Opinion
No. 6.
November 12, 1928.
Appeal from the District Court of the United States for the Eastern District of New York.
Suit by Thomas M. Williams against the New York Zinc Company, Inc., and others, for an accounting. Decree for defendants, and complainant appeals. Affirmed.
The complainant, in 1906, commenced an action in the New York Supreme Court, St. Lawrence county, for the dissolution of a copartnership existing between himself and Pilling and Crane, for the appointment of a receiver, for an accounting, and for a sale of the firm property. The subject-matter of the copartnership was a zinc mine in St. Lawrence county. A judgment was entered in March, 1908, whereby Williams, Pilling, and Crane were each adjudged to be entitled to a one-third interest in the enterprise, the partnership was dissolved, and Pilling and Crane were ordered to render to the plaintiff their accounts in respect to its affairs. It was further decreed that the plaintiff have leave to apply at the foot of the decree for the appointment of a receiver of the partnership property.
Upon a subsequent motion for the appointment of a receiver, and for a direction of the receiver to sell, an order was made appointing Arthur T. Johnson receiver, and authorizing him to sell the property and assets, and after such sale to render his report to the court. The order also appointed him "referee to take, hear, and determine the accounts of the respective parties as provided in the decree in said action." No receiver's bond was required by the order, and none was ever furnished.
Williams employed an attorney named Squires in the state court action. Squires applied for and obtained an order therein authorizing the receiver to expend $150 in special advertising of the sale. Shortly before the sale Williams himself wrote the receiver, telling him that he wished to have excepted from the sale certain machinery and equipment at the zinc mine, which he stated to be his individual property.
At the sale on June 18, 1910, the property was bid in by Pilling and Crane for $5,000. Squires, the attorney for Williams, made certain bids for separate parcels, as did the attorney for Pilling and Crane; but the property was also offered in a lump, and the lump sum bid by Pilling and Crane was larger than the others, so that the property was sold to them. Pilling and Crane signed a contract whereby they agreed to comply with the terms of sale, one of which was the payment of 10 per cent. of the purchase money, and this 10 per cent., amounting to $500, they paid to Johnson, the receiver, and took his receipt.
On August 5, 1910, a notice of motion for the confirmation of the report of sale was made, and, together with a copy of the referee's report, was served on Squires, as attorney for the plaintiff, who admitted due service of the notice. On August 13, 1910, an order was made by the New York Supreme Court, and entered in the office of the county clerk of St. Lawrence county, reciting the appearance of Squires as counsel for plaintiff, likewise reciting a stipulation by him and the attorney for the defendants that the question of costs and allowances to him should be fixed by the court at that time, and a further stipulation that the amount advanced by Pilling and Crane for the purposes of the partnership was $20,000 and upwards, that the claim of the plaintiff for his expenses subsequent to the 1st day of July, 1906, and subsequent to the beginning of the action for the dissolution of the partnership, had been made and disallowed, and ordering that the plaintiff be allowed $350 in lieu of taxable costs and disbursements, that he be paid that sum by the receiver, and that the latter thereupon pay over to the defendants the balance of the purchase money remaining in his hands. In accordance with the requirements of the order, Squires was paid the allowance of $350 above mentioned, which he deposited in the Corn Exchange Bank.
The trial judge in the present cause found that Pilling and Crane operated the mining property with the full knowledge of Williams, who asserted no claim to the property until the commencement of this suit in April, 1926. The trial court also found that the receiver executed a deed to the Northern Ore Company in January, 1922, to which Pilling and Crane had assigned their rights, and that Williams objected to the execution and delivery of this deed. It was further found that, aside from this protest and the commencement of this suit, Williams never asserted any claim to the property, although the sale occurred on June 18, 1910.
In 1923, the Northern Ore Company transferred all its interest in the property to the New York Zinc Company, which has since operated the property. The New York Zinc Company, the Northern Ore Company, and August Heckscher, its president, were made party defendants — Mr. Heckscher upon the ground that he received dividends derived from the operation of the mines by the New York Zinc Company and actively participated in its affairs.
The complainant contended (a) that the sale under the order of the state court was void, because the receiver did not file a bond; and (b) that, even if the sale was valid, the title remained in the partnership until the delivery of the deed in 1922, and defendants were accountable for the earnings of the mining properties between the time of the sale and this last date.
The court held that the complainant consented to the sale, and, by his conduct, waived the filing of a bond, if one was necessary. It also held that the execution of the deed related back to the time of the sale, so that no accounting for the intervening period was proper. The bill of complaint was accordingly dismissed, and from the decree of dismissal the appeal was taken.
McLear McLear, of New York City (Edwin L. Garvin and Wallace T. Stock, both of New York City, of counsel), for appellant.
Platt, Field Taylor, of New York City (Martin Taylor and Nathaniel T. Guernsey, Jr., both of New York City, of counsel), for appellee Heckscher.
