Ratchford v. Proprietors' InsuranceRatchford v. Proprietors' Insurance
Lead Opinion
Former
“The superintendent may, subject to the approval of the court sеll or otherwise dispose of the real and personal property of the company, or any part thereof, and sell or compromise all doubtful or uncollectible debts or claims owing to the company, includ*3 ing claims based upon an assessment levied against a member or subscriber of any company issuing assessable policies.” (Emphasis added.)
The merit issue before us involves the operative words “subject to the approval of the court.” Do these words give a trial judge the right to disapprove an otherwise validly secured and entered-into purchase contract or is the trial judge limited to determining if the proсedures leading to the agreement were in accordance with law and free from fraud or abuse of the liquidator’s discretion? Because we believe that the intent of the General Assembly, as expressed in R.C. Chapter 3903, was to give a liquidator broad general authority and responsibility to dispose of assets of an insolvent insurance company subject only to judicial review to assure that there is no fraud or abuse of discretion in the process, we reverse the judgment of the court of appeals and enter final judgment for appellant.
Before proceeding to the merit issue, there are two procedural matters thаt should be addressed. On either ground (or both), the judgment of the court of appeals should be reversed and final judgment entered for appellant.
There really is no case or controversy now pending before this court nor would there be before the trial court if this case is either affirmed or reversed. Certainly the liquidator, who sought appellant’s bid, approved the bid, signed a. contract accepting the offer and then urged the trial court to approve the contract, should not now be heard to say that he disavows the contract. Since he (the liquidator) and appellant are the only parties now before us (Capitol having withdrawn), it would seem that the contract between these parties should be approved since there are no recognizable pending objections to the contract. Of course we do not decide the case on this ground since the matter has not been presented to us, briefed or argued.
The second procedural issue involves the basis for the court of appeals’ decision. The court of appeals found “* * * an irregularity in the sale process which entitled the court [trial court] to reject the liquidator’s motion to approve the contract with Piolata. * * *” The perceived “irregularity” was that thе Sabatino offer, which had originally been accepted by the trial court and then orally vacated by that court, had not been vacated as a matter of public record. The court of appeals reasoned that “* * * since the property was not publicly advertised for sale, some bidders may have concluded that the property was no longer subject to sale. * * *” (Emphasis added.) The court of appeals found that this “irregularity” was enough to permit the trial court not to approve the contract between the liquidator and appellant.
There are two serious problems with this conclusion of the court of apрeals. First, as the court of appeals itself noted, “
Given this clear and unequivocal statement, it is difficult to understand the final conclusion of the court of appeals that the property “* * * was not publicly advertised for sale * * *” and
The Second problem with the court of appeals’ opinion and decision is one of even more profound concern. Appellate courts review cases based upon records compiled in.lower courts and upon issues raised in trial courts. Here, the court of appeals raised, and then decided, the case on the issue of whether the property was publicly advertised for sale. Such an issue was never raised, argued or briefed in the trial court and, in addition, there is nothing in the record to support the appellate court’s conclusion. It is unfair on appeal, and inappropriate, to decide a case on an issue that a party, losing by the decision, has not had an opportunity to refute by introducing evidence or argument.
In addition, what evidence there is in the record is completely contrary to the court of appeals’ conclusion. It is alleged, and not denied, that a very large “For Sale” sign had been erected on the property and had remained in place for some time. The property and sign were in place on one of Central Ohio’s busiest roadways. It is difficult to understand thе court of appeals’ decision that some bidders may have concluded that the property was no longer for sale during this protracted process.
Further, the liquidator actively solicited bids for the property between the time the trial judge orally vacated his original approval of the Sabatino offer, October 17, 1986, and the time the contract with appellant was concluded, February 1987. Certainly the vacation of the Sabatino offer was no secret to the many potentially interested bidders who appeared at the several court hearings held subsequent to the vacation. Additionally, the record does contain documents frоm other developers and real estate agencies, leaving no question that those interested in the property had knowledge that the property was for sale and the liquidator was seeking offers.
While the foregoing is persuasive, the real point here is that the court of appeals decided this case on an issue that was not raised by any party, creditor, intervenor or the trial court itself! Adopting such a procedure was improper and unfair.
