author: Stevenson, V. G.

text:
    Catherine Kearns v. William F. Kearns.
    [Decided October 28th, 1905.]
    1. A .bill was filed to set aside a decree of divorce recovered by the defendant. It was alleged that the defendant falsely represented his residence in the original suit, and falsely alleged that complainant had deserted him, and that though defendant had knowledge of complainant’s residence when he sued for divorce, he fraudulently procured the suit to be conducted as against an absent defendant, whose whereabouts could not be ascertained, and that therefore complainant had no opportunity to appear and defend, though she had a good defence.—Held, that the bill is not an original bill to set aside the decree of divorce for fraud, but is a bill of review, and therefore subject to demurrer for failure to allege that it was filed by leave of court.
    2. Where a decree of divorce is obtained by. fraud, the defendant having no knowledge of the suit, she may apply by petition to have the decree set aside, and the court may exercise the same discretion in granting or refusing the application as on an application to file a bill of review.
    On demurrer.

      Mr. Henry W. Runyon, for tire demurrant.

      Mr. Frank P. McDermott, for the complainant.
   Stevenson, V. G.

One of the causes of demurrer specified is that the bill, which is endorsed “bill of review,” does not allege that it was filed with leave of the. court. It is conceded by counsel for the complainant that if the bill is in-fact a bill of review, as the solicitor' for the complainant evidently thought it was when he filed it, the point taken is fatal on demurrer. Story Eq. Pl. (7th ed.) § 421b; 2 Dan. Ch. Pl. & Pr. 1578, 1579. In order to avpid the objection above set forth, counsel for complainant endeavors to make it appear that, even though the bill was intended as a bill of review, and even though leave to file the same as such might in fact have been obtained, an examination of the bill itself shows that it is not a bill of that character, but is an original bill to impeach a decree for fraud, which may be filed without leave from the court. Story Eq. Pl. (7th od.) § 426.

I do not think that this view of the bill is tenable. It attacks the decree on some grounds which may properly be presented to the court upon a bill of review, but, in my judgment, cannot be presented to the court in any original bill filed without leave.

Bills of review frequently are based upon or necessarily involve charges of perjury, forgery and other fraud. The distinction between bills of review alleging fraud from original bills to impeach a decree on account of fraud has not always been sharply drawn. Leaving the decrees of foreign courts out of view, the former class of bills seems to include the latter. See discussion of the nature of the fraud necessary to sustain a bill to impeach a judgment 'or decree on account thereof by Vice-Chancellor Van Fleet, in Dringer v. Receiver of Erie Railway, 42 N. J. Eq. (15 Stew.) 573, 582; also opinions of Lords-Justices James and Baggallay, in Flower v. Lloyd, 10 Ch. Div. 333, 334; 2 Freem. Júdg. § 439.

In the present case there seem to be three charges of fraud contained in the bill. Two of these charges, which may be considered together, are in effect that the defendant in his original suit falsely represented that he had been a resident of New Jersey for two years, when in fact he was a resident of New York, and that the defendant also falsely alleged that the complainant had deserted him, whereas in fact the defendant had deserted the complainant by driving her away from their place of abode. These charges of fraud, it must be conceded, are not distinctly made. The bill does not allege that the complainant was sworn in the cause and falsely testified to these things. A close examination of this bill illustrates the propriety of the rule which requires the party desiring to file a bill of review to submit his case to the court on petition and obtain an order permitting the bill to be filed, which order is to a large extent-within the discretion of the court, and is based upon the finding of the court that a meritorious case for a rehearing has been made out prima facie. I shall, however, in view of the form of the demurrer and the argument of counsel for the defendant, assume that the bill sufficiently charges that the defendant in his original suit, his divorce suit, imposed on the court by fraudulently making it appear that he was a resident in New Jersey, when in fact he was a resident in New York, and by further making it appear that his wife had deserted him, when in fact, as he well knew, he had deserted his wife. With this understanding of the gravamen of this bill, I think that it is clearly a bill of review. The residence of the complainant was one of the matters presented by the defendant’s petition for divorce and actually tried in that case. The question whether the complainant had or had not deserted the defendant was also an issue, the main issue, in the suit. This bill in effect charges that the court came to an erroneous conclusion upon these issues, relying upon false and fraudulent testimony. Whether in any case a party who has suffered defeat in a litigation can, without leave of the court, file a bill to have the judgment or decree of which he complains set aside on the ground that it was based upon perjured testimony or evidence otherwise fraudulent, and if so, in what cases and under what limitations such an equitable action will lie, are far broader questions than any which need be discussed for the disposition of this case. I think that there are very few if any such cases which cannot be presented to the court upon a bill of review, and if they can be so presented, then plainly they ought to be so presented, and ought not to be presented by original bills. If this is not a sound conclusion, then there would seem to be no escape from the evils pointed out by Lord-Justice James, in Flower v. Lloyd, supra.

The bill also charges that the defendant knew that the complainant was a resident of the State of New Jersey when he brought his suit for divorce, and could readily have ascertained her address, and it is the evident intention of the framer of the bill to make it appear that the defendant fraudulently procured the divorce suit to bé conducted as against an absent defendant, whose whereabouts could not be ascertained, 'whereby a- decree-was obtained without giving the complainant a chance to appear and defend. Admitting that the bill sufficiently alleges this sort of a fraud, and that this sort of a. fraud, being collateral to the litigation in which the decree complained of was obtained, and not being one of the matters at issue in that cause and decided therein, presents a sufficient basis for an original bill to impeach the decree for fraud, it still remains that this ground for attack on the decree is combined with these other grounds, and that all of the grounds may be presented, investigated and disposed of upon a bill of review. In this state of the case the election of the complainant to file a bill of review is an important consideration. The allegations of matters which properly may be considered on a bill of review, but which cannot be properly considered on an original bill to impeach a decree for fraud, certainly cannot be rejected as surplusage in determining the character of the bill. Complainant by his bill presents all these grounds, and he frames and endorses his bill so as to invoke the jurisdiction of the court'in such a way that all his grounds of complaint may be considered.

There is another reason, in my opinion, why the complainant’s bill should be deemed strictly a bill of review. The complainant had no notice of the divorce suit which the defendant brought against her. She had no opportunity to be heard. The cause was tried ex parte. She now comes forward, alleging her surprise, her lack of opportunity to present her case, and offers proofs that fraud was practiced and injustice done which would not have occurred if she had had an opportunity to present her defence. In this sort of a case no bill of review is necessarjr, even though the decree has been enrolled. Brinkerhoff v. Franklin, 21 N. J. Eq. (6 C. E. Gr.) 334; Cawley v. Leonard, 28 N. J. Eq. (1 Slew.) 467 (Court of Errors and Appeals, 1877); Day v. Allaire, 31 N. J. Eq.(4 Stew.) 303, 315 (Court of Errors and Appeals, 1879); Richardson v. Richardson, 67 N. J. Eq. 437 (1904). The last-cited case is very nearly on all fours with the present one, although the defendant therein, the wife, had notice of the suit. She was, however, deprived of her opportunity to make her defence by a mistake on tire part of her solicitor. An order was made in the cause, upon petition, after notice to the husband, who had obtained the decree, vacating the enrollment, setting aside the decree and giving the petitioner time to file an answer.

