175 F. 261 | S.D.N.Y. | 1909
(after stating the facts as above). If the receiver gave up no rights, the defendant got no protection from the contract, because without it he had the power to sell off the stock. He would have been in no worse situation without the contract than with it, for without it the complainant could have done no more than elect to charge him with the value, or the proceeds according as it was to his interest and to refuse to allow him his expenses, and that is precisely what he wishes to- do, as it is. On the other hand, the obvious purpose of the receiver as the contract states was to get the stock sold as soon as possible. While it is true that he might have thrown out the credits if the defendant sold or held the defendant for the depreciation of the goods, if he did not, the defendant might have preferred to let the stock remain unsold and fight the issue of depreciation, instead of realizing upon the goods and being obliged to lose all his expenses. Therefore the receiver insured himself of a sale under the most advantageous conditions, which were derived from the defendant’s exceptional access to the market and his very complete business organization; and he likewise obtained a joint control over all the sales, which he could not otherwise get. Now, the complainant’s construction not only removes any incentive to the defendant to enter into the contract, but also in so far as it does so remove all incentive would have deprived the receiver of the assurance that the defendant would in fact sell the goods and so realize their value. All this makes most improbable the complainant’s interpretation.
Coming now to purely verbal construction, so far as concerned the property remaining in specie on January 15, 1903, the receiver had in equity only one right or remedy, which was to compel its redelivery in specie, with possibly damages for depreciation, as I have suggested. It is true that he might have claimed, and may still retain, a right to sue at law in conversion, but that is irrelevant to this suit in equity. So far as concerns any goods sold after January 15, 1903, he therefore, by his consent to their sale, abandoned all rights which he then had in equity. This is definitely corroborated by the fact that the parties provide that they “shall have * * * the same rights * * * in the proceeds as they had in the property itself.” The use of the imperfect tense “had” indicates clearly enough that they recognized that at the time when the proceeds were to come into existence the rights of both in the property would be already in the past. This disposes of the com-. plainant’s entire contention in this suit that the contract preserved his rights “in the property” because even upon the most literal interpretation no possible construction 'can be placed on the words which does ngt involve the destruction of the only rights the receiver. had in equity. His intention must have been to substitute the proceeds for the goods.
It is true that the contract preserved any right to charge the defendant for damages arising from the deterioration of value in the
Therefore the sale of all goods on and after January 15, 1903, was by consent and rightful. The defendant was liable for only what he received and could charge his reasonable expenses. Hence the account after that date was correctly stated by the master, except as to certain matters considered later on.
This argument does not apply to so much of the goods as the de • fendaut had already sold prior to January 15, 1903. As to these the estate was at that time entitled to an account in equity charging the defendant with either their value, or the proceeds, and I cannot construe the contract as going so far as to release those existing rights, especially in view of the explicit reservations to the contrary. While these goods amount to only about $3,000 out of a total of nearly $13,000, I shall have to consider them separately later.
I have heretofore assumed that the agreement when ratified was valid, but this the complainant denies. To make plain the precise issues several irrelevant propositions must be laid to one side. First, is the question of the court’s jurisdiction summarily to determine any controversies regarding a res in adverse possession of a third person. This is not involved here because the defendant consented to. sell the goods under the agreement. Hence all talk about Whitney v. Wenman, 198 U. S. 580, 25 Sup. Ct. 778, 49 L. Ed. 1157, and kindred cases, is beside the point. It may be admitted that a sale by the receiver out of possession would be a nullity, and would confer no title. The question is whether after adjudication, which was on January 9, 1903, and with the consent of the adverse holder, he may bind the estate. Second, it is of no consequence whether the order was in fact necessary for the preservation of the estate, because that was a matter for the discretion of the court when it made the order, and does not go to its jurisdiction. Obviously the sales could not be now reopened upon a review of the court’s determination of that necessity. Either the court had jurisdiction, though not in possession, to determine the necessity for sale, or it had not. T cannot review the actual determination collaterally. Raht v. Attrill, 106 N. Y. 428, 13 N. E. 282, 60 Am. Rep. 456, was a case where the receiver’s certificates were issued in an action to which the trustee for bondholders was not a party. It could not therefore conclude them. Here after the adjudication all parties could be bound by an order, except the defendant, who consented.
Yet Bryant v. Swofford Company, 214 U. S. 279, 29 Sup. Ct. 614, 53 L. Ed. 997, clearly authorizes such an agreement if the receiver gets possession in pursuance to the agreement. While I should not say that the contract in the case at bar went so far as that in Bryant v. Swofford Company, and actually put the receiver into joint possession with the defendant, it unquestionably recognized a joint control of the sales and of the proceeds. The words are “an orderly disposition of said property under their joint supervision and control.” Again, “Said sale shall be conducted for the joint account of said parties hereto.” The defendant, though an adverse holder, admitted the possible interest of the receiver and his right to share in the management of the property, and that was enough to give the court the power and duty to direct him in the control so conceded to him. Had the contract provided that the defendant’s possession should be considered that of the receiver, but that he should still be entitled to physical custody for purposes of sale, all formal difficulties would be avoided. I cannot believe that the law requires a mere change in form such as that to give validity to the order.
