text:
    George W. Ballou v. The United States Flour Milling Company.
    [Submitted July 15th, 1904.
    Decided July 29th, 1904.]
    Where a case presented in the chancery court is substantially like a former case carried from such court to the court of errors and appeals, the chancery court is bound to follow such decision in the court of errors and appeals in the second case, though questions are raised which were not considered in the former suit.
    In insolvency.
    This is a petition by the receivers of an insolvent corporation praying for instructions from this court as to what disposition they shall make of a claim on behalf of the State of New Jersey for state franchise taxes which have accrued since the date of the making of the decree of insolvency herein.
    The precise language of the prayer is:
    “That they may be advised whether the said claim of the State of New Jersey is a claim against the assets of the said JJnited States Flour Milling Company, and, if a claim at all, whether it is a preferred claim against the said corporation, and, if so, out of what assets it is payable, and what steps, if any, it is the duty of your petitioners to take in the premises.”
    The body of the petition states, in brief, 'that the assets of the corporation, at the time of its insolvency, were all actually located in three other states of the union, and that none of them had any situs in the State of New Jersey; that the receivers’ possession of those' assets was obtained by legal proceedings, taken in the courts of the several foreign states, whereby they were appointed ancillary receivers in those states; that those assets were quite insufficient to pay all the debts; that none of the assets have ever been brought into this state; that by the laws of the several foreign states no preference can be given to the claim for taxes on the part of the State of Mew J ersey, and that this state would not be admitted as a creditor for any taxes which accrued after the date of the decree of insolvency, but that the assets would be divided among the creditors existing at that time.
    The case was heard on this petition without evidence, and, of course, upon the assumption that the allegations of the petition •were true.

      Mr'. Robert Ii. McCarter, attorney-general, for the state.

      Mr. Sherrerd Depue, for the receivers.
   Pitney, V. C.

My reading of the petition does not enable me to determine ■whether the'assets which accrued to the receivers in the several foreign jurisdictions are still within the practical control of those jurisdictions, so that the receivers cannot dispose of them without the several orders of those courts, or whether they are now within the absolute control of those receivers, subject only to the order and control of this court.

If the former is the true situation, then it seems to me that the question, so elaborately argued by counsel for the receivers, is, for present purposes, merely academic, and the present proceedings useless.

Manifestly, until the receivers are at liberty to follow the instructions of this court in the matter submitted, it is useless to give those instructions.

But, since that point was not taken by the attorney-general, I shall, very briefly, consider the question argued, and I do this simply because it does not seem, hitherto, to have been presented to or considered by any of the courts of this state in their dealings with insolvent corporations.

. The case of Crews v. United States Car Co., 57 N. J. Eq. (12 Dick.) 367, and 60 N. J. Eq. (15 Dick.) 514, seems to be on all fours with, this case, but the question now presented was not discussed, either by the chancellor, in this court, nor by the court of errors and appeals, in its review and reversal of liis decree in that cause.

I shall abbreviate the argument and mention sonic of the eases cited as authorities on behalf of the petitioners:

1. That this state has, independent of statutory provision, no right of preference over other creditors for the payment of taxes due to it. This is especially true of a tax not a tax upon property. Citing Freeholders v. Bank, 29 N. J. Eq. (2 Stew.) 268 and 30 N. J. Eq. (3 Stew.) 311.

2. The statutory provision for preference can have no extraterritorial force. If it could be held that the annual license fee here claimed is a tax proper, and a lien upon property within the state, that lien does not extend to and rest upon property beyond its limits.

3. The fund out of which the state claims the preference in this case is composed wholly of the proceeds of property and operations which never had any actual or legal situs in the State of New Jersey, but the situs of which was and is entirely in foreign jurisdictions, and such fund was never actually brought into the State of New Jersey by the receivers.

4. The receivers, only one of whom is a resident of New Jersey, came into possession of said property and funds by virtue of their appointment as such receivers by the several courts having territorial jurisdiction of the property and funds, upon suits brought in such courts for such purpose.

The receivers were not content to attempt to possess themselves of the property in a foreign jurisdiction by the uncertain right so to do arising out of their appointment by this court. By so doing they subjected all the property acquired in those jurisdictions to the control of their respective courts. Hurd v. Elizabeth, 41 N. J. Law (12 Vr.) 1; Moore v. Bonnell, 31 N. J. Law (2 Vr.) 90; Oakes v. Meyers, 68 Fed. Rep. 807; Reynolds v. Stockton, 140 U. S. 254; Sands v. Greeley Co., 88 Fed. Rep. 130; 31 C. C. A. 424; National Trust Co. v. Miller, 33 N. J. Eq. (6 Stew.) 155; Irwin v. Granite State Provident Association, 56 N. J. Eq. (11 Dick.) 244.

5. Hence those courts surely have the right to determine what creditors have just claim to so much of the fund in question as had its situs or origin in their respective jurisdictions and their respective priorities.

6. It sufficiently appears that those courts would neither allow the state franchise taxes which have accrued since the date of the decree of insolvency, nor give priority to them if allowed,, and that they have power to control the action of the receivers in that behalf.

7. This court ought, in dealing with those questions, out of considerations of comity, to he governed hy the rules which govern those courts, precisely as if those courts had actively intervened.

Many other authorities were cited hy the receivers in support of the foregoing propositions.

I have said that the propositions just stated and the questions arising thereon were not dealt with or considered in .the case of Crews v. United States Car Co., supra. That case, in its circumstances, was substantially like the present, and, although these questions were not raised or dealt with therein, it hinds me, and I must advise a decree in accordance with it.


source: Caselaw Access Project

author: Emery, V. C.

license: Public Domain

text:
    Alfred L. Peer and Arthur M. Peer v. Frank Wadsworth and Goerke Company.
    [Filed June 14th, 1904.]
    1. Converting windows in a leased building into open passageways, and constructing from them bridges connecting with similar openings in a building on the opposite side of an alley and closing up entrances to th'e leased building, constitute alterations, within the covenant of the lease stipulating that the lessee will not cut through the walls of the leased building, nor make any alterations, without the written permission of the lessor.
    2. In equity, a subtenant is chargeable with notice of the covenants in the original lease, and the landlord therein has the’same remedy against him as against any other purchaser with notice.
    3. On the issue whether a landlord, in a lease prohibiting the making of alterations in the leased premises without his permission, orally consented to alterations, evidence examined, and held not to prove consent.
    4. A landlord’s oral permission to his subtenant to make alterations in the leased premises which will give the subtenant an easement of ingress and egress into the building during the five-year term of the sublease, is. void under the statute of frauds.
    5. A landlord, in a lease prohibiting the making of alterations in the leased premises without his permission, is entitled to specific performance, though the damages sustained in consequence of the making of alterations without his consent are recoverable at law.
    6. Converting windows in a leased building into doors, and constructing from them bridges connecting with similar openings in another building,, constitute waste, entitling the landlord to relief in' equity.
    Heard on bill, supplemental bill, answer, replication and proofs.

      Mr. Mvin W. Gmne, for tbe complainants.

      Mr. Louis Hood, for the defendant company. -

      Mr. George H. Lambert, for the defendant Wadsworth.
   Emery, V. C.

The complainants, as owners of the fee and lessors, file this bill against Wadsworth, their lessee, and the G-oerlre Company, a sublessee of part of the leased premises, to enjoin the violation of a covenant in the lease, relating to cutting through the walls of the building on the premises and to compel the restoration of the walls to their original condition when leased. The premises leased to Wadsworth comprised a four-story building, No. 157 ifarket street, in the city of Newark, and a building adjoining it' in the rear in the shape of an “L,” fronting on another street, this “L” extension being known as No. 12 Library court. This latter building extended also in the rear of the buildings Nos.. 151 to 155 Market street, lying west of Ko. 157, and which were not owned by the lessors. The eastern wall of Ko. 157 Market street bounded on an alley known as Wilbur’s alley. At the time of the execution of the lease (October 30th, 1901), there was an entrance into Ko. 12 Library court from Ko. 151 Market street through an opening in the wall between' the two buildings. The only openings in the eastern wall of Ko. 157 Market street at that time were the windows of the buildings opening into the alley, and there were such windows on the second, third and fourth stories. The entire premises, Ko. 157 Market street and Ko. 12 Library court, were used for store purposes, and the entrance to the second, third and fourth stories of Ko. 157 Market street was through the first floor of the building, from which a stairway ran to the second story. The lease, which was for three years at a yearly rent of $3,300, besides taxes, assessments, water rents and repairs, contained the following covenant relating to openings in the walls of the buildings:

“And it is further understood and agreed that at the expiration of this lease, upon the request of the party of the first part [the lessors] in writing, the party of the second part shall close with brick the entrance cut through from said No. 12 Library court to No. 151 Market street, and no other outside wall or walls of or between No. 157 Market street and No. 12 Library court shall be cut through by the party of the second part, nor shall any alterations or additions be made without the written permission of the party of the first part.”

