186 A.D. 472 | N.Y. App. Div. | 1919
Lead Opinion
The material facts are sufficiently stated by Mr. Justice Shearn, but I am of the opinion that the law applicable thereto requires an affirmance of the judgment.
The contract, in so far as it authorized the defendant to take possession of the building material, upon a breach thereof by the contractor and action to’ be taken by the defendant thereunder, was wholly executed prior to the institution of
We are not now concerned with any question relating to the rights of the defendant with respect to this material prior to the time it became entitled to take possession thereof, and did take such possession. Those are questions which were discussed in the majority opinion in Titusville Iron Co. v. City of New York (207 N. Y. 203), after, however, the court had therein decided that the board of education had not complied with the conditions precedent to its right to take possession of the building material, upon which point it was recognized in the majority opinion that the case might have been decided adversely to the claim of the board of education in that case. It being uncontroverted in that case that the board of education, upon no view of the evidence, had taken any step to acquire the right to the possession of the building material or took possession thereof until after the institution of the bankruptcy proceeding and the appointment of the receiver therein, the majority of the court were of the opinion that title to the material passed to the trustee in bankruptcy, and that his title could not be impaired by any subsequent action by the board of education under the contract. But
It appears to me, therefore, quite clear that the board of education acquired a vested right to the possession of the building material before the plaintiff was appointed trustee, and that the plaintiff has utterly failed to show that its lawful right to possession has in any manner terminated.
The judgment should, therefore, be affirmed, with costs.
Clarke, P. J., and Merrell, J., concurred; Page and Shearn, JJ., dissented.
Dissenting Opinion
The controversy arises out of the bankruptcy of the Midtown Contracting Company, of which the plaintiff is the trustee in bankruptcy. The petition was filed on August 15, 1916.
On October 13, 1914, the bankrupt made a contract with..
In 1910 the Bankruptcy Act was amended at section 47 thereof so that the trustee, “ as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.” (30 U. S. Stat. at Large, 557, § 47, subd. a, cl. 2, as amd. by 36 id. 840, § 8.) Accordingly, the questions are to be considered with the understanding that the trustee is in the position of a judgment creditor holding an execution duly returned unsatisfied. Clause Q of the contract .with which we are concerned provides that if the work to be done under the contract shall be abandoned by the contractor, “ The Board of Education shall thereupon have the power to contract for the completion of the contract in the manner pre
One purpose of this provision clearly is to minimize loss to the owner consequent upon the contractor’s abandonment of the work and to secure, as far as possible, payment by the contractor to the owner of the excess cost of completion. This purpose is sought to be achieved by contracting to give the owner a lien upon materials found upon the line of the work, which hen shall become effective, as between the contractor and the owner, by the owner taking the materials into possession. This provision is, therefore, properly to be construed as a contract to give a hen in the future and upon the happening of specified contingencies.
This very controversy was brought into the United States District Court for the Southern District of New York on the review of an order of a referee denying the petition of the trustee to require the board of education to turn oyer to him these building materials, and Judge Mayer reversed the order and sustained the rights of the trustee. (Matter of Midtown Contracting Co., 238 Fed. Rep. 871.) Judge Mayer based his decision upon the case of Titusville Iron Co. v. City of New York (207 N. Y. 203) which, in turn, was based upon Zartman v. First National Bank (189 id. 267). (See, also, the thorough discussion of the general subject by Judge Ray in the more recent case Matter of P. J. Sullivan Co., Inc., 247 Fed. Rep. 139.)
The learned justice at Trial Term (103 Mise. Rep. 318) has sought to distinguish the facts in this case from the Titusville case, but I agree with Judge Mayer that the differing facts do not affect the principle involved and that the Titusville Iron Co. case is controlling. The principle underlying these cases,
The Titusville Iron Go. case was exactly the same as this one and involved the same form of agreement, the only point of difference being that the taking of the property in the former case by the department of education was subsequent to the bankruptcy. In reversing the judgment dismissing the complaint in the Titusville Iron Co. case, Chief Judge Cullen said: “ At the time of the execution of the contract Hillman had no title to the property, the subject of this suit, nor does it appear even that the property was then in existence. Therefore, he could create no lien thereon cognizable at law, whether by way of mortgage, pledge or otherwise. * * * Mortgages or contracts pledging subsequently acquired property, though void at law, will nevertheless be enforced in equity as between mortgagor and mortgagee as agreements to give liens, and also as against purchasers with notice. (McCaffrey v. Woodin, 65 N. Y. 459; Kribbs v. Alford, 120 id. 519.) But it seems settled law, at least in this State, that they will not be enforced as against creditors. (Rochester Distilling Co. v. Rasey, 142 N. Y. 570; Zartman v. First Nat. Bank of Waterloo, 189 id. 267.) ”
The learned justice at Trial Term concedes that the facts in the Titusville Iron Co. case are in many respects identical with those in this case, but finds, as a fundamental difference, that the taking in the Titusville case was after the bankruptcy, whereas in this case it was a few days before. It seems clear to me, however, upon reading the Zartman case, upon which the Titusville case was based, that the fundamental proposition, and the basis of the Titusville Iron Co. decision, was that a man cannot grant what he does not own actually or potentially. It is conceded that an attempt to create a lien upon after-acquired property is void as to creditors. Yet it is assumed that somehow, and in some unexplained fashion, the party in whose favor the void lien was attempted to be created can render a void lien valid and enforcible
Stress is laid upon the fact that Chief Judge Cullen said in the Titusville Iron Co. case: “ There is no evidence in the case that the board of education ever had any control or possession of the property prior to the bankruptcy. ’ ’ This is seized upon as an intimation that if the board of education had taken possession;
Finally it is argued that in the Zartman Case (supra) the chattel mortgage was held to be void because it was on a shifting stock of goods and the mortgagor reserved the right to sell such stock and use the proceeds for his own benefit. Careful reading of the opinion convinces me that the decision in the Zartman case was not based solely on that ground. If it had been, much of the able opinion would have been wholly unnecessary. Two grounds were assigned why the alleged lien was not good at law, one being “ because a man cannot grant what he does not own, actually or potentially.”
Possession was taken in the Zartman case by the mortgagee three days before the bankruptcy. It was not only held that such possession did not “ ripen the lien,” but it was clearly shown that, as against creditors, possession is of no importance, Judge Vann saying: “ If a lien was created by the mortgage upon property not in existence at its date, possession after it came into existence was of no importance. If no lien was created by the mortgage upon such property, the taking of possession pursuant to its terms did not create one as against general creditors, who are presumed to have dealt with the mortgagor in reliance upon its absolute ownership of the stock on hand.”
Reliance is had upon the decisions Matter of Shelly (235 Fed. Rep. 311; affd., 242 id. 251) and Duplan Silk Co. v. Spencer (115 id. 689). The latter case was distinguished by Chief Judge Cullen in the Titusville case, and in the former the learned district judge referred to the Titusville case and said that the contract that he had under consideration was “ radically different in respect to the rights of the contractor.”
The judgment should be reversed, with costs, and judgment directed in favor of the plaintiff, pursuant to the stipulation, for $7,000 and costs.
Page, J., concurred.
Judgment affirmed, with costs.