After all, what is the basis of jurisdiction in such cases? When the court has full possession of the res, a possession which it can defend, all others must come to it to assert any rights. If it has no possession, those who have are free to act as they choose, unless the court can obtain personal jurisdiction over them. But the court has power after adjudication, even through a receiver, to sell the interests' of all creditors and of the bankrupt. Where an adverse party has possession, it could not enforce its sale, or put its purchaser in possession, but if the adverse party consents and co-operates, why cannot the court in a necessary case pass the title of the creditors and bankrupt quite as well as if it had possession? The only difficulty in principle is the possession of an adverse party, and that difficulty is removed by his consent, which it would be a contempt for him subsequently to revoke.
Moreover, the delay of the trustee should estop him on principles of good conscience. It is true that before he was appointed trustee on April 23, 1903, nearly all the goods had been sold, but he should have expressed some dissent even though the thing was done. He says that he relied on his interpretation of the contract, but he made no effort to s'ee whether his interpretation agreed with the defendant’s, and he slept for over four years without suggestion of complaint. I do not say it was dishonest, but I do think it is now too stale a contention to urge. In Bryant v. Swofford Company, 214 U. S. 279, 291, 29 Sup. Ct. 614, 53 L. Ed. 997, the receiver received
Having disposed of those items of the account which arose on and after January 15, 1903, I must next consider the earlier items. The parties do not seem to have adopted the practice laid down for a general accounting in equity. Under the seventy-ninth equity rule, which follows the sixty-first of the English Orders in Chancery, the accounts should follow the old English practice as stated in the standard books. 2 Dauiell’s Chancery, *p. 1221; 2 Smith, Chancery Practice, c. 13. In view of the unfamiliarity of many practitioners with the procedure, it may not be amiss to state what that practice was, modified in so far as the federal practice requires. The defendant should first file with the master an affidavit having annexed thereto all his account, containing both debit and credit items. At the end of a specified time fixed by the master, the complainant. must file what was termed “the charge,” which contained simply the transcript of all the debit items of the account as filed by the defendant and those added items, or increases in items with which he seeks ro charge the defendant. Upon filing this with the master, the case proceeds upon the examination of the defendant and the taking of other testimony until all evidence concerning the items in the “charge” lias been completed. Thereupon the defendant will file his “discharge,” consisting of all the credit items taken from the account and supported by his vouchers for amounts over $20. Remsen v. Remsen, 2 Johns. Ch. (N. Y.) 495. Testimony should then be taken, on the items of “discharge,” and, upon completion of the testimony,, the master is in a position to state the account. The onus probandi is upon the complainant as to any items of the “charge” which are not admitted in the account as filed (2 Smith, Chancery Practice, p. 127), and upon the defendant as to all the items of “discharge.”
In the case at bar two questions arise: First, as to the proper items of “charge” prior to January 15, 1903; and, second, as to items of “discharge” prior to the same date. I am satisfied from the testimony that the master was correct in finding that the best evidence of the value of the goods was the price at which they were sold by the defendant, considering the conditions under w'hicli those sales were made. The value of a thing is what under normal conditions it will sell for, and the best evidence of that when you are sure that the sale is under such conditions is the actual sale itself. There are, of course, many cases where you cannot be sure of excluding exceptional factors bearing on the sale, but the sales made by the defendant were under conditions to obtain “the greatest possible value for the property,” as the complainant himself while receiver ac
I attach no practical value to the inventories, certainly in the face of the sales made so soon thereafter. It would be in my judgment a very absurd and shocking result to charge the defendant in the face of the sales, because some 10 days before he got possession he prepared an estimated valuation such as this inventory. Not only is it open to suspicion as to the values contained, but the very presence of all the goods on the 15th of December is doubtful. The master has found the value to be the proceeds realized. Being satisfied that he had the right to consider the sales as evidence of value, I should have to entertain a very different opinion upon the facts to reverse his report.
As to the items of “discharge” prior to January 15th, they must be all disallowed in accordance with the well-settled rule that any services rendered, or disbursements made, by a trustee ex maleficio, are made upon his own account, and cannot be credited to him when he comes to account in a court of equity. There is nothing unjust in this. The defendant wrongfully seized the goods, and at once began selling them, which he had no right to do, and which he knew he would be held liable for doing. In selling them he made certain disbursements, but they were not made at the request of the trustee or of receiver or of any other person. By all rules of equity they must be held to be purely voluntary, and he cannot credit himself with them.
