author: Garrison, V. C.

text:
    Elizabeth D. Carver et al. v. Southern Iron and Steel Company.
    [Decided October 31st, 1910.]
    1. Under a statute requiring that stock shall be fully paid for either in property or cash, a domestic corporation may not issue debentures for sale at ninety-three cents on the dollar with the privilege to the holders to convert them into preferred stock at seventy cents on the dollar.
    2. A domestic corporation seeking to justify its right to issue stock to its reorganization committee in payment of a debt due by it to the committee creating and controlling the corporation must, as against an objecting stockholder, show that it owes the debt to the committee.
    3. Where a domestic corporation sought to issue stock to its reorganization committee for the alleged purpose of paying a debt due by it to the committee, a stockholder objecting on the ground that there was no debt due from the corporation need not make the committee a party defendant.
    4. Where a plan for the reorganization of a bankrupt corporation called for an agreement between the bond and security holders of the corporation, its general creditors and stockholders and a reorganization committee for the taking over by the committee of the assets of the corporation and the transfer of them to a new corporation and the reorganization committee with the stocks and bonds received from the new corporation satisfied the bond and security holders and creditors, the corporation could not issue additional stock to the committee on the theory that it was indebted to the committee for money advanced by the committee without showing the existence of a loan by the committee to the corporation.

      5. In a suit by a stockholder to restrain the corporation from issuing stock and selling the same at less than par, evidence held not to justify a finding that the reorganization committee creating and controlling the corporation was a creditor of the corporation, so that it was entitled to the additional stock.
    6. A holder of a small amount of stock in a corporation may sue to enjoin the issuance of preferred stock for .sale at less than par, though the proposed issuance cannot injure his interests, since the proposed action is in violation of law.
    7. Where,' pending a suit by a stockholder to enjoin the corporation from issuing preferred stock for sale at less than par, other stockholders appeared, without objection, as parties complainant, the court could grant the relief, though the or-iginal complainant was not a tona fide complainant. '
    8. Where a corporation sought to issue debenture bonds to be sold at ninety-three cents on the dollar with the privilege of the holders of converting them into preferred stock at seventy cents on the dollar, and the corporation, to accomplish the purpose, was required to issue new preferred stock, and there was no provision that it should receive more than seventy cents on the dollar for it. the plan of the corporation could not be justified on the ground that in the aggregate the money received under the scheme would exceed the par value of the new stock.
    Heard on bill and proofs by complainants and proofs by the defendant.

      Mr. William D. Edwards and Mr. Maximilian T. Rosenberg (with whom was Mr. Pette, of the New York bar), for the complainants.

      Mr. Chauncey G. Parker (with whom were Messrs. Hornblower & Miller, of the New York bar), for the defendant.
   Garrison, V. C.

This is an application upon a bill and affidavits for an injunction to prevent the defendant corporation from increasing its authorized capital stock and providing for a new issue of preferred capital stock, and selling or disposing of such new stock at less than par. From the bill and the proofs accompanying the same it appeared that the complainant was a stockholder of the defendant corporation; that the defendant corporation was seeking authority from the stockholders to carry out a contemplated scheme according to which it should issue $1,200,000 of debenture bonds to be sold at ninety-three, with a provision that they might be 'converted, at .the option of the holder, into preferred stock of the defendant corporation at seventy cents 'on the dollar of the par of the stock.

The purpose, as stated in the call for' the meeting and the accompanying papers, was to sell the $1,200,000' of debentures'at ninety-three, and' to deposit, with a trust company, preferred stock in something over the amount of $1,700,000 par value so as to insure the holders of the debentures that they might convert the same, by applying to this trustee, into preferred stock at •seventy cents on the dollar of its par.

Since the company stated that i't had ten thousand shares, or 4>1,000,000 par value of such preferred 'stock “available,” it ■sought authority from the stockholders to increase the authorized capital of the company so that the necessary seven hundred and odd thousand dollars worth of preferred stock needed for the ■scheme aforesaid could be obtained.

There can be no question, and it reqúires no'citation of authority, that a New Jersey corporation cannot lawfully issue debentures to be sold at ninety-three, the holders of which shall have the privilege of obtaining from the company its preferred ■stock at seventy per cent, of its par, if the scheme contemplates the issuing of stock of the company at less than par. Such a •claim would be directly in the face of the statute which' requires that stock shall be fully paid for, either in property or in' cash. 'The complainant, therefore, upon the showing made by'the bill .and affidavits, was clearly entitled to a preliminary injunction ■restraining the corporation from practically issuing its stock 'at •seventy cents on the dollar.

The defendant, by answering affidavits and proofs, puts a different phase upon' the matter. It insists' that it is not seeking to increase its authorized capital so as to provide stock'to be sold at seventy cents on the dollar, and sets forth an extended explanation. Generally stated, the defendant’s position is this: The Southern Iron and Steel Company is a New Jersey corporation ■which was caused tó be formed by the reorganization committee •of the Southern Steel Company. This latter company became bankrupt and a reorganization committee was formed to take care of the various lien security and stockholders, and a plan and agreement of reorganization was proposed and entered into. This complainant became a party to such agreement and' plan. Under the plan, property which belonged to the Southern Steel Company was purchased at the bankrupt sale on behalf of the committee, and was transferred by the committee, or its agent, to the new company which it caused to be -formed, namely, this defendant corporation; that, in pursuance of the plan and in consideration of the transfer, the defendant corporation issued to the committee its bonds, preferred and common stocks, in the amounts provided for in the plan; that the committee has expended moneys for and on behalf of the new company in excess of those which the plan and agreement provided that it should expend, and that the amount of such expenditures, in excess of the amounts provided in the agreement, equals $755,000; that out of the stock issued by the defendant corporation to the committee under the reorganization agreement there are ten thousand shares of preferred stock which the committee has available for the purposes of its trust; that the new company (the defendant corporation) is in need of additional moneys to properly carry on its business; that the contemplated scheme is this: The defendant corporation is to authorize the issue of $1,200,000 debentures, to be sold at ninety-three cents on the dollar; it is to increase its authorized capital stock and create a new issue of preferred stock, and issue to the committee, in payment of the debt due by it to the committee, something in excess of seven thousand shares, or $700,000 worth of such new stock. The committee has already placed the ten thousand shares of preferred stock which it had in its possession and is to place the additional seven thousand, shares of such stock with a trust company, to insure to the holders of the debentures the ability to receive preferred stock in exchange for their debentures at seventy per cent, of the par value of such preferred stock. The committee is to cancel its indebtedness against the new company, the defendant corporation.

The argument of the defendant upon this assumed state of facts is that, as to the ten thousand shares which are issued and outstanding, they belonged to the committee for the purposes of their trust, and, in accordance with the terms of the latter, they may be pledged, or sold, or otherwise dealt with by the committee at such price and in such manner as to it seems fit, and that the committee therefore has perfect power, if it sees fit, to use such stock as an aid to selling the debentures; that the new stock is to be issued to the committee in payment of a debt due by the new company to the committee; that there is nothing to prevent a New Jersey corporation, with the assent of the majority of its stockholders, from increasing its authorized capital stock for a legitimate purpose; and that the payment of a debt by the issuance of stock at par therefor is legitimate and cannot be attacked by a stockholder.

The defendant vigorously insists that since the reorganization committee is not a party defendant, the complainant may not question its acts, and must make out a case wholly without reference to its conduct.

I do not think that this objection should have the result which the defendant contends for. As previously pointed out herein, the complainant’s ease on her bill would result in her obtaining the relief sought.

The call for the meeting and the accompanying papers, if taken to mean just what they say, disclosed a scheme in direct opposition to our Corporation act, and one that the court would not permit to be carried out in the face of objection by a stockholder. The defendant perceived this, and by its affidavits and other proofs and by its argument sought to show that it was not intending to issue the stock and dispose of it at less than par.

It is the defendant which seeks to justify its action, who brings in the reorganization committee, the agreement, and the facts with respect thereto. Unless, therefore, the defendant succeeds in justifying its conduct by reason of the relationship between the company and the reorganization committee, the complainant must prevail.

The defendant contends, and it may be true, that the reorganization committee is a separate entity from the defendant corporation, and that in an action against one the rights of the other may not be adjudicated. I shall not stop to cite or analyze the cases which the defendant refers to under this head.

