text:
    Robert H. McCarter, attorney-general, v. The Hudson County Water Company.
    [Decided August 22d, 1905.]
    1. The court will take judicial notice that the Passaic river is a tidal stream, the bed of which,-so far as the tide ebbs and flows, is the property of the state.
    2. The state, as the lowest riparian owner on tidal streams by virtue of its ownership of the bed thereof, so far as the tide ebbs and flows, has the right to have the water of such streams reach its property undiminished in quantity subject to the use of the passing water by upper riparian owners in a reasonable manner for domestic and irrigation purposes, and holds the same in trust for the public, and may grant or restrict the appropriation thereof, .so long as it regards the reasonable rights of others over whose lands it flows before reaching the lands of the state.
    3. As the lower riparian owner, the state holds the surplus of such flowing water as the common property of its citizens, and has the power to prevent the assumption by others of its sovereign rights, or the conversion of such common property which it holds in trust for the public, the loss of which may destroy the health and comfort of its people.
    4. The act of 1905 making it unlawful to transport, through pipes, the water of any fresh-water river- of the state into another state for use therein, is not void as a violation of the interstate commerce clause of the federal constitution, for the right of the state to preserve the common property of its citizens cannot be destroyed merely because it is intended to transport the water into another state for use therein.
    ■ On information, &c.

      Mr. Robert H. McCarter, attorney-general, for the informant.

      Mr. Gilbert Collins, for the defendant.
   Bergen, Y. C.

The East Jersey Water Company is diverting water from the Passaic river, at Little Falls, in this state, for commercial purposes, and has agreed with the New York and New Jersey Water Company to sell and deliver to it so much thereof as it may require to supply consumers, not alone in this state, but in the State of New York, without limitation as to quantity, the only consumer in this state being the city of Bayonne and its inhabitants. It is admitted that after the making of the contract the New York and New Jersey company constructed its plant, and that its main pipes to and through Bayonne were of a capacity greater than the needs of that city demanded, and designedly so, in order that through them a sufficient quantity of water might be transported into New York State for the purpose of sale and delivery to such consumers as it might there secure; that in 1904 a contract was made with the city of Bayonne, under which additional mains were allowed to be laid in the streets of that city for the purpose, among others, of carrying water to purchasers beyond its territory, the object being to transport water beyond the State of New Jersey, which contract was, shortly after its execution, duly assigned to the defendant; that the defendant has laid the mains and intends to supply water drawn from the Passaic river for the use of purchasers in the State of New York, which water the defendant intends to transport to that state through pipes and conduits laid, and to be laid, for such purpose; that the defendant confesses such to be its purpose, and has already entered into contracts with persons and corporations, private and municipal, to convey water, to be taken from the Passaic river, obtained through the East Jersey Water Companjr, into the State of New York for use therein; that some of these contracts were prior and others subsequent to the approval of the legislative act, which the informant insists makes unlawful the threatened acts of the defendant, and justifies this court in interfering.

It is further admitted that the Passaic river is the most important of the available sources of water-supply for the people of New Jersey, a necessity for the use of which is constantly increasing; that the present available supply of water in the Passaic river is largely in excess of the present consumption by New Jersey inhabitants, as now supplied, and that the defendant had incurred large expense in laying mains and doing other necessary work to enable it to take the water to New York State previous to the adoption of the statute now under consideration.

On May 11th, 1905, an act of the legislature of this state was approved, and became immediately effective, which, after declaring that the fresh-water streams of the state do not increase with the growth of its population, and unless carefully preserved a condition will exist detrimental to the health and prosperity of the citizens of this state, enacted as follows:

“It shall be unlawful for any person or corporation to transport, or carry through pipes, conduits, ditches or canals the waters of any freshwater lake, pond, brook, creek, river or stream of this state into any other state for use therein,”

and empowered this court to aid in its enforcement. P. L. 1905 p. 4-61.

The information is filed by the attorney-general, and seeks to .restrain the defendant from taking water diverted from the Passaic river into the State of New York for use therein. This the defendant admits it intends to do, in violation of the terms of the act, alleging that the act is void because (a) it impairs the obligation of contracts in force when the act was passed; (5) it takes property without compensation; (c) it provides for an interference with commerce between the states; (d) it denies to citizens of other states the privileges of citizens of this .state, and denies them the equal protection of the laws of New Jersey: (e) it is in violation of the constitutions of the United States and of this state.

The question is thus presented, Can the defendant, through the East Jersey Water Company, or by other means, divert from the Passaic river, free from any control or regulation by the state, whatever quantity it may desire of the fresh water running therein and carry it to another state, the consent of parties in interest other than the state being assumed ?

As absolution from control or regulation means the right to withdraw, against the protest of the state, every drop of water from the river, a right which can only be sustained upon the ground of ownership, the fact that the defendant is a purchaser from another corporation does not alter the proposition, for its property rights, if any, are no greater than those of the original abstracter from whom it purchases.

The statement of the proposition indicates the serious import of the matters involved, for if the contention of the defendant expresses the law, persons and corporations may, by acquiring the private rights in any running stream, obtain such an ownership in the water passing down the stream as to permit its total withdrawal and transportation to a foreign jurisdiction, leaving the citizens of this state entirely destitute of a natural and necessary element of life, so far as the same may be derived from streams supplied from the running surplus or overflow of water from lakes, ponds, springs and other natural sources of potable water.

If the public have any common rights in'or to the running-waters of our rivers and streams at any point during its flow to the sea, such a right is manifestly held by the state in trust for the public, and it, by virtue of its sovereign power, may. grant or restrict the appropriation thereof, so long as it does not interfere with the reasonable rights of other owners of land over which it flows, and any unauthorized diversion of such water above the point where the public rights appear is a wrong of which the state may justly complain and seek to restrain, and the fact that it has not heretofore objected is no reason why it may not now protest against a further spoliation .of public property. It may lawfully permit its own citizens the benefit of property held in trust for them, and at the same time limit such permission to those who have a common right therein.

That the Passaic river is a tidal stream, the bed of which, so far as the tide ebbs and flows, is the property of the state, is a fact the court will judicially notice, and the state, if a riparian owner along such stream, is entitled to have the ordinary flow of water remain in the channel, and to have it come to its lands “undiminished in quantity and unimpaired in quality by the act of any other of the owners thereof, subject to the use of the passing water, in a reasonable manner, for domestic and irrigation purposes.” Doremus v. Paterson, 65 N. J. Eq. (20 Dick.) 711. And the state, upon whose lands it is finally cast before it mingles with the ocean and becomes the property of the world, is endowed with all the rights thereto which are accorded by law to the preceding owners of land through which it flows, and any diversion of what, undiverted, would flow to and over the lands of the state, and thus become public property, is the subject of legislativé action, the method employed by the public to express its wishes. In my opinion, running water, having served its transient uses as it passes by, comes to the lands of the state freed from any charge on behalf of the upper landowner, except such as he may have as one of the public, and that it is the duty of the state to guard its riparian rights as zealousty as does the individual. Being convinced that the state, as the lower riparian owner, has the right to have the water of streams flowing into tidal rivers reach its property undiminished in quantity, within the rule above expressed, I can see no reason why it may not regulate and control the manner of the disposition of its property rights, for acquiescence in the diversion of water which of right ought to flow to its lands is a surrender of property interests, the extent of which it may limit.

The objection that the questioned law is void as a violation of the federal constitution regarding interstate commerce does not appeal to me, for we could not consistently say that an effort on the part of the state to preserve the common properly, whether in the interest of navigation or for the domestic uses of the public, after it had satisfied the proper private charges against it, could be frustrated simply because the unlawful abstracter of its property intends to transport it into another state. The-defendant and those under whom it claims are corporations organized under the General Corporation act of this state, which I cannot discover confers any right to carry on this business, other than that it is a “lawful business.” Certainly there is no grant of any power or right under which it can be said the state has abrogated any of its rights in the running waters of the state, or authorized these corporations to divert from its proper channel and water course the common property of the- public, and my conclusion is that the law assailed does not violate constitutional requirements, either federal or state, and being a mere regulation of the extent to which a diversion of public property permitted, but not given, may go, is valid legislation.

