Steinert v. Van Aken , 14 Mills Surr. 168 ( 1914 )

Laughlin, J.:

After the defendants served an amended answer herein, plaintiff moved for judgment on the pleadings. The motion was granted, and the order was affirmed by this court, without opinion, the writer, however, filing a dissenting opinion (Steinert v. Van Aken, 160 App. Div. 921); but leave was granted defendants to further amend their answer, and pursuant thereto they served a second amended answer. Thereupon plaintiff again moved for judgment on the pleadings and the motion was granted and an opinion was. written at Special Term by Mr. Justice Greenbaum pointing out the insufficiency, of the allegations of the answer to constitute the defenses attempted to be pleaded, and leave was granted to defendants to further amend. The defendants thereupon served a third amended answer, and another motion for judgment on the pleadings followed, which was denied by Mr. Justice Guv, who filed an opinion, and this is plaintiff’s appeal therefrom.

The defendants have omitted from their present pleading two material defenses which they attempted to plead in the first amended answer, and which, on the appeal from the order granting the motion for judgment on the pleadings, the writer in a dissenting opinion endeavored to sustain as sufficient.

The action is based upon a decree of the Surrogate’s Court settling the accounts of an administratrix, for whom the defendants were sureties, and requiring her to pay over to the plaintiff $19,102.38, with interest thereon from November 17, 1911, and $2,977.63 costs and disbursements and allowances, and the defendants are sued 'as such sureties on the official bond of the administratrix. In proceedings supplementary to execution against one Wallace, the plaintiff was appointed receiver, and the decree directed the payment of the money to him in the right of Wallace, who, it evidently appeared before the surrogate, was entitled to the fund on the theory that he was the husband of the decedent and took it under the Statute of Distributions.

In the first amended answer the defendants attempted to allege a defense to the effect that Wallace was not the husband of the decedent and was not entitled to share in the estate of the decedent, and that by false and fraudulent representations to the effect that he was her' husband the Surrogate’s Court was deceived, and that the decree, in so far as it directs the payment by the administratrix to the plaintiff, was predicated upon this fraud. The defendants in that pleading further attempted to allege as a defense that a brother of the decedent was not cited, and. that, therefore, the decree would not be binding upon him and that the sureties would remain liable to him. By the pleading now before the court the defendants have abandoned those defenses. There is no allegation in the last amended answer to the effect that the decedent’s brother was not duly cited, or that Wallace was not the husband of the decedent, or that the Surrogate’s Court was deceived with respect to his being her husband. There is a denial of any knowledge or information sufficient to form a belief as to whether he was her husband, but in the fifth defense it is alleged that it was found by the referee, appointed by the surrogate to pass upon the objections interposed to the account filed by the administratrix, that Wallace was the husband of the decedent, and the defendants in that defense now allege.that fact, among other facts, as a defense to the action. .

The last amended answer purports to plead nine separate defenses, the nature of which is that defendants were induced to become sureties on the bond of the administratrix through false and fraudulent representations made by her and Wallace, acting in concert and in furtherance of a conspiracy between them to wrongfully dispose of the estate and subject the defendants as such sureties 'to liability for Wallace’s debts to the extent of his interest in the estate; that in furtherance of the conspiracy the administratrix and W allace fraudulently disposed of the assets of the estate and fraudulently induced the defendants to waive the issuance and service of a citation on them in the accounting proceeding; that the decree of the Surrogate’s Court was brought about by the fraudulent acts of Wallace and the administratrix; that the Surrogate’s Court was without jurisdiction on account of the fraud perpetrated upon the defendants with respect to the waiver of citation, and also for the reasons that the waiver was executed by them prior to the commencement of the accounting proceeding, and the decree was predicated upon the setting aside of certain instruments which required the exercise of equity jurisdiction, and that Wallace executed a general release to the defendants, which discharges them from liability.

