Lopez v. Rowe

• Decision Date: 05 June 1900
• Citation: 57 N.E. 501,163 N.Y. 340
• Parties: LOPEZ et al. v. ROWE et al.
• Court: New York Court of Appeals Court of Appeals

163 N.Y. 340

57 N.E. 501

LOPEZ et al.

v.ROWE et al.

Court of Appeals of New York.

June 5, 1900.

Appeal from supreme court, appellate division, Fourth department.

Action by Calixto Lopez and others against Charles H. Rowe and Frank Campbell, impleaded with the Merchants' & Farmers' National Bank of Dansville and others. A judgment of the special term dismissed the complaint as to Charles H. Rowe and Frank Campbell, and set aside judgments previously rendered in favor of the Merchants' & Farmers' Bank and the Manufacturers' & Traders' Bank against the Cohocton Valley Cigar Company as in preference of creditors, and awarded judgment to the plaintiffs in preference thereto; which judgment was reversed in the appellate division as to the dismissal in favor of Charles H. Rowe and Frank Campbell, and prior judgments in their favor against the Cohocton Valley Cigar Company held invalid as in preference of creditors, without awarding them a new trial; otherwise the judgment was affirmed. 46 N. Y. Supp. 91. From the judgment of the appellate division defendants Charles H. Rowe and Frank Campbell appeal. Judgment of appellate term reversed, and that of special term modified.

John F. Parkhurst, for appellants.

David Hays, for respondents.

MARTIN, J.

This action was brought by the plaintiffs, as attaching creditors of the Cohocton Valley Cigar Company, to set aside certain judgments obtained by the defendants against the corporation, upon the ground that they were suffered in violation of the provisions of section 48 of the stock corporation law. The Cohocton Valley Cigar Company was a corporation engaged in manufacturing cigars in the village of Cohocton, N. Y. The defendant banks and the defendants Campbell and Rowe were judgment creditors of that company. It had been doing a prosperous business until August, 1893, but, owing to losses amounting to $30,000 or more, it, as early as January, 1894, became insolvent. On November 28, 1894, three judgments were recovered against it,-one by Rowe for $416.92, another by the Merchants' & Farmers' Bank for $5,139.47, and still another by the Manufacturers' & Traders' Bank for $7,850.85. Two days later the Merchants' & Farmers' Bank recovered another judgment for $321.57, and Campbell recovered two judgments amounting to about the sum of $8,000. All these judgments were regularly taken by default. Upon their entry executions were immediately issued and delivered to the proper sheriff, who levied upon all the tangible personal property of the company, and advertised it to be sold on December 6, 1894. On the 3d of that month the plaintiffs commenced an action against the Cohocton corporation, in which an attachment was issued and delivered to the same officer on the next day. The property thus levied upon was sold for about $5,000, $3,500 of which remains in the hands of the sheriff to abide the result of this action.

The special term dismissed the complaint as to Campbell and Rowe, in effect holding that their judgments were not suffered with an intent to give them preference over the other creditors of the corporation. It, however, set aside the judgments obtained by the banks, upon the ground that they were thus suffered, and consequently invalid. It also directed that out of the fund in the hands of the sheriff the plaintiffs should be paid the amount of their judgment. The plaintiffs appealed to the appellate division from that part of the judgment which dismissed the complaint as to Campbell and Rowe, and the latter appealed from so much of the judgment as directed payment of the plaintiffs' judgment out of the moneys in the sheriff's hands. The banks appealed from the entire judgment, but before argument abandoned their appeal. The appellate division dismissed the appeal of the banks, reversed the judgment of the trial court in favor of Campbell and Rowe without awarding a new trial, and affirmed the remainder of the judgment. From the judgment entered upon that decision Campbell and Rowe have appealed to this court. ,Thus the question presented here this court. Thus the question presented here the judgment of the special term in favor of the appellants, and in affirming the direction of the trial court to pay the plaintiffs' judgment out of the fund in the sheriff's hands.