Henry P. Brown, of Philadelphia, Pa., and Everett, Clarke Benedict, of New York City (A. Leo Everett and James Maxwell Fassett, both of New York City, of counsel), for other appellees.
Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
A clearer case of laches than the present can hardly be stated. Complainant brought his suit in the state court in 1906, asking for a dissolution of the partnership with Pilling and Crane and for the appointment of a receiver. In 1909 his attorney, Squires, was urging that the sale be held as soon as possible; in 1910, he made bids at the sale. He received a portion of the proceeds as costs, and thereafter, for some 12 years, remained acquiescent, except to protest against the delivery of the receiver's deed to the Northern Ore Company in 1922. He knew the mining properties were being operated by the defendants, but for years did and said nothing, until 1922, when he first discovered the irregularity of the failure to file a receiver's bond. On this appeal he relies upon the failure to file a bond, and refers to section 715 of the New York Code of Civil Procedure. That section provided that:
"A receiver, appointed in an action or special proceeding, must, before entering upon his duties, execute and file with the proper clerk, a bond to the People, with at least two sufficient sureties, in a penalty fixed by the court, judge, or referee, making the appointment, conditioned for the faithful discharge of his duties as receiver. * * *"
The state court, in the suit which wound up the partnership between complainant and Pilling and Crane, disposed of every issue by ordering a sale, confirming the sale, and distributing the proceeds. It is, therefore, quite necessary for the complainant, if he seeks to avoid the bar of the state decree invoked by the defendants, assignees in interest of Pilling and Crane, to establish that the state court was without jurisdiction and the sale was absolutely void.
In support of this contention, appellant cites Mulstein v. City of New York et al., 213 N.Y. 308, 107 N.E. 651, where it was held that a receiver in supplementary proceedings, who had not filed his bond, took no title to the property of the judgment debtor, which accordingly became subject to liens filed subsequent to the date of the receiver's appointment. But it was not necessary here for the receiver to take title. He was a chancery receiver, in a suit brought for the dissolution of a partnership.
In Keeney v. Home Insurance Co., 71 N.Y. at page 401, 27 Am. Rep. 60, the New York Court of Appeals said of a receiver in a suit to wind up a partnership:
"The title to the property is not changed by the appointment. The receiver acquires no title, but only the right of possession as the officer of the court. The title remains in those in whom it was vested when the appointment was made."
So it was held by the General Term of the New York Supreme Court in Holmes v. McDowell, 15 Hun, 585, that the provision of section 715 of the Code of Civil Procedure, requiring a receiver to give a bond with two sureties, did not affect the jurisdiction of the Supreme Court to appoint a receiver in suits to wind up partnerships, which was a part of its general prerogative as a court of chancery. The court said:
"Having this general power, it follows that the mode and manner of its exercise, unless declared to be jurisdictional, is directory only."
This decision was affirmed by the Court of Appeals, on the prevailing opinion below, at 76 N.Y. 596.
In Mulstein v. City of New York, supra, the court called attention to the distinction between that case and Wright v. Nostrand, 94 N.Y. 31, where an irregularity in the appointment of a receiver in supplementary proceedings had been held to make no difference, because title was not necessary to support the action, and said in respect to the situation in the Mulstein Case:
"This case involves the title to property depending upon the compliance with statutory requirements, and, therefore, does not present the question involved in Wright v. Nostrand, 94 N.Y. 31, in which the receiver's right to maintain the action did not depend upon the question of title to property."
In the case at bar the receiver acted, not as the holder of the legal title, but as a mere arm of the court in making the sale. His failure to file a bond was not jurisdictional, and while the mistake should have been corrected by the court, on a seasonable application to it, the neglect was an irregularity, which did not affect the validity of the proceedings in the state court, or of the title acquired by the purchaser at the receiver's sale. Sproule v. Davies, 171 N.Y. 277, 63 N.E. 1106.
Moreover section 1242 of the New York Code of Civil Procedure provided that real property must be sold in the county where situated, "by the sheriff of the county or by a referee, appointed by the court for that purpose, who must execute a conveyance to the purchaser," and section 1243 added that, where a referee was appointed by the court to sell real property, "the court may provide for his giving such security as the court deems just."
While Johnson was in terms appointed receiver to make the sale and referee to state the accounts, no duty was imposed upon him which he could not have performed as referee. He purported to do nothing as receiver, so far as the record shows, except make a sale and distribute the proceeds as a master in chancery. We hold the neglect to file a bond was a matter not affecting the jurisdiction of the state court, or the validity of the sale. Not only is this so, because the requirements of section 715 of the Code did not go to the jurisdiction of the court to appoint a chancery receiver, but also because the court under any theory had power to appoint a referee to sell, and Johnson under whatever name he acted was a referee to sell in fact.