The lease contained a further covenant on the part of the lessee not to use the premises, or any part thereof, or permit ,any part to be used for any purpose more hazardous than that of an ice cream and candy factory and store, without the written consent of the lessors, their heirs, assigns, agents or attorneys, under the penalty of forfeiture and damages. It was further agreed that the lessee might have the right to sublet any part or portion of the premises, provided the occupation should not be for any more hazardous business, and that the conditions, obligations and agreements of the lessee should bind the lessee, his-heirs and assigns, and that each and every one of the considerations specified were to be performed fully and in the manner-specified. Wadsworth took possession of the entire premises-under this lease, and on February 10th, 1902, a further lease to him of the premises for five years from April 1st, 1904 (the termination of the first lease), at the yearly rent of $10,000, besides taxes, assessments, water rents and repairs. This second lease contained a clause relating to the cutting of the walls and the use of the premises somewhat different in form, as follows:

“And it is further understood and agreed that at the expiration of this lease, upon request of the party of the first part, in writing, the party of the second part shall close with brick the entrance cut through from said No. 12 Library court and No. 151 Market street, and that he will not cut through any other walls of the premises hereby demised, nor make any alterations or additions, nor sell or assign this lease, nor use or permit the whole or any part thereof to be used for any other purpose than an ice cream and candy factory and store, without the written consent of the said party of the first part, their heirs, assigns or attorneys, .under the penalty of forfeiture and damages.”

The conditions, obligations and agreements of this lease were also binding on the lessee, his heirs and assigns, and each of the considerations specified was to be performed fully and as set forth. The second lease contained no provisions relating to subletting.

On August 7th, 1902, the lessee gave a sublease of the second, third and fourth stories of No. 157 Market street for seven years, at tire yearly rent of $1,200, to the defendants, the Goerke Company, who then owned or occupied the building across the alley, No. 159 Market street, and carried on there and also in Nos. 153 and 155 Market street, adjoining the leased premises on the west, the business of a large department store. By the sublease the Goerke Company agreed not to use airy part of the premises, nor permit them to be used, for any other purpose more hazardous than that of an ice cream and candy factory, nor for any other purpose save such as was permissible under the two indentures of lease to Wadsworth, which were recited. The sublease contained the following recital in relation to the use of the premises No. 157 Market street by the subtenant in connection with theit store No. 155 Márket street and with their other store, No. 159 Market street, on the east side of the alley:

“And it is further agreed between the parties hereto that whereas, the said The Goerke Company is the lessee or owner or occupants of divers premises adjoining the premises hereinabove demised, and.also of other premises to the east of the premises hereby demised and separated therefrom by a certain street known as Wilbur’s alley;
“And whereas, it is the intention of the Goerke Company to use the said premises in connection with the other premises hereinabove mentioned leased, occupied or owned by it, and for that purpose, to connect the premises herein demised with the premises aforesaid by means of bridges or other means or methods of connection:
“Now, therefore, it is agreed between the parties hereto that for the purpose of making said connections or communications between the demised premises and the other premises leased, used or occupied by the said The Goerke Company, the said The Goefke Company take such possession of the premises herein demised before the aforesaid first day of October, nineteen hundred and two, as may be necessary for the said Goerke Company to have for the purpose of making the aforesaid connections or communications, so that the same may be completed before the said first day of October, and in the event that the said The Goerke Company shall take possession of the premises aforesaid prior to the first day of October, nineteen hundred and two, then the said Goerke Company shall, at its own expense, move the property of the said party of the first part from the said demised premises to one hundred and fifty-one Market street, in the city of Newark.
“And it is further agreed between the parties hereto that whereas divers questions may arise in making the connections or communications in the last preceding clause referred to between the premises herein demised and the premises now leased, occupied or owned by the Goerke Company if the said The Goerke Company shall fail to secure consent according to the terms of said lease or if for any reason the said The Goerke Company shall be unable to make the said connections and communications, then, at the option of the said The Goerke Company, its successors and assigns, the said The Goerke Company may surrender this lease, and upon the making of said surrender, this indenture of lease and anything herein contained shall cease and terminate, anything herein-before to the contrary notwithstanding; and in the event of the terminating of the said lease as aforesaid, if the said The Goerke Company shall have taken possession of the said demised premises for the purpose of making the connections and communications in this lease mentioned, and shall have moved the said party of the first part to the premises one hundred and fifty-one Market street, then and in such event the said Goerke Company, at its own expense, shall remove the property of the said party of the first part by it theretofore moved and replace the same upon the premises herein demised.”

After the execution of this sublease, and about the middle of September, 1902, the defendant company cut down to the floor a window in the eastern wall of the second story of No. 157 Market street, converting it into an open passageway, and constructed from it a bridge connecting with a. similar opening in No. 155 Market street. Subsequent to the filing of the bill, similar connections, by the conversion of windows into passageways and by bridges builf into the wall, have been made between the third and fourth stories of these buildings. The former entrance to the second story of No. 157 Market street from the first story has been closed up by the lessee and the subtenant, and the entire access to the second, third and fourth stories of the complainants’ building is now from tiro defendant company’s other buildings in Market street. The bridges over the alley, which are fastened at one end in the complainants’ buildings, are now used for providing the sole ingress and egress into the three upper stories of their building from the defendants’ other buildings. All of these alterations or erections, and this use of the building, have taken place without the written consent of either of the complainants, and the first bridge was constructed during the absence of both the owners from the city and without their knowledge. These alterations come within the reach of the covenants in both of the leases, and, as I think, they constitute such a substantial alteration of the building and in its.use as to constitute a waste of the premises. At law there is no privity of estate or contract between the original lessor and the subtenant, 1 Tayl. Land. & T. (81th ed.) §§ 109, 448, but in equity a subtenant who enters on the land is chargeable with notice of the covenants in the lease relating to its use, 1 Tayl. Land. & T. (8th ed.) § 109, Cosser v. Collinge, 3 Myl. & K. 283, and tire landlord has the same remedy in equity against the subtenant as against any other purchaser with notice. In this ease the sublease was expressly made with reference to the covenants of the original leases, restricting the right to open the walls of the building without written consent of the lessors. The defendant Wadsworth does not claim any consent of either lessor, by writing or otherwise, nor does he at the hearing claim that any permission of any kind was given to him personally. After the execution of the sublease, and on August 25th, learning that the alterations were proposed to be made without procuring the previous consent of the landlords in writing, he notified his subtenant, in writing, not to cut any openings in the outer walls of No. 157 Market street. The Goerke Company sets up the parol permission of Alfred L. Peer, one of the lessors, to the erection of the bridges as being a waiver of Hie covenant and an estoppel against equitable relief. It is claimed that this permission was given by Alfred L. Peer, in March, 1902, to a Mr. Safford, an employe of the company, in a conversation between them, in March, 1902, several months before the sublease, when Mr. Safford called on Alfred L. Peer, ostensibly, .as Safford says, with a view of obtaining the price of the property, and in the course of which conversation the verbal permission now set up was said to have been given. Mr. Alfred L. Peer denies that any such permission was given, and says that at that conversation, when the matter of bridging the alley was mentioned, he directed Mr. Safford to inform the Goerke Company that the owners of the property would consider an amount of $2,500 a year for the privilege, and that no permission was given. In this account of the conversation he is corroborated by his wife, who was present. In the statement that no permission to bridge the alley and- connect the buildings was then given or intended to be given on behalf of either of the owners to the Goerke Company, and that Mr. Goerke, the president of the company, did not so understand and did not act on any such understanding, complainants are corroborated by the proof of two subsequent conversations held with Mr. Goerke himself. The first occurred about a week after Mr. Safford’s interview, when Mr. Goerke called on Mr. Alfred L. Peer, at the house of the latter in Newark, and then received from him, as Alfred L. Peer says, the same answer to his application to know what money consideration the owners would take for bridging the alley. The second conversation occurred between Arthur M. Peer, the other complainant, who, on April 15th, 1902, came to Newark for the express purpose of seeing Mr. Goerke in relation to this matter, and saw him, as he says, at his brother Alfred’s house, where he gave substantially the same terms. Goerke denies that he ever had either of these conversations, and also denies that he was ever in Alfred L. Peer’s house, in Newark, between the time of Salford’s interview and September, 1902, after the first bridge was built. That Goerke was at Alfred L. Peer’s on both occasions between these dates, is to my mind satisfactorily established — as to the first, by the evidence of Mr. and Mrs. Alfred L.'Peer, and as to the second interview by their evidence in addition -to that of Arthur M. Peer. That the conversation of Mr. Alfred L. Peer with Salford was not taken or understood by Gberke to have been intended as a permission which was intended to waive, on the part of either lessor, the right to require the written consent under the lease, and was not acted on as such permission, is further indicated by the circumstance that the Goerke Company did not procure the sublease until several months later; that the sublease itself indicates that the consent of the lessors had not yet been procured, and that up to the time of the answering affidavits in the suit Mr. Goerke did not set up this alleged permission given through Safford, in March, as his justification of the erections. No mention was made of it at either of his conversations in March or April, 1902, nor at the first conversation he held with Alfred L. Peer, in September, 1902, when the latter charged him with having violated the lease. Treating the question of the parol permission given by one of the lessors as an issue of fact, I conclude, on the evidence, that it has not been proved. But as the permission relates to the use of lands, and if proved will give to the defendant company an easement of ingress and egress into complainants’ building through its upper walls for the whole term of their sublease, it comes within the operation of the statute of frauds and the rule settled in Lawrence v. Springer, 49 N. J. Eq. (4 Dick.) 289 (Court of Errors and Appeals, 1892). In that case, Chief-Justice Beasley, after declaring his opinion to be that easements cannot be imposed on lands by parol evidence, and that parol licenses cannot have that effect in equity merely because they have been executed, sa}rs (at p. 297) that the parol contract can never be enforced in equity .until it be proved to the point of demonstration, and unless it also appears that the repudiation of it must work irreparable injury. In this ease the parol permission has not been proved, and the fact that the sublease reserved to the company the right to terminate its lease if the consent is not obtained according to the terms of the lease (i.- e., a written consent is not obtained), is cogent, if not conclusive, evidence as well on the point that the subtenant did not rely on Safford’s permission as the ground for either taking the lease or altering the building, as upon the point that the removal of the bridges is not an irreparable injury. The fact that the entrance to the upper stories, which existed when the sublease was made> has been closed since the sublease by the action of the parties thereto, without any consent or communication with, the lessors, cannot affect the right of the lessors to be protected against alterations of the building and openings of the walls under tire express covenants of the lease. In disposing of this branch of the case I have not considered the point raised by complainants’ counsel, that parol permission given by one lessor is not effective under the covenant and that the waiver of both lessors must be shown, but I anr inclined to think the objection well founded.

