the assignment by the statute. (L. 1858, ch. 314.)
There is a further question having relation to the character and extent of the relief which could be granted in this action. The plaintiff, having no lien upon the property, could not, after the death of Wetmore, obtain any preference over the other creditors of the deceased, and the action can be effectual only as one for the benefit of the plaintiff and such other creditors. The complaint proceeds solely in behalf of the plaintiff, and demands relief for its benefit alone. Assuming that this was a defective pleading in its statement of the purpose of the action and relief, it was not a failure to state facts sufficient to constitute a cause of action, and the defect was available to the defendant only by demurrer or answer. (Code, §§ 488, 499.) This was not done, and for that reason the question was not presented to the court for consideration ( Loomis v. Tift, 16 Barb. 541.)
As the defendant answered the complaint, judgment to be directed is not controlled by the relief demanded. (Code, § 1207.) And although the action appears to have been prosecuted for the benefit of the plaintiff alone, the court may direct such judgment as, upon the facts, should be rendered in behalf of the plaintiff and other creditors. ( Thompson v. Brown, 4 John. Ch. 619, 643; Benson v. LeRoy, Id. 651.) This can be done (in the event of recovery by the plaintiff) by means of an interlocutory judgment, by which, in the manner directed, creditors may have the opportunity of presenting their claims with a view to the distribution of the proceeds of the property.
The final judgment was, therefore, improperly directed by the trial court for the plaintiff in his behalf only, and was properly reversed by the court below, but the direction there of final judgment for the defendant was error.
The judgment of the General Term should be reversed so far as it was for the defendant, and modified by granting a new trial, costs to abide the event.
A transfer of real or personal property which is fraudulent as to creditors, nevertheless divests the transferer of his title to the subject of the transfer, and he can never recover it by action, nor thereafter vest by contract or by will a third person with any right to or interest in it; and upon his death no title or right of action in respect to it passes from him to his heirs or next of kin, nor does his administrator acquire any title to the property or right to recover it by virtue of any succession in interest. The fraudulent transferee holds the legal title as a trustee ex maleficio for the benefit of defrauded creditors, and they only, or some person representing them, can reach the property and subject it to the payment of the debts of the fraudulent transferer. When an insolvent of this state makes a voluntary or fraudulent conveyance of land, and thereafter makes within this state a general assignment for the benefit of creditors to an assignee within this state, the latter acquires no right to avoid the previous voluntary or fraudulent conveyance by virtue of any title, interest or right of action derived through the assignment from the assignor, but his right to maintain an action to set aside the previous fraudulent transfer is conferred solely by chapter 314 of the Laws of 1858. ( Southard v. Benner, 72 N.Y. 424.) From the passage of this act, and until its amendment by chapter 487 of the Laws of 1889, the right to subject property fraudulently transferred to the payment of debts was, in case the transferer had made a general assignment, in his assignee; and in case he had died it was in his personal representative. ( Spring v. Short, 90 N.Y. 538; Childs v. Kendall, 30 Hun, 227; aff'd 101 N.Y. 625; Lichtenberg v. Herdtfelder, 103 id. 302; Harvey v. McDonnell, 113 id. 526; Lore v. Dierkes, 19 J. S. 144; S.C. 16 Abb. [N.C.] 47; Swift v. Hart, 35 Hun, 128.)
It is insisted in behalf of the plaintiff that this Connecticut assignee did not acquire a right under the statute to set aside the conveyances and recover the avails of the land, because it is urged that the Connecticut assignment could not transfer to the assignee the title to land in this state. It has been shown, we think, that an assignee does not acquire his cause of action by virtue of the assignment, and the statute does not vest him with title to the property fraudulently conveyed, but with a chose in action, or with a right by an action to subject it through a judicial sale to the payment of the defrauded creditors. The statute does not limit the right of action to an assignee under an assignment executed in this state, nor to an assignee residing within this state, and it was not the intent of the legislature to create a remedy for fraudulent conveyances by its citizens, and not a remedy for like practices by citizens of other states. The right of foreign assignees for the benefit of creditors to prosecute actions in this state has been frequently recognized by our courts. ( Slatter v. Carroll, 2 Sandf. Ch. 573; Ackerman v. Cross, 40 Barb. 465; Matter of Accounting of Waite, 99 N.Y. 433; Phelps v. Borland, 103 id. 409.) The assignee of Abner C. Wetmore acquired the right under the statute to set aside the conveyance, and the plaintiff has neither alleged nor proved facts authorizing him to bring this action. It is not alleged that the assignee has been requested or has refused to bring an action; he is not made a party defendant, and this action is not brought to recover in the right of the assignee for the benefit of all of the defrauded creditors, and it cannot be maintained. ( Harvey v. McDonnell, supra.) It is not now material to determine whether, under the laws of Connecticut, the administrator has succeeded to the rights of the assignee.
The judgment should be affirmed, with costs.
All concur with BRADLEY, J., except FOLLETT, Ch. J.. dissenting, and POTTER, J., not voting.
Judgment modified so as to grant a new trial