Opinion
Argued June 22, 1887
Decided October 4, 1887
Edward M. Shepard for appellants. Flamen B. Candler for respondents.
The order of February 6, 1883, appointing the receiver in the action, was made on the petition of one of the defendants, upon notice to the other parties, and was granted without opposition. The property sought to be partitioned consisted of four houses and lots on Fifth avenue, in the city of New York, of great value, and the rights and interests of the several parties depended upon the construction of the will of Jacob Weeks, deceased, and involved the determination of complicated and difficult questions. The main object of the receivership was to secure the renting and care of the premises pending the litigation, for the benefit of the parties who should be adjudged to be vested with the legal title to the property. The order, therefore, authorized the receiver to lease the premises, or any part thereof, for a term not exceeding three years from May 1, 1883. The receiver, under the authority conferred, leased the several houses and lots at a large rent for terms expiring May 1, 1886. On the 19th of October, 1885, pending the appeal to the General Term from the judgment of the Special Term, the receiver, upon an affidavit stating that the action was pending on appeal to the General Term, and that he had been informed by the attorney therein that the case would be carried to the Court of Appeals, and that the case would not be finally determined till long after May 1, 1886, and also that unless he was empowered to renew the leases for another term the tenants might leave, and the houses remain untenanted after that date, applied ex parte to the court at Special Term for liberty to renew the leases, and the court thereupon made an order authorizing the receiver to lease the property "for a term or terms beginning from the 1st of May, 1886, and not extending beyond the 1st of May, 1889." The receiver thereupon renewed the leases to two of the tenants in possession for three years from May 1886, and granted a new lease of one of the houses and lots to a new tenant for the same term. The General Term, May 3, 1886, affirmed the judgment of the Special Term declaring the rights and interests of the several parties, and directing a sale of the premises. That judgment was affirmed by this court in February, 1887. The present appeal is from an order of the General Term affirming an order of the Special Term made after the affirmance of the judgment by this court, upon the application of the parties to this action, modifying the order of October 19, 1885, so that it should stand as an order authorizing the leasing by the receiver for the term of one year only from May 1, 1886, and declaring that the leases executed by the receiver were valid only for the term of one year.
The first question relates to the jurisdiction of the court to grant an order on the application of a receiver, ex parte, without notice to the parties to the action, for the leasing of real property, which is the subject of the receivership, for a term certain which may extend beyond the termination of the litigation. It is well settled that a receiver cannot ex mere motu let the premises which he holds as receiver. "He cannot," said Lord THURLOW, "set and let, or make expenditures upon the estate, without an application to the court," and a lease granted by a receiver without the order of the court was held, in Dunford v. Lane (cited in 1 Bro. C.C 160), to be invalid. Formerly, under the English practice, a receiver was not ordinarily permitted to originate steps or proceedings on his own motion. The parties were left to make such application in the case as might be deemed necessary, although the rule was not absolute and applications were allowed to be made by the receiver under special circumstances. ( Ireland v. Eade, 7 Beav. 55; Parker v. Dunn, 8 id. 497; Wrixon v. Vize, 5 Ir. Eq. 276.) In this country a broader view is taken, and it is common practice for receivers, on their own motion, to apply to the court for directions as to the execution of their duties. (High on Receivers, §§ 181, 188, and cases cited.) Orders appointing receivers usually contain a clause giving to the receiver liberty to apply to the court for instructions; and where real property is the subject of the receivership the order not infrequently confers the power to lease. We apprehend, however, that it is not necessary under our practice that the order appointing a receiver should contain these provisions in order to justify the receiver in applying for instructions, or the court in granting an application therefor, or in authorizing the receiver to lease the property. It is said that the court has no power to authorize a receiver, pendente lite, to lease for a term certain, so as to make the lease valid beyond the period of the litigation. There can be no doubt, having in view the object of such receivership, which is to take the care and custody of the property and administer it during the litigation and to hold it to answer the final judgment in the action, that a lease beyond the customary term, according to the nature of the demised property, which might extend beyond the termination of the litigation, would be an unjustifiable exercise of judicial discretion. But to deny the power of the court to authorize a lease for a term certain in any case, or to hold that every lease so authorized is terminable, ipso facto, on the termination of the litigation, would, as was said in Shreve v. Hankinson ( 34 N.J. Eq. 413), often prevent any leasing of the property at all. It is customary to lease farms for not less than a year, and the better class of dwellings, especially where the tenant is to furnish, are usually let for a term certain. When such property is in the hands of a receiver, pendente lite, and the termination of the suit is uncertain, it would often result in great loss if the court had no power to authorize a lease for the customary term, except upon the consent of all the parties interested. The receiver is the officer of the court. In virtue of its general jurisdiction the court in a proper case assumes for the time being the care and custody of the property. The receiver represents all interests and under the direction of the court manages the property for the benefit of all concerned. The power of the court to authorize leases by