It was contended at the hearing that the complainants’ remedy was at law, and that an injunction, mandatory or other, could not be granted, because no irreparable injury to complainants had been or would be caused, and complainants’ damages were the proper subject of money compensation by action for damages. It is, however, settled law that agreements restricting within reasonable limits the use of premises may be made upon their sale or lease, and that when such restrictions are made, they ai’e considered to be part of the consideration upon which the vendee or lessee receives the premises or their possession. The vendor or lessor is therefore usually entitled to the specific performance of the lawful agreements relating to the use or enjoyment of the property sold or leased, and the equitable jurisdiction to enjoin the violation of the agreement does not depend on irreparable injury or lack of adequate relief at law, but is founded on the right to specific performance of contracts. Kirkpatrick v. Peshine, 24 N. J. Eq. (9 C. E. Gr.) 296 (Chancellor Zabriskie, 1873), states the principle in relation to covenants in the sale of premises, and where positive stipulations as to acts of waste are made between the parties to a lease, either party has the right to insist on the literal performance of the contracts, irrespective of the.question of damages. Kerr Inj. *83, 440, 441; Steward v. Winters, 4 Sandf. Ch. 587, 592 (1847); and as to defendant company no action at law could be brought on the covenant. Tayl. Land. & T., supra.

Independent of the jurisdiction to enforce covenants, the injunction in this case may properly be granted on the ground that the changes made by the defendant company are material alterations of the building, which constitute waste. Windows admitting light are discontinued and openings for doors substituted, a material difference in the easement in the adjoining alley. A subtenant may be enjoined from committing waste. Farrant v. Lovell, 3 Atk. 723. Complainants are therefore entitled to a mandatory injunction requiring the removal of the bridges from the walls and alley and the restoration of the windows, and a perpetual injunction against the erection of bridges in the future. On the application for preliminary injunction the defendant company, as a condition for denying it, gave a bond to pay damages, to be assessed by this court. I will hear counsel on the order or decree to be made in reference to the damages.


text:
    Clement C. Clawson v. Aurelia Lee Brewer et al.
    [Filed June 28th, 1904.]
    1. Where a father and son owned property together, which was largely acquired through the business ability of the son and direct applications of his money, the legal title to the property being taken in the name of the father, on condition that at his death it should be left by will to the son, but was in fact left by will to the son’s stepmother, an agreement between the stepmother and the son that at her death, in consideration of the son making no claim against his father’s estate, she would leave the property to the son by will, constituted a family arrangement or compromise, which, being founded on sufficient consideration and afterward acted on in good faith, will be enforced, though resting in parol.
    2. The abandonment of any claim by the son against his father’s estate, and the enjoyment by the stepmother during her life of the use of the property, constituted a valid consideration for the contract between the stepmother and stepson.
    3. Where an agreement was entered into between a stepmother and stepson that, in consideration of his abandonment of any claim against his father’s estate, she would leave certain property to him by will at her death, which was acquiesced in by both until her death, but not complied with by her, so that it would be impossible to restore him to the situation existing at the time of his father’s death, an action at law for damages against the stepmother’s estate would not afford an adequate remedy, and specific performance will be decreed in order to prevent a fraud.
    4. In a suit against a decedent’s estate to enforce specific performance of an oral agreement to devise land to complainant, in which decedent’s executors are parties, complainant’s testimony as to transactions with •decedent, is inadmissible, under P. L. of 1900 p. 363 § 4 relating to evidence ; but the agreement being based on a promise of the deceased father of complainant to leave the property to the son by will, which he failed to ■do, complainant’s testimony as to transactions with his father is admissible, the father’s executors not being parties to the suit.
    5. Where an oral agreement between decedent and complainant to ■devise land distinctly related to the property received by the decedent from her husband’s will, the contract is not too vague and indefinite to be ■enforced, on the ground that the property was not described.

      On bill, answer, replication and proofs.

      Mr. Charles II. Halfpenny and Mr. Robert H. McCarter, for the complainant.

      Mr. Thomas 8. Henry, Mr. Massey and Mr. Ingram, for the defendants.
   Emery, V. C.

This is a bill filed by the complainant against the executors and devisees of his father’s widow, complainant’s stepmother, for the specific performance of a parol agreement to devise to him, at her death, the property she received from her husband’s estate, on his death, by his will. The complainant’s father, Henry T. Clawson, at the time of his death, August 12th, 1897, held the title to his dwelling-house, on ITalsey street, in the city of Newark, and to a factory property on Hackett street, and had, besides, the title to personal property (mainly tools, &c., in the factory), worth about $10,000. Complainant had, from his own money, paid about one-half of the entire purchase-money on the Halsey street property ($6,500), and had paid in the same way about $3,000 toward the purchase of the factory property. At the time of the purchase, March, 1899, the factory was occupied under a lease to both father and son, which had still four years to run. The complainant lived with his father and stepmother from the time they all came to Newark together, and managed or superintended the work at the factory, which was the manufacture of machines, invented by complainant, for sale principally to companies- which complainant controlled. It was mainly through these inventions by complainant, and through complainant’s management of the business of manufacture and sale, and his control of the prices for both manufacture and sale, that the property of the son and that which stood in the name of the father was accumulated. A company called the Clawson Slot-Machine Company, which was organized by complainant about 1890 and controlled by him, purchased the machines from H. T. Clawson, at a price practically fixed by complainant, and it was from the profits derived from this manufacture and sale to the company that the money paid by II. T. Clawson personally for the property in question was mainly derived. The complainant claims that the title to both the properties was taken and allowed to stand in the father’s name under an express agreement between the father and himself, he being 'his father’s only child, that whatever was made in the business they would enjoy together as long as they both lived, and that if the father should die he would leave all he had made to the son. The agreement, as he swears, was first made on the occasion of the purchase of the factory property, and taking the title in the father’s name. The purchase price of the factory was $9,400, of which $8,000 was raised by a building loan mortgage. In February, 1895, the complainant, from his own funds, paid off the balance ($2,991) due on the purchase-money mortgage, and says that at the time of this payment the understanding about the property coming to the son after the father’s death was again referred to and confirmed. On the purchase, in June, 1892, of the Halsey street property, the family residence which they had occupied under a lease to the father, the son advanced $3,200 for its purchase from his own money, and according to the son’s statement the title was taken in the father’s name on his giving the same assurance that when he was gone all would be the son’s. That the talent and services of his son was the principal source of the property in question and of the means accumulated by the father is, I think, satisfactorily proved, as is also his acknowledgment of his son’s affection and liberality and services in relation to his own property. It is also shown, by the evidence of Mr. Pierce, that in the conversation relating to his estate, taking plaee when he applied to him to be one of his executors, or spoke to him of the disposition of his estate, the father then intended that his wife should be taken care of during her lifetime, and that the property should go to his son at her death. From the evidence of conversations by the son with Mrs. Clawson after her husband’s death, and another conversation with her by a witness, Miss Sweeney, and slightly corroborative, it would seem probable that the father did make' a will in favor of the son, which was superseded by a later will. The terms of any such will have, however, not been proved by competent evidence. By his will, dated-August 15th, 1893, the father devised both the residence and factory in fee to his'wife, complainant’s stepmother, with the direction that his son, if he chose to do so-, should be permitted to occupy the factory, with the implements, machinery and tools, at a rent to be fixed by his wife and executors, who were the wife and the son and an intimate friend, Amos W. Pierce. And after bequeathing to his wife and son equally the proceeds of his life insurance policy, and to his son $2,000, the testator devised and bequeathed all the residue of his estate to his wife. Immediately after the reading of the will complainant expressed, both to Mrs. Clawson and to Mr. Pierce, his dissatisfaction with it, and threatened to contest this distribution of his father’s property. Mrs. Clawson herself spoke to Mr. Pierce of the complainant’s opposition to the will and of his threats, and requested him to talk to the complainant and try to satisfy him that there was no necessity for him to contest his father’s will or make a fuss. Mr. Pierce then said to her that complainant was dissatisfied because his father had not done right, or as he had agreed to do, and that his father had certainly agreed to leave him this property. Mrs. Clawson then said that she would carry out his father’s agreements; that complainant should have this property; it should never go- to her kin folks, but to him, and that she would make a will and leave it to him. Mr. Pierce said that if she agreed to do that complainant might be satisfied, and at Mrs. Clawson’s request Mr. Pierce at once saw complainant for the purpose of giving him this assurance, and did communicate it to the complainant, advising him to accept it. The complainant said to Mr. Pierce that if his mother agreed to leave the property to him he would be satisfied, and this result of his conference was communicated to Mrs. Clawson, who- thereupon said that she agreed to leave the property to her stepson, and this agreement was reported by Mr. Pierce to the complainant on the same day. Ho objection was made to the probate of the will, or to the disposition of the property under it, according to its terms. The complainant put in no claim against the estate of his father for money advanced for the purchase of the property or for the running expenses of the factory, which he advanced for a time, or for the amount which was due on a claim for realties on the manufacture of one of complainant’s inventions, which was made by the father under a special agreement for royalties. To accurate account had been kept of the number manufactured, and the amount of this claim, alleged to be between $7,000 and $10,000, was uncertain. Complainant continued the business at the factory, and on January 1st, 1898, a lease for ten years, to May 1st, 1908, at the yearly rent of $1,200, was made by the executors to the Olawson Machine Compaq, the name assumed by the Clawson Slot Machine Company after the father’s death. At the father’s death complainant owned all of the stock except $4,000, which stood in his father’s name, and which was procured by the father through the son by tire sale to the company of machines at a price fixed by the son, which included the profit of manufacture. In March, 1898, Mrs. Clawson made a will, and Mr. Pierce says that she told _ him about that time that she had made the will leaving the property to Clem.ent, and that she hoped he and all the rest would be satisfied. This will has not been produced, nor have its contents been otherwise proved, the counsel who drew it (one of the counsel for some of the defendants in this suit) declining to testify on the ground of professional privilege, and the disclosure was not further insisted on. The complainant, after the making of this will, together with his wife and child, lived with his stepmother and her niece, Miss Lee, now Mrs. Brewer, in the Plalsey street house, or at a residence in the country belonging to complainant, at Elagtown, to which complainant removed shortly before the death of his wife. The relations between all the family continued affectionate and friendly during this time and up to the time of the death of complainant’s wife, in 1900. A girl, named Ella Hood, had been employed as the nurse of his child, arid lived with the family at the time of the complainant’s first wife’s death, and after this time there was an estrangement between complainant and Ms stepmother on account of Miss Hood.

