text:
    Lippincott versus Whitman.
    1. It is a well-settled rule in Pennsylvania that where equity would reform or set aside a written instrument on the ground of fraud, accident or mistake, parol evidence is admissible (except in the case of commercial paper), to contradict or deny the terms of a AArritten agreement.
    2. Where therefore it was shown that a mortgage sued upon was given Avitb the express understanding that it should be drawn three years from date; rhat the defendant discovered that the mortgage was drawn payable in one year instead of three; that she remonstrated with plaintiffs about it and they agreed, upon defendant signing it, that it should he considered as for three years and not be enforced before the expiration of that time, and that induced by this agreement defendant consented to sign said mortgage, evidence of this contemporaneous agreement should have been admitted, and it was error to withhold it from the jury.
    3. To pave the way for the admission of such evidence it is not necessary to prove a party was actuated by a fraudulent intention at the time of the execution of the writing, for although his original object may have been honest and upright, if to procure an unfair advantage he subsequently denies the parol qualification of the written contract, it is such a fraud as will operate to let in evidence of the real intent and conclusion of the parties to the instrument.
    January 9th 1877.
    Before Agneay, C. J., Sharswood, Mercur, Gordon, Paxson and Woodward, ‘JJ. Williams, J., absent.
    Error to the Court of Common Pleas, No. 2, of Philadelphia county: Of January Term 1877, No. 48.

      This was a scire facias upon a mortgage issued by William E. Whitman and Daniel Steinmetz, executors of James Cox, deceased, against Mary Ann Lippineott.
    The mortgage, dated the 22d of September 1874, was to secure the payment of $2000, and was drawn payable one year from date.
    To the scire facias, issued September 16th 1876, the defendant filed an affidavit of defence, which averred that “ no interest was unpaid or due at the suing out of the scire facias in the above case, as the same was paid in full to the 28d of March 1876, as receipted for. Neither were there any taxes due upon it so unpaid. 'And further this deponent says, that at the time of the purchase of the Union street house, in which she resides, from the said plaintiffs, the mortgage now sued upon was given by her and received by them in part payment thereof, and with the express understanding and agreement that the same should be drawn payable in three years from its date. Deponent discovered that the mortgage was drawn up in one year instead of three years, and she then remonstrated with them about it, and they assured her and agreed, upon her so signing it, that it should be considered as for three years, and would not be enforced before the expiration of the three years’ time. Upon this agreement only did deponent consent to sign the same; otherwise she would not have done it. She therefore asks the protection of the court against this premature foreclosure.”
    The plaintiffs took a rule to show cause why judgment should not be entered for want of a sufficient affidavit of defence, which rule the court made absolute.
    This action o'f the court was the error assigned.

      Aaron Thompson, for plaintiff in error.
    That parol evidence may be given to show what passed at the time of the execution of the writing; that it was executed by one party in consequence of the fraudulent conduct or false representations of the other, is well-settled law in this state: Miller v. Henderson, 10 S. & R. 290; Hahn v. Kalbach, 14 Id. 159; Rearich v. Swinehart, 1 Jones 233; Fuller v. Hood, 10 Casey 365; Green v. North Buffalo Township, 6 P. F. Smith 110; County of Schuylkill v. Copley, 17 Id. 386; Powelton Coal Co. v. McKeen, 25 Id. 238; Shugart v. Moore, Id. 469.
    The case should have been given to a jury, and the disputed facts there determined, and the plaintiffs not have been permitted to take advantage of their own agreement, which was the motive that induced the giving and execution of the mortgage.

      Dallas Sanders, for defendants in error.
    Although this court may have gone far in the admission of parol evidence, still no case can be cited to sustain the contention of plaintiff in error, that in the absence of an allegation and proof of fraud, a party may be allowed to directly contradict, by her parol testimony, a written instrument, duly signed, sealed and acknowledged by her.
    The cases cited by plaintiff in error do not support her position; for in them either fraud was actually proven, or there was no direct contradiction of the writing. To overturn a written instrument, the evidence of fraud must be clear, precise and indubitable ; and where, as here, there is no allegation of fraud, but an attempt is made to set up as a defence a contemporaneous parol agreement which flatly contradicts the sealed instrument sued on, the question should not be submitted to a jury: Fulton v. Hood, 10 Casey 365; Anspach v. Bast, 2 P. F. Smith 356; Hacker v. National Oil Refining Co., 23 Id. 93; Wharton v. Douglass, 26 Id. 273; Pennsylvania Railroad v. Shay, 1 Norris 45.
   Mr. Justice Paxson

delivered the opinion of the court, January 15th 1877.

The rule is well settled in Pennsylvania that where equity would reform or set aside a written instrument on the ground of fraud, accident or mistake, parol evidence is admissible to contradict or vary the terms of the agreement as written: Christ v. Diffenbach, 1 S. & R. 464 ; Iddings v. Iddings, 7 Id. 111; Miller v. Henderson, 10 Id. 290 ; Parke v. Chadwick, 8 W. & S. 96 ; Clark v. Partridge, 2 Barr 13; Renshaw v. Gans, 7 Id. 117; Rearick v. Swinehart, 1 Jones 233; Martin v. Berens, 17 P. F. Smith 459; Kostenbader v. Peters, 2 Weekly Notes 531. An exception to the rule exists in the case of commercial paper, which for reasons of public policy cannot be impeached in this way.

The judgment in this case was entered for want of a sufficient affidavit of defence. The plaintiff in error avers in said affidavit that the mortgage sued upon was given by her with the express understanding and agreement that it should-be drawn'payable three years from date; that she discovered that said mortgage was drawn payable in one year instead of three years; that she remonstrated with the defendants in error about it, and they assured her and agreed upon her signing it that it should be considered as for three years, and would not be enforced before the expiration of that'time; that upon this agreement only did she consent to sign the mortgage and that without it she would not have done so. The defendants in error foreclosed the mortgage at the end of a year. No interest was owing and unpaid at that time. If the facts be as stated in the affidavit of defence, and for the purposes of this case we are bound to presume them to be so, it was a fraud upon the plaintiff to foreclose the mortgage at the end of a year. It was an abuse of the instrument that brings the case within the rulings in Renshaw v. Gans and Rearick v. Swinehart, supra. It was said in Renshaw v. Gans, by Mr. Justice Bell, that “in order to pave the,way for the reception of oral declarations, it is not necessary to prove a party was actuated by a fraudulent intention at the time of the execution of the writing. His original object may have been honest and upright; but if to procure an unfair advantage to himself, he subsequently deny the parol qualification of the written contract, it is such a fraud as will, under the rules, operate to let in evidence of the real intent and final conclusion of the contractors.” So in Rearick v. Swinehart it was said, “ a legal delinquency attaches upon an attempted abuse of the writing sufficient to subject it to the influence of oral evidence.” The case of Fulton v. Hood, 10 Casey 365, was cited as 'in opposition to this view. We do not so understand it. It is true parol evidence AYas rejected in that case to show that the warrant of attorney was not to be entered up for ten years except upon a certain contingency, and that it had been entered up in violation of said agreement. But there was no offer to show that the bond Avas signed upon the faith of such agreement, and that it Avould not have been signed without it. The parties were not misled. It was said by Mr. Justice Strong, who delivered the opinion of the court in Fulton v. Hood, that the doctrine of Renshaw v. Gans and Rearick v. Swinehart, was inapplicable to that case. It is applicable here. The plaintiff in error sw§ars distinctly that she refused to sign the mortgage until she was assured that it ayouM be considered as for three years, and that AYithout such agreement she would not have executed it. In vieAY of this agreement it-needs no argument to shoAY that it Avas an abuse of the mortgage to use it for the purpose of selling the mortgaged premises at the expiration of a year. The abuse ip shoAYn by the premature foreclosure, and even under the vieAvs expressed by Mr. Justice Strong in Fulton v. Hood, would let in the parol evidence referred to. The plaintiff may have seen her way clear to pay the mortgage debt at the expiration of three years. It may be ruin to her to have it foreclosed at the end of one year. We think she was entitled to have her case passed upon by a jury, and that it Avas error to enter a judgment against her for Avant of a sufficient affidavit of defence.