As to the merit issue, we agree with the court of appeals when, in discussing the appellant’s accepted offer, it made, in part, the following points: that the superintendеnt, pursuant to
While, admittedly, precedent on the issue now before us is sparse, we find In re Liquidation of National Surety Co. (1936),
“The Superintendent may, subject*5 to the approval of the court (a) sell or otherwise dispose of the real and personal property, or any part thereof, of [the company in liquidation]. * * *” (Emphasis added.)
In National Surety Co., and as found by the court of appeals below in the case at bar, “* * * the liquidator accepted a bid which was the highest bid received by him after the property was offered for bid. The trial court refused to accept that bid because the third highest bidder had improved its bid by amendment in open court to provide more money for the creditors. There was no claim that the original bid chosen by the liquidator was made fraudulently or irregularly. The superintendent of insurance was motivated by the best interest of the creditors of the insurance company in accepting that bid. The appellate court reversed the judgment of the trial court on the basis that the court’s power of approval extended only to the examination of whether the bid which the liquidator had accepted was made fraudulently or irregularly and whether the superintendent of insurance was motivated by the best interest of the company’s creditors. The appellate court pointed out that all interested parties had a fair chance to compete and the bid approved by the liquidator was the highest and best bid at the time the liquidator accepted it.” (Emphasis added.)
Given this recitation by the court of appeals and these facts, which are almost identical to the case at bar, we further concur with the court of appeals’ statement that “[w]e agree with the majority in In re National Surety Co. The liquidator’s bidding process would be meaningless if the court can consider a higher bid which was not submitted to' the liquidator in a sale process which took plаce fairly and without irregularity.”
Our only disagreement with the court of appeals is its finding that an “irregularity” involving the Sabatino bid existed and thus the property should have been publicly advertised. We find no irregularity at all, given the facts that the sale could have been a private sale and that all the parties who eventually expressed an interest submitted offers. As the court in National Surety Co., supra, at 117,
«* * * Nevertheless, we do not believe that the discretion of the superintendent of insurance should be interfered with upon the theory that sometime in the future the property of the corporation may become more valuable than it was on March ninth when the bids were opened. * * * The public at large were accorded a full and fair opportunity to comply with the provisions of the proposal * * *. Public confidence requires that an officer who has charge of the sale of large properties, should be permitted to accept the honest and adequate offer of the highest bidder where, as here, all investors had a fair chance to compete.” This is exactly what happened in this case!
It is argued, however (and now only by the liquidator who accepted appellant’s offer and moved the trial court to approve the agreement), that even though there was no fraud, irregularity or abuse of discretion in the selling and buying process and even though the liquidator obtained the highest and best price for the property, based upon negotiations and bids, that was available at the time of the proposed sale, the trial court was only interested in obtaining the most money possible for the creditors of PIC in the liquidation. Therefore, the argument continues, the trial court had the authority to disapprove the contract between the liquidator and appellant
Other than this is a curious argument made by a person, the liquidator, who has signed a contract and previously asked the trial court to approve the offer as being the highest and best obtainable, and no fraud or irregularity has occurred, the argument fails for at lеast six other reasons.
First, the statutory scheme for liquidation of insolvent insurance companies needs to be understood. Pursuant to then existing
Second, this interpretation of legislative intent is clearly supported by subsequent actions of the General Assembly. When the legislature amended, in 1983, the statutory scheme for liquidation of insolvent insurance companies, court approval of sales of land was еliminated entirely without so much as a reported comment in the legislative history. In making minor changes and “tuning up” the law, it can be cogently argued that the General Assembly, not commenting upon the change, never intended at any time to give a trial court a participant’s role in liquidation, but intended only a supervisory role to ensure against fraud and abuse of discretion.
Third, and as further proof of this intent, we need to look further into the liquidation statute. Then in effect,
Fourth, it is instructive to look at how the General Assembly and the courts handle other types of liquidations. While again authority is sparse, it is important to recognize that current R.C. Chapter 1157 involves savings and loan associations which appear to be distressed or insolvent. In that chapter, and specifically
“The Legislature is within its right when it invests exclusive control and supervision of associations in the superintendent of Building & Loan Associations.
“Of course, the law is well recognized that the acts of any administrative officer or individual may be questioned for fraud or abuse of discretion.” (Emphasis added.)
The court of appeals continued:
“An examination of the Eichenbary Act and other cogent sections will disclose that the Legislature sought to circumvent a possible abuse of discretion by providing that many of the orders of the superintendent would become effective only upon approval by the Court of Common Pleas in and for the county in which the Building & Loan Association was located.