It appears by the complaint that the first appointment of the plaintiff as receiver was on the 1st day of July, 1909, and the receivership was extended to another judgment on the same day, and to four others on the 14th day of October thereafter, and to two others on the 21st day of Hay, 1910. The first of these dates must be taken as the time when the right or claim on the part of W allace to a distributive share of the estate of the decedent passed to the plaintiff, for the plaintiff fails to show when the order in supplementary proceedings was served, or when a warrant, if any, requiring the arrest of the judgment debtor was served which would be essential to enable him to claim that the title of the receiver related back of the date of his appointment. (See Code Civ. Proc. §§ 2468, 2469.) The decree of the Surrogate’s Court requiring the administratrix to pay the money over to the plaintiff was entered on the 13th day of June, 1912. A receiver in supplementary proceedings takes the legal title to all the personal property of the judgment debtor not exempt from execution; but he takes it only for the benefit of the judgment creditors for whom he is appointed receiver, and of other judgment creditors to whose judgments the receivership may be extended, subject, however, to any rights or defenses existing against the judgment debtor at the time title vests in the receiver, or in other words, he steps into the shoes of the judgment debtor with respect to the personal property. (Kennedy v. Thorp, 51 N. Y. 174; Bostwick v. Menck, 40 id. 383; Mandeville v. Avery, 124 id. 376; Ward v. Petrie, 157 id. 301; High Receivers, § 202, and cases cited; Code Civ. Proc. § 2468.) The receiver’s title to the property of Wallace carried with it any right Wallace had to sue the sureties on the bond of the administratrix but that right was likewise subject to any defense the sureties had against Wallace arising out of the circumstances attending their becoming sureties. (See Merchants’ Bank v. Weill, 163 N. Y. 486.) A receiver in supplementary proceedings, however, is not a general receiver for the benefit of all creditors; and although he is vested with the legal title to all the personal property not exempt from execution, he takes and holds the surplus over and above the amount necessary to satisfy the judgment for the creditor for whom he was appointed, and the other judgments to which the receivership may be extended, for the benefit of the judgment debtor, to whom he must account therefor. (Goddard v. Stiles, 90 N. Y. 199, 206; Ward v. Petrie, supra; Lanigan v. Mayor, 70 N. Y. 454. See, also, Matter of Walker, 157 App. Div. 609.) For the reason that the receivership is thus limited, the receiver is not required to reduce to his possession more than sufficient property to pay the claims of those he represents, and costs; and inasmuch as he is subject to the orders of the court appointing him, it is within the province of the court to stay him from taking possession of more than sufficient property to satisfy the claims he represents. (Bostwick v. Menck, supra; Stephens v. Meriden Britannia Co., 160 N. Y. 178, 183; Lanigan v. Mayor, supra; Crook v. Findley, 60 How. Pr. 375; Matter of Wilds, 6 Abb. N. C. 307; Goddard v. Stiles, supra.) Any interest which Wallace had in the estate of the decedent passed to the plaintiff on his appointment'as receiver the 1st day of July, 1909 (Code Civ. Proc. § 2468); and the sufficiency of the defenses, unless it be with respect to any equity Wallace may have in the property passing to the receiver, is, therefore, to be determined with respect to the rights of Wallace as they existed at that time. If Wallace had been guilty of fraud at or before the time the title vested in the receiver, which would have been a defense to an action by him against the sureties for the failure of the administratrix to comply with the decree, that defense is, therefore, now available as against the plaintiff. It is equally manifest that the rights which became vested in the receiver could not be affected by any subsequent fraud on the part of Wallace, at least in so far as the property is required to satisfy the claims of the judgment creditors, whom the receiver represents. If all the property passing to the receiver should not be required to satisfy the claims of said judgment creditors, then Wallace would be entitled to the surplus remaining, and with respect to that, the defendants might have an equitable defense based on fraud on the part of Wallace subsequent to the time title vested in the receiver, for if they should, on account of their liability on the bond, be required to pay over to the plaintiff more than sufficient to satisfy the claims of said judgment creditors, they might be without remedy. If the plaintiff is suing for more than is needed to satisfy the claims of tho judgment creditors represented by him, he is in effect suing for the benefit of Wallace, and if the defendants have a defense against Wallace, even though they have none as against the judgment creditors whom the plaintiff represents, their liability in this action should be confined to an amount sufficient to satisfy the claims of the judgment creditors represented by the plaintiff.