But, whatever the law may be in this respect, it does not alter the principle to be applied to the case at bar. If, instead of a reorganization committee, this defendant, when its right to issue this new stock was challenged, set forth in its reply that it was about to issue the said new stock to X in payment of a debt due by the defendant corporation to X, it would be requisite for the defendant, to make its justification effective, to maintain and support its allegation that it owed'the debt to X. If this is so, upon the assumption that X is a third party, dealing at arms’ length with the company, a, fortiori would it be so where X is a reorganization committee which created the ■ defendant corporation and controls it, and has, very clearly, trust relations with respect to it?

It will be found from an inspection of the plan and agreement of reorganization attached to the defendant’s papers that the general provisions covered these points. The bondholders, security holders, general creditors and stockholders of the old company were to enter into an agreement which made the committee their trustees to carry out the plan. The plan provided for taking over the assets of the old company and transferring them to a new company to be formed and controlled for a certain period of time by the committee. The bonds and stock of the new company were to be issued to the committee and were to be utilized by it in paying off the old bondholders, security holders, general creditors and stockholders by substituting the new securities for the old upon certain stated terms, and such new securities not needed for that purpose were to be used to raise funds for certain cash requirements, among them a working capital of $1,-750,000 for the new company.

Part of the consideration which underlies the issue of the new securities was the properties and funds to be acquired by the new company under the plan of reorganization (see page 7 of plan); and any cash or securities not needed by the committee for the purposes of the plan were to be turned over by it to the new company, such securities, when turned over, to be treated as treasury securities (page 7 of agreement).

The plan was declared operative and was put into effect, the committee causing the new company to be incorporated, and to issue the securities in pursuance of the plan; and has, it asserts, done all the things required to be done by it; and has, in addition, loaned the new company $755,000 in cash. It also asserts that it has ten thousand shares of the preferred stock not needed by it for the purposes of reorganization and available by it for any of the purposes of the new company, although it might not be proper to say that this was not part of the scheme of reorganization.

If the moneys which the reorganization committee expended upon behalf of the new company were raised by it upon the securities issued to it under the plan of reorganization, it seems perfectly clear to me that it cannot now call for any new or additional issue of stock in repayment of such moneys. It cannot properly call itself a creditor of the new company and be held to be such for the purpose of having fresh additional stock issued to it in payment for moneys thus expended.

The very purpose of the plan as disdosed by the defendant, was to have the new company issue all of its securities to the committee and give the committee almost unlimited power to dispose of those securities,, for the purpose of clearing up the old situation and financing the new company. If, in doing so, the committee raised money upon the securities in its hands and spent such money on behalf of the new company, it did so in pursuance of the plan and agreement of reorganization, and is not, in my view, entitled to call upon the new company for any additional issue of stock in payment for what it was already under obligation to do.

If the committee has not done all of the things that it was required to do by the agreement and plan, so far as the new company is concerned, I do not think it would be proper for it, as against other stockholders, to cause its creature (the new company) to issue additional securities to it over and above those which the plan provided that it should cause it to issue. It surely would not be right to hold that, until it has done the things which it has already agreed to do, it should receive more stock.

The only event in which I can see that it is proper to permit the issue of the seven thousand shares of new preferred stock to the committee, would be if it should appear that the committee had fully done the things which it was required to do so far as the new company is concerned, and, in addition to doing all of such, had, out of its own individual resources, by the credit of its members, or out of the pockets of its members, raised the $755,-000 and loaned it to the new company. If this should be made to appear, I do not, as at present advised, see any objection in law or equity to the issuance of stock by the new company in payment of this loan.

And the fact that the persons to whom the stock is to be issued, namely, the committee, propose practically to give the stock back to the company, would then be no concern of anyone excepting themselves, and certainly could not injure the stockholders.

It is very difficult, however, to believe that any such state of facts exists. It is very difficult to believe that the seven gentlemen constituting this committee propose to lose, out of their own resources, a sum in excess of seven hundred thousand dollars. If it is not a bona fide loss to them, it is not a bona fide issue of stock. They must stand or fall upon the effectiveness of the justification of the issuance of this stock which they insist is proper.

If they have not advanced this money out of their own pockets, and do not propose losing it, then the scheme is a bald one to obtain stock of this company at seventy cents on the dollar; and that is forbidden by law.

It should be observed that the result which I have reached is not by considering that the reorganization committee is a party defendant to this suit, or that the complainant in this suit can properly interfere with or control its action. The result is reached by applying well-settled principles to the facts which the defendant itself stands upon as the existing conditions. It is undisputed that the reorganization committee is in control of thé defendant corporation. _ It is undisputed that all of the securities of the defendant corporation were issued to the reorganization committee for certain purposes.

It is too plain to require argument that no new securities should be issued to such committee for any of the purposes disclosed in the plan and which it was already under duty to carry out. The company, its creature and which it controls, justifies the issuance of this new stock to the committee by asserting that, over and above everything that the committee was required to do and has already been paid for doing by the issuance to it of all of the securities of the defendant corporation, it has advanced $755,000 in cash to the company which it is willing to lose if the scheme herein sought to be carried out is not interfered with —that is to say, that for this money which tire committee, outside of the agreement .and not by reason of it, advanced to the company, the committee, or the members who are the creditors, will accept stock of the company at par, and then immediately virtually give this stock back to the company — that is, put it up with a trust company to go to the persons who buy the debentures so that they can get the stock at seventy cents on the dollar. The requisite thing, therefore, in my view, is to search the proofs presented by the defendant with sufficient care to ascertain whether it appears that the reorganization committee advanced this money outside of all of the requirements of its agreement, and just as though it had been advanced by a stranger. If such a state of facts does not appear from the defendant’s proofs, then I think the injunction should go, otherwise it should not.

[At this point the defendant introduced additional proofs and the testimony of several witnesses was taken. The court then took up the consideration of the matter in view of the previous proofs and those thus offered.] A consideration of the proofs results in the following findings:

The reorganization committee, with the stocks and bonds that it received from the defendant corporation, satisfied all the cestui que trustent of the reorganization committee — that is, the old bondholders, security holders, creditors, and what not, who had signed their plan, and after doing so, had certain securities in their hands; and from these, and the various other sources from which they were to get cash, they received the following sums of money: They sold $65,000 of bonds at seventy and interest, and realized $45,802.05; they sold thirty-seven thousand five hundred shares of preferred stock and sixty-seven thousand five hundred shares of common stock, and realized $2,600,000; they received interest on deposits of money amounting to $4,-479.44; they received a refund on account of mechanics’ lien amounting to $186; they received the proceeds of the sale of nine hundred and thirty-five of the bonds of the defendant corporation, amounting to $677,875. The aggregate of these receipts is $3,328,342.49. The committee expended money as follows : For clearing the properties of mortgages, accrued interest, liens, taxes, &c., $1,559,727.12; they were required to pay the trustees in bankruptcy $42,004.30; the various expenses of the committee, the details of which are set forth in Exhibit “B,” were paid, amounting to $254,106.23; they paid to the new company for the stock issued by the new company at its incorporation $20,000; they paid to the new company in cash the amount received from the sale of the nine hundred and thirtjr-five bonds referred to, amounting to $677,875; they paid in cash, at various times to the new company, or to creditors of the new company, the sum of $773,153.09. The total of the amounts paid, as above enumerated, is $3,326,865.74.

It is the contention of the committee that, with respect to $773,153.09 of moneys transferred by it to or on behalf of the defendant corporation, they are entitled to have a credit in their favor against the defendant corporation, and to use this credit as the consideration of the issuance to them of that amount of the newly-created preferred stock of the defendant corporation.

The defendant now seeks to support this contention by a different theory from that initially advanced.

It will be recalled that in the earlier part of this opinion the theory then advanced is set forth. That theory was that the committee, outside of moneys received from the securities of the defendant company, had obtained money and loaned it to the defendant corporation, and therefore had the right to receive stock of the defendant corporation in payment of such loan. No evidence was adduced to support this theory; and the present theory which has been substituted for it, is that the plan and agreement contemplated the expenditure of $1,000,000 for improvements and repairs, and that it can be shown now by the books of the company that the sum of $1,784,736.17 hás actually been spent by the defendant corporation for repairs and improvements; wherefore, it is argued, as respects all over the $1,000,-000 estimated in the plan for improvements and.repairs, it is proper to treat the said excess as something outside of the plan, which the committee was not under obligation to furnish, and which, since the company has spent the money for that purpose, may be treated as a loan by the committee to the corporation of that much fresh money for this purpose outside of the agreement.

