
    Michael Sullivan et al. v. James Miller et al.
      
       In Matter of the Petition of Joseph J. Little et al., Appl’ts, v. John F. Ames, Receiver, etc., Resp’t.
    
    
      (Court of Appeals,
    
    
      Filed October 4, 1887.)
    
    1. Receiver—Duty as to property coming into his hands by virtue OF HIS APPOINTMENT.
    The general creditors of a mortgagor of chattels have no right to assail a mortgage or other conveyance of property made by him as invalid until they have secured a lien thereon by levy under a judgment and execution, or by some other method acquired a legal or equitable interest in the property. Until such lien is acquired, the receiver holds the property subject to the order of the court, and liable to pay the proceeds thereof to the persons designated by it.
    
      
      % Same—Proceeds of property paid out under order of court.
    Where a receiver proceeds in the performance of his duties and sells the property and pays out the proceeds in good faith under the order of the court tb the person apparently entitled to them, he cannot be compelled to pay them again.
    
      James R. Marvin, for app’lts; Thomas D. Robinson, for resp’ts.
    
      
       Affirming 40 Hun, 516.
    
   Roger, Ch. J.

—The petitioners Little and Demorest commenced these proceedings to vacate and annul an order previously made in this action, which authorized Ames, the receiver, to sell certain property and pay the liens thereon, and to obtain an order requiring the receiver to pay the amount of a judgment recovered by them against Miller. The relief sought by the petitioners was denied by the special term, and upon appeal its order was affirmed by the general term, whereupon this appeal was taken.

The situation out of which the controversy arose is substantially as follows:

On the 4th of January, 1883, Miller, being in embarrassed circumstances, made a general assignment of his property to Knox for the benefit of his creditors. Among the property thus assigned were certain stereotype and electrotype plates, then in the possession of Little and Demorest as custodians for Miller, and the eventual appropriation of the value of which is the subject of controvery in this proceeding.

In July, 1882, these plates were mortgaged by Miller to one Masterson, to secure the payment one year from date of $6,500, borrowed money, and providing for the possession of the property by Miller until default in the payment of the mortgage. This mortgage was not filed until January 4, 1883, the day upon which Miller executed his general assignment. It is not claimed that either the assignment or the mortgage were fraudulent in fact, but it is alleged that the mortgage is void as against creditors and bona fide purchasers for want of filing at the time of its execution.

In March, 1883, Little and Demorest recovered judgment against Miller for an indebtedness accruing between July, 3882, and January, 1883, and in March, 1883, attempted to levy upon the plates under an execution issued upon such judgment. Knox having committed some violation of his duty as assignee, was by an order of the court in this action on February 19, 1883, removed from his position, and Ames was thereupon appointed receiver pendente lite of the property covered by the assignment. After Ames’ appointment, he attempted to obtain possession of the plates from Little and Demorest, but they refused to give them up, claiming to hold them under the levy made by the sheriff upon their execution; and when this claim was adjudged against them, still claimed to hold them under a lien for storage. Both of these claims were duly presented to the court in proceedings instituted by Ames as receiver against Little and'Demorest and the sheriff of New York, to recover possession of the property, and it was adjudged in such proceedings that Little and Demorest acquired no lien upon it by virtue of the levy under their execution or otherwise, and that the receiver was entitled to the possession of the property by virtue of the assignment and his appointment as receiver. These orders were not appealed from, and the questions therein decided are res adjudicata between the parties to this proceeding.

The plates in question were, previous to July, 1883, delivered by the petitioners to the receiver and he thereafter held them as a part of the assigned estate. The adjudications referred to were made previous to July, 1883, and after that time no further attempt was made by Little and Demorest to establish a lien upon the property, or to reach the proceeds of its sale until the commencement of these proceedings in November, 1884. In March, 1884, Ames applied ex parte to the court for its direction as to the disposition of this property upon a petition showing that it was of greater value than the amount of the lien upon it, and that its further retention by him would entail large expense upon the estate. The court, on March 15, 1884, made the order, which this proceeding sought to vacate, directing him to sell it for a sum not less than $7,800, and to pay the mortgage debt out of such proceeds. The receiver thereupon sold the property at public sale and from a portion of the procéeds paid the amount of the mortgage debt to Masterson, the mortgagee.

It is claimed by the appellants that the receiver could not do this in good faith, as he had been notified of their claim and the grounds upon which it was based. A written notice to this effect was claimed to have been served upon Ames on July 6, 1883, but the receiver disputed the fact of its service. The question whether the notice had been served was made the subject of a reference by the court upon the hearing of this proceeding, and was the principal one litigated in that court. Much evidence was given on both sides of the question, the receiver Ames testifying positively that such a notice had never been served. Upon this disputed question of' fact the referee found that the evidence did not establish the service of the notice. This report was confirmed by the court and the facts found thereby are not open to controversy here..

The petitioners insist on this appeal that they are entitled to have the order of March 15, 1884, vacated so far as it directs the payment of the Masterson mortgage, and to have an order made directing the receiver to pay them the amount of their judgment.

We do not think they were entitled to the relief demanded. The order which they ask to set aside has already been executed by the receiver, the property has been sold under it, and the proceeds paid over under the direction of the court in good faith by the receiver.