In Clayton v. Clayton, 59 N. J. Eq. (14 Dick.) 310, and Watkinson v. Watkinson, 67 N. J. Eq. 142, Vice-Chancellor Pitney deals with the general" rule requiring a bill of review where the party aggrieved by a decree makes his complaint after the enrollment. The learned vice-chancellor was not dealing with the exception to this rule illustrated in the cases above cited,- and in this case where the decree has been obtained ex parte, and' the party aggrieved by it has had no opportunity to make the defence which otherwise he would have put in. In both of the last-cited cases the complainant had full notice of the suit in which the decree was made of which she complained.

Of course, upon applications by petition,' the court can exercise the same discretion as upon applications to file a bill of review, and in the same way recognize and protect all new intferests. Where the party aggrieved by a fraudulent or unjust decree is able to obtain full relief upon a petition for the vacation of the enrollment and the opening of the decree, it seems to me that in many if not all cases an application for leave to file a bill of review ought to be denied. If this bill should be regarded as an original bill to impeach a 'decree for fraud, the court would lose this wholesome control over the case.

In my opinion, the application by petition in the cause to vacate the enrollment and open the decree is to be encouraged, if not exclusively prescribed, in all cases where such procedure will accomplish justice. I am also-of opinion that the bill 'of review is to be preferred to the original bill, filed as of right without leave, and this last-named bill should be left to that comparatively small class of cases, perhaps not as yet fully defined, in which the remedy by an application in the cause for a rehearing or a new trial and the remedy by a bill of review are inapplicable or inadeefuate.

It should be observed that we are not dealing with foreign judgments, which are open to impeachment on the ground of fraud either by the complainant or the defendant in a suit in this court. Foreign judgments, in respect of the jurisdiction of this court to impeach judgments and decrees on the ground of fraud, to some extent constitute a class by themselves.

To compel the party injured by a fraudulent judgment of a foreign court to seek redress in the cause or in the court in which the judgment was rendered would be to compel such defrauded party, although a citizen of New Jersey, to go to a foreign state for justice.

In the case of judgments and decrees of our own courts the present policy of the law, in accordance with considerations of simplicity, cheapness and common sense, should be, I think, to require the party alleging that the judgment or decree is tainted by fraud to seek his remedy in the action at law or suit in equity in which the judgment'or decree was rendered, when that remedy is adequate, rather than to commence an independent original and expensive suit in this court. This policy is illustrated by the withdrawal of the exercise of jurisdiction by this court on bills for new trials. As fast as the power of the courts of common law has been extended, so as to permit those courts to set aside judgments and grant new trials on the ground of fraud, mistake or newly-discovered evidence, the exercise of jurisdiction by this court has been renounced and curtailed. Hayes v. United States Phonograph Co., 65 N. J. Eq. (20 Dick.) 5 (1903) ; Wolcott v. Jackson, 52 N. J. Eq. (7 Dick.) 387; Hannon v. Maxwell, 31 N. J. Eq. (4 Stew.) 318.

My conclusion is that this bill must be deemed a bill of review, and cannot be deemed an original bill hied as of right to impeach a decree for fraud. If the complainant in fact has obtained leave to file this bill as a bill of review, upon notice to the defendant, an amendment may be made alleging such fact. If no leave in fact has been obtained, then, upon application for such leave, the court will not only look into the merits of the case, but also determine whether, if the complainant’s case calls for an investigation by this court, such investigation should be made on petition in the original cause to vacate the enrollment and open the decree or by a bill of review.

I shall advise an order that the demurrer be sustained.


source: Caselaw Access Project

author: Stevenson, V. C.

license: Public Domain

text:
    Philip Daab v. The New York Central and Hudson River Railroad Company.
    [Decided December 22d, 1905.]
    1. The jurisdiction of equity to decree an accounting cannot be sustained on the sole ground that the bill prays for. a discovery.
    2. A bill in equity for an accounting, where equitable jurisdiction is claimed because of the intricacy and complexity of the account, must show that the remedy at law is in fact inadequate.
    3. A bill for an accounting does not show equitable jurisdiction on the ground of fraud by allegations that defendant endeavored to deceive complainant as to the amounts involved, where it appears that complainant was not deceived.
    On demurrer to bill for an accounting.

      Mr. James B. Vredenburgh, for the demurrant.

      Mr. Leon Albeit, for the complainant.
   Stevenson, V. C.

The demurrer will be sustained.

1. The primary rights which the complainant seeks to enforce in this suit are all strictly legal rights arising from contractual obligations of the defendant, express or implied.

The courts of law of the state have full jurisdiction of every item of the complainant’s claim, and also have full jurisdiction of these items when taken together in a mass as constituting a single case for adjudication. A court of equity, on the other hand, has no jurisdiction whatever of any item of the complainant’s claim when 'taken by itself alone, but at most can only acquire concurrent jurisdiction with the courts of law of the aggregated mass of items which make up the complainant’s claim, in case it shall appear that this entire claim is so intricate and complex that the legal machinery of courts of law is not competent to deal with it so that the remedy at law has become inadequate.

2. While the bill may be open to criticism, I think on a general demurrer it must be taken as presenting a case the trial of which may involve the proof of a very large number of items of various classes. The greater part of the claim is based upon a written contract between the parties, under which the complainant transferred freight of all kinds between the boats and barges of the complainant and its wharves and docks and other landing-places. The contract specified as the complainant’s compensation twentjf-five cents per ton for hides and ten cents per ton for other freight. The amount of freight thus handled was between thirteen thousand five hundred to fourteen thousand five hundred tons per week during five years. The term of the contract, five years, expired May 1st, 1905, and the bill was filed on June 22d, 1905.

The entire claim of the complainant consists of the following-elements :

(1) A claim for money due under the contract for stevedore work done thereunder.

(2) A claim for extra work amounting to $3,601.09, of which both parties kept an account, the bill alleging "that the accounts of said extra work are complicated and intricate, being accounts of laborers’ time in handling freight, sorting freight, and for other extra work on freight of said defendant.”

(3) A claim for damages by reason of the action of the defendant in giving work which the complainant was entitled to do under his contract to other parties.

The ■ contract excepted from its operation the transfer of-freight "at the freight stations of the company.” -The bill alleges that the defendant established “new and additional freight stations for itself, and would not allow or permit” the complainant “to perform the stevedore work at said new stations,” and thereby unlawfully deprived the complainant of large gains. A question of the construction of the contract, if there be any question, is here raised.

The bill also sets forth that the defendant made deductions from the moneys due the complainant on account of damages which the defendant alleged it had suffered from negligent handling of goods by the defendant.

3. Inasmuch as the primary rights of the complainant for the enforcement of which this suit is brought are strictly legal, the mere fact that the bill prajrs for a discovery presents no 'ground for extending the jurisdiction of this court to compel the defendant to account. 1 Pom. Eq. §§ 223, 230; Brown v. Edsall, 9 N. J. Eq. (1 Stock.) 256 (1852); Little v. Cooper, 10 N. J. Eq. (2 Stock.) 273 (1854); United, &c., R. R. Co. v. Hoppock, 28 N. J. Eq. (1 Stew.) 2,61, 264 (1877); Foley v. Hill, 2 H. L. Cas. 28, 37 (1848).