“Under the provisions of the Eichenbary Act great latitude is given to the superintendent in the administration of the affairs of a Building & Loan Association taken over or being liquidated under his supervision. * * *” (Emphasis added.) Id.
Therefore, when faced with reviewing language similar to “subject to the approval of the court” language as found in
Fifth, it is fair to ask where, if our decision were otherwise, would the process end — or would it ever end? If the properly was now to be advertised and new bids sought, what is there to stop yet another person or entity from coming into court, after the liquidator has received the offers and accepted the highest bid, and indicating that the advertisement for bids had not been noticed and the non-bidder was now willing to pay $500 or $1,000 more per acre. Upon what authority could a trial court now say “no, the process is over”? Obviously, the same rationale in refusing appellant’s accepted offer would pertain to new offers or bids.
Here the property in question is apparently appreciating in value. What if property being liquidated was losing value and the offeror of a liquidator-accepted offer chose to be relieved of his or her obligations? All the offeror need do is have somеone come into court and offer something more for the property, thereby forcing new bids or offers at which the original offeror and the new offeror need not bid. Such a policy, as espoused by the trial court and the court of appeals, could lead to a complete frustration of the sensible scheme laid out by the General Assembly. Appellant is now obligated. Barring fraud or abuse of discretion, both appellant and the liquidator must live with their bargain.
The sixth and final concern is really the greatest. Here we have a mutually bargained-for, agreed-to contract. The liquidator here is not like a court-appointеd receiver or trustee. The liquidator is not acting at the behest or on the behalf of the court. The liquidator is the owner of the property. He has entered into an agreement to sell what amounts to his property. The contract is binding and absent fraud, abuse of discretion or illegality, it must be enforced. Certainly, if the appellantofferor were seeking to be relieved
Generally speaking, a contract is a definite agreement between two or more competent parties based upon a legal consideration to do, or to refrain from doing, some lawful thing. The contract in question between appellant and the liquidator meets each of these requirements. The understanding between the parties was definite. Each of the parties was competent and appellant made a deposit and promised to pay the balance due. The agreement was to buy and sell a piece of property — clearly a lawful undertaking.
As England moved from a relatively primitive culture to a commercial center with a capitalistic trend, the law, by necessity, also changed. One of the changes involved “freedom of contract” and this freedom became the underlying principle for the development of the law of contract.
This is well-illustrated in Maine’s classic phrase that “* * * the movement of the progressive societies has hitherto been a movement from Status to Contract” (Emphasis sic.) Maine, Ancient Law (4 Amer. Ed. 1906) 165. Professor Williston added that “[economic writers adopted the same line of thought. Adam Smith, Ricardo, Bentham and John Stuart Mill successively insisted on freedom of bargaining as the fundamental and indispensable requisite of progress * * *.” Williston, Freedom of Contract (1921), 6 Cornell L.Q. 365, 366.
Chief Justice John Marshall said about the law of contract: “* * * If, on tracing the right to contract, and the obligations created by contract, to their source, we find them to exist anterior to, and independent of society, we may reasonably conclude that those original and pre-existing principles are, like many other natural rights, brought with man into society; and, although they may be controlled, are not given by human legislation.” Ogden v. Saunders (1827),
The right and freedom to contract is an inalienable right which existed prior to, and independent of, government. The power of the parties to contract as they please for lawful purposes remains a basic principle of our legal system. We are not persuaded to inhibit that right in this case.
Accordingly, in a statutory liquidation of an insolvent insurance company, former
The judgment of the court of appeals is reversed. The liquidator is ordered to carry out the terms of appellant’s accepted offer. Final judgment is granted to appellant.
Judgment reversed.
