Supreme Court, April, 1899. [Vol. 27. was personally interested in the ability of the estate of William Campbell to pay obligations on account of a note of $12,000 of Phyfe & Campbell, indorsed by William Campbell and guaranteed by him, upon which judgment had been entered against the executors of William Campbell. Arnoux had paid the claim of the bank and taken an assignment of the judgment. The supposed ability of the executors to raise money for Phyfe & Campbell from the estate of William Campbell came from the tenth clause of the will of the latter, giving to the executors, if they deemed it for the best interest of his estate that any part or all should be sold, power to sell and dispose of the same upon the terms and in the manner they should deem best, and to make and to execute necessary deeds of conveyance therefor. Upon consultation with Arnoux the executors were advised that this power to sell did not include a power to mortgage, and accordingly, by the understanding with him the executors executed their power by deeding to Amy C. Phyfe, the daughter of the son-in-law, who was also executor. She gives back purchase-money mortgages for the whole consideration of $30,000, the first of which, in order of lienage, by the understanding, was the one here sought to be foreclosed for $14,000, given directly to Anne A. Morss, on the 10th day of June, 1892. The defense here, made by the executors, devisees and some creditors, is that the executors had no power to do indirectly what they could not do directly, and that the whole arrangement was designed as an evasion of the power given by the will, subversive of the objects of the testator, and the knowledge of the agent Arnoux was the knowledge of his principal, the mortgagee. By the decisions of the Appellate Division and of the Court of Appeals these propositions of law or presumptions from the facts are decisively settled for the determination by the trial court of this case. First: The power given to the executors does not include a power to mortgage. Arnoux v. Phyfe, supra; Benedict v. Phyfe, App. Div., supra. The Court of Appeals in the latter case does not pass upon the question of the power to mortgage, reaching a conclusion in favor of the mortgagee upon different grounds. But the efficiency of the elaborate argument that such power is included in the greater power, now urged by the counsel for the plaintiff, is not open to the consideration of the trial court on account of the determination of the Appellate Division. It is not merely a question of power to mortgage unembarrassed by other Misc.] Supreme Court, April, 1899. considerations. The controlling objection is that such an execution of the power is, from the inception, an act wholly subversive of the purposes of the trust confided to the executors to which the power was attached. Second: The design of the joint action of the executors and the agent of Miss Morss was to get the money to primarily relieve the son-in-law and son from financial embarrassment and incidentally to enable them to meet the obligations to the estate. Arnoux v. Phyfe, supra; Benedict v. Phyfe, supra; App. Div. and Court of Appeals. Third: The executors were not to be the mortgagors, but they were to choose the daughter of one of those executors as mortgagor by virtue of clothing her with the apparent title through a conveyance executed under the power of sale. Id. Fourth: Thus the record here displayed an apparent execution of the power in due form, while the real facts would be buried and known only to the actors. Fifth: But the innocent mortgagee for value is not responsible for the wrongful conduct of her agent acting from motives of participating interest, whether he believed in the legality of the method or not. Benedict v. Phyfe, Ct. App., supra. The conclusion, therefore, follows, upon this branch of the case, that consciously or unconsciously, the agent traveled the way of departure from the line of the will with the executors and the mortgagor, and not with his client, who having the right to assume proper action on the consummation of the transaction, only beheld a deed on record from the executors to a purchaser and a mortgage back to herself. Such an apparent execution of power by the executors was lawful, and upon it the mortgagee might rest secure. Benedict v. Phyfe, Ct. App., supra; Mutual Life Ins. Co. v. Woods, 121 N. Y. 302; Rose v. Hatch, 125 id. 427. As against the defendants except Heroy and Marrener the plaintiff's security is not vitiated by the knowledge or action of her agent Arnoux. The claim of Heroy and Marrener presents additional questions for consideration. They were creditors of William Campbell. Before the mortgage to Miss Morss and on the 16th and 17th of October, 1891, they filed a petition for the sale of the real estate in Surrogate's Court and lis pendens in the county clerk's office. On June 7, 1892, three days before the mortgage to Miss Morss, the surrogate denied the application of the creditors, presumably on Supreme Court, April, 1899. [Vol. 27. the ground that it was antagonistic to the power of sale to the executors. Therefore, at the time Miss Morss received her mortgage no claim of creditors was an apparent lien upon the real estate. On the 24th day of February, 1893, the General Term of the Supreme Court reversed the order of the surrogate and the proceedings of the creditors were reinstated in Surrogate's Court. In re Campbell Estate, 21 N. Y. Supp. 685. It is now seriously contended by the creditors that Miss Morss should have taken notice of the right of appeal and the proceedings on the appeal, and, therefore, that her mortgage is subordinate to their claim the same as though the surrogate had never denied their application and the