text:
    Anna Cannon v. The Farmers’ Mutual Fire Association of Warren County, N. J.
    [Filed April 25th, 1899.]
    1. Though the by-laws of a mutual insurance company contemplate assignments of policies in writing, and the policies provide that assignments shall be in accordance with the by-laws, an assignment not in writing will carry the equitable title to a policy.
    2. Under a by-law of a mutual insurance company, attached to a policy,, authorizing the directors to receive as a member an assignee thereof on his-giving a new note, no acts or declarations of theirs tending to create a membership without his giving such note can operate as an estoppel against the company.
    3. The acts and declarations of the officei-s of a mutual company made after loss in course of adjustment, recognizing membership of insured in the company, do not estop the company to assert he never was a member, he not having recognized any liability as a member, nor relied on such conduct as the-basis of subsequent action.
    On demurrer to amended bill.

      Mr. William H. Morrow, for demurrant.

      Mr. George M. Shipman, for complainant.
   Emery, V. C.

The complainant files her bill to recover from the defendant, a mutual insurance company, the loss sustained in the destruction by fire of buildings insured by a policy originally issued by the defendant to one Nancy Á. Dill, and which were owned by complainant at the time of the fire.

The right to recover for the loss in equity is based upon the general claim that the complainant cannot recover at law upon the policy, because the assignment to her was not made pursuant to the by-laws, which were made part of the policy, and is equitable only, and that upon the facts alleged in the bill and amended bill, the defendant is'estopped in equity from denying complainant’s right to recover under the assignment or as a member of the company, A demurrer to the original bill was sustained with leave to complainant to amend, and the amendments filed in some respects contradict or qualify the statements in the original bill, so that the entire case of complainant is somewhat informally presented, but, construing the pleadings in the most favorable aspect allowed for complainant, her case is substantially as follows:

On September 14th, 1898, defendant issued to Nancy A. Dill, then the owner of the premises and buildings in question, a policy, which is set out in the bill in full, insuring the buildings for $4,000 for ten years. This policy was issued to Dill as a member of the association, and recites, among other things, her membership, the deposit with the treasurer of her note for $200, with security, and the payment of the percentage on insurance, as the consideration of* the insurance, and that the insurance is made on the terms mentioned in the company’s act of incorporation passed March 22d, 1860, and under and subject to the by-laws, rules and regulations of the company annexed to the policy, ’which are to enter into and form part of the contract of insurance. The by-laws are annexed to the policy and set out in the bill, but the provisions of the charter, which is a private act, are not set out in the bill. The policy itself also contains this provision in reference to assignments: “Any assignment or transfer of said policy shall render it null and void against said company unless assigned according to the by-laws and regulations of said company hereto annexed.” On April 1st, 1892, Nancy A. Dill sold and conveyed the premises to George Marlatt and Wakely J. Marlatt, and also assigned the policy to these purchasers by written assignment dated April 11th, 1892. Part of the purchase-money — $5,000—was secured by a bond and mortgage on the premises, and the purchasers, by a written assignment dated April 12th, 1892, assigned the policy to Nancy A. Dili, the mortgagee, “as collateral security” on this bond and mortgage. Both of these assignments were approved in writing on April 15th, 1892, by Lewis Merreli, the secretary of the company. The bill also alleges that both of these assignments were approved by the company and that they were made in accordance with the by-laws. In reference to the assignments of policies, the by-laws attached to the policy provide as follows:

“Art. 7. Policies assigned as collateral security or transferred by sale may be forwarded by the surveyor to the secretary for approval and entering on the record, and where transferred by sale the surveyor shall take a new note from the assignee or purchaser, with approved security of same amount as note first given, and forward with policy; and the surveyor shall also collect the fee for approving transfer and forward to secretary with policy and new note, and shall be entitled to not less than fifty cents for his services, to bo paid by the assignee or party sending such policy for transfer.
“Art. 24. Should any building insured in this company be sold, the purchaser thereof may be received, by consent of the board of directors, as a member of this company, in case the policy on said building be duly assigned to him and notice of such assignment be given to the secretary within'thirty days next after such sale and transfer, the assignee giving new note and security to the satisfaction of the directors.”

Whether the Marlatts gave a new note as required by the bylaws does not specially appear, but the general allegation of the bill, that the assignments to the Marlatts were made as required by the by-láws, is sufficient basis for holding (on demurrer) that the note of the Marlatts was given, and that they were received as members of the company in the place of Nancy Dill, and that at the time of the subsequent transactions set out in the bill and which gave rise to the present dispute, the Marlatts were insured under, the policy as owners of the property and as members of the company succeeding to Mrs. Dill, and that Mrs. Dill was insured as mortgagee, holding the policy as collateral security for payment of the bond of the Marlatts. The bill and amended bill now further show that on July 23d, 1896, the Marlatts sold the property to the complainant, by deed then delivered, and the Marlatts agreed on,that day that the policy of insurance (which was in Mrs. Dill’s possession) should be assigned to complainant. Complainant, with the Marlatts, went to Mrs. Dill’s on the same day to recover the policy,” and complainant then paid to Mrs. Dill the amount due on the bond and mortgage, and after the payment Mrs. Dill delivered the mortgage to complainant, with the seals torn off and satisfaction endorsed upon it. She also then delivered to complainant the policy, not, however, making any, written assignment of it. The policy in this condition was then taken by complainant (or on her behalf) to John R. Carr, the president of the company, who was then informed that complainant had purchased the property, that she had paid off the Dill mortgage and owned the policy, and inquiry was made whether a new policy would be necessary or whether the old one would do, and what assignments were necessary by the Marlatts or Mrs. Dill. Carr informed complainant that a new policy was not necessary, but that the policy must be sent to Merrell, the secretary, in order that he (Merrell) might make the necessary assignments “ to transfer the title of said policy to complainant,” and Carr took the policy to transmit to the secretary for assignment, assuring complainant that her interest would -be protected and her property would be perfectly safe from that time. On inquiry made of Carr about a week later on complainant’s behalf, Carr said the policy had not been received from Merrell, and the complainant’s representative then made an unsuccessful effort to find Merrell. Subsequent to the first interview with Carr, the president, and on July 31st, 1896, as appears by the amended bill, complainant had the mortgage canceled of record and on this day the secretary, Merrell, was informed of complainant’s purchase of the farm from the Marlatts; that she was the owner of the property and had paid off and canceled of record the Dill mortgage, and wished to obtain the insurance policy and have a proper assignment and transfer of the policy made to her, or to have a new policy, if that was necessary, and informed him that the president said that a new policy was not necessary. The original bill alleges that on the same day the policy was delivered to complainant by Mrs. Dill, the latter executed an assignment thereof to the complainant which had been previously prepared by the secretary of the company, and that the assignment and policy were both handed over to the secretary and the company was informed that complainant was the owner of said mortgage and that she was the owner of the property upon which the mortgage was a lien, and that several days afterwards the policy was delivered back with the assignment from Mrs. Dill to complainant attached and approved by the company. According to this statement of her rights, complainant represented to Merrell that she was the owner both of the mortgage and the property, saying nothing of the cancellation of the mortgage, while in the amended bill the allegation is made that before the return of the assignment of the policy approved, she had informed the secretary that she had canceled the mortgage. Assuming for the present purposes that the rights as shown in the amended bill are to control, it does not appear that complainant, in stating to Merrell that Carr, the president, had said a new policy was not necessary, also informed him that the cancellation of the mortgage was made (as appears by the amended bill) after the first interview with Carr. The secretary, according to the amended bill, having been informed that the mortgage was paid off and canceled by complainant, told complainant’s messenger that he knew complainant was the owner of the property, that the old policy was the only one necessary, and that he would make a legal and proper assignment and transfer of the policy; that the company would protect the interests of the complainant, and he then made on the books of the company an entry of the sale, and informed complainant’s representative that complainant “ would be received as a member of the company in place of the said George and Wakely Marlatt,_and that the board of directors consented thereto.” The secretary, at the same time, asked complainant’s address in order that he might send notice of assessments, which address was then written down by the secretary, and he then said the assignment had not been prepared because of Mrs. Dill’s absence and that as soon as the assignment was perfected he would send the policy to complainant, and that the rights of complainant would be protected and if there was any loss by fire she would be paid.