It may be that parol evidence in such cases is of a dangerous character. We may concede it to be so. But the rule in this state is too well settled to be disturbed; on the other hand, it is in the experience of every laAvyer that if ave were to adopt as an inflexible rule the principle, that when a man once puts his hand to a written instrument, the terms thereof cannot under any circumstances be modified or contradicted, it would lead to consequences of a most serious charater. Instead of being a shield against fraud it would be its efficient and sure protection. Neither view of the case is entirely free from difficulty. The rule adopted in this state seems to be the lesser of íavo evils, and because it is so, and because it has become established by a line of authority, Ave prefer to adhere to it.

The judgment is reversed, and a procedendo awarded.


source: Caselaw Access Project

author: Mr. Justice Mercur

license: Public Domain

text:
    Royer et al. versus Keystone National Bank.
    1. One who takes an accommodation note as collateral security for an antecedent debt, is not a holder for value.
    2. He does not become a holder for value by renewing the note at maturity, no additional consideration having been given for the renewal note. '
    3. B. drew a note to the order of Y.; Y. endorsed it and it was then given to A. to get it discounted for the common benefit of B. and Y.; A. wrongfully pledged the note to a bank for an antecedent debt, which he owed to the bank; the bank afterwards renewed the note: Held (reversing the court below), in an action by the bank against B. on the renewal note, that an affidavit of defence setting forth these facts was sufficient.
    January 9th 1877.
    Before Agnew, C. J., Sharswood/Mercur, Gordon, Paxson and. Woodward, JJ. Williams, J., absent.
    Error to the Court of Common Pleas, No. 1, of Philadelphia county: Of January Term 1875, No. 198.
    This was assumpsit by the Keystone National Bank, the holder of a promissory note, against Alfred J. Royer and others, makers of the note; the note was drawn to the order of one Yost and by him endorsed. Judgment was entered below for want of a sufficient affidavit of defence. The opinion of the court gives the substance of the affidavit.

      C. S. Pancoast, for the plaintiffs in error.
    The plaintiff is in no better position than Young would have been, and is, in effect, suing for his benefit: Selden v. Neemes, 7 Wright 423; Kirkpatrick v. Muirhead, 4 Harris 117 ; Hutchinson v. Boggs, 4 Casey 294; Lenheim v. Wilmarding, 5 P. F. Smith 76.

      M. Arnold, for the defendant in error.
    It ivas held in Appleton v. Donaldson, 3 Barr 381, that the holder of accommodation paper may pledge it for an antecedent debt. So also Lord v. Ocean Bank, 8 Harris 384 ; Holmes v. Paul, 6 Am. L. Reg. 482; Moore v. Baird, 6 Casey 138; Work v. Kase, 10 Id. 138 ; Swift v. Tyson, 16 Pet. 1; Bonsall v. Faitch, 2 Weekly Notes 298.
   Mr. Justice Mercur

delivered the opinion of the court, February 12th 1877.

This action was against the makers of a promissory note. Judgment was taken for want of a sufficient affidavit of defence. The affidavit avers that the original note was put in the hands of one Young, for the purpose of getting it discounted, for the mutual benefit of the makers and of the endorser; but instead of getting^ it discounted, he passed it over to the defendant in error, as security for an antecedent debt due by him to the bank, and that neither the makers nor the endorser ever received any consideration for the note; that when that note became due, the note now in controversy ' was given in renewal oi the former, and no consideration was given therefor.

Assuming, as we must for all present purposes, these alleged facts to be true, they show that Young perpetrated a fraud on the makers and the endorser. In clear disregard of his duty, and unmindful of the trust reposed in him, he appropriated it to his own use, and fraudulently pledged it as security for his own debt. It is very clear then that none but a purchaser in good faith and for a valuable consideration could recover on the original note. Is the bank such a purchaser ?

We understand the affidavit substantially to declaré that the bank took the note merely as collateral security; that it was not taken as a payment. The bank did not agree to extend the time for payment of the existing indebtedness. It relinquished no right. It parted with nothing.

While cases may be found in the conflicting decisions of our sister states, and in the United States court, which declare that such an acquisition constitutes the purchaser a holder for a valuable consideration, without his having paid anything therefor, yet the rule in our state is well settled otherwise. Commencing with Petrie v. Clark, 11 S. & R. 377, it has been followed by Hartman v. Duval, 1 Rawle 279; Walker v. Geisse, 4 Whart. 258; Depeau v. Waddington, 6 Id. 20; Trotter v. Shippen, 2 Barr 358; Appleton v. Donaldson, 3 Id. 381; Kirkpatrick v. Muirhead, 4 Harris 117; Lord v. Ocean Bank, 8 Id. 384; Sitgreaves v. Bank, 13 Wright 359; Lenheim v. Wilmarding, 5 P. F. Smith 73; Ashton’s Appeal, 23 Id. 153 ; Pratt’s Appeal, 27 Id. 378.

It follows therefore that no recovery could be had against the makers on the original note. How as to the present note ? Does it occupy any higher ground ? The affidavit declares that it was in renewal of the former, and no consideration was given. If no consideration was given, the equities of the holder were not increased. A failure of the holder to recover on this note leaves the bank in as good condition as it occupied before. Its former rights and its former remedies remain unimpaired.

It is contended, however, that a valuable consideration is to be implied from the mere renewal. The case of Kirkpatrick v. Muir-head, swprci, declares the contrary. In that case the renewal was by giving two new notes, each for one-half the amount of the original note ; yet it was held that no consideration for the new notes was implied; and that the same defence could be made to them as to the former note. It follows, therefore, that the facts averred, and the conclusions deduced therefrom, ought to have been submitted to a jury, and the learned judge erred in entering judgment.

Judgment reversed, and a procedendo awarded.


text:
    Yost versus Keystone National Bank.
   Mr. Justice Mercur

delivered the opinion of the court, February 12th 1877.

This case was argued with Royer et al. v. Keystone National Bank, ante, p. 248, in which an opinion has just been filed. The case is substantially the same, varying only in the fact, that this action was against the endorser, and that against the makers of the same note. The affidavit in each case presents the same ground of defence.

For reasons given in the opinion in the other case this judgment must be reversed.

Judgment reversed, and a procedendo awarded.


author: Per Curiam.

