text:
    People’s Natural Gas Company v. American Natural Gas Company, Appellant.

      Equity — Notice—Specific performance — Natural gas companies — Corporations — Contracts.
    1. A court of equity has jurisdiction to specifically enforce a contract to supply natural gas.
    2. A party taking with notice of an equity takes subject to that equity.
    3. A court of equity has the power to prevent a natural gas company from disposing of substantially all of its property for the purpose of escaping from complying with its contracts and defrauding its creditors; and if such company sells its property to another natural gas company which has notice of existing contracts for supplying gas, the vendee company will be compelled to specifically perform these contracts.
    Argued Oct. 13, 1911.
    Appeal, No. 200, Oct. T., 1910, by defendant, from decree of C. P. Armstrong Co., Sept. Term, 1906, No. 25, on bill in equity in case of People’s Natural Gas Company v. American Natural Gas Company.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin, Stewart and Moschzisker, JJ.
    Affirmed.
    Bill in equity for an injunction and for specific performance.

      Patton, P. J., filed the following opinion:
    FINDINGS OF FACT.
    1. The Manufacturers’ Natural Gas Company was chartered on August 28, 1896, for the purpose of producing and transporting natural gas in the county of Armstrong.
    2. Shortly after its incorporation, it proceeded to drill wells on the West side of the Allegheny river, for the supply of natural gas, and drilled five wells, from which it supplied a pottery with fuel.
    3. The said Manufacturers’ Natural Gas Company, also shortly after its incorporation, to wit, in the years 1896, 1897 and 1898, obtained leases in Valley and Kit-tanning townships, Armstrong county, on the east side of the Allegheny river, about eight miles distant from its wells on the west side of the Allegheny river, and obtained thereon a number of wells producing natural gas in paying quantities.
    4. The People’s Natural Gas Company is also incorporated under the act of May 29,1885, and authorized under its charter to produce, transport and supply natural gas in Armstrong county, and other counties in Western Pennsylvania.
    5. On November 26, 1898, the said Manufacturers’ Natural Gas Company entered into a written contract with the People’s Natural Gas Company., to sell to it (the People’s Company) “all the gas that may be produced from the following tracts of land, situate in Kittanning and Valley townships, Armstrong county, Pa., .... from the date of this agreement to the 1st day of April, 1905, and as long thereafter as the party of the first part shall each month derive, as revenue from this agreement, a sum which shall be equal to twice the royalties and running expenses incurred by first party.” The People’s Company agreed to pay three and one-half cents per thousand cubic feet; the meter to be furnished jointly; The Manufacturers’ Company to furnish and lay the lines from the several wells to the meter station; the People’s Company to receive a certain amount of gas per day; if the rock pressure fell below 100 pounds, the People’s Company to construct pumps from which to draw the gas from the wells of the Manufacturers’ Company, and force it into the lines of the People’s Company; Manufacturers’ Company further agreed that if it drilled additional wells on the described properties, that the gas from them should be delivered to the People’s Company.
    6. On August 10, 1899, the said Manufacturers’ Company entered into a further written agreement with the said People’s Company, wherein it agreed to sell to the People’s Company “all the gas that may be produced from the following described tracts of land in kittanning and Valley and Boggs townships, Armstrong county (a list of said properties being attached to the agreement), and all leases that the Manufacturers’ Company may hereafter secure in the said townships, to sell said gas until the first day of April, 1905, and as long thereafter as the party of the first part shall each six months derive as revenue from its agreement a sum which shall be equal to twice the royalties and running expenses incurred by the Manufacturers’ Company; Manufacturers’ Company agrees that its eight wells now completed shall be continuously connected with the pipe lines of the People’s Company; Manufacturers’ Company also agrees to drill six additional wells within five months. In consideration whereof, People’s Company agreed to pay three and one-half cents per thousand cubic feet; People’s Company to furnish 2,640 feet of three-inch pipe line for each well thereafter drilled: People’s Company to furnish an eight-inch line to connect up the Frank Moorhead well; People’s Company agree to receive a certain amount of gas, and Manufacturers’ Company not required to furnish more than a certain amount (naming amounts). People’s Company agrees - if rock pressure falls below 100 lbs., that it will construct pumps to draw the gas from the wells of the Manufacturers’ Company into the lines of the People’s Company.” It was further agreed that the contract of November 26,1898, was superseded by this agreement.
    7. That afterwards, to wit, February, 1904, the Manufacturers’ Company became financially involved, and It. A. McCullough, Esq., was appointed a receiver for it by the court of common pleas of Armstrong county.
    8. On December 31, 1904, said It. A. McCullough, receiver of said Manufacturers’ Natural Gas Company, entered into a contract with the said People’s Natural Gas Company, reciting the existence of the contract of August 10, 1899, and agreeing that it should remain in full force and effect except as herein altered. McCullough, as receiver, agreed to sell all the gas produced upon the leases in Kittanning and Valley townships, up to 1,000,000 cubic feet per day, to take effect December 31,1904, for the term of one year, and as long thereafter as said party of the first part should derive as revenue from the agreement a sum that shall be equal to twice the royalties and running expenses incurred by the party of the first part in operating its said plant in supplying gas; that the gas from the wells completed or thereafter to be completed on said tracts should be delivered to the People’s Company; People’s Company to pay four cents per 1,000 cubic feet; People’s Company to furnish at its own expense, a three-inch pipe line to each well hereafter drilled, the pipe to remain its property; People’s Company to take at least 1,000,000 cubic feet per day, and all the gas the wells will produce for sixteen hours per day; each to pay one-half the costs of superintending the meters and regulators; People’s Company also agreed to construct and maintain pumps to draw the gas from the wells of first party; a violation of the terms of the agreement to work a forfeiture; “This agreement shall extend to and be binding upon the successors and assigns of the Manufacturers’ Natural Gas Company and the People’s Natural Gas Company.”
    9. That said receivership of R. A. McCullough, Esq., terminated on June 19, 1905, and all the estate of the said Manufacturers’ Natural Gas Company reverted to it on said day, free and discharged from any control of the said receiver.
    10. The People’s Natural Gas Company complied with all their covenants in the agreements recited in findings of fact five, six, eight, and received gas from the Manufacturers’ Company to the amount of about 1,000,000 feet per day during the continuance of said contracts.
    11. After the termination of the receivership, the Manufacturers’ Company furnished gas to the People’s Company under the same terms and conditions as existed during the receivership.
    12. The People’s Company was furnishing about 50,000,000 to 75,000,000 feet of gas per day to their customers. The source of supply was about 1,000,000 feet from the Manufacturers’ Company, 8,000,000 feet .from their own wells, and under contracts with other gas companies, and the balance from their own wells in the West Virginia field.
    13. Prior to the making of the contract between the Manufacturers’ Company and the American Natural Gas Company (hereafter fully recited in the fourteenth finding of fact), the American Natural Gas Company had full and complete notice of the contracts existing between the Manufacturers’ Company and the People’s Company, and had knowledge of the conditions existing in the gas fields, and made said contract with full knowledge of the rights of the People’s Gas Company.
    14. On April 18,1906, the Manufacturers’ Natural Gas Company sold to the American Natural Gas Company, for the consideration of $55,000, “All and singular the herein described leases, leaseholds, properties, estate, rights, franchises and privileges, that is to say, all and singular all the oil and gas wells, leases, leaseholds, real estate, pipe lines, pumps, machinery, tools, fixtures, meters, regulators, and appliances of every description, constituting the plant and property of the Manufacturers’ Natural Gas Company of Armstrong County, wherever situate, except its property lying and being West of the Allegheny River, together with all municipal ordinances, grants of right of way.” The Manufacturers’ Company further agreed that it had an indefeasible, merchantable title to the whole of the property conveyed, with a full right to convey and assign the same and warranted to defend the same.
    15. The above contract (recited in the fourteenth finding of fact), conveyed to the American Gas Company, the wells and leases of the Manufacturers’ Gas Company, in Boggs, Valley and Kittanning townships, the gas output of which the said Manufacturers’ Company had heretofore sold to the People’s Company, under the contracts recited in the fifth, sixth and eighth findings of fact.
    16. After the making of the contract of April 18, 1906, the American Company took possession of all the wells, lines and other property of the Manufacturers’ Company (except that on the west side of the Allegheny river).
    17. The American Natural Gas Company carried out ■the several contracts of the Manufacturers’ Company with the People’s Company, until April 27,1906, when it wrote the People’s Company that it had purchased all the property of the Manufacturers’ Company east of the Allegheny river, and required it (the People’s Company) to disconnect its lines from the lines purchased by the American Company from the Manufacturers’ Company, not later than June 1, 1906, and in the meantime it would charge the People’s Company five cents per 1,000 feet for the gas used.
    18. On May 31,1906, the American Company rendered a bill to the People’s Company for 27,066,817 feet of gas at four cents per 1,000 supplied at Fiscus Meter Station, up to April 2, 1906, $1,082.67, which was paid by the People’s Company to the American Company on June 8, 1906.
    19. On June 11, 1906, the American Company notified the People’s Company that unless some amicable arrangement was made, it would, on June 15, shut off the gas formerly delivered by the Manufacturers’ Company to the People’s Company, at the meter on the Fiscus farm.
