New York Law Review

Tag: Implied Contract

  • Goldman v. White Plains Center for Nursing Care, LLC, 11 N.Y.3d 178 (2008): Implied Contract Renewal After Contract Expiration

    Goldman v. White Plains Center for Nursing Care, LLC, 11 N.Y.3d 178 (2008)

    When an employment contract contains an express provision requiring the parties to negotiate a new contract to extend the term of employment, the common-law rule regarding implied contract renewal does not apply, and the employment becomes an at-will arrangement upon the expiration of the original contract.

    Summary

    Lorraine Goldman’s two-year employment contract as administrative director contained a clause requiring renewal negotiations. After the contract expired with no renewal agreement, she continued working. When her employment was later terminated, she sued for breach of contract, arguing implied renewal. The court held that the explicit renewal negotiation clause negated any implied contract, and her employment became at-will upon the contract’s expiration. This decision clarifies that express contractual terms take precedence over common-law presumptions regarding implied renewal of employment contracts, particularly when the original contract explicitly addresses renewal.

    Facts

    Lorraine Goldman entered a two-year employment contract with a nursing facility, starting April 1, 1990. The contract stipulated good-faith negotiations for renewal at least nine months before expiration. It allowed termination with six months’ notice. The contract also stated it represented the entire understanding and could only be modified in writing. After the contract expired on March 31, 1992, Goldman continued working without a new agreement, receiving salary adjustments. In 2004, the facility was purchased by White Plains Center, which assumed the contracts, including Goldman’s. Three months later, White Plains Center terminated Goldman’s employment.

    Procedural History

    Goldman sued White Plains Center for breach of contract. The Supreme Court granted summary judgment to Goldman, presuming the contract renewed for successive one-year terms. The Appellate Division reversed, finding implied renewal inconsistent with the original contract’s terms. The New York Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    Whether the expiration of a two-year employment contract gives rise to successive one-year implied contracts when the employee continues working for the employer without a new agreement, despite a clause in the original contract requiring negotiation for renewal.

    Holding

    No, because the express provision requiring negotiation for renewal in the original contract demonstrates that the parties did not intend for automatic renewal upon expiration, thus negating the common-law presumption of implied renewal and resulting in an at-will employment relationship.

    Court’s Reasoning

    The court emphasized that contracts should be interpreted according to the parties’ intent, best evidenced by the written agreement. The court cited Innophos, Inc. v Rhodia, S.A., 10 NY3d 25, 29 (2008). The contract included clauses requiring negotiation for renewal, specifying termination procedures, and stating that the contract represented the entire agreement, modifiable only in writing. The court reasoned that absent a fixed duration, employment is presumed to be at-will (Sabetay v Sterling Drug, 69 NY2d 329, 333 [1987]). While a common-law rule exists regarding implied contract renewal when an employee continues working after the contract expires (Cinefot Intl. Corp. v Hudson Photographic Indus., 13 NY2d 249, 252 [1963]), this presumption can be rebutted by evidence the parties did not intend automatic renewal. The court distinguished Cinefot and Adams v Fitzpatrick, 125 NY 124 (1891), noting that those cases lacked terms similar to those regarding contract extension. The Court stated: “Parties to future contracts can avoid uncertainty regarding application of the common-law rule simply by specifying that continuation of the employment relationship after the expiration of the contractual period will result in either successive one-year extensions of employment or at-will employment status.” Therefore, because the contract expressly obligated the parties to negotiate a new agreement for extension, the common-law presumption was inapplicable, and Goldman’s employment became at-will after the contract expired.

  • Fischer Co. v. Premiere Realty Assoc., 66 N.Y.2d 520 (1985): Broker’s Commission and Implied Contracts

    Fischer Co. v. Premiere Realty Assoc., 66 N.Y.2d 520 (1985)

    A real estate broker cannot recover a commission from a seller when the broker has an express agreement to act as the buyer’s agent in the transaction, as this negates any implication of employment by the seller.

