Opinion
March 22, 1907.
Robert Goeller [ Jacob H. Shaffer with him on the brief], for the appellant.
Lyman A. Spalding [ George S. Scofield, Jr., with him on the brief], for the respondent.
I am of the opinion that the plaintiff was entitled to the benefit of the formal amendment to the complaint made on the first trial. It only related to the date that the contract became of force. The contract bore date the day it was originally alleged to have been made. The amendment changed that date from November 20, 1901, to January 3, 1902, the day the defendant mailed the contract signed by it to the plaintiff. The court would doubtless have directed the service of the pleading as amended had that been requested.
The court by declining to instruct the jury that there could be no recovery unless the contract was made prior to the appointment of the receivers, in effect permitted a recovery even though the contract was made by the receivers. The general rule is that receivers are officers of the court, deriving their authority under the law from the court, and that they are not the agents of the party of whom they are appointed receivers in the sense that they have authority to bind the party by any act or omission on their part ( Ahern v. Steele, 115 N.Y. 203, 232; Lottimer v. Lord, 4 E.D. Smith, 183, 191; Railroad Co. v. Soutter, 2 Wall. 510, 519; Chicago Union Bank v. Kansas City Bank, 136 U.S. 223, 236; Texas St. L. Ry. Co. v. Rust, 17 Fed. Rep. 275, 282; Dow v. Memphis L.R.R. Co., 20 id. 260, 269; General Electric Co. v. Whitney, 74 id. 664, 667; Smith Receivers, ¶ 35; Alderson Receivers, §§ 5, 301); and with respect to contracts made by them, the rule is that they only in their official capacity and the property in their hands are liable, and that the liability should be enforced in the receivership proceedings. ( New York W.U. Tel. Co. v. Jewett, 115 N.Y. 166, 168; Heath v. Missouri, K. T.R.R. Co., 83 Mo. 617.) It is doubtful, therefore, whether the corporation would be liable if the contract was made by the receivers, unless under the order discharging the receivers, but the circumstances relating to this receivership are peculiar, and in the view I take of this case it is unnecessary to decide that question. If the contract had been made by the receivers there would also be difficulty in view of the form of the pleading, and it may well be even if the corporation would be liable, that it should have been alleged that the receivers made the contract and that the circumstances relating to the receivership and to the discharge of the receivers should have been alleged. I am of opinion that as matter of law the contract was made by the defendant before the receivers were appointed, and that the effect of the order discharging the receivers without requiring an accounting by them, made upon the application of the sole stockholder of the company, was to turn the property over to the corporation subject to all the liabilities, whether incurred by the corporation or by the receivers, whom the court, by the order discharging the receivers, apparently treated as the agents of the corporation, and that the corporation by accepting the property from the receivers and continuing the business acquiesced in this view and became bound accordingly. The material facts in the negotiations with respect to the contract are contained in the statement of facts and need not be restated. Reid, who negotiated and signed the contract for the defendant, owned half the capital stock, was president of the company and in charge of the management of its business, and as to third parties dealing with the corporation was presumably authorized to execute the contract. When the defendant received the draft of the contract in duplicate from the plaintiff it understood that the plaintiff intended to award the contract to it, and on signing the contract it was entered upon the books of the defendant as a contract. It appears by the evidence that upon the receipt of the contract thus signed by the defendant the plaintiff signed it. It is immaterial that he did not notify the defendant that he had signed it, because it was assumed by both parties that the contract had been executed, and the only question left open was the approval of the bond which the defendant by signing the contract obligated itself to give. Nor does it appear that the parties were unable to agree with respect to the bond. The plaintiff did not reject the bond executed and tendered by the defendant. He retained it and produced it upon the trial. At the suggestion of his surety on the general contract with the government he sought to obtain another bond and the defendant manifested a willingness to furnish it. After the appointment of the receivers, in view of their having furnished a bond as receivers and having been authorized by the court to execute this contract, plaintiff waived any further bond. For aught that appears the bond furnished by the defendant complied with its contract to furnish a bond with good and sufficient sureties; but even though it did not, the contract had been made and it was expressly therein provided that the defendant should furnish such a bond. If it did not do so it would have been guilty of a breach of the contract which would have justified the plaintiff in reletting the work and holding it responsible for his damages; and on the other hand, if the plaintiff rejected a bond that complied with the contract, he would have been guilty of a breach of the contract and the defendant would have been entitled to recover the profits it would have made on the contract. It may be that an erroneous view indulged in by both parties that their negotiations constitute an agreement, does not establish a contract between them ( Nundy v. Matthews, 34 Hun, 74, 79), but the understanding on the part of both parties that a binding contract had been made, and steps taken by them thereunder with a view to the performance of the contract, are to be considered material evidence of great weight on the question. The validity of the contract was recognized in the petition for the appointment of the receivers, but Reid, at that time, was acting in his individual interest as a stockholder and not as president of the corporation and his declaration, not being in the line of duty, doubtless was not binding upon the company; and yet this receivership appears to have been merely a receivership in form brought about, not as represented to the court for the dissolution of the corporation, but to enable Reid to obtain control of the corporation, as is shown by the facts that Reid became the active receiver and soon after his appointment negotiated the purchase of the other one-half of the capital stock of the company not owned by him, and stopped the proceedings before the referee, and, finally, by his petition for a discharge of the receivers without an accounting, in effect showed that the company had not been insolvent, and its solvency at that time is clearly established by the evidence. The proceedings before the referee with reference to proof of claims against the corporation, if begun, were not completed. Neither the referee nor the court passed upon claims against the company, nor did the court pass upon claims arising during the receivership nor require any accounting by the receivers. These matters were doubtless dispensed with owing to the fact that Reid had become the sole stockholder of the company and desired to have the receivership terminated, and the property restored to the company, to enable him to continue the business. In these circumstances, the proper construction of the provision of the order discontinuing the proceeding and discharging the receivers "with like effect as if said proceedings had not been taken," is that the property was restored to the corporation subject to all of the liabilities of the corporation — and probably to all of the acts and proceedings of the receivers — and by accepting back the property and resuming the business, the corporation assumed the liabilities. If, therefore, it can be affirmed as matter of law that the contract was made prior to the receivership and that the effect of the order discontinuing the proceedings and discharging the receivers was to restore the property to the company subject to existing liabilities, it would seem that the error of the court in declining to charge that unless the contract was made before the appointment of the receivers there could be no recovery, was not prejudicial to the defendant.