It is also significant that the validity of the sale and of the title of the Northern Ore Company was attacked in McLear v. Balmat, 238 N.Y. 568, 144 N.E. 895, upon the very grounds urged here. We have examined the record in that case, and find that the appellant there relied on Mulstein v. City of New York, supra, as showing that the failure to file a bond was fatal to the conveyance by the receiver. While the point is not discussed in the opinion of the Appellate Division, and the Court of Appeals delivered no opinion, there is ground for the contention of the appellee that the New York courts regarded the deed as passing a good title. The decision, therefore, appears to be a precedent substantiating the conclusion we have reached.
The state court validated its sale on notice to all interested parties. It had jurisdiction of the subject-matter, and full faith and credit must be given to its decree. Fauntleroy v. Lum, 210 U.S. 230, 28 S. Ct. 641, 52 L. Ed. 1039.
It is contended by the complainant that the purchaser at the receiver's sale had no title, legal or equitable, until the delivery of the deed in 1922. But the decree of the state court in all respects confirmed the purchase and ordered a distribution of the purchase money. This was quite different from the case of a bidder who had not paid all of the purchase money, like that in Cramp v. Dady, 162 App. Div. 321, 147 N.Y.S. 619. In Cheney v. Woodruff, 45 N.Y. 100, while the Court of Appeals held that a purchaser at a foreclosure sale, who had not paid all of the purchase money, was not entitled to sue tenants for rents accruing prior to the delivery of the deed, it stated that the doctrine of relation is limited "to the time when the deed should have been delivered, when it was due by the contract, and its nondelivery was not caused by any failure of the party seeking the relief." Where the purchaser has done everything on his part to fulfill his contract, and the failure to obtain his deed is due to the neglect of some one else, there can be no doubt that he holds the equitable title, that equity will regard as done what ought to be done, and that the deed relates to the time when it should have been delivered. Jackson v. Dickenson, 15 Johns. (N.Y.) at page 313, 8 Am. Dec. 236; Rich v. Baker, 3 Denio (N.Y.) 79; Gates v. Smith, 4 Edw. Ch. (N.Y.) 702; Wright v. Douglass, 2 N Y at page 377; In re Burr Mfg. Supply Co. (C.C.A.) 217 F. 16.
But, aside from all these questions of compliance with strict legal requirements, the complainant is barred from relief on grounds of waiver and laches. His attorney moved for the appointment of the receiver, and upon his motion the appointment was made by an order which required no bond, very likely with the deliberate purpose of saving expense. Exhibit G-14. The knowledge of the attorney that the order required no bond was the knowledge of the complainant. The purchasers at a sale held by virtue of the order paid such cash as was necessary to complete the purchase, and the accounts of the partnership were adjusted by decree of the New York court. The complainant himself was aware that the premises were thereafter being operated for years at the expense of the assignees of the purchasers, and, in the face of this knowledge, never claimed, or even believed, that he had any interest in them. Finally, 12 years after the sale, he discovered no new facts, but what he deems to have been the legal irregularity of the lack of a receiver's bond, and upon this technicality seeks to recover a share of the earnings of the mines. The statutory provision requiring a receiver's bond is plainly made for the protection of the parties concerned. There can be no reason for not permitting a waiver of such a provision by the parties themselves, where no rights of the public or third parties are involved. Matter of Cooper, 93 N.Y. at page 512; Sentenis v. Ladew, 140 N.Y. 463, 35 N.E. 650, 37 Am. St. Rep. 569; Mayor v. Manhattan Ry. Co., 143 N.Y. at page 26, 37 N.E. 494; People ex rel. McLaughlin v. Police Commissioners, 174 N Y at page 456, 67 N.E. 78, 95 Am. St. Rep. 596. Not only did complainant deliberately elect to have the sale under which the person appointed to conduct it was required to furnish no bond, but he allowed the property to be bid in, the cash to be distributed, and the assignees of the purchasers to go to large expenditures in the development of the property. The proof of a waiver is complete.
That the complainant was guilty of laches is equally clear. Johnston v. Standard Mining Co., 148 U.S. 360, 13 S. Ct. 585, 37 L. Ed. 480; Abraham v. Ordway, 158 U.S. 416, 15 S. Ct. 894, 39 L. Ed. 1036; Patterson v. Hewitt, 195 U.S. 309, 25 S. Ct. 35, 49 L. Ed. 214.
Error was assigned upon the ground that the trial court refused to reopen the case, in order that the complainant might dispute his stipulation that the partnership between himself and Pilling and Crane was indebted to the latter in the sum of $20,000 and upward, and might prove that this indebtedness had been repaid. The ruling was correct. The only forum where such relief could be granted was the state court, the order of which, reciting the stipulation and entered upon it, would have to be modified.
Upon no tenable theory has the complainant shown any right to recover.
The decree dismissing the bill is accordingly affirmed.