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Thomson v. McGregor

45 N.Y. Super. Ct. 197 13 Jones & S. 197 Court N.Y. Super. Ct. Decision date 1879-04-07 English

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JAMES J. THOMSON, as Receiver, Plaintiff, v. CHARLES McGREGOR, Defendant.
Before Sedgwick and Speir, JJ.
Decided April 7, 1879.

Headnote

I. Receiver's bond.
1. Sureties’ liability.
(a) Non-payment by receiver, pursuant to order, made after receiver’s removal ordering him to pay a certain sum, “being balance of trust funds in his hands.”
1. The surety is liable for the amount ordered to be paid, although not a party or privy to the proceeding resulting in the order.
1. Defense, what is not. The surety cannot defend, either wholly or in part, on the ground that the receiver before the execution of the bond, had disposed of, or since its execution had properly disbursed the whole of the trust funds, or of a part thereof, so that the whole of the sum mentioned in the order was not at its date in his hands. The order is conclusive on him.
(a) Condition of bond in this case. “Now the condition of this bond is such that if the said . . . shall henceforth faithfully discharge the duties of his trust as said receiver, then this obligation to be void, otherwise to be in full force and effect.”
8. Plaintiff, who may be.
A. One authorized by the court to sue; the bond running to the People of the State of New York.
B. A receiver appointed in the place of one removed, may sue on the bond, given by the removed receiver; he is the party in interest.
H. Bond to the people, who may sue on.
1. See supra.
Exceptions directed to be heard at general term, in first instance, after verdict directed for plaintiff.
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The complaint, after sufficiently alleging that one Biker had been appointed by the court of common pleas, in an action there pending, receiver of all the property, &c., of a certain firm, further alleged that, in pursuance of an order set out, the defendant here joined in a bond with the receiver, conditioned that if the said Biker ‘ ‘ shall henceforth faithfully discharge the duties of his trust as such receiver, then this obligation to be void, otherwise to be in full force and effectthat by a certain order, &c., afterwards made, the receiver “ was removed from his position as said receiver, and ordered to pass his accounts,” and the plaintiff was thereupon appointed receiver, &c. ; that in the accounting by said Biker, “ an order was, &c., duly made by said court in said action, adjudging that there was a balance then in the hands of him, said Biker, of the trust funds, that he had received as said receiver, &c., of $2,099.27, with interest from, &c., and directing said Biker to forthwith pay said sum to this plaintiff, as receiver, as aforesaid;” that on, &c., the plaintiff duly demanded payment of said sum, &c.
The answer, in substance, alleged that the said Biker had, from the time of the execution of said bond, in all things faithfully discharged the duties of his trust as receiver ; that defendant was not a party to the proceeding for the accounting by Biker, and had no notice or knowledge of its pendency ; and further, by special averments, that Biker had not violated any duty of his trust.
On the trial, the plaintiff proved the allegation of the complaint above stated.
The defense proved that the defendant was -not a party to and had no notice of the proceeding in which the order was made that found the balance against the receiver.
The defendant further offered to prove by facts specially stated, such as payments made by the receiver
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before, and proper payments made after, the execution of the bond, that the receiver had performed his duty! The court refused to allow the testimony offered, and exception was taken.
There were other exceptions noticed in the opinion.
The court directed a verdict for plaintiff, and further, that the exceptions be heard, in the first instance, at general term.
Andrew Gilhooly, attorney, and of counsel, for plaintiff, urged:
I. The bond is to be construed and the rights of the parties to be determined as if the bond had been conditioned in express terms that said Hiker shall henceforth obey all orders of the court, touching the trust fund ; and the order directing payment is conclusive (Schofield v. Churchill, 72 N. Y. 565 ; Thomas v. Hubbell, 15 Id. 407.) These cases “ are not departures from, or exceptions to the general rule, that a judgment concludes only parties and privies, but do not fall within that rule at all, being dependent only on the principle that one may contract to be answerable to another upon such lawful conditions as he pleases ” (Thomas v. Hubbell, supra). The following cases illustrate the distinction: Douglass v. Howland, 24 Wend. 35 ; Rapelye v. Prince, 4 Hill, 119 , 122.
W. U. Northrop, attorney, and of counsel, for defendant, urged:
I. The defendant’s bond was executed more than six months after Riker began to discharge his trust as - receiver, and such being the fact, the wrord “henceforth” was interlined in the condition, so that the obligation was simply that he would, from that time, faithfully discharge his trust. Under this restriction, the defendant executed the instrument, and bound himself only for the faithful discharge of his trust in the future. The court, therefore, erred in ruling that the bond covered all the acts of the re