    20. On June 14, 1906, the injunction in this case was granted restraining the American Company from shutting off the gas as threatened.
    CONCLUSIONS OF LAW.
    1. The plaintiff has no adequate remedy at law.
    2. A court of equity has jurisdiction to specifically enforce a contract to supply natural gas.
    3. That the American Natural Gas Company having entered into the contract of April 18,1906, with notice of the rights and equities of the People’s Natural Gas Company, under the contracts of August 10, 1899, and December 31, 1904, said American Natural Gas Company took the property in dispute subject to such equities, and could contract for only that which the Manufacturers’ Company could honestly transfer, viz., its interest, subject to the equities of the People’s Natural Gas Company as they existed on said April 18, 1906.
    4. That a court of equity has the power, and should exercise it to prevent a corporation from disposing of substantially all its property for the purpose of escaping from complying with its contracts, and defrauding its creditors, when the corporation purchasing said property had notice of the contracts prior to the purchase, and is made a party to the bill.
    DISCUSSION.
    We are of the opinion, that it is no longer a debatable question in Pennsylvania that an injunction is the proper remedy to prevent the breach of a contract made by a natural gas company with a consumer, by enjoining it from shutting off the gas. In Whiteman v. Fayette Fuel Gas Company, 139 Pa. 492, the gas company was enjoined from breaking such a contract, and in Sewickley Boro. Sch. Dist. v. Ohio Valley Gas Company, 154 Pa. 539, the defendant was enjoined from shutting off the supply of gas in violation of the terms of its contract. In Conemaugh Gas Company v. Jackson Farm Gas Company, 186 Pa. 443, it was held that a court of equity has jurisdiction to specifically enforce a contract to supply natural gas, for the reason that it is the most convenient remedy for a just disposal of the questions involved.
    The pinch of the case now before us is whether or not the defendant, the American Natural Gas Company, the vendee of the Manufacturers’ Natural Gas Company, can be restrained from taking the gas which the People’s Company had contracted for prior to the accruing of the rights of the American Company, the American Company having knowledge of said rights before it purchased.
    We have stated the facts fully in our finding, and they need not be repeated at length here. If the Manufacturers’ Company had been brought before us before they entered into the contract with the American Company, there can be no doubt that they should have been enjoined from violating the contract. Is their vendee, the American Company, in any better position? If so, a great wrong will be perpetrated by the defendant, upon the plaintiff, for the defendant has obtained virtually all of the property of the Manufacturers’ Company, and if the only remedy of the plaintiff is to run the chance of a recovery against the Manufacturers’ Company, its loss will be total, for it is apparent from the evidence, that property of little if any value remains in the hands of the Manufacturers’ Company.
    The evidence is undisputed that the American Company entered into the contract with full knowledge of the equities, rights and contracts of the People’s Company. It is an important rule of equity that a party taking with notice of an equity takes subject to that equity. The meaning of this doctrine is, that if a party acquiring property has at the time of its acquisition notice of a prior equity binding the owner in respect to that property, he shall be assumed to have contracted for that only which the owner could honestly transfer, viz., his interest, subject to the equity as it existed at the date of the notice. “It is a doctrine of a court of equity, that whatsoever is the agreement concerning any subject real and personal, though in form purely personal and suable only at law, yet in this court it binds the conscience and as against the party himself and any claiming under him voluntarily or with notice raises a trust:” Lagard v. Hodges, 1 Yesey Jr. 477. In Tulle v. Moxhay, 2 Phillips’ Ch. Reps. 778, it was said: “The question does not depend upon whether the covenant runs with the land; if there was a mere agreement and no covenant this court would enforce it, against a party purchasing with notice of it; for if an equity is attached to the property by the owner, no one purchasing with notice of that equity can stand in a different situation from the party from whom he purchased.”
    In Northern Central Railway Co. v. Walworth, 193 Pa. 207, which was an injunction to restrain the sale of stocks and bonds in disregard of a prior contract, it was held: “That subsequent sale and delivery of the securities to other parties in disregard of the earlier contract with the plaintiff is not of the least consequence as a defense, most especially as the bill avers that these parties had knowledge of the prior contract with the plaintiff and are made parties to the bill and are asked to be enjoined.”
    This principle runs through all the books: “A party taking with notice of an equity, takes subject to that equity.” The full meaning of this just rule is that the purchaser of an estate or interest, legal or equitable, even for a valuable consideration, with notice of an existing or equitable estate, interest, claim or right in or to the subject-matter, held by a third person, is hable in equity to the same extent and in the same manner as the person from whom he made the purchase, his conscience is equally bound with that of the vendor, and he acquires only what his vendor can honestly transfer:” 2 Pomeroy’s Eq. Juris. (3d ed.), sec. 688.
    In Adams’ Eq. 151, it is said: “The meaning of the doctrine ‘that a party taking with notice of an equity, takes subject to that equity/ means that if a person at the time of acquiring property has notice of a prior equity binding the owner in respect to that property, he shall be assumed to have contracted for that only which the owner could honestly transfer, viz., his interest, subject to the equity as it existed at the time of the notice.”
    Applying the law as above stated to the facts of this case, it is not difficult to decide.
    The officers of all three of the gas companies involved in this controversy, were familiar with the methods of obtaining a supply of natural gas and transporting it to market. For a period covering nearly eight years, the Manufacturers’ Company had entered into a number of contracts with the People’s Company, mutually beneficial, whereby the People’s Company by expending a large amount of money in the purchasing and installing of a pump station, regulators, meters and other fixtures, and by purchasing pipe and laying the same to the wells of the Manufacturers’ Company, had increased its (People’s Company) supply of gas by about 1,000,000 feet per day. Along comes the defendant, the American Natural Gas Company. It examines these contracts, and finds that they are in force, and that a legal duty rests upon the Manufacturers’ Company to continue to furnish the gas to the People’s Company. They also find that the agreement of December 31, 1904, “shall extend to and be binding upon the successors and assigns of the Manufacturers’ Natural Gas Company.” If the American Company bought with the understanding that they would carry out the contract of the Manufacturers’ Company, they are bound to do so. However, if they bought substantially all the property of the Manufacturers’ Company as a subterfuge to allow it to escape from the fulfillment of its contract, then it would be a fraud upon the rights of the People’s Company, for which in our opinion, a court in equity has the power to prevent.
    It must be presumed that the American Company pnly purchased that which the Manufacturers’ Company had a legal right to sell, viz., the gas output not prior thereto sold to the People’s Company, and when it paid $55,000 under the contract, it paid only for that which the Manufacturers’ Company could honestly sell, viz., its interest, subject to the equities of the People’s Company of which the American Company had notice.
    So if we apply the law as heretofore stated, the American Company is liable in equity to the same extent and in the same manner as the Manufacturers’ Company, its conscience is equally bound with that of its vendor, and the American Company only acquired what the Manufacturers’ Company could honestly transfer. It cannot be doubted that the Manufacturers’ Company could not honestly dispose of its property, for the purpose of defrauding the People’s Company out of the fruits of its contracts, to obtain which it had expended a large amount of money. And I am of the opinion that the testimony leads to the conclusion that such was its intention when it entered into the contract with the American Company. What the purpose of the American Company was in making the contract on their part, we cannot tell. If their purpose was an honest one, then they should carry out the covenants and stipulations that their vendor had made, and of which they had notice prior to the payment of the purchase money. If their purpose was dishonest, and they were acting in concert with the Manufacturers’ Company to defraud the People’s Company out of its rights, by placing the property of the Manufacturers’ Company out of reach, then a court of equity will step in and use its strong arm to prevent the perpetration of such fraud.
    In the case of Xenia Real Estate Co. v. Macy, decided by the supreme court of Indiana, and reported in 47 N. E. Repr. 147, the defendant and its vendee, were enjoined from shutting off the supply of natural gas under facts somewhat similar to those now before us.
    DECREE.
    And now, August 6, 1910, this matter came on to be heard, and after consideration of the evidence, and arguments of counsel, it is ordered, directed and decreed that a perpetual injunction issue, restraining the respondent, the American Natural Gas Company, its officers, agents and employees, from shutting off or in any wise interfering with or diminishing or diverting the supply of natural gas from the said wells now supplying gas to the complainant, and from disposing of said natural gas to any other person, firm or corporation, or from wasting the same or any part thereof, and that it shall permit the plaintiff,, the People’s Natural Gas Company, to take all the natural gas provided to be delivered to it under the terms of the contracts of August 10, 1899, and December 31, 1904, and upon the conditions, prices and stipulations therein contained.
    January 2, 1912:
    That the respondent, the American Natural Gas Company, pay the costs.

      Error assigned among others was the decree of the court.

      Walter Lyon, with him John P. Hunter and Heiner & Golden, for appellant.

      Orr Buffington, with him Oliver W. Gilpin and Christy Payne, for appellee.
   Per Curiam,

The decree is affirmed on the opinion of the learned judge of the common pleas.


source: Caselaw Access Project

author: Mr. Justice Brown,

license: Public Domain

text:
    Automatic Merchandising Company v. Delaware & Hudson Company, Appellant.