I cannot agree with this argument. It seems to me to be perfectly clear that this committee, having in its hands under the agreement the stocks and bonds of the defendant corporation, was required to do with them what the plan and agreement pointed out should be done; that they had the widest kind of discretion, and might have done all lands of things; but, of course, we are only concerned with what they did do. What they did, so far as the company is concerned, was to take the stocks and bonds and realize money thereupon and turn that money over to the new company, or spend it for things beneficial to the new company. And the fact that the new company, either with the concurrence of the committee or upon its own volition, invested such money as it received from the committee in one thing or in another, or spent it in one way or another, or kept it on hand, is entirety immaterial in my view.

The defendant strenuously insists that it has the right now to say that it can agree with the committee that the money which the committee turned over to it shall now be considered as a loan, although I do not see how any serious argument can be made that any such now-considered loan can be' used as the basis for issuance of new stock. There is not a scintilla of proof that has been called to my attention that when the money was transferred from the committee to the company anybody viewed it as a loan, or treated it as a loan, or treated it in any other way than as money turned over by the committee to the company in pursuance of the obligation of the committee to turn over to the company all excess money that it had over and above that which was required for other purposes of the plan and agreement of reorganization.

It is true that some of the defendant’s witnesses refer in their testimony to this money as a loan, and talk about it as a loan, but it will be observed in what I have said above that I refer to the transactions at the only material time, which is when they took place, and there is no proof that at the time that those transactions took place anybody looked upon this money transferred by the committee to the company as a loan; perhaps it would be better to say “moneys,” because different sums were advanced at different times.

I have not overlooked the fact that in some of the bookkeeping entries these items are referred to as advances, which, of course, they were; but it is entirely too clear to require more -than statement that if the transaction at the time it took place was of any such character as the defendant now insists, the evidence upon the books of each of the parties involved, namely, the new company and the reorganization committee, would contain the fullest and completes! evidence thereof.

It was perfectly natural, when the money was paid over from time to time, that it should be carried on the books as an advance because there was no particular heading of account under which it should go until some final statement was made. If, however, it had been what they now attempt to say that it was, namely, a distinct loan of money by the committee to the new company, it would have appeared in all of the carefully kept books of these two parties in an unmistakable fashion.

I am rather inclined to think that even if they had attempted to treat it as a loan initially, it so palpably was not such that their attempt would be futile.

The so-called “loan” was simply money raised upon the securities of the defendant corporation, by the sale of such securities by the reorganization committee. When the reorganization committee turned such money over to the company, as- it did from time to time, I cannot see, under all the circumstances in this case, and the trust evidenced by the reorganization agreement, how in any legal sense such money could be considered as a loan.

All the money that the committee had on hand as the result of the sale of the securities that it obtained in the reorganization, ■which was not properly devoted to other purposes, belonged to the new company. The committee transferred it to the new company, and, in my view, that ended the obligation of the committee .and the rights of the new company, the defendant, with respect to such money. To now permit the company, as against the objection of a stockholder of the defendant corporation, to issue new stock based upon its own money paid into it by the committee, Avould be practically to permit two issuances of stock for the one consideration. The stock which was issued originally by the company to the reorganization committee, it is argued (and for the purposes of this suit assumed), had a good consideration. The committee, taking that stock and disposing of it, turned the proceeds over to the company, as it was obliged to do; and such money, so turned over, cannot, in any proper sense of the word, be said to be consideration for the issuance of new stock.

With respect to the suggestion of the defendant that the complainant is the holder of a small amount of stock, and that the proposed issuance of new stock at less than par cannot injure her interests, the complete answer, in my view, is contained- in the language of the present chancellor in the case of Easton National Bank v. American Brick Co. (Court of Errors and Appeals, 1905), 70 N. J. Eq. (4. Robb.) 740. He there says: "The express prohibition of section 54, and the whole spirit and policy of the act, are so clearly opposed to any arrangement by which corporate stock shall be issued without the receipt by the company of an equivalent in value to its par, that any agreement to this effect must be deemed void as contrary to the policy of the law.”

It may well be that in cases where the corporation has dealt with its own directors, or with a corporation that has mutual directors, and there is a discretion in the court to affirm or dis-affirm the contract when applied to by a stockholder, the court will weigh the benefits and injuries; but this cannot be applicable to a case where the thing sought to be done is contrary to the statute, is prohibited by law, and only needs the attention of the court to be called to it to cause the latter to restrain it.

The next point which will require consideration is this: The facts, as proven before me, I find it proper to summarize as follows : This suit is brought in the name of Elizabeth D. Carver. It is brought by counsel who have never seen Elizabeth D. Carver; who do not know her; who received no instructions concerning the suit from her, and who brought it because George H. Schuler desired it brought. It is unquestionably true, to my mind, that Mr. Schuler, who has either real or fancied grievances against the reorganization committee, and who has brought numerous suits, or caused them 'to be brought, against the same and against the defendant cbrporation, wishing further to pursue whatever legal means he could of interfering with the reorganization committee and the new company, sought some one to bring this suit for the purpose of obtaining an injunction to prevent this stock issue. Not himself being a stockholder of record of the defendant corporation, he obtains Mrs. Carver’s permission to use her name in the prosecution of this suit, and takes it to his counsel who have appeared for him in numerous pther similar suits against the reorganization committee, and instructs them, and agrees with Mrs. Carver that she shall be held harmless from any expense.

The question which is raised on this state of facts is whether a court of equity should entertain a bill for injunction which is filed by one who has only a nominal interest in the controversy —that is to say, one who did not of her own volition make any move, who was sought out by another who was not similarly situated, whose suit is financed by such other, and is directed and controlled by such other?’

If the subject-matter were not one which, in the line of citation, beginning with the Donald Case (Court of Errors and Appeals, 1900), 62 N. J. Eq. (17 Dick.) 729; and coming down through the Volney Case (Court of Errors and Appeals, 1904), 68 N. J. Eq. (2 Robb.) 605, to the Easton National Bank Case (Court of Errors and Appeals, 1905), 70 N. J. Eq. (4. Robb.) 732, had been held by the' court of errors and appeals of this state to concern a matter not only illegal and against public policy, but intimated to be almost immoral, I should not have much doubt about the attitude which the court would take; but if this question is one which concerns public policy, and if it is one which is so abhorrent to our law that the court will put the principle in operation whenever it is appealed to, then there must be a very careful decision as to the rights of this complainant who here seeks to put in motion this court’s power in this respect.

I can very well understand that, in a case where the rights of the individual solely were concerned, a complainant circumstanced as this one is, might not have her 'rights protected. Authority would seem, however, to be favorable to her right to maintain her suit, even upon the supposition just stated. Hodge v. United States Steel Corporation (Court of Errors and Appeals, 1902), 64 N. J. Eq. (19 Dick.) 111. But where the public policy of the state is concerned — where the thing that is sought to be done by the defendant is voidable, ultra vires, illegal, and, in the above eases, stated to be practically immoral, a very different rule should be applied. I am, however, relieved of the necessity of passing upon this, because at this point other persons were admitted as parties complainant who held stock in the defendant company, and whose presence in the suit is not attacked, and to whom the relief 'must be accorded, if it is proper that equitable relief should be accorded to a properly circumstanced complainant in this suit.

There is one matter alluded to in the final' brief furnished me by the defendant which was not alluded to in any of the oral arguments, and which I shall briefly refer to; it is argued in the brief that since more money is intended to be raised on the debentures than would pay at par for the contemplated increase of preferred stock, the company should be permitted to go ahead and issue and put out the preferred stock under the plan.

The fallacy of the argument is that it ignores the fact that each purchaser of a debenture is entitled to take the debenture which he purchased at ninety-three cents on the dollar to the trustee and obtain preferred stock of the company at seventy cents on the dollar; and that to enable the company to accomplish this, it is necessary that it issue and put out the new preferred stock, for which new preferred stock there is no provision anywhere that it shall receive more than seventy cents on the dollar. While it is true that in the aggregate the money to be received under the scheme will exceed the par value of the newly-created stock, it is not true that for such newly-created stock it is contemplated to receive any more tiran seventy cents on tbe dollar.