text:
    Peterson versus Sinclair.
    1. A balance due on'a subscription to stock of a corporation is attachable as other debts are.
    2. If there be a lien on the stock or a liability of the stock to others which may be set up as defence the subscriber must set it up in his relief, otherwise his subscription is attachable.
    3. In cases of attachment execution the right to a separate trial by several garnishees is not of absolute right, but is a matter of discretion for the court, subject to review if that discretion is unjustly exercised.
    January 10th 1877.
    Before Asnew, C. J., Sharswood, Mercur, Gordon, Paxson and Woodward, JJ. Williams, J., absent.
    Error to the Court of Common Pleas, No. 3, of Philadelphia county: Of July Term 1875, No. 140.
    This was an attachment execution sur judgment, issued by Thomas and John Sinclair, trading as Sinclair & Son, against “ The Saturday Post Publishing Company,” defendant, and Pearson S. Peterson, Richard S. Peterson, Edward Norman, Francis H. Wood-ruff, John P. Taylor, and R. J. C. Walker, garnishees.
    The' corporation defendant was organized under the Act of July 18th 1863, Pamph. L. 1864, 1102.
    The attachment was issued against the garnishees upon the basis that they were indebted to the corporation upon subscriptions for stock.
    At the trial before Ludlow, P. J., it appeared that P. S. Peterson with others entered into articles of association for the purpose of forming the publishing company, with a capital of $40,000. All but two thousand dollars of this sum having been subscribed, Mr. PI. Peterson, the president of the company, went to his brother Richard, and stating to him that he found that the organization of the company might fail for want of a subscription of $2000, asked him to subscribe that sum, and in the language of PI. Peterson, when testifying, “he very generously, and solely in order to. aid me, said that if his subscription for $2000 or $3000 would suffice to secure the sum needed, that I might subscribe for him that sum. I did not put his name in the agreement, for I never supposed there would be a question about the matter, but I considered him a subscriber, and I fcaused his name to be put with other subscribers in the annual.statement, and this annual statement I signed.”
    This annual statement was "made in pursuance of the require-, ments of the act under which the company was formed.
    Mr. Richard Peterson never received any stock, although he paid $400 on his subscription. He never made any further payments thereon, but said at different times he would do. so as soon as he wras able.
    Before proceeding to trial on behalf of P. S. and Richard Peterson, a motion was made, “ that the issue between them and the plaintiff be tried separately from the issue between the other garnishees and the plaintiff,”-which the court refused.
    The garnishees offered no evidence, but asked the court to charge the jury: “that any sum of money due by the garnishees as stockholders of The Saturday Post Publishing Company cannot be recovered in this proceeding.”
    The learned judge refused so to charge, adding [“that under the evidence it was for the jury to find whether or not any moneys belonging to the company, and if any, how much, was in the possession of] P. S. Peterson [R. Peterson] and F. Woodruff [at the time the attachment was served, and if the jury find there ■ was then money of the company in the garnishee’s hands, I instruct you that the plaintiffs -can recover in this action.] This action is not brought to compel shareholders, out of their individual moneys, to pay the debts of the corporation to which they belong; that could not be done in this form of action. It is brought to compel persons who it is alleged hold money belonging to the company, to pay the same to a creditor of the company, and if you shall find that the garnishees have in their possession moneys belonging to the Post Publishing Company, the mere fact that the garnishees are also stockholders of the company does not prevent the plaintiff’s recovery in this suit.”
    The verdict was for the plaintiff for $1600 against Richard Peterson, who took this writ, assigning for error the refusal of the motion for a separate trial, the portions of the foregoing charge in brackets and the refusal of the point submitted by the garnishees.

      David W. Sellers and Benjamin Hams Brewster, for plaintiff in error.
    Each issue in an attachment execution is separate, and is as though, one garnishee was in the writ. The joinder of several garnishees does not defeat the right of each to his owm venire: Cornelius v. Simpson, 3 Phila. 35 (1858).

      Parties who appear under different rights, should have them tried separately, and the varying facts should not be confused in their consideration.
    The act under which this corporation was formed provides for written articles of association, which constitute the character of a subscriber or member; also for shares of capital stock, which are documentary; also for voting by proxy, authorized in writing ; also for the conduct of the corporate business by directors, the minutes of which are to be in writing, by a sworn clerk.
    It is insisted upon that the manifest policy of the act is to cast all liability and privilege upon documentary evidence. If one claims the rights, or is charged with the obligations, of a subscriber or member, his character, quoad hoc, for benefits and burdens, is answered by the articles of association. If he has not signed these, no parol evidence will aid the omission.
    If he is charged with the obligations, or claims the rights, of a' stockholder, his character, quoad hoc, is determinable by his subscription to or his holding shares. If this is done by proxy (though the act does not seem to recognise such a mode), then the letter of attorney must be filed with the corporation, and must be executed. Informal understandings cannot aid the omission.
    The court, however, left it to the jury to determine the whole ' question of liability, assuming in their charge that, if the conduct of the brothers made them, as between themselves, what Henry Peterson thought, then the jury could find a verdict on the basis there was money of the corporation in their hands.
    These parties must conform to the statute that created them, and if they do not they are simply partners, and this is not the remedy. Could Peterson have acquired any right against the corporation by the conversation with his brother ? And if he could not, why then should he be bound thereby ? Should he be held to be liable, when he could have acquired no benefits ?
    The general law provides that the assets of the insolvent corporation shall be rateably distributed. Before a bill can be filed to compel the enforcement of liability to such a corporation, an execution at law must issue and prove unavailing: Suydam v. Insurance Company, 1 P. F. Smith 394; Bayard’s Appeal, 22 Id. 453. It is contended if Peterson was liable in any manner to the attaching creditor, that liability could alone be enforced in accordance with the 42d section of the act.

      E. Hunn Hanson and Daniel Dougherty, for defendants in error.-—
    There is nothing in the Act of Assembly of 16th June 1836 and its supplements relating to attachment execution, which required the court below to comply with the request made. The grant or refusal of such a motion is a matter of discretion, and therefore not the subject of review in error. In Cornelius v. Simpson, cited by the defendant, it is said that “ there is nothing in the wording of the several Acts of Assembly on the subject that militates against a joint trial, while the inconvenience of several trials is too obvious to be dwelt upon.”
    The other assignments of error bring before the court but a single question, which is the supposed error in permitting the jury to find in this form of proceeding any verdict at all for the plaintiffs. The plaintiff in error asserted that he was liable if at all as a stockholder by force of those sections of the Act of 1864 which provide for enforcing the legal responsibility of a stockholder who has done or omitted to do the things enjoined by the act, and has thereby become personally liable to a creditor.
    The distinction between the proceedings by attachment execution and those under the Act of 1863, is plain and broad. If the plaintiff in an attachment execution recovers at all, he recovers the money of the defendant which happens to be in the hands of the garnishee. But if the complainant in the proceedings contemplated by the Act of 1863 recover, he does not recover the money of the company, but the proper moneys of a stockholder, which he is obliged to pay because he has done or failed to do the things required by the Act of Assembly.
    The two cases cited in the argument of plaintiff in error have no application to the case before the court. The decision in Suydam v. Insurance Co., 1 P. F. Smith 394, was a proceeding in equity to have certain funds declared trust funds for the payment of the company’s debts. The case of Bayard’s Appeal, 22 P. F. Smith 453, was a proceeding under the act approved 7th April 1870, which suspended the remedy by sequestration under the Act of 16th June 1836.
   The judgment of the Supreme Court was entered, January 22d 1877,

Per Curiam.

We are of opinion that a trial by a separate jury upon each issue by several garnishees, is not a matter of absolute right in cases of attachment execution. In this matter we must be guided by general practice, and by the great inconvenL ence and delay of execution, if every issue where there are many garnishees should necessarily be tried separately. It is one of those matters where some discretion must be exercised by the court below, subject to a review here, if that discretion be unjustly exercised. In this case no facts are set forth in the bill of exceptions to show that the power of the court was arbitrarily and unjustly exercised.

As to the debt attached, which is simply a balance of a subscription in money to stock of the corporation, the relation between the corporation and the subscriber is merely that of creditor and debtor. The subscription (says Justice Woodward) is an ordinary contract of indebtedness:" Pittsburgh and Connellsville Railroad Company v. Byers, 8 Casey 22; or as he says in McCully v. Same Co., Id. 31: “ Subscribers to stock are on the same footing as other simple contract debtors.” See also Same Co. v. Clark & Thaw, 5 Casey 151, and Graff v. Pittsburgh and Steubenville Railroad Co., 7 Casey 493. Debt or assumpsit lies on the contract of subscription according to its terms. This being an ordinary debt, it is attachable as other debts are. If there be a lien on the stock, or a liability of the stock to others, which may be set up- as a defence, the subscriber must set it up in his relief, otherwise his subscription, having the characteristics of an ordinary contract, creating a debt, is attachable. The question as to a written subscription is not raised bv the assignments of errors.