proceedings were still pending when the mortgage was given. The counsel for the creditors, however, have failed to cite any controlling authority which justifies the assertion that the reinstatement of the lien of a lis pendens or judgment, or other legal notice or order, whose force springs from a provision of law, statutory or unwritten, giving an intermediate lien to insure the proper effect for a final order or judgment, and prevent destructive action by the owner of the property in the meantime, is revived in force after a dismissal of the proceedings which gave it life, and upon which it rested by a subsequent order of the same or a superior tribunal reinstating the proceedings as against those who had parted with money or property upon the faith of the record by which those proceedings were terminated. It would be a sad reflection upon the efficacy and certainty of the action of the courts if parties could not deal with property so as to be placed in a position from which they could not be restored if the right of appeal for a known or unknown period, possibly carried along by stipulation of counsel, might produce such loss and injury. This does not seem to be the law. King v. Harris, 30 Barb. 471; S. C., 34 N. Y. 330. And even a delay for five or six years, as in this case, on the part of the creditors to prosecute the proceedings upon which that notice of claim was founded should be considered by the courts in dispensing justice between rival claimants. Lord Bacon, order 12 in Chancery, 15 Bacon's Works, 353; Murray v. Ballou, 1 Johns. Ch. 566; Hayden v. Bucklin, 9 Paige, 512; Myrick v. Selden, 36 Barb. 15. There is, however, another view which may be stated The principal reason why the creditors might claim the power to pro-, Misc.] Supreme Court, April, 1899. ceed in the Surrogate's Court for a compulsory sale of the real estate is because of a supposed nonexecution of a power of sale given to the executors. But that power of sale has been executed if the execution was valid. And if it be held that the power of sale does not prevent proceedings by the creditors unless that power of sale inferentially includes the right to use the proceeds of a sale by the executors for the payment of debts, I still can see no reason why it should not be held that a testator, leaving obligations requiring his executors to exercise foresight and care in providing for those which are valid and contesting those which are invalid, and empowering them, if in their judgment it is for the best interest of his estate, to sell the real property, should not be deemed to have given that power at least in part for the very purpose of relieving the property which should remain after the sale, from the burden of those obligations which sooner or later had to be met. Judgment is directed in favor of the plaintiffs for the foreclosure of the mortgage, with costs. Judgment of foreclosure for plaintiffs, with costs. RICHARD DUDENSING as Receiver, etc., Plaintiff, v. HENRY E. JONES et al., Defendants. THE TICONDEROGA PULP & PAPER Co., Plaintiff, v. HENRY E. JONES et al., Defendants. (Supreme Court, New York Special Term, April, 1899.) Insolvent corporations — Assignment of chose in action. Assignments of book accounts, made by an insolvent corporation in contemplation of insolvency and to give the assignee a preference, will be set aside at the instance of judgment creditors of the corporation. Two judgment-creditors' actions brought after return of execution to set aside two assignments of book accounts of the J. C. Travis Company to Henry E. Jones, on the ground that they were void under the statutes of New Jersey and New York. Supreme Court, April, 1899. [Vol. 27. Rounds & Dillingham, for plaintiffs. Lockwood & Hill (John L. Hill, of counsel), for defendant Jones. TRUAX, J. It is unnecessary for me to determine whether Travis had the authority to make the assignments in question or not. Conceding that he had the authority, still the assignments cannot stand. I am of the opinion that the evidence shows that the corporation was insolvent at the time the assignments were made and that they were made in contemplation of such insolvency and for the purpose of giving the assignee a preference over the other creditors of the assignor, and were prohibited both by the statutes of the state of New Jersey and the statutes of the state of New York. See Queen v. Weaver, decided March 24, 1899, by the Appellate Division, First Department. Nor am I called upon to determine whether the defendant Jones had or had not a valid lien upon the assets of the corporation because of the levies made under his attachments. This action does not affect such levies (if any), but affects only the assignments made by the defendant corporation. I am also of the opinion that the appointment of the receiver was according to law. The facts in this case in that respect are substantially the same as those in Logan v. McCall Publishing Co., 140 N. Y. 447. It may be that the effect of this decision is to give to one creditor the assets of the corporation to the detriment of the other creditors of the corporation, but as between the plaintiff in this action and the defendant Jones, there is no distinction. Jones by his attachment was trying to do what he now claims the plaintiffs in this action are trying to do by this action. For the reasons above stated I am of the opinion that the assignments should be set aside and the defendant Jones should account to the plaintiffs for the property received by him under such assignments. Judgment is ordered accordingly in each action, with costs and an extra allowance of 5 per cent. upon the amount involved in each. Judgment accordingly in each action, with costs and an extra allowance of 5 per cent. |