      Common carriers — Justices of the peace — Attachment of goods — Void attachment — Act of June IS, 1874, P- L- @85.

    1. A common carrier which permits goods of another to be taken from its possession by a writ of attachment utterly void on its face, will be held liable to the owner for the value of the goods.
    2. A writ of attachment issued under the Act of July 12, 1842, P. L. 339, by a justice of the peace to a constable returnable seven days after the date of the writ (which shows on its face that it is for a claim of $400) is an invalid writ, and if the constable under such a writ is permitted to take goods from the possession of a common carrier, the latter will be liable to the owner for the value of the goods.
    3. In such a case the carrier is not protected by the Act of June 13, 1874, P. L. 285.
    Argued Oct. 16, 1911.
    Appeal, No. 191, Jan. T., 1911, by defendant, from judgment of Superior Court, March T., 1911, No. 15, affirming order of C. P. Lackawanna Co., Sept. T., 1909, No. 178, dismissing exceptions to report of referee in case of Automatic Merchandising Company v. Delaware & Hudson Company.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin and Stewart, JJ.
    Affirmed.
    Appeal from judgment of the Superior Court.
    The facts appear by the opinion of the Supreme Court and by the report of the case in 46 Pa. Superior Ct. 648.
    The writ was in the following form:
    “Attachment — Fraudulent Debtor.
    County of Lackawanna, ss.:
    The Commonwealth of Pennsylvania.
    “ To the Constable of the Sixth Ward, Dunmore, Pa., or to the next Constable of the said County most convenient to the defendant, Greeting:
    “We command you that you attach Automatic Mdse. Company by all and singular their goods and chattels in whose hands or possession soever the same may be within the State and County of Lackawanna, so that they be and appear on the 29th day of January, a. d. 1909, at nine o’clock in the forenoon before W. Miller, one of our Aider-men in and for said county to answer George F. Helfrick in a plea for debt or judgment arising from contract either expressed or implied wherein the said plaintiff claims the sum of $400.
    January 2, 1912:
    “Witness our said alderman who hath hereunto subscribed his name and affixed his seal the 22nd day of January, in the year of our Lord, 1909.
    “W. Miller (Seal) “Ald.
    “ A true and attested copy.
    “S. Leebert,
    “Cons. Sixth Ward, Dunmore.”

      Error assigned was the judgment of the Superior Court.

      W. J. Torrey, for appellant.
    Under the common law a carrier is not hable to a consignor where goods have been taken from its possession on a defective writ, under the circumstances which existed in this case: Indiana, 111. & Iowa Ry. Co. v. Doremeyer, 20 Ind. App. 605; Ohio & Miss. Ry. Co. v. Yohe, 51 Indiana, 181.
    Even though, under the common law, the defendant would be liable, he is relieved by operation of the Act of June 13, 1874, P. L. 285, sec. 2.

      C. A. Van Wormer, for appellee.
   Opinion by

Mr. Justice Brown,

On January 22, 1909, the Delaware & Hudson Company, a common carrier, received, at the city of Scranton, from the Automatic Merchandising Company ten peanut vending machines for shipment to the consignor’s address in the city of Brooklyn, New York. On the same day, on what purported to be an attachment issued by an alderman of the city of Scranton, a constable seized these machines and they were surrendered to him by the common carrier. This action, brought for the recovery of their value, for the reason that the common carrier ought not to have surrendered them to .the constable under the admitted facts, resulted in a judgment for the plaintiff in the court below, upon the report of a referee, and from its affirmance by a majority of the Superior Court there has come this appeal.

The common carrier claims that, under the Act of June 13, 1874, P. L. 285, it is not liable to the appellee for the surrender of its goods to the constable, as that act provides that, where goods, wares or merchandise shall be taken from the possession of a common carrier by writ of attachment, replevin or other legal process, such carrier shall not be liable therefor to the owner of such goods, wares or merchandise, or to any holder of any receipt, voucher or bill' of lading for the same. What purported to be legal process in the hands of the constable, under which he seized the goods of the appellee in the possession of the common carrier, was issued by an alderman, whose jurisdiction was purely statutory, and, therefore, strictly limited. He could act only within the jurisdiction conferred upon him and could issue no process not authorized by statute. If he did so, or if he issued process in disregard of the mandatory requirements of the statute under which he attempted to issue it, he placed in the hands of his constable a worthless writ. The paper which the constable in this case regarded as his authority for taking the goods of the appellee from the common carrier, and which it insists protects it from liability for its surrender of them to him, was admittedly issued by the alderman under what he regarded as authority conferred upon him by the fraudulent debtor’s Act of July 12, 1842, P. L. 339. Sec-, tion 28 of that act requires that every writ of attachment issued under it shall be made returnable not less than two' nor more than four days from its date, and the service of it — when the defendant is a nonresident,of the county and cannot be found — is to be made by leaving a copy of it and of the inventory of the goods attached with the person in whose possession they may happen to be. The writ in this case was so served upon the common carrier, and, upon the face of the copy of it, the claim of the plaintiff was given as $400. It thus affirmatively appeared to the appellant, from the copy of the writ left with it, that the alderman was without jurisdiction in the premises - and that his process was, therefore, void; and it still further appeared from the copy of the writ that, though it had been issued on January 22, it was returnable on January 29— seven days from its date — in palpable disregard of the peremptory statutory requirement that it must have been made returnable not more than four days from the day it was issued. The proceedings before the aider-man were utterly void on this account, all of which affirmatively appeared from the face of the invalid paper in the hands of the constable.

The question before us is not whether the act of 1874 will protect a common carrier in surrendering goods to a constable on a writ, regular, or apparently so, upon its face, even though the magistrate may have been without jurisdiction to issue it, and, for that reason, it may have been void, as, for instance, an execution in the hands of a constable without a judgment to support it. What we are to determine is whether a common carrier has a right to invoke the protection of the act of 1874 in surrendering goods of one of its-shippers to a constable or sheriff demanding them by virtue of what appears on the face of it to be an invalid writ and utterly void process for want of jurisdiction to issue it. There can be no valid writ if there is no jurisdiction to issue it. In such a case the proceedings are void ab initio, and may be so treated, no matter how or at what time the objection on that ground is brought to the attention of a supervising court. There was no valid writ in this case, for the alderman was without jurisdiction to issue it, and the proceedings before him were utterly void: Pantall v. Dickey, 123 Pa. 431.

Legal process, as contemplated by the act of 1874, is process that a court has a right to issue. This is conceded by the learned member of the Superior Court who wrote the dissenting opinion, for his admission is that the act of 1874 would not protect a common carrier in surrendering goods on a writ of replevin issued by an orphans’ court. This admission must include a writ of replevin issued by an alderman, for that officer has no more authority than an orphans’ court to issue such writ. When issued from either it would show upon its face want of jurisdiction; and the writ of attachment in the present case clearly showed this. The alderman had no more right to issue it than he had to place a writ of replevin in the hands of his constable. The only reasonable meaning to be given to the words “writ of attachment” and “legal process,” as used in the act of 1874, is a valid writ of attachment and valid legal process, or process which, upon its face, appears, to be valid, for the legislature surely could not have intended that a common carrier should be protected in surrendering goods on absolutely void process, manifestly so appearing upon its face, and under which the officer would have no right to seize anything belonging to the defendant named in it. This was the correct view entertained by the court of common pleas and a majority of the Superior Court, and the judgment is affirmed.


author: Mr. Justice Potter,

text:
    Drape, Appellant, v. Coleman.

      Equity — Jurisdiction—Remedy at law — Discovery.
    Where an owner of a number of coal options sells and assigns the options to another person under an agreement by which the latter is to pay to him $10.00 per acre for each acre of coal to which title is acquired by the exercise of the options, the seller cannot maintain a bill in equity against the purchaser for discovery of the number of acres of coal purchased and for an accounting therefor. In such a case the complainant has an adequate remedy at law, and as discovery is merely incidental to the main relief, it is not sufficient in itself to give equity jurisdiction.
    January 2, 1912:
    Argued Oct. 16, 1911.
    Appeal, No. 20, Oct. T., 1910, by plaintiff, from decree of C. P. No. 4, Allegheny Co., Fourth Term, 1909, No. 8, dismissing bill in equity in case of James W. Drape v. A. B. Coleman.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin and Stewart, JJ.
    Affirmed.
    Bill in equity for discovery and an accounting. Before Cohen, J.
    The opinion of the Supreme Court states the case.

      Error assigned was in sustaining demurrer to the bill and in certifying the case to the law side of the court.

      J. McF. Carpenter, with him George N. Chalfant and John C. Bane, for appellant.
    The court had jurisdiction: Wetherill v. Gallagher, 211 Pa. 306; Bierbower’s App., 107 Pa. 14; Earley’s App., 121 Pa. 496; Brush Electric Company’s App., 114 Pa. 574; Warner v. McMullen, 131 Pa. 370.

