In re ZIMMER. In re CLOVER.
Appeal from Lewis county court.
Petition by Charles H. Zimmer, receiver of the property of John P. Zimmer, a creditor of the firm of Miller & Allen, to compel John Clover, as assignee for benefit of creditors of said firm of Miller & Allen, to render an account of his proceedings as such assignee. From part of the decree settling the accounts of the assignee, and directing the distribution of the estate among the respective parties adjudged entitled thereto, the receiver appeals. Affirmed.
Jay A. Pase, for appellant.
Walter Ballou, for respondent Charles A. Miller.
E. M. Bagg, for respondent Clover.
Argued before HARDIN, P. J., and FOLLETT, ADAMS, WARD, and GREEN, JJ.
The main question in controversy in this matter arises between a receiver of the property of John P. Zimmer, a judgment debtor, appointed in proceedings supplementary to execution, and the assignee or transferee of negotiable promissory notes transferred to the claimant, Charles A. Miller, when past due, and subsequently to the service of an injunction order upon said judgment debtor, and also upon his debtors, Stephen T. Miller and Charles M. Allen, the assignors of the assigned estate, but prior to the appointment of the receiver. Charles A. Miller, the transferee of the notes, claims that he is a creditor of the estate to the extent of the amount paid by him for the notes, and is entitled to priority over the receiver subsequently appointed. This is disputed by the receiver of said judgment debtor and transferror of said notes, upon the ground that an equitable lien attached to the notes upon the service of the order upon said debtor, in favor of the judgment creditor, and that the legal title of the receiver goes back by relation to that time, and is superior to an intervening assignment. The referee finds that Charles A. Miller purchased the notes, and took them in good faith, without notice of the supplementary proceedings then pending against the judgment debtor John P. Zimmer, and paid therefor a specified valuable consideration. The claimant, Miller, bases his contention upon the last clause of section 2469, Code Civ. Proc. The receiver insists that that clause can have no application to the transfer of negotiable paper past due; and that is the question we are called upon to determine. It must be assumed from the findings of the referee [40 N.Y.S. 887] that Charles A. Miller had no actual notice of those proceedings, nor any knowledge of such facts or circumstances equivalent to actual notice.
It has been repeatedly held that the commencement of a suit in
chancery by a judgment creditor, to reach choses in action and equitable assets, creates a lien or charge thereon, and the subsequent assignee takes them subject to the creditor's lien thus acquired. Upon filing the bill, an injunction was taken out and served with the subpœ na to answer, restraining the debtor from parting with any of his property or effects till the further order of the court. A receiver was a convenient and important, but not indispensable, part of the proceeding. The effects locked up, as it were, in the hands of the debtor by the injunction, might be decreed to be delivered to the complainant, or sold by a master, and applied in satisfaction of the debt and costs. No voluntary assignment of the debtor could impair the complainant's right, nor any intervening claims of the other creditors. If he made an assignment to one ignorant of the injunction, the assignee would take the claim or demand subject to the prior right of the judgment creditor. The lien acquired by the creditor was defeasible only by a discharge of the debt, or by a successful defense of the suit in some one of the very restricted modes open to the defendant. Storm v. Waddell, 2 Sandf. Ch. 494, 510-519; Hayden v. Bucklin, 9 Paige, 512; Stewart v. Isidor, 5 Abb. Prac. (N. S.) 68-70; Becker v. Torrance, 31 N.Y. 631, 636-640;
Lynch v. Johnson, 48 N.Y. 27, 33, 46 Barb. 56; Holbrook v. Zinc Co., 57 N.Y. 616; Clark v. Brockway, 1 Abb. Dec. 351, 354. But a service of the subpœ na upon the defendant, subsequent to the filing of the complainant's bill, was necessary to create a lis pendens as against a bona fide purchaser of the subject-matter of litigation, who had not actual knowledge of the suit. Hayden v. Bucklin, 9 Paige, 512. " As soon as the judgment creditor's suit was instituted, the plaintiffs in the suit obtained a lien on all the choses in action of Rutter. All the title he had was subject to it. When the receiver was appointed, he acquired the title to those choses in action which Rutter had when the action was commenced. In contemplation of law, the title vested in the court when the action was commenced, and passed, as from that date, to the receiver. The right of the complainant in a creditors' bill is sometimes called a ‘ lien,’ but it gives an immediate right to have a transfer of the defendant's property made to a
receiver. So that, as between the receiver and a subsequent assignee, the title to the property itself passes to the receiver, and from the judgment debtor. The judgment debtor may assign his title subject to the receiver's title, but he cannot thus pass the title to the thing assigned from the receiver, but only the right to any surplus that may remain after satisfying the claims represented by the receiver." Roberts v. Railroad Co., 25 Barb. 662. But, of course, the doctrine of lis pendens is not applicable to the case of a bona fide purchaser of commercial paper not due. Holbrook v. Zinc Co., 57 N.Y. 616, 631.
In regard to movable property liable to execution at law, although it is subject to the lien of the creditor, it may be seized on execution [40 N.Y.S. 888] by any other creditor, until the order for a receiver is made, but not afterwards; such order being equivalent to an actual levy on the property. Storm v. Waddell, supra. The reason for this distinction between property not vendible on execution, such as moneys due the judgment debtor, stocks, choses in action, and the like, and property that is subject to seizure on execution, is stated in Becker v. Torrance, supra. In respect to proceedings supplementary to execution, it is said that they were intended as a simple substitute for the creditors' bill, as formerly used in chancery; that, " under sections 292 and 294 [Code Proc.], the service of the order takes the place of the commencement of the suit under the old system, and should give the judgment creditor the priority of a vigilant creditor, and a lien upon the equitable assets of his debtor. This lien was rendered effectual by the final order of the judge, directing the defendant to pay his debt to the plaintiff [Ryder] in the judgment against Acker; and payment, or a liability to pay, in pursuance of that order, is a defense to this action, the plaintiff not having shown himself a bona fide purchaser of the claim against the defendant for value." Earl, J., in
Lynch v. Johnson,48 N.Y. 27, 33, ...