Judgment affirmed.


author: Chief Justice Agnew

text:
    Wattson et al. versus The Chester and Delaware River Railroad Co.
    1. Sect. 23 of art. 3 (change of venue) of the new Oonstitution did not become immediately operative by the adoption of the Oonstitution.
    2. Under the second section of the schedule, laws existing at the time of its adoption are preserved,whenever legislation is necessax-y in order to carx-y the provisions of the Constitution into effect.
    3. The power of changing the venue is not inhei’ent in our county courts, as it is in those of a larger Jux-isdiction, but was confex-red upon them by statute.
    January 11th 1877.
    Before Agnew, C. J., Sharswood, Merour, Gordon, Paxson and Woodward, JJ. Williams, J., absent.
    Error to the Court of Common Pleas, No. 3, of Philadelphia county : Of January Term 1875, No. 199.
    Debt by Thomas B. Wattson and another against the Chester and Delaware River Railroad Co., to recover the amount due for land taken and occupied by the company for railroad purposes. The action was originally brought in Delaware county and was removed to Philadelphia county by the plaintiffs in September 1874, under the Acts of 14th April 1834 (Pamph. L. 395), and 28th April 1870 (Pamph. L. 1292). The narr., which was filed in Philadelphia county, set forth as a cause of action the taking by the defend ant of the plaintiffs’ land in Chester county for railroad jrarposes. The plea set forth that the cause of action, if any, arose in Chester county, and therefore the Common Pleas of Philadelphia had no jurisdiction. The plaintiffs demurred to the plea on the ground that it showed no reason why the jurisdiction should be ousted.
    Article 3 of the new Constitution provides thus:—
    “ Sect. 7. The General Assembly shall not pass any local or special law * * * changing the venue in civil or criminal cases.
    Sect. 23. The power to change the venue in cjyil and criminal cases shall be vested in the courts, to be exercised in such manner as shall be provided by law.”
    The court below, Ludlow, P. J., in entering judgment for the defendant on the demurrer, said:—
    “ The change thus wrought (by sects. 7 and 23, article 3 of the new Constitution) is a radical one; the power itself, which had been legislative, now becomes judicial, hence any legislation now upon the statute book is based upon a principle at war with the plain letter and spirit of the new Constitution.
    “ The thing aimed at by the new Constitution was the existence of legislative power over the subject; the method by which the power may be exercised remains with the legislative branch of the government, but the power itself is transferred to the judiciary. On the first day of January 1874, the present Constitution took effect, and upon that day to change the venue in any civil or criminal case became an inherent part of judicial and not legislative power.

      “ It is impossible to understand hoAV the old and the nevr system can stand together; if the one lives the other must die. Cases may arise wherein the old statute and the new Constitution may be made to harmonize; but this is not one of them, for it relates to the existence of the power itself. It was argued that the legislar ture had not yet designated the method by which the courts could act; in some eases that argument might have weight. There are, however, no legal reasons, and no reasons of public policy, which will permit the courts to strain the construction of this section in the new Constitution, and thus mould the organic law of the state.”
    The plaintiffs then took this writ of error, assigning for error the entry of judgment for the defendant on the demurrer.

      A. S. Biddle and R. C. McMurtrie, for the plaintiffs in error.—
    Under the new Constitution the power to change the venue is to be exercised by the courts, and the legislature shall say how it shall be done, being careful in so doing not to pass any special or local laws.
    Until actually repealed, the existing legislation on this subject was not intended to be done away with by the new Constitution: Sheppard v. Collis. 1 Weekly Notes 494.

      ■T. Bart, Jr., and J. JE. Groiuen, for the defendant in error.—
    Before the Act of 1834, a change of venue could have been obtained only by judicial action. The new Constitution was a return to this practice, and vests the power of changing the venue in the courts.
    The Acts of 1834 and 1870 are directly opposed to the exercise of this power by the court. Under the former, the removal of a cause, and even the court to which it was to be removed, was under the control of the party who filed the affidavit. The Act of 1870 only gave the court the power to appoint the court to which the cause should be removed. These acts certainly do not vest the power to change the venue in the courts.
    The Constitution operated as an immediate grant of power to' the judiciary. It is clear that the' legislature could not hereafter pass such acts as those of 1834 and 1870; therefore these Avere repealed.
    The power to change the venue may be dormant, or the court may prescribe rules for its exercise till the legislature pass a laAV on the subject. In Sheppard v. Collis, supra, the provision in the Constitution Avas very different, and plainly depended for its operation upon future legislation. So in Lehigh Iron Co. v. Supervisors, &c., 3 Weekly Notes 29, legislation Avas held to be indispensable to carry out the provisions of the Constitution.
    Those cases do not affect the case at bar ; there it was simply a case of the repeal of existing laws, by the making of neAV ones by the legislature; here it is the transfer of the control of the subject from one branch of the government to another. The existing acts are utterly inconsistent with the new Constitution, and were therefore repealed by it.
   Chief Justice Agnew

delivered the opinion of the court, January 22d 1877.

The provision of the new Constitution contained in section 23d of article 3, that “ The poAver to change the venue in cíau! and criminal cases shall be vested in the courts, to be exercised in such manner as shall be provided by Iuay,” Avas not immediately operative, eo instante the Constitution Avas adopted, so as to defeat existing laAYS. By the second section of the schedule, “ All laws in force in this Commonwealth at the time of the adoption of this Constitution, not inconsistent therewith, and all rights, actions, prosecutions and contracts shall continue as if this Constitution had not been adopted.” The effect of this saving section, intended to bridge over the chasm betAveen the íavo frames of government, and make the transition from one to the other easy and Avithout unnatural disturbances of the affairs of the people, it has been held by us, is to preserve the laws in existence, whenever legislation is necessary to carry the provisions of the neAY Constitution into proper effect. If the effect AYere held to be immediate, the consequence Avould be, that there AYOuld be no laAY Avhatever to regulate the poAver ; for in this case the power of the court to change the venue is “ to be exercised in such manner as shall be provided by law.” Until the manner of its exercise is prescribed by a suitable laAY, it is evident the court can have- no guide as to the cases, the grounds, or the mode of making the change. The power of changing the venue is not inherent in our county courts, as it is in those whose jurisdiction extends over greater areas. It is a matter of jurisdiction which is confined to the county by the very constitution of these courts. Without a grant of the power, they cannot transfer their jurisdiction from one to another. If the power to transfer were inherent, the court receiving by transfer could hand the case-over to another, and the latter to the next, and so on, toties quoties. We think the court below erred in giving judgment for the defendant upon the demurrer. The case was governed by the laws existing when the Constitution was adopted.

Judgment reversed, and judgment for the plaintiffs is now given, and record ordered to be remitted with a procedendo.


author: Mr. Justice Woodward

text:
    The Philadelphia Trust, Safe Deposit and Insurance Co., Trustees, &c., versus Audenreid et al.

