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City of Trenton v. Fowler-Thorne Co.

Decided: September 10, 1959.

CITY OF TRENTON, A MUNICIPAL CORPORATION, PLAINTIFF-CROSS-APPELLANT,
v.
FOWLER-THORNE COMPANY, A CORPORATION, AND SEABOARD SURETY COMPANY, A CORPORATION, DEFENDANTS-APPELLANTS



Conford, Freund and Haneman. The opinion of the court was delivered by Conford, J.A.D. Haneman, J.A.D. (dissenting).

Conford

This matter comes before us on appeal and cross-appeal taken by leave of the Appellate Division from an order of the Superior Court denying defendants' motion to dismiss the action as barred by the statute of limitations. The parties have filed an agreed statement in lieu of record, and we consider the cause on the basis thereof, pursuant to R.R. 1:6-2.

The action was brought by the City of Trenton on June 27, 1957 against the defendant Fowler-Thorne Company, as contractor, and against the defendant Seaboard Surety Company, as surety on a public construction performance bond, in connection with a claimed breach of contract by Fowler-Thorne in the performance of an agreement with the city for the erection of an addition to a municipal hospital building. The contract was executed September 15, 1949, and the work accepted and final payment ordered by resolution of the board of commissioners of the city on August 2,

1951. The action is based upon alleged defects in the building which became manifest some time later.

The defendants answered jointly August 14, 1957, denying liability for the condition of the building and raising the defense, among others, that "the suit was improperly started in the name of the City of Trenton in that it was started on the instructions of a single Commissioner rather than the Board of Commissioners, as required by" a 1947 resolution of the then city commission. On May 15, 1958 the board of commissioners adopted a resolution by which "the suit heretofore authorized and commenced by the City of Trenton * * *" was "authorized, ratified and confirmed." Thereafter, when the action was called for trial, defendants were granted leave to amend their answer to include the defense of statute of limitations, and the court ordered that this issue be resolved by motion in advance of trial. In the course of argument and briefs on the motion, the city argued: (1) the incidence of the six-year limitations statute covering ordinary contractual causes (N.J.S. 2 A:14-1) is here immaterial as the bond executed by the defendants was an "obligation under seal conditioned for the payment of money only," in respect to which the period of limitations is 16 years (N.J.S. 2 A:14-4); (2) the six-year limitations period is inapplicable in any case as the action, which was concededly instituted within six years of the accrual of the cause of action, was properly brought in the name of the city on the authorization of the director of public affairs; or, in the alternative, that any lack of authority in that regard was cured by the ratifying resolution of the city commission.

The trial court in oral conclusions held: (1) the institution of the action was not legally authorized; (2) the ratification of the action by resolution of the commission could not legally relate back to the date of institution of the action so as to preclude the "intervening" defense of limitations, if, as a matter of law, the six-year period was applicable to the case; (3) the six-year period was not applicable

as the action was upon a sealed instrument, covered by the 16-year period. The motion for dismissal was accordingly denied.

A preliminary procedural point must be noticed. As the order of the trial court on the motion was in favor of the plaintiff, it was technically not aggrieved thereby and would have no right of appeal merely because the opinion of the court ruled against its position on some of the points argued, since appeals are taken from judgments and orders (where otherwise appealable, either as of right or by leave of court), not from opinions. Hughes v. Eisner , 8 N.J. 228 (1951). However, in the order granting defendants leave to appeal, this court included a provision giving plaintiff leave to cross-appeal. We take it the intention of the order in the latter respect was to enable this court to deal with the entirety of the dispute dealt with by the trial court on its merits, whether the issues were raised by plaintiff or defendants. That objective being a salutary one, and no objection having been offered, we will deal with the meritorious questions raised in the plaintiff's purported "cross-appeal." Indeed, we have found that we need consider only those in order to dispose of the defendants' appeal.

I.

Attention is first directed to the city's contention that the action was properly instituted on the authorization of the director of public affairs, Commissioner Holland. Were it not for the implication of the issue of limitations, this question would not be important, since an action instituted by an agent without proper authorization from the plaintiff will not, for that reason, be dismissed in the face of subsequent ratification by the principal. See Sayre v. City of Orange , 67 A. 933 (Sup. Ct. 1907) (not officially reported). Although, for reasons set forth in Point II of this opinion, we have concluded that there was ratification sufficient to bar the defense of limitations, we address ourselves first to

the disposition of the argument of the city that the motion is disposable on the ground of sufficient authorization of the action in the first instance.

The City of Trenton is a municipality governed and operating under the commission form of government, pursuant to the Walsh Act, N.J.S.A. 40:72-1 et seq. Under that act (R.S. 40:72-5) it is provided that the elected board of commissioners "shall determine the powers and duties to be performed by each department and shall assign such powers and duties to each department as it may deem appropriate."