The sureties on the bond of an administrator are his privies, and are concluded by any lawful order or decree of the Surrogate’s Court, if obtained without collusion between the administrator and creditors or next of kin. (Scofield v. Churchill, 72 N. Y. 565; Carr v. Breese, 81 id. 584; Power v. Speckman, 126 id. 354; Deobold v. Oppermann, 111 id. 531; Douglass v. Ferris, 138 id. 192, 201.) It would seem to follow from this general rule that the sureties are not concluded from questioning a decree of the Surrogate’s Court, in so far as it is in favor of any creditor or of any of the next of kin, who by collusion with the administrator and through fraud have been instrumental in obtaining the decree. If, therefore, Wallace, instead of the plaintiff as receiver, were suing the sureties on their liability on the official bond of the administratrix, they would be at liberty to show that, in so far as the decree directs the payment of money to him, it was the result of fraud and collusion between him and the administratrix. I am also of opinion that they could defend an action brought by Wallace based upon the decree of the Surrogate’s Court directing the payment of money to him, upon the ground that they were induced to become sureties through material false representations made by him, at least in so far as the decree is predicated upon a right to share in the estate which he had at the time he so induced them to become sureties. Such a receiver may bring any action to recover the personal property of the judgment debtor which the latter might have brought; but, since a fraudulent transfer by the judgment debtor is good as against him, a receiver may set it aside only to the extent necessary to satisfy the claims which he represents. (Stephens v. Meriden Britannia Co., supra; Bostwick v. Menck, supra.) It is to be borne in mind that this is not an action to recover personal property of the judgment debtor. It is an action in the right of Wallace, as the same passed to the receiver, to enforce, for the benefit of the judgment creditors, the liability of the defendants on the bond. It seems to me, therefore, that by analogy the rule which would obtain if this were an action to set aside a fraudulent transfer by Wallace should be applied here to the extent of not permitting a recovery of more than sufficient to satisfy the claims which the receiver represents and costs, providing the defendants have a defense as against Wallace, for, as. already observed, if the receiver were permitted to recover more he would hold the surplus for Wallace, and the defendants would thus be deprived of the benefit of the defense which they have as against Wallace. A receiver does not take title to property acquired by the judgment debtor subsequent to his appointment, excepting as the receivership may be extended thereto pursuant to the provisions of the Code of Civil Procedure (Matter of Walker, supra); and, therefore, the right of the plaintiff to recover against the defendants in favor of the different judgment creditors he represents may differ accordingly as the facts existing at the time of his original appointment and at the respective times of the extensions of the receiverships may differ.

The complaint does not show the amount of any of the judgments, to satisfy which the receiver brings this action; but the bond given by him with respect to each judgment is small, which indicates that only a comparatively small part of the amount which the decree directed the administratrix to pay over to the receiver will be required. None of the defenses pleaded presents the question with respect to the plaintiff’s right to recover the entire amount awarded to him by the decree; and since the question is not necessarily involved we express no opinion with respect to the binding effect of the decree of the Surrogate’s Court on plaintiff’s right to recover the entire amount. We have made these general observations to the end that our decision may not be misunderstood.