    A. & Co., commission coal merchants, agreed to act as selling agents for a coal company for one year from January 1st 1873, upon a commission, and to advance the coal company $50,000, which, with the commission of fifteen cents per ton, was to be repaid out of funds in the hands of the firm arising from sales; the firm agreed to guarantee all sales on time and account for them as cash. The Philadelphia Trust Co. guaranteed the firm against all losses by reason of advances made by it to the coal company to the extent of two-thirds of the amount advanced and not reimbursed. The firm retained from the proceeds of sales during the year fifteen cents per ton, amounting to $8809.95 ; and also collected in 1874, as the proceeds of time sales, $9031.33. The coal company was insolvent on December 31st 1873. In an action on the guarantee by A. & Co. against the Trust company,

      Held, that both of the above sums were to be considered as repayments of the $50,000 advanced, and that the guarantors were only liable for two-thirds of the difference between the amount of these two sums and the whole amount advanced.
    January 11th 1877.
    Before Agnew, C. J., Sharswood, Mercur, Gordon, Paxson and Woodward, JJ. Williams, J., absent.
    Error to the District Court of Philadelphia county: Of January-Term 1875, No. 128.
    Assumpsit by John T. Audenreid and others, trading as Audenreid, Norton & Co., against the Philadelphia Trust, Safe Deposit & Insurance Company, trustees under the will of William Richardson, deceased.
    A case ivas stated for the opinion of the court, with leave to either party to sue out a writ of error in the same manner as if a judgment had been entered on a special verdict.
    The plaintiffs are commission coal merchants in the city of Philadelphia. The defendants, as trustees under the will of William Richardson, deceased, were, at the time of making the contract hereinafter stated, interested in two leases of coal mines, worked by the Oakdale Coal and Mining Company as mortgagees of said leases and as stockholders in said company.
    Application was made to the plaintiffs to become the agents of that company to sell the product of the mines, and to make advances to enable the Oakdale company to conduct their operations. After the terms were settled, contracts were made, which are the contracts under which the plaintiffs claim, and copies of these are hereto attached and made part of the case.
    On the 31st of December 1873 the contract terminated. The plaintiffs, up to that time, advanced to the Oakdale company, under the contracts, $50,000, of which there has been reimbursed to them the sum of $17,901.28, as particularly specified below, and their claim against the said Oakdale company amounted, therefore, to $32,098.72, which is admitted by said Oakdale company to be the correct balance due by said company.
    The plaintiffs had given due notice to the defendants of the advances as made, and had otherwise complied with their contract. And the Oakdale Coal and Mining Company was, on the 31st of December 1873, insolvent, and has so continued. No notice was ever given by said defendants to plaintiffs to withhold and reimburse themselves according to provisions of third paragraph of supplemental agreement.
    The plaintiffs had retained from the proceeds of the sales of coal consigned by the Oakdale Coal and Mining Company fifteen cents per ton, as stipulated in the contract, amounting to $8869.95.
    And they had credited the “ Oakdale company’s advance account,” in which the advance of $50,000 was kept on their books, with that sum as received month by month, resulting in a balance on that account, 31st December 1873, of $41,130.05.
    They had also sold for the company coal on which there was due, but not received till after January 1st 1874, $9031.33, which they credited to the company as of 31st December, leaving the balance due as above, $32,098.72.
    Neither the Oakdale company nor -the defendants, however, had notice that the accounts of the plaintiffs were so kept.
    If the guaranty of the defendants only extends to the two-thirds of the balance remaining unpaid, after deducting both of these sums, such balance would be $32,098.72, of which said balance the defendants have paid two-thirds — that is to say, $21,359.15 — without prejudice to the plaintiffs to claim any further sum which they might be entitled to receive under any other construction of the contract which shall be judicially determined to be correct.
    If the court shall be of opinion that the construction of the agreement under which the above payment was made is correct, and that the lawful claim of the plaintiffs on defendants only amounted to two-thirds of the unreimbursed advancement, being the sum paid by them, then judgment shall be entered for the defendants, with costs of suit.
    But if the court shall be of opinion that the plaintiffs are entitled to apply either or both of said sums to the payment of the one-third of the advances not guaranteed by the defendants, and to require the defendants to pay the two-thirds of the balance, i. e., $50,000, remaining unpaid, without first deducting therefrom both of said sums or either of them, then judgment shall be entered in favor of the plaintiffs, for the amount which shall appear to be due upon the statement of the account, upon the principle which shall be decided by the court to be correct, with interest from December 81st 1873, and costs, according to the statements annexed, which give the amounts as thus ascertained in the three contingencies.
    If the plaintiffs are entitled to apply both sums to the liquidation of their one-third of the advances, their aggregate is in excess of such one-third, and the balance to be paid by defendants would be as follows:—
    Advances, $50,000:00
    Credits, 17,901.28
    $32,098.72
    Deduct amount paid, 21,399.15
    Balance still due would be, $10,699.57
    If the subsequent collections only are to be credited, the amount would stand:—
    Advances, $50,000.00
    Credits, 9031.33
    ,968.67
    Two-thirds, 312.44
    Deduct amount paid, 21,399.15
    Balance still due Avould be, $5913.29
    If the fifteen cents only are to be credited:
    Advances,...... $50,000.00
    Deduct,...... 8869.95
    $41,130.05
    Two-thirds, $27,420.03
    Deduct amount paid, 21.399.15
    Balance still due would be, $6020.88
    “ Memorandum oe Agreement, made the 20th day of December, A. D. 1872, between the Oakdale Coal & Mining Company, of the first part, the Philadelphia Trust, Safe Deposit & Insurance Co., trastees under the will of William Richardson, deceased, of the second part, and Audenreid, Norton & Company, of the third part.
    “ The party of the first part hereby appoint the party of the third part their agents for one year, to receive and sell all the coal produced and sent to market from the mines of the party of the first part, and they covenant that all the product of the said mines shall be consigned to the party of the third part for sale.
    “ The party of the third part shall receive as compensation for their services a commission of fifteen cents per ton on all lump, steamer, and pea coal which shall be delivered by rail for city consumption or on the line of the road, and twenty cents per ton on all other coal consigned to them and sold.
    “ The party of the third part will make advances to the party of. the first part to an amount not exceeding $25,000, as the same may be required, to be reimbursed out of proceeds of coal shipped under this agreement, after the 1st day of April 1873, at the rate of fifteen cents per ton.

      “ On all advances interest at six per cent, per annum shall be charged.
    “ They will also accept and pay all sight drafts of the party of the first part for tolls and other railroad charges on lateral roads, and also all freights and charges for transportation on the coal. The amount of these acceptances and the other charges and commissions shall be deducted from the monthly returns of sales.
    “ Settlements for coal shipped during the preceding month and sold shall be made on the Thursday preceding the third Saturday of every month with the treasurer of the party of the first part.
    “ The parties of the third part guaranteeing all sales, and when sold on time, cashing said sales as of that day, being allowed a rebate of interest for the term of credit not then expired. And in case the consigned coal has accumulated on the wharves at Richmond, and is not sold or delivered, the parties of the third part will advance two-thirds the market price of said coal (less freights paid) to parties of the first part.
    “ The parties of the second part hereby guarantee the parties of the third part against all loss by reason of all or any advances made under or in pursuance of this agreement, to the extent of two-thirds of the amount advanced and not reimbursed. Nor shall any failure to reimburse themselves out of funds in their hands affect this obligation : Provided further, however, that statements of advances, made shall be rendered monthly to said parties of the second part at the time of settlement for coal sold, and that after notice given by the party of the second part the parties of the third part shall appropriate all funds then in their hands and moneys thereafter received to their own reimbursement and in discharge of this guaranty;

      “ This agreement shall take effect as to all coal shipped on and after the 1st day of January 1873, and shall continue one year.” * * * By a supplemental agreement made April 26th 1873, the plaintiffs agreed to increase their advances to $45,000 ; it was further provided therein as follows :—
    “ In order to prevent misunderstanding, it is hereby further agreed and provided, that the true intent and meaning of the original agreement, as well as of this supplemental agreement, is that until said party of second part gives to the said party of the third part notice to retain the fifteen cents per ton account sales for their reimbursement for advances, the said parties of the third part are to be at liberty to permit the parties of the first part to draw or use all funds in the hands of said party of the third part without affecting the position of said party of the second part as guarantee to said amount of two-thirds of the advance made.