The allegations in the bill to the effect that the complainant kept no account, except for his extra work, and that the defendant has books and papers from which complete accounts may be obtained, but which it refuses to exhibit to the complainant, do-not help out the jurisdiction in this case. The bill does not allege that the defendant was under any obligation to keep accounts for the complainant’s information, or that the complainant was not able to. keep accounts for himself. The courts of law of Hew Jersey have ample power to give the complainant access to the defendant’s books, if those books are instruments of evidence in his case, and the complainant may file a bill in this court for discovery alone in aid of his action at law.

4. The bill pm's for an answer without oath. If the jurisdiction of this court in a case like this could be extended because the complainant has a right to discovery, which I do not admit, such result would follow, it seems to me, only in case discovery in the ancient sense of the term were sought. Discovery means the production of evidence. Where the answer is without oath, the defendant’s statements are' not evidence in the cause against the complainant. They may be admissions, and as such evidence against the particular answering defendant who makes them.

An answer in chancery originally had a dual capacity. It was a mere pleading to aid in defining the issues to be tried, and also a means of obtaining evidence not otherwise procurable.

Our statute (P. L. 1867 p. 166; P. L. 1902 p. 517 § 19) permitting the complainant to call for an answer without oath gives the complainant the option to obtain from his adversary a pleading which has no force as evidence, except so far as the defendant may see fit to make admissions. This statute, however, expressly provides that the complainant, while calling for an answer without oath, may annex interrogatories to his bill to be answered under oath with the same effect as evidence “as the responsive allegations in answers required to be sworn to.” The statute plainly permits the defendant to procure an answer which is a mere pleading, and also to force the defendant to make discovery under oath in regard to any parts of the case concerning which he sees fit to call for such discovery. Notwithstanding this special provision for interrogatories to be answered under oath, the practice is established of permitting the complainant to submit interrogatories in his bill to be answered without oath, and this procedure is considered a mode of obtaining discovery. Manley v. Mickle, 55 N. J. Eq. (10 Dick.) 563 (1897). The last-mentioned decision of the court of errors and appeals, however, in my opinion, lays down merely a rule of pleading. The complainant, according to the doctrine of the case,- has a right to present to the defendant the opportunity of making admissions, not only in regard to the allegations of the bill, but also in regard to matters of evidence which will be dealt with on the trial, which admissions, if made, may be useful to the complainant. If the defendant answers falsely, so as to deprive the complainant of an advantageous admission, the only penalty which he incurs would seem to be a possible discrediting of his defence or an imposition of costs.

When discovery fails, then jurisdiction also fails, as is conceded by those authorities which hold that jurisdiction for discovery founds jurisdiction for relief. 1 Story Eq. Jur. § 455. Under no theory, in my opinion, can the jurisdiction of this court to decree an accounting be sustained on the ground that the complainant has a right to invoke the aid of the court for discovery when the complainant waives an answer under oath and submits no interrogatory to be answered under oath, but abandons altogether the use of the answer as a means of putting the defendant under oath in the cause in advance of the trial, and thereby elects to have the answer stand as a mere pleading.-

5. In determining whether the machinery of the courts of law is adequate to accomplish justice in a ease like this we must take into consideration that legal machinery as it exists to-day. We must look at the legal machinery which the law courts must set in operation for the purposes of 'this case, and not the legal machinery which the courts of law would have set in operation if a case like this had been presented to them a hundred years ago. Bellingham v. Palmer, 54 N. J. Eq. (9 Dick.) 136 (1895).

6. In the class of cases to which the present one belongs it is said that the determination of the question whether a court of equity should intervene and investigate and enforce primary legal rights which have no color of equity is very largely addressed to the discretion of the court—a discretion which must be exercised largely according to the peculiar circumstances of each particular case. Bellingham v. Palmer, supra, 138, 139.

In the case of Cranford v. Watters, 61 N. J. Eq. (16 Dick.) 284 (1901), Vice-Chancellor Pitney, after examining a large number of cases, formulates the following rule or principle to guide the court in determining whether or not to take jurisdiction of eases of the class to which the present one belongs: “The test is, are the issues so numerous and so distinct, and the evidence to sustain them so variant, technical and voluminous, that a jury is incompetent to intelligently deal with them and come to a just conclusion/-’

7. In the case last cited the point is brought out distinctly that this court may properly take jurisdiction of a case presenting a complex account, where the primary rights of the parties are strictly legal, after the inability of the machinery of the courts of law to meet the requirements of the case has been demonstrated by actual experiment, when without such experiment this court would refuse to act. It seems to ms that this oftentimes is a safe and controlling principle. It is often dangerous in these days, when the remedial powers of courts of law are being expanded, not only by legislation, but by natural development, for a court of equity to say in advance that a court of law is incompetent to do justice in any particular case of which it has jurisdiction. It is a good general rule, I think, that courts of equity in many kinds of cases should hold- off until the actual test has been applied and the inability of the court of law to do justice has been demonstrated, unless such delay will cause irremediable damage. See Kronson v. Lipschitz, 68 N. J. Eq. 367.

8. In the case presented by this bill, while the trial apparently may involve a vast number of items, the propositions of fact to be established, after all, are few and simple. The questions seem to be:

(1) What was the total amount of freight transferred of each of the two classes specified in .the contract?

(S) What was the total amount of money paid by the defendant to the complainant for this work ?

(3) What’ was the amount and value of the extra work of which the bill alleges both parties kept an account?

(4) If the complainant was entitled to transfer the freight which the bill alleges he was prevented from transferring by the action of the defendant, what was the amount of such freight, and what was the profit which the complainant would have earned if he had been permitted to do this work ?

The alleged right of the complainant to do the stevedore work at the freight stations established by the defendant after the date of the contract, and the alleged wrongful deductions which the defendant made on account of goods alleged to have been damaged by the defendant, are matters included within the above specifications.

The complainant insists that he cannot have these matters investigated satisfactorily in an action at law. The defendant denies that such is the case, and claims the right to have the experiment actually tried. This is plainly a ease where, if both parties accepted this court as the tribunal for the trial of this cause, the jurisdiction of the court would be beyond dispute.

9. In determining this disputed question between these parties, I think the conduct of the complainant, in permitting what he now claims to be a complex case to be piled up from year to year, is a matter to be carefully considered. The contract provides that the defendant should pay the complainant “on Saturday of each and every week such moneys as may be due * * * for the work performed under .this contract during the previous week.” The inference from the bill is that these payments, accompanied by written statements of account, were made weekly for five years. The complainant accepted these payments, but alleges that the defendant “did not, during the continuance of said contract, pay * * * on Saturday of each and every week such moneys as he had earned during the previous week.” How many of tírese weekly payments the complainant claims were short of the true amount is not alleged, but assuming that all the allegations of the bill upon this subject, taken together, sufficiently show that large numbers of these payments were not up to the amount due, it still remains that the complainant received them, and satisfied himself with “frequently” protesting. It appears, I think, from the bill, quite distinctly, that the complainant submitted to the numerous violations of the contract of which he now complains, contenting himself in some instances with protesting to- an extent very vaguely described, and in some instances without protesting at all. The contract provides that the defendant

“retains the right at any time to perform at the expense of the contractor any of the work herein specified, when, in the opinion of the manager of marine department of the company, the contractor is not proceeding with sufficient rapidity with the work, and also that the. contract may be terminated by the company at any time when the performance of any of the work hereinbefore specified is not Satisfactory.”

