State Ex Rel. Fayette Wholesale Gro. Co. v. Mors

Maxwell, Judge: This is an action in debt on a special receiver’s bond. The surety, United States Fidelity & Guaranty Company, a corporation, prosecutes this writ of error to a judgment against it for $1,743.30, based on verdict. By decree of the circuit court of Kanawha County entered June 10, 1927, in the chancery cause of A. Johnson and others against Illini Coal -Company, a corporation, and others, Raymond J. Mors was appointed special receiver of the *545 properties of tbe Illini Coal Company and was directed to “preserve and care for tbe same as be sball.be from time to time directed by tbis court and pursuant to tbe laws of tbis state governing receiverships.” By tbe said decree Mors as such special receiver was required to execute and file in tbe office of said circuit court a bond in tbe penalty of $10,000 “conditioned to well and truly discharge bis duties as-such receiver in accordance with tbe order of tbe court and to well and truly pay over and deliver, when and as directed by tbe. decrees of tbis court all property, money, eboses in action and other assets that shall come into bis bands as such receiver.” Bond in penalty, and conditioned, as required by said decree, was immediately executed by said special receiver with tbe United State Fidelity & Guaranty *Com.pany as surety. On tbe 17th of January, 1928, tbe circuit court, upon petition of said special receiver, granted him leave and permission to operate mine No. 2 of said Illini Coal Company for tbe production of coal to fill the orders then on band by said receiver and such other orders as he might obtain while tbe said decree should remain in force, but only upon condition “that all tbe cost and expense of starting and operating tbe said mine shall be paid by tbe plaintiffs in tbis suit out of their own funds, and that there shall be no liability, cost or expense incurred by tbe said Beceiver as such or on behalf of tbis suit, in so starting and operating tbe said mine.” By decree of March 17, 1928, tbe receiver was authorized to operate mine No. 1 of tbe said company, under tbe same limitations as are prescribed in tbe first decree. It is recited in each decree that tbe plaintiffs in said chancery suit and other directors of Illini Coal Company bad raised and deposited with said special receiver a sum of money sufficient to pay tbe cost and expense of putting .the mine in operating condition and of producing coal therefrom to fill tbe orders which tbe receiver bad in band. In April, 1928, tbe bill of merchandise upon which tbis suit is predicated was purchased by Mors of tbe plaintiff for use at tbe mines of tbe Illini Coal Company. There is some controversy as to whether tbis purchase was made by *546 Mors in bis capacity as special receiver or as agent of tbe Ulini Coal Company, bnt the jury by its verdict having resolved this controversy in support of the proposition that he made the purchases in his capacity of special receiver, we would not be warranted in holding that finding to be incorrect. In fact, we deem it well supported in the evidence. On behalf of the plaintiff it is urged that the special receiver, in purchasing the merchandise of plaintiff, acted within the scope of his authority under the decree of the court, although, perhaps, in excess thereof. It is argued that under the conditions of the bond the surety undertook to indemnify against loss all persons who might deal with the principal within the scope of his authority. We cannot subscribe to the proposition that the receiver acted within the scope and purview of his authority when he purchased the merchandise of'the plaintiff. We are impressed that he acted in direct violation of the decree of the court, and therefore wholly without authority. The receivership was primarily for the limited purpose of taking care of the property of the Illini Coal Company. This clearly appears from the order appointing the receiver. The surety became obligated on the bond on the basis of the limited character of the receivership. The mere custody or caretaking of property under a receivership is a far more modest and much less hazardous undertaking than the operation of coal mining plants. Operating receiverships may involve the handling by the receiver of large amounts of money which would in no wise be involved if the receiver’s only duties were to take care of the properties placed in his custody by decree of court. The possibility and even the probability of liabilities devolving upon the surety are thus far greater under an operating receivership than under a receivership which involves only the taking care of property. A bonding company is entitled to be compensated for the character of obligation which it undertakes. For the greater hazards it should be entitled 'to higher remuneration. Therefore, where a bonding company has become surety on the bond of a receiver clothed only with authority to take care of property, there would *547 be gross injustice in placing liability on sucb company for merchandise purchased by the special receiver under a subsequent decree of court clothing him with operating powers. Of course, the conditions of such bond might be sufficiently broad to embrace such later obligation of the receiver, but that is not this case. “A surety is never answerable beyond the clear scope of his engagement, and a contract of surety-ship is construed strictly both at law and in equity, and the liabilities of the surety cannot be extended by implication beyond the precise terms and scope of his engagement.” 