I will advise that a preliminary injunction do issue to prevent the defendant corporation from issuing to the reorganization committee its preferred stock at less than the par value thereof, to be paid in cash, and will restrain the corporation from holding a meeting under its call, at which it shall approve a plan of issuing such stock to the said committee as in the call provided. Counsel may be heard upon the form- of the order.


source: Caselaw Access Project

license: Public Domain

text:
    Herbert Clark Gilson et al., receivers, &c., v. J. Charles Appleby et al.
    [Decided January 5th, 1911.]
    1. A “plea” in equity is in effect an answer'which reduces the issue between the parties to a single point.
    2. All the facts necessary to sustain defendant’s contention must be set forth in a plea in equity, or it is bad in form; and a plea, to be good, must set up facts which constitute a complete defence either to the whole bill or to so much as it purports to be an answer or defence to.
    3. The citizens of another state are not exempt from service of process in New Jersey.
    4. A plea in equity to the jurisdiction, alleging that defendants have not been served with process in the state, nor at all, and they were, when the suit was begun, and are now, citizens of other states, is not a good plea, where it does not appear that the complainant has sought to serve defendant with process in the state, or at all.
    5. On a plea to 'the jurisdiction in equity, alleging that defendants have not been served with process in the state, nor at all, the court is not required to look to the files to determine that there was no subpoena returned served on the defendant, and that there was an order of publication made therein, but will look only at the bill and plea.
    6. Where pleas to the jurisdiction in equity on the ground that defendants are citizens of other states and have not been served with process in New Jersey, nor at all, are held bad for failure to show that any attempt has been made to serve process, leave will be given defendants to apply for leave to file amended pleas.

      On bill and pleas.
    Tbe pleas of the respective defendants, J. Charles Appleby and William R. Appleby, are identical, excepting that one of such defendants, alleges himself to be a resident of the State of Virginia, and the other of the State of Minnesota. The form of the plea is as follows:
    “The plea of , one of the persons named as defendants in the bill of complaint in the above stated cause, who now appears specially for the sole purpose of objecting to the jurisdiction of the Court over him ;
    “The said not confessing any of the matters or things alleged in the said bill to be true, for plea to the whole of the said bill, says, that he has not been served with process in this cause within the State of New Jersey nor at all; and that he is now and was at the time when this suit was begun a citizen and resident of the State of......................... and is not subject to service of process within the State of New Jersey.
    “And he pleads Article XIV, Sec. 1 of the Constitution of'the United States to the jurisdiction of this Court, and prays the judgment of this Court whether it has jurisdiction over him to require him to answer said bill, or to make against him any order or decree in this cause; and he prays to be hence dismissed with his costs.”

      Mr. Merritt Lane, for the complainants.

      Messrs. Hartshorne, Insley & Leake, for the pleading defendants.
   Garrison, V. C.

(after stating facts).

When the argument was held upon the bill and pleas many difficult and interesting questions were debated, and the court announced to counsel its views upon certain of those questions, with the result that an order was made allowing the pleas to stand with qualifications as stated in the court’s opinion. Upon the court’s own motion a rehearing was had upon the subject-matter, and after such rehearing, the court is convinced that, by reason of questions now for the first time raised and considered, the pleas, in their present form, cannot be allowed to stanc(.

A plea is in effect an answer which reduces the issue between the parties to a single point. The facts which produce this re-suit may be numerous, and are not for that reason necessarily inappropriate to be set up in a plea; but the effect of such facts must be to reduce the issue between the parties to a single point. All the facts necessary to sustain the defendant’s contention must be set forth in the plea, or it is bad in form. Dan. Ch. Pl. & Pr. (6th Am. ed.) 682, *683 et seq.

The pleas in this case are, in my view, bad in form. A plea, to be good, must set up facts which, if proven, constitute a complete defence, either to the whole bill or to so much of the bill as they purport to be an answer or defence to.

The only facts set up in this plea are that the pleading defendant has not been served with process in this cause within the State of New Jersey, nor at all; and that he is now, and was, at the time when this suit was begun, a citizen and resident of another state of the Union, and is not subject to the service of process within the State of New Jersey. I know of no principle .of law recognized in the State of New Jersey which exempts the citizens of any state of the Union from service of process within the State of New Jersey; and, therefore, it is certainly bad pleading for a defendant to set up as a bar to a suit in New Jersey that he is a resident of another state, and is not subject to service of process within the State of New Jersey. As a matter of law and of fact, he is subject to the service of process within the State of New Jersey whenever he may be found therein (subject to certain exceptions based upon his reason for being in the state, i. e., attendance at court, and the like). Nor is that part of the plea which sets up the fact that he has not.been served with process in this cause within the State of New Jersey, nor at all, a good plea, because it does not appear from anything in the plea that the complainant has yet sought to serve him with process within the State of New Jersey, or at all; and it does not, therefore, follow that, if and when the complainant' so seeks to obtain jurisdiction over the defendant, he may not, in the first place, serve him within the State of New Jersey; nor, in the second place, obtain service by some method of substituted service recognized as efficient by the courts of this state and of the federal government.

The omission to set up these facts, if any such exist which show how the complainants have sought to obtain jurisdiction over the defendant, is, in my view, fatal to the plea. To hold otherwise, would be to hold that any person named in a bill in chancery, as a defendant, could immediately, upon the bill being filed, come into this court with just such a plea as the one in hand and obtain a judgment in his favor, with costs, which would be a palpable absurdity; because, until the complainant has sought to get the defendant into court, it is true that the defendant has not been served with process in the State of New Jersey, nor at all; but that does not give him a right, because of that fact, to come into the court protesting that it has not jurisdiction over him until it has sought by some means or process to obtain jurisdiction over him.

Upon this view being suggested to the counsel for the pleading defendants at the time of the reargument before mentioned, their reply was that this court should look at the files and see— first, that there was no subpcena returned served upon the pleading defendants, and second, that there was an order of publication made herein. In my view, this would be entirely improper practice. The only things which the cqurt should look at upon bill and plea, are the bill and plea; and unless the facts which the defendants rely on as a bar are set up either in the bill or plea, they are not, in my view, properly before the court upon bill and plea.

I have not looked at the files, as suggested by the defendants’ counsel, that I should; but, for the purpose of illuminating my view, let us suppose that the files disclose that an order of publication has been issued and has. been served in some other state of the Union upon the defendants. If such a condition be found to exist, it seems clear 'to me that the defendants hav.e failed to raise the point or issue which they seek to raise. The point or issue which they seek to raise is that this particular.suit is one calling for a personal judgment against the defendants, and must be based upon a personal service upon the defendants within the State of New Jersey, and that a service under an order of publication, made outside of the State of New Jersey, is not such, service as, under the constitution of the United States, will support a personal judgment against the defendants.

It seems to me too clear to require further elucidation that the defendant must wait, in any ease, until there has been some attempt made by the court to exercise its jurisdiction over him by some form of process; and that when such an attempt has been made, and is, in his view, ineffective, he must, if this form of procedure is to be allowed at all, set forth in his plea the facts concerning the attempted bringing of him into the jurisdiction of the court by process and the reason why the same is ineffectual.

As I have just above pointed out, to hold otherwise would be to permit defendants to come in before the court had even attempted to obtain jurisdiction over their person by any form of process; and it is too clear to require argument that defendants have no such right. Their utmost nght to object that the court has not jurisdiction is to come in after there has been an attempt to obtain jurisdiction over them — not before. For all that appears on the face of this plea, no attempt at all has been made to obtain any jurisdiction over the pleading defendants; and they, like all other natural persons, are unquestionably amenable to the jurisdiction of our courts in transitory actions, if they are found, within the state and are not within the exceptions of the character noted above. In every other cáse of this character where pleas to the jurisdiction of the court have been interposed, and thejilea has been printed in the opinion, it will be found that the practice which I herein state to be the proper one has been followed. In each of those cases the plea sets out the means by which the complainant attempted to bring the defendant within the jurisdiction of the-court, and sets up facts or reasons why such attempted service or means of bringing the defendant within the jurisdiction of the court were ineffective. Puster v. Parker Mercantile Co. (Court of Errors and Appeals, 1905), 70 N. J. Eq. (4 Robb.) 771; Groel v. United Electric Co. (Vice-Chancellor Garrison, 1905), 70 N. J. Eq. (4 Robb.) 616; Ewald v. Ortynsky (Vice-Chancellor Garrison, 1910), 76 N. J. Eq. (6 Buch.) 291.