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ceiver before the execution thereof. It is a fundamental principle that “a surety can only be charged where the case is brought within the precise terms of his contract.” “ Thus, the condition of a bond may be considered to explain the obligatory part” (2 Parsons on Cont. 503; Birckhead v. Brown, 5 Hill, 634 , 640, 641; McCluskey v. Cromwell, 11 N. Y. 598 ; Willet v. Kipp, 12 Hun, 476 ). In the case of Bissell v. Saxton ( 66 N. Y. 60 ), the court of appeals say that “the engagement of the surety is for his future, and not his past conduct; and it would be a gross imposition upon them, in the absence of a special stipulation to that effect, to import into their undertaking responsibility for prior delinquencies. ■ This has been frequently recognized” (citing Myers v. United States, 1 McLean, 493 ; Farrar v. United States, 5 Pet. 372 , 389; United States v. Boyd, 15 Pet. 187 ; Vivian v. Otis, 1 American R. 199; Willet v. Kipp, 12 Hun, 474 ). The case of Schofield v. Hustis ( 9 Hun, 157 ), is clearly distinguished from defendant’s case. The bond filed in that case was conditioned, among other things, that the executor “ shall obey all orders of the surrogate, touching the administration of the estate committed to him.” The court say, “ the bond was not conditioned, that defendant Churchill would account for all moneys received thereafter; it was that he should obey all orders of the court, touching the estate.”
II. To the accounting of Hiker the defendant was not a party, but an entire stranger, having no knowledge of it until payment of the alleged deficiency was demanded of him. It is therefore submitted that he is in no manner bound or concluded by the order of the court of common pleas on said accounting. Being a stranger to that proceeding against Hiker, he had no opportunity to examine witnesses, or to defend himself, or to appeal from the order (1 Phillips Evidence, 2
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ed. 326, 327; 2 Cowen & Hill's Notes to Phillips Evidence, 815, 816, note 569). The case of Hotchkiss v. Platt ( 7 Hun, 56 ), by implication, sustains the principle that no one who is not a party to the proceeding can appeal from an order to which he was a stranger, and therefore he is not bound by it, except in certain cases, by the terms of the contract, cited in the 3d point (Swartwout v. Payne, 19 Johns. 294 ; Bartlett v. Campbell, 1 Wend. 50 ; Douglass v. Howland, 24 Id. 35, 52-59; Clark v. Montgomery, 23 Barb. 464 ).
III. The following cases established the principle that where the surety has notice and acts upon it; or where, by the terms of the contract, he-waives notice of adjustment of his liability; or consents to an ex parte adjustment of the sum he is obligated to pay ; he will be bound to pay the amount fixed upon. This is the essence of his contract, except when he acts on notice (Blasdale v. Babcock, 1 Johns. 518 ; Kip v. Brigham, 6 Id. 159; Poillon v. Volkenning, 11 Hun, 385 ; Hotchkiss v. Platt, 7 Id. 56; Methodist Church v. Barker, 18 N. Y. 463 ; Cuddeback v. Kent, 5 Paige, 92, 97, 98).
IY. It is submitted that inasmuch as the bond only covered future breaches of trust, and that the defendant was not concluded or bound by the proceedings in the accounting, that the plaintiff should have alleged in his complaint a specific breach of trust, after the execution of the bond, and also the precise amount of damages for which the defendant was liable for Hiker’s dereliction of duty after the bond was given, and should have shown affirmatively a case, under such pleadings, against the defendant. Hence the court erred in denying the defendant’s motion to dismiss the complaint, on the ground that it does not contain facts sufficient to constitute a cause of action. And fcr like reason the court erred in denying the motion to dismiss
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the complaint on the ground that the plaintiff had not established a cause of action.
V. The motion made by defendant to dismiss complaint because it did not state facts sufficient to constitute a cause of action should have been granted, on the grounds: 1st. The complaint alleges that the bond upon which the action is brought was given to the people of the State of New York, and not to the plaintiff, and it does not appear from the complaint that he has any interest in it, by assignment or otherwise; hence he cannot maintain this action (Annett v. Kerr, 28 How. 324 ). Section 814 of Code of Civil Procedure, relates only to a bond given as prescribed by law. There is no law requiring a receiver of copartnership property to give a bond; it is discretionary with the court whether such bond shall be required or not, hence this bond is not such a bond as is provided for by that section. 2d. Complaint alleges that Biker was appointed receiver, &c., July 9, 1874; that the bond was given January 30, 1875, for the faithful performance of his duties after that time, but contains no allegation that Biker did not faithfully perform his duties as receiver, after the giving of said bond; or any allegation showing any liability on the part of defendant, and no liability can be inferred against a surety.
VI. But if the introduction of the order made by the court of common-pleas established a prima facie. case against the defendant, but which is not conceded, the court erred in holding it conclusive for the sum demanded, and in excluding the testimony of Biker, which was offered by the defendant, to show that no breach of his trust had been committed after the execution of the bond.