On July 17th, 1900, Mrs. Clawson made a second will, the one now in question, in tire contemplation that complainant might marry Miss Hood, to which marriage she was opposed. This will, which contains some minor personal specific bequests, gives to her stepson the use of the Halsey street residence for his life on condition that he provide a home for her niece, Miss Lee, and on the further condition that he does not marry or live with Ella Hood. The use for his life of all the residue of her estate is also given to complainant upon condition that he does not live with or marry Ella Hood. The remainder in the estate after complainant’s death (or on breach of the condition) is devised and bequeathed to the defendants, who are the nephews and nieces of Mrs. Clawson. It does not appear that Mrs. Clawson ever communicated to complainant her intention of changing her will, or of making her devise of the property subject to a condition of this kind,' and, apparently without knowing of any such proposed condition, the complainant, in February, 1901, married Miss flood. After this marriage complainant and his wife lived at Flagtown, and the friendly relations between complainant and his stepmother were interrupted, but he visited her at the residence in Newark, and before her death in February, 1902, the relations became more friendly. It does not appear that the complainant knew before the publication of this will that his interest in the estate received by Mrs. Clawson from his father had' been1 made subject to this condition relating to his marriage.

The facts proved bring the case within the application of the equitable rules relating to specific performance of contracts in the nature of family arrangements or compromises. Such family arrangements changing the legal rights of the parties interested in the estate of a decedent, founded on sufficient consideration, and afterward acted on in good faith and partially performed, will be enforced, although made by parol and in the absence of a formal contract. Williams v. Williams, 2 Eng. Ch. App. 294; Neale v. Neale, 1 Keen 672 (Lord Langdale, Master of Rolls, 1837); Fry Spec. Perf. (4th ed.) § 391; 12 Am. & Eng. Encycl. L. (2d ed.) 878; Hyde v. White, 5 Sim. 524 (Vice-Chancellor Shadwell, 1832). This equitable policy of enforcing the performance of contracts to devise property, which are entered into on the basis of family arrangements and carried out upon one side, is recognized in the leading case of Johnson v. Hubbell, 10 N. J. Eq. (2 Stock.) 332, 339 (Chancellor Williamson, 1855). The abandonment by complainant of any claim against his father’s estate, arising by reason of the will, and the enjoyment by his mother, during her life, of the use of all the property received under her husband’s will, constitute a sufficient consideration for contract to devise the property to her stepson. This acquiescence of both parties in the agreement until the death of Mrs. Clawson has placed the complainant in a position where it would be impossible to restore him to the situation existing at the time of his father’s death, and an action at law for damages against the estate of his mother, if it could be maintained, would not afford an adequate remedy. The specific performance of the agreement to devise the property is therefore the only adequate remedy, and under these circumstances it should be enforced, although not made in writing. In many cases in our own courts parol agreements to devise property in consideration of services rendered, or other valuable consideration subsequently given, have been specifically enforced, on the ground that the remedy at law would be inadequate, and that such enforcement is necessary in order to prevent fraud, a consideration which excludes the case from the operation of the statute of frauds. Johnson v. Hubbell, supra; Vreeland v. Vreeland, 53 N. J. Eq. (8 Dick.) 387 (Chancellor McGill, 1895), and cases cited at pp. 389, 390; Duvale v. Duvale, 54 N. J. Eq. (9 Dick.) 581, 588 (Vice-Chancellor Reed, 1896); affirmed on this point on appeal, 56 N. J. Eq. (11 Dick.) 375, 385 (1897). In several cases the element of family arrangement or settlement was also to some extent involved in the rendition of the services and was relied on as a reason for specific performance. Johnson v. Hubbell, supra, p. 339; Van Dyne v. Vreeland, 11 N. J. Eq. (3 Stock.) 370 (1857); S. C., 12 N. J. Eq. (1 Beas.) 142 (Chancellor Wil liamson, 1858); Schutt v. Missionary Society, 41 N. J. Eq. (14 Stew.) 115 (Chancellor Runyon, 1886); Vreeland v. Vreeland, supra; Kastell v. Hillman, 53 N. J. Eq. (8 Dick.) 49 (Vice-Chancellor Pitney, 1894).

In reaching the conclusion that the contract to devise the property was made by the testatrix, I have not relied on the evidence of the complainant as to his transactions with her. Her executors are parties to the suit, and they are necessary parties. Kempton v. Bartine, 60 N. J. Eq. (15 Dick.) 411 (Court of Errors and Appeals, 1899). Complainant's evidence as to transactions with Mrs. Clawson is therefore inadmissible under the statute relating to evidence. P. L. of 1900 p. 363 § 4. His evidence is competent, however, as to the transactions with his father. The executors of the latter are not parties to the suit, nor do any of the defendants represent him in any capacity. Complainant's evidence as to the dealings and arrangements between his father and himself is corroborated by the evidence of disinterested and credible witnesses, and a situation has been satisfactorily shown which entitled him to claim a different distribution of his father’s estate from that made by his will. This claim was honestly made, and the compromise of it by allowing substantially the entire estate left by the father to be enjoyed by the widow during her life, under her title derived from the will, on the agreement that the property should then be devised to complainant by her will, was a sufficient consideration for her agreement to devise, and Mrs. Clawson, having received on her part the full benefit" of the consideration, was equitably bound to performance on her part. Rue v. Meirs, 43 N. J. Eq. (16 Stew.) 377, 380 (Vice-Chancellor Van Fleet, 1887). In claims of this character the proof should be clear and conclusive, hut I think the proof in this case satisfies the standard required. A fact strongly relied on by defendants to raise doubts as to the existence of the alleged contract to devise is the proof that after Mrs. Clawson’s death the complainant apparently, without objection, continued to pay the rent under the lease of the factory, made by the executors of his father, including himself, and in his letters to the devisees recognized their right to the rents and made offers to purchase the factory; all without reference to the agreement. The lease, however, was not made to the complainant personally but to the Clawson Machine Company, and as between this company and the executors or devisees of Mrs. Clawson there could be no question as to the continued liability of the company for' the payment of rent. And as to those payments of rent and the offers to purchase it is also to be considered that complainant, at the time of writing these letters, may not have been advised of his rights under the contract, and was minded to accept the situation as made by his stepmother’s will. These payments and offers, however, would not justify any finding of waiver of his rights under the contract, or estoppel against its enforcement. They are matters which bear upon his credibility, but the proof of the contract depends on other evidence than that of the complainant. It was also objected that the contract ivas too indefinite and vague to be enforced, because the property to be devised was not defined. In terms, however, it distinctly related to the property received by her from her husband’s will, and in Johnson v. Hubbell, supra, a contract of a similar general character was enforced. The status of Mr. Henry Clawson’s personal estate seems to have been changed somewhat before Mrs. Clawson’s death by her appropriation or use of some of it, with complainant’s consent, as he was one of the executors, and as to this he is not entitled to any decree for accounting. Complainant’s bill asks a decree for conveyance only of the factory and Halsey street properties, and at the hearing no further relief was insisted on. The decree for complainant will therefore extend only to these properties, together with the machinery, tools, &c., leased with the factory, and the stock of the Clawson Machine Company, if that was still retained by Mrs. Clawson at her death.


