People Ex Rel. Cauffman v. . Van Buren , 136 N.Y. 252 ( 1892 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The defendants were properly adjudged guilty of contempt in disobeying the preliminary injunction order granted by the county judge of Monroe county, unless the order was void upon its face for an utter lack of jurisdiction on the part of the judge who granted it. (People v. Sturtevant, 9 N.Y. 263.)

No matter how erroneous the action of the court may have been in taking cognizance of the suit and awarding a mandatory process, unless there was an entire absence of judicial authority to act in the premises, it was the duty of the defendants to obey its commands, until they had been revoked by an order made in the action in which they had been issued either upon motion or appeal, or by some other method of direct review. It is not denied that the court acquired jurisdiction of the person of the defendants in this case, and its power to act was unquestionable, provided it had jurisdiction of the subject-matter of the action.

For the purpose of determining this question, all the averments contained in the complaint and in the plaintiffs' moving papers upon the application for the injunction order must be taken as unqualifiedly true. The plaintiffs were creditors at large of the defendants, Klock and Tiffany, who a few days before the commencement of this action, it is alleged, fraudulently confessed judgments to three of the defendants to the amount of $17,000, and about the same time fraudulently mortgaged or conveyed their real property to two of the other defendants. The defendant debtors were insolvent when these transactions occurred and, as it must be assumed, upon this appeal, they were entered into by the various parties to them, with the intent and for the purpose of defrauding the other creditors of Klock and Tiffany and in order to secure preferences to themselves; not obtainable under the general assignment laws of the state. Immediately upon the confession of these judgments executions were issued to the sheriff of Oswego county, where the debtors resided, and a levy was made by him upon all their tangible property, and, it is to be inferred, upon all the property which they then owned, which was subject to seizure, and the sheriff had advertised the property to be sold to satisfy the executions. Upon the discovery of these facts the plaintiffs at once began suit against their debtors to recover the amount of their debt and obtained and issued a warrant of attachment upon the ground that their debtors had assigned or disposed of, or were about to assign, or dispose of, their property with intent to defraud creditors,

It does not appear whether the attachment was delivered to the sheriff or the coroner, and it is perhaps immaterial, but it is claimed it was levied on the same property upon which the sheriff had levied under the executions issued upon the fraudulent judgments. But such levy would, prima facie, be subject to the levy made under the prior executions, and the proceeds of the personal property if sold by the officer, must be first applied to the satisfaction of the elder process. This we think correctly states the legal relations of the parties to this property when the present action was commenced upon the equity side of the court, to which the fraudulent judgment creditors and grantees, the sheriff and the defendants in the attachment suit, were made defendants, and the plaintiffs demand as a part of the relief to which they claim to be entitled that the lien of the fraudulent judgment creditors under the executions which they have procured to be issued upon their judgments, shall be postponed to the lien which the plaintiff has acquired by virtue of his attachment.

The question whether the facts alleged constitute a cause of action and afford sufficient grounds for the equitable interference of the Supreme Court, is one which has never been authoritatively determined by this court, and the decisions in the courts below have been far from harmonious upon the subject. There has also been a great diversity of judicial opinion upon this point in other states and it is stated in the American and English Encyclopedia of Law (vol. 4, p. 575) that "whether an equitable suit analagous to the creditor's suit will be allowed in aid of the lien created by an attachment, before the recovery of judgment, is a question to which the American courts have given directly different answers." In the cases of Hall v.Stryker (27 N.Y. 596) and Rinchey v. Stryker (28 N.Y. 45), it was held that under a warrant of attachment any property of the debtor, transferred in fraud of his creditors, could be seized and that after service of the warrant the party procuring it is no longer to be deemed a creditor at large, but a creditor having a specific lien upon the goods attached, and that for the purpose of upholding the attachment and the lien acquired under it the decision of the judge granting the warrant is to be deemed an adjudication of the existence of the debt which is conclusive upon the fraudulent transferee of the debtor's property. In both cases suit was brought against the attaching creditor by a party claiming title from the debtor by a transfer anterior to the attachment, and the creditor was permitted to show by way of defense to the action that the alleged transfer was fraudulent and, hence, void as to him. It has therefore been contended, and perhaps correctly, that they are not authority for the proposition that a party suing out an attachment can take affirmative action before the recovery of judgment to set aside a fraudulent conveyance of his debtor's property. He may use his process, it is claimed, for defensive purposes, but not for offensive warfare.