a receiver for a term certain was recognized by rule 192 of the former court of chancery, in cases of receivers in creditors' suits, and is also recognized by the present rule of the Supreme Court (93) which permits a receiver to make lease, from time to time, as may be necessary, for terms not exceeding one year. In Daniel's Chancery Practice (4 Am. Ed. 749) it is said that "in an ordinary case a receiver may, in his discretion, let for a year or less, or for any term not exceeding three years, without applying for the sanction of the judge." The power in England seems now to be regulated by general orders, and the language quoted is to be interpreted in view of this fact. The court, in making the order of October 19, 1885, did not, we think, transcend its power, in authorizing the receiver to lease for the term of three years, provided it could grant the order ex parte, without notice to the parties to the action. It appears, without contradiction, that three years was generally the shortest term, for which unfurnished houses of the description of those in question, could be advantageously rented in the city of New York. This was the term for which they were first rented, under the order appointing the receiver. The duration of the litigation was uncertain when the order of October 19, 1885, was made. The fact that it was terminated within the first year of the term does not affect the validity of the leases, provided the court had juristion to make the order under which they were executed. But it is insisted that, assuming that the court had power on notice to the parties interested, to make an order authorizing the receiver to lease the property for a term certain, it had no power without notice to them, or giving them an opportunity to be heard, to bind the property by leases extending beyond the termination of the litigation. We are of opinion that the absence of notice to the parties of the application, by the receiver, was not a jurisdictional defect rendering the order made thereon void. The question in this aspect is one of power, and not of propriety. We cannot doubt that if the attention of the judge had been called to the subject, he would not have made so important an order, without notice, to the parties to the litigation. The English courts, as we have seen, are very reluctant to entertain applications made by a receiver in an action, without the presence or intervention of the parties, and a wise discretion dictates the reasonableness of requiring a receiver who seeks the direction of the court, in important matters, affecting the administration of his trust, to give notice to the parties beneficially interested in the property. But we cannot say that this is an essential condition to the exercise by the court of its jurisdiction. Under the English practice, prior to the enactment of the general rules, an application for liberty to lease property in the hands of a receiver was made by a party and not by the receiver, "and was obtained as of course" (2 Dan. Ch. Pr. 1982; High on Receivers, § 194), without notice to the other party. In Neale v. Bealing (3 Swanst. 304, note) a motion of course was made for sequestrators to set and let the estate. It was denied, the Lord Chancellor saying, "I cannot allow this without notice to the other side, for though it is a motion, of course, to obtain liberty for a receiver to set and let, and now most orders are drawn up with such express power in them, yet the reason of both of them is that he is appointed by the court, for the management of the estate, but sequestrators have but precarious or temporary power to levy a debt, and the sequestration may be taken away to-morrow or as soon as the demand is satisfied." The court in directing a lease acts through its receiver, and, however proper it may be to require notice, there is, we think, no inflexible rule of law that it cannot act without notice, or that leases executed under its authority, without notice, are void.
The next question relates to the power of the court to modify or vacate the order so as to affect the rights of lessees who took their leases in reliance thereon. The general power of a court to modify or vacate its judgments or orders for fraud or irregularity, or where it has acted inadvertently, or improvidently, is well settled. It is true, the law protects the title of a third person, being a bona fide purchaser on a sale on an execution under a judgment voidable but not void, although the judgment is subsequently reversed for error ( Manning's Case, 4 Coke, 329; Woodcock v. Bennet, 1 Cow. 711.) This principle does not, we think, preclude the court from modifying or vacating a summary order made improvidently in the course of an action although the rights of third persons may be affected thereby. (See Hale v. Clauson, 60 N.Y. 339, and cases cited.) The court had, therefore, power to set aside or modify the order of October 19, 1885. But the leases were not void. The lessees acted bona fide in reliance upon the order of the court, and will as the affidavits tend to show, be subjected to loss if the leases are annulled. The parties who call upon the court to vacate or modify the order of October 19, 1885, waited until the final judgment of the Court of Appeals before moving. They deny that they knew of the order until after the final decision in the case. But they knew that the houses were in the occupation of tenants after May 1, 1886, and must have known that it was under some arrangement with the receiver. We think the court was authorized to award indemnity out of the fund arising on the sale under the judgment in partition, for any damages to the lessees, as a condition of granting the motion, and that nothing less will satisfy the claims of justice. We are of opinion that the order of the General and Special Terms should be affirmed, with a modification, however, declaring that the damages when ascertained shall be paid out of the fund reserved under the order of the court.
All concur.
Ordered accordingly.
On subsequent motion to amend remittitur the following order was handed down:
Ordered. That the remittitur herein be amended by inserting after the word "ascertained," the words "with the expenses of the reference," and also by inserting a provision further modifying the order of the General Term by striking out the award of costs and disbursements against the appellants.