In the first defense the defendants allege in substance that on or about the 18th day of March, 1909, which was nearly four months before the appointment of the receiver, Wallace and the administratrix conspired to and did induce the defendants by false and fraudulent representations to become sureties. The alleged false representations were that the estate was solvent; that becoming sureties was a mere formality and a neighborly courtesy, involving no risk, and that there was “positively no possible liability which could arise under which the defendants could be made to answer to their loss or detriment by joining as sureties;” and that the assets were “approximately $10,000 and the liabilities $9,000; that the balance of $1,000 belonged to ” Wallace; and it is alleged that Wallace and the administratrix then well knew that the assets of the estate, including a saloon owned by the decedent, amounted to over $20,000. It is further therein alleged, in effect, that the purpose of Wallace and the administratrix, in inducing the defendants to become sureties, was to enable them to obtain and to dispose of the assets and to render the defendants liable for the debts of Wallace to the extent of his interest in the estate, and that if the defendants had known that the assets amounted to $20,000 or over they would not have consented to become sureties, and one of them could not have qualified. This defense contains further allegations with respect to the fraudulent transfer of the saloon, and the fraudulent omission to include its value in the assets of the estate; but no facts are alleged showing that the liability of the administratrix, adjudicated by the decree, was increased, or that the accounts of the administratrix were surcharged, or that her liability was in any manner affected, through any fraud perpetrated by her and Wallace in disposing of the assets or otherwise; and there is no allegation that any of the fraudulent acts with respect to the disposition of the assets were performed prior to the vesting of title in the receiver. It is further alleged in this defense that on or about the 24th day of March, 1910, the defendants were induced to sign a waiver of citation for the settlement of the accounts of the administratrix by false and fraudulent representations made by Wallace and the administratrix, pursuant to the original fraudulent conspiracy between them, to the effect that all the claims against the estate had been paid; that the administratrix was ready to file her account; that such waiver was a mere formality, and their liability as sureties would be shortly terminated; and they also allege that the waiver was signed before the commencement of the proceedings for the settlement of the accounts of the administratrix, and because of this they claim, on the authority of Matter of Graham, (39 Misc. Rep. 226) and Matter of Gregory (13 id. 363), that the Surrogate’s Court acquired no jurisdiction over them. The sureties were, by virtue of the provisions of section 2728 of the Code of Civil Procedure, entitled to notice of the proceeding. It appears by the complaint that the proceeding for the settlement of the accounts of the administratrix was instituted on the sam,e day that the defendants executed the waiver of citation; and it is alleged after the commencement of that proceeding, on due notice to them, a motion was made to bring them in, and that on that motion it was decided that they were already parties to the proceeding and that a supplemental citation was unnecessary. The point that the defendants were not parties to the accounting proceeding was presented on the former appeal and decided adversely to the appellants. (See, also, Deobold v. Oppermann, supra.) The only allegations of the first defense not presented by the pleading before this court on the former appeal are that it was fraudulently represented to the defendants that the value of the assets was only approximately $10,000, whereas it was over $20,000, and that the amount that Wallace would be entitled to receive was the balance of $1,000 that would be left after paying the liabilities of $9,000. By the former pleading it was, on this point, merely alleged that it was represented that the estate was solvent; but there was no allegation that it was not solvent. Of course, the sureties could not escape liability io others because of false representations made to them by Wallace; but so far as any claim is asserted against them by Wallace, or in his right, they may defend on the ground that as to him they áre not hable because he induced them to become sureties by false and fraudulent representations. Such a defense is not a collateral attack upon the decree of the surrogate. They could not have prevented that decree upon that ground. They do not thereby question the liability of the administratrix. They merely defend against this contract liability to Wallace who fraudulently induced them to make the contract. The point that fraudulent representations by Wallace inducing the contract of suretyship in part for his own benefit would alone be a defense to an action brought on the bond by him is not specifically taken in behalf of the sureties; but they have pleaded the facts and we must adjudicate thereon, and in Casoni v. Jerome (58 N. Y. 315) it is clearly intimated that the sureties may defend as against one who fraudulently induced them to execute the bond, and I think that intimation is sound for the reason that Wallace was as to his own interest inducing defendants to become surety for his own benefit and as to him they should not be held liable if they were induced to sign the bond by any material false representation. (See Eedf. Surr. [7th ed.] § 469; 1 Brandt Sur. & Guar. [3d ed.] §§ 146, 447; 2 id. § 726; Mendelson v. Stout, 37 N. Y. Super. Ct. 408; Moodie and Black v. Penman, Shaw & Co., 3 Desaus. Bq. 482.) The only possible answer to this would be, I think, that the false representations were not material; but it cannot be said that a false representation to one subjecting himself to liability to the extent of $20,000 to the creditors and next of kin that the assets were only $10,000, when they were over $20,000 — which required a bond for $40,000 (See Code Civ. Proc. § 2664)—-and that the person making the representation would be entitled to the surplus, which would be only $1,000, is not material as between the persons thus subjected to liability and the person making the representation.

Fraud vitiates any contract. (Annett v. Terry, 35 N. Y. 256; Roessle v. Lancaster, 119 App. Div. 368.) The bond bound the defendants of course in favor of creditors and the next of kin who were not guilty of fraud but not in favor of Wallace who perpetrated the fraud. I am of opinion, therefore, that this defense is good as against the plaintiff, for he, as already observed, stepped into Wallace’s shoes, and his rights at that time were subject to this defense.

The second defense is not good. The only facts therein alleged that have even the semblance of a defense are that the administratrix, after her appointment, married Wallace and petitioned for the settlement' of her accounts in her former name, and concealed the fact of her marriage from the court. That was not material to the validity of the decree.

The third defense is quite like the second. It merely alleges that on the death of the administratrix a fraud was perpetrated on the court in the application for letters of administration on her estate by concealing from .the court the fact that she was married.

The fourth defense merely alleges that the defendants did not appear before the referee appointed to hear the objections to the accounts of the administratrix and were not cited, and that the court was without jurisdiction. That defense manifestly, for the reason that the defendants were parties to the proceeding and are bound thereby, is without merit.