Two weeks later the secretary sent to the complainant by mail the old insurance policy, with an assignment thereof in writing by Nancy A. Dill, attached to the policy, dated August 14th, 1896, transferring and setting over to complainant and her assigns all her right, title and interest in the policy and all benefi s to be derived therefrom, as collateral security on a bond. This assignment was approved on the same date by Merrell as secretary of the company. No written assignment by the Marlatts appears to have been executed. The original bill further alleges

“ that the company accepted complainant as a member of said company, in the place of the said Nancy A. Dill and of the said George Marlatt and Wakely J. Marlatt, and that the consent of the board of directors was given that complainant should become a member of said company.”

Complainant accepted the policy with the assignment as approved by the secretary, believing that her property was insured by the company. The buildings insured were destroyed by fire on February 2d, 1897, about five months after complainant’s receipt of the policy, with a loss as complainant claimed of $2,075, for which she duly presented her claim to the company. The president and secretary of the company with a director visited the premises after the fire, and the secretary in the presence of the president and director then told complainant that her policy was good on the other buildings' insured, and that her loss would be paid. These officers then offered $1,400 in settlement which complainant afterwards refused, and subsequently a committee of the board appointed to adjust her loss, offered a less sum ($1,600), which complainant also refused to accept, and about March 11th, 1897, complainant received a letter from the secretary, bearing that date, offering $1,600, as authorized by the company, as a cash settlement, and if this offer was not acceptable complainant was requested to consider the letter a notice under article 17 of the policy, that the company would rebuild. A decision was requested by the 16th, in time for the meeting of the directors on the 17th. About March 24th complainant met the committee of the directors for the purpose of adjustment, the directors endeavoring to induce complainant to take the sum offered ($1,600) and notified her that unless she accepted that the company would rebuild. After complainant’s refusal to accept this offer (whether at the same meeting or subsequent to a subsequent demand by complainant that the company proceed to rebuild, is somewhat uncertain), the. directors notified complainant that the policy was null and void, and this was the first claim or intimation received by complainant of any defect in the policy.

Complainant in her amended bill admits a failure to comply with the by-laws attached to the policy in two respects, first, a failure to procure a written assignment from the Marlatts of their interest in the policy, and second, the failure to give a new premium note, in order to be insured as a member of the company, on the purchase from the Marlatts. The facts as disclosed in the bill and- amended bill are, however, relied on as estopping the company in a court of equity from setting up these ■failures tocomply with the by-laws, as a defence to the policy, and a decree is asked declaring that complainant is a member of the company, insured under the policy and for a payment of the loss sustained.

Several grounds of demurrer are specified, the two which go to the whole merits of the bill being the failure of complainant to show a written assignment from the Marlatts and her failure to give a new premium note, with security. It is claimed on the part of the defendant that both of these requirements were, by the terms of the policy itself, conditions precedent to the complainant’s right to become a member on purchase of insured property; that these conditions were, by the policy itself, imposed by the company upon the directors and officers of the company as well as upon the purchaser, and that the company, therefore, cannot itself be estopped from availing itself "of the failure to comply with these conditions precedent, by reason of acts or declarations of officers or directors, set up in the bill.

As to the first of these objections, the necessity of a written-assignment from the Marlatts, in order to become a member on alienation, this failure will not bar a recovery in equity. Under the by-laws, which contemplate a written assignment, the legal title in an assignee of the policy can be perfected only by a writing, but there was an equitable assignment of the policy by the Marlatts to complainant, created by the delivery of the policy, by Mrs. Dill to complainant, by the direction of the Marlatts, with an agreement on their part to execute an assignment. So far as complainant’s rights depend upon the form of an assignment from the Marlatts, she has an equitable title only, and is upon that basis entitled to proceed in equity for relief. Combs v. Shrewsbury, &c., Insurance Co., 5 Stew. Eq. 512 (Chancellor Runyon, 1880).

The serious question in the case is the second ground of demurrer referred to, viz., that the company in equity is not estopped by the acts of its officers or directors which are set out in the bill from setting up the failure of complainant to give a new note without security, as a bar to relief, under the policy and by-laws. This is not a stock company but a mutual company, in which the premium notes constitute the basis of the security of policyholders, and the provisions of the charter and by-laws in reference to these notes and membership as based thereon, must therefore be considered fundamental. Alienation, by an original member, of property insured in a mutual company does not necessarily discharge him from his liability on his note for subsequent losses, for the directors may, under some charters, accept the new member, retaining the note of the original member as security. Durar v. Insurance Co., 4 Zab. 193. Whether the provisions of the by-laws .now in question, which require a new note to be given, unreasonably or unlawfully restrict the powers which the directors might have, under the charter of the company to receive members upon alienation, upon the security of the original note, is not a question in the case. In the first place the charter has not been set out, and, as it is not a public act, it cannot be judicially noticed. Black v. Delaware and Raritan Canal Co., 9 C. E. Gr. 455, 480 (Errors and Appeals, 1873) And in the second place complainant’s present equitable case is based upon her acceptance of the policy which contained these by-laws and on their validity. The membe s of the company in this case by the policy under which complainant claims fixed the conditions of a purchaser of insured property, becoming a member in a manner which was not only a notice to the purchaser, but also a restriction on the power of the directors. “ The purchaser may be received by consent of the board of directors as a member of the company, the assignee giving new note and security to the satisfaction of the directors.” These by-laws as to the giving of a new note, restrict the powers of the directors, and it is not within their power to bind the company by a waiver of them upon an application for membership. Upon this point of waiving fundamental conditions of the charter or by-laws, relating to the acts which constitute membership, the. case is controlled by the decision in Belleville Mutual Insurance Co. v. Van Winkle, 1 Beas. 333, 342 (Errors and Appeals, 1858). This case holds that in reference to mutual companies, where the validity of the policy depends upon membership, the conditions as to membership (such as giving premium notes) which are imposed by the charter and by-laws, cannot be dispensed with, nor has any purchaser of property the right to rely on assurances that they have been or may be dispensed with. The same principle is asserted by Chief-Justice Shaw in Fogg v. Insurance Co., 10 Cush. 337. It is claimed, however, by complainant’s counsel, that even if it be admitted that neither directors nor officers have, as between them and the company, the right to waive the giving of a new note, still the company may be held liable where no new note has been given, if the circumstances show that the directors have failed to act in good faith toward the complainant, and that by their fault she was prevented from giving the new note. This is the rule applied by Mr. Justice Elmer, court of errors aud appeals, in the decision of the above case, which was one where the provision of the charter relied on as a defence (the delivery of a premium note before membership) was not known to the claimant, and the same principle was applied in the later case of Miller v. Hillsborough Insurance Co., 17 Stew. Eq. 224, 227, where the company was estopped from availing itself of a bylaw which was not contained in a copy of the by-laws annexed to the policy and was not known to the assignee. Mr. Justice Potts, however, in Belleville Insurance Co. v. Van Winkle, 1 Beas. 346, puts the decision solely upon the ground that the provisions of the charter as to membership cannot be dispensed with. Where the applicant for insurance or assignee has notice in the policy itself of an express limitation of the powers of the officers of a company, either by its charter, by-laws or the policy itself, the general rule is that no waiver against the company in reference to the acts forbidden, can arise from the acts of these agents themselves, whose powers are thus limited, in attempting to waive the express provisions of the charter, by-laws or policy. Catoir v. American Life Insurance Co., 4 Vr. 487 (Errors and Appeals, 1868); McClave v. Mutual Reserve Fund Association, 26 Vr. 187 (Supreme Court, 1893), and cases cited in Redstrake v. Cumberland Insurance Co., 15 Vr. 302.