These provisions perhaps suggest a reason why the complainant was willing to receive the benefits of the contract during the five years while he held in reserve and allowed to accumulate a mass of more or less minute legal claims which he now seeks to enforce in a single suit in a court of equity. It seems to me that a complainant who has allowed so many claims under this five-year contract to accumulate and to grow stale is at a decided disadvantage when he now asserts that the aggregate mass of his claims is too complex to be handled conveniently and justly by a court of law, in-which each particular claim originally belonged. Each claim when it arose would have constituted the basis of a very simple action at law, but by allowing the claims to accumulate, the complainant, it seems, has added to the whole the element of complexity, and has thereby founded the jurisdiction of a court of equity to compel the defendant to account.

It would seem that the complainant, according to his theory of his ease, by his own laches—by permitting a large number of strictly legal causes of action, created during a period of five years, to remain unprosecuted—has succeeded in founding an equity on his own behalf, viz., the right to compel his adversary to render an account in the court of chancery.

10. I do not admit that this court can take jurisdiction of an action for unliquidated damages for the breach of a contract, of which, if simple in character, the courts of law would have exclusive jurisdiction, on the ground that the items of damages are numerous and complex, or for any other reason impossible of accurate ascertainment by a court of law. See Courter v. Crescent Sewing Machine Co., 60 N. J. Eq. (15 Dick.) 413 (1899).

11. The defendant argues that the bill shows that there was a weekly account stated between the parties which bars any suit for an accounting in this court. Brown v. Van Dyke, 8 N. J. Eq. (4 Halst.) 795, 801 (1853) ; 1 Story Eq. Jur. § 526. I shall not set forth the allegations of the bill on this subject. I think the fair meaning of the bill is that the complainant “frequently,” i. e., from time to time, protested against the weekly statements rendered to him by the defendant as they came in. How many statements he objected to, and how many he accepted and acquiesced in, we' are not informed. Two hundred and sixty statements must have been rendered in the five years. Perhaps only a dozen or two dozen were objected to. A large part of the complainant’s complex and intricate claim may, for all that appears in the bill, be reduced to a state of extreme simplicity by the application of the doctrine of "account stated.” • It is evident that'all evidence, as to a very substantial part of the complainant’s case, embracing very many details, may be excluded by a ruling of the trial court as to the construction of the contract. Taking every well-pleaded allegation of the bill to be true, I think the case exhibited is one which a court of law, with its modern methods of procedure, including orders for the production of books, examination of parties before trial, and the statement and settlement of accounts by references, may dispose of in as complete accord with all the principles of justice as would be possible in a court of equity. It seems to me, in this peculiar class of cases, where the complainant is endeavoring to have an action at law tried in a court of equity because of its alleged intricacy and complexity in respect of matters of fact, the bill must do more than show a case which might, on trial in a court of law, prove intricate and complex, so as to make the legal procedure applied to its determination inadequate. Where the defendant denies the right of the complainant to try his legal action or actions in the court of chancery the complainant must, show, at least presumptively, that the alleged intricacies and complexities will appear so as to embarrass, if not defeat, the useful operation of the machinery of the court of law in which the legal action might be brought. In such a case, in brief, I think the complainant must show that his remedy at law in fact is inadequate, and not merely that such remedy ma.f in the end turn out to be inadequate. Of course, we are now concerned only about the correct rule to be applied to cases like this, where the sole foundation of the jurisdiction of tire court of chancery is the inability of the courts of law to provide an adequate remedy. An entirely different rule may be applicable to cases where there is a fiduciary relation, or an element of fraud or mistake, so as to give a court of equity jurisdiction apart altogether from the mere inadequacy of the remedy at law.

12. If this bill should be adjudged to present a case of equitable cognizance, I think that large numbers of actions of law on contracts of various kinds, which our law courts are constantly disposing of with complete recognition and enforcement of all the rights of the parties, could be transferred, at the election of either party, to the court of chancery. The prospect of such a transfer of jurisdiction is somewhat appalling.

13. The bill contains one charge of fraud, which calls for .some special consideration. This charge is set forth as follows:

“That said defendant company did not during the continuance of said ■contract pay to your orator on Saturday of each and every week such moneys as he had earned during the previous week, but your orator ■charges and insists that the said defendant company, with the intent to and for the purpose of cheating and defrauding your orator, rendered to your orator incorrect and fraudulent statements of the amount of freight transferred and hauled by him, and paid your orator in accordance with said incorrect and fraudulent statements, and neglected and refused to pay him for freight actually transferred and handled by him under said contract -, that your orator frequently protested- to said defendant company in regard to said inaccurate and fraudulent statements of freight transferred and handled by him, but was informed by said defendant company that the said payments to him were made in accordance with the weight of said freight as the same appeared upon the waybills or receipts for said freight; but your orator charges and insists that said waybills or freight receipts did not correctly show the amount (or weight) of the said freight therein mentioned; that in many instances the weight or amount of freight as set forth in said waybills or freight receipts is not more than from sixty to eighty per cent, of the actual weight of said freight.”

There are several reasons, I think, why the foregoing allegations, which in a general way charge a fraudulent intent against the defendant, cannot in this case be deemed to give the court jurisdiction of the case presented by the bill. There is.no charge that the defendant actually committed any fraud, or even in any way deceived the complainant. On the contrary, it appears from the bill that the complainant was not deceived, but “protested to the said defendant company in regard to the said incorrect .■and fraudulent statements,” and that upon such protest the ■defendant sought to justify itself by alleging that the payments ■were made in accordance with the weight of the freight as it ■■appeared upon the -waybills. The complainant thereupon •“charges and insists” that the waybills were incorrect, and-that in many instances the true weight was far greater than that set forth, in the waybills. The bill, however, does not allege that the complainant notified the defendant of what he now charges and insists, as above set forth. Nor does the bill allege that the defendant was guilty of any fraud in respect of the wajdiills, or was in any way notified that they were incorrect, or that statements taken from them would be liable to mislead or deceive the complainant.

Notwithstanding the distinct charge that the defendant rendered incorrect statements, with intent to cheat and defraud the complainant, there are strong grounds for construing all the allegations above set forth, embodying this so-called charge of fraud, as in fact setting forth 'a transaction in which no fraud appears. It is not a sufficient charge of fraud in a bill to allege that the defendant has done something with intent to cheat and defraud when the thing charged appears on its face entirely innocent and free from fraud. It is necessary that facts should be alleged from which fraud may be inferred. If the defendants took the weights which they set forth in their weekly statements from the waybills, knowing that The waybills were false, or knowing that the complainant might' thereby be deceived, the bill should have so alleged. On the contrary, as I have pointed out, it appears distinctly from the bill that the complainant was not deceived.

But if on demurrer the bill must be deemed to contain a charge of fraud, such charge relates only to conduct of the defendant affecting the evidence of a part of the complainant’s claim. The bill is not filed to recover damages on account of this alleged fraud, but to recover the amount of money earned under the contract. At most, the alleged fraud or attempted fraud was a deception practiced or attempted to be practiced by Ihe defendant with intent to conceal a portion of the amount which the complainant had earned. I do not think that such a mere effort—an unsuccessful effort—to deceive the complainant as to the amount of his earnings can give a court of equity jurisdiction of an action to recover the amount actually earned and unpaid. If such were the case, then it seems to me that the jurisdiction of a court of equity on the ground of fraud might be extended to a very large number of strictly legal litigations in which one of the parties has practiced some deception in the way of concealment or suppression of evidence. Courts of law are now equipped with extensive powers for the discovery of evidence in such eases, and in many such cases a bill for discovery pure and simple will lie in this court in aid of the appropriate action at law.