This court on the former appeal ( 114 App. Div. 135) expressed the view that whether the company would be liable on the contract if made by it prior to the appointment of the receivers would depend upon whether the receivership was necessitated by the insolvency of the company, in which event the view was expressed that it would not be liable, but that the company would be liable if the receivership was brought about by it with a view to avoiding its obligations. On the last trial the question as to whether the company was insolvent was submitted to the jury, as a question of fact, under instructions as to the burden of proof in accordance with the decisions of this court on the former appeal. The verdict of the jury shows that they found that the company was not insolvent and their determination is fairly sustained by the evidence.
The court instructed the jury, as matter of law, that if plaintiff was entitled to recover, he was entitled to recover interest from the 17th day of October, 1903, the date of the last payment made by him to Whitman Co., to whom he relet the work on defendant's failure to perform the contract. Counsel for the defendant duly excepted to this instruction. The evidence shows that plaintiff relet the work shortly prior to the commencement of the action, but it does not appear that the defendant was aware of the fact or had knowledge of the contract price. Nor did the plaintiff in his complaint allege the fact that the work had been relet or claim damages on the basis of the difference between the contract price for which defendant agreed to perform the work and the cost thereof which he agreed to pay under the new contract. He alleged generally that he sustained damages by defendant's breach of the contract in the sum of $3,500, and demands judgment for that amount, together with interest thereon. Upon the trial he proved, without objection, that the additional cost of the work, instead of being $3,500, was $3,125, and this was not controverted. Under the instructions of the court the jury added to that amount the sum of $565.62 as interest. I am of opinion that this was error. The damages were not liquidated. It is true that there was a market price for the various items of material, but it cannot be said that there was a market price for the entire contract work, which involved the furnishing of material and the performance of labor. The plaintiff did not know even approximately what it would cost him to have the work done. He was obliged to receive bids, which differed in amount, and he selected the lowest, and did not even then assume to fix his damages on that basis or notify the defendant. Nor did he recover the amount of damages which he alleged in the complaint.
The other points presented by the appellant have been examined, but do not require special consideration in the opinion.
It follows, therefore, that the judgment should be modified by deducting therefrom the sum of $565.62, together with interest thereon from the rendition of the verdict to the time of entry of judgment, and as so modified affirmed, without costs.
PATTERSON, P.J., HOUGHTON and LAMBERT, JJ.; concurred; INGRAHAM, J., dissented.
I dissent, as I do not think that there was a contract by which the defendant undertook to do the work, for a failure of which the plaintiff has recovered a judgment. The defendant's bid to do the work was accepted, and the plaintiff forwarded to defendant a contract to be executed. That contract contemplated the giving of a bond by the defendant which would be satisfactory to the plaintiff before the contract became operative. The defendant executed the contract and forwarded the same with a bond to the plaintiff, but the plaintiff refused to accept the bond, prepared and forwarded to the defendant a new contract with a new bond to be executed by the defendant, and that bond was never executed, nor was the new contract ever executed. When the receivers were appointed, there being no binding contract in existence, the action of the receivers in obtaining authority to complete all the contracts made by the defendant cannot be considered as a formal execution of the new contract; nor do I understand from the record that the receivers ever formally executed the new contract. They certainly never signed a new contract, or assumed to bind either themselves or the company to carry out the contract which had been executed by the defendant, but which had been rejected by the plaintiff. The acceptance by the company of the property transferred to it by the receivers when they were discharged was not assuming the obligation that the receivers had incurred as to executory contracts which had never been formally entered into, and upon which no work had been done or obligation incurred by the receivers. The defendant asked the court to charge that the acts of the receivers were not the acts of the corporation; and that if the jury found that the alleged contract was not entered into and accepted by both parties before the appointment of the receivers, their verdict must be for the defendant. The court refused these requests, and the defendant excepted. I think this was error. The complaint alleged the making of the contract by the corporation, a copy of which was annexed to the complaint. There was no allegation in the complaint that a contract had been made with the receivers which had been assumed by the corporation. The only contract alleged in the complaint, therefore, was that made by the defendant corporation, and if no enforcible contract was made by the defendant corporation upon this complaint, I do not think that the action could be sustained. Any ratification or agreement made by the receivers could not be the basis of an action for damages for a breach of a contract alleged to have been made, not by the receivers, but by the corporation before the appointment of the receivers, and in view of the form of the action I think the defendant was entitled to have the jury instructed that the plaintiff could not recover unless he proved a binding contract with the corporation.
I think the judgment should be reversed.
Judgment modified as directed in opinion, and as modified affirmed, without costs. Settle order on notice.