1 Clark on Receivers (2d Ed.), sec. 420. In accord: Ayers v. Hite, 97 Va. 466, 34 S. E. 44, and numerous cases there cited. Even under the rule which requires the undertakings of corporate surety companies to be construed most strongly in favor of the obligees (Board of Com’rs. v. Clemens, 85 W. Va. 11, 100 S. E. 680), there cannot be read into the bond a condition entirely foreign to the purpose for which it was given. But this receiver, by the decrees of January 17 and March 17, 1928, was not clothed with the powers of an operating receiver, within the usual meaning of that term. The decrees were unusual. In effect, Mors was authorized by the court to proceed as agent for the plaintiffs and other directors of the Illini Coal Company to use the properties which were in the custody of Mors as receiver, and to operate the same for his principals and at their expense and risk. This was made very clear by the two decrees which authorized the operation of the coal mining plants. Persons dealing with receivers must take notice at least of their general powers and authority. 53 Corpus Juris, p. 160; 23 Ruling Case Law, p. 77; 1 Clark on Receivers (2nd Ed.), sec. 356. A clear statement of the rule appears in High on Receivers (4th Ed.), sec. 186: “And since a receiver has no power to make contracts without the authority of the court, all persons contracting with him are chargeable with knowledge of his functions in this regard and contract at their peril.” When Mors undertook, in his capacity of special receiver, to purchase merchandise of the plaintiff, he acted wholly beyond the authority which the court had conferred upon *548 him. In fact bis conduct was in direct violation of a clear and exact inhibition wbicb tbe court bad expressly placed upon bixn. In so doing be was not engaged in tbe discharge of tbe duties of bis trust. Although be acted under color of bis office, be was wholly outside tbe scope of bis authority. Tbe plaintiff, having been altogether indifferent about tbe extent of tbe receiver's authority at tbe time it extended credit to him, cannot now be entertained in its effort to fasten liability upon the surety. We find no legal support for that position. Special receivers, who, in tbe guise of their office, contract liabilities beyond tbe scope of their authority, are, as a general rule, liable personally for such undertakings. Vansenden v. Kerr, 89 W. Va. 62, 108 S. E. 423; Meyer v. Lexow, 37 N. Y. Supp. 67. This is tbe same rule wbicb is applicable to executors, administrators and trustees. Dunne v. Deery, 40 Iowa 251. Though, in such instances, there is personal liability imposed upon tbe fiduciary (including special receiver), we are cited no case, nor has our search revealed one, in which tbe bondsman of tbe fiduciary was held liable on tbe contract of tbe fiduciary in excess of bis authority. “A receiver’s bond covers two aspects of bis duties, one tbe care and preservation of tbe property that comes into bis bands, and tbe other tbe disposition or distribution thereof in accordance with tbe orders of tbe court.” Matson v. Surety Co., (Iowa) 215 N. W. 630. “Tbe liability of a surety upon tbe bond of a receiver conditioned for the faithful performance of bis duties is limited to cases of a violation of those duties wbicb may properly be said to be within tbe scope of tbe order of appointment. Accordingly, where a receiver, without any authority from tbe court, has proceeded to borrow money to pay off a mortgage upon real estate wbicb is in bis possession as receiver and fails to account for it, tbe surety upon bis bond is not liable for such misappropriation since tbe act of tbe receiver was entirely beyond tbe scope of tbe order of bis appointment.” High on Receivers (4th Ed.), sec. 133b. Upon tbe conclusion of tbe introduction of evidence, tbe defendant requested an instruction from tbe court directing *549 tbe jury to find for the defendant. The foregoing considerations impel us to the conclusion that the court should have directed such verdict. Therefore there will be an order here reversing the judgment, setting aside the verdict, and remanding the case for further proceedings. Reversed and remanded.