      J. C. Boyer, with him H. O. Evans, for appellee.
    A suit at law gives the plaintiff a complete and adequate remedy-at law: Dech’s App., 57 Pa. 467; Tripp v. Bishop, 56 Pa. 424; Smaltz’s App., 99 Pa. 310; Weaver v. Shenk, 154 Pa. 206.
    Plaintiff is not entitled to an accounting: Sprigg v. Title Ins. & Trust Co., 206 Pa. 548.
    Plaintiff is not entitled to discovery: Sullivan v. Jones & Laughlin Steel Co., 222 Pa. 72; Probasco v. Probasco, 30 N. J. Eq. 61; Van Sciver v. Churchill, 215 Pa. 53; Elk Brewing Co. v. Neubert, 213 Pa. 171; Holland v. Hallahan, 211 Pa. 223; Hyde v. Baker, 212 Pa. 224.
   Opinion by

Mr. Justice Potter,

From the record in this case it appears that the plaintiff held options for the purchase of a large amount of coal. He executed an agreement in writing with the defendant which provided that the latter should have the right to purchase and take over these options at a fixed price, and upon certain specified terms of payment. The defendant afterwards elected to purchase the options, and by further agreement the terms of payment were modified so that after certain payments had been made, the remainder was to be paid in monthly installments, during the time required to secure title to the several tracts; these payments were to be at the rate of $10.00 per acre for all coal to which title had been acquired during the preceding month. Becoming dissatisfied with the amounts paid by defendant, and with the delay in completing the purchases, plaintiff filed a bill in equity under the theory that his rights could not be fully enforced in a suit at law. The bill sets forth that in response to repeated requests, defendant had furnished a list of the tracts of coal to which he had taken title; but whether the list was correct or not, plaintiff was not informed. Complaint was also made in the bill that defendant had not used due diligence in acquiring title to the coal described in the options referred to, and that the tracts selected by the defendant for purchase under the various options were scattered, and were so located by defendant as to depreciate by their acceptance the value of the remainder. The receipt from defendant of the sum of $35,842.60 upon account of purchases made under the contract, was acknowledged, but plaintiff claimed that a considerable amount was still due to him under a proper performance of the contract in question. In his prayer for relief plaintiff asked that defendant be restrained from selling or incumbering the coal, or assigning the options, until he has accounted for the purchases, and paid to plaintiff the balance due under the contract; he further prayed that defendant be required to file a full and detailed list of coal properties to which title had been taken, and a detailed statement of the titles alleged to be defective, with the reasons for so considering them; also that the balance due from defendant be ascertained, and a decree be entered for the payment of the amount forthwith. To this bill defendant demurred, on the ground that plaintiff had an adequate remedy at law, and that the need for equitable relief was not shown. The demurrer was sustained by the court below, and the cause was certified to the law side, for trial.

It seems to us that this action was fully justified. Plaintiff is entitled under the contract to a sum certain; that is, to $10.00 per acre for each acre of coal purchased by defendant under the options assigned to him by plaintiff. We do not see that the claim presents in any way a case for an accounting in equity. It is merely a matter of charge, at a fixed price, for a certain number of acres of coal embraced in the options, title to which has been obtained, or which might have been obtained in fee simple, clear of incumbrance. The facts seem to bring the case within the principles of the decision in Grubb’s Appeal, 90 Pa. 228. See also Sprigg v. Title Ins. & Trust Co., 206 Pa. 548, and other late cases there cited, in which the court refused to take jurisdiction in equity upon the ground that there was an adequate remedy at law. In the present case it should not be difficult to discover from the records and from the testimony of the parties, just what properties have been purchased by defendant, under the terms of the contract. Upon the face of the' matter, plaintiff is entitled to recover at the specified rate for all the coal covered by the options. It will be for defendant to show that by reason of defective titles or for some other sufficient reason under the contract, certain properties, if any, have been rejected by the defendant. We can see no sufficient ground for maintaining the bill for the mere purpose of discovery. It is not apparent why there should be any unusual difficulty in securing necessary evidence.. All the essential facts can be ascertained and established in the regular course of a suit at law. Discovery in this case would be merely incidental to the main relief sought by the bill, and is not therefore sufficient to support an action in equity: Holland v. Hallahan, 211 Pa. 223. The assignments of error are overruled, and the order of the court below is affirmed.


author: Mr. Justice Stewabt,

text:
    Bole v. Murray, Appellant.

      Corporations — Subscription to stock — Payment in property — Burden of proof — Evidence—Cross bill — Equity.
    1. Where an original subscriber to the stock of a corporation claims to have paid his subscription in something else than money, the burden is on him to show a contract with the corporation permitting it, and the further burden is on him to show that the transaction was fair, and that the property turned over in payment had been valued by those representing the corporation in good faith.
    2. Where a subscription to stock is made prior to the incorporation of a company, the subscriber cannot maintain that the certificate issued to him after incorporation was paid in property where the evidence shows that the property transferred was of little utility, that the directors had never passed upon its value, and had never taken any corporate action in reference to the issuance of the certificate or payment therefor in property.
    3. Stock subscribed for after a corporation is organized will be' deemed to -have been paid for in full where the evidence shows a part payment in cash, and the remainder in an assumption by the subscriber of a debt due by the corporation to a third party.
    4. On a bill in equity filed against a subscriber to the stock of a corporation to recover the amount of his stock subscription, where the defendant sets up payment of the subscription by the transfer of property to the company, the court commits no error in dismissing a cross bill which does not ask for affirmative relief, but merely for a decree determining how much would be due and owing- from the company to the defendant on an open account in the event that the finding on the ■plaintiff’s bill should be adverse to the defendant.
    Argued Oct. 16, 1911.
    Appeal, No. 3, Oct. T., 1911, by defendant, W. N. Murray, from decree of C. P. No. 2, Allegheny Co., April T., 1908, No. 1,068, on bill in equity in case of George M. Bole, Receiver et al., v. The Belden Automobile Transmission Company et al. and W. N. Murray.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin and Stewart, JJ.
    Decree modified.
    Bill in equity to recover a stock subscription.
    From the record it appeared that W. N. Murray subscribed to seventy-five shares of the stock of the Belden Automobile Transmission Company prior to its incorporation, and ten shares of the stock subsequent to its incorporation. Murray claimed that the seventy-five shares had been paid in full by property transferred to the company.
    Haymaker, J., filed an opinion which was in part as follows:
    It appears that for some time prior to the incorporation of this company, Mr. Murray was president of the Standard Automobile Company of Pittsburg. Something like one year before this incorporation, E. H. Belden, the original promoter of this scheme, with Mr. Murray secured certain patents for an invention in the equipment of automobiles with certain appliances relating to the transmission of power, etc., which was called the “Belden Transmission,” and this company was incorporated as the “Belden Automobile Transmission Company,” for the purpose of manufacturing these appliances and all the materials, machinery, or equipment connected therewith, with the ultimate view of having the owners of automobiles install this transmission in their machines. Murray and Belden had been experimenting with this new system of power for more than a year before this incorporation, during which time Mr. Murray had expended over $4,000, in securing various patents, and in advancing cash to Belden in connection with experimental work and on his personal account. This new system of power transmission as it is called, was installed originally in an automobile furnished by Mr. Murray, and the experiments were made with his car in 1904. When it was thought that this transmission was perfected, Belden organized the company, Mr. Murray turned over the car to the company, and was given these seventy-five shares for the moneys he had expended before the incorporation, as we have stated, and the automobile so turned over to the company. There was no evidence that the board of directors authorized this arrangement, or that it was agreed to or known by all the stockholders. There is little doubt that if this cash and property constitutes a legal payment, Mr. Murray has paid the amount of his liability on his subscription for the seventy-five shares. The ten shares were subscribed for after the incorporation, and he claims that these were in part paid by a contra-account of the Standard Automobile Company against the corporation, which the automobile company, after crediting the corporation, charged the same against him personally, amounting to between $600 and $700. He claims that he paid some cash, but was unable to give any very definite amount, but it approximates $250, and he should be allowed a credit for that amount. The books of the corporation credit him with payment of the ten shares.
    If this were an attempt on the part of the corporation to compel Mr. Murray to pay these subscriptions a more serious question would be presented, but we have here a creditors’ bill, and as against an unconditional and unqualified subscription, which gives no notice to either creditors or stockholders of this secret arrangement, he sets up the defense that he was not bo pay for these seventy-five shares because he had expended money and property an equivalent of this indebtedness, in experimenting before incorporation on a deviee or system of power, which would appear from the evidence in this case to have been of little utility. There was not even corporate action, by resolution or otherwise, authorizing the issuance of these seventy-five shares on the terms set up by Mr. Murray.
    Assuming that Mr. Murray expended large sums of money, and used certain property of his own, experimenting on patents preparatory to the organization of this corporation, certainly this expenditure, made about one year before the organization, was not the kind of money and property for which the corporation could issue full-paid stock, not liable to any future call. There was no evidence that the board of directors ever passed judgment on the value of this expenditure on the part of Mr. Murray, or endeavored to ascertain in any official way whether or not such an expenditure was actually made, or what relation it bore in value to the stock issued therefor.
    In Wetherbee v. Baker, 35 N. J. Eq. 501, it was said: “The capital stock subscribed is a substitute for the personal liability of partners in ordinary copartnerships, and creditors are entitled to a bona fide exercise of the compulsory powers of the corporation to compel subscribers to pay in their subscriptions. Any arrangement between the agents of the corporation and the subscribers for its stock that their subscriptions shall be merely colorable, or less onerous than they purport to be on the face of the subscription is void and a fraud upon creditors.
    “The subscription to the capital stock constitutes a trust fund for the payment of its debts. The officers and managers of the corporation- are trustees of the fund. They cannot squander it or dispose of it to the prejudice of creditors without an equivalent consideration, and the trust cannot be defeated by any simulated payment of the stock subscription, or by any device short of actual payment in good faith.”
    We are of the opinion that the defendant is liable, and should be required to pay whatever is unpaid on the contract of subscription, or such sums on account thereof as may be necessary to pay the debts of the several plaintiffs.
    Subsequent to the filing of the above- opinion Murray ' filed a cross bill.
    Haymakek, J., struck off the bill, filing an opinion which was in part as follows:
    After we had overruled the exceptions of Murray to our findings and conclusions, and the plaintiffs had submitted a form of decree Murray filed his cross bill praying that he be adjudged and decreed a creditor of the corporation in the sum of $8,424.25, with interest, being the amount of cash and property alleged to have been contributed and paid, so that he might be allowed to participate in the distribution of the funds realized by the plaintiffs; that whatever distribution of this fund is made on account of his claim should be credited upon the balance of his subscription to the capital stock, and further, that all proceedings against him be stayed pending the disposition of his cross bill.
    As we have said the original bill was filed March 28, 1908, and for more than two years Murray resisted the plaintiff’s bill on the sole ground that his stock was fully paid, and it was only after proceedings were concluded, and we found against him that he filed his cross bill in which he claims to be a creditor entitled to participate in the distribution of a fund realized by the efforts of plaintiffs. There is nothing in the cross bill to indicate that he has any thought of abandoning his original position, or submitting to our decree, and he now assumes the attitude of a party claiming that the same money and property that paid for his stock can be used as the basis of a claim as creditor against the corporation. This is in conflict with his answer, which, as was said in Graham v. Thankersley, 15 Ala. 634, must be considered true as against himself and destroys the equity he asserts in his cross bill. We see no equity in a cross bill that undertakes to maintain these two inconsistent positions, and for that alone we believe we would be justified in striking it off; but the plaintiffs also claim that it should be stricken off because it was improvidently filed, and without leave of court. The plaintiff in the cross bill neither obtained leave of court, nor offered any excuse for the delay in filing it. In Braman v. Wilkinson, 3 Barb. 151, the court said: “The proper time for filing a cross bill is before a replication is filed to the answer of the defendant to the original bill. If a cross bill is filed after issue is joined in the original cause, proceedings will only be stayed upon the cross bill.”
    In Irving v. DeKay, 10 Paige’s Ch. Reps. 319, the chancellor said: “If the cross bill in this case showed a case of equitable set-off, which it was impossible for the defendants to avail themselves of by a proper answer in the original suit, they were not entitled to an order to stay the proceedings without showing some excuse for their neglect to file their cross bill before this suit was at issue.
    “The proper time to file a cross bill .... is at the time of putting in the answer to the original bill, and before the issue is joined, by the filing of the replication.”
    To the same effect are the cases of Roberts v. Peavey, 29 N. H. 392; Gouverneur v. Elmendorf, 4 Johnson’s Ch. Reps. 357, and many others that might be cited. We are of the opinion that the plaintiff in this cross bill has not alleged such statement of facts as entitles him to the relief for which he prays, and that the cross bill was improperly filed and should be, and now is, stricken off and dismissed.