Whether this act be valid or not, under the view I take of this question the state may rest its case upon general principles, and does not need the support of the statute under review. The state has a duty to perform in that it must protect its citizens against the assumption by individuals or corporations of any of its sovereign rights, or the conversion to private use of such common property and rights as the state is said to hold in trust for the public use, the loss of which may destroy the health and comfort of its subjects. “The policy of the common law is to assign to everything capable of ownership a determinate owner. If capable of occupancy, and susceptible of private ownership and enjoyment, the common law makes it exclusively the subject of private ownership; but if such private ownership and enjoyment are inconsistent with the nature of the property, the title is in the sovereign, as trustee of the public, holding it for the common use and benefit.” Cobb v. Davenport, 32 N. J. Law (3 Vr.) 369, 378. The question considered in the case last cited turned upon a right of fishery in non-tidal waters, and the learned ■jurist who read the opinion of the court was not called upon to, .and did not, define the quality of ownership to be gained in ■running water, and while he defined public waters as tidal and waters non-tidal as private, he cannot be taken to have meant •that, beyond the right of fishing, there is any exclusive ownership' in running water vested in one landowner along such a ■.stream against another, and while one may have such an ownership in the land over which the water passes as to control an interference with the water and the taking of fish therein while the water and fish are over his land, it was not decided that a permanent continuous property in running water attached to any riparian owner. On the contrary, he declared the law to be that if such private ownership is inconsistent with the nature of the property, i. e., if not capable of occupancy or susceptible of private ownership and enjoyment, the title rests in the sovereign, and certainly a vested continued ownership by a private landowner of running water would be inconsistent with the nature of the property. “Water is a movable, wandering thing, and must of necessity continue common by the law of nature, so that I can only have a temporary, transient, usufructuary property therein.” 2 Bl. Com. 18. In Ang. Waterc. § 95, the writer well expressed the law in these words:

“but strictly speaking he [the riparian owner] has no property in the water itself, but a simple use of it while it passes along. The consequence of this principle is that no proprietor has a right to use the water to the prejudice of another.”

The Roman law considered running water as public or common in The sense that all might drink it or apply it to the necessary purposes of supporting life, and that no one had any property in the water itself, except in that particular portion which he might have abstracted from the stream, and of which he had the possession, and during the time of such possession only, and by the law of England, water flowing in a stream is publicis juris, subject to the rights of adjacent landowners, as defined by law. Mason v. Hill, 5 Barn. & Ad. *23; 25 Eng. Rul. Cas. 382. There are some things, says Blackstone, which, notwithstanding the general introduction and countenance of property, must still unavoidably remain in common, being such wherein nothing but an usufructuary property is capable'of being had, and therefore they still belong to the first occupant during the time he holds possession, and no longer. Such, among others, are the elements of light, air and water. 2 Bl. Com. 14.

Thus it appears from immemorial times running water, as one of the elements of life, health and comfort, has been esteemed common property, subject to usufructuary use by the owners of land over which it passed, a use which, by legal construction based upon public needs, has been from time to time enlarged to meet the demands of civilization and preserve the peace of society, but it has never been extended to the point of absolute ownership, to the detriment of a lower landowner. If diverted, it must be returned undiminished, except as to the incidental waste made necessary by the personal private use, for domestic and other recognized lawful purposes appertaining to the land and its occupant.

The ownership of the bed of tidal rivers is vested in the state, so far as the tide ebbs and flows, an ownership which carries with it property rights in the water covering it,- whether fresh or salt, for while the line of demarcation between public and private waters has been settled in this state to be the point where the tide ebbs and flows, this is not limited to a point where the salt and fresh water meet, nor to water impregnated with 'salt, as that would open the question to the very uncertainty which Justice Depue so strongly deprecated in Cobb v. Davenport, supra. In Rex v. Smith, 2 Doug. 441 it was argued that the river Thames, above London bridge, was not “navigable,” although it was flowing and reflowing, inasmuch as the tide beyond that limit was occasioned by the pressure and accumulation backward of fresh water. But this distinction met with little favor, and was pronounced by Lord Mansfield as novel and inadmissible. In Horne v. Mackenzie, 6 Cl. & F. 628, 643, a ruling that the limit of an estuary was fixed by ascertaining “whether there was a predominance of salt or fresh water at the place” was overruled, and in Peyroux v. Howard, 7 Pet. (U. S.) 324, 343 it was held that although the current in the Mississippi at New Orleans may be so strong as not to' be turned backwards by the tide, if the effect of the tide upon, the current is so great as to occasion- a regular rise and fall of the water, it may properly be said to be within the flow of the tide.

It is common knowledge that in all of our fresh-water rivers, and especially so as to the Passaic,- there are long reaches or basins, where the water remains fresh, although subject to ordinary tidal influences, and as the bed of such portions of tidal streams is the absolute property of the state, it acquires, by virtue of such ownership, riparian rights in the flow of the water.

The position of the state is different from that of other riparian owners. Large bodies of fresh water which have already served the proper purposes -of private riparian owners above the lands of the state are received upon common property, forming great reservoirs of a valuable natural element necessary for the health and comfort of all the people, and in which every vestige of private right, subject to which the common right is held, has been extinguished, for the state, being the last riparian owner, has no other to account to, the owners of the upland along tidal waters having no rights therein, and the state should be considered as the ultimate owner of such unused common property, to be held in trust for the use of all its subjects.

The constant increase in our population,' considered in connection with the unchanging extent of our water-shed, and the consequent limit of the natural supply of water necessary for domestic and healthful purposes, may justly alarm the state with regard to the future, and a neglect to insist upon its rights in the past, when conditions did not require a strict enforcement of its privileges, works no estoppel, and justifies the restriction of the appropriation of its property.

It is admitted that the Passaic river is the most important of the available sources of water-supply for the people of New Jersey, and that their necessity therefor is constantly increasing. This river in its natural condition carries from its source to the ebb and flow of the tide a necessary element of life, the common property of the public, subject to usufructuary use, and finally delivers it, when not diverted, upon the public lands, as free from private claim as the land upon which it rests, and when thus delivered it becomes the property of the sovereign, who may divert or permit its diversion, and any obstruction or diversion, subject to the exceptions stated, which tends to diminish the quantity that should flow upon its lands is an invasion of its rights. It has a right, unless it grants it to another, to the ultimate disposition of what remains of all waters which naturally empty into a tidal stream after the transient rights of riparian owners have been exhausted, and no one has a right to divert the water for commercial purposes without the grant of the state, in the absence of which such abstraction is the conversion of public property without legislative authority. The state may grant this right, but until it does it should be held beyond the reach of private appropriation. That the permission of the state to divert from the Passaic river water for private consumption has been recognized is manifested by the act authorizing the construction of water works for Jersey City. P. L. M&2 p. Ji W, the first section of which expressly authorizes the taking of

“such portion of the water of Passaic river flowing between the villages of Acquackanonck and Belleville as may be required to furnish the inhabitants of said city, and others residing adjacent thereto, with a sufficient quantity of pure and wholesome water for domestic and other uses,”

a grant of a right, limited to certain uses, then thought to be necessary before the property interests of' the state could be taken.

The 'defendant insists that as the threatened action will not now actually absorb the river, because there is yet a surplus of water not drawn and .taken for New Jersey consumers, the state must wait until the diminution is appreciably affecting its citizens, but that argument does not meet the principle involved, which is, Can the state regulate the diversion and application of running water which naturally empties into tidal streams, having due regard to tire rights of riparian owners? The answer must be that it has, thereby conserving the common interests of its people, otherwise private enterprise may remove all potable water and sell it in another state, disregarding the riparian rights of the state and divesting it of its proper ownership in all surplus waters which, undisturbed, would come to its possession.

My opinion is that, subject to the lawful transient rights of riparian owners along the banks of running streams the waters of which finally empty into a tidal stream, there is vested in the sovereign power the right to insist upon the proper riparian user of the waters therein, in order that the common right to the use of the residue, which is not private property, may be preserved for the benefit of those to whom all common property belongs; nor would the grant of every owner of land along the stream, from its source to tidewater, affect the right of the public (for which the state is but another name), for that only can be granted which the grantor hath, which is the transitory usufructuary use, subject to which running water is publicis juris. As the threatened act is an invasion of a common right, in that it will result in the removal from the state of the common property, it has a right to protest against the proposed increased diversion, and should seek to protect the publip estate.

Other questions were discussed on the argument, but I prefer to rest my conclusion on the reasons I have given, for I am satisfied that the state, in its sovereign right as owner of the bed of all tidal streams, becomes the owner of all fresh water flowing upon its land, and that any interference with the proper flow of such water, resulting in a diminishment of the natural quantity, is the subject of equitable interference, and also that the Corporation act, under which the defendant and its agents exist, grants no- right in derogation of public ownership of such water, and that, without such grant, the taking of water from running streams for commercial purposes is, as against the state, a wrong to be restrained, and that the restraint may be limited to such takers as the state may elect. It is perhaps pursuing a just policy when it permits, without objection, the taking of its property to be served to its people, but it cannot be compelled to the unauthorized extension of its gift to citizens of another jurisdiction.

On the hearing the defendant insisted that the relief sought by the information was confined to the question of the constitutionality of the act. If the pleadings should be so narrow as to present only this one question, they may be amended to meet the real question presented and argued, and which I have considered and determined.

This conclusion does not impair the obligation of contracts within the legal acceptation of the term. Eo vested right is affected, for the defendant has none in the subject-matter, and all of its contracts were made with regard to existing conditions, of which it is presumed to have had knowledge.