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    James W. Cunningham v. Seaboard Realty Company.
    [Decided July 5th, 1904.]
    As between the mortgagee of real estate and the vendee in a bill of sale of “the personal property” in the premises, gas logs, gas chandeliers and window screens, put 'in by the owner of the premises, necessary for the comfortable use and enjoyment of the buildings on the premises as summer residences, for which they were intended, and all attached to. the premises, are part of the real estate.
    On application for injunction, heard on petition, affidavits and answering affidavits.

      Mr. Thomas P. McKenna, for the petitioner.

      Mr. Benjamin P. Morris and Mr. Frank P. McDermott, for the defendants.
   Emery, V. C.

This is a question relating to fixtures, arising between complainant, a mortgagee of real estate, and defendants as the vendees of personal property. The real estate mortgaged is “Norwood Park,” a large tract of land near the seashore, upon which are a number of buildings for summer residences, the whole property being originally laid out by the owner, Mr. Norman L. Munro, for the purposes of first-class summer residences.

The fixtures in question are the gas logs, gas chandeliers and gas fixtures and the window screens connected with the windows. All of these appliances for the use of gas were originally put in by Mr. Munro as owner, and were necessary for the comfortable use and enjoyment of the residences during the season for which they were designed to be rentéd. They are all j attached to the buildings, some of them were specially designed/ therefor, and although they may undoubtedly be removed with-1 out injury to' the buildings, and replaced by others, they are, in fact, annexed to the buildings. They are especially adapted to the use of the realty and I think their original annexation by the owner must, under the circumstances of the case, and the character of the property, be considered as made with the intention that they should be permanent accessions to the freehold. Under our decisions, they therefore became fixtures, so far as the owner was concerned, and as against persons subsequently claiming under him in the character of mortgagees. Erdman v. Moore & Co., 58 N. J. Law (29 Vr.) 445 (1896); Hays v. Doane, 11 N. J. Eq. (3 Stock.) 84, 96 (1885); Keeler v. Keeler, 31 N. J. Eq. (4 Stew.) 181, 191 (1879). Being thus originally fixtures which would pass to the grantee of the original owner as real estate, the question is, whether they have ever been separated by the subsequent owner or owners so as to become personal property. The subsequent owner was Mr. McKenna, and it is claimed by a bill of sale, executed by him on the same date with the complainant’s mortgage, this separation was effected. But the bill of sale has no such operation. It conveys in general terms “the personal property” in the premises, but the fixtures in question are not referred to or described as being part of the personal'property, and these fixtures remain therefore as realty. As to so many of the window screens. as were in the premises at the time of the mortgage, or have been placed therein by the grantees of the real estate, the same principles must control, and these are covered by the mortgage.

In reaching these conclusions, I rely very much on the special character and uses of the residences, and the special adaptability and necessity of the fixtures in question. for the permanent, comfortable and convenient use of the premises, and even if the decisions above referred to should not be considered as establishing a general rule that gas fixtures used in a house are prima facie fixtures, the special circumstances of the case indi-; eating the owner’s intention that they should permanently belong to tire houses are decisive of the case. So far, therefore, as these gas fixtures or the window screens have been affixed by the owner or owners of tire premises, I lrave not been able to consider that they were affixed for merely temporary ruse and not as permanent fixtures, intended by .the person who put them there to be part of the houses. If any of the screens have been put in, not by the owner of the real estate, but by the owners of the personal property, this conclusion will not reach to these, and, if necessary, further evidence or a reference may be taken on this point.


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    W. Ledyard Thompson et al. v. Frederick B. Williamson et al.
    [Filed July 21st, 1904.]
    1. Complainants sued one of their customers in New York for a balance alleged to be due on account for the purchase and sale of stock as brokers. The customer appeared' and answered, but did not specially set up that the claim was based on a gaming transaction. Complainants obtained judgment, and sued on it in New Jersey; again obtained judgment, and filed their bill in equity to set aside conveyances of the debtor’s property, alleged to have been- fraudulent as against them. — Sold, that in the absence of proof of the laws of New York the presumption is that the common law rule, making a judgment conclusive between the parties, prevails in New York, so that the defence of a gaming transaction was not open to the debtor.
    2. On the same presumption, the New Jersey judgment is conclusive between the parties, and the defence of a gaming transaction was not open to the debtor.
    3. Grantees of a judgment debtor, not parties to the action in which, the judgment is rendered, are not concluded by a judgment against their grantor from setting up the defence that the recovery was based on a gaming transaction.

      4. An arrangement between customer and brokers for bona fide contracts of purchase and sale of stocks by the brokers with third persons does not become a wagering contract unless there is a further agreement or understanding between the brokers and customer that the bona fide deliveries contemplated between the broker and the third persons are not to be carried into effect between the brokers and their customer, and that, as between them, there is to be no other liability on either side than settlement of differences.
    5. The burden of proof to establish a gaming transaction is on the person asserting illegality.
    C. Since Gen. Stat. p. 1606 § 1, declares wagers unlawful, and section 2 entitles the loser to maintain an action to x-ecover the amount lost, a court of equity, in a suit to set aside conveyances alleged to be fraudulent against brokers as judgment creditors of the grantor, whex’e defendants seek equitable protection on the gi'ound that the recovery of the judgment was based on a gaming transaction between the brokers and the grantor, would make effective, even against voluntary grantees of the debtor, the rule of public policy declared in the statute by discarding from the illegal transactions on both sides all rights or liabilities that.arise or are enforceable only as claims under the illegal contract.

      7. Where a conveyance is made to a creditor of a judgment debtor for a valuable consideration received prior to incurring the indebtedness on which the judgment was founded, but subsequent to the rendition of the judgment, while both debts were existing, it amounts to a preference of one creditor over another', but is not illegal.
    Heard on bill, answer, replication and proofs.

      Mr. Percy W. Grane, Mr. Edward Q. Keasbey and Mr. Howard E. White (of the New York bar), for the complainants.

      Mr. Theodore G. English and Mr. Foster M. Voorhees, for the defendants.
   Emery, V. C.

Complainants are stockholders doing business in the New York Stock Exchange, and on May 2d, 1902, recovered a judgment in the supreme court of the State of New York against the defendant Frederick. B. Williamson for the sum of $10,-oSI'.OS, the balance due complainants on their account as brokers for the purchase and sale of stocks between March 8th, 1898, and May 31st,- 1899, with interest and costs. Suit in. the New Jersey supreme court was subsequently brought against this defendant, who resides in New Jersey,' upon the New York judgment, and a judgment obtained in this state, upon which execution was issued and returned unsatisfied. The suit in New York was commenced in July, 1899, and in October, 1899, the defendant, through a third person, conveyed to his wife, Mary I. Williamson, his real estate, consisting of three parcels of land in Elizabeth. These conveyances were voluntary, and it was so conceded at the hearing. Mrs. Williamson1 and her husband subsequently, in March, 1903, conveyed a small portion of the lands to the defendant, Mrs. Emily B. Williamson, a sister-in-law, and this defendant claims to be a bona jide purchaser of the lot conveyed to her. Complainants’ bill seeks to set aside both conveyances as fraudulent against them, and the defence set' up by the judgment debtor himself, as well as by his wife as his grantee, and also- by -her grantee, is that the judgment in New York was founded on transactions which are in New Jersey held to be gaming transactions, and the judgment is therefore not enforceable in the courts of equity of this state against the judgment debtor or his grantee, whether voluntary or otherwise. So far as the judgment debtor himself is concerned, the defence is not available.

The judgment in New York was obtained in a suit in which the defendant appeared, and by an answer contested the complainants’ claim, not especially setting up, however, the defence of a gaming transaction, but the answer did set up that by the agreement between the parties the complainants, for all advances to him over $3,000, were to be repaid only out of the sale of the securities. Under the federal constitution full faith and credit must be given in the courts of this state to the judgment obtained in New York, and the same effect as to finality must here be given as would be given in the State of New York. There is no proof in this- case that in the State of New York a judgment so obtained is not final between the parties as to all defences which were or could have been set up in the suit, or that a judgment can there be avoided if founded on gaming transactions. In the absence of such proof, it must be presumed. that the rule of the common law as to the effect of such judgment prevails, and that the judgment is final and conclusive, and that the Yew Jersey judgment is also conclusive as being based' thereon. As to the defendants who are grantees of the judgment debtor, and who were not parties to the suit in which the judgment for the debt was recovered, the rule is settled in this state that they are not concluded by the judgment from setting up that the recovery was upon gambling transactions, and therefore should not be enforced against them. In Minzesheimer v. Doolittle, 60 N. J. Eq. (15 Dick.) 394 (Court of Errors and Appeals, 1899), this defence was sustained in behalf of the wife of the debtor, and the bill seeking to set aside a conveyance of the debtor’s property to her as voluntary and fraudulent, ivas dismissed without inquiring into the consideration. It is true that in this case the conveyance was made not only before the institution of the suit and recovery of the judgment, but before the incurring of the debt upon -which the judgment was obtained, and in that respect differs from the case in hand, where the debt existed and the suit was instituted before the' conveyance. But this circumstance bears only upon the character of the proof of fraud required, and in view of the ground upon which the decision is based, viz., the right of the grantee to a day in court to defend the title against all acts or admissions of the grantor, after the date of the deed, I consider the decision as controlling this case and as overruling ou this point Mc-Canless v. Smith, 51 N. J. Eq. (6 Dick.) 505 (1893), in which Vice-Chancellor Pitney held that the wife of a judgment debtor, claiming under a voluntary settlement of her husband’s lands, could not question the validity of the judgment as based on an illegal gambling transaction. The questions, therefore, as to both of the grantees are — first, whether the defence that the transactions were gambling transactions is made out on the proofs; and secondly, whether, if made out, protection against the enforcement of the judgment should be afforded so far as the judgment may be equitably based on money paid to the defendant. The proofs in the case show that the transactions, between the complainants, as brokers, and Williamson, as their customer, consisted in the execution by them of orders-given by the customer, for the purchase or sale of stocks in the-New York Stock Exchange, and that so far as the brokers were concerned there was .in the execution of every order an actual purchase or sale of the stock by them for. cash paid or received, and perfected by delivery to or from other brokers of the exchange, and that such actual purchase or sale of the broker was contemplated by the customer and required by the rules of the stock exchange.