      Errors assigned were the various findings of fact, conclusions of law and in dismissing the cross bill.

      Harvey A. Miller, for appellant.
    The court found the stock was in fact issued for this property and we, therefore, submit in the words of the act, “The judgment of the directors as to the value of the property purchased shall be conclusive: ” Donald v. American Smelting & Refining Co.) 62 N. J. Eq. 729 (48 Atl. Repr. 771,1116); Donald v. American Smelting & Refining Co., 61 N. J. Eq. 458 (48 Atl. Repr. 786); Bickley v. Schlag, 46 N. J. Eq. 533 (20 Atl. Repr. 250); Edgerton v. Electric Imp. & Const. Co., 50 N. J. Eq. 354 (24 Atl. Repr. 540); Flaherty v. Atlantic Lumber Co., 58 N. J. Eq. 467 (44 Atl. Repr. 186); Clevenger v. Moore, 71 N, J. Law, 148 (58 Atl. Repr. 88); Pitts-burg & Connellsville R. R. Co. v. Stewart, 41 Pa. 54; Carr v. LeFevre, 27 Pa. 413.
    January 2, 1912:
    The cross bill was properly filed: Bickley v. Schlag, 46 N. J. Eq. 533 (20 Atl. Repr. 250); McCune v. Lytle, 197 Pa. 404; Paxton v. Stackhouse, 4 Kulp, 403; Springfield Milling Co. v. Mfg. Co., 81 Fed. Repr. 261; Freeland v. Oil Co., 189 Pa. 54; Datz v. Phillips, 137 Pa. 203; Graham v. Thankersley, 15 Ala. 634.

      Charles F. Patterson, with him Shiras & Dickey, R. B. Wolf and Weil & Thorp, for appellees.
   Opinion by

Mr. Justice Stewabt,

We may concede that a corporation, once it has been formed and is actually being operated, may accept in payment of an original and unconditioned stock certificate its fair equivalent in property or services. Indeed, so much was expressly decided by this court in Shannon v. Stevenson, 173 Pa. 419, where it was said: “There is no inherent incapacity of a corporation to purchase property or labor and pay for it by stock instead of money. If the corporation here had paid the defendant $1,000, in cash, to leave his former position and undertake his presidency, on condition that he invest the money in its stock, there could be no question of the validity of the transaction, and yet it would in substance have been exactly the same.” This was said in a case where, as here, the action was by the receiver of an insolvent corporatioti to recover an unpaid original subscription, and the defense set up was that the corporation had accepted payment in service rendered. Other authorities equally explicit on the point could readily be cited. The defense here relied on, as to the first subscription of seventy-five shares, was not that the original subscription was a conditional one as to the terms of payment, but that the defendant had turned over to the corporation, after it had been organized, an automobile for which he had paid $2,800, and on which, for the purpose of illustrating and demonstrating the usefulness and adaptability of certain appliances in connection with motor cars for the manufacture of which the corporation was formed, he had expended a sum of money, which, added to the original cost of the automobile, made a sum equal to his first subscription for seventy-five shares. As to the ten additional shares he subsequently subscribed for after the incorporation, he claimed that he had paid for these by a cash payment of $250, and by a contra account of the Standard Automobile Company against ■the corporation, whose stock he had subscribed for, which, after being credited to the corporation was charged against the defendant on the books of the Standard Automobile Company, amounting to about $700. The defendant is credited on the books of the corporation with the payment of these ten shares. The two subscriptions evidently stand with respect to payment on different footing; the claim as to the seventy-five shares is that it was paid for in property; as to the ten shares, that these were paid for in cash or its equivalent in credit. The answer to the bill contains no averment that the certificate for the seventy-five shares subscribed was issued to the defendant in payment for the property turned over by him, or that the value of the property so turned over was the equivalent of the stock; or that there was any understanding or agreement between himself and the corporation that the property was to be received in payment. For all that appears in the answer, what was set up by way of defense was merely a set-off of indebtedness due the defendant from the corporation for the property he had turned over. Its insufficiency is quite apparent, nevertheless, the taking of testimony was entered upon. What the evidence disclosed can only be gathered from the chancellor’s finding. These not having been excepted to, it was agreed between counsel that the evidence might be omitted from the paper-book, and the case be heard on the findings. It is quite enough to know that none of the findings supplement the defendant’s answer with respect to the serious omissions aboye referred to, On the contrary, we have definite and distinct findings that the issuing of the certificate for the seventy-five shares in defendant’s name was not pursuant to any corporate action; that there was no evidence that the directors of the corporation ever passed judgment on the value of the property defendant claims to have turned over in payment, or what the actual value of the property was. There is the further finding that the property was of little utility. Since the case rests on the findings of the court, what of itself is sufficient to defeat the defendant’s attempt to escape liability on the ground set up, without going further, is the fact that there is no finding that the payment for the stock in prop- j erty was ever the subject of contract or agreement be-1 tween the defendant and the corporation. Except as' there was such contract defendant stands with respect to the property he turned over in the same situation as any other creditor of the concern. The fact that there is no finding of a contract is an equivalent in this proceeding of a finding that there was no contract. In all such cases where an original subscriber to stock claims to have paid a subscription in something else than money, the burden is on him to show a contract with the corporation permitting it, and the further burden is on him of showing that the transaction was fair and that the property turned over in payment had been valued by those representing the corporation in good faith. None of these things here appear, and it follows that defendant’s liability for his subscription to seventy-five shares remains, and that he was properly charged therewith.

