Opinion
Submitted May 20, 1907
Decided October 1, 1907
Alonzo G. McLaughlin for appellants. Charles W. Dayton, Jr., for respondent.
In an action prosecuted by the People of the state against the New York Building-Loan Banking Company one Charles M. Preston was, by a final judgment entered in that action, appointed permanent receiver of all of the property, real and personal, of that corporation. On the 18th day of January, 1906, he received the following from Guiseppe Seccafico and his wife: "I hereby agree to purchase property situate and known as Nos. 336 and 338 Water street, Borough of Manhattan, City of New York, for the sum of Twenty thousand dollars, taking the same subject to outstanding mortgages Twelve thousand dollars at 5%, and any Tenement House violations, and a certain lease expiring June 1st, 1906, paying the difference between outstanding mortgages of Twelve thousand dollars and purchase price, Eight thousand dollars in cash. As an evidence of my good faith I accompany this offer with a deposit of $300, which is to be returned to me in the event the Receiver of the New York Building-Loan Banking Company declines to accept this offer, or if accepted by him, is rejected by the Court upon application for order to sell. In the event of being accepted by the Receiver and the Court the said amount will be forfeited by way of liquidation of damages if agreement as indicated herein is not fulfilled on my part. I hereby agree to pay an additional sum of Three hundred dollars on account of purchase money within three days after notice of Court's acceptance of this offer, and to take title within thirty days after said notice of acceptance." Thereupon the receiver presented a petition to the Supreme Court setting forth the facts with reference to the offer, upon which the court made an order authorizing and empowering the receiver to accept the offer and to convey the premises to the parties named. Guiseppe Seccafico then deposited with the receiver an additional $300, called for by his offer, for which the receiver gave a receipt and upon the instrument indorsed the words, "Approved, Charles M. Preston, Receiver." Subsequently the closing of the contract, at the request of the purchasers, was adjourned to March 15th, 1906, at 2 o'clock. At that time they refused to take title, upon the ground that the receiver's title was not marketable, and thereupon a petition was presented to the court asking that the purchasers be relieved from taking title, and that the receiver be compelled to pay them the amount deposited with him, together with interest, $200 for the costs and expenses of having the title examined and $100 for the costs of the proceedings. To this the receiver objected, alleging that the defect in the title was such that it could be cured if he was given a reasonable time. The court, however, made an order relieving the purchasers from taking title and requiring the receiver to return to them the amount deposited with him, but refused their application for allowances, interest and attorney's fees. The purchasers appeal, claiming that they are entitled to the items disallowed.
A person who contracts to sell real estate to another and convey good title is bound by his contract; and if it subsequently turns out that he is unable to do so he is liable as for a breach of contract, not only for the return of the money paid to him on the contract, with the interest accruing thereon, but also to make good to the other party his reasonable expenses in having the title examined and the costs of the action to compel such payments. With judicial sales, however, the situation is different. The contract is made with some officer or agent appointed by the court, who acts under its direction, judgment or decree. In such cases the purchaser cannot demand damages as for a breach of contract made by the court through its officer or agent, but has to rely upon the court to do equity under the circumstances. Therefore, the awarding of compensation to an innocent purchaser for his reasonable expenses in examining title, where it is found defective, is founded upon equity and not upon the breach of contract. In cases of public sales under judgments and decrees such as the foreclosure of mortgages and the partition of real estate, it has been the usual practice of the courts to protect innocent purchasers at such sales by awarding them reasonable compensation for the examination of the title, in case it turns out to be unmarketable and different from that represented by the officer making the sale. In case of sales by receivers appointed by the court, of insolvent corporations or individuals, or by special guardians of infants or of persons of unsound minds, a further duty devolves upon the court, that of protecting estates from waste and depletion. It, therefore, warrants no title, express or implied, and the purchaser takes only the title which the insolvent corporation, individual, infant or person of unsound mind had in the property. In such cases the situation is different from that existing upon the public sale, where the purchaser has had no time to examine the title and has made his bid upon the supposition that it was marketable. In case of private sale the purchaser may take such time as he chooses before he closes the contract and make such investigation of the title as he may desire, knowing that the power of the court to convey is limited only to such title as is possessed by the persons for whom the court is acting. In such cases we think the court may award or withhold such compensation as in its judgment and discretion appears to be equitable as between the parties. In 5 Pomeroy's Equity Jurisprudence (§ 212) it is said of private sales by receivers: "A purchaser is bound to take such title as an examination of the proceedings shows that he will get. He is bound to examine for himself beforehand to see what title he will obtain by the sale." In Campbell v. Parker ( 59 N.J. Equity, 342) PITNEY, V.C., says: "A purchaser at a judicial sale is bound to take such title as an examination of the proceedings will show that he will get; he is bound to examine for himself beforehand to see what title he will obtain by the sale. The court, however, treats a contract made with one of its officers as being made with the court itself, and will deal with its contractee upon equitable principles." In Matter of Coleman ( 174 N.Y. 373) E.T. BARTLETT, J., says: "As in case of other judicial sales, there is no warranty of title, express or implied, and the purchaser takes only the title which the corporation had, and he takes this title subject to any paramount liens or equities subsisting against the property." (Citing 5 Thompson's Commentaries on the Law of Corporations, § 7013.) In Matter of Attorney-General v. Continental Life Insurance Co. ( 94 N.Y. 199) ANDREWS, J., in affirming an order of the court refusing the application of a purchaser at a receiver's sale of an insolvent insurance company to complete the sale, says: "The court could, in the exercise of a just discretion, sanction or disapprove it, and the purchaser must be deemed to have purchased subject to this implied condition." In the case of Parish v. Parish ( 175 N.Y. 181) CULLEN, J., says: "An application to compel a purchaser to take title and that of a purchaser to be relieved from his bid are regarded as special proceedings. When the applications involve questions of fact or the exercise of discretion, the determination of such questions cannot be reviewed here; but when they present solely questions of law, their examination is open to this court." In the case of Farmers' Loan and Trust Company v. Bankers Merchants' Telegraph Company ( 119 N.Y. 15) EARL, J., after reviewing the facts in that case, says: "It is clear that the appellant had no absolute legal right to have the sale set aside, and it cannot be said that the court below was without discretion to deny the application, or that it abused its discretion." (See, also, Fisher v. Hersey, 78 N.Y. 387; Dennerlein v. Dennerlein, 111 N.Y. 518; Howell v. Mills, 53 N.Y. 322.)