As was said in Catoir v. American Life Insurance Co., 4 Vr. 491, the insured by accepting a policy expressly limiting the powers of agents, is estopped, as against the company from setting up the acts of those agents which violate the provisions. And where the powers of officers or agents to create a membership are to the knowledge of the assignee thus expressly limited, no membership can be created on the theory of estoppel by these acts or declarations of these officers, which extend only to the original creation of the membership in violation of the express provision. To hold such acts or declarations valid for the purpose of originally creating the membership, either on the ground of waiver or estoppel, would, in effect, annul not only the express provisions of the charter or by-laws in relation to membership, but also the express contract made between the parties by the delivery and acceptance of the policy.

Subsequent to the original invalid attempt to create a membership by the acts of officers or agents, whose acts which are relied on to create the membership are in violation of the policy itself, the company may, no doubt, by the acts of these officers or others, so conduct itself as to estop it from denying the relation of membership equitably created by these subsequent acts. But in the present case no acts of the company or its officers, up to the time of the loss, other than the original acceptance of complainant as a member by the acts and declarations of these officers, whose limited powers complainant knew from the policy, are set out in the bill to show that she was accepted as a member. There is an allegation in the original bill that the company accepted complainant as a member in the place of the Marlatts and Mrs. Dill, and that the board of directors consented that complainant should become a member of the company and the assignment of said policy to her was approved and entered on the books of the company, but from the further allegation that the policy was then delivered to complainant and became effective, it appears that the previous acts relied on as estoppel are the very acts which come within the express exclusion of the by-laws and policy. And inasmuch as complainant’s case disclosed that under the terms of the policy she cannot be a member without giving a new note, this general allegation is not sufficient to show the creation of a membership by estoppel against the express provisions of the policy. All of the acts relied on as creating a membership by estoppel should be substantially set out in a bill praying for that special relief. The acts of the officers of complainant subsequent to the loss which are set out in the bill, are not of a character to entitle complainant to rely upon them as in themselves sufficient to create or recognize the relation of membership. There was in these transactions no act upon her part recognizing any liability as a member, and all of the acts and declarations of the officers appear to have been-made in the course of examining the property to adjust the loss and in negotiations for the purpose of settling-a dispute as to the amount of the loss. Such transactions, while they were, for the purpose of settlement, recognitions of membership on the part of the committees and officers authorized to adjust losses and to a certain extent admissions of membership, do not appear to have been the basis of any subsequent action of complainant which would estop the company from subsequently asserting the truth in reference to complainant’s alleged membership. The demurrer to the amended bill is therefore sustained upon this second ground of objection.


source: Caselaw Access Project

author: Emery, V. C.

license: Public Domain

text:
    Louise Ten Eyck Elmendorf v. Henry L. Elmendorf.
    [Filed August 31st, 1899.]
    1. A judgment in personam in a state court without personal service, and in violation of Const. U. S., amend., art, 14, prohibiting the deprivation of a person of property without due process of law, is not valid within the state, and may be collaterally impeached in an action brought in the state court on such judgment
    2. A judgment for alimony rendered against a defendant domiciled in another state, without service of process within the'state, is a decree fixing a personal liability without “due process of law,” prohibited by Const. U. S., amend., art. 14.
    On motion to discharge ne exeat.

      Messrs. McDermott & Fish, for the motion.

      Mr. 'Howard W. Hayes and Mr. Edward H. Duryee, contra.

   Emery, V. C.

Complainant aud defendant were married in New Jersey in 1879, and resided in this state as man and wife until 1881, when defendant left New Jersey and has never since resided here. In May, 1887, complainant filed a bill against defendant in this court, praying a decree of divorce for desertion and for alimony for the support of herself and child. The bill alleged that defendant resided in Missouri. No personal service of process was made and an order was made reciting that he was a nonresident, and as such notice was personally served on the defendant in the State of Missouri. Defendant did not appear in the cause, and upon a decree pro confesso and report of master, a final decree of divorce for desertion was made November 29th, 1887. The final decree gave complainant custody of the child and directed that defendant pay complainant, from the date of the decree, for the maintenance and support of complainant and their child, at the rate of $6 per week. The notice served on defendant stated that the object of the suit was to obtain a divorce and contained no notice that alimony was prayed. On March 13th, 1889, complainant filed a petition alleging that only $20 had been paid up to that time on account of the alimony; that defendant had neglected and refused to pay any further sum, and that $4,768 were due, besides the taxed costs of $62.26; that defendant then resided at Buffalo, in the State of New York; that he was about to come into the state on his arrival from a foreign port and to depart from the state at once, and praying a writ of ne exeat. The writ was allowed, bail being endorsed at $1,000, and the defendant was arrested and gave bond to the sheriff, for which subsequently was substituted, under order of the court, a bond to appear in the suit and render himself amenable to the orders and process of the court herein. Motion is now made by the defendant to discharge the ne exeat and to deliver up the bond. Defendant’s affidavit, served with the notice of the motion, shows that in November, 1882, defendant left his residence in New Jersey and has since that time been a resident of other states, and that at the time of the proceedings for divorce he was a resident of Missouri and was personally served there with notice of this suit for divorce. He has resided in New York from June, 1897, and has never acquired any residence or domicile in New Jersey since 1882. No copy of the final decree was ever served on defendant until March 18th, 1899, when he was arrested under the ne exeat, and while he was under arrest, and at the same time summons in a suit at law in the supreme court for $8,000 was served. Defendant denies the intention to depart from the state for the purpose of avoiding process. He admits payment of $20 to complainant, but denies that it was paid as alimony or was demanded or claimed as such.