    Summary

    Fischer Co., a real estate broker, sued Premiere Realty Assoc. (the sellers) for a commission, alleging it procured a buyer. Fischer claimed it advised Premiere that the offer was subject to a commission and that the buyer was ready, willing, and able to purchase the property. The New York Court of Appeals affirmed the dismissal of Fischer’s complaint, holding that because Fischer had a signed agreement to act as the buyer’s agent, no implied contract with the seller could exist. This express agreement negated any potential implication that Fischer was also employed as the seller’s agent.

    Facts

    Fischer, a real estate broker, initiated contact with Premiere in May 1983 regarding the potential sale of Premiere’s property. Negotiations ensued between Premiere and Fischer’s proposed buyer (“the Goodsteins”). These negotiations eventually terminated, and Premiere sold the property to another party. Fischer sought a commission from Premiere, claiming it had procured a ready, willing, and able buyer. However, Fischer had a signed agreement with the Goodsteins stating, “We have acted as your agent in connection with your prospective acquisition of the above premises.” Fischer did not disavow this agreement.

    Procedural History

    Fischer sued Premiere to recover a brokerage commission. Premiere moved for summary judgment, arguing there was no agreement to employ Fischer as their agent. The Appellate Division granted summary judgment dismissing the complaint, concluding that Fischer acted as a mere volunteer and had no right to a commission. Fischer appealed to the New York Court of Appeals.

    Issue(s)

    Whether a real estate broker can recover a commission from a seller when the broker has a signed agreement to act as the buyer’s agent in the same transaction.

    Holding

    No, because the express contract reciting that the plaintiff has “acted as [the buyer’s] agent” in the transaction negates the plaintiff’s contention that it was in fact employed as the sellers’ agent.

    Court’s Reasoning

    The Court of Appeals emphasized that a broker must plead and prove employment by the seller to recover a commission. The court relied on the principle that “[a] contract cannot be implied in fact where there is an express contract covering the subject matter involved.” The court found that Fischer’s explicit, signed agreement to act as the buyer’s agent directly contradicted the claim that an implied agreement existed for Fischer to also act as the seller’s agent. The court reasoned that allowing Fischer to recover a commission from the seller would undermine the express agreement with the buyer, creating a conflict of interest and potentially undermining the integrity of real estate transactions. As the court stated, the contract reciting that plaintiff has “acted as [the buyer’s] agent” in the transaction negates plaintiff’s present contention that it was in fact employed as the sellers’ agent.

  • Seaview Association of Homeowners, Inc. v. Williams, 69 N.Y.2d 987 (1987): Implied Contract to Pay Homeowners’ Association Fees

    Seaview Association of Homeowners, Inc. v. Williams, 69 N.Y.2d 987 (1987)

    When a purchaser buys property in a community knowing that a homeowners’ association provides services and facilities, the purchase can create an implied-in-fact contract obligating the purchaser to pay a proportionate share of the association’s costs, regardless of actual usage.

    Summary

    The Seaview Association of Homeowners sued the Williams family to recover unpaid assessments for community services. The Williamses owned seven houses in Seaview, a private Fire Island community, but refused to pay assessments, arguing they were not association members and did not use the recreational facilities. The trial court found an implied contract existed based on the Williamses’ knowledge of community conditions when purchasing the properties. The Appellate Division affirmed. The New York Court of Appeals affirmed, holding that purchasing property with knowledge of the association’s services can manifest acceptance of the obligation to pay for those services, creating an implied-in-fact contract.

    Facts

    The Seaview Association of Homeowners maintained streets, walkways, beaches, and provided various community services in Seaview, Fire Island. The Association assessed property owners to cover these costs. The Williams family owned seven houses in Seaview and had lived in the adjoining community before purchasing their first house in Seaview in 1963. Two of the three family members were in the real estate business. They refused to pay the homeowners’ assessments, claiming they were not members of the association and did not use the recreational facilities. The Association then sued to recover assessments from 1976-1984.

    Procedural History

    The trial court ruled in favor of the Seaview Association of Homeowners, finding an implied contract existed. The Appellate Division affirmed the trial court’s decision based on the trial court’s reasoning, with one Justice dissenting. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether the purchase of property in a private community with knowledge that a homeowners’ association provides services and facilities for the benefit of residents constitutes an implied-in-fact contract to pay a proportionate share of the association’s costs.