The argument of the city rests upon the ground that by a resolution of a former city commission, adopted in 1943 (Resolution No. 4378) and never altered thereafter, authority to institute an action involving the subject matter of a particular department, as here a hospital building allocated for administration to the director of public affairs, resides in the same official. The claimed authorization is concededly not expressed in the resolution but is argued to be sufficiently implied therein. We pass the question, not argued, as to whether an allocation of departmental subject matter survives the life of the then incumbent commission, at least until contrary action by a later-elected commission. Cf. Oliver v. Daly , 4 N.J. Misc. 80 (Sup. Ct. 1926) modified on another ground 103 N.J.L. 52 (E. & A. 1926).

We do not find the city's argument sustained by the language of the resolution. It gives each director "charge and supervision" over all lands and buildings devoted to the use of his department "and the improvement, construction and repair thereof * * * and the replacement thereof," subject to the provisions of any law, ordinance or city regulation, and directs him to "approve and recommend to the Board of Commissioners the acceptance of any building or other improvement constructed under his supervision before final payment is made therefor." We cannot read this language fairly to imply an allocation to the sole discretion of the director of a single department of the determination

of whether an action should be brought by the city for breach of contract in relation to the construction of a building merely on the basis of the devotion of that building to the uses of the particular department. The resolution plainly implies that the director may not even accept such a building, but may only recommend acceptance. He certainly could not authorize construction of the building in the first instance. See Simon v. O'Toole , 108 N.J.L. 32, 44-46 (Sup. Ct. 1931), affirmed, o.b., 108 N.J.L. 548 (E. & A. 1931). That right is, moreover, expressly reserved to the commission elsewhere in the same resolution. There is no merit in the argument erected upon the 1947 resolution.

The city also argues that a commissioner "acting singly within the administration of the duties assigned to him can do an affirmative act in the name of the city, unless prohibited by statute or ordinance, or where the action to be taken requires the passage of an ordinance." We might be inclined to agree with this abstract statement if it were understood that the statutory prohibition is applicable by implication as well as express statement. See Simon v. O'Toole, supra (108 N.J.L. at page 45). But we do not agree that the proposition stated covers the case before us. We do not find that Director Holland was acting in the administration of the duties assigned to him when he directed the institution of this action.

We note, parenthetically, the recent sweeping dictum of the Supreme Court in Slurzberg v. City of Bayonne , 29 N.J. 106, 110 (1959), that there could "be no doubt" that the decision of a Walsh Act governing body to invoke the judicial process to settle the municipality's controversy over its water rights with the North Jersey Water Supply Commission "was the exclusive province of the board of commissioners as the city's governing body." Although the holding in that case did not require a decision on the point mentioned, and there was apparently no argument thereon, a considered dictum of that tribunal is to be accorded great weight in this court. However, we are not called upon here to decide

whether a Walsh Act city commission may lawfully delegate general authority to institute litigation for the municipality to a single commissioner as our conclusion is that Trenton did not delegate that power in respect to the present litigation to the department of public affairs by the 1947 resolution, the only basis for such authorization claimed by the city.

II.

We turn to the alternative position of the city that any lack of initial authorization for the suit was cured by the ratification resolution of May 15, 1948, thereby preserving the viability of the action in all its incidents, including the date of its institution, June 27, 1957, which was well within the six-year statute of limitations. The answering argument of defendants is that since ratification did not take place until after the lapse of six years from accrual of the action, it cannot be effective to bar the defense of limitations because the running of the period prior to ratification gave defendant a vested right to that defense protected from impairment by any subsequent action of the city in the nature of affirmance or ratification. Particular reliance is placed upon the holding in State v. Standard Oil Co. , 5 N.J. 281, 293 (1950), to the effect that the running of the statute of limitations prior to the institution of an action creates a vested immunity in the defendant to an action sought to be validated by a subsequent legislative extension of the period.

Before further inquiry into the legal justification for defendants' position, we take note of the fact that, in passing upon the motion, the trial judge stated: "* * * Commissioner Holland independently commenced suit, and I take it that he did it on the informal, informal (sic) assent of the Commission." This finding (or assumption) is not challenged by defendants, and we assume it was supported by proofs or concessions at the argument of the motion, or

at least not controverted by defendants. Nothing to the contrary is suggested on this appeal. Thus, it is fair to assume that the institution of the action in fact accorded with official city policy, or was at least without opposition in the governing body. The attorney of record in the action was and is the regular city attorney. No one in the city administration ever took any steps to disavow the action or cause its discontinuance. Although, as indicated above, the answer filed August 14, 1957 raised the defense of lack of authorization for the action, the defense of limitations was not asserted until the case was moved for trial, subsequent to ratification of the action by the full commission. There is no indication that defendants were not fully alerted to the existence and bona fides of the city's claim and to the prudence of preparing for its defense on the merits, at the time and by the fact of the institution of the action on June 27, 1957. In other words, it is clear that the public policy underlying statutes of limitations was substantially met in this case.