      “ And further, that when said party of the second part shall or may give notice to the parties of the third part to withhold and reimburse themselves, that said parties of the third part shall be at liberty to apply any funds then or thereafter in their hands to discharge the unguaranteed portion of their claim against said parties of the first part; always, however, after notice given applying the fifteen cents per ton .to liquidate the advances.
    “ And it is further agreed, inasmuch as the said original agreement terminates January 1st 1874, and said parties of third part may not wish to renew the same, that if, at the expiration of the year 1873, a balance of amount- of advances is found. to remain due to said parties of the third part, they shall have the right to demand and claim said balance from said parties of the first part, and in the event of default in the payment of the same by said party of the first part, to claim a,nd recover from said parties of the second part such portion of said balance of advances as, according to the agreement and supplemental agreement, shall be covered by their guaranty.”
    By a second supplemental agreement it was provided that the plaintiffs’ advances should be increased to $50,000.
    The court below was of opinion that the rights of the parties were fixed by the insolvency of the Oakdale company on December 31st 1873, and that the liability of the defendants could not be varied by the subsequent collections, even though the plaintiffs credited them on the books as of that date, and entered judgment for the plaintiffs for $6020.87, under the last of the above tables.-
    Both parties took writs of error. The error assigned in this case was in substance that “ the court erred in not holding that the guarantee of the plaintiffs in error extended only to two-thirds of the balance appearing due by the Oakdale company to the defendants in error, after deducting all sums received or in their hands at any time from or on account of that company.”'

      R. L. Ashhurst and E. S. Miller (S. Dickson with them), for the plaintiffs in error.
    The time sales were to be considered as cash sales with a rebate of interest, and the amount of the time sales afterwards collected by the plaintiffs below must therefore be considered as a payment to them in reduction of the advances as of the time when they made the sales. The account showed that such was the plaintiffs’ view of the transaction.
    Even apart from this, these collections on account of time sales must be considered as reimbursements under the terms of the agreements ; the guaranty extended only to two-thirds of the advances not reimbursed.

      A. S. Biddle and R. C. McMurtrie, for the defendants in error.—
    The proper interpretation of the first and second agreements is that whatever funds the plaintiffs had in their hands at any’time were (until notice, and thereafter, excepting the commissions) to be first applied to the extinguishment of the unguaranteed portions of the debt, and that if these funds were not sufficient to cover more than one-third of the advances, the defendants were to pay the remaining two-thirds.
    Counsel on both sides argued also the question of the appropriation of payments.
   Mr. Justice Woodward

delivered the opinion of the court, May 7th 1877.

Of the three statements annexed to the case stated, setting out the claim of the plaintiffs below in each of the three alternative contingencies specified, the third was adopted by the District Court. The decision was based on the theory that the contract rights of the parties were fixed by the insolvency of the Oakdale Cóal and Mining Company on the 31st of December 1873, and that the liability of the defendants could not be varied by the subsequent collections, even though the plaintiffs credited them on their books as of that date. As the subseqirent collections amounted to $9031.33, the court held that the sum of $32,098.72, two-thirds of which the defendants had paid, was increased to $41,130.05, and entered judgment for $6020.87, 'in favor of the plaintiffs.

By the terms of the three agreements between the parties, the plaintiffs below stipulated that they would make advances to the Oakdale company to the amount of $50,000, to be reimbursed out of the proceeds of coal to be shipped to them, at the rate of fifteen cents per ton, which they were to retain. Under the original agreement of the 20th of December 1872, the plaintiffs were constituted agents to receive and sell the coal of the Oakdale company. Settlements were to be made on the Thursday preceding the third Saturday of every month, and when sales should be made on time, it was provided that they should be cashed as of that day, a rebate of interest to be allowed for the term of credit not then expired. All sales, it was expressly stipulated, were to be guaranteed by the plaintiffs. The covenant on the part of the defendants was to guarantee the plaintiffs “ against all loss by reason of all or any advances made under or in pursuance of this agreement, to the extent of two-thirds of the amount advanced and not reimbursed.” Any failure of the plaintiffs to reimburse themselves out of funds in their hands, was not to affect the obligation; but they were required, after notice by the defendants, to appropriate, all funds then in their hands and moneys thereafter received to their own reimbursement, and in discharge of this guaranty.”

No essential change was made by the supplemental agreement of the 26th of April 1873, in the relations or rights of the parties. It was executed in order to define and explain the terms of the original agreement. Until notice by the defendants to retain the fifteen cents per ton for their reimbursement for advances, the plaintiffs were authorized to permit the Oakdale company to draw or use all the funds in their hands. After notice, they were to be at liberty to apply any moneys held or to be received by them “ to discharge the unguaranteed portion of their claim; always, however, after notice given, applying the fifteen cents per ton to liquidate the advances.” Any question that could arise under these clauses in the supplement, is aside from this inquiry, as the notice in contemplation was never given.

On the 31st of December 1873, the plaintiffs had credited the Oakdale company’s advance account” with fifteen cents per ton on the proceeds of coal sold to the amount of $8869.95, resulting in a balance due them of $41,130.05. They had sold coal for the company for which the sum of $9031.33 was due, but was not paid until after the 1st of January 1874. This sum was credited to the company as of the 31st of December 1873, leaving a balance of $32,098.72 owing to the plaintiffs. The defendants have paid two-thirds of this balance, $21,399.15, in discharge, as they allege, of their covenant of guaranty. The single question is whether or not they are subject to further liability.

By express stipulation, the plaintiffs guaranteed all sales they should make of the Oakdale company’s coal. By stipulation .equally express, they were to settle with the company’s treasurer on the Thursday before the third Saturday of every month for the coal received and sold during the preceding month. They were to account for sales on time precisely as they were to account for sales for cash, except that a rebate of interest for the unexpired term of credit was to be allowed. It was indifferent to the coal company, therefore, and consequently equally indifferent to the defendants, whether the coal should be sold on credit or for cash. In either case the liability of the plaintiffs to account was fixed. The contract was for a single' year, and terminated on the 31st of December 1878. At that date the extent of the liability of the defendants depended on the state of the “advance account” between the company and the plaintiffs. Under the terms of the agreement, what sum remained to be reimbursed ? The coal for which payment was received after the 1st of January 1874, had been sold in 1873, during the existence of the contract. And it was for coal sold— sold on any terms they might choose to make — and not for the money they received for it, that the plaintiffs were to account. And they were to account when the sales were made, and not when the price was paid. The guaranty of the defendants was “to the extent of two-thirds of the amount advanced and not reimbursed.” On the 31st of December 1873, the plaintiffs had been “ reimbursed” to the extent of $8869.95 by the fifteen cents jier ton retained out of the proceeds of coal sold and settled for. This was the reimbursement fund specially designated in the original agreement. They had been paid $9031.33 by sales of coal, the price of which was afterwards collected. Why was not this payment reimbursement on the advance account ? If the Oakdale company had paid the sum in cash, is it possible that the plaintiffs would have been entitled to apply it to the unguaranteed portion of their claim ? To “reimburse” is to “pay back;” and the primary meaning of the Avord is to be imputed to it where that meaning is not controlled by contract stipulations. Here, it has not been so controlled, for the contingency of notice did not arise in which, under the first supplemental agreement, the plaintiffs were to be at liberty to apply any funds in their hands, except the fifteen cents per ton, to discharge the ungaranteed-one-third of their advances.

Under a construction of these agreements which seems obvious and unmistakable, there is no room for the introduction into the controversy of any question relating to the application of payments.

The judgment is reversed, and judgment is entered for the defendants below pursuant to the terms of the case stated, with costs of suit.


author: Mr. Justice Paxson

text:
    Moss’s Appeal. Lazarus’s Estate.
    1. A corporation having a surplus of earnings, increased its capital stock, and the privilege was given each stockholder to subscribe, at par, for as many shares of the new stock as he held of the old. The executors of an estate, which owned one hundred shares of this stock, having sold sixty of these options, Avith the sum realized therefrom, purchased forty shares of stock. Held, that these forty shares Avere capital and not income, and therefore did not go to the widow, who was entitled, under the will of decedent, to the ineome, profits and products of his estate for life, hut belonged to the residuary legatees, to whom the capital was to descend after the Avidow’s death.
    2. Earp’s Appeal, 4 Casey 368, and Wiltbank’s Appeal, 14 P. E. Smith 256, distinguished.