11 must be kept in mind that the bill does not allege that the defendant was under any obligation to keep accounts of the complainant’s work, or had notice that he was not keeping accounts, or had notice that he relied on the accounts kept by the defendant. Giving the greatest possible force to the allegations that the defendant rendered false statements, I do not think that the unsuccessful attempt of the defendant to deceive the complainant as to the extent of part of his earnings can justify this court in taking jurisdiction of an action at law to recover those and other earnings, which jurisdiction it would not assume if no such unsuccessful deception had been attempted.

14. My present conclusion is merely this: That the complainant’s case, as set forth in his bill, is not one of which this court should take jurisdiction until the same has been subjected to the course of procedure which a court of law in New Jersey to-day can pursue for its determination. Whether, as in the case of Cranford v. Watters, after a court of law has attempted to dispose of the case, grounds will appear for transferring it to a court of equity cannot now be determined. '


author: Stevenson, Y. C.

text:
    John Lengyel and Julius Debrovsky v. Julius Meyer et ux. and Jesse Lobsenz.
    [Decided December 28th, 1905.]
    ■ Where a deed with full covenants of warranty conveyed certain property, including a party wall containing windows overlooking defendant’s adjoining property, and provided that such wall. should remain a party wall, and that both parties should be entitled to rights therein, the grantee in the deed acquired an easement over such adjoining property of the right to keep such windows open and receive light and air therefrom, which was determinable only on the use of the wall for building purposes by the adjoining property owner.
    On bill, answer and proofs.

      Mr. Harry Meyer and Mr. Peter Baches, for the complainants.

      Mr. David H. Bilde.r, for the defendants.
   Stevenson, Y. C.

1. The allegations in the bill, to the effect that the covenant in relation to the part}’ wall was fraudulently inserted in the deed to the complainants without their knowledge or consent, are not only not proved to be true, but are proved to be false. Counsel for complainants on the argument abandoned all claim that the deed from Julius Meyer to the complainants should be reformed so as to excise the above-mentioned covenant. The claim of the complainants in this cause remaining for consideration is confined to the question whether, under the facts proved, allowing, the deed to stand unimpeached on the ground of fraud, and containing this covenant relating to the party wall, the complainants are entitled to an injunction against the defendant Lobsenz.

2. In December, 1899, the complainants were the equitable owners of a lot in the city of Passaic, twenty-five by one hundred feet, situate on the corner of Second and Bergen streets. Their title was created by an agreement with one Samuel Weinberger, who in turn held a similar agreement with Julius Meyer, the then owner of the property. The lot was covered for a distance of ninety feet from the front by a four-story brick building. Julius Meyer, from whom this equitable title in the complainants had come, was the owner of a lot twenty-five by one hundred feet, adjacent on the south to the lot which the complainants had contracted to buy. This adjacent lot was vacant except so far as it was occupied by the small one-story building hereinafter mentioned. As a matter of fact, the southerly wall of the brick building, throughout its entire length, extending back ninety feet from Second street, rested almost equally upon the complainants’ lot and the lot retained by Julius Meyer. The stone foundation wall is two feet thick. Eor a certain height the brick wall resting upon the stone foundation is sixteen inches thick and the upper portion of the brick wall is twelve inches thick. The position of the wall and its thickness, which is quite beyond the requirements of a single building, indicate that it was constructed by Mr. Meyer as a party wall, to be used for the purposes of a building on each lot. The first story of the complainants’ building w7as constructed for use as a store or place of business, and is now used for such purpose. The three upper stories are divided into apartments for families. In order to supply light and air to the apartments situate on the 'southerly side of the building, as the bill alleges,

“the said Julius Meyer caused to be constructed in the southerly wall of the said building twenty-two windows overlooking' the adjoining premises belonging to the said Meyer, and at the same time the said Meyer caused to be erected and constructed on the adjoining property on the south a one-story brick building to be used, and which is now used, for store purposes.”

The proofs show that, with all these windows opening upon his practically vacant lot, Julius Mej7er agreed to sell the corner lot, with its building, and tlie equitable title created by this agreement became vested in the complainants. The contract between complainants and Samuel Weinberger under which the complainants acquired their title expressly provides for the conveyance of the land “with the building thereon erected,” and further provides that, upon the stipulated payments being made, Weinberger would procure a proper deed, to be made by Julius Mej'er, conveying the property to the complainants free from all encumbrances, with full covenants, including warranty. Whether the contract between Meyer and Weinberger was the same, mutalis mutandis, as the contract between Weinberger and the complainants it. is unnecessary to inquire, on account of the subsequent carrying out of both contracts.

When the complainants made their contract with Weinberger, upon which they made a substantial payment,- they supposed that the entire wall rested upon the twenty-five-foot lot which by the contract they were to acquire. Their counsel, however, discovered what the situation of the wall was, and thereupon he informed the complainants, and a survey was made which showed all parties the true location of the wall—that the wall stood manifestly as a party wall. What relief the complainants would have been entitled to in a court of equity on the ground of mistake or on the ground of fraud if they had made complaint immediately upon making this discovery we need not discuss. Eor need we discuss the nature and extent of the rights which the complainants and Julius Meyer, respectively, would have enjoyed in respect of this wall, and particularly in respect of the windows therein, in case the deed from Julius Meyer to the complainant had followed the agreement and had conveyed the corner lot, twenty-five feet by one hundred, with the brick building erected thereon. Wlikt the complainants might have done, what rights they would have enjoyed, whether the complainants did or did not place themselves in a worse position by accepting the deed which finally they did accept, or whether that deed, with its covenant in reference to the party wall, merely expressed what would have been implied in ease such covenant had not been inserted in the deed—these are all questions which may be dismissed without consideration.

What the parties, with full knowledge of the facts, did was this: They met with counsel and an interpreter, and the result was that the deal, was closed and the warranty deed from Julius Meyer to the complainants was delivered, to which deed, however, was added the following covenant:

“It is hereby stipulated and agreed by the said parties, for themselves, their heirs, executors, administrators and assigns, that the wall on the southerly side of the building on the lot herein conveyed, which wall is sixteen inches wide at the first story, eight inches on the lot herein conveyed and eight inches on the lot adjoining, and twelve inches above the first story, seven and one-half inches on the lot herein conveyed and four and one-half inches on the lot adjoining, shall be a party wall, and both parties entitled to rights therein, the party of the first part owning the said lot adjoining.”

Subsequently Julius Meyer conveyed the vacant lot to the defendant Lobsenz, who confessedly occupies, with respect to this controversy, the same position that Julius Meyer would have occupied if he had retained the ownership of the vacant lot.