Ia the fifth defense it is alleged that it was disclosed before said referee that the saloon had been conducted by Wallace as the reputed owner and that owing to his financial embarrassment it was closed for a period and was then opened ostensibly, in the name of the decedent, but conducted by him until her death, and that in the meantime judgments had been entered against him and he was otherwise indebted; that after the death of the decedent Wallace conducted the business ostensibly in behalf of the administratrix and that through fraud and collusion between him and her a sale thereof was effected and fictitious debts were accepted as payment for most of the purchase price and that the sale was without consideration, and that Wallace continued to conduct the saloon ostensibly for the purchaser; that the purpose of Wallace and the administratrix in so doing was to avoid the application of the value of the saloon business to the payment of Wallace’s debts, as would have resulted had it been accounted for and distributed in the right of Wallace, and that they also intended thereby to subject the defendants to liability to the creditors of Wallace “ should the frauds be disclosed and result in the surcharging of the account ” of the administratrix, who was known to them to be unable to answer for any surcharge of her accounts. The defense here attempted to be pleaded falls short in that there is no allegation that the accounts of the administratrix were surcharged with the value of the saloon or with any other assets fraudulently disposed of by her. There is no allegation as to when these alleged fraudulent acts were performed by Wallace. The defense, therefore, fails as to the plaintiff, for his rights could not be affected by any acts of Wallace after he became vested with the title.

The sixth defense is bad for the reasons assigned for the insufficiency of the fifth. It is therein alleged that the referee and the Surrogate’s Court attempted to pass upon the validity of the bill of sale of the saloon and a chattel mortgage, which were attacked on the ground of fraud, and the validity of certain notes and checks against the estate of the decedent and other claims disputed on the ground of fraud. Ho facts are here alleged showing that the Surrogate’s Court attempted to exercise jurisdiction beyond that possessed by it to charge the administratrix with the value of the assets of the estate; and the more general allegations that the decree on account of the facts alleged, to which reference has been made, was the result of fraud, collusion and conspiracy are of no avail.

The seventh defense merely asserts that the Surrogate’s Court was without jurisdiction to make the decree; but no facts showing want of jurisdiction are alleged.

The eighth defense contains a reiteration of the allegations with respect to the fraudulent disposition of the saloon, and alleges that it was so disposed of pursuant to the original conspiracy between Wallace and the administratrix, and that the plaintiff was aware of the facts, for his counsel brought them out in the proceedings before said referee, and that the decree in favor of the plaintiff is based on the fraud of Wallace, and of the administratrix in so disposing of the saloon. It is not even here alleged that the accounts of the administratrix were surcharged on account of this alleged fraud, but if they were, the decree would not'be based upon the fraud. It merely holds the .administratrix liable for the value of the assets of the estate. It is further alleged in this defense that the conspiracy between Wallace and the administratrix “was wholly conceived and partly executed prior to the time when the liens were created, which the plaintiff now seeks to enforce ” against the defendants. The defense is pleaded as a complete defense; but in no view would it be a complete defense. If the conspiracy was executed in part prior to the time title vested in the plaintiff, and that had been alleged, it would constitute a partial defense to the extent, if any, that the decree is based thereon.

In the ninth defense it is alleged that the debts of the decedent were paid in full, and that Wallace released the defendants from all liability on the bond by a formal release on the 15th day of January, 1912. Of course, it was not competent for Wallace to release the defendants with respect to any rights vested in the plaintiff. This defense contains other general allegations to the effect that the decree was predicated upon conspiracy, collusion and fraud on the part of Wallace and the administratrix; but no facts with respect thereto are alleged. No facts with respect to the alleged conspiracy are set forth in this defense by reference to any other defense, or otherwise; but it is alleged therein that “the aforesaid conspiracy was wholly conceived and the fraud of” Wallace and the administratrix “ was perpetrated prior to the acquisition of the liens by the plaintiff in the proceedings supplemental to execution.” These allegations, therefore, are of no value, since facts showing a fraudulent conspiracy resulting in or affecting the decree are not. alleged.

The first defense is good, and, therefore, the order is right and should be affirmed.

Ingraham, P. J., Scott, Dowling and Hotchkiss, JJ., concurred.

Order affirmed, with ten dollars costs and disbursements.