The questions remain of interest, disputed items of “discharge,” and costs. First as regards the question of interest. By December 19, 1902, the defendant had received clear intimation that the receiver regarded his possession as wrongful, for he attempted by summary order to obtain possession. It is, of course, quite true, at least in theory, that a subsequent trustee might not agree with the receiver, but I am satisfied that the defendant took his chances in retaining possession after that time, and that no demand was necessary. From then he became a trustee ex maleficio, having seized- from the '■ estate property which .he had no right to retain and which he knew was being claimed. Interest must therefore be charged against him at least from the time when he sold the property, and I can see no reason why he should not pay interest at the legal rate. Were he a duly constituted trustee, he would be obliged to pay only such in1 terest as he in fact received or should have got, but I think it will not be contended that he has any such exemption from the time when .his retention became wrongful. A question does arise as to interest between December 15, 1902, and the date of sale of the property which was all substantially completed by the end of June, 1903. As
As to the three items of discharge for rent, labor, and commissions, I will allow them all; the only one upon which I have any doubt being' the commissions. I am inclined to think the word “compensation” used in the contract must have meant more than the defendant's actual outlay, which seems to he covered by the word “costs.” Of course, it may have meant the “compensation” to his employes, but it is more equitable to construe it as meaning a compensation to himself. It is no doubt difficult to ascertain just what benefit to the sale of a stock of goods is derived from the personal superintendence of die merchant, independently of the services of those who conduct his business, but I think no one can deny that there is some substantial additional value derived from it, and [ do not believe that the defendant intended, in case the proceeds were eventually all to be turned over to the complainant, that he should remain unpaid for such services. These three items must, however, be allowed at only such proportion of their total amount as the gross proceeds from the goods sold on and after January 15, 1903, represents to the total gross proceeds. While this is only an approximation as to some of the items, it will serve as justly as any other rule.
As to costs, T shall allow the complainant the docket fee and all the disbursements up to and including the interlocutory decree. In doing this f am quite aware that the complainant has demanded more than he has received under the decree, and that his bill of complaint sought to go back until the 1st day of September, 1902. In that respect he failed, but the defendant had acted without any regard for the legality of his acts. He seized all he could get, and he took all chances of violating the law. He must now pay costs when the chance has gone against him. The costs after the interlocutory decree must be borne by the complainant. The only doubt which I had was as to the costs up to the filing of the formal account.
It is true that all the proof taken by the defendant was strictly speaking irrelevant till the complainant in his “charge” sought to surcharge the account as filed. Thereafter, the complainant, not the defendant, was called on to substantiate the surcharge. 2 Smith, Chancery Practice, 127. Therefore the defendant was accepting an onus probandi which was not his. However, no one seems to have followed the proper practice, and the complainant cannot object, because the defendant accepted an onus which he need not have clone. It was obvious enough that his accounts were to be disputed, and all the testimony taken was at some time or other material to the dispute. The complainant has been unsuccessful, except as to some of the items of discharge, which caused none of the disbursements. Therefore the complainant must pay the defendant’s disbursements
One respect in which the master has departed from the course of equity practice is so important that I feel bound to notice it. Having correctly served his draft report and awaited objections, he added to his final report his disposition of certain “requests to make findings of fact” which the complainant filed with him. Of course, the master may embody his conclusions in separately numbered findings, if he wishes, but he should not rule on “requests to find,” and, most of all, he should not incorporate such rulings in his report. The objections may be the basis for a revision of his report if the master be so advised, but that is all. “Requests to find facts” are, so far as I can find after considerable investigation, wholly unknown in equity practice in the federal courts, and in this instance are undoubtedly borrowed from the practice of the New York Code which was found once so intolerably burdensome, as to be repealed, and which, having been now re-enacted with the hope of giving a larger scope of review to' the New York Court of Appeals, has again become a most vexatious annoyance to the judges. While, no doubt, only those exceptions to the final report are good which were taken by objection to the draft report, the objections will themselves come up with the final report, and ordinarily will not be regarded at all, unless some point should be made as to the validity of the exceptions. It is in my judgment better that a report read as a narrative, and certainly it should not be cut up with statements as to what the master declined to find. While the document here incorporated is not within rule 76, that is only because it is quite anomalous in equity practice, and the rule- certainly forbids what was actually done in this cause.
Let a decree pass as follows: Charging the defendant with the actual gross proceeds collected from all accounts paid after December 15, 1902, and from the sale of all goods sold- before or after January 15, 1903, crediting the defendant with all items of discharge in his account on or after January 15, 1903, except a certain proportion of the disputed items as mentioned above, charging interest from the receipt of each item of charge at 6 per cent, and crediting interest similarly upon each item of discharge allowed; directing the defendant to pa3r costs and disbursements to the date of the interlocutory decree, and crediting him with his disbursements thereafter; permitting the defendant, upon giving security, to retain so much of the sum directed by the decree as the face of his proposed claim in bankruptcy bears to the sum of all claims, including his own; • permitting the complainant to apply at the foot of this decree at any time for a modification compelling the defendant to pay over the retained portion upon the ground either of his unreasonable delay either to-file or press his claim in bankruptcy, or of its disallowance in whole or part by the bankruptcy court; permitting likewise the complainant to apply at the foot of the decree to compel the defendant to pay over his proportion of any expenses in bankruptcy past or future upon due proof of their payment; finally, allowing either party to apply at the foot of the decree for any other modification thereof.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date. & Kep’r Indexes