    Holding

    Yes, because where there is knowledge that a private community homeowners’ association provides facilities and services for the benefit of community residents, the purchase of property there may manifest acceptance of conditions of ownership, among them payment for the facilities and services offered.

    Court’s Reasoning

    The Court of Appeals reasoned that an implied-in-fact contract arises when a purchaser buys property knowing that a homeowners’ association provides services and facilities. This knowledge manifests acceptance of the conditions of ownership, including the obligation to pay for those services. The obligation extends to a proportionate share of the full cost of maintaining the facilities and services, not just the reasonable value of those actually used by the resident. The court emphasized the factual nature of the issues regarding notice and knowledge. They deferred to the lower courts’ findings that the Williamses knew the nature of the Seaview community and impliedly accepted the conditions of ownership through their purchases, particularly their successive purchases. The court stated: “Where there is knowledge that a private community homeowners’ association provides facilities and services for the benefit of community residents, the purchase of property there may manifest acceptance of conditions of ownership, among them payment for the facilities and services offered.” Because the issues of notice and knowledge were factual and had been affirmed by the Appellate Division, the Court of Appeals found the issue beyond their review. The court cited Sea Gate Assn. v Fleischer as precedent.

  • Seaview Assn. v. Williams, 69 N.Y.2d 987 (1987): Implied Contract to Pay Homeowners’ Association Fees

    69 N.Y.2d 987 (1987)

    When a purchaser knows that a homeowners’ association provides facilities and services for the benefit of community residents, buying property there can be seen as accepting the conditions of ownership, including paying for the services.

    Summary

    The Seaview Association, a homeowners’ association, sued the Williams family to recover unpaid assessments for community services. The Williams family owned multiple properties in the Seaview community but refused to pay assessments, arguing they were non-members and didn’t use the recreational facilities. The trial court found an implied contract existed based on the Williams’ knowledge of the community’s nature when they purchased the properties. The appellate court affirmed. The New York Court of Appeals affirmed, holding that purchasing property in a community with known homeowners’ association services implies acceptance of the obligation to pay for those services.

    Facts

    The Seaview Association of Fire Island owns and maintains streets, walkways, beaches, and various facilities in the Seaview community. They also provide services like a community manager and a rent-free home for a doctor. Property owners are assessed a share of the annual costs. The Williams family owned seven houses in Seaview and had lived in the adjoining community prior to purchasing their first house in 1963. They refused to pay assessments, claiming they were not members of the Association and did not use the recreational facilities. Two of the three defendants were in the real estate business and were among only five year-round residents.

    Procedural History

    The Seaview Association sued the Williams family to recover unpaid assessments from 1976-1984. The trial court ruled in favor of the Association, finding an implied contract existed. The Appellate Division affirmed the trial court’s decision. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether the purchase of property in a community with a known homeowners’ association providing services and facilities implies an acceptance of the conditions of ownership, including the obligation to pay assessments for those services.

    Holding

    Yes, because where there is knowledge that a private community homeowners’ association provides facilities and services for the benefit of community residents, the purchase of property there may manifest acceptance of conditions of ownership, among them payment for the facilities and services offered.

    Court’s Reasoning

    The court reasoned that the Williams family’s knowledge of the Seaview community and its homeowners’ association, combined with their purchase of multiple properties, implied an acceptance of the conditions of ownership, including paying assessments. The court stated, “Where there is knowledge that a private community homeowners’ association provides facilities and services for the benefit of community residents, the purchase of property there may manifest acceptance of conditions of ownership, among them payment for the facilities and services offered.” The court emphasized that the issue of notice and knowledge were largely factual and were the focus of the trial court. The Court found that the trial court had sufficient evidence to determine that the Williams family knew the nature of the community. The court also cited Sea Gate Assn. v Fleischer, stating the implied contract includes obligation to pay a proportionate share of the full cost of maintaining facilities, not merely the reasonable value of those actually used.

  • Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329 (1987): Enforceability of Policy Manuals in At-Will Employment

    69 N.Y.2d 329 (1987)

    Under New York law, an employee handbook or corporate policy does not create an enforceable contract limiting an employer’s right to terminate an at-will employee unless there is an express agreement to that effect, demonstrating explicit limitations on the employer’s right of discharge.

    Summary

    Sabetay, an at-will employee, alleged he was wrongfully discharged for refusing to participate in illegal activities and reporting them. He argued that Sterling’s employee manual and corporate policies created an implied contract guaranteeing job security. The court held that absent an express agreement limiting the employer’s right to terminate at-will employment, corporate policy manuals do not create enforceable contractual obligations. The decision reinforces the importance of clear, explicit language when attempting to create contractual limitations on at-will employment in New York.

    Facts

    Alexander Sabetay was a director of financial projects at Sterling International Group, a division of Sterling Drug, Inc., from June 1972 to December 1984. He managed the dissolution of Sterling’s Greek manufacturing facility. After the liquidation was completed, Sabetay was recalled to New York in February 1984 and terminated in July 1984 because no suitable position could be found within Sterling or its subsidiaries. Sabetay claimed his discharge stemmed from his refusal to engage in tax avoidance schemes and the maintenance of slush funds related to the Greek facility liquidation, and because he reported these activities internally.

    Procedural History

    Sabetay filed a complaint asserting four contract and three tort causes of action based on wrongful discharge. Sterling moved to dismiss the complaint. The Supreme Court dismissed the tort actions but upheld the contract causes of action. The Appellate Division affirmed the dismissal of the tort claims and also dismissed the contract claims. Sabetay appealed to the Court of Appeals, challenging only the dismissal of the contract causes of action.

    Issue(s)

    1. Whether a statement in a corporate personnel policy manual, which enumerates grounds for termination, creates an implied promise that those are the only grounds for termination, and whether a termination without cause amounts to a breach of that implied agreement.
    2. Whether various corporate accounting policies, requiring employees to refrain from and report illegal or unethical activities, constitute an employment agreement precluding termination for refusing to participate in allegedly improper activities.

    Holding

    1. No, because New York law presumes at-will employment, terminable at any time by either party, absent an express agreement establishing a fixed duration or limiting the employer’s right to discharge.
    2. No, because these policies, coupled with a statement on the employment application requiring compliance with company rules, do not create an express agreement not to dismiss an employee for acting in accordance with those policies; rather, they suggest standards for employee performance which, without more, are not actionable.

    Court’s Reasoning

    The Court of Appeals reaffirmed New York’s adherence to the at-will employment doctrine, allowing employers to terminate employees for any reason or no reason, unless expressly limited by agreement. The court distinguished the case from Weiner v. McGraw-Hill, Inc., where an express agreement was found in the employer’s handbook and employment application, coupled with assurances made to the employee during hiring. The court emphasized that Sabetay failed to demonstrate an express limitation on Sterling’s right to terminate his employment. The court cited Murphy v. American Home Products Corp. to reject the notion of an implied covenant of good faith in employment contracts, stressing that such an implied obligation would be inconsistent with the employer’s unrestricted right to terminate at will. The court stated that the language in Sterling’s personnel handbook and Accounting Code did not amount to an express agreement limiting Sterling’s right to discharge at will. The court underscored that significant alterations to employment relationships are best left to the legislature, as stability and predictability in contractual affairs is a highly desirable jurisprudential value.

  • Edward J. Dillon M.D. v. State of New York, 71 N.Y.2d 556 (1988): State Liability Under Unapproved Contracts

    Edward J. Dillon M.D. v. State of New York, 71 N.Y.2d 556 (1988)

    A party contracting with the State is presumed to know the statutes regulating its contracting powers, and the State’s acceptance of benefits under an unauthorized contract does not create liability.