The dispute between the parties in this cause has not arisen from any attempt on the part of either Meyer or Lobsenz to use the wall in question as a party wall, and by such use to obstruct the passage of light and air through the complainants5 windows. The defendant Lobsenz claims the right to block up these windows with thin brick walls, erecting the same upon the windowsills without trespassing upon the land of the complainants. The complainants allege that Lobsenz has sought to compel them to pay him for the privilege of maintaining the windows. Lobsenz alleges that the tenants of the complainants have thrown articles out of the windows upon his lot, and have also trespassed upon the roof of his one-story building, causing the roof to leak, &c. These matters, however, seem to be of no importance. If the complainants are entitled to an ¡easement of light and air, the defendant Lobsenz cannot be permitted to interfere with that easement by blocking up the windows for the purpose of protecting his property from trespass through the windows. Bloom v. Koch, 63 N. J. Eq. (18 Dick.) 10 (1902).

Excluding from consideration both the fact that this wall from its position and size appears to have been designed as a party wall, and the express covenant relating to the wall containecl in the deed, there can be no question that, under the settled law of blew Jerse}^ the conveyance of this lot and building to the complainants created by implication an easement of light and air for the benefit of the existing windows. These windows plainly are “necessary” to the enjoyment of the upper stories of the building within the meaning defined, so far as such meaning has been defined, by the decisions'of the courts of this state. Sutphen v. Therkelson, 38 N. J. Eq. (11 Stew.) 318, 323 (1884); Johnson v. Hahne, 61 N. J. Eq. (16 Dick.) 438, 441 (1901); Toothe v. Bryce, 50 N. J. Eq. (5 Dick.) 589, 594 (1892).

It may be that the doctrine under which the easement of light and air is created by an implied grant or an implied reservation ought not to be extended. The rule -which permits an implied reservation of this easement has been criticised by Vice-Chancellor Pitney (Toothe v. Bryce, supra), in which criticism Vice-Chancellor Stevens seems to concur. Denman v. Mentz, 63 N. J. Eq. (18 Dick.) 613, 618, 617 (1902). To many minds, the rule prevailing in Massachusetts and in other states that in cases like the present one the easement of light and air can only be created by an express grant or an express reservation may seem more consistent with the American view of this easement and less liable to produce situations of hardship and injustice than the rule which prevails in blew Jersey. See Keats v. Hugo, 115 Mass. 204 (1874).

But the duty of this court, whatever may be the views of individual judges, is to fairly apply the established law of the state. That law, leaving out of view the party wall, gives the complainants the easement which they claim, and entitles the complainants to the remedy of an injunction to protect the enjoyment of their easement from fhe conduct of the defendant Lobsenz in blocking up their windows. The narrow question is whether the existence of the party wall under this express covenant in the deed makes the case an exception to the .general rule so as to prevent the deed in which the covenant appears from creating the easement of light and air by implication by an implied grant.

There seem to be two ways in which an express covenant in a deed may have the effect to prevent the creation of an easement by an implied grant. One of these ways is exhibited where the express covenant and the implied grant relate directly to the same subject-matter. The’rule to be applied in such cases is contained in the maxim express-urn fácil cessare taciturn. Greer v. Van Meter, 54 N. J. Eq. (9 Dick.) 270 (1896); Bloom v. Koch, supra. It is quite evident, I think, that the express covenant in this case does not relate directly to the reception of light and air through the complainants’ windows. In making the covenant the minds of the parties were engaged in dealing with the status of the wall as an appurtenance to the existing building and as an appurtenance to a building which might thereafter be erected upon the adjacent lot. The covenant ignores the existence of the windows, and apparently is in the same form in which it would have been cast if no windows in fact had been in existence.

The other way in which an express covenant may operate to prevent the grant of an easement by implication is exhibited where the rights created by the express covenant are-inconsistent with the enjoyment of the easement. The maxim expressuni facit cessare taciturn also applies to this class of cases, but manifestly for a different reason from that which sustains its application to the class of cases first above mentioned. In Denman v. Mentz, 168-N. j. Eq. (18. Dick.) 613 (1902), an express covenant against encumbrances was held to prevent the creation of an easement of light and air for the benefit of the grantor’s building by an implied reservation. A covenant on the part of the grantor that the granted land was free from all encumbrances was held to be inconsistent with an implied provision to be read into the instrument creating an encumbrance.

I do not find that the existence of this party wall and of the express covenant in relation to it contained in the deed is inconsistent with the establishment of an easement of light and air in some form. Let it be assumed that the covenant gives the defendant Lobsenz the right to close up all the windows, so as to make the entire wall solid at all points and equally capable at every point of holding beams and performing the functions of a party wall. It is not necessary to decide that the correct construction of this' covenant leads to any such result. The matter may all be left open so far as this case is concerned. The above assumption, however, establishes a condition which gives the argument against the existence of the easement in any form the greatest possible force. We may note, in passing, that the covenant was made with reference to an existing wall which in fact had windows, and that it is plainly possible to use the wall to a large extent as a party wall without entirely blocking up all these windows. It may be also that, owing to some other conditions which appear from the evidence, but which I have not described, the right of the defendant Lobsenz to use this wall as a party wall in the ordinary way is subjected to modification. I do not pause to consider these matters, because, upon the extreme supposition that under this covenant the defendant Lobsenz may at any time erect a building upon his lot and use the entire length and height of this wall as a party wall to sustain his beams and constitute one side of his building, placing his beams wherever he may see fit and rendering the wall at all points uniformly strong and thick, my conclusion is that if our Hew Jersey doctrine of easements of light and air by implied grant is fairly applied, it must be held that the complainants’ building has at least a modified easement which only the actual use of this wall by the owner of the adjacent lot as a party wall can interfere with or destroy.

There seems to be no reason why an easement of light and air may not be created which shall be determinable upon the happening of some condition within the control of the- parties to the instrument, by which, expressly or impliedly, the easement is created.

The easement in its ordinary form is liable to prove a somewhat uncertain and even transient form of property. In order to its continued enjoyment the windows to which it relates must be maintained without change of location. The value of the easement may depend upon the maintenance of a frail and ruinous building, or the ability of the owner of the dominant tenement to replace such building with another having windows in the same places. Johnson v. Hahne, supra.; City National Bank v. Van Meter, 59 N. J. Eq. (14 Dick.) 32 (1899). It may be observed, also, that even though the easement of light and air may not be acquired by prescription, the owners of buildings frequently open windows upon their neighbors’ land in 'order to receive light and air through them to the same extent as if they had an easement, although they are well aware that at any time their windows are liable to be closed. The reception of light and air through windows may be of great practical value to the owner of a building, notwithstanding the fact that this light and air may be cut off at any time when the owner of the adjacent land may so elect.

There is no reason why an easement of light and air cannot be expressly granted so as to endure for the benefit of windows through a party wall until such party wall shall be applied to the use of an adjacent building. This, I think, is precisely what these contracting parties did. The implied grant of the easement of light and air is modified by the express covenant to the extent that the accomplishment of all the objects of the covenant—the enjoyment of all the rights created by it—imposes such modification.. The complainants, I think, have a right to the enjoyment of this easement until the defendant Lobsenz, in the exercise of his right to use the wall as a party wall (whatever the extent of that right may be), shall necessarily modify or destroy the’complainants’ right.