      January 12th 1877.
    Before Agnew, C. J., Sharswood, Mercur, Gordon, Paxson and Woodward, JJ. Williams, J., absent.
    Appeal from the Orphans’ Court of PhiladelqoTiia county: Of July Term 1876, No. 101.
    This was the appeal of William Moss, M. D., and others, who were the residuary legatees of the estate of Henry Lazarus, deceased, from a decree of distribution in the account of Luden Moss, an executor and trustee under the will of decedent.
    Deceased died in 1868, possessed of one hundred shares of the stock of the Pennsylvania Company for Insurances on Lives and Granting Annuities. The executors did not sell this stock. By Act of April 3d 1872, Pamph. L. 790, the legislature authorized said company to increase their capital stock by the issue of new stock, not exceeding a million of dollars. The stockholders of said company, on March 31st 1873, accepted said act, and directed the issue of ten thousand new shares, of $100 each, and gave to every stockholder the right to purchase, at that price, as many of the new shares as he held of the old.
    Henry Lazarus’s executors were entitled to subscribe for one hundred shares. They sold their right to subscribe to sixty shares for $66.66 per share, making $4000, and with this sum purchased forty shares, balance of that for which the executors were entitled to subscribe.
    Before an auditor, the widow, to whom the decedent had devised the income, profits and product of his estate for life, claimed these forty shares as income and profits; while the residuary legatees, to whom the principal of the estate was to go after the widow’s death, claimed them as a part of the corpus of the estate.
    The rest of the material facts will be found fully stated in the opinion of this court.
    The following adjudication was made by Dwight, J., who audited the account:—
    “ The trustees purchased forty additional shares of the Pennsylvania Company for Insurances on Lives, &c., with the money raised by selling out the right to subscribe to sixty other shares. At the time the hundred shares already owned by the trustees
    were worth ........ $24,000
    The one hundred and forty were at the time of audit
    selling for $225, ....... 31,500
    Being net profits of.....$7,500
    “ Hnder Earp’s Appeal, 4 Casey 368, Wiltbank’s Appeal, 14 P. F. Smith 256,1 think the cestui que trust, by virtue of the will, is entitled to this profit. I award to her thirty-three shares of the stock.”
    Exceptions were'filed to'this adjudication by both the residuary legatees and Mrs. Lazarus, who claimed that the entire forty shares should have been awarded to her. The court, in a decree enteredyu-o forma, dismissed these exceptions and confirmed the adjudication.
    From this decree the residuary legatees and Mrs. Lazarus each appealed.

      John Samuel and John G. Johnson, for appellants. Dr. Moss and others.
    The forty shares in question are ca]DÍtal, not income. Before the acceptance of the Act of 1872, if all the property Had then been divided among the shareholders, the holder of every one share would have received $240 for it; or if at that time the executors of H. Lazarus had sold the stock, his estate would have received $240 for every share it held, equal to $24,000. The effect of the new issue doubled the number of the shares into which the assets were divisible, but did not double the assets to be divided. The divisor is doubled, but the dividend is not doubled; therefore the quotient, which is the value of the stock, is diminished.
    To 10,000 shares, worth $2,400,000, each share = $240, were added 10,000 shares, worth 1,000,000
    Result 20,000 shares, worth $3,400,000, each share = $170.
    The one hundred shares belonging to appellants (subject to life estate), after the new issue, were worth $17,000 instead of $24,000.
    When, therefore, the executors bought the forty new shares, worth $170, ........ $6,800
    And added them to the one hundred old shares on hand, worth $170,........ 17,000
    The result was one hundred and forty shares, worth . $23,800
    The sum of money, therefore, at which the options were sold, viz., $4000, which, by investment, became the forty shares in question, was precisely the difference required to maintain in its integrity the one hundred shares left by Henry Lazarus. In Atkins v. Ambree, 12 Allen 361, the value of the right to take new shares was held to go to the remainderman, not to the life-tenant, the court saying: “ The right or privilege to take new shares in a corporation, upon an increase of the capital stock Avithin the limits fixed by the charter, is a benefit or interest which attaches to stock, not as profit or income derived from the prosecution of the corporate business, but is inherent in the shares from the very creation.”
    Even if the sum of $1,400,000 beyond the original capital of $1,000,000, Avhich went to make the value of Henry Lazarus’s one hundred shares $240 each, was accumulated profits of the company, these were in no sense the property of Mary Lazarus, for they never had been divided by the company or distributed in the shape of profits or income. The company alone has the right to say whether they will retain any of its earnings for the exigencies of its business, or distribute them as dividends. Until such a distribution is made, the earnings are capital of the shareholders, not income: Ezekiel Barton’s Trust, Law Rep. 5 Eq. 238; Straker v. Wilson, 6 Law Rep. Ch. App. 503.
    Earp’s Appeal and Wiltbank’s Appeal are to be distinguished from this case. In the former there was an actual distribution of profits — qua profits — in the shape of dividends. It was distributed among the stockholders in the form of new certificates, the recipients not paying anything. In the latter, there was no evidence of a loss to the remaindermen, as here; and being in opposition to every American or English case, it should be restricted to its letter.
    The adjudication of the court below, in fixing the value of the shares at the' date of the audit, is clearly wrong. This would be to make the estate of the life-tenant and the remainder-men to depend on the time when the executors filed their account or the dilatoriness or precipitancy of the court in auditing the account.

      Samuel Grustine Thompson, for Mrs. Lazarus.
    It is manifest that the testator intended that his wife should have all that should grow out of his estate, whether it was in the nature of income, product or profit. He not only bequeaths the income, but significantly adds “profits and products.”
    The options sprang from the old stock and were literally their product. Wiltbank’s Appeal settles beyond question that the right to subscribe given to the old stock is a product of such stock and the sum realized from it is a profit and therefore income.
    While Earp’s Appeal differs from Wiltbank’s Appeal, in the facts, they both establish, that where there is gain or profit, either in certificates of stock or money, either directly from, or as an incident to stock, it is income.
    The court erred in awarding but thirty-three of these shares to Mrs. Lazarus. They should have awarded the entire forty claimed by her.
   Mr. Justice Paxson

delivered the opinion of the court, January 22d 1877.

Henry Lazarus, by his will, devised “ the income, profits and products” of his estate to his wife for life, and after her death (after the payment of certain legacies) he devised all of his estate to residuary legatees, among whom are the appellants. At the time of his death in 1868, he was the owner of one hundred shares of the capital stock of the Pennsylvania Company for Insurance on Lives and Granting Annuities. The stock of said corporation consisted of ten thousand shares of $100 each, amounting to $1,000,000. The executors did not sell this stock, but retained it in their hands as a pa.rt of the residuary estate. An Act of Assembly was passed in 1872, authorizing said company to increase its capital stock by the issue of new stock not exceeding $1,000,000. In March 1873, the company accepted this act, and proceeded to issue ten thousand shares of $100 each, thus doubling the original capital. To each of the old stockholders was given the privilege of subscribing and paying for as many shares of the new stock as he or she held of the old. The estate of Henry Lazarus thus became entitled to subscribe for one hundred shares of the new stock. At that time the old stock was worth, in the market, $240 per share, which valuation was based upon actual cash assets in the hands of the company, there being an admitted surplus of $1,400,000 over and above the $1,000,000 originally paid in. In May and June 1873 the market price or option to subscribe for shares was $66 each. The executors of Henry Lazarus having no funds on hand to subscribe for the one hundred new shares to which his estate was entitled, sold the option or right to subscribe for sixty of them for $66¿ each, realizing' the sum of $4000 therefrom, and with this money they subscribed and paid for the remainder, to wit, forty shares. Mary Lazarus, the widow, claims these forty shares as income. The residuary legatees claim them as a portion of the corpus of the estate devised to them. The Orphans’ Court, under the authority of Earp’s Appeal, 4 Casey 368, and Wiltbank’s Appeal, 14 P. F. Smith 256, awarded thirty-three of said shares to the widow as income or profits. Erom this decision both parties entered an appeal to this court; the widow alleging that she was entitled to the whole of the forty shares; the remaindermen alleging that she was not entitled to any of them. Whether she is- entitled to the whole or any portion of the forty shares is the sole question presented by this record.

