Fauci v. Mulready

• Citation: 337 Mass. 532,150 N.E.2d 286
• Parties: Charles M. FAUCI v. Frank MULREADY, Receiver, et al.
• Decision Date: 09 May 1958
• Court: United States State Supreme Judicial Court of Massachusetts

Page 286

150 N.E.2d 286

337 Mass. 532

Charles M. FAUCI v. Frank MULREADY, Receiver, et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Feb. 5, 1958.

Decided May 9, 1958.

Vincent R. Brogna, Boston, for plaintiff.

John M. Lanning, Boston (Frank Mulready, Boston, pro se with him), for Peerless Casualty Co.

Before WILKINS, RONAN, SPALDING WILLIAMS, COUNIHAN, WHITTEMORE and CUTTER, JJ.

CUTTER, Justice.

This is an action of contract or tort. The first three counts are against the receiver of Somerset Shipyards, Inc. (hereinafter called Shipyards). Count 4 was waived. The fifth count is against Peerless Casualty Company (hereinafter called Peerless). The receiver was appointed as permanent receiver on June 16, 1944, by the Superior Court. The trial judge directed verdicts for the receiver on counts 1, 2, and 3 and for Peerless on count 5, and reported for review the exceptions then saved. The facts in their aspect most favorable to the plaintiff are stated below.

Shipyards made a written contract, dated August 4, 1943, to build a trawler for the plaintiff for $83,000. Under this contract, Shipyards was bound to furnish a completion and performance bond. Shipyards had also made an earlier contract with the plaintiff, dated July 22, 1943, for the construction of a separate trawler for $83,000. A bond, referring to the July 22 contract, was furnished by Shipyards as principal and Peerless as surety. The July 22 contract and the related bond are not here directly in issue.

Although the August 4 contract called for $1,000 on signing of the contract and $20,000 on commencement of construction, Shipyards started work before the $21,000 was paid. By December 31, 1943, work had progressed materially on the trawler and Shipyards requested the plaintiff to come forward with the 'balance [$12,000] of the first payment * * * [then] somewhat past due.' The latest payment was made on March 8, 1944, and brought the total payments under the August 4 contract to $16,000. Shipyards proceeded with work after March 8, 1944, 'notwithstanding * * * there was Five Thousand * * * Dollars due.'

On June 8, 1944, Peerless filed in the Superior Court a bill in equity seeking the appointment of a receiver for Shipyards. The bill recited that Shipyards had 'entered into contracts [listed in the bill, and including the July 22 contract] with eight different persons for the construction of boats,' on each of which Peerless had executed as surety a bond in which Shipyards was principal, and that Shipyards was unable to meet its debts as they became due and might be forced to abandon work on the boats. Peerless in the bill offered 'to undertake the obligations of completing' the listed contracts, upon the bonds for which it was surety. The list did not include the August 4, 1943, contract with the plaintiff, as to which it denied in the present case having furnished a completion bond. The defendant Mr. Mulready, who had been for some years attorney for Peerless, was appointed (see Wax v. Monks, 327 Mass. 1, 3-4, 96 N.E.2d 704) permanent receiver on June 16 '(a) To take possession of * * * the property * * * and to hold, manage, and dispose of the same pursuant to the order of the court. (b) To carry on the * * * business in the * * * ordinary course as heretofore conducted until the further order of the court.'

1. The jury heard evidence only on counts 1, 2, and 3. The plaintiff sought to recover from the receivership estate, (a) under count 1, for breach of the August 4 contract, on the theory that after his appointment the receiver adopted, and then wrongfully committed a breach of, this contract; and (b) under count 2, for breach of contract upon the theory that, under the decree appointing the receiver, the receiver was bound to proceed with the August 4 contract and that 'he refused, without having obtained a further order of the court, to complete the contract with the plaintiff and wrongfully denied that any bond had been executed or delivered,' and wrongfully sold the boat to another. In count 3, the plaintiff sought to recover from the receiver personally for breach of contract and of his duty as receiver, alleging that the receiver wrongfully (2) denied that any bond had been executed covering the August 4 contract, (b) refused to complete the contract, and (c) in breach of his fiduciary duty as receiver and acting for the benefit of Peerless, delivered the completed trawler to another customer of Shipyards who had a contract secured by a bond upon which Peerless had become surety.

Shortly after his appointment, the receiver went to the shipyard and talked with one O'Neill, president and treasurer of Shipyards. He was shown the contracts and 'the actual ships' and learned that two were being built for the plaintiff. The receiver told O'Neill to 'continue with the construction of the[se] ships.' O'Neill last supervised work about July 5, 1944. By the time he left the yard, 'the keel on the second * * * boat had been laid * * * and * * * under the contract there was to be another Ten Thousand * * * Dollars paid * * * on the laying of the keel.' This has not, and has not, been paid. Substantial further work had been done also on the shell platings and decks, which when completed would make due a further payment from the plaintiff.