Still the cases may be regarded as decisive of the general question that an attaching creditor ceases to occupy the defenseless position of a creditor at large, and becomes, in a certain sense, invested with the privileges of a creditor whose debt has been adjudged valid and who finds himself embarrassed in its collection by the fraudulent conduct of the debtor. In Hall v. Stryker, Chief Judge DENIO, at p. 601, says, "When the creditor has procured legal process, such as the law allows a creditor to have against the property of his debtor, he has acquired the standing of a creditor in respect to all the property of his debtor, and that which he has conveyed with the intent forbidden by the law (the conveyance being void) is as much his in the judgment of the law and as fully subject to the process, as if the conveyance had not been made.

"Under certain circumstances, the law has, upon motives of policy, allowed an ex parte determination as to the existence of the debt, and permitted process to issue against the debtor's property upon such determination, providing however, for sufficient security to the debtor, if upon a regular trial the alleged creditor shall fail to establish the existence of the demand."

These cases were followed in Frost v. Mott (34 N.Y. 253), where PORTER, J., states the doctrine without qualification, that "A creditor, by attaching property in the possession of his debtor, acquires a specific lien upon his interest, and is entitled, like a judgment creditor, to impeach the colorable title of a fraudulent mortgagee." But this was also a case where the attaching creditor had been made a defendant in an action of trespass for the taking of the property and nothing was therefore, necessarily, decided, except that, under such circumstances, he could defend his possession by showing the fraud which would defeat the claimant's title.

In Thurber v. Blanck (50 N.Y. 80), it was held that an attaching creditor had no standing in court to reach equitable assests until his remedy at law was exhausted nor to attack a fraudulent transfer of the property of his debtor until after judgment; and in the Mechanics and Traders' Bank v. Dakin (51 N.Y. 519), the commission of appeals held that an attaching creditor after the recovery of judgment and the issuing of execution may maintain an equitable action in his own name to set aside a fraudulent transfer of the property which had been seized under the attachment. The impression seems to have prevailed that there was an irreconcilable conflict between these two cases and the reporter in a foot note in the 51 N.Y., says: "This case, it will be perceived, was argued prior to the decision of the case of Thurber v. Blanck (50 N.Y. 80), with which it is in conflict. That case had not been brought to the attention of the commission at the time of the decision herein." But we fail to discover any real ground of antagonism between them. In Thurber v. Blanck the court was dealing with an attempt on the part of an attaching creditor to reach equitable assets, which it has been uniformly held cannot be done until judgment has been recovered, execution issued and returned unsatisfied, and an action or proceeding in the nature of a creditor's bill instituted. The provisions of the Revised Statutes (now §§ 1871-9 of the Code) which authorized a judgment creditor's action imperatively required the recovery of a judgment and the issue and return of an execution unsatisfied as an indispensable condition of the creditor's right to bring the action.

In Bank v. Dakin, the attaching creditor had, by the recovery of judgment and the issue of execution, acquired the right to have the attached property applied to the satisfaction of the execution, but in the assertion of this right he found the way obstructed by the interposition of a conveyance of the property by his debtor, which was apparently valid, but which was in fact void. In such cases it has always been held that while the process for the collection of the debt was outstanding the equitable jurisdiction of the court could be invoked to remove the fraudulent obstruction to the legal process and permit it to be effectually enforced. The subsequent decisions bearing upon the question in this court have all been in line with the principles enunciated in these two typical cases, but none of them involved the point here presented of the right of an attaching creditor to prevent the application of the attached property to the payment of a prior lien. It must be apparent that unless such a right exists the remedy by attachment will be lost in many cases. The sheriff must sell the property under the prior executions and apply the proceeds to their payment, and the plaintiff would be in no better condition than if his attachment had not issued. It would seem to be illogical to accord to the plaintiff the right to attach property fraudulently transferred, as he concededly may under the decisions in Hall v. Stryker, and the other cases cited above, and yet deny him the right to have the lien preserved until he can merge his claim in a judgment and issue final process for its collection. No adequate remedy at law can be suggested in such a case. The jurisdiction of a court of equity to reach the property of a debtor justly applicable to the payment of his debts, even where there is no specific lien, is undoubted. It is a very ancient jurisdiction, but will be exercised only when special circumstances exist requiring the interposition of the court to obtain possession of and apply the property. Such circumstances, we think, are shown to exist here. The case would be different if executions had not been issued upon the fraudulent judgments. The mere existence of a fraudulent transfer would not be sufficient to authorize a court of equity to entertain an action at the suit of an attaching creditor to set it aside. But when it is sought to make use of such a transfer for the purpose of removing the attached property from the jurisdiction of the officer who has it in his custody, it is evident that nothing but the equitable arm of the court can prevent the consummation of the wrong.