The motion to discharge the writ is based upon two grounds —-first, that the arrest was an imprisonment for debt and prohibited by the constitution; second, that the decree for alimony and costs was void because defendant, not having been brought within the jurisdiction of the court, an execution or process upon the decree against defendant personally is a deprivation of his liberty within the provisions of the fourteenth amendment, to the federal constitution, that no state shall deprive any person of life, liberty or property without due process of law. Judgments of a state court may now be directly attacked as violating this amendment and be held void if rendered without due process of law. In Pennoyer v. Neff, 95 U. S. 714, 733 (1887), a judgment in personam against a non-resident was held void under this amendment when attacked collaterally, and inasmuch as the decisions of the United States supreme court control state courts as to its construction and application, a judgment within the terms of the amendment as so construed is no longer valid within the state, and its validity under this amendment may be impeached collaterally in an action in the state court upon the judgment. Eliot v. McCormick, 144 Mass. 10; Needham v. Thayer, 147 Mass. 536. If a bill in equity shows no right to relief a ne exeat issued thereon will be discharged on motion (Anschutz v. Anschutz, 1 C. E. Gr. 166), and if the decree for alimony in this' case is void under the fourteenth amendment the ne exeat should be discharged. In Hervey v. Hervey, 11 Pick. Ch. Pep. 166, I had occasion to examine the •question of the jurisdiction of this court to render a decree for .alimony against the husband where the wife was domiciled in this state, and the husband, although also domiciled here, could not be served with process within the state. I concluded that if the husband’s legal domicile was within this state and he had not acquired another domicile elsewhere, the court has jurisdiction to make a decree for alimony on final hearing after defendant had been brought in as an absent defendant under our statute. "Where, however, the defendant is non-resident at the time of the proceedings for divorce and is not served with process within the state and does not appear, my conclusion is that a decree for alimony based solely on publication or service out of the state is a decree fixing personal liability or obligations without “due process of law,” and is therefore void under the federal constitution. A decree for alimony rendered under such circumstances has generally, if not universally, been held to be without due process under.constitutional provisions. Cooley Const. Lim. (2d ed.) *406 and cases cited. And inasmuch as the federal constitution, as construed by the supreme court of the United States, is binding upon state as well as federal courts, a decree which is void under that constitution may, on the authority of the above cases, be collaterally attacked in the state courts.

This conclusion, which reaches to. the foundation of the decree for alimony, renders it unnecessary to examine the other question raised or the additional question suggested by an examination of the record, viz., whether the decree for alimony should regularly have been entered, when the notice served on defendant, under the statute and rules, failed to state that alimony was prayed,.and if not, whether the decree for alimony, having been made without notice or hearing, should be enforced by a ne exeat.

The ne exeat and the order therefor fixing bail at $1,000 being based on the decree for alimony and intended to secure the future performance of this decree, is therefore invalid and must be discharged. No costs will be allowed against the complainant.


text:
    Myles Tierney v. Chauncey G. Parker, receiver, &c., of the Strong-Locomotive Company.
    [Filed August 31st, 1899.]
    A suit by a stockholder against á receiver of an insolvent corporation to rescind bis contract for the purchase of its stock, and to have established against the receiver as a claim the amount paid therefor, on the ground of false and fraudulent representations made 'to him by the president of the company as to its financial condition and the issue of its stock, cannot be maintained" when after such purchase the plaintiff acquired information as to the financial condition of the company and the issue of its stock sufficient to disclose the falsity of the representations, or to put him on inquiry, but took no steps to repudiate the purchase until nearly three years later.
    On bill, &c.

      Mr. Henry S. White, for the complainant.

      Mr. Chauncey G. Parker, pro se.

      Mr. Patrick H. Gilhooly, for the stockholders, and Messrs. Gallagher & Richards, for the creditors.
   Emery, V. C.

The complainant is a stockholder in the Strong Locomotive Company, an insolvent corporation, and the object of this bill, which is filed against the receiver, is to set aside the contract upon which he purchased his shares of stock from the company, to have the sale declared void and to have established against the receiver as a claim the amount which he paid to the company for the stock. The purchase of the stock is alleged to have been procured by false and fraudulent representations made to complainant by the president of the company, as representing the company in the sale.

The company was organized to develop and exploit a patented locomotive, and the false representations alleged by the bill to have been made, related to the value of the patent, the commercial success of the locomotive, the financial condition of the company, and the circumstances of the issue of its capital stock. Complainant purchased his stock in June, 1889, paying $25,000 for five hundred shares of stock, par value $100 each, and his first claim of a right to rescind the purchase of stock was made shortly after the appointment of a receiver of the company, in February, 1893. One question arising upon the pleadings and evidence is whether, on the assumption that the false representations alleged were made, and were of such a character as to entitle the complainant to rescind the contract of sale, the complainant did not shortly after the purchase have such knowledge, or means of knowledge, as to the falsity of the representations, as imposed on him the duty of at once avoiding the contract, if he desired to do so, and whether by his failure to avoid the contract promptly, he must not be held to have elected to stand by the contract of sale, and to be now barred by such election and by laches from disaffirming the contract after the company has become insolvent. This question as to the effect of laches or election, is in such cases usually treated as the preliminary question. Dennis v. Jones, 17 Stew. Eq. 513, 516 (Errors and Appeals, 1888). Considering, therefore, at the outset the evidence relating to this question, I reach the conclusion that at a period not later than June, 1890, the complainant knew that the company was then in a precarious financial condition, and had then such knowledge or information as to the condition of the company, as either showed him the falsity of the statements, upon which he claims to have relied in purchasing the stock, or put him upon inquiry at once, if he desired to rescind the contract. About this time, June, 1890, the company, in order to avoid a failure and to develop the manufacture of locomotives, proposed to enlist capitalists in Cincinnati in the enterprise, and options for the purchase of real estate there had been obtained. Mr. Niven, through whom complainant’s purchase of the stock was originally made, and who held complainant’s proxy to represent liis interests in the company, says that at the time this negotiation was proceeding, he told complainant in detail the situation of the company’s affairs, its financial condition, and that unless the Cincinnati enterprise could be carried through, the enterprise would be a failure and his investment would be lost. It was part of the plan in reference to constructing works at Cincinnati that bonds to the amount of $100,000 should be issued to the stockholders at eighty cents on the dollar, and complainaut declined to take any bonds or invest any more money. Mr. Niven also says that at the time, in reply to complainant’s inquiries, he told complainant specially as to the debts of the company, and that the company had been in much the same financial condition at the time he purchased his shares, and that complainant then told him he (Niven) should have found that out at the time complainant invested his money. Complainant says that he knew from the statements made to him by Mr. Niven that the company had been unable to get capital enough to do business on its own resources, and could not go ahead, and that he then concluded that Mr. Darwin had deceived or misled him as to some of the facts. In his first examination, the date of this information from Niven seems, by complainant’s evidence, to be connected with a report in reference to the Cincinnati scheme, which was made as early as December, 1889, but being subsequently recalled, he says that he first knew the company was in a failing condition after August, 1892. The question, however, is not as to the time of his knowledge of the failing condition of the company, for his evidence shows that he did not consider the company in a failing condition until the Cincinnati scheme failed, but as to the time when he received information that material statements, in reliance upon which he alleges his purchase to have been made, were false, and, so far as relates to the statements in relation to the financial condition of the company at the time of his purchase, I conclude that the evidence of Mr. Niven fixes the time when complainant received this information to have been at least as early as June, 1890. Complainant says that he did not complain to the company of the statements made by Darwin, because he believed the plan for re-organizing the company and the Cincinnati scheme would bé a success and the company would be all right. After this information from Niven complainant still continued to retain and exercise his rights as a shareholder through his proxy to Niven, which was retained and acted on for the purpose of protecting complainant’s interest.