    Summary

    Dr. Dillon, a pathology professor at Downstate College of Medicine, sought additional compensation for services in the kidney transplant program beyond his state salary and supplemental payments. A draft agreement for $145,000 annually was never executed or approved by the State Comptroller. Downstate received Medicare benefits for these services and partially compensated Dillon, who deemed it insufficient and sued the state. The Court of Appeals held that because the contract was not approved by the State Comptroller as required by State Finance Law § 112, Dillon could not recover the additional compensation, even under an implied contract theory. This case highlights the strict requirements for contracting with the state and the limitations on recovering payments without proper authorization.

    Facts

    Dr. Dillon, a professor at Downstate College of Medicine, provided pathology services in the college’s kidney transplant program for end-stage renal disease (ESRD) patients from April 1981 to March 1983.
    A draft agreement proposed paying Dillon $145,000 per year for these services, but it was never executed by Downstate or approved by the State Comptroller.
    Downstate received Medicare funds for ESRD patient care and paid Dillon a portion, which he rejected as inadequate.

    Procedural History

    Dillon sued the State in the Court of Claims, seeking additional compensation.
    The State moved to dismiss, arguing the lack of Comptroller approval under State Finance Law § 112.
    The Court of Claims granted the motion.
    The Appellate Division modified the order, reinstating the causes of action for money had and received.
    The Court of Appeals reversed the Appellate Division’s order and dismissed the claim.

    Issue(s)

    Whether the State is liable to Dr. Dillon for additional compensation for services rendered under a contract that was neither executed by the State nor approved by the State Comptroller, based on a theory of money had and received (implied contract).

    Holding

    No, because the Medicare statute does not give claimant any legal claim to funds paid to Downstate for his services and Dillon’s contract was never approved by the State Comptroller as required by law. Dillon cannot maintain an action against the state.

    Court’s Reasoning

    The Court distinguished between contracts implied in fact (based on conduct) and contracts implied in law (quasi-contracts). The court stated that a contract implied in fact is subject to the requirements of section 112 of the State Finance Law.
    The court noted, “Although the action is recognized as an action in implied contract, the name is something of a misnomer because it is not an action founded on contract at all; it is an obligation which the law creates in the absence of agreement when one party possesses money that in equity and good conscience he ought not to retain and that belongs to another.”
    The court explained that the Medicare statute governs the relationship between the Secretary of Health and Human Services and providers of medical services, not individual physicians. “In short, the State has not received nor is it holding sums of money to which claimant is entitled any more than any of the several physicians or therapists are entitled to the itemized sums listed on the hospital’s bill for various services they supplied to in-patients and which, in the aggregate, constituted the hospital’s total charge.”
    Because the contract was not approved by the State Comptroller, as required for contracts exceeding $5,000, it was not enforceable against the State. The court emphasized that parties contracting with the State are presumed to know the limitations on the State’s contracting power: “A party contracting with the State is chargeable with knowledge of the statutes which regulate its contracting powers and is bound by them (Belmar Contr. Co. v State of New York, 233 NY 189,194).”
    Even if the State benefitted from Dillon’s services, this did not estop it from challenging the contract’s validity. The court referenced the established principle that the State’s acceptance of benefits does not imply liability when a contract lacks proper authorization, citing Becker & Assoc. v State of New York, 48 NY2d 867.

  • Shapira v. United Medical Service, Inc., 15 N.Y.2d 200 (1965): Establishing Physician-Patient Relationship for Payment

    15 N.Y.2d 200 (1965)

    A physician-patient relationship can be established even without explicit agreement on payment, especially when a specialist is called in for treatment, and the physician is entitled to a fee for services rendered when the patient is covered by a service contract that contemplates such payment.

    Summary

    Dr. Shapira, a surgical specialist, sued United Medical Service, Inc. to recover payment for services rendered to a patient covered by the defendant’s service contract. The Court of Appeals held that a physician-patient relationship was established when Dr. Shapira examined and operated on the patient, and the defendant was obligated to pay for the services under its contract. The dissent argued that the established practice and the terms of the service agreement implied an obligation to pay the physician’s fees, and the defendant’s refusal to pay constituted an unjust windfall.