In the case of Falconer v. Freeman (4 Sand. Ch. 565), the precise point here involved was decided in favor of the plaintiff's contention and the vice-chancellor held that a court of chancery will aid an attaching creditor to enforce the lien of the attachment by injunction and otherwise, on the same principle that it aids an execution creditor similarly obstructed. There are some cases in the Supreme Court to the same effect. (Bates v. Plonsky, 28 Hun, 112; Keller v. Payne, 22 Abb. N.C. 352;Tannenbaum v. Rosswog, Id. 346, 354.) The objection is urged that the creditor may be unsuccessful in establishing his debt in the attachment suit, and it thus may be found that there was no basis for the equitable action. But such a risk attends all litigation, and provision for full indemnity is made in the requirements of the statute for security both upon the issue of the attachment and the granting of the preliminary injunction. Both actions are pending in the same tribunal which can control the order in which they shall be tried, and if issue is joined in the action at law, the determination of the equitable action may be postponed until the former has been finally disposed of.

The measure of relief to be granted in the equitable action is also discretionary with the court and might be limited to a decree enjoining interference with the attached property until the plaintiff's right to follow the attachment with an execution has been adjudged.

The court, therefore, had jurisdiction of the action in which the injunction order was granted and the violation of its provisions by the defendants was inexcusable.

It is insisted that the attachment had not been levied when the injunction was obtained and that it was, therefore, prematurely issued. That may be so. There is some ambiguity in the moving papers and some expressions which may support such a finding, while the opposing affidavits upon this motion positively affirm that it was not served until the next day after the injunction order was made. The fact is not material here. If it possessed any weight, it did not affect the jurisdiction of the county judge. It may have tended to show that he had acted erroneously and might have been available upon a motion to set aside his order, but it cannot be used for the purpose of impeaching its validity collaterally.

It is urged that the county judge had no jurisdiction, because the summons had not been served when the order was signed. Section 608 expressly provides that the order may be granted to accompany the summons. This section cannot be construed to refer solely to an injunction granted under section 603. It is not limited in terms. It is a substitute for that part of section 220 of the old Code, which provided that the injunction might be granted at the time of commencing the action, which was also held to apply to all kinds of preliminary injunction orders. This language was much more restrictive than in the present Code, and yet it was held that the order might be granted before the commencement of the action; but would not become operative until the service of the summons, which might be made at the same time with the order. (Leffingwell v. Chave, 10 Abb. Div. 472.) In this case WOODRUFF, J., says: "It imports that the injunction may be obtained, so that it shall operate at the time when, and as soon as, the action is commenced, and not alone after it is commenced. This accords with good sense. It meets a very large class of cases, in which it is of vital importance to the plaintiff to enjoin the defendant at the very instant he is apprised that an action is commenced, and in which the defendant would, but for such injunction, defeat the very object of the suit. The section which declares that the court is deemed to have acquired jurisdiction in a civil action from the time of the allowance of a provisional remedy, is in harmony with this construction and sustains it."

It is not seen how any different meaning can be attached to the phrase "during the pendency of the action" when it occurs in section 604 than when used in section 603. In both cases it relates to the time when the threatened injury is likely to take place, and not to the time when the injunction order may be granted, and in order to judicially satisfy the judge that the defendant threatens to do some act during the pendency of the action, that will impair or defeat the plaintiff's remedy, it is not necessary to show that the action has been actually commenced. It is enough, if it appears that there is a cause of action, which the plaintiff is about to prosecute and that defendant threatens to do an act which will render the judgment ineffectual, to confer jusisdiction upon the judge to grant the injunction which, however, will not become operative unless served with or after the summons.

The amount of the fine was correctly fixed. When the order was made the plaintiff's debt in the attachment suit had become merged in a judgment, as appears from the record here. He had a valid lien by attachment upon property sufficient to secure its payment. That lien was destroyed by a sale which the injunction order prohibited. Presumably, the plaintiff's loss was the amount of their claim, as it is conceded the judgment debtors are insolvent.

The defendants made no proof in reduction of damages and under the mandatory provision of section 2284 we do not think the Special Term had any discretion; but was required to fix the amount at the sum named.

The order must be affirmed, with costs.