Weeks v. Cornwell — 10 N.Y. St. Rep. 653

Majority

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Samuel Weeks et al., v. Jacob Weeks Cornwell et al.^[1]

(Court of Appeals,

Filed October 4, 1887.)

Headnote

1. Receivers—Power to lease real property.

It is well settled that a receiver cannot ex meru motu let the premises which he' holds as receiver. In this country it is common practice for receivers on their own motions to apply to the court for directions as to the execution of their duties, and it is not necessary that the order appointing them should contain provisions giving them liberty to apply to the court for instructions in order to justify them in applying for directions or the court in granting an application therefor.

3. Same—Jurisdiction of court to grant order on ex parte application OF RECEIVER FOR LEASING OF PROPERTY.

The receiver was appointed in 1883, the object of which appointment was to secure'the renting and care of the premises pending the litigation, for the benefit of the parties who should be adjudged in the action for partition, to be vested with the legal title. The order authorized the receiver to lease the premises for a term not exceeding three years from May, 1883. The leases were made for terms expiring May 1, 1886. In October, 1885, pending the appeal to the general term, the receiver, upon an affidavit stating that he had been informed that the case would be carried to the court of appeals and would not be determined until long after May, 1886, and that unless the leases were renewed, etc., tenants might leave the premises, applied ex parte for liberty to renew the leases, and thereupon the court made an order authorizing the receiver to lease the premises for a term not extending beyond May, 1889. The leases were then renewed. The general term, in May, 1886, affirmed the judgment of the special term and directed a sale of the premises. An order was then made modifying the order allowing the renewal of the leases, so that it should stand as authorizing them for only one year from May, 1886, and declaring them valid as for that term. Held, that the receiver is an officer of the court. In virtue of the general jurisdiction, the court, in a proper case, assumes for the time being the care and custody of the property. That the court in making the order of October, 1885, did not transcend its power in authorizing the receiver to lease for the term of three years; also 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. This is not an essential condition to the exercise by the court of its jurisdiction. However proper it may be to require notice, there is no indexible rule of law that it cannot act without notice, or that leases executed under its authority without notice, are void.

3. Same—Power of the court to modify or vacate the order so as

TO AFFECT THE RIGHTS OF LESSEES— POWER OF COURT TO AWARD THEM AN INDEMNITY.

The court has power to modify or vacate a summary order made improvidently in the course of an action, although the rights of third parties may be affected thereby. Held, the leases were not void. The lessees acted bona fide in reliance upon the order of the court, and will be damaged if the leases are annulled. 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.

Appeal by William A. Parke, Isaac A. Singer and John Dayton, lessees, from an order of the general term of the supreme court, first department, affirming and modifying an order made at the special term authorizing the receiver

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to lease certain real property for a term of three years. The order was made ex parte. A statement of all the facts is contained in the opinion.

Stickney & Shephard, for app’lts; Van Winkle, Candler & Jay, for resp’ts.

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 “fora 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 time.

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. 5 N. Y. State Rep., 632.

The present appeal is from an order of the general term affirming an order of the special term made after the affirm

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anee of the judgment by this court, upon the application o£ 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 settted that a receiver cannot, ex meru motu, let the premises which he holds as receiver. “He cannot,” said Lord Thurlow, “sell 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 2 Madd. Ch. Pr., 244), to be invalid.

Formerly, under the English practice, a receiver was not ordinarily permitted to originate steps or proceedings of 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 circumstance. Ireland v. Eade, 7 Beav., 55; Parker v. Dun, 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 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

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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 and injustice 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 the 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 creditor’s suits, and is also recognized by the present rule of the supreme court (93), which permits a receiver to make leases 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 jurisdiction to make the order under which they were executed. But it is insisted that, assuming that the court had power on notice to the

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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 the 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. Oh.'Pr., 1989; High on Receivers, § 194), without notice to the other party. In Neale v. Bealing (3 Swanst., 364, note), a motion of course was made for sequestrators to sell 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 sell 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 for the common interest of all concerned, and we think that, however proper it may be to require notice, there is 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 gen- • eral power of a court to modify or vacate its judgments or

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orders for fraud or irregularity, or where it has acted inadvertently, or imprudently, is well settled.

It is true the law protects the title of a third person, being a bona fide purchaser or a sale on an execution under a judgment voidable, but not void, although the judgment is subsequently reversed for error. Manning’s Case, 8 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 be damaged, as the affidavits tend to show, 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 dam- ■ ages to the lessees, as a condition of granting the motion, and that nothing else would 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. -