Barnes v. . Newcomb

| NY | May 2, 1882

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] We are of opinion that for the services rendered by the plaintiff to the corporation after the appointment of the receiver, an action against the receiver cannot be maintained. The company, or its officers, could not after that date subject the fund in the hands of the receiver to any legal liability. For its indebtedness to the plaintiff, incurred before the appointment of the receiver, the plaintiff has been permitted to recover. For that incurred afterward he was not permitted to recover.

The plaintiff seeks to avoid this difficulty, and to make his claim for services rendered after the appointment relate back to a period anterior to such appointment, on the ground that they were rendered under a contract made prior thereto, viz.: at the time of his original retainer in May, 1877, and that such retainer was an entire agreement which covered all services he might render throughout the litigation. What effect, if any, a special contract of that description, covering future legal services (if proved), would have upon the question now at issue, it is needless to discuss, for no such contract was proved. The only evidence in the case as to the employment is the testimony of the plaintiff himself. He states that an order was made on the 11th of May, requiring the company to show cause on the 14th why a receiver should not be appointed, and that on the 12th of May he was retained by the officers of the company to oppose its being placed in the hands of a receiver, and under that retainer he opposed the motion, took testimony, etc., and that the order appointing the receiver was made on the 6th of August, 1877, and his services were paid for up to the closing of the testimony and no farther. That he and his associate counsel then advised an appeal, and he was requested by the officers of the company to take the appeal, which was taken to the General Term, where the order was affirmed. That the same officers desired him to take a further appeal from the order of the General Term to the Court of Appeals, and in accordance with this request on behalf of the company he did so. Afterward, without any specific instructions, but in accordance with his knowledge and general retainer, and with the knowledge and assent of the officers, he opposed the confirmation of the report of the actuary, and that he rendered the subsequent services for which, in this action, he claims to recover compensation, under the same general retainer.

We think this evidence fails to make out an entire contract, for the performance of which the company or its assets became bound at the time of the original retainer, so as to create a liability on the part of the receiver for services rendered after the date of his appointment, and that the finding of the court in that respect is unsupported by any evidence.

The trial court, however, found that the opposition on the part of the company to the appointment of a receiver was in good faith and with a conviction of the solvency of the company, and its right to conduct its own business, and that it had probable cause and reasonable ground for such opposition. Under such circumstances it was clearly the duty of the officers of the company, as trustees for all parties interested therein, to take the necessary steps to protect its corporate existence, and to repel the attack which they regarded as unfounded, and it is but just that such reasonable expenses as they incurred for those purposes should in some form be allowed to them. But it was entirely in the discretion of the court, in administering the fund, to determine up to what stage in the proceeding the opposition was proper, and what should be a reasonable sum to be allowed for the services rendered, or whether any allowance should be made. If there was just ground and probable cause for appealing from the order appointing a receiver, it was competent for the court, in its discretion, to allow a reasonable sum for the expenses of such appeal. It appears that the propriety of that appeal was recognized by this court, by allowing to the company costs of the appeal to be paid out of the fund, which was all that it had power to allow, any further allowance being within the province of the court holding the fund. Whether the proceedings subsequent to the affirmance of the order were justifiable and proper, and any allowance should be made in respect to them, rests in the sound discretion of the court which controls the fund.

As a general principle, trustees of a corporation whose corporate existence is attacked, should be afforded the means of resisting such attack, so far as the facts justify and their duty demands. Public policy requires that they should be protected to this extent, but no farther, and a premium should not be held out for captious and vexatious contests at the expense of the fund, which the court is under the highest obligation to preserve, as far as possible, to meet the just debts and liabilities of the corporation. But the claim of the trustees to be protected in the defense of the corporation they represent, or that of their counsel to be paid out of the fund for opposing the appointment of a receiver, however just it may be, is not an absolute right which can be enforced by an action in their behalf against the receiver, but is a matter to be addressed to the sound discretion of the court in which the proceeding is pending, and such discretion should be exercised in that proceeding, and as part thereof, and upon a consideration of all the circumstances.

In the present case the plaintiff made an application to the Supreme Court, on which application it would have been competent for the court to pass upon the merits of his claims, and afford him such relief as he was entitled to; and in fact the court entertained the application, and made an order referring it to a referee to take proof of the plaintiff's claims and report the facts to the court. But as part of the same order they gave to the plaintiff the alternative privilege of bringing an action. He elected that course instead of going before a referee, and, on the proofs taken before him, appealing to the discretionary powers of the court. By so doing he assumed the burden of establishing that he was entitled to payment as matter of right, enforceable by action, and not resting in discretion. This right of action he has in our judgment failed to make out.

We think, however, that justice requires that his claim be examined, and the discretion of the court exercised thereon. The court will have full power to determine for what services (if any) he should be allowed, and what, in its judgment, would be a reasonable and fair compensation therefor.

The judgment should be affirmed, without costs, and without prejudice to a renewal of the plaintiff's application to the court for payment of his costs and reasonable counsel fees and expenses out of the fund in the hands of the receiver.

All concur.

Judgment accordingly.