The informant is entitled to a decree, and I will so advise.


source: Caselaw Access Project

author: Bergen, Y. C.

license: Public Domain

text:
    Atlantic City Gas and Water Company v. Consumers’ Gas and Fuel Company et al.
    [Decided September 9th, 1905.]
    1. Under the general act authorizing the incorporation of gas companies, main or distributing pipes should be laid at a horizontal distance of four feet apart, and wherever it becomes necessary to cross the main or distributing pipe of another company, the crossing should be made under that pipe and twelve inches therefrom, and service pipes should be laid so as not to interfere with present or future supply pipes of any water or gas company or interfere with or increase the expense of replacing, removing or repairing the supply pipes or apparatus of any water or gas company, and the proximity of a main to a service pipe is not limited beyond the restriction not to interfere with other pipes.
    2. A gas company is not entitled to restrain a competing company, •organized under the general act, from laying its mains in violation of .such act, in the absence of special damage‘to complainant, either partially accomplished or threatened. A disregard of the limitations of its •charter by a corporation may subject it to restraint, or forfeiture of its franchises, at the suit of the state, but the right of a private party to intervene must rest upon some special damage to it.
    On bill for injunction.

      Mr. Clarence L. Cole and Mr. Robert II. McCarter, attorney-general, for the complainant.

      Mr. John C. Reed, Mr. George A. Bourgeois and Mr. Charles L. Corbin, for the defendants.
   Bergen, Y. C.

. The complainant, under a special charter granted by the legislature in 1874, has since that time been manufacturing and selling illuminating gas to the city and inhabitants of Atlantic City. The defendants, recently incorporated under the general act regarding corporations of like character (P. L. 1S76 ¶. 309), is now engaged in laying its mains and pipes in the same city, intending to enter into competition with the complainant. After the work of installation had progressed for a day or two, the complaihant filed its bill, asking that the defendants be restrained from placing its gas pipes in the streets of the city otherwise than in strict compliance with section 21 of the act under which it was incorporated. An order to show cause was allowed, on the return of which affidavits were read by the respective parties on a motion for a preliminary injunction.

The section of the act invoked 'to support this bill provides that all pipes that may he laid" by any corporation organized under the act shall be placed at the greatest practicable distance from the nearest part of any other gas pipe then laid,

“and shall be laid at a horizontal distance of four feet at least from the nearest part of any such water or gas pipe, unless in cases where it shall be unavoidably necessary to lay the gas pipe across or nearer to any water or gas pipe, in which case the said gas pipe shall be laid under the said water or gas pipe at the greatest practicable distance therefrom, this distance in no case to be less than twelve inches, and shall form therewith a right angle, or as near thereto as the situation will admit, and in no case shall any pipe be laid, or apparatus used that will interfere in any way either with the present or future supply pipes of any water or gas company, or that may interfere with or increase the expense of replacing, removing or repairing the supply pipes or apparatus of any water or gas company.”

The complainant insists that the restrictions contained in this act are conditions imposed upon the corporate conduct of the defendants, and that any violation of its terms by the defendants creates a situation where it becomes permissible for the complainant to have the aid of this court in restraining the defendants from placing its pipes in the streets of Atlantic City, unless they are laid according to the letter of the act, without necessity ou the part of the complainant to show that it suffers any special damage resulting from the want of such strict compliance. Under this view the complainant would have a standing in this court for the purpose now claimed if the pipes of the defendant company were laid within four feet horizontally of any gas or water pipe of a third party.

In my judgment, the construction contended for by the complainant is not the law. A disregard by the defendants of the conditions and limitations of its charter may subject it to the liability of a restraint, or even the forfeiture of its franchise, at the suit of the state, but the right of a private party to successfully intervene must be founded upon some special damage to it, either partially accomplished or threatened, and that if the defendants have been guilty of a breach of their statutory duty, their misconduct must result in legal injury to the complainant to justify the interference of this court. Jersey City Gaslight Co. v. Consumers’ Gas Co., 40 N. J. Eq. (13 Stew.) 427, 432. The conclusion which I have reached on this branch of the case renders it necessary that I should determine whether any such special injury has been shown sufficient to justify the ordering of a preliminary injunction.

The affidavits in support of the bill of complaint show that the main or distributing pipe of the defendants was at two points laid over and in direct contact with the pipes of the complainant; that at six other points where it crossed the pipes of the complainant, defendants’ main was laid within twelve inches of complainant’s pipe; but it also appears that, with perhaps the exception of the pipe on Logan avenue, all of .the conduits described in the bill of complaint as pipes are service or supply pipes, used for conducting the gas from complainant’s main or distributing pipe to the buildings of consumers. The pipe on Logan avenue is shown to be a small one running from the main of the complainant to a dead end, from which pipe service is made to eight or nine dwellings along Logan avenue. It was on the argument insisted that this use brought this pipe under the denomination of a main, but it is unnecessary to determine this question, for, in my_ judgment, the complainant has not shown that it has been or is likely to be injured by the construction put down by the defendants at this place.

The affidavits submitted by the defendants in opposition to the allowance of the restraint show beyond question that in the laying of their mains they have, to the best of their ability, observed, except as to service pipes, the requirement of the law that they should not place such pipes within a horizontal distance of four feet from any other pipe. These affidavits..are so strong and clear as to completely overthrow any contrary charge made by the complainant. The complainant, however, insists that the words “all pipes,” at the beginning, of section 21, applies to every character of pipe, whether distributing conduits or service pipes, and that both classes fall under the condition requiring pipes to be laid at least four feet apart, horizontally, except in cases where that is impracticable. I do not so interpret this section. On the contrary, my understanding of the legislative will, as gathered from the act, is that main or distributing pipes should be laid at a horizontal distance of four feet apart, and that wherever it becomes necessary to cross the main or distributing pipe of another company, the crossing must be made under that pipe and twelve inches therefrom, and that the legislative intent with regard to service pipes is expressed in the clause—

“and in no case shall any pipe be laid or apparatus used that will interfere in any way either with the present or future supply pipes of any water or gas company, or that may interfere with or increase the expense of replacing, removing or repairing the supply pipes or apparatus of any water or gas company,”

and, in my opinion, the proximity of a main or distributing pipe to a service pipe is not limited or controlled beyond the.restriction not to interfere with it in the manner described in the act. As the complainant has not made it appear that any 'such interference exists, except as to one point,'to which I will refer, it follows that, as no injury has been suffered by the complainant or is threatened by the future acts of the defendants, no reason exists justifying a preliminary injunction. It did appear that at one point the pipes were so closely laid as to perhaps warrant the inference that there might be some interference with the repair of complainant’s pipe, but that single instance constitutes no such irreparable injury as to justify the restraint of this public work. The case shows that during the progress of the whole of this work the complainant had a representative present, who made no objection at the time, and I entertain no doubt but that the defendants would have avoided this interference if complainant’s inspector had at the time called attention to it.

The case as presented convinces me that the position of the complainant is not that of one honestly desiring to protect its property from injury, but rather to harass and delay, and if possible prevent, the installation of a competing plant, a position opposed to public policy and entitled to but scant recognition in a court of equity. To uphold the broad claim of this complainant would practically prevent the construction of another gas plant in Atlantic City, leaving the complainant an exclusive monopoly, in disregard of section 25 of the act under consideration. In considering the good faith of this complainant, we ought not to overlook the fact, so clearly disclosed by the affidavits, that it absolutely refused to furnish the defendants with any knowledge it possessed regarding the location of its pipes in the streets. It is hardly to be conceived that a company having the exclusive franchise for supplying gas to a city as large as Atlantic City has no maps or plans showing the location of its pipes, but whether it has such plans or not, its officers surely know the approximate location of its pipes, and this knowledge they refused to defendants when they applied for the information. The work of the defendants was commenced on the 2d day of August last. On August 4th they served upon the complainant a notice reciting that they proposed to begin the work of laying a new gas main on Indiana avenue on the 7th day of August, three days following; that they did. not intend to lay any main within four feet of the main of the complainant if its location could be ascertained; that they invited the complainant to have some person present to represent it while the work was being laid,, and also that they desired to confer with the complainant regarding the location of its mains, and avoid any conflict between the companies. The refusal of tire complainant to indicate the location of its pipes placed thesé defendants at a great disadvantage, and as the situation was created by the complainant’s refusal to assist in the protection of its property, it was, as to the complainant, only required to do the very best it could to maintain the horizontal distance required, and that duty I am satisfied they have undertaken to perform in a reasonable and conscientious manner. The complainant had present continuously on the defendants’ work its representative, who, it is fair to presume, was acquainted with the location of the complainant’s pipes, and if, under the circumstances, without imparting that knowledge to the defendants, he stood by and saw this work progress without protest, the complainant should now, in equity, be estopped from reaping any advantage resulting from slight deviations with regard to the distance at which defendants’ 'pipes have beén laid from those of the complainant, and under such circumstances, • to justif}' a preliminary injunction, the injury to the complainant should appear to be not only considerable, but irreparable, and as I have been unable to discover any such condition, the complainant should be left to its action at law for the redress of any incidental damage.