In the case of People v. Open Board of Stock Brokers B. Co. ( 92 N.Y. 98), the purchaser was relieved from his purchase, and his deposit, interest and reasonable expenses of investigating the title were directed to be paid to him. This case was a sale by a receiver, but the question raised and reviewed upon the appeal pertained to other matters, and no question appears to have been raised or discussed with reference to the allowances of these items. In Drake v. Goodridge (6 Blatchf. 531) it was held that if a purchaser refuses to complete his purchase on a sale of real estate by a receiver, on account of defect of title, and the receiver waives and consents that the sale should be held void, the purchaser is entitled to be paid by the receiver his legal expenses, including reasonable counsel fees, incurred in examining the title. This, however, was where the receiver waived and consented that the sale should be void. These are the principal authorities upon the subject, to which our attention has been called by the respective parties, as well as those that we have been able to discover by our own examination. The courts doubtless have, in numerous cases, made allowances such as is claimed by the appellants in this case. They, however, have done so in the exercise of discretion in cases where it appeared just that an allowance should be made.
In the case under consideration the court saw fit to deny the application of the purchasers for relief, so far as these items were concerned. As to the $100 that the petitioners claimed for counsel fees in the presenting of the application for relief, that was discretionary, under the provisions of section 3240 of the Code of Civil Procedure. As to the justice of allowing the other items claimed, it depends upon the circumstances of the case. Upon referring to the contract, we find that the receiver simply approved the written offer that was presented to him, and is only bound in so far as such an acceptance would imply a promise on his part to perform. He does not appear to have known of the defect in the title until the adjourned day, when his attention was called thereto. It being a defect that could be cured, he asked the court to give him a reasonable time within which to perfect the title. This the court, in the exercise of its discretion, under the contract, had the power to grant. But the purchasers objected, and the court saw fit to refuse the application and ordered a return of the deposit without further allowances to the purchasers, possibly for the reason that they objected to giving the receiver reasonable time to perfect the title. This determination has been unanimously affirmed by the Appellate Division. We think that the order was discretionary, and that consequently this court has no power to review it.
The appeal should be dismissed, with costs.
It is an unjust rule which imposes an unequal burden upon the parties to a contract. In the case before us, if the purchaser had refused to complete his purchase without adequate cause, the court would have compelled him to perform his contract, and would have required him to pay all reasonable expenses arising from his default. In fact, however, the default was not made by the purchaser, but by the seller, and the courts have thus far relieved him from the payment of such expenses as, mutato nomine, it would have imposed upon the purchaser. He has thus been exempted from a liability which would have been cast upon his adversary under like circumstances.
The reason given for this discrimination is that the seller is a receiver and that his agreement to sell is virtually the agreement of the court. This distinction has no adequate foundation, for a court which compels all persons to perform their contracts, or make good the default, should not fail to keep its own promise and then refuse to compensate the other party for the expenses incurred in reliance thereon. Is an agreement made by an officer of the court, under its direction, less sacred than one made by an individual? The failure to perform by either party results in certain damages of the same nature, and why should not the duty of compensation be the same? If a promise made under the sanction of the court means less in law than the same promise made upon individual responsibility, there should be some plain reason for it capable of easy statement. The only reason given is that an individual represents himself only, while a receiver represents creditors. But why should creditors, thus promising through their representative appointed by the court, be under no legal obligation to pay damages for a default which, if made by the other party, would call for compensation as matter of law? The promise of the receiver was made for the purpose of benefiting the creditors, and the consequences of his mistake should fall upon them, if he acted in good faith, otherwise upon himself, but in no event upon the innocent purchaser. Creditors are entitled to their own, but they must get it from their debtor. If they directly or indirectly contract with a third party they are entitled to no exemption because they are creditors. The law is not guilty of favoritism in the enforcement of contracts or in awarding or withholding damages for a violation thereof. Even interest on the sum deposited by the purchaser when the contract was made was not allowed him. Thus the representative of the creditors is permitted to retain for their benefit the amount earned by the deposit while it was in his possession. The rule laid down by the prevailing opinion will lead to a want of confidence in dealing with receivers, even when their action is approved by the court, and the result will be that they cannot sell property by executory contract for what it is really worth. Every risk lowers the price.
The purchaser, as I think, was entitled to some compensation, as a legal right, for the violation of his contract by the receiver. While the amount to some extent may depend upon the sound discretion of the court, the refusal to allow anything whatever was an error of law which requires the reversal of the order appealed from.
CULLEN, Ch. J., O'BRIEN, EDWARD T. BARTLETT and CHASE, JJ., concur with HAIGHT, J.; HISCOCK, J., concurs with VANN, J.
Appeal dismissed.