The effect of the order asked for, if granted, would be to charge the receiver with the payment of the petitioners’ judgment and entail upon him the loss of that amount. At the time of the sale of this property by the receiver the petitioners had acquired no lien, either legal or equitable upon it, and no legal right to demand of the receiver the payment of their judgment. The remedy of Little and Demorest, if any they had, was to obtain the order of the court directing a disposition of the proceeds of the fund. Until this was obtained it was the duty of the receiver to proceed in the execution of the duties of the office and convert the assigned estate into money and pay out the proceeds under the direction of the court. Herring v. N. Y., L. E. & W. R. R. Co., 105 N. Y., 375.

The general creditors of a mortgagor of chattels have no right to assail a mortgage or other conveyance of property made by him as invalid until they have secured a lien thereon by levy under a judgment and execution, or by some other method acquired a legal or equitable interest in the property. Southard v. Benner, 72 N. Y., 426; Geery v. Geery, 63 id., 256.

Until such lien was acquired the receiver held the property subject to the order of the court and liable to pay the proceeds thereof to the person designated by it. At the time of his assignment Miller had an assignable interest in the property, and the assignee took the legal title to it subject to the payment of theliens thereon, and upon the appointment of the receiver that officer succeeded to the rights and became subject to the duties of the assignee so far as he was directed by the court to perform them. When the mortgage became payable in July, 1883, the mortgagee became entitled, as against the mortgagor and his representatives, and as against all other persons who had not acquired liens thereon, to demand and receive possession of the mortgaged property and the light to sell it and apply the proceeds of its sale to the payment of his debt.

The receiver could not successfully resist the claim of Masterson to the possession of the property or a proceeding on his part to enforce payment of the mortgage debt. After awaiting a reasonable time for the petititioners to take steps, if they desired to do so, to establish a right to the property in question, it was the plain duty of the receiver to apply and take the direction of the court as to the disposition to be made of the property in his hands, and he was under no obligation to give notice to the general creditors of Miller of. such application. Herring v. N Y., L. E. and W. R. R. Co., supra.

The legal title, and all of Miller’s interest in the property, passed by the assignment to the assignee, and upon his removal, to the receiver of the court, and if he was debarred for any reason from disputing the validity of the Masterson mortgage, it furnished no foundation for the claim of Demorest and Little to take possession of the property. The property was then in the custody of the law, and was not subject to levy upon a judgment against the mortgagor, and this was adjudicated in the orders referred to. If there were creditors of Miller who supposed themselves entitled to make equitable claims to any portion of the assigned estate in the hands of the receiver, it was their privilege to bring them to the attention of the court upon proper notice to the parties to be affected thereby, and obtain its adjudication upon their claims and its order authorizing their enforcement.

The petitioners have never, however, attempted to bring Masterson, whose interests in the property they assail, into court, or to obtain any order affecting his claim, to the proceeds of the mortgaged property, and they occupy the same position in respect to it that other general creditors of Miller hold. They laid still from July, 1883, until November, 1884, without taking any steps or giving any notice of an intention to assert an interest in the property in question, and we think they were too late to do so successfully. It is quite true that previous to July, 1883, the petitioners had asserted rights as to the property in question, but ■ those rights were duly litigated between the receiver and the petitioners and- adjudicated against the petitioners, and the receiver had no adequate reason for supposing that they intended to assert any other or further claim in such property. - Under these circumstances, and without haste, the receiver proceeded in the performance of his duties and sold the property and paid out the proceeds in good faith under the order of the court to the person apparently entitled to them. There is no principle of law or equity upon which he can be compelled to pay them again.

It is not our intention to discuss the question whether the petitioners had at any time an equitable claim which might have been enforced against this property, but we do hold that if they ever had such claim they have lost it by reason of their loches.

The principles governing accountings by an assignee under a general assignment control this case and relieve the receiver from any liability for payments and disbursements made by him in good faith in the execution of the duties imposed upon him by his receivership.

It is said in Young v. Brush (28 N. Y., 671), that "it is thought to be well settled that a trustee, while acting under a general trust, is entitled to be allowed for all disbursements for taxes, repairs, salaries, insurances, and for all other charges and expenses which he in good faith thinks proper to pay.

In Wakeman v. Grover (4 Paige, 23), it was held: “ If assignees under an assignment which is fraudulent in law, pay over the proceeds of the assigned property to creditors of the assignors in pursuance thereof, before any creditors. obtain a general or specific lien on the assigned property, the other creditors cannot compel the assignee to account to them for such proceeds.”

The head note in Ames v. Blunt (5 Paige, 13), states the rule to be that: e< Although an assignment for the benefit of creditors is fraudulent as to those who do not assent to it, the assignees are not answerable for the proceeds of assigned property actually paid to. bona fide creditors of the assignor, pursuant to the assignment, before any others have obtained either a legal or equitable lien on such property or the proceeds theréof.”

The doctrine of these cases has been frequently applied in subsequent cases in the courts of this state (Bishop on Insolvent Debtors, § 229), and the case in hand is within the principle there laid down. The receiver in this case had authority, and it was his duty, to redeem the property in question from the lien of the Masterson mortgage, and apply the surplus thus obtained to the purpose of the trust. Such mortgage was a valid lien thereon as against him, and could be assailed only by such creditors of the mortgagor as had acquired a lien upon the property, or some footing in regard thereto which gave them a right to contest the question of its validity. The receiver was under no obligation to institute such a contest, and could safely proceed in the execution of his trust, until restrained by some order of a court having jurisdiction over him.

We are, therefore, of the opinion that the orders of the court below should be affirmed, with costs

All concur.  