The result is that I shall hold the pleas bad, with leave, however, to the pleading defendants to apply for leave to Hie amended pleas.

I am aware that under the old English practice there are cases that hold that where a plea to the jurisdiction has been overruled, leave would not be given to again raise the question; but since the class of pleas that we are dealing with called pleas to the jurisdiction of this court were never known in England, and are entirely the product of our own practice in our own state, it is perhaps not proper to apply the same rules to them which obtain in the English court of chancery. In any event, I will entertain such an application and pass upon it, if made.

The order heretofore made herein allowing the pleas to stand will, of course, be vacated. The form of the order herein will be made upon notice.


text:
    Elizabeth Nichols v. Frank E. Older, et ux., et al.
    [Decided January 5th, 1911.]
    1. 3 Gen. Stat. 1895 p. 3372 § J/.15, contained in the Martin act relating to the collection of arrears of taxes and assessments, provides that any person having an estate in or mortgage on land sold for taxes, whose lien appears of record in the county, may redeem at any time within six months after notice of the sale. Section 422 provides that taxes hereafter levied which shall remain unpaid for three years may be collected in the same way as provided in the act as to old taxes, and that the tax deed shall have the same effect as if made to enforce such old taxes, but that the deed shall not be given till one year from the time of sale, during which time the owner or any person having an interest in or lien on the land, may redeem. — Held, that the provisions of section 415 as to notice are not changed by section 422, but apply to cases to which the act is extended by the latter section, so that only six months’ notice is required before the giving of a tax deed under section 422.
    2. A separate assessment for taxation and sale together of a number of lots is at most an irregularity, and unless within the proviso of the section, is cured by 3 Gen. Stat. 1895 p. 3381,} § 1/53, providing that upon the surrender of a certificate of sale for taxes and the proof of service ■of notice required; the proper officer shall, after six, months from the service of the notice, deliver to the purchaser at the sale a deed by which the purchaser shall take a good and sufficient title in fee-simple absolute, free of all encumbrances, of which the deed shall be presumptive evidence, and in any proceedings prosecuted or defended for possession of the property or in establishment or defence of the title under such deed, the title shall not fail by reason of any irregularity or formal defects in the procedure upon which the sale shall have been made, or by reason of any irregularity in enforcing the tax, provided the property sold was liable to the tax, and it does not appear that any substantial injury was done to the owner of the property by reason of the irregularity.
    3. Under Sales of Land act (S Gen. Stat. 1895 p. 2988 §§ Ilf, 15) providing that the recitals in deeds or declarations of sale made by public officers, authorized by law to make such sales, shall be taken prima fade as evidence of the truth of what is therein recited, and that the proceedings on which such deeds are founded shall not be subject to be questioned collaterally, but may be at any time reviewed by certiorari or other proper proceedings in the supreme court, or circuit court, a tax deed is conclusive evidence of title as against the objection that lots were assessed for taxation separately and sold together, unless the proceedings on which the deed is founded shall have been directly attacked and set aside.
    Heard on bill, answers, replications and proofs.

      Mr. Joseph A. Duffy, for the complainant.

      Messrs. Northrop & Griffiths, for the defendants Mary C. and Louis F. Bettcher, John and Rosa Levanto and John Pearson.
   Garrison, V. C.

This bill was originally filed by Elizabeth A. Nichols, who has since died, and Edith W. Weeks, her executrix, has been substituted as complainant.

The complainant is the holder of a mortgage covering certain lands in Jersey City. The purpose of the bill is to foreclose the mortgage, and the answering defendants are people who are the holders of tax deeds to portions of the land. In their answers they set up their deeds and thereby claim title free and clear of the mortgage. The questions involved are whether, under the Martin act, and the various other acts concerning taxes and sales therefor, and deeds given in pursuance of such sales, these defendants who hold such deeds are entitled to the lands free of the encumbrance of the mortgage, or whether their lands are still subject to such encumbrance.

On the 14th of July, 1899, Frank E. Older mortgaged lots 115, 116, 117 and 118, in block 90, and fifty feet of the rear of lots 177, 178, 179 and 180, in the same block, fronting on Sip avenue, to Ezra K. Sequine. So as to prevent confusion,- I will here state that the last two-named lots are not affected by any subsequent proceeding of which we need take any notice in determining the question arising under the tax title to be spoken of.

On the 1st of February, 1901, Sequine assigned this mortgage to Mary M. Dean, whose assignment was recorded on the 21st day of January, 1902. Dean subsequently died, and her executor, Seymour, on the 18th of April, 1904, assigned the mortgage to Elizabeth Nichols.

The mortgage is due for non-payment, and interest is claimed from its date.

On the 5th of September, 1901, lots 115 to 118, in block 90, inclusive, were sold at a tax sale by the city collector of Jersey City to Margaret Phelan for $40. Margaret Phelan, by an assignment endorsed upon the tax sale certificate, assigned her rights to William Anderson. Notices of this sale, in due form, were given, as the returns in the city records show, to Frank E. Older, the owner of the premises at the time, and to Ezra K. Sequine, who appeared upon the record at that time to be the owner of the mortgage above mentioned.

The notice to Older was dated October 2d, and was served on October 10th, 1901, and Sequine was served November 27th, 1901.

On the 1st day of October, 1902, the city collector gave a deed for the lots above mentioned to William Anderson..

The dispute between the parties arises over the effect to be given to this deed.

It is the contention of Levanto and Bettcher and Arnone, the purchasers from or through Anderson, that the effect of this deed was to cut off all interest in the premises theretofore held by Older and Sequine, or by anyone on account of the mortgage made by Older to Sequine, and to vest a fee-simple in Anderson, who conveyed to each of the parties respectively a fee-simple to the land described in their deeds. Their contention is that by the four hundred and fifteenth section, page 3372, of the General Statutes (the so-called Martin act), the six months’ notice required to be given thereby was given to the parties to whom it was required to be given, and that the deed thereafter made, being based upon notice to all of the parties shown by the record to be interested, barred all persons theretofore interested as owners or mortgagees, and vested title in the grantee in that deed, namely, Anderson.

The contention of Nichols, the last assignee of the mortgage, is that by section 422, page 3374, of the same act (which, among other things, provides that the deed shall not be given for the land until after the expiration of one year from the time of sale, during which time the owner, or any party having an interest in or lien upon the said land, may redeem the same), the intent of the legislature is shown to extend the period during which notice must be given to a year; or, if not that, then to change the previous provisions with regard to notice so as to require that notice shall be given to those persons, who, six months before the end of the year from the date of sale, are shown by the records to be interested.

I am assured by counsel on each side that there are no decided cases bearing upon the point in issue, and it is, therefore, one of first impression. I cannot see how any authorities which do not directly concern the construction of these sections will be helpful. The purpose of the legislature, which originated the Martin act, undoubtedly was to create a system for the collection of old taxes, and the idea of permitting the machinery thereby devised to be applied to what might be termed “current taxes” (those, namely, that were not more than three years old) was an afterthought.

In providing for the collection of such taxes by the means set forth in the Martin act in its previous sections, the legislature seems only to have made one change, and that is to extend the time within which the municipality could vest title in the purchaser by a deed from six months after notice to one year after the date of sale.

Under the machinery and provisions with respect to “old taxes” - after the sale, the purchaser, under section 415, page 3372, could give notice to those persons, who, by the records in the county, were shown to have ownership or mortgage interest, and six months after such notice was given, the municipality was required to give him a deed, if those persons had not, during those six months, taken the proper steps to redeem; and only persons to whom such notice had been given were invested with the right to redeem under said section 415.

Under section 422, however, the time within which the deed ■could be delivered was extended to one year after the date of sale. Nothing is said specifically about the length of notice; but the persons who might redeem within a year froih the date of sale are not only those to whom notice was given, but any person having any interest in or lien upon the lands.