The rule to' show cause will be discharged.


text:
    Taylor Iron and Steel Company v. Wesley G. Nichols et al.
    [Decided September 27th, 1905.]
    N. was employed by the complainant to perform any duties which might be assigned to him, and agreed to keep inviolate its trade secrets. While so employed, he had been taught complainant’s secret processes for the manufacture of steel. The defendant company, a competitor, induced N. by improper means to break his contract with the complainant and enter its employ for the purpose of imparting such trade secrets to it. —Held, that the complainant is entitled to a preliminary injunction against both defendants, restraining the disclosure of such trade secrets, and also against the defendant .corporation, restraining it from continuing N. in its employ during the term of his contract with complainant; but it is not entitled, to an injunction against N., restraining him from entering the employment of another during the term contracted for, because the contract did not provide for special services.

      On bill for injunction.

      Mr. John B. Hardin and Mr. Bichard V. Lindabury, for the complainant. *

      Mr. Charles L. Corbin, for the defendants.
   Bergen, Y. C.

The questions presented arise under an order to show cause why a preliminary injunction should not issue restraining the defendant Nichols from divulging, during the term of his alleged engagement with the complainant, or afterwards, information, commonly denominated “trade secrets,” acquired by him while in complainant’s service, and also from devoting his time, skill and labor, during the term of his engagement with the complainant, to the service of the defendant American Brake Shoe and Foundry Company, and the defendant last named enjoined from employing or continuing in its service the defendant Nichols during the life of his contract with the complainant, and from using' or applying, directly or indirectly, any information relating to or regarding any process of steelmaking or moulding, the special property of the complainant, which it had communicated to the defendant Nichols under an agreement with him that he would not communicate to anyone such “trade secrets.” From the affidavits read on the return of the order, it appears, and I so find, that the complainant had discovered a process for making steel of such superior character as to substantially defy competition in the particular grade or class of steel, manufactured according to its invented or discovered method or formula, resulting in a widespread demand for the article and the building up of a large and lucrative business by the complainant on account thereof; that such process or formula was known only to the officers of the complainant and to such of its trusted employes as were taught the same under promise not to reveal the secret method employed; that in March, 1896, the defendant Nichols entered the service of complainant under an express agreement not to make known to any person, except the officials of the complainant, any information or knowledge of the process, system, mixture, or combination of mixtures, used by the complainant in the manufacture of its products; that thereafter the defendant Nichols was taught by complainant all of its secret processes and methods used in the manufacture of steel, and that by means thereof he acquired special knowledge and skill, and became and was, until he left the complainant’s service, about July 31st, 1905, such a trusted and skillful employe, because of his aptness and thorough knowledge of the business secrets of the complainant, that it will require several years to instruct another to perform the service; that in March, 1905, the defendant company, by deceptive practices, obtained the admission of one E. J. Snow, its agent or employe, to the complainant’s works at High Bridge, the permission to enter the works excluding access to the foundrjq where the secret processes were being used; that while within the complainant’s works, under the guise of a friendly visit, and without the knowledge of the officers of the complainant, Snow procured a message to be sent to Nichols, who was at work in the foundry, that he (Snow) wished to see him, and having procured an interview, there and then, endeavored to induce the defendant Nichols to leave the employment of the complainant and take service with the defendant company, at a salary of $7,000 a .year, for a term of years, and a bonus of $10,000, which offer the defendant Nichols then declined, although the wages then paid him by the complainant was only $2,500 a year; that on the 19th day of March, 1905, the defendant Nichols entered into a written agreement with the complainant, by the terms of which he contracted to remain in the service of - the complainant for five years, at an annual salary of $3,000, and the additional sum of $1,500 annual!}', to be paid to him at the termination of the agreement, should he so long live, and in the event of his death prior thereto, such part of the total- of $7,500 as might then have accrued should be paid to his lawful representatives; that the second clause of said agreement reads as follows:

“(2) The said Wesley G. Nichols agrees that he will devote his entire time, skill, labor and attention, during- the term of this agreement, to the service of the Taylor Iron and Steel Company, and that he will at all times faithfully perform the duties that may be assigned to him by the management of the said Taylor Iron and Steel Company to the best of his skill and ability for the compensation aforesaid, and that he will not at any time, directly or indirectly, during the term of this agreement, or afterwards, divulge to any person, firm or corporation, except to the Taylor Iron and Steel Company and its officers, any information of any nature, now known to him or hereafter acquired by him, during the term of this agreement, relating to or regarding any processes of steelmaking or moulding, or treating steel, that may have been, is now, or may be hereafter, during the term of this agreement, used in the works of the Taylor Iron and Steel Company, and that he will at all times hold inviolate the treatment, processes and secrets known to or used by him in the works of the said Taylor Iron and Steel Company

that notwithstanding his agreement, Nichols, on July 31st, 1905, left the complainant’s service and entered, or has arranged to enter, into the service, of the defendant company; that the defendant corporation induced Nichols to leave the complainant, with full knowledge of the agreement between Nichols and the complainant, for the purpose of obtaining the benefit of his knowledge of complainant’s trade secrets, with which he had been entrusted, and it was for such knowledge that they were willing to pay such an extraordinary price, an amount so great as to negative the claim of the defendant that Nichols had no unusual knowledge, and was only the usual mechanic, with ordinary experience.

The conduct of the officers of the defendant corporation in thus tempting the cupidity of Nichols can lead to but one conclusion, and that is a determination to obtain the trade secrets of the complainant by inducing its trusted servant with a bribe of unusual proportions to betray his master.

The relief sought by the complainant is the restraint by injunction of the defendant Nichols from at any time divulging the trade secrets of the complainant taught to and obtained by him while in its employ, and also from entering the service of any person other than complainants during the term of'his said agreement, and particularly from devoting any part of his time, during the period covered by his contract, to the service of the defendant corporation, and further, that said corporation be enjoined from employing or continuing to employ the defendant Nichols during the term for which he has contracted with the complainant, and from using or applying, directly or indirectly, in the conduct of its business any of complainant’s trade secrets obtained or that may be obtained by it from Nichols.

The complainant’s right to a restraining order, so far as its trade secrets are concerned, was not seriously disputed on the argument, and upon well-settled principles the complainant is entitled, on this branch of 'the case, to the relief-sought against both defendants. Stone v. Grasselli Chemical Co., 65 N. J. Eq. (20 Dick.) 756.

The jurisdiction of this court to restrain Nichols from serving another during the term of his contract, or from entering the service of the defendant company, and the right to enjoin that company from employing Nichols, is denied by the defendant company. Nichols declined to appear and subject himself to the jurisdiction of this court in response to the order to show cause why a preliminary injunction should not go, but counsel for the appearing defendant, while protesting that he in no way represented Nichols, raises the question of the right of this court to restrain Nichols from accepting employment with the defendant company as a basis for his argument on behalf of his client.

Two propositions are presented, and will be considered separately.

First. Has this court the authority to restrain Nichols from entering the employment of any other master than the complainant during the term contracted for?

Second. May this court lawfully restrain the defendant company from employing Nichols during that period ?

The complainant attempts to support the first proposition under the authority of Lumley v. Wagner, 1 De G. M. & G. 604, claiming that the qualifications contracted for are special and unique. I am of opinion that the affidavits show that the acquirements of the defendant Nichols are of that character, the result of years of special training given him by the complainant, and that the injury suffered by it because of the violation by Nichols of his agreement, if we accept complainant’s construction of its terms as to the grade of service, cannot readily be ascertained or compensated by damages at law, and if this branch of the case was free from other objections, the rule in Lumley v. Wagner, supra, should be applied.

The first difficulty we meet is that in Lumley v. Wagner the contract expressly describes the character of the work contracted to be performed, while in the contract under consideration Nichols only agrees “that he will at all times faithfully perform the duties that may be assigned to him by the management” of the complainant. To enjoin Nichols in the terms applied for means a negative enforcement of the specific performance of a contract, which the court will not affirmatively decree shall be performed, for want of power to make such an order effective. The negative enforcement of contracts b}^ restraining the defendant from acts other than those which will result in a specific performance of his agreement is a harsh proceeding to be cautiously exercised within well defined limits, and only when, upon a fair construction of the contract, it affirmatively appears that ' the services agreed to be rendered belong alone to that class which are properly described as special, unique and extraórdinary. Whatever may have been the intention of these parties, I must be controlled by their written expressions, and they only require from the defendant Nichols the performance of such duties as may be assigned to him by his employers, which they may change from day to day. The defendant did not contract in terms for special services, such as the law recognizes to be a ground for equitable interference.