In each case the transaction was reported to the customer as a purchase or sale on his account, and the names of the brokers from whom the stock was purchased, or to whom it was delivered, were given in the report. On such purchase or sale the brokers charged a fixed commission — one-eighth of one per cent. The stocks .purchased were not, during the running of this account, in any instance, actually delivered by the brokers to the customer, but were, until directed to be sold, retained by them as collateral for the sums advanced for their purchase, and for the balance due on the account. Eor the purpose of raising money, the stocks themselves were sometimes pledged by the brokers with banks as collateral for their own loans, and on the sale for the customer were taken up for delivery. The customer was charged monthly with interest on the balances, the brokers crediting him with dividends on the stock received by them, and the commission, with these charges for interest balances, represents the entire profit or advantage to the brokers in the whole transaction. These amounts of commissions are fixed sums, and the rate charged for interest depended on the market rate for money, and was usually one per cent, more than the brokers themselves paid on procuring from their banks loans for executing these purchases and sales. On opening the account, in March, 1898, Williamson deposited $1,000 as a margin or security on ordering a purchase of one hundred shares of stock, which cost the brokers $9,250, but made no further deposits for this or any other purpose. During the running of the account he received, however, as stated above, from the brokers about $9,000 in cash, which was charged to his account, this amount about equaling the charges for interest ($2,842.23) and for commissions, about $6,000. The account covered the purchase and sale of about twenty-five thousand shares of stock in all, and the balance due from the customer on the entire account, on June loth, 1899, when it was closed, was $9,053.39. The total amount of the purchases for the entire period was over $1,800,000 par value, but the number of transactions was very large and consisted mainly of purchases of stock. In some instances there were sales of stock “short,” but the number or proportion of these short sales does not clearly appear from the accounts or the evidence. The amounts due on purchases or sales were, up to May 5th, 1899, in every instance taken care of by a counter-sale or pui*chase, but there was no express agreement, either on opening the account or at any time subsequently, that they should be provided for by this method alone. During the earlier period of the account the stocks purchased were not subject to any wide range of fluctuation in value and the transactions were frequept, but the profits or losses were small, and taking into account the value of the securities in the brokers’ hands, the amount of the balance due during most of the account, if not during the whole of it, was not so large as to be beyond the customer’s financial ability to satisfy. The largest number of shares carried at any one time was one thousand seven hundred shares, held at the closing of the purchases, and the average number, taking the whole amount through, was perhaps one thousand shares or less, with a par value of $100,000 and a general borrowing value of about $80,000. No statement in detail has been made, but Mr. Thompson, one of the complainants, says that up to the time of closing his account at no time was this indebtedness (after deducting the value of the securities) over $30,000, an amount much less, as he supposed, than the estimate which Williamson gave him of his property while the account was running.

And Mr. Thompson’s evidence shows, I think, that Mr. Williamson’s financial ability was actually relied on by the brokers, both in opening and in continuing the account. There was certainly no express agreement on their part to relieve the customer from liability, and on May 5th, 1899, they requested Williamson to take up the securities then in their hands and purchased on his account, or to protect them by sending $10,000 as margin. He failed to comply with this request, and subsequently, under his instructions, the stocks were sold and a loss resulted. After being notified, on May 5th, to take up the securities or increase his margin, Williamson does not seem to have made any claim that he was not obliged to' take the securities, and after the stocks had been sold by his direction he made, on June 7th, a proposal, in writing, to transfer property to secure the balance due on making the sale. In the New York suit an answer under oath was put in, but the defendant defaulted at the trial. The answer denied the correctness of the statement of the account, and also set up that by the agreement between the parties, the complainants, for all advances to him over $2,000, were to be repaid only out of the sale of the securities. The main question now to be decided is the issue of fact as to the real nature of the transaction upon all the evidence.

There was in this case, as I have said, no- actual delivery by the brokers to Mr. Williamson of any of the stocks purchased for him, nor any delivery by him to the brokers of any stocks sold, and Mr. Williamson now swears that he did not expect nor intend to receive or deliver the stocks. The evidence clearly indicates, I think, that so far as Mr. Williamson was concerned his object and intention was not investment, but speculation, and that in a sense in which the word is often used he was gaming or gambling on the stock exchange. But the question in the case is not whether Williamson was speculating, and in this sense gaming or gambling through his brokers, but whether the contracts or agreements between him and the brokers, under which his speculations were carried on, were, on the part of both parties, wagers or gaming contracts, under our statute. The essence of a wager is that each party stands to win or lose on the result, and that the gains depend on the event. Carlill v. Carbolic Smoke Ball Co., 61 L. J. (N. S.) 696, 700 (1892); L. R. 2 Q. B. 484, 491; 14 Am. & Eng. Encycl. L. (2d ed.) 669. And both parties to the alleged illegal contract must intend a gaining transaction. Grizewood v. Blame, 11 C. B. (73 E. C. L.) 526, 541 (1851); Clews v. Jamieson, 182 U. S. 461, 489, &c. (1900). It was admittedly the intention of both parties in this case that bona fide contracts for purchase and sale should' be entered into by the brokers with third persons, and that the brokers should carry out these contracts, receiving therefor their commissions and nothing else, and that all the gain or loss resulting from the rise or fall of stocks should belong to the customer. The only other right of the brokers against the customer was by way of indemnity against loss by reason of carrying out orders, being interest charges and expenses, and was not by way of profit. These arrangements between customer and broker for bona fide contracts of purchase and sale by the brokers with third persons may become or be wagering contracts, but only by reason of some further agreement or understanding between tire brokers and customer that the bona fide deliveries contemplated between the broker and third persons are, by the understanding between both parties, not to be carried into effect between the broker and his customer, and that as between them there is to be no other liability on either side than a settlement of differences. Under such an arrangement the brokers, as well as the customer, equally stand to gain or lose by the rise or fall of prices, and the parties have no other interest or right against each other under the entire contract than that resulting from the differences. A contract of this kind, when proved to exist, is a gaming contract, and securities given to the broker to secure the payment by the customer of the differences arising from the purchases and sales with third persons by the broker cannot be enforced. Flagg v. Baldwin, 38 N. J. Eq. (11 Stew.) 219. Where actual deliveries to the broker and bona fide transactions between him and third persons to carry out the orders of his customer are contemplated, and there is no proof of any further contract between the broker and customer by which the right either to call for or tender deliveries as between themselves has been excluded, the general view of courts of the highest authority at the present time is that the circumstance that actual sales or purchases by the broker and deliveries to him are contemplated, is decisive against the contract being a wagering contract on the part of both parties. Forget v. Ostigny, App. Cas. 318, 324 (Lord Herschell, 1895); Clews v. Jamieson, 182 U. S. 161 (1900); In re Taylor’s Estate (Appeal of Howard), 43 Atl. Rep. 973 (1899). The burden of proof that there was such further understanding or contract between the customer and broker, to control or render invalid the reciprocal obligations arising between them on the making by the broker of the actual contracts with third persons, on behalf of the customer, is upon the person asserting the illegality. Pratt v. Boody, 55 N. J. Eq. (10 Dick.) 175, 182 (1896) ; affirmed on this point, 56 N. J. Eq. (11 Dick.) 429; Clews v. Jamieson, supra. In Flagg v. Baldwin an express contract of this character was alleged and sworn to by the customer, and on the facts was held to be sufficiently proved. It is urged very strenuously, that by reason of the existence in this case of many of the facts which were relied on by the court of errors and appeals in Flagg v. Baldwin as evidence that the contract was a wagering contract, the decision in that case is conclusive in this as to the result of the same facts. But wdrere cases are to be decided upon questions of fact, the bearing or effect of all the facts found to be proved is the real basis of the decision, and the views of the court as to the value of particular evidence in one case is not to be considered as conclusive of its value in other cases, where different circumstances are to be taken into consideration. Colls v. Home & Col. Stores, App. Cas. 179, 191 (Lord MacNaghten, 1904), approving Lord-Justice Brett, in Ecclesiastical Commissioners v. Kino, 14 Ch. Div. 213 (1880) as to the treating decisions on questions of fact as authority. In Flagg v. Baldwin, proof of an express contract was certainly relied on, and was held to be corroborated by the dealings between the parties. In some speculations, such as contracts for future delivery in the cotton exchanges, the circumstances may be such as to satisfy the court that it was the intention of both broker and customer that the purchase or sale was to be protected or provided for only by a counter-transaction of sale or purchase, and that both parties intended there should be no delivery at all, either to or by the broker, and that the only settlement was to be of the differences. Such purchases or sales are held, as between the broker and customer, to be colorable only and mere wagers for differences to be settled between them. Minzesheimer v. Doolittle, supra. But where actual deliveries of stock to and by the broker and third persons are contemplated by both the customer and broker, the further agreement that there were to' be no deliveries as between themselves should be. made out, either by proof of an express contract to1 that effect or by circumstances clearly indicating a mutual understanding or agreement, that there were to^ be no deliveries, and that the parties relied solely on the rise and fall of the stocks as the sole measure of their rights between each other.