I am of opinion that there is nothing specific enough in this section with respect to the matter of notice to change the specific provisions with respect to notice contained in the previous sections of the act — in other words, it is clearly provided in the previous sections that six months’ notice shall be given to the persons who are shown by the record to be the owners or holders of mortgage interests. Those sections are not changed by the section now being considered — 422.

The deed based upon notice is to have the same effect, this section says, as the deed based upon the notice given under the previous section 415. The time within which the deed may be delivered is extended — that is to say, it is provided that it must not be given within one year; it may be given, of course, exactly at the end of one year. My reading of the act is that for what we have termed “current taxes,” dealt with in section 422, all of the machinery provided with respect to “old taxes” in the matters of sale, notice and deed, are to remain the same — that is, the ■sale is to take place in the same way, purchasers are required to give a six months’ notice at any time after the sale to all those persons who by the records 'are shown to be owners of the land or holders of mortgage interests therein, and if those persons, within one year from the date of sale, do not redeem, or if anyone having any interest or lien in the land does not within one year-redeem, then, at the end of one year, the municipality is required to give a deed to the purchaser at the tax sale, and that deed has the same effect to cut off all persons to whom notice was given as is provided in section 415.

The result of this determination is that this mortgage, as represented now by the last assignee, the complainant, is cut off and debarred from exercising any rights by reason of the mortgage with respect to lots 115, 116, 117 and 118 in block 90.

The complainant next insists that the title conveyed by the deed of October 1st, 1902, from the city to Anderson, is invalid as against the complainant, because the city assessed these lots 115, 116, 117 and 118, Belvidere avenue, as it was then called— now Bryant street — separately, and sold them together.

It is conceded to be the law that this is an irregularity which, if called to the court’s attention by certiorari, will be set aside. Barkley v. Hand, 41 N. J. Law (12 Vr.) 517; Hasbrouck Heights Land Co. v. Lodi, 66 N. J. Law (37 Vr.) 102; Jones v. Landis, 50 N. J. Law (21 Vr.) 377.

The result of this will be to hold that the sale is invalid-and the deed subsequently given in pursuance thereof is invalid, unless, by other provisions of the act called the “Martin act,” this complainant may not raise this question; or if she does raise it, cannot succeed.

It is contended on behalf of the defendants that by section 2 of the act of April 8th, 1892 (Gen. Stat. p. 3387 466), no attack can be made upon their deed unless it is made within two years from its date. That section provides that

“No writ of certiorwri shall be allowed, and no action shall be brought, to contest or set aside any deed hereafter given pursuant to the provisions of the act of which this is a supplement * * * or to recover possession of the lands conveyed by such deed after the expiration of two years from the date of the execution of such deed.”

The defendants urge that if their deed is given force and efficiency, its effect is to bar the complainant from all right under her mortgage, and since in her bill she charges that her mortgage is prior in lien to their deed, and that their deed is subordinate and subject to her mortgage, she, the complainant, is necessarily contesting their deed. They argue that this action of foreclosure, which seeks to subordinate their deed to her mortgage, is ■therefore necessarily an action brought to contest or set aside their deed, and is therefore within the language of this section.

There is, of course, force in this contention; but since I do not find it necessary to rest my decision upon it, I will not attempt to settle the proper construction of this act in this proceeding.

A more apparent bar to the complainant’s rights under her mortgage exists by virtue of section 453 of the Martin act. Gen. Stat. p. 3384- That section, after providing that the certificate of sale shall contain certain covenants, goes on to provide that upon the surrender of the certificate of- sale and the proof of the service of the notice required, the proper officer, after the expiration of six months from the date of the service of the notice, shall deliver to the purchaser at the sale, or his assignee, a deed, and that by such deed the purchaser

“shall take a good and sufficient title to the property sold in fee-simple absolute, free of all encumbrances * * * of which the said deed shall be presumptive evidence in all courts and places, and in any proceedings or actions to be by such purchasers * * * taken, prosecuted 'or defended for the recovery of the possession of the property so sold as aforesaid or in'the establishment or defence of his or their title, shown as aforesaid by such deed, the title shall not fail, or be defeated by reason of any irregularity or formal defect in the procedure taken under this act, upon which the sale shall have been made or the title conveyed as aforesaid, or by reason of any illegality in fixing and adjusting the tax, assessment and lien to enforce which said sale was made or in the proceeding for collecting the same; provided the property sold was liable, at time such tax, assessment and lien was fixed and adjusted, to the imposition of a tax, assessment or lien in respect of the purposes for which such tax, assessment and lien was fixed and imposed, and it does not appear that any substantial injury was done to the owner of the property by reason of the irregular or illegal manner or method of fixing, imposing or collecting said tax, assessment and lien.” * * *

I presume that the matter of separate assessment and lump sale is, at most, an illegality in fixing the tax, or in the proceedings for the collection of the same, and the latter, I should say, undoubtedly, because there does not seem to be any complaint against the regularity or legality of imposing the separate assessment — the complaint seems to be against collecting separate assessments of property owned by the same owner by a lump sale. Such illegality in the proceedings for collecting this tax is within the language of section 453, and is cured unless there is something in the proviso which alters the previous portion of the section.

Taking up the proviso: The property; so far as appears, was liable, at the time, to the tax; and it does not appear that any substantial injury was done to the owner of the property by reason of the “irregular or illegal manner or method of fixing, imposing or collecting said tax.”

There is not the slightest proof before me of any injury, substantial or otherwise, that was done to the owner of the property by reason of this method of sale. It is argued by the mortgagee— first, that she is an owner within the meaning of this act, and second, thát she was injured by having these four lots sold in a lump. I doubt very much whether in this act, where'the two classes of interests are always spoken of separately, a mortgagee could properly be held to be an owner. I think it will be found in every section of the act where the two classes of interest are mentioned, one class is termed “the owner,” and the other class is termed “the mortgagee.” However, even assuming that she is within the term “owner,” it does not appear that any substantial injury was done to her by reason of this method of sale. It does not appear that exactly the same result would not have ensued as to her if these lots had been knocked down separately to purchasers instead of all being knocked down to one purchaser in one lump sale.

If, however, I am wrong in my interpretation of this section of the act, or of the proper application of it to the facts of this case, and it should be held that this complainant was within the proviso, and had shown substantial injury, there is another statute which has been interpreted and which seems to apply exactly to the case at bar, and be determinative of the issue against the complainant. Sections 14 and 15 of the Sale of Land act (Gen. Skat. ¶. 2982) provide that the recitals in deeds or declarations of sale made by public officers authorized by law to make such sales, shall be taken prima facie as evidence of the truth of what is therein recited, and that

“the proceedings upon which such deeds, declarations of sale, and conveyances, are founded shall not be subject to be. questioned collaterally, but may be at any time reviewed by certiorari or other proper proceeding in the supreme court or circuit courts.”

In the foot-note in the General Statutes there will be found cited many cases dealing with these sections, and the propriety of their application to the case in hand will be demonstrated by reference to Doremus v. Cameron (Chancellor McGill, 1891), 49 N. J. Eq. (4 Dick.) 1. On page 9, the chancellor, after citing the cases which set forth the familiar principle that the power to sell for non-payment of a tax must be strictly pursued or the sale will be void, and that the party claiming under such a deed must, unless the rule is varied by legislative enactment, show that every prerequisite of the exercise of the power has been complied with, cites this statute as showing how our legislature has varied the familiar rule, and construes that statute as providing that the deeds made by such public officers are conclusive as to the transmission of title until the proceedings upon which they are founded shall have been directly attacked and set aside.

