295 N.Y. 510 | NY | 1946
Lead Opinion
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *512 There is presented to us the question, among others, of the extent to which an equitable lien may be imposed upon a New York Stock Exchange seat and the remedy available for its enforcement by the assignee.
One Otto Harry Gruner on May 6, 1929, made an assignment to the New York Trust Company (hereinafter referred to as trust company) as security for a loan of $212,000, of all his right, title and interest in and to his membership and seat upon the New York Stock Exchange (hereinafter referred to as the exchange) in words which were in part as follows: "Said Otto H. Gruner hereby transfers, assigns and sets over to The New York Trust Company free and clear of any claims, liens or encumbrances whatsoever all his right, title and interest, legal and equitable, in and to a full membership and seat upon the New York Stock Exchange. This assignment, though absolute, is nevertheless an assignment as collateral and security for the demand note of said Otto H. Gruner in the amount of Two hundred and twelve thousand Dollars made simultaneously herewith.
"The intent hereof is to transfer to The New York Trust Company said membership and seat and to confer upon the New York Trust Company full right and power in its absolute discretion to dispose of said seat at any time without any notice to me and without advertisement by sale, public or private, or at auction, to be credited upon said note and any surplus over the amount due on said note and the expenses of sale to be paid to me. * * *"
Later, on April 21, 1933, but as of May 6, 1929, Gruner assigned the proceeds of the sale of the seat in words which were in part as follows: "Said Otto H. Gruner hereby transfers, assigns and sets over to The New York Trust Company, free and clear of any claims, liens or encumbrances whatsoever, all his right, title and interest in and to the proceeds of a *515 membership in and seat upon the New York Stock Exchange. This assignment, though absolute, is nevertheless an assignment as collateral and security for the demand note of said Otto H. Gruner in the amount of $212,000 made simultaneously with the date hereof.
"The intent hereof is to assign and transfer to The New York Trust Company the full proceeds of said membership and seat to be credited upon said note and any surplus over the amount due on said note and the expenses of sale to be paid to the undersigned."
In each of those assignments there were the following clauses: "I agree to pay all dues and charges of every kind and character and to do everything necessary to keep said membership one in good standing and to suffer no obligations of any kind in favor of other members of the Stock Exchange, or any firm of which any member of the Stock Exchange may be a member, ever to take precedence over the rights of The New York Trust Company hereunder.
"I agree to maintain said membership and seat free of claim and liability for the payment of any obligation to any other member of the New York Stock Exchange or any firm to which any member of the New York Stock Exchange belongs or to anyone else."
On May 17, 1933, the trust company advised the exchange of the assignment and the exchange acknowledged receipt of its letter. Nothing turns upon the difference in the wording of the two assignments.
At the time of the death of Gruner in December, 1942, there was due the trust company $59,201.93 and on that day the seat had a value of $29,000. There were no charges against it in favor of the exchange, the members of the exchange, or customers of the decedent. The exchange sold the seat in March, 1944, for $49,000 and that sum was turned over to Gruner's administratrix c.t.a. under a stipulation that such action should be without prejudice to the rights of the trust company. The questions involved herein are presented upon the final accounting of the administratrix rather than in an action which had originally been brought by the trust company against the exchange and Katharine D. Gruner, individually and as administratrix, and which has been discontinued. *516
A seat on the exchange carries with it certain attributes of property — it is the subject of ownership, of use, and ofsale. As was said in Powell v. Waldron (
We come then to the question of sale. The constitution of the exchange provides that upon a transfer of membership, the proceeds of the sale of the seat shall be applied by the exchange to payments of the following: (1) sums due the exchange (2) sums due the Stock Clearing Corporation (3) sums due other members or member firms arising from losses upon the closing out of member contracts (4) sums, in the discretion of the board of governors, which represent any unusual expenses incurred by the exchange in connection with litigation over the disposition of the proceeds of the seat. Provision is then made that the surplus of the proceeds shall be paid directly to the person whose membership is transferred or to his legal representative. The constitution of the exchange as it existed in 1929 is the applicable one here and it is therefore unnecessary to consider changes made by the constitution adopted in 1941. There is no provision in that constitution, which has been called to our attention, providing for the sale of a member's seat by a nonmember creditor. Nor has any rule or practice of the exchange been called to our attention under which the exchange may *517
institute involuntary transfer proceedings against a member because of his indebtedness to a nonmember. If such a proceeding be instituted by the committee on admissions on its own initiative against a member because of his indebtedness to other members, payments of the surplus of the proceeds of the sale must be made to the member, or his legal representative. It thus appears that, although the assignment purported to give the trust company power to sell the seat with or without notice to the assignor, that power could not be exercised except by the interposition of a court of equity by decree in personam
compelling the co-operation of the assignor by directing him to take each and every step necessary to bring about the sale of his seat, since there is no provision in the constitution or rules of the exchange which makes co-operation of the committee on admissions available as to a nonmember. (Matter of Ulmann v.Thomas [LEHMAN, J.],
When we come to the question of the proceeds of the sale, a different question is presented. Each member of the exchange has a right to the proceeds of the sale of his seat and that right may be assigned. (See Field v. City of New York,
The lien of the trust company here was an inchoate equitable lien which did not become perfected under the circumstances disclosed until the proceeds of the sale of the seat became available after the claims of the exchange and its members were satisfied. (Ketcham v. Provost, supra; United States v.Texas,
The cases relied upon by the respondents are not controlling.Benedict v. Ratner (
That brings us to the next questions presented which involve the claims of the United States for $21,409.88 for income taxes for the years 1933 and 1941, and of the State of New York for $2,295.36 for income taxes for the years 1933 and 1937. We shall consider first the claim of the United States.