I do not consider the evidence in this case sufficient to warrant the conclusion that there was any such agreement. There being no express agreement, and the whole evidence as to any implied agreement being derived from the account itself and the dealings of the parties, it seems to me that, in the view of the evidence most favorable to the defendants, it does not go further than to establish that it was the intention of both parties that the complainants should carry the stocks until other directions were given by either party, and while so carried Williamson should be liable only for the differences; but such mutual intention did not make a contract between them that the differences should be settled only in this manner, or that the brokers should have no right to malee deliveries. I conclude, upon the whole evidence, that the defence of illegality has not been made out.

It is proper to say that had I concluded that the defence was sustained, it would not, in my opinion, have been available to protect the grantees against the whole amount of the judgment, for the following reasons: The judgment in New York was recovered on a claim for the balance due on an account stated, between the defendant and the complainants, as his brokers, for the purchase and sale of stocks in the New York Stock Exchange, and, as appeared at this hearing, the judgment in New York was recovered upon proof of this account stated and an admitted balance of $9,053.39, due on June 15th, 1899. The account ran from March 8th, 1898, and upon the part of the brokers included, among other items, charges for moneys paid to the defendant, to the amount of $8,895, and a credit of $1,000 paid by defendant on opening the account. These payments constituted the only actual money transactions or payments between the parties during the running of the account, and leaving out of view these money payments on either side, the balance on the account stated arose from the amounts due plaintiffs for commissions on the purchase and sale of stocks by his order and for him (about $6,000) and interest charges for carrying the stocks ($2,842.88), less $1,925 credited for dividends received on the stocks while so carried. If these transactions in New York were gambling transactions, within the purview of the first section of our statute against gambling (Gen. Stat. p. 1606), declaring wagers unlawful, and the transactions were wagers between the brokers and customer, and the payments to the customer were payments on account of these wagers, then, under the second section of that statute, the brokers were entitled to recover the money paid. To the extent, therefore, that the judgment represents the balance due complainants for money paid, the New York judgment is not based on a contravention of our public policy, but carries it out équally against all parties. As the defendants appeal for equitable protection against the judgment, the substantial equities on the whole claim, which, so far as the brokers were concerned, was merged in the judgment, should be considered. If the transactions were in fact gambling transactions, within the purview of our statute, then so far as the property rights of both parties are concerned, which is the only kind of right with which a court of equity deals in these cases, the rule of public policy is made effective against both parties by discarding from the illegal transaction upon both sides all rights or liabilities that arise or are enforceable only as claims under the illegal contract. On the part of the brokers this would exclude the rights to commissions and interest, which claims are virtually rights to compensation or to indemnity under legsil contracts of agency between principal and agent, but would not exclude the actual money payments on either side. The statute allowing recovery of these moneys by the loser was passed for the purpose of abolishing in these cases the application of the general rulé of common law “in pari delicto potior est conditio defendentis" and of continuing in the loser, notwithstanding the payment to the winner, the right to the money, which, but for this rule relating to the enforcement of remedies, would still be his, as paid in violation of law. Meech v. Stoner, 19 N. Y. 26 (1859). The-final .actual result of the whole dealing between complainants and Williamson is that Williamson, having paid to the complainants $1,000, has received from them this amount of money, and $8,000 in addition, and in an action to recover on the account between them, which included these moneys paid to him, a judgment for an amount in excess of the money returned has been received. I think that Williamson himself could not be permitted, in any court of equity, to set up this illegality as a bar to so much of the judgment as had or might have had an actual advance of money for its basis, even if the entire series of transactions outside of this advance be rejected as involving gambling transactions. The assistance of a court of equity is afforded in these cases as a shield to defend, and not as a sword to attack or punish, and so far as the judgment debtor is concerned, even if the transactions were clearly mere wagers in differences and gambling transactions,, the defence of illegality should not be considered effective except to the extent of the excess of the judgment over the amount of money actually received by the debtor from the brokers. I am inclined to think that the voluntary grantees of the debtor do not occupy any different position. If the defendants were complainants seeking the return of securities deposited for the debtor’s account because the transaction was illegal, could they have relief, except upon the terms of adjusting the account for moneys actually received and paid ? >'As complainants they must do equity, and as defendants they can set up an equitable defence so far, and so far only, as equity on the whole transaction requires.

There remains for consideration the question of the status of the conveyance by the debtor’s wife to the defendant Mrs. Emily B. Williamson. This conveyance was made for the purpose of paying the grantee for moneys previously advanced by her to or for the benefit of the judgment debtor or his famity, and the property was conveyed at a fair value. Some of these advances were for the payment of the taxes on the property in question, and other advances were made for the family expenses, for which, as between the debtor and his wife, the former was primarily chargeable, and they appear to have been made before the recovery of complainants’ judgment in this state giving them a lien on the property conveyed. The character of these advances were such as to constitute them a valuable consideration for the conveyance and to make it valid even against prior creditors. The property conveyed to' Mrs. Emily B. Williamson has been in fact conveyed by the debtor and his grantee in payment of debts of the judgment debtor, or in discharge of liens on the lands in question existing before the recovery of complainants’ judgment, and tire entire transaction of the voluntary conveyance to the judgment debtor’s wife and the subsequent conveyance of a portion of it to Mrs. -Emily B. Williamson thus substantially amounted to a preference of one creditor of the judgment debtor over another, both debts existing at the same time. Such preference is not illegal or fraudulent. Seymour v. Wilson, 19 N. Y. 417, 421; Murphy v. Briggs, 89 N. Y. 446, 451; 14 Am. & Eng. Encycl. L. (2d ed.) 347; Bump Fraud. Conv. (2d ed.) 473.

I will advise a decree declaring the conveyance to the debtor’s wife fraudulent as against the complainants, and that their judgment is a lien upon the lands other than those conveyed to Mrs. Emily B. Williamson, and that as to her the bill be dismissed.


text:
    John A. Shutts v. United Box, Board and Paper Company et al.
    [Filed October 15th, 1904.]
    A written agreement was made between bankers, as promoters, and a number of manufacturers 'of paper goods, as vendors, for the organization of a corporation, to which the properties of the vendors should be conveyed, fixing the rights of all the parties. A secret agreement was subsequently made by the promoters with a part of the vendors, which gave the latter an advantage and profit over the other vendors.' — Held, that a bill for an accounting of such profits by one of the vendors, a party to the first agreement only, was not subject to demurrer for multifariousness for making all the vendors with whom the secret agreement was made, parties together with the corporation and the promoters.
    On demurrer to bill.

      Mr. James E. Howell, for the demurrant.

      Messrs. Griggs <£• Harding, for the complainant.
   Emery, V. C.

This is a demurrer to a bill which discloses the following substantial facts: Dean & Shibley, bankers, as promoters, made a written agreement with twenty-five persons or corporations who were engaged in the manufacture of paper goods, as vendors, for the organization of a corporation to which the properties of the vendors were to be conveyed. The agreement fixed the method of ascertaining the values of the several properties, including an appraisal and arbitration, and also the method of payment, which was to be by preferred and common stock (in specific proportions) of the new corporation, to the amount of the valuation. The new company was to be protected against mortgage liens and encumbrances on the properties of any of the vendors by the deposit of preferred stock issued to the vendor, amounting to one hundred and ten per cent, of the debt, and working capital was provided for the new corporation by an agreement that each vendor was to subscribe for preferred stock equal to ten per cent, of the valuation of its tangible property, as fixed under the agreement. The bankers were to procure the organization of a company with authority to complete the purchases and the issuance of stock under the agreement, and upon delivery to them by the corporation of the certificates of stock, which were to be issued in the names of the several vendors, they were to deliver to the several vendors the amounts to which they were entitled under the agreement. The agreement expressly recited in the preamble that the corporation was to be organized to carry out the plan of the agreement, and that the parties signing the agreement “mutually covenant and agree with one another,” it being understood that the agreement was binding and operative '“as between each of the vendors and the bankers, and also as between the several vendors.” The agreement was to take effect as of January 1st, 1902, at which date valuations were considered to be made. The new company was organized on May 28th, 1902, with a capital stock of $1,000,000, and a board of directors, charged by the bill to bo a “dummy” board, under the control of the promoters, on July 23d, 1902, increased the capital stock to $28,967,400 — $14,949,900 being preferred and $14,018,500 being common stock. This increase of the stock was made for the purpose of carrying out the vendors’ agreement. On July 24th, 1902, complainant signed the vendors’ agreement, having been assured that twenty-four other vendors had also signed it, and, relying on the execution of this vendors’ agreement, conveyed his plant to the company, receiving therefor shares of stock under the agreement — $18,903 in preferred and $23,794 in common stock. Complainant’s bill charges that Dean & Shibley had previously entered into secret private agreements with fourteen of these vendors, securing to each of them, by separate agreement, terms of purchase different from the general vendors’ agreement and more favorable. One of these agreements — that with the defendants McEwan Brothers Company — is set out in the bill. It is dated January 2d, 1902, the date of the original vendors’ agreement, recites the execution of that agreement, which is called the principal agreement, declares that it does not express the entire contract between the parties and agrees that this principal agreement shall be carried out only as modified by the second agreement. This agreement then fixes the price which these vendors are to receive for the conveyance of the properties as $375,000 in preferred stock and $300,000 in cash, to be paid by Dean & Shibley on the delivery of the conveyance, and the bankers agreed to pay $300,000 in cash for all the stock, preferred and common, issued in excess of $375,000 preferred stock, and the bankers also assumed the 'obligation of the vendors to subscribe for the preferred stock to be issued for working capital. The secret contracts made with the thirteen other vendors are alleged to be similar to the McEwan contract, and to be in form contracts with Dean & Shibley to purchase certain amounts of stock from each of these vendors. On July 24th, 1902, according to the bill, and before the transfer by any of the vendors to the corporation, the board of directors passed a resolution, assuming, on the part of the new company, all of these contracts of Dean & Shibley for the purchase of the stock of the company, amounting in the aggregate to $2,527,943.85, and issued promissory notes of the corporation to the several vendors for this aggregate amount. The notes were made directly to the vendors, and were either on demand or at thirty, sixty or ninety days. On October 20th, 1902, a first mortgage bond issue was authorized by the stockholders for $3,500,000, and was executed by the company to the Morton Trust Company. These bonds, to the extent of $1,-800,000, have been used to take up the notes given to the vendors under the secret agreements, and these vendors have also received in satisfaction or exchange for some portion of the notes additional preferred and common stock of the company issued for that purpose. It is also charged that one other vendor, the Traders’ Paper Company, subsequently, and in 1903, claiming that a contract of similar character had been made with them by Dean & Shibley, and that the new company was responsible for their contracts, received from the company mortgage bonds ($100,000), cash ($15,000) and preferred stock' ($70,000), under this contract of Dean & Shibley. Complainant claims that these vendors and the promoters, by these secret agreements relating to the purchase of their properties, which were carried through by a dummy board of directors under the control of the promoters, have committed a fraud upon the company, and that they are liable in equity to account to the company for the amounts received under these agreements beyond the amounts fixed by the vendors’ agreement.