Inasmuch as the defendant Lobsenz has threatened to wall up the complainants’ windows, not for the purpose of any use of the wall by him as a party wall, but merely for the purpose of shutting off the complainants’ light and air, and blocking up openings through which persons may go and objects may be discharged from the complainants’ building onto his (Lobsenz’s) premises, the complainants, I think, are entitled to an injunction. The decree will not attempt to construe this covenant so . as to define the extent of the defendant Lobsenz’s right to use the wall as a. party wall, because’ this court in this case has no jurisdiction of that matter. The conduct of the defendant complained of, which will he restrained by the injunction, has no possible relation to any right which he claims to use the wall as a party wall under the covenant.

3. Counsel for defendants urges that the defendant Julius Meyer is entitled to have the bill dismissed as to him, with costs, inasmuch as the charge of fraud, in respect of the covenant relating to the party wall contained in the deed from him to the complainants, has been disproved and abandoned. Julius Meyer, however, has defended this whole case jointly with the defendant Lobsenz, a single joint answer being filed. Moreover, it appears that Meyer conveyed the servient tenement to Lobsenz, and for all that appears he may have given a covenant against encumbrances. However that may be, Meyer has defended the whole ease precisely as Lobsenz has defended it, and there are indications that he was interested .in some way in defeating the complainants’ claim, not only to a reformation of their deed, but to the remedy of an injunction. On the other hand, a large part of the expense of this cause has been caused by the false charge of fraud contained in the complainants’ bill on which they founded their prayer that their deed from Meyer should be reformed. Hnder the circumstances, each party having partly succeeded, no costs will be allowed to either.


author: Bekgent, Y. C.

text:
    John J. Fleming et ux. v. The Fleming Hotel Company.
    [Decided August 9th, 1905.]
    1. A judicial sale, properly advertised, will not be set aside simply because a higher price can be obtained for the property unless the price bid is so grossly inadequate as to amount to a fraud. '

      2. Where a corporation in the hands of a receiver was hopelessly insolvent, and at the time of a receiver’s sale of its assets it did not appear that there was any capital present or obtainable by further contributions, to enable a resumption of its business, it was not an abuse of the receiver’s discretion to refuse to adjourn the sale at the request of counsel representing ninety-seven per cent, of the creditors, and all the stockholders, on the ground that an agreement had been made by a large part of the creditors for an extension of time, and the sale will be confirmed.
    On bill for receiver. On motion to confirm sale.

      Mr. John T. Van Clecf, receiver, pro se.

      ■ Mr. John H. Baches, Mr. Edwin Robert Walker and Mr. Harry C. Valentine, for the stockholders and creditors.

      Mr. Alvah A. Clark, for the purchasers.
   Bekgent, Y. C.

The receiver, having sold the property of the defendant, an insolvent corporation, and reported the same to the court, obtained an order requiring all parties interested to show cause why the sale should not be confirmed, and upon the return of this order, creditors and stockholders have presented objections, which I am now to consider and dispose of. The objections, ten in number, may be segregated as follows: That the receiver

arbitrarily, without exercising reasonable discretion, and in abuse of his legal duty, refused to adjourn the sale upon the application of the creditors, and stockholders; that the price obtained was grossly inadequate, there being but a single bid, and no bidders present save the purchasers; that the leasehold interest of the defendant company included in the sale was in dispute, and the property sold uncertain in quality and quantity, of which prospective purchasers could not and did not have full knowledge; that the property was sold as a whole without offering the same in parcels. When the receiver was appointed the defendant corporation was carrying on a hotel business in leased premises, and its assets consisted of the leasehold right, furniture and other personal property necessary to carry on such a business, and a small stock of liquors and cigars. That the corporation then was, and still continues to be, hopelessly insolvent is not disputed, the assets being appraised at about $7,500, and the debts variously estimated from $15,000 to something over $20,000. Since the appointment the receiver has been subjected to litigation instituted by creditors claiming to have rights superior to the general class of creditors, which has been resolved in favor of the receiver. I am satisfied that the sale was properly advertised, and, as will hereinafter appear, the creditors had ample notice thereof. The price obtained was $6,000, and if inadequacy of price was the sole ground upon which objection, was based it would not, in my judgment, justify me in refusing to confirm this sale, notwithstanding the fact that on the hearing a purchaser was tendered who is now willing to bid $8,000 and to give security for the faithful performance of his oifer. If judicial sales, properly advertised, with nearly all parties in ■ interest, stockholders as well as creditors, present, are to be set aside simply because, upon reflection, some other person is will-, ing to bid more, unless the price is so grossly inadequate as to amount to a fraud upon creditors, the attendance and bidding at judicial sales will be discouraged, and a bidder ought not to lose the advantage of his bid simply because another is ready to give a greater-sum. Morrisse v. Inglis, 46 N. J. Eq. (1 Dick.) 306. And it was held, in Bethlehem Iron Co. v. Philadelphia and Sea Shore Railway Co.,..49 N. J. Eq. (4 Dick.) 356, that an advanced offer of $40,000 over the price .bid did not disclose such an inadequacy in the price bid as to shock the conscience of the court. In my judgment, under the law relating to this branch of the case, the objection ought not to be entertained.

The most serious reason, and upon which I understand these objectors mainly rclv, is the refusal of the receiver to adjourn the sale for two weeks, which they .claim, under the circumstances to be disclosed, convicts the receiver of a refusal to exercise such a discretion as the observance of his legal duty required. The result of the litigation referred to made it clearly manifest that, after the payment of prof erred. claims and the receiver’s costs and expenses, little, if anything, would remain to be applied to the payment of the unsecured claims. On the day advertised for sale, counsel appeared at the place advertised, and after stating to the receiver that they represented at least ninety-seven per cent, of the creditors, secured and unsecured, and all of the stockholders, the latter being the two complainants, who held all of the stock, requested him to adjourn the sale for two wéeks upon the ground that nearly all of the creditors had entered into a written agreement, to become effective when ninety per cent, in value had executed the same—which condition, it was alleged, had been fulfilled—by the terms of which they had agreed with the defendant corporation to accept payment of their respective debts, without deduction, in one year from the first day of August, 1905, and bound themselves not to sue or prosecute their said claims until the expiration of the time limited, expressly reserving, however, to the preferred creditors their preference. The object to be attained by such adjournment was an opportunity to apply to this court for an order discharging the receiver and the turning over of the assets of the corporation to it. At the time of the application for adjournment the applicants agreed to pay the debts duo to those who had not joined in the agreement, amounting to several hundred dollars, other than the claim of an alleged creditor by the name of Howard, who has presented to the receiver, under oath, a claim amounting to $6,000, which the applicants for adjournment claim has no legal foundation, and which the receiver intends to dispute, although manifestly he cannot ignore it until judicially disposed of. The question thus presented is, did the receiver improperly and unfairly exercise his discretion when he determined to proceed with the sale, and it seems to me this must depend upon the question ■ whether the proposed application to the court, and for which purpose alone an adjournment was sought, had any merit.' It clearly appears. that the' condition of insolvency was to remain. The mere postponement of the date of payment of the obligations of the company in no way removes that objection, nor can the court assume that a business conducted by the same parties who had brought about the condition of insolvency, and without additional capital, would produce a more favorable condition at the expiration of the time limited, and it must be borne in mind that the action sought contemplated the ignoring of the claim presented by Howard.