    Facts

    Dr. Shapira, a surgical specialist, was called to examine Caleen Sinnette, a 10-year-old patient covered by United Medical Service, Inc.’s service contract.
    Dr. Shapira personally examined the patient and performed a successful surgical operation.
    United Medical Service, Inc. had a service contract with the patient’s family, obligating them to pay for medical services.
    Dr. Shapira sought payment for his services from United Medical Service, Inc., but they refused to pay.

    Procedural History

    Dr. Shapira sued United Medical Service, Inc. to recover payment for his services.
    The trial court found that Dr. Shapira had a special contractual relationship with United Medical Service, Inc.
    The Court of Appeals reviewed the case to determine whether the physician-patient relationship and obligation to pay were established.

    Issue(s)

    Whether a physician-patient relationship is established when a specialist examines and operates on a patient referred by another doctor.
    Whether United Medical Service, Inc. is obligated to pay Dr. Shapira for services rendered to a patient covered by their service contract.

    Holding

    Yes, because the act of examining and operating on the patient establishes a physician-patient relationship, especially when a specialist is called in.
    Yes, because the service contract contemplated payment for such services, and the defendant should not receive a windfall by avoiding its obligation.

    Court’s Reasoning

    The court reasoned that a physician-patient relationship arises from the examination and treatment of a patient, even without explicit agreement on payment. The dissent emphasized the practical construction of the agreement by the parties involved. It was undisputed that Dr. Shapira was a surgical specialist and that he performed the surgery.
    The dissent stated, “To hold that the relationship of physician and patient does not arise on these facts alone runs against established procedures in modern hospitals and in the practice of present-day medicine. In countless instances this is the way a surgeon or other specialist is called into a case to render treatment.”
    The dissent further argued that United Medical Service, Inc.’s long-standing practice of paying such fees implied an obligation to pay Dr. Shapira. The dissent noted that the defendant itself had previously paid fees earned in the same way Dr. Shapira’s fee was earned. The intent of relevant statutes was not to prohibit collection of fees chargeable to insurance coverage. The dissent concluded that allowing the defendant to escape liability would be unjust. It was irrelevant to the defendant’s obligation what Dr. Shapira did with the fees he was entitled to receive.

  • Robbins v. Frank Cooper Associates, 19 N.Y.2d 903 (1967): Implied Contract and Reasonable Value of Property

    Robbins v. Frank Cooper Associates, 19 N.Y.2d 903 (1967)

    When parties negotiate for the use of property but fail to reach an agreement, and the property is subsequently used and made valueless, the law implies a contract obligating the user to pay the reasonable value of the property where the parties contemplated payment for its use.

    Summary

    Robbins sued Frank Cooper Associates for the reasonable value of Robbins’ property after negotiations for its use failed, but Cooper still used it, rendering it valueless. The trial court found an implied contract and awarded damages. The Appellate Division reversed, but the New York Court of Appeals reversed the Appellate Division and reinstated the trial court’s judgment, holding that an implied contract existed and the proper measure of damages was the reasonable value of the property. The court found sufficient evidence to support the jury’s verdict on value.

    Facts

    The parties negotiated for the conveyance of Robbins’ property, but they did not agree on the terms. Frank Cooper Associates nevertheless took the property and made it valueless for Robbins. Robbins then sued, seeking compensation for the reasonable value of the property.

    Procedural History

    The Supreme Court, New York County, entered judgment for Robbins. The Appellate Division reversed. The New York Court of Appeals reversed the Appellate Division’s order and reinstated the Supreme Court’s judgment.

    Issue(s)

    Whether, in the absence of an express agreement, the use of another’s property after failed negotiations for its conveyance gives rise to an implied contract requiring the user to pay the reasonable value of the property.

    Holding

    Yes, because when parties deal with each other in the context of an intention of payment for use of property, and negotiations fail but the property is still used, the law implies an obligation to pay its reasonable value.