The second objection raised by the defendant is that this contract contains no agreement binding the defendant not to enter into the service of another, as in Lumley v. Wagner, supra, to which complainant replies that an agreement to devote one’s entire time to a service implies a covenant not to serve another during the period covered by the contract, and in support of this cites the Lumley Case, and also Montague v. Flockton, L. R. 16 Eq. 189. These cases have been the subject of much discussion, and the right to imply a negative covenant frequently doubted, and sometimes rejected, by the courts of this country, and in the English courts the case of Montague v. Floeldon, supra, has been overruled, and Lumley v. Wagner interpreted as being limitecl in its application to contracts having an express negative covenant. Whitwood Chemical Co. v. Hardman, 2 Ch. Div. 416 (1891). In the case last cited, the vice-chancellor, on the authority of the Lumley Case, allowed the injunction restraining defendant from giving less than his whole time to one with whom he had contracted so to do. The contract then considered contained no negative covenant. On appeal from his decree it was reversed, the court, in its opinion of reversal, saying: “I cannot read the decision of Yice-Chancellor Malins without seeing that he was under the impression that Lord St. Leonards, . in Lumley v. Wagner, would have granted the injunction even if the negative clause had not been in the contract. This was a mistake. Lord St. Leonards was very clear and explicit on that subject. He said.distinctly he would not have done it in the absence of that negative clause.” The general rule that equity will not decree specific performance of an agreement for personal services, nor effectuate it by indirection, is subject to but few exceptions, within which the present case does not fall.

The second proposition, can the defendant company be enjoined from employing Nichols, seems to me to stand on a different ground and to be governed by other considerations and equitable rules, for between complainant and the defendant company no question of specific performance arises. This defendant, taking advantage of a friendly courtesy extended by one competitor to another, attempts to bribe a trusted servant to betray his master, and finally succeeds in its effort, and with knowledge of the terms of the servant’s contract with the complainant, its officers advised the servant that he could not be restrained by injunction from entering their service. The surreptitious attempt to entice this servant, the extraordinary advance in wages offered, the advice that he might break his solemn agreement without fear of legal restraint, and the repeated failures of the defendant company to produce a grade of steel equaling that of the complainant, made by processes known to Nichols, point irresistibly to the conclusion that the. sole purpose of the defendant is to obtain, through Nichols, the benefit of the secret processes and methods of the complainant. In other words, it is the intention of these defendants to fraudulently obtain the property of the complainant. The theory upon which the court refuses to decree the specific performance of a contract for personal services rests alone upon the inability of the court to supervise and carry out a decree of that character, hut no such obstacle is presented when, under circumstances disclosed in this case, one. defendant is enjoined from employing another, who, with the property of his former master in his possession, is to be engaged under conditions which lead all reasonable minds to the conclusion that the sole purpose and object of such employment is to enable the wrong-doer more efficiently to obtain the benefit-of stolen property. The defendant company is a corporation of this state, -amenable to its laws, and subject to the decree of this court. Concisely stated, the situation is this: The defendant induces a trusted employe to walk off with complainant’s property and take it beyond the jurisdiction of .this court, where he carefully remains, ready, if permitted, to enter the service of his partner in the perpetration of a fraud, and by the use of complainant’s property, in ways difficult to discover, and perhaps entirely undiscoverable, deprive the complainant of the fruits of years of industry and skill. The whole case bristles with evidence that these defendants intend to wrong the complainant, against the perpetration of which it is entitled to protection, and an efficient part of the protection is to prevent any act which will make the accomplishment of the wrong easy and less difficult. To restrain the defendant company from emplojdng the unfaithful servant for the purpose so clearly disclosed in this case can work no injury to it, for if the special knowledge which Nichols has of complainant’s secret processes is not to be used, such ordinary services as the servant may lawfully render can readily be secured elsewhere. The injury to the complainant, if its valuable trade secret and processes are disclosed to a rival in business, will be irreparable, and temporizing with the power which the court possesses to prevent it does not appeal to a court of equity. The enticing away of a servant, or the harboring of one, in duty bound to serve his master is an actionable wrong, and the employment of such servant is strong, if not conclusive, evidence of the guilt of the party charged, and while ordinarily the injured party may be confined to an action at law, with compensatory damages, there is no reason why a court of equity may not restrain the perpetration of the threatened injury when it clearly appears that to permit the enticer to employ and harbor the servant will work an irreparable injury to the master to whom the duty is due. If the injury is one subject to an action at law, the preventive power of a court of equity should be exercised to protect the property of the complainant from substantial destruction when damages at law will not afford a sufficient remedy. “An ounce of prevention is worth a pound of cure.”

I will advise a preliminary injunction restraining the defendant Mchols from divulging or disclosing, directly or indirectly, during the term of his written agreement, or afterwards, any information of any nature now known to him, relating to or regarding any process of steel making of a secret, confidential nature, taught to, acquired by or used by him in the making, moulding or treatment of steel while in the employ of the complainant, and also restraining the defendant American Brake Shoe and Foundry Company from using or applying, directly or indirectly, any information of any nature already communicated to or acquired by it, or hereafter to be communicated to or acquired by it, directly or indirectly, by, through or from the said Wesley G. Mchols, relating to or regarding any secret process of steelmaking or moulding used by the complainant, and from using the treatments, processes and secrets belonging to the complainant which the said Nichols may have been taught, acquired or discovered while in the complainant's service, which Nichols- may have or shall hereafter communicate to the defendant company, and further restraining the American Brake Shoe and Foundry Company from continuing in its employment or from hereafter employing the said Wesley G. Mchols, during the term covered by his written agreement with the complainant, in any service connected with the treatment, making or moulding of steel of the class, grade or character manufactured by the complainant, under the supervision of Nichols, while in its employ.


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    Fidelity Trust Company v. Staten Island Clay Company et al.
    [Decided November 8th, 1905.]
    1. A chattel mortgage, void as to creditors, for want of the statutory affidavit and proper record, is a lien upon the property mortgaged so far as the rights of the parties to the instrument are affected.
    2. Such a mortgage is valid against the claims of the receiver of an insolvent corporation, unless it is made to appear that he is contesting it for the benefit of creditors, whose debts have been fastened on the personal property of the corporation by virtue of the insolvency proceedings.
    3. A purchaser of chattels who buys subject to a chattel mortgage, which by its terms is to be extended to property subsequently acquired by the mortgagor, is not bound by such covenant, and his after-acquired property is not subject to the lien of the mortgage, unless he has assumed the obligations of the original mortgagor.
    4. The covenant that the mortgage shall apply to after-acquired property is recognized in equity as a present agreement to give a lien as soon as such property comes into the mortgagor’s ownership, and it may be enforced only where the contract is such as to be the subject of a decree for specific performance. The purchase of mortgaged chattels subject to. the mortgage, without assumption or other affirmative act, does not create a contract between the mortgagee and the purchaser warranting a decree for performance.
    On bill to foreclose.

      Mr. Samuel W. Beldon, for the complainant.

      Messrs. Vroom, Dickinson & Scammell, for W. Meredith Dickinson, receiver, defendant.
   Bergen, Y. C.

The Staten Island Terra Cotta Lumber Company executed a mortgage to the complainant, as trustee, to secure the payment of three hundred and fifty bonds of the par value of $1,000 each-The property covered by the mortgage was real and personal, the latter being described as

“all the personal property, slips, basins, ships, ears, machinery and fixtures of said Staten Island Terra Cotta Lumber Company now owned or that may hereafter be acquired by it.”

In a subsequent paragraph of the indenture the property pledged was further described as

“and all other property, real, personal and mixed, fixtures and improvements now held and owned, or which may hereafter be acquired for, or in connection with, the construction, operation and maintenance, reparation or replacement of the business of said lumber company, or as convenient or necessary for the uses or purposes thereof, * * * together with all improvements or additions made or to be made to any or all of said property and estates and their appurtenances by the said party of the first part.”

The mortgagor company becoming insolvent, receivers were appointed, and the mortgaged property sold and conveyed by them to the defendant corporation, subject to the mortgage referred to, the payment of which was not assumed by the purchaser.

After such purchase the defendant company took possession of the real and personal property and continued the business, purchasing and bringing upon the premises additional chattels, which were used in connection with the business, and are_now the subject of this controversy.

The mortgage, although intended to be a lien on personal property, was not supported by the statutory affidavit as to the character of the consideration and the amount due, nor was it recorded as a chattel mortgage in the manner required by law.

The defendant company, after prosecuting the business for a number of years, became insolvent, and was so adjudged by the United States circuit court for the district of New Jersey, in proceedings had in that court for that purpose, and in furtherance of which W. Meredith Dickinson was appointed receiver of the corporation.