We are in no doubt about the law. That can be ascertained with mathematical precision. The difficulty is in applying the principles of law, however well settled, to the facts of a particular case. Herein we think the learned judge of the Orphans’ Court fell into error. This case differs widely from either Earp’s Appeal or Wiltbank’s Appeal. In Earp’s Appeal, the testator at the time of his death in 1848, held five hundred and eighty shares of the stock of the Lehigh Crane Iron Works, of the value of $125 per share. This stock formed a part of the residuary estate of the testator, and was bequeathed to his executors in trust.to pay the income thereof to his four children during life, with remainder over. For several years after the death of the testator the company had made large profits. Upon the first day of July 1854, the actual surplus earnings of the company, as ascertained by the report of the master, amounted to the sum of $714,542.15. On the 10th of July 1854, under authority of an amendment to its charter, the company proceeded to make distribution of a portion of this accumulated profit, by increasing its capital stock from $200,000 to $500,000. This increase was represented by six thousand new shares at $50 each, apportioned among the then stockholders, and paid for entirely out of the surplus earnings or profits of the company. The five hundred and forty shares held by the estate of Robert Earp, received eight hundred and ten of the additional shares, making altogether one thousand three hundred and fifty shares. The contention was whether the eight hundred and ten shares should be regarded as principal, and as such remain in the hands of the executors, or whether they should be regarded as income, and go to the life-tenant. After the increase of stock the shares fell from $125 to $80 per share. The decree of the court below, affirmed by this court, awarded a portion of the new shares to the life-tenant as income. But an examination of the decree shows that the court was careful to award to the executors enough of the new stock to make up the deficiency in value of the original five hundred and forty shares caused by the issue of the new, thus preserving the integrity of the capital to the remaindermen.

This case was exceptional in its character. As a general rule, nothing earned by a corporation can be regarded as profits, until it shall have been declared to be so by the corporation itself, acting by its board of managers. The fact that a dollar has been earned gives no stockholder the right to claim it until the corporation decides to distribute it as profit. The wisdom of such distribution must of necessity rest with the corporation itself. From motives of prudence and self-interest it is frequently desirable to add all or a portion of the earnings to the capital. This is sometimes necessary as a basis of credit for more enlarged operations. It is often a wise exercise of discretion for a corporation to strengthen itself in this way, and with such discretion a stockholder cannot interfere. I-Iis only remedy is by an appeal to the ballot at the election for directors. But where a. corporation, having actually made profits, proceeds to distribute such profits amongst the stockholders, the tenant for life would be entitled to receive them,, and this without regard to the form of the transaction. Equity, which disregards form and grasps the substance, would award the thing distributed, whether stock or moneys, to whomsoever was entitled to the profits. This is all that was done in Earp’s Appeal. The profits had accumulated until they reached nearly three-quarters of a million dollars. A considerable portion of this surplus was distributed to the stockholders in the shape of new stock. It was confessedly profits. It was judicially ascertained to be profits after a careful examination and report by the master. The corporation recognised the transaction as a distribution of profits. The present case differs from Edrp’s Appeal in this, that the corporation had made no distribution of profits in the shape of stock or otherwise, other than its regular dividends. In Earp’s' Appeal the stockholder paid the company nothing for the new stock. It was paid for wholly out of the profits. Here the stock of the company was merely doubled in amount, the stockholders paying therefor its par value in cash.

Wiltbank’s Appeal was a different case and stands upon its own peculiar facts. YYithout going into the details of that case, it is sufficient to say that the trustees sold the new stock and realized an actual profit, which was carried to the trust account.

There was also the further significant fact stated in the opinion of the court, that there had been no serious diminution of the value of the old stock caused by the neAV issue. Here, then, was the case of the capital remaining unimpaired for the remaindermen, and an actual, realized profit by the sale of the new shares. Such profit was properly awarded to the life-tenant. No such state of facts exists here. It requires but a cursory examination of this transaction to show that no profit has been made except upon paper. As before observed, the corporation had declared no profits and distributed none. It merely allowed the holder of each share of the old stock to subscribe for a corresponding share of new stock, and to pay to the company the par value thereof. This right or option was worth from sixty to seventy dollars per share. The executors sold the option for sixty shares and with the proceeds bought and paid for forty shares of the new stock. The latter is said to be profit. It looks like profit and might readily be mistaken for it. That it is not, is conclusively shown by the facts as found by the learned judge of the court below. He says: “In January 1873, the stock sold for $240 per share. In July 1873, it sold for $170 a share. The result on the shares, after the option to subscribe, was to add to the assets $1,000,000, and ten thousand new shares. The stock was doubled; most of the options were sold in May and June. They then went down to $66 for each option to subscribe. The largest number was sold at that price. If a stockholder sold his option to subscribe at $70 each he was just even, and if at less than $70, he lost.” It thus appears that for each dollar gained by the sale of the options, a corresponding dollar was taken from the value of the original shares. If the company had gone into liquidation the day before the issue of the new stock, the one hundred shares of original stock would have realized $24,000. If it had gone into liquidation the day after, the one hundred and forty shares would have realized the same sum. Where then was the profit ? It was figured out by the court below in this wise : — •

The original one hundred shares were worth . . $24,000

The one hundred and forty shares, market price at the

time of the audit, $225, were worth . . . 31,500

Being net profits of . . . . . • • $7,500

The fallacy of this theory consists in the fact of estimating the one hundred and forty shares, not at their actual value at the time of the transaction, but at their market value, three years after-wards. A more uncertain rule could not well be imagined. It would make the rights of the parties depend upon the condition of the stock market, which is as variable as the tides, without their regularity. Market values are well enough upon a question of distribution, where the parties are about to realize; but upon a question of values between life-tenants and remaindermen, a judicial decree should go down through the shifting sands of the stock market until it reaches the solid rock of actual values. The application of any other rule might work serious injustice. It is well known that within the last year the stock of more than one large corporation has varied in price over one hundred per cent. Even if the market value were a proper test, why take it three years after the transaction occurred ? Why not one year, two years, or any other time? The tenant for life and remaindermen might well differ as to the precise day which should fix' the market value, as the bulls or the bears might happen to be in the ascendant. It often happens that stocks that are intrinsically worthless are kept up at high prices by the ways that are peculiar to Third street and Wall street. In such a case as this, the solemn judgment of a court upon a question of values, defining the rights of parties in the future, must have a more secure foundation. The date at which the value of this stock must be estimated is the time when the transaction took place. Its actual value then was $170 per share. This valuation is based, not upon the caprice of the market, but upon actual assets in the hands of the company. If it was worth $225 per share in 1876, when this account was audited, the increase is the result of the gains of the business 6f the company during the preceding three years; as such it forms a portion of the capital of the company, and so must remain until such time as said company shall declare it to be profit and in some manner provide for its distribution. When such event shall occur, the one hundred and forty shares will be entitled to their proportion thereof.

We are of opinion that the forty shares of new stock issued by the company form a portion of the capital of the residuary estate of Henry Lazarus, deceased, and must be held upon the same uses and trusts as are expressed in the will of the testator in regard to the original one hundred shares of the same stock.

The decree is reversed, and the record remitted to the Orphans’ Court for further proceedings in accordance with the views contained in this opinion; the costs of the appeal to be paid by the appellee.


text:
    Lazarus’s Appeal.
   Mr. Justice Paxson

delivered the opinion of the courtj January 22d 1877.

The decree of the court below having been reversed upon the appeal of William Moss et al., ante 264, it becomes unnecessary to discuss the case upon this appeal.

The appeal is dismissed at the costs of the appellant.