We are of the opinion that the court overlooked a clear distinction between the original subscription for seventy-five shares and the later one for ten shares, made after the corporation was a going concern. This latter subscription was made after the corporation had been organized for fully seven months. „ There is nothing in the specific findings which distinguishes these subscriptions, but in the discussion of the facts by the chancellor the distinction clearly appears, from the following extract: “The ten shares were subscribed for after the incorporation, and he claims that these were in part paid by a contra account of the Standard Automobile Company against the corporation, which the automobile company, after crediting the corporation, charged the same against him personally, •amounting to between $600 and $700. He claims that he paid some cash but was unable to give any very definite amount, but it approximates $250 and he should be allowed a credit for that amount. The books of the corporation credit him with the payment of the ten shares.” It would have been much more satisfactory had there been specific finding with respect to what is here set out, but from the chancellor’s discussion we take the facts as stated in the above, extract as having been satisfactorily established; that the corporation now represented by the receiver was indebted to another corporation between $600 and $700; that this indebtedness the defendant individually assumed and the plaintiff company was discharged from liability on account thereof; that the difference between the credit and the amount of the stock subscription the defendant paid in cash, and that the books of the plaintiff company show payment in full of this particular subscription. If it occurred in this way, how was it other than a cash payment? It was not property that was turned over. It would have been substantially the same had the indebtedness of the plaintiff company been owed directly to the defendant and the stock subscription had been paid by giving the credit. There is no suggestion of fraud in connection with this transaction. So far as appears it was strictly bona fide, and it sufficiently appears from the books of the company that the transaction was closed on this basis. We are of opinion that it was a mistake to treat the subscription for the ten shares as unpaid.

The cross bill filed by the defendant was properly dismissed. What was asked for was not affirmative relief, but a decree determining how much was due and owing from the insolvent company to the defendant on an open account, in the event the finding on the plaintiff’s bill was adverse to the defendant. With respect to that indebtedness, if there be any, defendant stands towards the corporation in no better position than any other creditor. The decree should be so far modified as to exempt the defendant from liability for the ten shares of stock above referred to, thereby reducing the amount for which the defendant is liable from $8,500 to $7,500. And as so modified the decree is affirmed, and the appeal is dismissed, the costs on the appeal to be paid by appellee.


author: Me. Justice Elkin,

text:
    Wittmer’s Estate.

      Executors and administrators — Removal of executors — Practice, O. C.

    The mere fact that an executor had in ignorance of the law deposited the funds of the estate in his own bank account is no ground for his removal, where it appears that the executor had in all other respects acted properly in the conduct of the estate, was ready and willing to account, was financially responsible, and that no proceedings had been instituted for his removal as provided by the Acts of March 29, 1832, P. L. 190, and May 1,1861, P. L. 680.
    Argued Oct. 16, 1911.
    Appeal, No. 4, Oct. T., 1911, by Albert Wittmer, executor, from decree of O. C. Allegheny Co., March T., 1910, No. 193, removing an executor in Estate of George Wittmer, Sr., deceased.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin and Stewart, JJ.
    Reversed.
    Petitions for an accounting and for the appointment of an administrator pendente lite. Before Over, J.
    The opinion of the Supreme Court states the case.

      Error assigned was the decree of the court removing the executor.

      Robert Woods Sutton, with him Watson & Freeman, for appellant,
    cited: Parsons’ Est., 82 Pa. 465; Mulley’s Est., 17 York Leg. Rec. 102; Kuntz’s Est., 230 Pa. 557.

      January 2, 1912:

      Oliver K. Eaton, with him Rody P. Marshall, for appellee,
    cited: Deaven’s Est., 32 Pa. Superior Ct. 205.
   Opinion by

Me. Justice Elkin,

In all essential particulars the case at bar is ruled by Kuntz’s Est., 230 Pa. 557. The decree in the present case was entered several months before the opinion in the case cited was handed down. This no doubt accounts for what was done in the present case by the learned court below. Appellant was removed as executor although neither in the original nor in the supplemental petition was there any request for his removal. The original petition asked for an accounting while the supplemental petition prayed for the appointment of an administrator pendente lite. There was then pending an appeal from the . probate of the will and the averment was, that the best interests of the estate would be conserved by the appointment of a disinterested person as administrator or trustee until the questions raised by that appeal were adjudicated. At no time was the. removal of the executor asked so far as is disclosed by the pleadings. As shown by the will and codicils the testator reposed great confidence in his son Albert who is the appellant in the present case. After nominating him as his sole executor and conferring upon him very full and comprehensive powers, he gave as his reason for so doing, “I place unlimited confidence in his honesty and ability to administer my estate as herein provided.” We have examined the record with care to ascertain whether the confidence reposed by the father in the son had been abused, but have failed to find any facts to warrant such a conclusion. Certainly the facts are not sufficient to show that the estate was in jeopardy, or that it had been mismanaged within any reasonable meaning of the term. The only evidence of mismanagement was that he had mingled the funds of the estate with his own by depositing them in his individual bank account. He explained that he was not aware that it was necessary to keep two bank accounts, one for himself and one for the estate. In this he was mistaken, but the evidence shows that it was an honest mistake and not intended to work harm to the estate. He kept an accurate account of all moneys received and disbursed by him as executor and was ready to make a full and complete account of the same. He held himself bound to account for all moneys that came into his hands and was ready to do so. The evidence shows that he was financially responsible and able to meet his obligations. In the management of the property of which the. testator died seized, in the collection of rents, in the care of the houses and in all matters relating to the business management of the estate, he acted with prudence, wisdom and care. Under these circumstances it would be a harsh rule that would remove him from the relation of trust reposed in him by his father because he had made the one mistake of depositing the funds of the estate in his own bank account. This must not be taken as an indication that trustees are at liberty to mingle trust - funds with individual accounts. Any trustee who does so takes the risk of being called to account in a proceeding before the courts, and in a proper case to suffer the consequences. In the present case, however, taking into consideration all the facts, the evidence is not sufficient to warrant the removal of the executor and name in his stead á person not of the selection of the father whose estate is in course of administration. This is especially true because the requirements of the acts of 1832 and 1861 were not complied with and no petition was ever presented asking for the removal of the executor. It was not shown that the estate was in jeopardy, or that the executor was financially irresponsible, or that it was a case requiring security. The court has ample power to protect the estate and to require a prompt accounting. Under all' the circumstances we think the order of removal was improvidently made. '

Decree reversed and appellant reinstated as executor under his letters testamentary. Costs to be paid out of the estate.


author: Me. Justice Mesteezat,

text:
    Rahm’s Estate.

      Executors and administrators — Trusts and trustees — Res adjudicata.

    Í. Where at the audit of the account of the administrator of a deceased testamentary trustee, the orphans’ court enters a decree awarding a particular fund to the administrator d. b. n. c. t. a. of the testator who created the trust, to pay the income from such fund to a beneficiary for life, and after her death to pay the corpus of the fund to the administrator of the deceased trustee, and the administrator d. b. n.
    c. t. a. appeals from the decree, but subsequently discontinues the appeal, the appeal is final and conclusive as to the right of the administrator of the deceased trustee to have the corpus of the fund paid directly to him upon the death of the beneficiary. The administrator
    d. b. n. c. t. a. upon the audit of his account of the fund after the death of the beneficiary cannot claim it should be awarded to him, inasmuch as such contention is res adjudicata by the former decree.

      Appeals — Assignments of error — Irregular assignments.

    2. On an appeal from the orphans’ court assignments of error are irregular and insufficient which simply allege error to the action of the lower court in holding with the contention of the appellee and in not holding in accordance with the contention of the appellant, and which do not set out the ruling of the court On any question involved in the case, or assign for error the decree of the court, the only ruling to which an exception was taken.
    Argued Oct. 16, 1911.
    Appeal, No. 6, Oct. T., 1911, by Guarantee Title & Trust Company, Administrator c. t. a., from decree of O. C. Allegheny Go., March T., 1910, No. 176, dismissing exceptions to adjudication in Estate of Edward Rahm, Sr., deceased.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin and Stewart, JJ.
    Affirmed.
    Exceptions to adjudication. Before Miller, J.
    The facts appear by the opinion of the Supreme Court, and by Rahm’s Est., 226 Pa. 594.

      Errors assigned were in the following form:
    1. The court erred in not holding that appellant has the absolute and exclusive title to said fund as a part of the unadministered assets of Rahm’s estate.
    2. The court erred in not distributing the fund in question to appellant as Rahm’s administrator c. t. a.
    3. The court erred in not holding that the person or persons ultimately entitled to the fund in question must acquire their title from appellant as Rahm’s personal representative.
    4. The court erred in holding that it had jurisdiction to distribute the assets of Rahm’s estate before said assets had come into the hands of Rahm’s personal representative, and before said personal representative had filed an account.
    5. The court erred in holding that it had jurisdiction to decide during the life of Louisa Rahm who should be entitled to the principal of the fund of $3,000 at her death.
    6. The court erred in distributing said fund belonging to Rahm’s estate in accordance with its decree in another proceeding, to wit, the audit of an account of Hopkins’ ancillary administrator.
    7. The court erred in distributing the fund in question to the domiciliary administrator of James H. Hopkins, deceased, when no evidence was produced at the audit to show that said distributee had any title to said fund.
    8. The court erred in holding that the question of appellant’s title to said fund at the death of Louisa Rahm had been adjudicated by the orphans’ court or the Supreme Court.
    9. The court erred in ordering the distribution of a fund over which it had no jurisdiction, thereby depriving appellant of its property without due process of law, contrary to sec. 9, art. I of the constitution of Pennsylvania and the fourteenth amendment to the constitution of the United States.