The proceedings in this cause have for their object the foreclosure, by the trustee, of the mortgage given by the Staten Island Terra Cotta Lumber Company, subject to which the defendant company took title to the lands and chattels therein set out, and the only contest is over the right to the possession of the chattels, as to which the receiver raises two questions, claiming, first, that as to the defendant corporation which he represents, the mortgage is void as to all the personal property because it was not recorded as a chattel mortgage, and also that it lacks the affidavit essential to permit such record; second, that even if good as to the chattels which were bought subject to the mortgage, it is no lien on such after-acquired property as was brought on the premises by the defendant company.

The first proposition is not advanced by the receiver, on behalf of the creditors of the insolvent corporation, for it is not alleged in the answer that the contest is waged for such a purpose. On the contrary, the answer only claims that the mortgage is void as against the Staten Island Clay Company, as a purchaser in good faith of the mortgaged premises, and also that it is void against.the answering defendant, as receiver of the clay com-pan}r, because there was no delivery followed by an actual and continued change of possession, and also because the mortgage had not attached to it the statutory affidavit, and was not recorded as a chattel mortgage. No evidence was offered to show that there were any creditors of the Staten Island Clay Company whose debts had become fastened upon the mortgaged chattels because of the insolvency proceedings. It is well settled in this state that the appointment of a receiver for an insolvent corporation gives to its creditors such a lien upon the assets of the company as to give to a receiver representing such creditors a footing in this court to contest the validity of a chattel mortgage covering its personal assets. Graham Button Co. v. Spielmann, 50 N. J. Eq. (5 Dick.) 120. Such a condition, however, is not presented here, there being not the slightest intimation in the answer of the receiver, nor in the proofs offered, that there are any unpaid creditors of the insolvent corporation whose debts are a lien upon these chattels. The ability of the counsel engaged in this cause forbids the presumption that so potent an element of contest has been overlooked. As the canse now stands the contest is confined to the complainant on one side and the defendant corporation, represented by its receiver, on the other. And it follows that the first proposition must be determined against the receiver, for he stands in the place of the party who bought subject to the mortgage, with full knowledge of its existence and of the amount due thereon, of which sum it had the benefit when -the consideration price was fixed. The infirmities in the execution and the want of record do not invalidate the instrument as between the parties to it.

The second insistment of the receiver presents the question whether a purchaser of the equity of redemption in personal propert)', which he takes subject to a mortgage containing a covenant that all after-acquired property brought on the premises by the original mortgagor shall be subject to the lien of the mortgage, is bound by that covenant to the extent of having all property he may purchase and bring on the premises by way of increase, or in substitution of that exhausted in the ordinary conduct of the business, made liable for a debt he neither created nor assumed.

The right of a chattel mortgagee to perfect his lien upon after-acquired property when his mortgage, by its terms, is made to- extend to such chattels, is based in equity upon the theory that such an agreement is a present contract to give a lien, which becomes effective as soon as the property comes into the ownership of the mortgagor or contractor, and may then be enforced in equity, subject to any defence that would be available against ■a bill for specific performance. The relief is in the nature of specific -performance, and is applicable only where the contract is such as, under the circumstances, would be the subject of a decree for specific performance against the mortgagor, or his assignee with notice, as to such chattels as the mortgagor had purchased and then assigned. Williamson v. New Jersey Southern Railroad Co., 29 N. J. Eq. (2 Stew.) 311; Dunn v. Hastings, 54 N. J. Eq. (9 Dick.) 503.

The present case, if the complainant’s contention is to prewail, would require the defendant to perform a contract not made by him, and io give the complainant a lien on goods not expressly contracted for. The original mortgagor only agreed to furnish a lien on goods acquired by him, not on those purchased by another, and neither the present claimant nor the company he represents made any agreement with the mortgagor. The equity of redemption alone was purchased, and no obligation to pay the existing debt or to carry out the covenants in the mortgage was assumed.

I am of opinion that the purchase of personal property subject to a chattel mortgage does not carry with it the liability to recognize the agreements of the mortgagor to subject his after-acquired property to the lien of the mortgage, unless the purchaser shall affirmatively assume the covenants contained in the mortgage or the debt it was given to secure.

In Kribbs v. Alford, 120 N. Y. 519, 525, the purchaser of chattels was charged with notice, because of its record, of a mortgage encumbering them and “all structures, fixtures, equipments and appurtenances now on 'said lease, or hereafter to be placed thereon.” The purchaser did not assume to pay the mortgage or to carry out its provisions. In determining that after-acquired property, purchased and brought on the leased premises by the assignees of the mortgagor, was not subject to the lien of the mortgage, the court said: “But it did not, in addition, burden them with the obligation to make good the personal covenants given by the lessee to third parties as security for an indebtedness. Because they had constructive notice of the existence of the mortgage, the lien of the plaintiff can be enforced and the defendants deprived of the machinery on the premises at the time of the purchase by them of the lease. But the lien provided for by the instrument could, in any event, only extend to property thereafter acquired by the mortgagor. It could not attach to chattels to which the mortgagor has not acquired either title or possession. Indeed, it does not bj- its terms purport to embrace any other after-acquired property than that placed thereon by the mortgagor.” A different rule prevails where the purchaser assumes the payment of the mortgage and' the obligation it was given to secure, as In re Sentence & Green, Company, 120 Fed. Rep. 436, where the purchaser assumed all of the obligations of the assignor, and as in Stoll v. Sibson, 65 N. J. Eq. (20 Dick.) 552, where the purchaser did not assume the payment of the mortgage, but entered into a collateral agreement with the mortgagee, by the terms of which the mortgagee agreed to accept the notes of the purchaser and to cancel the mortgage when the notes were paid. Here the court held that the mortgage thereafter became a mortgage to secure the payment of the purchaser’s notes, and as to him it remained as it had theretofore been with respect to the other owners. One of the previous owners had purchased from the mortgagor, and from him tire title passed through other owners to Sibson, and each purchaser, excepting the last, had assumed the obligations of his predecessors in title. But while Sibson, the last purchaser, had not expressly assumed the mortgage, he dealt directly with the mortgagee, and in effect assumed the payment of the mortgage debt, giving his own obligations therefor, and permitted the mortgage to stand as a security for his debt. Such conduct amounted to an assumption and a recognition of the terms of the mortgage security as an indemnity to the mortgagee for the extension of payment to the purchaser.

I will advise a decree in favor of the complainant as to the property embraced in the mortgage in express terms, and also as to* such of the property as was acquired by the original mortgagor after the execution of the mortgage, and in favor of the receiver as to property acquired by the defendant company after its purchase. If counsel cannot agree about the partition of the chattels to meet the views expressed, a reference to a master to ascertain and report thereon will be made. Costs on the answer will not be allowed to either party.


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    In the matter of William Compton, a lunatic.
    [Decided November 9th, 1905.]
    Where a guardian for any idiot or lunatic, whose estate does not exceed $500, has been appointed by the chancellor under the act of 1899, the general jurisdiction of equity extends over such guardian and he should account for the estate in this court.
    On petition for accounting.

      Mr. J. Kearny Bice, for the petitioner, ex parte.

   Bergen, Y. C.

Willard P. Clark, of the count]' of Middlesex, was appointed by this Court guardian of the person and property of William Compton, a lunatic, whose estate does not exceed the sum of $500. The appointment was made by virtue of a statute which provides that whenever by a petition, duly verified, it shall be made to appear that any person, a resident of this state, is an idiot or lunatic, and that no inquisition has been issued to determine such idiocy, and that no guardian of the alleged idiot or lunatic has been appointed by the orphans court of the county where the idiot or lunatic resides, and that the estate of such idiot or lunatic does not exceed the sum of $500, the chancellor is authorized to ascertain, in a summary manner, the truth of the allegations, and to appoint a guardian for such idiot or lunatic. P. L. 1899 p. 288. This act also provides for a bond by the guardian to the ordinary of the state, to be filed with the clerk of the court of chancery.

The petition filed by the guardian of William Compton shows that the-lunatic died September 14th, 1905, and that, as guardian, he has in hand property amounting to the sum of $481.93, and prays that he may be allowed to file his account as such guardian in this court, and for such further proceedings thereon as may be necessary to have the same properly audited and approved by this court. The only question now presented is whether a guardian appointed under the statute referred to should account- in this court or in the orphans court of the county in which the idiot or lunatic resided.

Section 19 of the statute relating to idiots, lunatics and drunkards (2 Gen. 8tai. p. Í699) makes it the duty of the guardian of any idiot or lunatic, once in three years, and oftener in case the orphans court shall so order, to render to the orphans court “from whom he or she received his or her appointment as guardian” an account of his or her administration, and upon default may be cited by the orphans court to perform that duty, and on the death of any idiot or lunatic, the guardian may be compelled to render an account of his administration in the same manner as executors and administrators under like circumstances are compellable.