The representation made by Darwin in reference to the issue of stock was, as complainant alleges, that no stock of the company had been sold for less than fifty cents on the dollar, being the price which the complainant paid. It now appears that the entire capital stock of the company ($1,200,000), with the exception of ten shares, had been issued for the purchase of the patents or in exchange for the stock of another company'which owned the patents, and was issued as full-paid and non-assessable. About $400,000 of this stock was returned to the company or conveyed to a trustee, to be sold to raise working capital for the company, at fifty cents on the dollar. It was so issued and sold, complainant’s purchase being of this treasury stock, and none of this stock appears to have been sold for less than fifty cents on the dollar, but complainant now says that he was not informed, at the time of his purchase, of this issue of stock for the patents or stock of the company owning the patents, and that by reason of this suppression the representation made to him as to the issue of stock was false and fraudulent. The recitals in complainant’s written subscription to the stock disclosed that the stock which he was to receive was part of an issue made to a trustee to raise working capital, and that for each $50 paid complainant was to receive one share of full-paid, non-assessable stock of the company of the par value of $100, and pursuant to this contract of subscription the certificate itself for five hundred shares of stock was issued to complainant upon payment of $2.5,000 and delivered to complainant about June, 1889. This certificate also was, on its face, declared to be “full-paid and non-assessable” and “issued for property purchased.” The written subscription and the form of this certificate and the information contained therein put complainant upon inquiry as to the issue of stock for property .purchased, and inasmuch as his retention of stock so issued had, or might have, the effect of protecting him against further assessment for stock he purchased of the company at fifty cents on the dollar (to which assessment he would have been liable on his present account of his purchase), he was bound to make his inquiries as to the issue of this stock, and stand by or repudiate his purchase of fully-paid stock without delay. These representations as to the financial condition of the company and the issue of its stock were such materia] inducements to the purchase of the stock by complainant that the falsity of those statements, or either of them, would, if established, have been sufficient to entitle complainant to avoid the sale without reference to the other representations.

Upon considering the entire evidence, I cannot avoid the conclusion that at least as early as June, 1890, complainant had information in relation to the financial condition of the company, and the issue of its stock sufficient to disclose to him the falsity of the representations alleged to have been made to him, or sufficient to put him on inquiry as to their falsity. Such information imposed on him the duty of acting promptly, if he intended to repudiate the purchase and to be relieved from the relation of a shareholder, and his acquiescence in the situation for nearly three years afterwards, and until the company had been declared insolvent, disentitles him to call upon the receiver to rescind- the purchase and refund the amount paid. The English cases uniformly deny to the stockholder the right to rescind the contract after insolvency has intervened, and while the American courts do not all adopt this hard and fast rule, all courts agree substantially in the view .that contracts for purchase of stock alleged to‘ have been procured by fraud, are contracts which are not absolutely void but are merely voidable at the option of the defrauded party, and that the purchaser must promptly assert his right to rescind, in order to be effectual against the receiver or assignee of an insolvent corporation. The cases in reference to the effect of delay in claiming a rescission are collected in 7 Thomp. Corp. 8440.

These cases establish that diligence in the discovery of the fraud and promptness in the repudiation of the purchase or subscription ai’e necessary conditions for the rescission of the contract. The general rule in New Jersey requiring this promptness in the rescission of contracts alleged to have been procured by fraud, is declared by our own courts in many cases. Dennis v. Jones, 17 Stew. Eq. 513, and Conlan v. Roemer, 23 Vr. 53, are instances. In cases like the present, where the capital stock paid in constitutes the fund upon which the company, its creditors and other stockholders are entitled to rely for their protection in the conduct of its business, reasonable diligence in the discovery of the alleged fraud, where the purchaser is fairly put upon inquiry, must also be shown in order to entitle him to a rescission, after insolvency has intervened. Such diligence and promptness have not been shown by the complainant in this case, and his bill should be dismissed for this reason, and without passing upon the question whether the sale can be rescinded after insolvency.


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    The Jersey City Milling Company v. Jonathan H. Blackwell et al.
    [Filed August 31st, 1899.]
    Equity will not entertain a bill by a creditor of a mortgagor, where he has acquired the legal title to the mortgaged chattels of his debtor by a sale thereof under an attachment, to enjoin a sale by the mortgagee on foreclosure of his mortgage, executed prior to the attachment, but claimed by the creditor to be invalid on the ground that it does not state the consideration therefor, and for the determination of its validity, as the parties have an adequate remedy at law, by replevin.
    On application for preliminary injunction.

      'Mr, Freeman Woodbridge, for the complainant.

      Mr. Frederick Weigel, for the defendants.
   Emery, V. C.

Complainant, as a creditor of one De Yita, a non-resident, issued an attachment upon which certain buildings owned by him and located on another person’s lands were attached. The defendants Dolton & Company hold a chattel mortgage on the buildings, which was filed before the issuing of the writ, but the validity of which is attacked by reason of the insufficiency of the affidavit to the chattel mortgage. It is claimed that the affidavit fails to state the consideration of the mortgage as required by the Chattel Mortgage act. Gen. Stat. p. 2112 § 5. Before the filing of the bill the auditor in attachment had sold the goods in question to complainant at public sale, under the statute, for $50, which sale has been confirmed, and as stated by complainant’s counsel, a deed for the property has since been delivered by the auditor to the complainant. The property sold was inventoried at $235. The mortgagees are in actual possession of the property and have advertised its sale under their mortgage, the sale being stayed pending this application for injunction.