The appellants now contend (1) that the appellate division erred in affirming that portion of the decision which directed the sheriff to pay the plaintiffs' judgment; (2) that the evidence was insufficient to justify the reversal as to them; and (3) that, even if sufficient, the court had no right to reverse their judgments without awarding a new trial.

It is obvious that the last contention must be sustained, as the appellate division had no authority to hold the appellants' judgments invalid without their having an opportunity to litigate the question of their validity. We have had occasion recently to examine the power of that court to determine facts which are not conclusively established or found by the trial court, and to direct a judgment thereon. In re Chapman, 162 N. Y. 456, 56 N. E. 994;Benedict v. Arnoux, 154 N. Y. 715, 724,49 N. E. 326. In those cases we held that upon reversal the court must grant a new trial, and cannot properly render a final judgment unless the facts are conceded or undisputed, or established by official record, or found by the trial court, or it appears that no possible state of proof applicable to the issue could entitle a party to a judgment, and that this rule applies to suits in equity as well as to actions at law. In the Benedict Case it was said: ‘It is one of the fundamental principles of our law that questions of fact are to be tried and determined in a court of original jurisdiction, and it is not the appropriate function of an appellate court to determine controversted questions of fact, and render final judgment upon such determination.’ The principle of those cases is decisive of this question, and requires us to hold that the appellate division had no power to reverse the judgment as to the appellants without awarding a new trial.

But the broader and more important inquiry is whether that court was justified in reversing the judgment as to the appellants. If the evidence is insufficient to show that their judgments were suffered by the corporation with intent of giving them a preference over other creditors, then it had no authority to reverse that portion of the judgment which was in the appellants' favor. The statute, so far as it is applicable to this case, may be thus paraphrased: When a corporation is insolvent or its insolvency is imminent, no judgment shall be valid which is suffered by any of its officers, directors, or stockholders with the intent of giving a preference to any particular creditor over other creditors. It is manifest that the purpose of this section was not to prevent the honest creditors of a corporation from enforcing their debts by action. Varnum v. Hart, 119 N. Y. 101, 23 N. E. 183;Throop v. Lithographic Co., 125 N. Y. 530, 534,26 N. E. 743. In the case last cited Judge Andrews said: ‘We have recently held in Varnum v. Hart, 119 N. Y. 101, 23 N. E. 183, that the statute does not restrain one whose relation to the corporation is that of a creditor merely from availing himself of legal proceedings for the collection of his debt, and that he is entitled to a preference acquired in ordinary course of legal procedure, notwithstanding the insolvency of the corporation.’ See French v. Andrews, 145 N. Y. 441, 40 N. E. 214, and Bank v. Townley, 159 N. Y. 490, 54 N. E. 74. Although the statute has been recently amended, yet the rights of creditors in that respect remain the same. Obviously, the sole purpose of this statute was to prevent any improper act or omission on the part of a corporation or its officers which would result in securing to a particular creditor a preference over its other creditors. If the corporation or its officers performed any act by which a creditor was enabled to obtain a judgment to which he was not entitled, or omitted to interpose any legal defense it had to his claim, and thus suffered an improper judgment against the corporation, the judgment so suffered would be invalid. But where a creditor has a just claim to which the corporation has no defense, and he adopts the ordinary process and procedure of the court to enforce it, which results in a judgment by default, it cannot be properly held to be within the condemnation of the statute. In Wilson v. Bank, 17 Wall. 473, 484, 21 L. Ed. 727, where a similar question arose under the bankrupt act, it was said: ‘There is nothing morally wrong in their [the insolvents'] course in this matter. They were sued for a just debt. They had no defense to it, and they made none. To have made an effort by dilatoryor false pleas to delay a judgment in the state court would have been a moral wrong and a fraud upon the due administration of the law. There was no obligation on them to do this, either in law or in ethics.’ The mere nonresistance of a debtor to judicial proceedings in which a judgment was rendered against him when the debt was due, and there was no valid defense to it, is not the suffering and giving a preference under the bankrupt...