My conclusion is that, reading this section as a whole, it only applies to guardians appointed by the orphans court after the termination of inquisition proceedings in lunacy in this court. The statute of 1899, under which the petitioner was appointed guardian, makes no provision for any accounting, but I have no doubt that where a special statutory jurisdiction has been exercised, and a person thereby adjudged a lunatic, and in pursuance thereof a general guardian appointed for his person and property by this court, that the general jurisdiction of equity extends over such guardian, under which this court may call upon bim to make an account of his trust'. The statute under consideration was manifestly adopted by the legislature for the purpose of affording a prompt and economical method of settling small estates, for by its terms it does not extend beyond estates where the sum or value exceeds $500. The legislature having expressly committed to this court the power to hear and determine, in a summary way, the question of lunacy and to appoint a guardian, if a proper case is made, there can be no good reason urged why this court, having taken jurisdiction by virtue of that act, should not hold the case and require its officer to complete his duty by properly accounting for the estate which has come into his hands by virtue of his appointment under the order of this court. The petitioner, upon filing his account with the clerk of this court, may take an order of reference to a master to audit and state his account as guardian, and upon the coming in of such report, an application may be made to the court for a rule prescribing the notice, to be given to all parties in interest, of a motion to confirm the report, and for the settlement and approval of the account.


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    The Fidelity Trust Company v. Staten Island Clay Company et al.
    [Decided November 22d, 1905.]
    An unrecorded chattel mortgage, unaccompanied by a change of possession of the property, is void as to creditors of a purchaser of the mortgaged property subject to the mortgage.
    On bill to foreclose.

      Mr. Samuel IF. Beldon, for the complainant.

      Mr. John M. Dickinson, for S. Meredith Dickinson, receiver, defendant.
   Bergen, Y. C.

The questions presented on the final hearing of this cause having been disposed of in accordance with the situation then existing, application is now made for a rehearing, and an order permitting the defendant Dickinson to amend his answer so that it may set out that, as receiver of the defendant corporation, he represents creditors whose debts are unpaid, and also for permission to submit testimony in support of such amendment, it being suggested to the court that this defence was inadvertently overlooked by counsel on the former hearing. The application, being made on behalf of creditors, is well addressed to a court of equity, and should receive favorable consideration if Iona, fide creditors will be benefited thereby. The complainant resists this application upon the ground alone that, admitting the applicant’s claim to be true in fact, no relief can be given. The contest relates to the lien of a chattel mortgage on personal property, which, for want of proper record, the complainant concedes is void as to creditors of the mortgagor. The mortgage was given by the Staten Island Terra Cotta Lumber Company. It was never recorded, and the mortgaged chattels remained in the possession of the mortgagor, by whom they were sold in bulk to the defendant company, of which the present applicant is the receiver appointed in insolvency proceedings. The sale was made subject to the mortgage, so that the purchaser took with notice of the mortgage, and, as between it and the mortgagee, it was a valid encumbrance. The applicant now claims the right to contest the validity of this mortgage as the representative of the creditors of such purchaser, it not appearing that there are' any creditors of the mortgagor. The complainant puts its resistance to the granting of the application upon the ground that the statute declares such an unrecorded mortgage void only as to the creditors of the .party giving the mortgage, and that the advantage which the law gives to the creditors of a mortgagor where the mortgage is not recorded does not extend to creditors of a purchaser from the mortgagor. The pertinent words contained in the Chattel Mortgage act are: “shall be absolutely void as against the creditors of the mortgagor.” The complainant contends that these words have a limited meaning, and that if there are no creditors of the person who gave the mortgage, there is no such “mortgagor” as the act contemplates, and that the mortgage is good, though unrecorded, not only against the purchaser with notice, but also against the creditors of such purchaser, even though they have dealt with and extended credit to him, as the owner of the goods, without actual or constructive notice that such chattels are subject to the lien of the mortgage.

Before the Recording act, chattel mortgages, unaccompanied by change of possession, were prima facie fraudulent, as to creditors, mortgagees or purchasers, without notice, the fraud inferred, however, being subject to explanatory evidence of the bona fides of the transaction, and the act referred to was passed to enable the holder of a mortgage to permit the owner to retain possession, and at the same time warn all who might give credit to the owner because of his possession of the goods that there was an outstanding claim against them. Knickerbocker Trust Co. v. Penn Cordage Co., 65 N. J. Eq. (20 Dick.) 181, 185.

This mortgage, in tire absence of the statute,' would be void as to every creditor of a subsequent owner of the goods who might obtain a lawful lien thereon, because possession of the goods had not been taken by the mortgagee, unless such non-transfer was satisfactorily explained, for such neglect to take possession was held to be prima facie fraudulent. We must therefore consider to what extent the Recording act has changed the relation of the parties to such a contract. By its terms, a mortgage on chattels, unaccompanied by possession, is made absolutely void as to the creditors of the mortgagor, the purpose of the act being to protect persons in extending credit to one having the visible possession and ownership of chattels, unless the mortgagee saw fit to make public, in the manner required by law, his claim against such goods. To read the act in the restricted sense now contended for would aid in the perpetration of the very fraud which at common law was so strongly condemned, for the mortgagee with his secret claim could stand by and permit the original mortgagor to dispose of the chattels in bulk, subject to his mortgage, and thus allow the purchaser to deal with his creditors as the owner of unencumbered property. As the mortgagee with knowledge of the transfer by the mortgagor to a third party, as is the case here, could reduce the goods to its possession, it has, in my opinion, no greater protection for its unrecorded mortgage against the creditors of the purchaser than it would have had against the creditors of the mortgagor, and having permitted a new owner to retain the possession of the goods, that owner becomes, within the meaning of the statute, a mortgagor.

The complainant’s claim is that he is relieved from the consequences of his neglect to take possession, which under the common law renders his mortgage prima facie fraudulent, because under the Recording act the failure to record where the possession of the mortgaged property remains unchanged only avoids the mortgage as to the persons named, and that as to all others it is a valid encumbrance. In other words, a chattel mortgage, unaccompanied by change of possession of the property, is, because of the act, a stronger security than it was before, and that no fraud can be imputed for want of record in such cases, so that instead of being prima facie fraudulent, it is good against everyone, other than the limited class named in the statute. This reasoning does not convince me as being sound, for I think the words and plain intent of the act are against such construction, and that it makes all such mortgages void as against the creditors of any owner holding the property subject to such unrecorded mortgage with the knowledge and consent of the mortgagee. When conditions change, and innocent parties may suffer, it becomes the duty of the mortgagee to warn them by taking possession, if he desires to obtain priority of lien.

My conclusion is that, under the conditions present here, this mortgage is void as against the creditors of the purchaser from the mortgagor, and that the Recording act does not remove the imputation of fraud which the common law attached to a chattel mortgage of goods unaccompanied by change of possession, and that while it may not be void as to the purchaser because of notice, such notice is not chargeable to his creditors. It therefore follows that if this applicant can support with, evidence the allegations he proposes to incorporate in his amended answer, this mortgage would be void as to such creditors, and I will allow the motion.


text:
    Hegeman’s Executors v. William J. Roome et al.
    [Decided November 23d, 1905.]
    1. A bequest to a' trustee for the purpose of making such distribution among religious, benevolent or charitable objects as he may select is void as vague and indefinite.
    2. A bequest of property referred to as received by a testator under the will of his wife will not operate to pass property received by him from her as an intestate.
    3. The act of 1888, giving administrators with the will annexed the same powers in respect to sales of land as executors named in the will, does not give a substituted administrator power to sell lands which are the subject of an express devise to the executor in trust, with power of sale, for it is a personal trust and is not transmissible.
    On bill for construction of will and directions to trustees.

      Mr. Charles A. Reed, for the complainants.

      Mr. Craig A. Marsh, for Muhlenberg Hospital and Children’s Home Association, &c., defendants.

      'Mr. Hugh B. Reed, for William J. Roome and wife and Emma L. Harbough, defendants.

      Mr. John II. Van Winkle, for the executors of Eleanor Roome, defendants.
   Bergen, Y. C.

The bill in this cause was filed by Benjamin A. Hegeman, Jr., .-and William J. R. Hegeman, substituted administrators with ■the will annexed of Catherine E. Hegeman, deceased, and also as executors of the last will and testament of Benjamin A. Hegeman, deceased, lor the purpose, among other things, of obtaining the direction of the court as to the proper execution of a trust, which it is alleged was created by the last will and testament of Catherine E. Hegeman, in which, after numerous bequests of portions of her property, she ordered and directed as follows:

“Thirteenth. I hereby give and bequeath to my husband, Benjamin A. Hegeman, for his own personal use and benefit during his life, all the net income, interest or revenue of my estate, both personal and real, of which I may die seized or possessed, or which I may hereafter acquire, or to which I may be entitled at the time of my decease, giving him full power to manage and control my said estate, both personal and real, the same as I might or could do if living. He to have full power to sell my real estate or personal property, and reinvest the proceeds for the benefit of my estate, or as he may deem for its best interest, and to give good and sufficient deeds and conveyances therefor to the purchaser or purchasers thereof.
“Fourteenth. At the death of my husband, Benjamin A. Hegeman, I hereby direct that the- residue or remainder of my estate shall be divided ’ as follows.”