Dissenting Opinion
dissenting. Former
The conclusions of the majority to the contrary are not supported by the language of former
The holding is, of course, not accurate, and results from a misconstruction of the role of the liquidator and the facts of this case. The liquidator enterеd into a contract with appellant and submitted it for the required court approval at a time when he believed appellant’s to be the highest and best offer. Immediately prior to the hearing on the contract, two other bidders submitted offers which were $1,000 and $1,100 per acre more than appellant’s offer. The statutory liquidator’s goal is not to unload the insolvent insurer’s property at the first opportunity, but rather to protect the policyholders, stockholders and creditors of the insolvent insurer, as well as the public in general. See former
The majority’s decision is grounded upon incantations of sanctity of contract. However, freedom of contract has not been assailed by the trial court’s decision, pursuant to former
Finally, I believe the majority has misinterpreted the law of New York on this subject. New York courts have developed a substantial, coherent and persuasive body of case law concerning the scope of a court’s authority in approving sales of property by a statutory liquidator, pursuant to a statute nearly identical to former
“The statute is notice to him [the liquidator], however, and to any one who deals with him, that the agreement, whatever its form, is of merely provisional validity. He may fix the rate of compensation as a trustee or an assignee for creditors or a receiver may be said to fix it (cf. L. 1903, ch. 336, § 9), but subject at all times to the approval of the court. The meaning is that even when he acts, the court shall have a veto. * * *
* ** *
“Argument is made that what the liquidator does in fixing the value of a service, if not exempt altogether from review by the courts, must be held to be exempt unless power and discretion have been flagrantly abused. When he is merely wrong, the court is helpless, but when he is very wrong indeed, its authority is restored. There can be no basis for this distinction unless it be in the assumption that the Superintendent is an arbitrator whose award is not impeachable for error in the determination of the merits, but impeachable only for mistake appearing upon the face thereof, or for fraud, or abdication of duty equivalent to fraud (Fudickar v. Guardian M. L. Ins. Co.,62 N.Y. 392 ; Sweet v. Morrison,116 N.Y. 19 , 33; Matter of Burke,191 N.Y. 437 , 440; Davis v. Henry,121 Mass. 150 , 154; 3 Williston, Contracts, § 1929-a). But an arbitrator he is not, as we have already sought to show. Neither expressly nor by reasonable implication are those who deal with him advised that in the act of so dealing they have clothed him with judicial power * * *.” Id. at 449-450,155 N.E. at 736-737 .
This holding, that the phrase “subject to thе approval of the court” means that the court may veto an action of the liquidator but cannot compel it, was reaffirmed in In re Lawyers Mortgage Co. (1944),
The majority’s citation to In re Liquidation of National Surety Co. (1936),
The dissenting opinion in National Surety Co., supra, provided a different view of the lower court’s discretion in light of the facts and circumstances before it:
“Substantially seventy-six percent of the creditors, therefore, appeared to oppose the acceptance of the bid and only one single creditor appears to have favored it. It also -is to be noted that the committee representing stockholders objected. Moreover, the testimony of the experts called on behalf of the objectants gave an average value of some $13,000,000 to the stock. Their testimony was also to the effect that a three-years’ experience, or until the end of 1936, would afford a better basis for ascertaining the real value. The record shows that the status of the liquidation proceedings is such at this time as would not result in a present distribution to creditors and that a postponement of any sale would involve no practical risk. It appears, therefore, as contended for by the creditors and the owners (stockholders), the bid of the appellant was not adequate and shоuld be rejected under all the circumstances.” Id. at 119,288 N.Y. Supp. 1022 -1023.
The appellate court in National Surety Co., supra, was merely reviewing the exercise of the lower court’s discretion in exercising its statutory veto power over sale contracts submitted by the liquidator. The case is thus consistent with the standard set forth in In re Casualty Co. of America, supra, by Judge Cardozo. It certainly does not support the restrictive standard adopted by the majority here. Quite simply, the trial court, in its sound discretion, may veto, but may not compel, the actions of the liquidator.
Because it is my opinion that this veto of the proposed sale was clearly within the authority of the court in its capacity as supervisor of the liquidation process, granted by former
Notes
Justice Glennon, speaking for a three-judge majority, thus characterized the lower court’s order: “The order as entered not only provided for the rejection of * * * [the] bid, but, in addition thereto, contained an authorization, but not a direсtion, to the Superintendent of Insurance to sell seventy percent of the stock to the Bancamerica
Second, the court examined, as the trial court should have, whether or not the liquidator was justified in recommending the approval of the original bid. The majority believed that he was, and held that the bid should have been approved. Id. at 117,
The two dissenting justices, after citing the controlling law of In re Casualty Co. of America, supra, agreed that the lower court went too far in ordering approval of the subsequent higher bid. However, the dissenters felt that the “best interests of the creditors and stockholders and of the corporation itself were served by the rejection of the * * * [original] bid.” National Surety Co., supra, at 119,