The receiver 'in the latter part of June, or early July, 1944,' told the plaintiff, as the latter conceded, 'that * * * [the plaintiff] had put up only Sixteen Thousand * * * Dollars under the second contract [here in issue] * * * that he, as receiver, elected not to adopt that contract; that there was no bond and that he had no money with which to build a boat and that he was going to build only one boat.' The plaintiff, with reference to this conversation testified (a) that the receiver told him that there was no bond on the second boat and that the plaintiff would get a bond if he paid in $5,000 more to bring aggregate payments to $21,000, and (b) that he told the receiver, 'You give me the bond and you will get more money, but not until you give me the bond.'

The receiver in his second report to the Superior Court stated, 'The contract with respect to the eighth boat [apparently the second boat for the plaintiff] was never consummated by the buyer. The buyer was supposed to put up Twenty-one Thousand * * * Dollars before he would receive a completed contract and a * * * bond. He had put up only Sixteen Thousand * * * Dollars.' The claim of the plaintiff for $16,000 was listed. The receiver 'never applied to the court that appointed him * * * for permission to terminate the contract * * * dated August 4, 1943.' Opinions as to the fair market value in 1945 of a boat built to the specifications of the August 4 contract ranged between $100,000 and $175,000.

In 1945 the plaintiff obtained leave of the receivership court to sue Peerless 'for failure to deliver a performance bond * * * or for damages,' and to sue Shipyards and the receiver for specific performance or damages. The present action was commenced by writ dated December 17, 1948.

The pleadings and the record do not present for our consideration any questions about the existence or extent of a claim provable in the receivership proceedings for breach or rejection of Shipyards' obligations under the August 4 contract (as distinguished from breach of an obligation adopted by or binding upon the receiver). See Clark, Foley, and Shaw, Adoption and Rejection of Contracts and Leases by Receivers, 46 Harv.L.Rev. 1111, 1112-1117. To recover under counts 1 and 2, on account of an obligation binding upon the receiver as such, the plaintiff must show that the receiver either (1) adopted the August 4 contract and then failed to perform it, or (2) improperly rejected it. To recover under count 3 from the receiver individually, the plaintiff must show that the receiver, by a breach of his fiduciary duty, improperly rejected the August 4 contract.

An equity receiver upon appointment is not bound to perform or adopt executory contracts and leases, unless directed to do so by the court which appointed him. In the absence of such orders, a receiver should reject any executory contract or lease, the performance of which will be burdensome and deplete the receivership estate. He has such time as the court may fix, and, in the absence of court action, a reasonable time, within which to make up his mind what action is appropriate. Until a receiver elects to adopt affirmatively an executory or partly executory contract or lease, or until 'the doing of some act, which would in law be equivalent to an election,' the receiver does not become bound by such a contract or lease. Commonwealth v. Franklin Ins. Co., 115 Mass. 278, 281-282; Butterworth v. Degnon Contracting Co., 2 Cir., 214 F. 772. See Ellis v. Boston, Hartford & Erie Railroad, 107 Mass. 1, 14-15, 17, 31, 33; Bell v. American Protection League, 163 Mass. 558, 561-563, 40 N.E. 857, 28 L.R.A. 452; Menke v. Willcox, D.C.S.D.N.Y., 275 F. 57, 58-59; Samuels v. E. F. Drew & Co., Inc., 2 Cir., 292 F. 734; Pacific Western Oil Co. v. McDuffie, 9 Cir., 69 F.2d 208, 212-213, certiorari denied 293 U.S. 568, 55 S.Ct. 79, 79 L.Ed. 667; Consolidated Gas Electric Light & Power Co. of Baltimore v. United Railways & Electric Co., 4 Cir., 85 F.2d 799, 801-802, certiorari denied sub nomine United Railways & Electric Co. v. Consolidated Gas, Electric Light & Power Co., 300 U.S. 663, 57 S.Ct. 493, 81 L.Ed. 871; In re Rochester Shipbuilding Corp., D.C.W.D.N.Y., 32 F.Supp. 98, 100; Clark, Foley, and Shaw, Adoption and Rejection of Contracts and Leases by Receivers, 46 Harv.L.Rev. 1111, 1112, 1122-1136; Clark, Receivers (2d ed.) § 428; Tardy's Smith, Receivers (1920 ed.) §§ 359a-363. See also Abbott v. Stearns, 139 Mass. 168, 169-171, 29 N.E. 379; Greenall v. Hersum, 220 Mass. 278, 107 N.E. 941. Compare Cunningham v. Commissioner of Banks, 249 Mass. 401, 423, 144 N.E. 447; Commissioner of Banks v. McKnight,...