Succeeding this are eight different bequests, which it is not necessary here to recite.

“Twenty-third. Should there be any residue or remainder of iny estate left after providing for the payment of the legatees hereinbefore named, I hereby give and bequeath the same to my husband, Benjamin A. Hegeman, for the purpose of making such distribution among religious, benevolent or charitable objects as he may select.”

The important controversy arises over this last paragraph.

Benjamin A. Hegeman, the husband of Catherine E. Hegeman, having been appointed the executor of her last will and testament, duly qualified as such, and retained in his possession until his death the property and estate the income of which was devised to him for life, holding as a part of such trust fund certain real estate particularly described in the bill of complaint, as well as a considerable amount of personal property. The husband left a last will and testament, in which, after repeating the eight bequests as set out in paragraphs fifteen to twenty-two. inclusive, of his wife’s will, he devised as follows:

“I give and bequeath to my executors hereinafter named all the property which I shall receive, or which may come to my estate after my decease, under the twenty-third article of the will of my deceased wife, Catherine E. liegeman, bearing date July 23d, 1894. In trust, nevertheless, to take the same and divide such property into two equal parts or shares, and to transfer and pay over one of such parts or shares to the Muhlenberg Hospital, in the city of Plainfield, State of New Jersej', and the other of such parts or shares to the Children’s Plome Association of said city; each of said parts to be .known as the ‘Catherine E. Hegeman Fund’ of the respective beneficiaries above named, and to be held by them in trust to invest and receive the income therefrom, to use and apply such income only to and for the respective charitable objects for which they are organized.”

The persons entitled to the estate of Catherine E. liegeman had she died intestate insist that the twenty-third section of her will, which authorizes her husband to distribute the residue of her estate, after providing for the payment to the legatees named in her will the sums bequeathed to each, among such religious, benevolent or charitable objects he may select, is void, and that they are entitled to such residue. After the death of the husband, the complainants were appointed substituted administrators with the will annexed of Catherine E. Hegeman, and having in their possession such residue and remainder of her estate, now seek the direction of this court in the premises.

While in my judgment the appointment of the complainants as substituted administrators does not create them trustees under the will of the testatrix, still, as all of the parties in interest are before the court, and no objection lias been raised by any of them, I will, in view of the fact that if the trust exists it would be the duty of this court to appoint a trustee, consider these complainants as occupying that position, and if necessary make an order appointing them thereto, and I feel justified in adopting this course, because the life tenant, to whom the power of disposition was given, has, in and by his last will arid testament, bequeathed to the same parties the fund in question in trust to divide and pay over to the beneficiaries named in his will.

A careful consideration of the twenty-third paragraph of the udll of Catherine E. Hegeman leads me to the conclusion that the bequest contained in that paragraph is void. A bequest to benevolent, religious or charitable institutions, without qualification, has been so often held to be void by the courts of this state as to place the question beyond successful argument. In the case of Thompson’s Executors v. Norris, 20 N. J. Eq. (5 C. E. Gr.) 489, a bequest to “such benevolent, religious or charitable institutions as she may think proper” was held void, because it was so vague and indefinite that it could not be enforced, and the case was affirmed on appeal, after a most extensive and elaborate argument, Chief-Justice Beasley, who wrote the opinion, saying: “The bequest is to 'benevolent, religious or charitable institutions.’ This is too broad. Benevolence is wider than charity in its legal signification.” The rule thus laid down has since then been repeatedly subjected to judicial consideration, and has always been maintained. De Gamp v. Dobbins, 31 N. J. Eq. (4 Stew.) 671; Hyde’s Executors v. Hyde, 64 N. J. Eq. (19 Dick.) 6. In the latter case the bequest was “for such religious, charitable, educational or other purposes as they may deem advisable; provided, nevertheless,' that no portion thereof shall be given to or distributed among my wife or children, individually or collectively,” and the bequest was declared void because it contained the words “or other purposes,” and this in spite of the fact that'in declaring the bequest void the fund would be distributed among the wife and children of the testator, in direct opposition • to a contrary proviso contained in the disputed paragraph.

On the argument it was strenuously urged that as the testatrix had, in and by her last will, disposed of a large portion of the trust fund, to take effect after her husband’s death, to eight recognized charitable purposes, such bequests ought to be taken as indicating and controlling the character of the objects which the husband must select in making distribution. I have carefully considered this insistment, but I can find no way to give it effect, because in the paragraph under consideration the residue is given and bequeathed to the husband, not for the purpose of carrying out the intentions of the testatrix as to the objects of her bounty, but for distribution by the husband in such manner as he may select, subject to the direction that the distribution shall be to benevolent as well as religious or charitable objects. My conclusion therefore is that, as to the property of Catherine E. Hegeman sought to be disposed of by the twenty-third section of her will, she died intestate, and it descended to the persons who would inherit the same under such conditions.

As Catherine E. Hegeman never had any children, the personal property which she sought to dispose of by this twent3rthird paragraph would become the absolute estate of her husband, he having survived her, and the next question presented is, Do the two beneficiaries of this fund under the husband’s will take the personal property as a bequest from him? I can find nothing in the husband’s will to support such a theory. All that the will contains on this subject is to be found in the eighth paragraph, which opened with a recital of the directions contained in the will of his wife with regard to this fund, and then continues as follows:

“Now, for the purpose of better carrying out the provision of the will of my deceased wife, since the whole of her estate will be in my hands as her executor, I direct my executors hereinafter named to keep separate and apart from my estate all the property which shall be in my hands and under my control at the time of my decease and belonging to the estate of my said deceased wife, and to make the division thereof as provided in her will.”

And then, after repeating, in the form contained in the will of his wife, the eight distinct legacies she had given to take effect after his death, he continued:

“I give and bequeath to my executors all the property which I shall receive, or which may come to my estate after my decease, under the twenty-third article of the will of my deceased wife. * * *' In trust, nevertheless, to take the same and divide such property into two equal parts or shares and to transfer and pay over,” &e.

It does not seem to me that under this bequest the husband had any intention of doing more than what he supposed he. was required to do under the will of his wife, and it cannot be said that he was bequeathing any property which he supposed belonged to him, for he distinctly limits it to such property as he may receive under the twenty-third paragraph of his wife’s will. As he did not receive this property under the will of his wife, and only took because she died intestate, to hold that he intended to pass over to these .worthy charities property coining to him from a source other than that described in his will would amount to the making of a testamentary disposition for the testator which he had not authorized, and which the law would neither support nor justify. My conclusion on this branch of the case is that, as to the personal property of which Catherine E. Hegeman died intestate, the husband did not dispose of it under the eighth paragraph of his will, and that the trustees are accountable to his estate therefor.

Another question presented is whether the trustees are vested with a power of sale of the real estate which constituted a part of the fund. This question arises under the thirteenth paragraph of the will of Catherine E. liegeman, in which, after bequeathing to her husband for life the income of her estate, both real and personal, and giving him full power to manage and control the same as she could if living, she conferred a power of sale as follows:

“He to have full power to sell my real estate or personal property and reinvest the proceeds for the benefit of my estate, or as he may deem for its best interest.”

It will be observed that while she appoints her husband executor of her will, she' confers no power of sale on him as such. The power is limited to him as trustee. Under these conditions, in my opinion, the power of sale was a personal trust and confidence, and is not transmissible, for where there is a direction to convert, coupled with a trust or confidence in one who is to sell “as he maj^ deem best,” it is a personal trust, which can only be exercised by the person in whom it' is reposed. Chambers v. Tulane, 9 N. J. Eq. (1 Stock.) 146; Brush v. Young, 28 N. J. Law (4 Dutch.) 237; Lanning v. Sisters of St. Francis, &c., 35 N. J. Eq. (8 Stew.) 392, 400.

The substituted administrator has not, under P. L. 1888 p. 895, any grant of power to sell lands which are the subject of an express devise in trust. The devise under consideration was to the husband, with a power vested in him alone to sell the lands if he deemed it advisable. He did not exercise a power which was only given in connection with a trust, which I have held to be void. The power of a substituted administrator to sell lands has been fully considered and defined by Chancellor Magie in Varick v. Smith, 67 N. J. Eq. 1. The other matters set out in the bill of complaint, and as to which instructions were prayed, relate entirely to directions as to the administration of the estate, and fall within the rule laid down by the chancellor in Hoagland v. Cooper, 65 N. J. Eq. (20 Dick.) 407.

I will advise a decree in accordance with the views, here expressed.