Section 3466 of the United States Revised Statutes (U.S. Code, tit. 31, § 191) reads as follows: "Whenever any person indebted to the United States is insolvent, or whenever the estate of anydeceased debtor, in the hands of the executors or administrators,is insufficient to pay all the debts due from the deceased, thedebts due to the United States shall be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed."
The statute does not create a lien in favor of the government (Bramwell v. U.S. Fidelity Co.,
The trust company urges that its lien was created before there were any Federal tax claims against the decedent. In other words, that when the lien became perfected there was relation back to the time of its creation. That contention has been held to be without merit, in New York v. Maclay (
The right of the United States to its statutory priority under section 3466 arose at the moment of the death of the assignor, *521
when ownership in the seat and in the membership in the exchange passed to the administratrix of his insolvent estate. (SeeDunphy v. Callahan,
Perhaps it should be pointed out to avoid misunderstanding that, even if the lien had been perfected prior to decedent's death, it still might not be a "specific" lien within the meaning given to that term by the Federal courts when dealing with the priority of the United States under section 3466 over the statutory lien of State taxes, where no specific property has been seized and appropriated to the satisfaction of the lien or set apart from the general property of the debtor. (UnitedStates v. Texas, [BYRNES, J.], supra, 487, 488; New York
v. Maclay, supra; United States v. Waddill Co.,
When we come to the claim of the State for the income taxes of 1933 and 1937, different principles apply. This State, unlike the United States, has no general statutory priority as to debts due it. By our State Constitution of 1777, section XXXV, it was provided that "such parts of the common law of England, and of the statute law of England and Great Britain, and of the acts of the legislature of the colony of New York, as together did form the law of the said colony on the 19th day of April, in the year of our Lord one thousand seven hundred and seventy-five, shall be and continue the law of this state, subject to such alterations and provisions as the legislature of this state shall, from time to time, make concerning the same. * * *"
The State has succeeded to the Crown's prerogative right of priority. (Matter of Carnegie Trust Co.,
In speaking of this prerogative priority of our State inMarshall v. New York (supra) the Supreme Court said (BRANDEIS, J.) at page 382, et seq.: "At common law the crown of Great Britain, by virtue of a prerogative right, had priority over all subjects for the payment out of a debtor's property of all debts due it. The priority was effective alike whether the property remained in the hands of the debtor, or had been placed in the possession of a third person, or was in custodia legis.
The priority could be defeated or postponed only through the passing of title to the debtor's property, absolutely or by wayof lien, before the sovereign sought to enforce his right. Giles
v. Grover, 9 Bing. 128, 139, 157, 183; In re Henley Co., 9 Ch. D. 469. Compare United States v. National Surety Co.,
decided by this court November 8, 1920, ante, 73. * * * The legislature has never, in terms, limited its scope; and the courts have rejected as unsound every contention made that some statute before them for construction had, by implication, effected a repeal or abridgment of the priority. The only changes of the right made by statute have been by way of enlarging its scope in certain cases. Thus, while by the common law of England,The King (in aid of Braddock) v. Watson, 3 Price, 6, and by that of New York, Wise v. L. C. Wise Co.,
The reason the court in that quotation twice referred to the creation of a lien by the debtor "before the sovereign sought to enforce his right" no doubt goes back to the leading case ofGiles v. Grover (9 Bing. 128 [1832]), cited (supra) where it was said with reference to a crown debt (p. 139): "It is conceded, that the crown cannot avoid an equitable mortgage;Casberd v. Attorney-General [6 Price, 411]: or the lien of a factor; The King v. Lee [6 Price, 369]; or of a wharfinger:The King v. Humphrey [1 M'Cleland Younge, 173]: or a bonafide assignment in trust for creditors; The King v. Watson, West on Extents, 115: or any other similar assignment or charge; because they are created when the debtor has legal power and authority to create them, and attach upon the goods before the process of the crown, and the crown can only take the goods subject to such liabilities as the debtor has legally created", and again at page 156-157: "If, however, the right of the subject be complete and perfect before that of the king commences, it is manifest that the rule does not apply, for there is no point of time at which the two rights are in conflict; nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. But if whilst the right of the subject is still in progress toward completion, the right of the crown arises, it seems to me that the two rights do come into conflict together at one and the same time, and that the consequence in that case is that the right of the crown ought to prevail." (See also, note, "State's Prerogative Right of Preference at Common Law", 51 A.L.R. 1355, 1370, 1371.) That, of course, is apart from statute. The right of priority of the United States here depends on section 3466. (United States v.State Bank of North Carolina, 6 Pet. [U.S.] 29, 35.)
