Delbridge v. Kaukauna Fibre Co.

Siebecker, J. The primary question presented on appeal from the various orders above mentioned is: What [439] rights has the Union Bag and Paper Company under the contract it made with the receiver on Eebruary 8, 1916, for the purchase of the hemlock and spruce sulphite to be manufactured at the Fibre plant, to be delivered by the receiver to the Bag Company from July 1, 1916, to January 1, 1917 ? The receiver’s power in administering his trust must be found in the order of his appointment, since there is no claim that this contract was specifically authorized or ratified by the court. The order of receivership provides that the receiver shall have full power and authority: (3) “to operate and run, and to continue to operate and run, until the further order of this court, the defendant company’s said pulp mill in its usual and regular course of business in the manufacture of pulp and paper stock, and to buy and pay for all necessary materials and equipment therefor ... and (4) “to finish up any unmanufactured stock, completing it for market, where such course seems best calculated for the best interest of all parties concerned, and to manufacture pulp with said pulp mill and sell and dispose of the same in the regular course of business and to handle and collect the moneys and receipts obtained therefrom in so doing until •the further order of this court.” The terms of the provisions of the order authorized the receiver to incur the ordinary obligations incident to the conduct of the business committed to his care. The nature of this receivership conferred certain discretionary powers on the receiver to make contracts if required to promote the business interests in his charge.1 It is well established that the receiver’s discretion in the administration of his trust is-' so limited that he cannot tie up the trust estate or prevent the court from enforcing an administration thereof in such manner as to protect the best interests of the trust. All parties dealing with a receiver are charged with knowledge of these limitations on the receiver’s power and deal with him at their peril. Any .person dealing with a receiver who' desires to make an irrevocable contract must insist that it be440 sanctioned by the court baying custody of tbe property of the trust. The rule governing in such cases is well established and is stated in 34 Oyc. 286, as follows: “When a receiver is authorized to carry on a business temporarily, his power to incur obligations for supplies, -materials, and other expenses in .the proper and usual conduct of such business follows as a necessary incident to the receivership. The courts, however, decline to sanction the exercise of this discretion on the part of receivers in respect to large outlays or contracts extending beyond the receivership and intended to be binding upon the trust.” When contracts of this nature are made with a receiver they are held to be within the equitable control of the court, and subject to modification or cancellation if the court finds it necessary for the protection of the interests of the trust. As observed in Chicago D. V. Co. v. McNulta, 153 U. S. 554, 14 Sup. Ct. 915: “The receiver being an officer of the court, and acting under the court’s direction and instructions, his powers are derived from and defined by the court under which he acts. He is not such a general agent as to have any implied power, and his authority to make expenditures and incur liabilities — : like the one in question — must be either found in the order of his appointment, or be approved by the court, before they acquire validity, and have any binding force upon the trust.” The following cases sustain this practice: Brown v. Hazelhurst, 54 Md. 26; Lehigh C. & N. Co. v. Central R. Co. 35 N. J. Eq. 426; Vanderbilt v. Central R. Co. 43 N. J. Eq. 669, 12 Atl. 188; Brunner, Mond & Co. v. Central G. Co. 18 Ind. App. 174, 47 N. E. 686; In re Punnett C. M. Co. 24 Misc. 310, 53 N. Y. Supp. 204. The terms of the order appointing the receiver are not broad enough to permit of the interpretation that the receiver had the power to bind the trust by contract for material to be used in conducting the business beyond the period of [441] the receivership without the'express approval of the court. Since no such approval of the contract with the Bag Company by the court was obtained, it necessarily follows that when the property of the trust was sold and the receivership was to be terminated, during the life of the Bag Company’s contract, it devolved on the court to deal with it upon equitable principles. The trial court considered that the contract, under the circumstances, should be treated as void and to allow the Bag Company to pay for the sulphite delivered pursuant to its terms at the stipulated price, and in default of such payment the receiver was directed to sue for the market value of the unpaid portion of the sulphite. It appears that the ruling in effect treats the contract as fair and reasonable at its inception and that it is subject to cancellation when the receivership ended. The contract should therefore be held terminable when the receivership terminated. Under the circumstances equity demands that the Bag Company’s contract be enforced until it was canceled by the court, and recovery at the contract price be directed for the unpaid portion of the goods delivered under it. Since the contract was properly canceled at the termination of the receivership, it necessarily follows that the Bag Company has no claim for damages on account thereof. The order of the court permitting the Bag Company to pay the receiver the contract price for the unpaid portion of the sulphite delivered is correct, but the part of the order directing the receiver to sue for the market price thereof in default of payment is erroneous and should be modified by directing the receiver, in case of default of such payment, to sue for such balance at the contract price. All other orders appealed from must be affirmed. The respondents to recover their costs in this court. By the Court. — It is so ordered.