Applying the law, therefore, to the facts in the case at bar, I hold that the complainant may not enforce her mortgage against those defendants who hold the tax deeds, and that as to them the bill must be dismissed; as to the other lands covered, which are not affected by the tax sales, there should be a decree for the complainant for such amount as is due upon the mortgage for debt, interest and costs.


author: Leaming, V. C.

text:
    Imperial Realty Company v. West Jersey and Seashore Railroad Company.
    [Submitted September 10th, 1910.
    Decided October 19th, 1910.]
    1. The mere fact that complainant’s right to an easement of passage, for which he seeks protection by injunction, is denied in the answer, will not require its establishment at law, where the undisputed facts under well-settled legal rules show that his right of way exists.
    2. A deed conveying a lot, which describes it as extending in depth to an alley, and gives the rear course of the lot as running along the alley, implies that the lot has as appurtenant to it a way to and from it, and vests in the grantee, as against the grantor and his privies, the right to the use of such way.
    3. In an action to enjoin the obstruction of a right of way through an alley to the public street by the owner of an interior lot bounding on the rear on the alley, a deed by the common grantor of complainant’s lot and the adjoining lot between it and the street, containing a similar reference to the alley, was admissible in evidence to show that the alley extended along both lots to the public street.
    4. Where deeds of record show that provisions were made for easements in an alley, and an examination would have shown the alley in actual use, the subsequent purchaser of adjacent property is charged with notice of such easement.
    On bill for injunction. On final hearing.

      Messrs. Thompson & Cole, for the complainant.

      Mr. George A. Bourgeois, for the defendant.
   Leaming, V. C.

It is well settled that when the fundamental right on which a complainant prays equitable relief is the legal title to an easement in lands of a defendant, and that right is in substantial dispute, the establishment of the right at law is necessary to justify a court of equity in granting the relief sought. Todd v. Staats, 60 N. J. Eq. (15 Dick.) 507. But where the legal right, though formally disputed, is yet clear on facts which are not denied and legal rules which are well settled, such relief may be granted. Hart v. Leonard, 42 N. J. Eq. (15 Stew.) 416. In the present case there is’ no substantial dispute touching the existence of a right of way in favor of complainant over the land of defendant. The answer denies the existence of such a right of way; but the undisputed facts are such that it is entirely apparent that, under the well-settled rules of law, the right of way clearly exists. -In such case a court of equity should exercise jurisdiction to the same extent as though the existence of the right was not denied or had been established by an action at law.

The conveyance of May 1st, 1865, from Henry E. Felix to Sarah Hagan, which described the lot conveyed as extending in depth to an alley and described the rear course of the lot as running along that alley, implied that the land sold had, as an appurtenant, a way to and from it, and was operative to vest in the grantee, as against the grantor and his privies, the right to the use of such way. Seibert v. Graff, 38 Atl. Rep. 970; White v. Tide Water Company, 50 N. J. Eq. (5 Dick.) 1; Booream v. North Hudson County Railway Co., 40 N. J. Eq. (13 Stew.) 557. The deed made by the same grantor on the same day to James Bradley and John Bradley for the lot between the lot conveyed to Hagan and New York avenue contains a similar reference to an alley; this deed may be properly considered in connection with the Hagan deed and the testimony in disclosing that the alley referred to extended along the rear of the two lots to New York avenue.

Defendant purchased from the grantee of Felix, December 20th, 1879. The testimony clearly discloses that at that date the alley in question was in open use as such as a means of access with teams to and from the Hagan lot, as well as to and from other lots. At the time of defendant’s purchase a proper examination of the record would have disclosed the deed from Eelix to Hagan and the deed from Eelix to James and John Bradley, both calling for the alley as a rear boundary, and an examination of the premises would have disclosed the alley in actual use for teams to and from the Hagan lot as well as other lots. Under these circumstances defendant was clearly charged with notice.

The only doubt which I entertain is with reference to the distance, in width, in which the alley extends from the rear of the-Atlantic avenue lots in a northerly direction. Complainant is clearly entitled to relief against the present interference with.the use of the alley as a means of ingress and egress to and from its properly, for the fence erected by defendant wholly closes the alley; but care must be exercised that the relief here granted does not extend to land beyond the northerly boundary line of the alley. That boundary line has not been defined. The depth of the lot westerly of complainant’s lot, which lot creates the blind end of the alley in question, indicates that the width of the alley may originally have been ten feet; at the date of the -purchase by defendant, as well as since that date, the alley was in use to at least that width; under no theory could the alley have been less than that width. Under these undisputed conditions complainant is clearly entitled to an injunction restraining defendant, from obstructing complainant’s passage to and from its property along a strip of land ten feet in width, with its southerly boundary along the rear line of complainant’s lot and the rear line of the original lot between complainant’s lot and New York avenue.


text:
    Michael Nowak et al. v. Ernestina Baier et al.
    [Heard October 10th. 1910.
    Determined October 14th, 1910.]
    1. A business may become a nuisance, where it is not conducted with due regard to the rights of surrounding property owners, and renders-the enjoyment of their property impossible.

      2. An injunction to restrain a lawful business as a nuisance should not be granted, unless the conduct of the business invades a clear legal ri&ht of another, resulting in serious and permanent injury, which cannot be adequately compensated at law, and the granting of such relief will not inflict more serious injury upon defendant than its refusal will cause complainant.
    3. Where the evidence leaves it at least doubtful whether complainant will suffer irreparable injury from the conduct of defendant’s business, a preliminary injunction restraining the continuance of the business will be refused.
    On bill, &c., for injunction. Hearing at return of order to show canse.

      Messrs. Stackhouse & Kramer, for the complainants.

      Mr. Ralph W. E. Donges, for the defendants.
   Leaming, V. C.

The decisions of the courts of this state have so clearly defined the relative rights and duties of householders and manufacturers that a mere citation of a few of the cases seems adequate for present purposes. In general it may be said that while a person is entitled to the enjoyment of his property in the lawful pursuit of a business, that business must be conducted with due regard to the well-recognized rights of surrounding property owners; when such business becomes creative of conditions which clearly render the appropriate enjoyment of surrounding properties impossible, the rights of others are invaded. The following decisions of the courts of this state define the application of this rule with clearness: Ross v. Butler, 19 N. J. Eq. (4 C. E. Gr.) 294; Cleveland v. Citizens Gas Light Company, 20 N. J. Eq. (5 C. E. Gr.) 201; Meigs v. Lister, 23 N. J. Eq. (8 C. E. Gr.) 199; First Methodist Church of Cape May v. Cape May Grain Company, 73 N. J. Eq. (3 Buch.) 257; Seligman v. Victor Talking Machine Co., 71 N. J. Eq. (1 Buch.) 697; affirmed, 72 N. J. Eq. (2 Buch.) 946.

The right to equitable relief is defined by Vice Chancellor Van Fleet in Demarest v. Hardham, 34 N. J. Eq. (7 Stew.) 469, 475, as follows:

“The principle to lie deduced from the authorities I understand to be this: that an injunction to restrain a lawful business, on the ground that it is so conducted as to render it a nuisance, should never be granted, except the complainant shows an invasion of a clear legal right, resulting in permanent and serious injury, which cannot be adequately redressed by action at law, and that the allowance of the writ will not inflict upon the defendant a more serious injury than the complainant will sustain if the writ is denied and he be left to his ordinary legal remedy. Equity takes cognizance of a nuisance which is permanent in its character, or which produces a constantly recurring grievance, more readily than any other.”

The affidavits filed in behalf of defendant in this case render it at least doubtful whether complainant can be said to suffer irreparable injury from the acts of defendant; under these conditions a preliminary injunction must be denied.

I will advise an order discharging the order to show cause. Costs may abide the event at final hearing.


text:
    William R. Page v. Asbury Methodist Episcopal Church.
    [Submitted November 21st. 1910.
    Decided December 2d, 1910.]
    1. The act for the incorporation of trustees of religious societies is not an act for the incorporation of the societies, but for the incorporation of such trustees, to the end that corporations thus formed may hold the property and funds of the societies in trust.
    2. Where the trustees of a religious society have been incorporated, the corporation so formed become? a simple trustee of the society’s funds and property with powers to be exercised subject to the direction of the society, and the society becomes the cestui que trust with both jus liabendi and jus disponendi.