      A. M. Fuller, for appellant.
    Appellant has title to the fund in question as unadministered assets of Rahm’s estate and the persons ultimately entitled thereto must obtain their title through appellant as Rahm’s personal representative: Lee v. Wright, 1 Rawle, 149; Ebbs v. Com., 11 Pa. 374; Hagthorp v. Hook, 1 Gill & Johns. (Md.) 270; Lawrence v. Wright, 40 Mass. 128.
    January 2, 1912:
    The orphans’ court has no jurisdiction to distribute the assets of a decedent’s estate until the account of the decedent’s personal representative has been filed and settled: Miller’s Est., 159 Pa. 562; Wagner’s Est., 227 Pa. 460.
    The orphans’ court had no jurisdiction to decide during Louisa Rahm’s life who should be entitled to the principal of the fund in question at her death: Willard’s App., 65 Pa. 265.

      Jesse T. Lazear, with him H. V. Blaxter, for appellee.
    All the matters involved in this appeal are res ad judicata: Rahm’s Est., 226 Pa. 594; Corry v. Corry Chair Co., 18 Pa. Superior Ct. 271; Jenkins v. Scranton, 205 Pa. 598.
    It was within the discretion of the orphans’ court to decree the trust fund on the death of Louisa Rahm to the domiciliary administrator of Hopkins: Dent’s App., 22 Pa. 514.
   Opinion by

Me. Justice Mesteezat,

The facts of this case will be found in the opinion in: Rahm’s Est., 226 Pa. 594, and in the elaborate opinion of the orphans’ court of Allegheny county from whose decree the appeal in that case was taken. Every question raised in this case was adjudicated by the orphans’ court and this court in the case referred to. Unless we reverse our decree in the former case, affirming the decree of the orphans’ court of Allegheny county, we must affirm the decree in this case. The learned judge of the orphans’ court so held and we entirely agree with his conclusion.

Edward Rahm, Sr., died in Pittsburg in 1875, and by his will appointed James H. Hopkins guardian of his two sons and devised the residue of' his estate to Hopkins in trust for the two sons. He also appointed' Hopkins his executor, expressing a desire that he should not be required to register the will, nor to file any inventory or account either as executor, guardian or trustee. Hopkins assumed the duties imposed upon him by the will and continued to perform such duties until his death in 1904. He paid the debts and legacies. At the time of his death, Hopkins was a resident of Washington, D. C., where a domiciliary administrator was appointed. At No. 68, October Term, 1905, of the orphans’ court of Allegheny county, the Fidelity Title & Trust Company filed its first and final account as ancillary administrator of Hopkins’ estate. Subsequently, the Guarantee Title & Trust Company, administrator d. b. n. c. t. a. of the estate of Edward Rahm, Sr., deceased, presented a petition to the orphans’ court averring that Hopkins had entered upon his duties as executor of Edward Rahm, Sr., deceased, took possession of and administered the estate of Rahm but never probated the will nor filed any account of his administration of said estate, and died in June, 1904, a resident of Washington, D. C., and setting forth that Rahm’s will was admitted to probate on January 3, 1908, and letters d. b. n. c. t. a. were granted to the petitioner; that in its account the ancillary administrator of Hopkins had not charged itself, inter alia, with a trust fund of $3,000 and did not show any administration of the fund; that the petitioner was entitled to said fund; and concluded with the averment that the petitioner excepted to the account on the ground that the accountant had not charged itself with the $3,000 in its hands, the interest on which was to be paid to Louisa Rahm during her life, under the terms of the will of Edward Rahm, Sr., deceased. The petition prayed that the court direct the ancillary administrator to file a supplemental account showing the administration of the trust fund and upon determination of the amount thereof that the court distribute it to the petitioner. A supplemental account was filed by Hopkins’ administrator. At the audit of the account the present appellant and Edward Rahm, Jr., the surviving son and sole heir and residuary legatee of Edward Rahm, Sr., were represented. Hopkins’ administrator claimed and was allowed the corpus of the fund of $3,000 payable at the death of Louisa Rahm, and on June 6, 1908, the court entered a final decree awarding “to the Guarantee Title & Trust Company, administrator d. b. n. c. t. a. of the estate of Edward Rahm, Sr., deceased, and hereby appointed trustee, the sum of $3,000, the income thereof to be paid to Louisa Rahm during life, as ' per fourth clause of will and at her death the principal to be paid to the ancillary administrator of the estate of James H. Hopkins, deceased.” No exceptions were filed to the decree by the present appellant, but subsequently it, as trustee and administrator d. b. n. c. t. a. of the estate of Edward Rahm, Sr., appealed to this court, filed its assignments of error, but discontinued the appeal on January 14, 1909. Edward Rahm, Jr., did not appeal from the decree, but presented a petition to the orphans’ court to set aside the decree, which was refused, and thereupon he appealed to this court with the result that the decree was affirmed, and the corpus of the $3,000, the possession of which is in dispute here, was awarded to Hopkins’ administrator in payment of money due Hopkins by Edward Rahm, Jr. See Rahm’s Estate, 226 Pa. 594.

By the fourth clause of his will Edward Rahm, Sr., directed the interest on $3,000 to be paid to his sister Louisa Rahm during her lifetime. As will be observed, the orphans’ court at the audit of the account of Hopkins’ ancillary administrator awarded $3,000 to the present appellant as trustee, directing the income thereof to be paid to Louisa Rahm during her life. Louisa Rahm having recently died, the trustee filed the account out of which this controversy arises, accounting for the $3,000. At the audit of the account, the court awarded the balance in the hands of the trustee to Hopkins’ domiciliary administrator at Washington, D. C. In entering this decree Judge Miller, speaking for the court below, said, inter alia: “In view of the previous adjudication of the same question, both by this court and by the Supreme Court, it follows that the balance of the fund should be paid to the administrator of James H. Hopkins’ estate, for the reasons therein given at No. 68, October Term, 1905.” From that decree the Guarantee Title & Trust Company, as administrator c. t. a. of the estate of Edward Rahm, Sr., deceased, has taken this appeal.

It will be observed that the fund which is the subject of this account was held by the appellant company as trustee under and by virtue of the decree of the orphans’ court of June 6, 1908, by which the company was directed to pay the income to Louisa Rahm during her life, and, at her death, the principal to Hopkins’ administrator. The present appellant, as we have heretofore seen, appealed from that decree to this court, but subsequently discontinued the appeal, and the question of the disposition of the fund is therefore res judicata. The appellant company had its day in court and an opportunity to assert its right to the fund. We have uniformly held that the orphans’ court has exclusive jurisdiction to ascertain the amount of the estates of decedents and to order their distribution among those entitled, creditors as well as legatees and distributees. It was the estate of James H. Hopkins, deceased, that was being audited and distributed when the fund of $3,000 was decreed to the present appellant as trustee. The court unquestionably had jurisdiction to audit the account of Hopkins’ administrator, and to distribute the fund in its hands to the parties legally entitled thereto. The $3,000 was a part of Hopkins’ estate, and the orphans’ court had the authority to determine and it did determine, to whom it belonged. The present appellant company recognized the jurisdiction of the court, appeared before it, presented its claim in a petition setting forth all the facts and after being fully heard, its rights to the fund were adjudicated. That adjudication cannot be attacked in this or any other collateral proceeding. Hopkins’ administrator, pursuant to the adjudication, paid the fund to the appellant as trustee on the trust stated in the decree. If that adjudication of the orphans’ court disposing of the fund was erroneous and the fund was a part of the unadministered assets of Rahm’s residuary-estate and should have been awarded to the present appellant as Rahm’s administrator, the remedy was by an appeal to this court. This was then manifestly the view of the present appellant company, as it took an appeal in which any error could and would have been corrected by this court. The appeal, however, was discontinued, the appellant thereby submitting to the decree of the orphans’ court as the final and proper disposition of the fund the possession of which is now in controversy.

The former and final decree, disposing of the fund, directed that at the death of Louisa Rahm it should be paid to Hopkins’ administrator. The trustee should have performed this duty without any further decree or order of the court. If the appellant’s contention in this case be sustained, the effect would be to direct the payment of the fund, now held by the Guarantee Title & Trust Company as administrator of Rahm’s estate, to Hopkins’ administrator as directed by the former decree. The consequence would be, not to change the party to whom the fund will ultimately go, but- simply to diminish the amount he shall receive by deducting from it the administrator’s commissions and the officers’ costs which would accrue on another account. Such circuity of action for such a reason would be a reproach to the administration of justice, and should not be permitted by any court where justice is judicially administered.

The several questions attempted to be raised by the assignments of error were considered and disposed of in the opinion filed in the other case, and we are not convinced that our former conclusions are erroneous.