As pointed out in the Marshall case (supra, at p. 386) the right of priority has been likened to an equitable lien. Here the parties were in a court of equity — the Surrogate's Court. Action was brought by the trust company against the exchange and the administratrix c.t.a., but discontinued by stipulation by which consent was given to the payment of the proceeds of the sale of the seat to the administratrix. Prior to the sale of the seat and the attachment of the equitable lien to the proceeds of sale, the sovereign State had not "sought to enforce his *525 [its] right", although by statute, Tax Law, section 380, it could have issued a warrant and obtained the equivalent of the lien of a judgment by appropriate proceedings and then acted thereon. Since the parties were in a court of equity, equitable principles and rules govern which are not applicable against the United States by reason of its statutory priority under section 3466. (United States v. Texas, supra; Matter of Lincoln Chair Novelty Co., supra.) As between the State and the trust company we have what may be likened to an inchoate lien in the former and in the latter a perfected lien. To hold otherwise would make an equitable lien, even though perfected, of no moment or value as against the State in the event of insolvency. An assignor of a chose in action would have his money twice — once when he assigned and again when the State collected his income taxes from the proceeds of the chose in action. To be successful here, the State was required to undertake to assert its rights — as it had the power to do — before the lien attached to the fund. The assignee of a thing in action acquires at once "an equitable ownership therein, as far as it is possible to predicateproperty or ownership of such a species of right; * * *" (Pomeroy's Equity Jurisprudence [5th ed.], § 168, p. 221). Where, as in this instance, the chose in action was turned into money and became available in the hands of the exchange for payment to the assignor's administratrix, the equitable lien attached to it immediately and equitable ownership of the fund passed to the trust company, needing but the action of a court of equity to enforce its right to payment. At that moment, the lien of the trust company, which was greater in amount than the proceeds of the sale of the seat, and of all the assets of the estate, became capable of perfection and so was perfected, and the trust company became a secured creditor. Prior to that time when, upon Gruner's death, his administratrix c.t.a. became the owner of the property in the seat and membership in the exchange (Powell v.Waldron, supra), as distinguished from the proceeds of thesale to which the trust company's lien later attached, section 3466 became applicable because the estate was insolvent, and such property in the seat and membership was thereafter subject to the rights of the United States under that statute. *526
The order and decree so far as appealed from, should be reversed, without costs, and the matter remitted to the Surrogate's Court for further proceedings not inconsistent with this opinion.
Dissenting Opinion
I agree with Judge CONWAY'S opinion except that I think the State, for its unpaid income taxes, is entitled to priority over the New York Trust Company. It is undisputable that the State of New York, as a sovereign, has a common-law right of priority, with respect to the payment of taxes, over all other creditors of the taxpayer except the United States (Matter of Smith v.Meader Pen Corp.,
Even if it be the law that this sovereign right of the State must give way to a perfected lien of another creditor, I do not see how the trust company's lien can be considered to have been perfected as against the State of New York any more than against the United States of America. Both the trust company and the State came into the Surrogate's Court to assert their alleged priorities to payment out of a fund which was in the hands of the administrator of the debtor's estate. Neither the State nor the trust company had reduced the property to possession, and no part of the property had been set off to either. The trust company had no "specific prior lien", by attachment, execution or otherwise (see Wise v. Wise Company,
LOUGHRAN, Ch. J., LEWIS and THACHER, JJ., concur with CONWAY, J.; DESMOND, J., dissents in part in memorandum; DYE and FULD, JJ., taking no part.
Ordered accordingly.