The complainant, by the sale and deed, has now the legal title to the property, and no longer stands merely upon its rights as a creditor to the assistance of a court of equity to enforce its lien. The preliminary question is whether as such purchaser and holder of the legal title, he is entitled to an injunction in order to settle in this court the invalidity of the chattel mortgage under the statute. This invalidity by reason of defective affidavit is one which avoids the mortgage in courts of law as well as of equity, and complainant’s right to bring the decision of the question into this court rather than in a court of law and trial by jury, must be based on the insufficiency of the remedy at law. Such insufficiency of legal remedy exists where a creditor has a lien upon the mortgaged property, and the removal of the invalid lien is necessary in order that 'he may realize his debt by a sale clear of the alleged lien, and the jurisdiction of a court of equity to decree the statutory invalidity of a chattel mortgage on the bill of a creditor, holding a lien, or one who represents such creditors and stands in their rights, seems to be settled. In Currie v. Knight, 7 Stew. Eq. 485, 487 (Vice-Chancellor Van Fleet, 1881), complainant held a lien as the creditor of an insolvent estate. In Hopper v. Lovejoy, 2 Dick. Ch. Rep. 573 (Errors and Appeals, 1890), complainant was a receiver of an insolvent corporation, who was held to represent the creditors, and in this capacity entitled to avoid the lien (Vice-Chancellor Stevens, p. 577), and the court of errors and appeals decided the question of the validity of the mortgage on the same basis (Dixon, J., p. 578). In Graham Button Co. v. Speilmann, 5 Dick. Ch. Rep. 120 (Vice-Chancellor Van Fleet, 1892), the right of the receiver to attack the invalid mortgage in equity was expressly based on the lien of a creditor on the property resulting from the adjudication of insolvency, and the receiver’s rights as representing creditors who had such lien. Id. p. 127. It was not at all based on the receiver’s title to the property, as succeeding to the rights of the insolvent mortgagor. This opinion was adopted on appeal. Id. p. 796 (1893). In Roe v. Meding, 8 Dick. Ch. Rep. 350 (Errors and Appeals, 1895), on a like bill by the receiver of an insolvent corporation, the chattel mortgage was held void because of failure to record immediately, as required by statute, but only as against those creditors, represented by the receiver, whose debts were incurred prior to the recording. Id. p. 369. These cases show that up to the present time all equitable jurisdiction to set aside chattel mortgages for a failure to comply with the statutory provisions, which avoid them at law as well as in equity, has been based ultimately on the equitable jurisdiction to assist in the enforcement of a legal lien. • There is a class of cases in New Jersey where a court of equity, on the application of a purchaser of lands under judgment, has entertained jurisdiction to set aside a prior conveyance as fraudulent against the creditor under whom the purchaser claims, but this is based on the jurisdiction against frauds. Smith v. Espy, 1 Stock. 160, 166 (Chancellor Williamson, 1852).

This jurisdiction in equity to set aside fraudulent deeds existed before the statute of'frauds, which made such deeds void at law as well as in equity. Phelps v. Morrison, 10 C. E. Gr. 538, 544. Complainant’s counsel has referred me to no case in our courts where the jurisdiction of a court of equity has been exercised merelyAo try the validity of a chattel mortgage invalid at law as well as in equity,‘under the registry laws, on the application of the holder of the legal title to the mortgaged property. Nor have I been referred to any ease in which complainant having the legal title to the lands has'been held entitled to file a bill in equity for the sole purpose of setting aside either a deed or mortgage claimed to be void against him under the recording acts. Such jurisdiction in reference to lands, where exercised in equity, is based solely on the statutory right to file a bill to quiet title, and if entertained on any theory of general equity jurisdiction in such eases would manifestly draw into this court, and away from trial at law and by jury, the settlement of many questions of purely legal title. I am not disposed to extend the jurisdiction to cases of the present character, where the insufficiency of the ordinary legal remedy does not appear. In this case complainant may, by action of replevin or tort, have a full remedy, either by recovery of the property or in damages. The value of the property is not large, the mortgagees are not alleged to be irresponsible, and it is a case where the property appears to be valuable not for the possession of the owner, but solely for the purpose of realizing thereon by sale. It is a case where, in my judgment, the complainant should be remitted to its legal remedy, and the application is denied, but without costs.


author: Reed, V. C.

text:
    Benjamin M. McDowell et al. v. David T. Stiger.
    [Filed February 11th, 1899.]
    There was a devise of a farm, with a charge upon the devisee to pay to Jane, a daughter of the testator, or her legal representatives, §1,000 in one year after the death of the testator and of his wife. In a subsequent item the testator directed that in case “my daughter Jane die and leave no issue, that the aforesaid legacy to her revert, after her decease, to my estate, and be distributed to my heirs according to the laws 'of descent.” Jane died more than one year after the death of the testator and the death of the widow, leaving no issue. — Held, that upon arrival of the time fixed for payment the legacy became Jane’s absolutely.
    On bill to recover a legacy.
    Robert Todd bequeathed to his daughter Jane $1,000. Todd died and the money was paid to Jane, who loaned it to her husband, David T. Stiger. Jane died without issue, and the next of kin of the testator claimed that upon Jane’s death the legacy to her by force of item 7 of the will came to them. Jane’.s husband, David T. Stiger, claims that the money at the time of Jane’s death belonged to her absolutely, and upon her death passed to him jure mariti.

    The testator, at the time of the execution of his will, had three children, Maria, Peter and Jane, the first of these having children living and the last having no children. They all survive the testator. The testator provides in item 3 of his will as follows:
    “I give and bequeath to my wife Adriana the use of $2,000 during her natural life, and the yearly interest of the same to be applied annually to her benefit and use as hereafter directed.”
    In item 4 he provided as follows :
    “My real estate consisting of the farm I now occupy, I give and devise to my son Peter, his heirs and assigns under the following charges and conditions: First, I charge him with the payment yearly and every year of the interest of $2,000 bequeathed in item 3, to my wife Adriana, the principal $2,000 to remain in the farm, to constitute a first lien or encumbrance on the same during her natural life. Second, I charge him with the payment of $1,000 to his sister Maria, wife of John McDowell or her legal representatives, payable in one year after my decease, and the decease of my wife Adriana. Third, I charge him with the payment of $1,000 to his sister Jane, wife of David T. Stiger or her legal representatives in one year after our decease.”
    He provided in item 6 of his will as follows :

      “Whereas the aforesaid legacies to my two daughters are less than an equitable division of my estate, and whereas to increase them, much would embarrass my son Peter very considerably, I hereby order and direct that in one year after his decease, the sum of §1,000 be paid from my estate to each of my daughters Maria and Jane, or to their lawful issue or heirs, provided he leaves no lawful issue surviving him.”
    Then, in item 7, which is the important item, which gives occasion for this suit, he provided as follows:
    “ It is also my will, and I do hereby direct, that in case my daughter Jane die and leave no issue, that the aforesaid legacy to her revert after her decease to my estate, and be distributed to my heirs according to the laws of descent.”
    Jane died without leaving issue, after the death of the testator and after the death of her mother, Adriana, and after the expiration of one year from the death of both.
    The legacy had been paid to her and by her loaned to her husband, the defendant, as already stated.
    . Mr. Hugh K. Gaston and Mr. Robert N: MeOarter, for the complainants.

      Mr. James J. Bergen and Mr. John D. Bartine, for the defendant.
   Reed, V. C.

A general rule repeatedly stated in this court is that when there is a bequest to one person, and in case of his death to another person, the language, unless modified by some other provision in the will, will be construed to mean death of the first legatee before the arrival of the period of appointment or distribution. Beatty’s Administrator v. Montgomery, Executrix, 6 C. E. Gr. 324; Burdge v. Walling, 18 Stew. Eq. 10; Brown v. Lippincott, 4 Dick. Ch. Rep. 44.