Had the appellee moved to quash this appeal the motion must have prevailed. None of the nine assignments of error comply with our rules of court or the general principles of pleading. The decree, the only ruling to which an exception was taken, is not assigned for error, and the. assignments simply allege error to the action of the court in holding with the contention of the appellee and in not holding in accordance with the contention of the appellant, and without setting out the ruling of the court on any question involved in the case. Both appellate courts have so often held such assignments irregular and insufficient that there is no longer any reason for persisting in the practice. There are numerous reported cases dealing with the question, among which are Kunkel’s Appeal, 192 Pa. 14; Arnold v. Russell Car & Snow Plow Co., 212 Pa. 303; North Mountain Water Supply Co. v. Troxell, 223 Pa. 315; Oakland Borough v. Boyden, 22 Pa. Superior Ct. 278; Com. v. Mackey, 34 Pa. Superior Ct. 1.

The decree is affirmed.


author: Mr. Justice Stewart,

text:
    Bole v. Fulton, Appellant.

      Corporations — Stock subscription — Suit by receiver.

    1. There is a well-recognized distinction between original subscriptions for stock in a corporation to be formed, and subscriptions for shares in an existing corporation. In the one case the engagement between the subscribers is created directly by the act of subscription, which, when once the corporation has been created by letters patent issued on the strength of the subscription, becomes absolute, not subject to recall and dischargeable only by actual payment. By the act of incorporation, without more, the original subscribers become members of the corporation, entitled to all the rights and privileges of membership, including the right to vote, the right to share in the profits and the right to compel specific performance of the contract of membership. In the other case the contract is not between the subscribers, except as it is shown that the subscriptions were mutual considerations for each other, but between each individual subscriber and the corporation as it exists, and is simply a contract of purchase and sale.
    2. Where a person subscribes for a certain number of the shares of the capital stock of an existing corporation, and shortly thereafter notifies the corporation that he will not pay the subscription, the company may then tender him the stock and upon his refusal to accept and pay for it, sue him and recover the difference between the amount which he agreed to pay for the shares, and the value of an equal number of shares in the market. If it makes no such tender and demand, he cannot be included in a bill in equity against the stockholders of the company to compel the payment of their subscriptions, and this is the .case because the subscriber never became a stockholder. Any claim for damages for breach of contract cannot be adjudicated against the subscriber in such a suit in equity.
    January 2, 1912:
    Argued Oct. 16, 1911.
    Appeal, No. 10, Oct. T., 1911, by.defendant E. D. Fulton, from decree of C. P. No. 2, Allegheny Co., April T., 1908, No. 1,068, on bill in equity in case of George M. Bole, Receiver et al., v. The Belden Automobile Transmission Company and E. D. Fulton et al.
    Before Fell, C. J., Brown, Mestrezat, Potter, Elkin and Stewart, JJ.
    Reversed.
    Bill in equity by creditors to compel the payment of a stock subscription. Before Haymaker, J.
    From the record it appeared that after the incorporation of the Belden Automobile Transmission Company under the laws of New Jersey, E. D. Fulton subscribed for a certain number of shares of the stock of the company. Ten days after he signed the subscription paper, he repudiated his subscription and told the agent of the company who had taken his subscription that he would not pay for the shares. The company made no tender of the shares with demand for payment. Subsequently Fulton was included with delinquent stockholders as a party defendant in a bill to enforce payment of stock subscriptions. A decree was entered against Fulton.

      Error assigned was the decree of the court.

      David E. Mitchell, with him William A. Griffith, for appellant.

      Charles F. Patterson, with him C. C. Dickey, of Shiras & Dickey, R. B. Wolf and Weil & Thorp, for appellees.
   Opinion by

Mr. Justice Stewart,

There is a well-recognized distinction between original subscriptions for stock in a corporation to be formed, and subscriptions for shares in an existing corporation. In the one case the engagement between the subscribers is created directly by the act of subscription, which, when once the corporation has been created by letters patent, issued on the strength of the subscription, becomes absolute, not subject to recall, and dischargeable only by actual payment. By the act of incorporation, without more, the original subscribers become members of the corporation, entitled to all the rights and privileges of membership, including the right to vote, the right to share in the profits, and the right to compel specific performance of the contract of membership: Curry v. Scott, 54 Pa. 270, Garrett v. Dillsburg, etc., R. R. Co., 78 Pa. 465. In the ■other case the contract is not between the subscribers, except as it is shown that the subscriptions were mutual considerations for each other, but between each individual subscriber and the corporation as it exists, and is simply a contract of purchase and sale: Pittsburg & Connellsville R. R. Co. v. Byers, 32 Pa. 22; Weiss v. Mauch Chunk Iron Co., 58 Pa. 295. The distinction is thus defined in Morawetz on Private Corporations, sec. 46: “It is important to distinguish between the contract of membership actually existing among the shareholders or members of a corporation, and a contract to become a shareholder at a future time; and the contract to become a shareholder at a future time must again be distinguished from a contract to purchase shares which have already been issued.

“The contract which exists among the members of a corporation, and which constitutes them a corporate association, is the contract of membership. This contract gives the contracting parties the status of shareholders;it invests them with the continuing rights of shareholders, together with the corresponding liabilities; and the performance of this contract will always be specifically enforced, though a failure to perform rarely presents a ground for an action for damages. On the other hand, a contract to become a I shareholder, or to subscribe for shares in a company at a \ future day, does not give the contracting party the status of shareholder until after the contract has been fully executed by taking the shares or actually subscribing upon the books, and, upon failure to perform the contract, the corporation will be entitled to recover only the damages suffered, — that is, the difference between the amount which the defendant agreed to pay or contribute on account of the shares, and the value of an equal number of shares in the market.

“A similar distinction exists between a contract of partnership and a contract to form a partnership at a subsequent time. The contract of partnership constitutes the contracting party partners; but a contract between several persons to become partners thereafter does not of itself make them partners; and for a failure to carry out the agreement an action at law for damages is the only remedy.” Among the authorities cited in support of this doctrine we have Rhey v. Ebensburg, etc., Plank Road Co., 27 Pa. 261.

“When the subscription to formative stock precedes the creation of the body corporate which will ultimately issue the certificate, there is, of necessity, at the time such subscriptions are entered into, no corporation in existence with which a contract could be made. The subscribers, as a consequence and for the very purpose of effecting an organization, become stockholders by the mere act of subscribing if there are no conditions precedent prescribed, and they are thereby invested with the privileges and subjected to the liabilities incident to that relation. . . . But the same reasons do not apply, and the same conditions do not obtain, in the case of new or additional stock, authorized to be issued by an existing and completely organized corporation. A subscription to such new stock does not necessarily of itself make the subscriber a stockholder, because, generally speaking, it is a mere contract between the subscriber and the corporation. ... To constitute a subscriber for new stock a stockholder, something more than a mere subscription is requisite; payment is necessary. The subscription is but the contract. Payment when called by the company, and when made by the subscriber constitutes him a shareholder, whether a certificate has been issued or not:” Baltimore City Pass. Ry. Co. v. Hambleton, 77 Md. 341.

Now how stands this case? The appellant, some seven months after the incorporation of the Belden Automobile Transmission Company, at the solicitation of an agent of the company, subscribed for twenty-five shares in the capital stock of the company, at its par value of $100 per share. Assuming the authority of the agent, and that his' acceptance of the subscription was thé acceptance by the company, mutual obligations resulted — an obligation on the part of the company to furnish the stock, and an obligation on the part of the defendant to pay for it when delivered. These, as we have seen, were to be concurrent' acts, tender and payment. Here there was neither tender of stock nor tender of payment. Neither side ever demanded of the other that the contract be observed; no stock was ever issued in the name of the defendant, nor does his name appear on the stock books of the corporation. The receiver of the insolvent corporation finding defendant’s name appended to a subscription list, included him in his bill among the original and statutory shareholders who have not paid their subscriptions in full, and obtained a decree against him as a stockholder. But he never was a stockholder. Within ten days after he subscribed he notified the agent to whom he gave his subscription that he would not pay it. It was then open to the corporation either to regard this as a definite breach of the contract for which, without a tender of the stock, the defendant would be liable in damages, or.to cancel and annul the subscription. Whether it did one or the other, the result must be the same so far as regards this present action by the receiver. If the latter, the defendant is released from his contract and is no longer liable thereon; if the former, the measure of damages would be the difference between the amount the defendant had agreed to pay for the stock and its value when the corporation might thereafter bring its action: Rhey v. Ebensburg, etc., Plank Road Co., supra. But the corporation never having brought its action, the damages the corporation suffered by the breach have never been determined. Certain it is that in a proceeding of this kind that question cannot be adjudicated. The fourth assignment of error is as follows: “The learned court below erred in its fourth conclusion of law, as follows, ‘The said E. D. Fulton is legally liable to the plaintiff upon his said subscription stock of the Belden Automobile Transmission Co., in the sum of $2,500.’” This assignment is sustained for the reasons above stated. It is unnecessary to consider the other assignments. So much of the decree in this case as charged the defendant with liability is reversed. The appeal to this extent is sustained and the decree reversed at the cost of appellee.