    Court’s Reasoning

    The Court of Appeals held that the Trial Judge properly submitted a single issue to the jury: whether there was a contract implied in fact. Because the property was taken and made valueless after failed negotiations, “the law imposes an obligation to pay its reasonable value where the parties dealt with each other in the context of an intention of payment for its use.” The court cited Healey v. Macy & Co., 251 App. Div. 440, affd. 277 N. Y. 681; La Varre v. Warner Bros. Pictures, 282 N. Y. 68; cf. Grombach Prods. v. Waring, 293 N. Y. 609; see Desny v. Wilder, 46 Cal. 2d 715. Further, the court determined that opinion evidence of the property’s value was properly admitted, citing Sheldon v. Metro-Goldwyn Pictures Corp., 106 F. 2d 45, affd. 309 U. S. 390; Duane Jones Co. v. Burke, 306 N. Y. 172, 192; Stanley v. Columbia Broadcasting System, 35 Cal. 2d 653; see, also, Grombach Prods. v. Waring, 267 App. Div. 986, revd. on other grounds 293 N. Y. 609. The court concluded that the opinion evidence, taken together with the defendants’ evidence, sufficiently supported the verdict and found no reversible error in the court’s charge.

  • Howarth v. Angle, 162 N.Y. 179 (1900): Enforcing Statutory Stockholder Liability Outside of the Incorporating State

    162 N.Y. 179 (1900)

    A receiver of an insolvent corporation can enforce a stockholder’s statutory liability in a foreign jurisdiction when the liability is considered contractual in nature, arising from an implied promise to adhere to the corporation’s governing laws.

    Summary

    This case addresses whether a receiver of an insolvent Washington state bank can sue a New York stockholder in New York to enforce a statutory liability for the bank’s debts. The New York Court of Appeals held that the receiver could maintain the action. The court reasoned that the stockholder’s liability, though statutory in origin, was contractual in nature, arising from an implied promise to adhere to the bank’s governing laws. As such, it could be enforced in New York as a contractual obligation, not solely as a foreign statutory obligation.

    Facts

    The Tacoma Bank, a Washington state corporation, became insolvent, and a receiver (Howarth) was appointed. Angle, a New York resident, owned stock in the Tacoma Bank. Washington law imposed a statutory liability on stockholders for the debts of the corporation. The receiver sued Angle in New York to recover Angle’s proportionate share of the bank’s deficiency, as determined by Washington courts.

    Procedural History

    The receiver sued Angle in New York. The trial court ruled in favor of Angle, dismissing the case. The Appellate Division affirmed. The New York Court of Appeals reversed, holding that the action could be maintained in New York.

    Issue(s)

    Whether the receiver of an insolvent Washington bank can enforce a stockholder’s statutory liability in New York, when the liability is considered contractual under Washington law.

    Holding

    Yes, because the stockholder’s liability, though statutory in origin, is contractual in nature, arising from an implied promise to adhere to the bank’s governing laws, and can be enforced in a foreign jurisdiction like a contract.

    Court’s Reasoning

    The Court of Appeals reasoned that while statutory liabilities are generally enforced in the state that created them, the liability in this case was contractual. By purchasing stock in the Tacoma Bank, Angle impliedly agreed to be bound by Washington law, which included the statutory liability for the bank’s debts. The court emphasized that “the defendant took stock in the Tacoma Bank subject to the burden of the law, which he impliedly agreed to bear, as he could not otherwise become a stockholder.” This implied agreement created a contractual obligation that the receiver could enforce in New York, much like enforcing a promissory note. The court distinguished this case from situations involving purely statutory liabilities, noting that this was “not because the laws of Washington are in force here, but because the defendant voluntarily assented to the conditions upon which the bank was organized.” The court directly linked the stockholder’s acceptance of the stock with an implied agreement to perform the statutory conditions, making the out-of-state enforcement valid. The court highlighted the importance of enforcing promises, whether express or implied, to ensure creditors are protected. The court noted, “There is no substantial difference between the liability for an unpaid balance on a stock subscription, which is an express contract to take stock and pay for it…and the liability for the unpaid deficiency of assets assumed by the act of becoming a member of the corporation through the purchase of stock, from which a contract is implied to perform the statutory conditions upon which stock may be owned.”