It is generally stated that a principal's ratification of an agent's unauthorized act will validate the act from its inception unless such validation will impair "intervening rights" of third persons. 2 Am. Jur., Agency , §§ 209, 211, pp. 166, 168; 2 C.J.S. Agency §§ 64, 65, pp. 1137, 1144. A more discriminating statement of the principle has been borrowed by the New Jersey courts from the original Restatement of Agency (now found in Restatement (Second), Agency , § 82, comment b, p. 210 (1958)):

"Upon ratification the consequences of the original transaction are the same as if it had been authorized, except in favor of persons who, because of their wrongful conduct, are not entitled to benefit, and against persons who have meanwhile acquired interests with which it would be unjust to interfere," Goldfarb v. Reicher , 112 N.J.L. 413, 416 (Sup. Ct. 1934), affirmed, o.b., 113 N.J.L. 399 (E. & A. 1934).

This rule has been applied to validate the unauthorized commencement of a legal proceeding, the holdings being that

ratification cures the defect in the original action so that it may proceed as if it had been properly authorized in the first instance. Robb v. Vos , 155 U.S. 13, 15 S. Ct. 4, 39 L. Ed. 52 (1894); Massachusetts Construction Co. v. Kidd , 142 F. 285 (1 Cir. 1905); Couch v. Central Bank & Trust Corp. , 297 F. 216 (5 Cir. 1924); Bowles v. Wheeler , 152 F.2d 34 (9 Cir. 1945), certiorari denied 326 U.S. 775, 66 S. Ct. 265, 90 L. Ed. 468 (1945); Boyce v. Chemical Plastics , 175 F.2d 839 (8 Cir. 1952); 1 Mechem, Agency (2 d ed. 1914), § 529, p. 383. The opinions recite the caveat as to rights of third parties. The Bowles case refers to correction of the defect "without violating any substantial equity" (152 F.2d at page 40). The former New Jersey Supreme Court applied the rule of ratification in Sayre v. City of Orange, supra (67 A. 933), where the unauthorized suit was commenced by the municipal counsel, whose authority was ambiguous but whose action was thereafter considered ratified by the city's resistance to an application for a writ of review. Sayre appears to be the only reported decision of a New Jersey court in which the validity of an unauthorized but subsequently ratified suit was placed in issue by a defendant. Neither this case, any of the cases cited above, nor, indeed, any other discoverable decision in the American jurisdictions involves the additional factor presented in the instant case -- a statute of limitations which expired between the date of the unauthorized commencement of the suit and the date of its ratification.

The critical question before us, then, and one of first impression in our courts, is whether the passage of the period of limitations prior to the city's ratification of Director Holland's institution of the action should be held to vest the defendants with an immunity from continuation of the action with which it "would be unjust to interfere." On principle, a negative response is indicated. First, the statute of limitations itself requires no more than that an action on contract "shall be commenced" within six years next after the accrual of the action. N.J.S. 2 A:14-1. The instant

action was in fact commenced within the period. Acceptance of defendants' position requires indulgence of the fiction that the action was not instituted until the date of ratification. For this we are aware of no justification, either in theory or on the basis of any consideration of equity or fairness militating in favor of defendants. If, as is plain from the authorities cited above, the defect of lack of original authorization to institute the action is not so fundamental as to dictate dismissal regardless of subsequent ratification (apart from limitations), the action cannot be accounted a nullity, but continues to subsist, and the date of its actual institution should, ordinarily, in logic and principle, continue to control as to the incidence of limitations.

Our courts have conceded the inoperativeness of the statute of limitations in the comparable situation of suit brought by a party who lacks legal capacity to do so. In Norko v. Rau , 107 N.J.L. 479 (E. & A. 1930), an action brought under the Pennsylvania death act, the plaintiff was permitted to change the capacity in which he was suing from administrator ad prosequendum to individual claimant. The change was allowed after the statute of limitations had run despite the fact that absent such change the action would have failed, on the theory that the cause of action remained the same and the defendant was therefore not prejudiced even though he lost the statutory defense. And in Scott v. Hoboken Bank for Savings , 126 N.J.L. 294, 299 (Sup. Ct. 1941), affirmed, o.b., 127 N.J.L. 564 (E. & A. 1942), the same rule was applied where the status of a defendant was corrected from owner to mortgagee.

The majority of American jurisdictions are in accord with the liberal view of allowing correction of improper parties after the statute has run. See Annotation, 74 A.L.R. 1266, 1275 (1931). See also Kansas Electric Power Co. of Leavenworth, Kansas v. Janis , 194 F.2d 942 (10 Cir. 1952); Kilbourn v. Western Surety Co. , 187 F.2d 567 (10 Cir. 1951); Levinson v. Deupree , 345 U.S. 648, 652, 73 S. Ct. 914, 97 L. Ed. 1319 (1953). In McDonald v.

State of Nebraska , 101 F. 171 (8 Cir. 1900), suit was brought by the state treasurer, who lacked authority to institute the action. The state, which was the proper party, was permitted to be substituted after the running of the period of limitations, thus shearing defendant of his defense to the treasurer's suit. But see St. Paul Fire & Marine Ins. Co. v. Continental Bldg. Operating Co. , 137 F. Supp. 493 (U.S.D.C.W.D. Mo. 1956), applying the Missouri ...


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