Where the limitation over, however, is in case of the first legatee’s “dying without issue,” the event of death may be referred to death without issue at any time or death before the happening of some particular event mentioned in the will, as, for instance, before the distribution of the estate. The intent of a testator in the use of these- words is probably, in a great majority of instances, to limit over the gift upon the death of the first legatee without issue at any time; but the tendency of the cases in this state is to seize upon some other event, and couple the occurrence of death by relation with the occurrence of such event. And whenever between the gift absolute in form to the first legatee there is some other event upon which the payment of the gift is to occur, the subsequent limitation over upon death without issue will be held to relate to the occurrence of death without issue before the happening of the intervening event. In the present case, .there is an absolute gift of $1,000 to Jane. Intervening this absolute gift and the subsequent provision for the reverter, there is the direction as to when the $1,000 shall be paid, namely, in one year after the death of both the testator and testator’s wife. As already remarked, the trend of our decisions, in such an instance, has been to put the limitation over in opposition to the time of payment. The strength of this tendency is perceived in the following cases: Pennington v. Van Houten, 4 Halst. Ch. 272 ; Williamson v. Chamberlain, 2 Stock. 373; Wurts v. Page, 4 C. E. Gr. 365; Baldwin v. Taylor, 10 Stew. Eq. 78 ; on appeal, 11 Stew. Eq. 637; Lafoy v. Campbell, 15 Stew. Eq. 34; Patterson v. Madden, 9 Dick. Ch. Rep. 714•

I am of the opinion, therefore, under the rule applied in these eases, that death in this will is referable to the time when the $1,000 should be paid over to Jane, unless there is some language to be discovered in the will which indicates an intention that the testator meant death at any time without issue.

It is insisted that by the use of the word revert ” the testator must have contemplated the death of'Jane after she had come into, possession of the legacy. It is argued that the legacy being charged upon the real estate, did not become vested until the arrival of the time for its payment; therefore, previous to this time, there could be no interest in Jane to revert. But the provision that the legacy should “ revert to my estate ” meant no more than the language employed by the testator in Wurts v. Page, supra, which was that in case of the death of any child without issue, the share of such child should “merge” in the general fund.

If the testator had used the words “ in case of the death of Jane leaving no issue, then the legacy should go to a third person,” the. very same argument could be employed, for it could be then said that there would be nothing to go over until the legacy came into Jane’s possession.

I do not think that the use of the word “ revert ” indicates anything in respect to the meaning of the testator upon the matter of present inquiry. If, indeed, any hint can be drawn from the whole clause in which this word occurs, it would seem to be that the testator did not have in view the death of Jane, however remote. The directions that it should fall into his estate and be distributed to his heirs according to the law of descent, would imply that he intended the fund, in the case of the death of Jane, to pass through the hands of his personal representatives in the administration of his estate, and it is not likely that he had in mind that his estate would remain unsettled during the entire life'of Jane.

However, apart from the intent imputed to the testator by the rule of construction already mentioned, I see nothing in the other language used in the will, or in the argument based upon the possible intention of the testator, to leave this legacy in the family and keep it out of the hands of the husband of Jane, sufficient to indicate, with any decree of certainty, what was in the mind of the testator in respect to this matter. I am, therefore, of the opinion that when the time for payment arrived, the legacy became Jane’s absolutely, and that upon her subsequent death, the complainant acquired no interest in it.

The bill should be dismissed, with costs.


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    John C. Short and James Parker, receivers, &c., v. Abram S. Post, Louisa J. Post et al.
    [Filed February 21st, 1899.]
    The mere fact that certain shares of stock in the mortgagor company were found among the effects of a deceased mortgagee, and that the promoter of the mortgagor company, in negotiating with the representatives of the mortgagee, had promised certain shares of stock in the company as an inducement to bring about the loan secured by the mortgage, is insufficient to show usury in the transaction, where one of said representatives testified that the agreement was merely that he was to have shares of stock for his services, and that after the loan he gave the certificate of stock found among decedent’s effects to decedent as a gift.
    On bill of review.

      Mr. David J. Pancoast, for the complainants.

      Mr. Ddwin B. Goodell, for the defendants.
   Reed, V. C.

Charles Colwell was the owner of a large tract of land, containing about thirty-two thousand acres, located in Atlantic county, New Jersey. One Mr. Garrahan conceived the notion of forming a corporation for the purpose of purchasing and developing this land. The property was encumbered by mortgages and judgments against Mr. Colwell to the aggregate amount of $122,000. Mr. Garrahan arranged with Mr. Col-well to buy the property. Mr. Garrahan’s plan was to negotiate a new first mortgage upon the property for the sum of $150,000, and out of the money received to 'pay off the subsisting encumbrances. Mr. Colwell was to have, as the consideration for the property, a second mortgage for $340,000, $10,000 in cash and stock in the new corporation of the par value of $500,000. A corporation was formed with capital stock amounting to thirty-one thousand nine hundred and ninety shares at the par value of $100 each. A loan of $150,000 to the corporation was made by William Post, to whom the first mortgage upon the property was executed. Out of the $150,000. received from Mr. Post the encumbrances, amounting to $122,000, were paid, as well as the $10,000 in cash paid to Mr. Colwell. In fact, with the exception of $1,000, all the money which came to the hands of this corporation was from the loan of Mr. Post, and even the $1,000 seems to have been repaid out of the same fund.

The thirty-one thousand nine hundred and ninety shares of stock issued by the new corporation, were all issued to Mr. Colwell for the avowed purpose of giving it the appearance of being paid-up stock, issued for property purchased. The stock, in fact, represented the equity in the property, subject to the encum-brances of $150,000 and the $340,000, a total of $490,000.

After default in the payment of the $150,000 mortgage, and after the corporation had gone into the hands of a receiver, Mr. William Post filed his bill for the foreclosure of his mortgage, in which suit a final decree was entered. Thereafter a petition was presented to this court for leave to file this bill, of review, upon the ground of newly-discovered material evidence of a defence to the said mortgage. Leave was granted to file the bill, and the case is now upon final hearing upon the pleadings and proofs.

The defence set up by this bill of review is, that the loan made by Mr. Post to the corporation was tainted with usury, and that the existence of the facts upon which usury is predicated came to the knowledge of the complainants after the-decree in the original suit. The alleged usurious taint in the mortgage is, that it was agreed between the company and William Post that he was to receive, as a consideration for making the loan of $150,000, fifteen hundred shares of the stock of the new corporation, and that he did receive such shares pursuant to such agreement.

Prefatory to a consideration of the evidence in respect to this defence, I 'will observe that, in my judgment, the equity of ¿redemption in the property, at the time of the organization of the company, had no substantial value. The stock, therefore, which represented only such equity, had no value. What value it might acquire in the future depended on the successful development and sale of the laud. There appears to have been no successful manipulation of the property, and the company was soon confronted with a condition of insolvency. I am satisfied that at no time in the history of the company would the property have sold for enough to pay the total amount of the mortgage encumbrances; that it will not now sell for $490,000 I am entirely sure.