It is also charged in the bill that at the time of assuming these contracts of Dean & Shibley for the purchase of stock the board of directors also passed a resolution allowing to Dean & Shibley the sum of $368,000, and it is charged that this sum was to be distributed through this firm to the promoters named in the bill (eighteen persons), or some of them, and a decree is prayed that this payment was fraudulent and void, and that Dean, the survivor of the firm of Dean & Shibley, be required to account to the company for it.

In the tenth paragraph of the bill there is a further allegation that by the provisions of the vendors’ agreement tire properties of all of the vendors were to be conveyed as of January 1st, 1903. The agreement (article 4) provides that the plant and property of each.vendor, between that date and the date of transfer; is to be subject only to the ordinary fluctuations incident to the conduct of business. It is then alleged that the promoters, without complainant’s knowledge or consent, conspiring with three of the vendors, permitted mortgages to be placed on their properties, between January 1st, 1903, and the date of their transfer to the company, as follows: The Wabash Paper Company, a mortgage for $300,000, with interest, March 1st, 1903; the Tytus-Gardner Paper and Manufacturing Company, a mortgage recorded Maj^ 14th, 1903,' for $100,000, and the Peoria Straw Board Company, a mortgage dated February 1st, 1903. The latter company is also one of the vendors which is charged to have had one of the secret agreements above referred to. It is charged that by permitting these mortgages to be given before the transfer the several mortgagees have obtained a secret advantage in violation of the vendors’ agreement. Bonds of the new company have been issued for the purpose, among other things, of taking up the underlying liens on the property of the company, including these mortgages. These bonds, to the extent of $1,500,000, are now in the hands of the Morton Trust Company, one of the defendants, as trustees, and it is claimed by the bill that these mortgagors should pay off the mortgages given in violation of the agreement, and that the bonds of the new company, to the extent of $400,000, should be withdrawn.

The board of directors of the company are persons who have been parties to the issue of the notes, bonds and stock which is complained of, and it is alleged that it would be useless for the complainant to demand of the corporation that it should bring an action for an accounting against the promoters and the vendor companies who have made the agreements in violation of the vendors’ agreement. The company is therefore made a defendant, as are all of the vendors who are alleged to have made the secret agreements or who have made the mortgages complained of. Shibley, one of the promoters, is dead, but Dean and seventeen other individuals, who are called the “promoters,” are made defendants. These other defendants are officers of the vendor companies which are alleged to have profited by the secret agreements. The company demurs to the bill upon several grounds, which may, however, be classified under the general head of want of equity or multifariousness. The reason relied on at the argument and in the briefs is the ground of multifariousness. It is insisted that the claims to an accounting for the secret profits under this bill or for violation of the vendors’ agreement, if well founded, are separate claims against each vendor who had a secret agreement and that each vendor must be separately called to account. This contention leaves out of view the facts that the fraud on the company under these secret agreements was made effective by the assumption by the company of the agreements made by Dean & Shibley, the promoters. They were parties to all of the agreements which were assumed, 'and if tire agreements are illegal, or if tlieir assumption by the ■company was illegal, they are liable to the company for its losses on all the contracts, and perhaps primarily liable. If this view bo correct it is not only proper, but necessary, that all the claims against Dean & .Shibley arising out of the assumption of these secret agreements or other violations of the vendors’ agreement should be included in a single suit against them, and the fact that separate defendants are interested in the several agreements with Dean & Shibley does not make the bill multifarious. The case of the company against Dean & Shibley for imposing their liabilities on the company by a single transaction or resolution is entire.

On the question of multifariousness raised by a defendant other than the company, the rule to be applied here would be 'that which was settled in See v. Heppenheimer, 55 N. J. Eq. (10 Dick.) 240 (Vice-Chancellor Pitney, 1897); affirmed on appeal, for reasons stated, 56 N. J. Eq. (11 Dick.) 453. In this case an issue of stocks and bonds of a company to the promoters was alleged to be a fraud on the company. The bill sought to hold the promoters liable and made parties all the holders of the bonds for the purpose of having them declared void. On the question of multifariousness raised by demurrer by two of the promoters, it was held (see p. 243) that it was not well founded, and that the demurring defendants were necessary parties in order that they might be bound by the litigation brought to determine (among other things) what was due upon the bonds. It is true, as argued by defendants’ counsel, that this case involved to some extent the marshaling of the assets of an insolvent company by a receiver, but this aspect, as the court held, justified making stockholders as well as bondholders parties to a single suit for the purpose of ascertaining the separate liability of each by reason of the issue to a pool of promoters of stocks and bonds, without consideration. The basis of the decision, as I read it, was that all the parties to the illegal issue of the stock and bonds were proper parties to a single suit to determine the validity of the issue and the amount actually due on the bonds and stock. The case on this point is also analogous to the cases where several persons claim separately under conveyances by a single judgment debtor, all of which are made in carrying out the debtor’s scheme of fraud on his creditors. In these cases the objection of multifariousness, even when taken by a grantee of a portion of the property, is overruled. Randolph v. Daly, 16 N. J. Eq. (1 C. E. Gr.) 313 (Chancellor Green, 1863); Way v. Brogaw, 16 N. J. Eq. (1 C. E. Gr.) 213.

In another aspect, also, all of these vendors should be joined in a single suit. The suit is substantially a suit to compel, on behalf of the company, the performance in good faith of the terms of the original agreement made by all of the vendors with each other, as well as with the bankers and promoters, for the ultimate benefit of the company as grantee. It is alleged that some of the vendors, by their control of the company and the directors, and in combination with the promoters, have secretly and fraudulently altered these terms and procured other terms more burdensome to the company and fraudulent as against the vendors, who made their conveyances solely on the terms of the original agreement. On a suit to enforce the original agreement, previous to the formation of the new company, all of the vendors, as well as the bankers, would have been necessary parties, either as parties defendant or complainant. The company, organized under the agreement to purchase, succeeds to the right to enforce it against the promoters, and all the vendors who have by fraudulent combination or collusion with the promoters secured secret profits are liable to an account to the company based on its rights under the agreement. These vendors are therefore, I think, all properly joined in a single suit with the individuals charged to be promoters. 1 Thomp. Corp. § 474; Getty v. Devlin, 54 N. Y. 403, 413; S. C., 70 N. Y. 504.

In the third place, the claims set up in this bill and upon which an accounting is asked, are all claims made in right of the company, and a decree in its favor upon equitable terms is 'asked against the other defendants. The multifariousness complained of exists, if at all, only in reference to the other defendants, and no objection on this account can be made by the company. Miller v. Jamieson, 24 N. J. Eq. (9 C. E. Gr.) 41, 44 (Chancellor Runyon, 1873); 2 Dan. Ch. Pr. (6th ed.) 827. On the whole case, as presented by the bill, I think the objection of mriltif arionsness should not be sustained.

The objection of multifariousness is one often or largely of convenience in reference mainly to tire trial of the cause, and in cases of this character it should be clear, I think, on the face of the bill, that the issues cannot properly be tried together in order that the objection may prevail at this stage of the cause.'. The other objections to the bill specified in the demurrer were not pressed at tire hearing, and upon further examining them I conclude that they are not well founded, and the demurrer must therefore be overruled.