      3. The maimer in which a religious society as cestui que trust may appropriately exercise its power of directing its trustees in the acquisition or sale of church property depends upon the established rules and regulations of the particular society.
    4. Where a mortgage of church property has been executed by the society’s incorporated trustees with the usual forms of a corporation mortgage, signed by the president, and attested by the secretary, whose affidavit, taken by a master in chancery, • sets forth that the mortgage was executed pursuant to a resolution of the board of directors, there is a prima facie presumption that the mortgage was executed by authority of the board of trustees, and the mortgagor, seeking to resist foreclosure, has the burden of establishing the contrary.
    5. Tinder a bill to foreclose a mortgage against a religious society, evidence held to show that the mortgage was the voluntary act of the incorporated trustees of the society.
    6. The complainant conveyed property to the defendant religious society, and took a mortgage upon other property of the society then used as a place of worship. After the conveyance to it and the mortgage to complainant, the society enjoyed the exclusive possession and benefit of the property conveyed to it by complainant, collecting rents and applying them to its own uses, paying off the taxes and interest on mortgages -outstanding when the property was conveyed, making repairs and constructing a building on the property used as a place of worship, and about two months after the mortgage to complainant empowered the trustees •of the society, by a unanimous vote in conference, to mortgage any of its property to secure a valid title to the property purchased. — Held, that, though there was no evidence of a previous authority to the trustees to execute the mortgage, the conduct and acts of the society showed a ratification of the mortgage executed by the trustees to complainant, the ratification, there being no intervening rights, relating back to the date when the mortgage was executed.
    On bill to foreclose mortgage. Heard on bill, answer, replication and proofs.

      Messrs. Bolte & Sooy, for the complainant.

      Mr. John J. Crandall, for the defendant.
   Leaming, V. C.

It is well settled in this state that the act for the incorporation of trustees of religious societies is not an act for the incorporation of the-religious societies, but is an act for the incorporation of the trustees of such societies to the end that the corporations thus formed may hold the temporalities of such religious societies in trust. The corporation thus becomes a trustee of the church property and the religious society the cestui que trust. The trust under which such an incorporated board of trustees holds is held to be essentially a simple trust in which the corporation trustee holds as a mere depositary of property, while the religious society, as cestui que trust, has both the jus habendi and jus disponendi. The corporation trustee is thus constituted a mere agency or medium through which property of the society may be acquired or transmitted by succession or by sale, and the power of purchase and sale given by the statute to the corporation trustee is a power for that purpose only, and is, in consequence, a power to be exercised only subject to the direction of the religious society as cestui que trust. The manner in which a religious society, as cestui que trust, may appropriately exercise the power of directing its trustee in the acquisition or sale of church property depends upon the established rules and regulations of the particular society. In Morgan v. Rose, 22 N. J. Eq. (7 C. E. Gr.) 583, 588, it is stated that whether the power to give such direction resides in the whole congregation, or in particular members, or in special officials, depends, in each instance, on the established usages or express regulations of the individual congregation or of that wider ecclesiastical organization of which such congregation is a branch. The foregoing views touching the limited character of the trust under which church property is held by trustees incorporated under the act referred to, are fully defined in Morgan v. Rose, supra, and have been followed in Worrell v. Presbyterian Church, 23 N. J. Eq. (8 C. E. Gr.) 96, and Everett v. First Presbyterian Church, 53 N. J. Eq. (8 Dick.) 500.

The mortgage which is now sought to be foreclosed has been executed with the usual form and solemnity of a corporation mortgage. The name of the corporation is signed by its president and the seal of the corporation by him affixed and attested by the secretary. The execution of the mortgage is duly proved by an affidavit of the secretary endorsed thereon by a master in chancery, which affidavit sets forth, among other things, that it was executed pursuant to a resolution of the board of directors. This raises a prima facie presumption that the mortgage was executed by authority of the board, and casts upon defendant the burden of establishing the contrary. Leggett v. New Jersey Manufacturing and Banking Co., 1 N. J. Eq. (Saxt.) 541, 550; Manhattan Manufacturing Co. v. N. J. Stock Yard Co., 23 N. J. Eq. (8 C. E. Gr.) 161; In re West Jersey Traction Co., 59 N. J. Eq. (14 Dick.) 63, 64; Reed v. Helois Carbide Specialty Co., 64. N. J. Eq. (19 Dick.) 231, 238; Earle v. National Metallurgic Co., 76 Atl. Rep. 555, 556. The minute book of the trustees contains a resolution specifically authorizing the execution of the mortgage in question. Evidence was introduced tending to show that this resolution was not passed by the board with the formalities which are appropriately attendant upon official actions of a board; but I think it plain that the evidence, both presumptive and direct, to the effect that the trustees authorized the execution of the mortgage in question has not been overcome. The mortgage must therefore be treated as the voluntary act of the corporation trustee.

As already stated, the power to execute the mortgage resided in the statutory trustee; the power to authorize the trustee to exercise its power resided in the cestui que trust. The answer sets forth the provisions of 326 of the church discipline to the effect that the trustees shall in no case mortgage or encumber' church property for the current expenses of the year, and also section 335 of the discipline relating to necessary assent of the quarterly conference in certain cases, and avers that the church was not indebted to complainant for current expenses and that no application was made to the quarterly conference to obtain leave to make the mortgage, and that no proceedings were ever-had to authorize or empower any person or agency to encumber the church property.

The important inquiry is, therefore, whether the religious society, as cestui que trust, authorized the corporation trustees to execute' the mortgage now sought to be foreclosed.

No provisions of the discipline or rules or customs of the church have been brought to my attention which in any way restrict or limit the manner in which the society shall exercise its authorization to the trustees, except the two provisions of the . discipline referred to in the answer. The former is inapplicable, because the mortgage in question was not executed for current expenses of the church. By the latter provision there is delegated to the quarterly conference certain powers which are apparently designed to bestow upon that body the power to give or withhold its consent to the sale of church property.'

The mortgage in question arose as follows: Complainant conveyed to the church society a lot of land known as 1713 Arctic avenue for a consideration of $8,000, on which mortgages existed to the amount of $7,088. Of the $912 which was thus due to complainant, $212 was paid in cash and the balance of $700 was secured by the mortgage in question. The mortgage does not cover the property which was conveyed to the church, but is on other property then occupied by the church as its place of worship.

No evidence exists of any authorization of this transaction having been given by the church society to the trustees prior to the execution of the mortgage. If the mortgage is to be sustained it must be because of its subsequent ratification by those who were capable of giving a prior authorization.

The mortgage was given December 12th, 1908. The property which was conveyed to the society as the consideration of the mortgage has since been in its possession, through its trustees, and the society has thus enjoyed its exclusive possession and benefits. The rents have been collected from tenants occupying a building on the property and applied to church uses; taxes and interest on the mortgage, which were outstanding against the property when conveyed, have been paid from the church funds and repairs have been made. A tabernacle has been erected on the rear of the property and has been used and is being used by the church as a place of worship.

It thus appears that the property which formed the consideration of this mortgage was obtained by the trustees for the use of the society, and the society has since that time enjoyed the entire use and benefit of it. At a meeting of the quarterly conference held February 1st, 1909, about two months after the mortgage was executed, the following resolution was unanimously adopted:

“On motion it was unanimously ordered that the trustee board be empowered to sell, mortgage or exchange any or all of the property owned by Asbury M. B. Church so as to secure a valid title to the property 1713 Arctic Ave. for the use and benefit of Asbury M. E. Church, Atlantic City, N. J.”

This minute also discloses that the district superintendent and pastor were present; the vote, if unanimous as stated, necessarily-included their assent.

Under the evidence adduced I am unable to doubt the sufficiency of the ratification of the act of the trustees in executing the mortgage in question; and, as there are no intervening-rights, the ratification inures to the date of the act ratified. The resolution of the quarterly conference was undoubtedly an unskillful attempt at express ratification and should be given whatever force could have existed in an original authorization. So far as the society is concerned its conduct equally manifests a ratification, for it is impossible to contemplate the society in the enjoyment of the very consideration of the mortgage as a place of worship without an approval of the act of the trustees in supplying it. It must be borne in mind that the defence is not based upon want of power of the trustees to execute a mortgage, but it is in substance want of consent upon the part of those in interest for the trustees to exercise the power; that consent has, in my judgment, been sufficiently given.

The case of Scott v. Methodist Church of Jackson, 50 Mich. 528, is in point. In that case, under an assumption that the statute required that before a mortgage could be executed by the trustees, the voting members of the church should by a two-thirds vote, at a meeting called for the purpose, vote to authorize the execution of the mortgage, the court held a mortgage given by the trustees without such preliminary vote of the church members, would be sustained as ratified by the church membership by acts of recognition or acquiescence or acts inconsistent with repudiation or disapproval.

I will advise a-decree for complainant for the amount due on his mortgage.