The result sought to be obtained by this bill is to diminish the amount of the first encumbrance to the advantage of Mr. Colwell, the second mortgagee; and Mr. Colwell is the witness who, it is claimed, had knowledge at the time of the execution of the mortgage, of its usurious character, and who, after the entry of the final decree in the original suit, brought such knowledge to the attention of the receivers. He was a party in the original suit, and had the privilege of setting up that defence in that action. Pinnell v. Boyd, 6 Stew. Eq. 600; Truesdell v. Dowden, 2 Dick. Ch. Rep. 396. He did not do so. Nevertheless, the receivers, as owners of the equity of redemption, have the technical right to set up the defence, however obvious it may be that it will not benefit the general creditors of the corporation. It is proven to my satisfaction that the facts testified to in this cause were not known to the receivers at the time of the entry of the former decree; and I think it may be said that they were not discoverable by the use of reasonable diligence in preparing the cause for trial. The books of the corporation gave them no clew to such defence, and a resort to Mr. Colwell for information in respect to the character of the first mortgage loan was not a reasonable requirement. This, therefore, brings us to the inquiry whether the agreement for the loan was tainted with a usurious element. The originator and primary promoter of the scheme for the formation of a corporation was Peter Garrahan. He conceived of, and indirectly negotiated, the loan of $150,000. His negotiations were not personally with Mr. William Post, the lender, but with a Mr. Kirby, and through him with Mr. William Clark Rowe, a lawyer, and Mr. William H. Post, a son of Mr. William Post.

Mr. Garrahan seems to have first talked with Mr. Kirby, who brought the other gentlemen into the transaction. Mr. Garrahan does not say that he made any personal arrangements with Mr. William Post by which the latter should have fifteen hundred shares of the stock of the corporation as an inducement to the loan; but he says that the arrangement to give stock was yrith the other gentlemen, and he.specifically says that fifteen hundred shares of stock were to go, not to William Post alone, but to Mr. Kirby, Mr. Rowe, William H. Post and William Post.

Mr. William Post himself never met Mr. Garrahan except on the day when the mortgage was executed at the office of Mr. Rowe. On that occasion William Post remained at the office of Mr. Rowe, as he says, until the papers were signed, and by papers I understand him to mean the bond and mortgage. The stock was actually distributed in this way: All of it was first issued to Mr. Colwell. Mr. Colwell retained fifteen hundred shares. He then assigned ten thousand shares to Mr. Garrahan, the promoter of the company. Mr. Garrahan says that one hundred and fifty shares, which had been issued to Mr. Colwell, were given to Wílliam H. Post for his services as secretary; that the same number, he thinks, were given to Mr. Rowe, the lawyer, and he cannot say whether any were issued, to Mr. Kirby. Upon reference to the stock-book and the minute-book of the corporation, it appears that in fact three hundred and one shares were issued to William H. Post, five hundred and one shares to Mr. Rowe, and five hundred shares to Mr. Kirby. In addition, seven hundred shares were issued to a Mr. Larrimore, as Mr. Garrahan says, for his services as a director. There is a certificate for seven hundred shares, known as certificate ISTo. 12, which was found among the papers of William Post, the mortgagee, after his death. This certificate for seven hundred shares is alleged to be a part of the fifteen hundred shares which .Mr. Garrahan says were to be received by William Post as an'inducement for-the loan.

Mr. Rowe testifies as to the manner in which this certificate for seven hundred shares of stock came to the hands of Mr. William Post. He says that he had been employed by Mr. Post to examine the property to be mortgaged for $150,000, in respect to its value, as well as its title. He made such examination and reported favorably as to both value and title. He says that he was to receive as a fee for his services from the corporation, or rather the promoters of the corporation, the sum of $2,500, besides which there was to be issued to him a number of shares of the stock of the corporation. He says that there was no agreement at the time the loan was made that any shares were to go to the mortgagee. Mr. Rowe was elected secretary of the company, and to him were issued twelve hundred and one shares, inclusive of the seven hundred shares in certificate No. 12. His account is that some time after the loan was made he presented to Mr. William Post, who had given him a great deal of business, the certificate for seven hundred shares, and kept the remainder of the twelve hundred and one shares himself. Unless the testimony of Mr. Rowe is overcome by a clear preponderance of evidence to the contrary, there was no usury in the transaction.

• The only evidence to the’contrary is the fact of the seven hundred shares being found among the papers of Mr. William Post, after his death, and the testimony of Mr. Garrahan. While the fact may be suspicious, it is not sufficient to overcome the express declaration of Mr. Rowe. In regard to the testimony of Mr. Garrahan, it is to be observed that all he says is that fifteen hundred shares were to go for the loan, and that it was to be divided between the mortgagee, his son, his attorney and Mr. Kirby. It appears, in fact, that a total of eighteen hundred and two shares were issued to be divided between all or some of these parties.

Again, it is obvious that all Mr. Garrahan, in fact, testifies to is that an arrangement was made with Mr. Kirby or Mr. Rowe, or possibly with William H. Post, or with all, that so many shares of stock should be issued to them for bringing about the loan, and that when he says that the arrangement was that the stock should be issued to those persons, including William Post, he is only speaking of a general arrangement with Mr. Kirby and others, that so much stock should be issued as an induce: ment to bring about the loan. The negotiation of this loan was the- principal feature of the organization of the corporation, for without it the whole scheme would have been futile. The evidence shows that to anyone who assisted in carrying forward the scheme for the organization of the company stock was given in various amounts, so that out of the whole amount of stock issued there remained but fourteen thousand two hundred and forty shares in the hands of the treasurer as still belonging to the company. I have no doubt that Mr. Garrahan arranged with Mr. Kirby, Mr. Rowe and Mr. William H. Post to give a block of stock, to be divided between them for their services and to help them accomplish the vitally-important point of getting a loan sufficiently large to pay off all the encumbrances upon the property. But in the face of Mr. Rowe’s testimony that, at the time of the negotiations, Mr. William Post was not a party to any arrangement that stock should be issued for his benefit, and that this stock was given to Mr. Post some time after, I do not think that the usury is proven with that degree of certainty required to support this defence. Usury cannot be proven by suspicious circumstances, but must be established by clear and indubitable proof. Brolasky v. Miller et al., 4 Halst. Ch. 789 ; S. C., 1 Stock. 807, 815; Conover v. Van Mater, 3 C. E. Gr. 481; Conover v. Hobart, 9 C. E. Gr. 120, 126; Gillette v. Ballard, 10 C. E. Gr. 491; Morris v. Taylor, 7 C. E. Gr. 438; Berdan v. Trustees of School District No. 38, 2 Dick. Ch. Rep. 8.

This conclusion leaves it unnecessary to consider what the effect would have been upon the decree establishing the mortgage debt for principal and interest if William Post had received the stock as part of the consideration for the loan. Under the restrictions imposed in the permission to file the bill of review, and by the frame of the bill itself, the defendant is equitably bound to pay the money received and interest. Miller v. Ford, 1 Sax. 359 ; Ware v. Thompson's Administrators, 2 Beas. 66.

The queries whether any decree could be made beyond that of ordering the return of the stock to the receivers, and whether the stock, having been issued to Mr. Colwell, is assessable against the estate of William Post as non-paid-up stock, and whether, if assessable, the right of the receivers to an action constitutes a set-off which cannot be interposed to a suit in foreclosure, do not press for, a solution. I will advise a decree that the bill be dismissed.