Bergen v. . Carman , 8 Abb. N. Cas. 50 ( 1879 )

A subsequent motion was made for re-argument, resulting as follows: In granting the order dismissing the appeal in this case, the court overlooked the fact that the order appealed from imposed costs of the appeal upon the appellant (the respondent there) absolutely and not conditionally, and in this respect was a final determination from which an appeal could lawfully be taken. The motion for a re-argument must, therefore, be granted, and the order dismissing the appeal vacated. In this aspect of the case, the questions presented for review upon the appeal are open for consideration.

We think that the referee, by virtue of the order to ascertain and report the liens and their priorities in reference to the surplus moneys, had authority to inquire as to the validity of the conveyances under which Mrs. Snedeker claimed and of the mortgage of herself and husband to Clayton. The object of the reference was to ascertain to whom the surplus moneys belonged; and this opens a door to an inquiry as to the character of all liens which may be presented. No reason exists why the fraudulent character of conveyances cannot be tested in these proceedings, as well as that of all other liens. One of the objects and purposes of a foreclosure suit is the distribution of the fund arising upon a sale. (Livingston v. Mildrum, 19 N.Y., 441,442; Beekman v. Gibbs, 8 Paige, 511, 512.) In the case first cited it was held that the rights and equities of the defendants, who were lienors or claimants of the equity of redemption, are as much before the court, and as much the objects of its care, as those of the owner of the mortgage primarily to be foreclosed. Why then should not the court have power to ascertain when liens are fraudulent? Where jurisdiction of a court of equity is once acquired, such court, as a general rule, has the right to proceed and do justice between all the parties.

The power of the court to settle questions of this character is also, we think, fully sustained by the decisions. In Halstead v. Halstead (55 N.Y., 442), in an action for a partition of lands, it was held that on a reference as to title, a party could attack a mortgage held by another party, on the ground that it was fraudulent and void as against creditors. It was said in the opinion by ANDREWS, J., that the inquiry as to the existence and amount of the lien involved the further question as to its validity; and the court having taken possession of the fund for distribution, directs proofs to be taken as to liens and adjudges the distribution. (See also Schafer v. Reilly, 50 N.Y., 61;Mut. L. Ins. Co. v. Bowen, 47 Barb., 618.) These cases fully sustain the principle that where a reference is ordered as to surplus moneys, that a lien may be attacked on the ground of fraud; and it matters not, we think, whether the action be a partition or a foreclosure suit. In fact, this is a most convenient practice in the disposition of claims in such cases, without the tedious process and the expense of a distinct and separate action for that purpose. The cases cited to sustain a different rule are not, we think, of sufficient weight to require special consideration. King v. West (10 How., 333), was a Special Term decision; and in whatever light the other cases relied upon by the respondent may be regarded, they are overruled by the decisions of this court already considered.

The claim that the Clayton mortgage must be sustained, even although the other conveyances are declared fraudulent and void, is not well founded. Clayton had full knowledge of the alleged fraud; knew that a suit had been brought to set aside the deeds on account of the fraud; and, in fact, the mortgage was given to him to secure the payment of his charges for defending the title of Mrs. Snedeker. It is also an answer to this position that the sheriff's certificate of the sale to Carman had been filed and recorded in the county clerk's office, long prior to the mortgage; and he had notice not only that the mortgagor's title was fraudulent, but also of the appellant's claim to the property by virtue of the sheriff's sale: (2 R.S., 370, § 43.)

As to the right of Carman to sell and acquire a title under his judgment, it is well settled that where a debtor has made a fraudulent conveyance of his real estate, a subsequent judgment creditor may proceed to sell under his execution, and the purchaser will have the right to impeach the conveyance, in an action at law to recover the premises: (Chautauqua Co. Bank v.Risley 19 N.Y., 369-375.) He may, but he is not bound to file a creditor's bill to set aside the conveyance: (See also Erickson v. Quinn, 15 Abb. [N.S.], 168.

The case of Lamont v. Cheshire (65 N.Y., 30), is not in conflict with the position stated. The same remark is applicable to Bockes v. Lansing (74 N.Y., 437). Carman was not, therefore, bound to bring ejectment, or an action to set aside the conveyances, and had a right, we think, to contest the validity of the deeds and mortgages upon the reference.

We have carefully considered all the questions presented and the suggestions made by the respondent's counsel and are of the opinion that the referee was right, and that the General Term erred in reversing the decision of the Special Term.

The order of the General Term must, therefore, be reversed and that of the Special Term affirmed, with costs of both parties upon the appeal, to be paid out of the fund.

All concur.

Ordered accordingly.