The most important question is whether the refusal of Biker to pay the

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amount which the order directed him to pay was a breach of the condition of defendant’s bond. The condition was, “that if the said Biker shall henceforth faithfully discharge the duties of his trust as such receiver, then this obligation to be void, &c.” The only omission to discharge faithfully his duty was the refusal to pay as commanded by the order.

There is no doubt that the order was competently made, and was binding upon Biker ; but the appellant claims that it does not show or prove, as against the defendant, who was not a party or privy to the order, that Biker did not faithfully discharge the duties of his trust. But there seems to be no room for doubt, if it were a duty of the receiver’s trust to obey the order, and the refusal to pay was the reverse of a fai thful discharge of duty ; the condition of the bond was broken. In such a case, the defendant has contracted that the receiver will pay, and the order and the proceedings leading to it do not comprise something that is binding upon the defendant as an adjudication, but are evidence of the facts as to violation of duty' in obeying the order.. Of course, if they were to be used as evidence of some former misappropriation of money, and the defendant was to be bound only if such a misappropriation were shown, they would be incompetent against the defendant.

The cases against sureties upon executors’ or administrators’ bonds are not precedents here, for such bonds, following the statute, specifically provide in the condition that the principal shall obey the orders of the surrogate. Judge Cowen, who delivered the opinion in Douglass v. Howland ( 24 Wend. 35 ), in deciding Jackson v. Griswold ( 4 Hill, 531 ), gave an illustration which is in point here. He said that the case of Willey v. Pault, 6 Cow. 74 ), was not cited by counsel in Douglass v. Howland, and was overlooked by the court. “The action was against the surety, in a probate bond condi

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tioned, among other things, that the executor should settle the estate according to law. The evidence offered was a judgment against the executor, an execution and demand of payment, which the executor refused to make, though he had assets. The judgment was held to be conclusive. With deference, it seems to me that a judgment against the executor and a refusal to pay, the estate having assets, were, per se, within the terms of the condition. The test of a failure to settle according to law was an unpaid judgment, and the case was therefore the same in effect as if the condition had said, we will abide all judgments that shall be obtained against the executor.” I cannot think that there has been a faithful discharge of duty by a receiver, when he refuses to account and pay as directed by an order, which specifically designates his duty in that respect.

It is urged as a ground of reversal, that in the exact ■construction• which it is claimed is due to a surety’s contract, a recovery here, on the ground that has been stated, cannot be maintained, for the reason that, before the order, the principal had been removed from the receivership, and thenceforward his act or omissions could not be the violation of the duties of a trust, which could only exist when the receivership was in existence. I think the proper construction is, that the defendant was to be bound, so long as there was any duty of his principal’s trust to be performed, and that included a duty of the trust yet to be performed after his expulsion from the office. The trust and the duty springing from it remained.

I am also of opinion that the order permitting the plaintiff to prosecute the bond, authorized him to bring this action. The people of the State had no property interest in the chose in action. By due authority from the people, the court had used their name as the obligee, that the real party in interest or bene-" ficiary, according to circumstances, might have the

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benefit of the contract. It is as if the name of the clerk or of a third party had been competently used for the purpose. A formal assignment was not necessary. The circumstances were equivalent to that, even if, under the Code, the plaintiff had not an absolute right, as a party in interest, subject to the direction of the court. The court has ordered that the plaintiff prosecute the bond, and for formal purposes may be deemed authorized by the obligee to make such order.

The plaintiff, as receiver appointed to succeed Biker, is the party in interest, and the measure of damages is the amount he would have received if the duty of paying the sum named in the order had been performed.

The defendant’s exceptions are overruled, and judgment ordered for plaintiff, on verdict, with costs.

Speir, J., concurred.

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