The application which it was proposed to make to the court finds its support in the sixty-ninth section of the General Corporation act (P. L. W&6 p. &00), which provided that whenever after the appointment of a receiver it appears

“that the debts of the corporation have been paid or provided for, and that there remains, or can be obtained by further contributions, sufficient capital to enable it to resume its business, the court of chancery may, in its discretion; a proper case being shown, direct the receiver to reconvey to the corporation all its property.”

It was not made to appear, either to the receiver or to the court, on the argument, that the debts had been paid or provided for, for I think it doubtful whether the words “provided for” are answered by the extension of the time of payment, but rather that the pajement should be provided for. There is, however, a more serious and to me insurmountable objection, in that it was not made to appear that there was any capital present, or obtainable by future contributions, to enable a resumption of this business with safety to the public and advantage to the stockholders. Such jurisdictional facts being absent, the purpose for which the adjournment was sought would have been fruitless, and I cannot discover in what manner these applicants would have been benefited by an adjournment. It was further objected that the leasehold interest was in dispute, but this objection lacks merit, because on the day of sale the right to sell the leasehold interest had been adjudicated, and the propriety of the adjudication is only questioned by one of these applicants, and the situation was known to all bidders, and if there was any failure to realize the utmost ¡Drice, it was due to the cloud put upon the title by the very parties now complaining. As to the other objection, that the property was sold as a whole, I see no reason to question the propriety of the receiver’s action. The value of the articles was naturally enhanced by the fact that in purchasing them the buyer was securing a business for which they were appropriate, and there is no reason to believe, at least there is no evidence to support it, that these household goods would have realized a greater sum if sold as separate articles to be removed from the leasehold premises, their use in connection therewith being necessary, and I cannot say, under the affidavits, that the receiver did not exercise an intelligent discretion. The articles sold were of an entirely different class from those under consideration in Ryan v. Wilson, 64 N. J. Eq. (19 Dick.) 797. Nor is the difference between the appraised valu'e and price obtained as radical as in that case.

• It is proper to add that the business was not one which this court ought to continue any longer than was necessary to properly advertise and dispose of it as a going concern, and it further appeared that it was being run by the receiver at a loss, a consideration which made it his duty to promptly dispose of it at a fair sale, and thus save the creditors from further loss.

I will recommend that the sale be confirmed.


author: Bergen, Y. C.

text:
    The Mayor and Aldermen of Jersey City v. Jersey City Water Supply Company et al.
    [Decided August 9th, 1905.]
    The contract of a city for the construction of a water works plant stipulated that the city should pay for water at a fixed price according to quantity used, and authorized it to purchase the completed plant for a specified sum on giving- notice of its intent to purchase within one year after the date of the contract. The contractor defaulted, and the city purchased water from a third person for a specified price. Subsequently the third person turned over the supply of the water to the contractor, and it began to furnish water from the incompleted system, and to charge the city the rate fixed in the contract. The city elected to buy the plant at its completion for the price named.—Held, that the city, though in equity the owner of the plant, coulcl not at law resist actions for water supplied at the rate fixed in the contract, and a court of equity would restrain actions at law therefor until the equitable questions were settled, subject to the duty of the city to pay interest on the principal sum agreed to be paid for the completed plant, less payments made on account of water supplied by the contractor, together with the cost of operating the plant.
    On bill, &c. On motion for preliminary injunction.

      Mr. James B. Vredenburgh, for the complainants.

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

Under a contract, dated February 28th, 1899, between the complainant and Patrick H. Flynn, who has since assigned his interest therein to the defendant Jersey City Water Supply Company, Flynn agreed to construct a system of water works for Jersey City, and to supply it with pure and wholesome water, in accordance with specifications made a part of the contract. The city on its part agreed to pay for such water at a price fixed in the contract per million gallons, according to the quantity used. The contract further stipulated that upon receipt of a notice that the city desired to purchase the works when completed, Flynn would convey the completed plant to the city for $7,595,000, provided notice of the intention to purchase was given within one year after the date of the contract. The contract contained other options to purchase reserved by the city, but as the option to purchase at completion was exercised, and the required notice given, they need not be considered. The case made by the bill is that the city, instead of buying the water at so much per gallon, has exercised its option and elected to buy the plant at its completion for the price named. It appears that Flynn did not complete the works within the time agreed upon, and it is claimed has not yet fully qualified himself to convey all he agreed to pass over. Nevertheless, the cityj in view of the great interest it has in securing a proper water-supply, demands that the defendant comply as fully as they can, submitting to such deduction from the contract price as this court shall adjudge equitable to meet the cost of a substantial compliance with the contract. The right to a decree for specific performance is not now under consideration, and only so much of the contract and claim is here set out as is necessary to properly determine whether suits brought by defendants against the complainant to recover for water furnished at the price fixed per gallon in the contract, if the city do not purchase, should be restrained and the defendants enjoined until the final determination of this cause, and the equitable rights of the respective parties ascertained and decreed.

The default in the completion of the works compelled the complainant to contract for a temporary supply of water with the East Jersey Water Company, a corporation whose relations with the Jersey City Water Supply Company were sufficiently friendly to induce it to agree to furnish the quantity required in consideration of the payment of a sum equal to the interest, at four per cent., on the purchase price and the estimated cost to the complainant of operating the plant if it were in possession. This arrangement continued until May 24th, 1904, when the East Jersey company, without complainant’s knowledge, ceased to furnish the' water, and turned over to the defendant the supply main then in use, and that company then began to furnish water from its incomplete system and to charge the complainant therefor, but against its protest, at the rate fixed in the contract should the city not purchase on completion, which increased the cost to the city over the rate paid for the temporary supply to the extent of $80,000 per annum. It is the refusal to pay these charges that is the foundation of the action at law sought to be enjoined. The present claim of the city is that, having complied with its agreement, and thereby entitled to a conveyance, it is in equity the owner, and while it will not be able to resist successfully the actions at law, in equity the defendant holds the property in trust for it, and is not, in any event, entitled to more than the purchase price, interest thereon, and the necessary cost of operation, and tenders itself ready to accept the conveyance and to make such payment as may equitably be required.

It appears to me that this claim has the support of authority, and that upon the performance of the conditions cast upon it by the contract, all of which are alleged to be. performed, a prima facie case is presented which shows that the vendee has acquired an equitable estate in the property, subject to the vendor’s lien for the purchase price, falling within the rule as stated in 1 Pom. Eq. Jut. § $7®, and that the vendor cannot, by neglecting to perform his part of the contract, obtain, as alleged in the bill, a position to extort money beyond the reach of this court. ■ A large and populous city is dependent for health and comfort upon the water to be furnished from this supply, and if the defendant, by refusing to complete the works and comply with its bargain, can compel the city to accept its construction of this agreement and take the water on its terms, for use the water the people must, or perish, a condition is presented that not only justifies but demands the interference of this court. As specific performance can only be had in this court, the complainant is properly here, and as the right of defendants to recover for water supplied depends upon the question of equitable ownership, and the price to be paid depends upon deduction to be allowed for incomplete performance, a case cognizable in equity is presented. I think the suits should be restrained, at least until the equitable questions are disposed of, and will so advise. In consideration of the large amount of money involved and the great expense of operating the plant, the defendant ought not to be deprived of all income, and to meet this the city should pay the interest on the principal sum, at the rate of four per cent, per annum, to cover the past and future period since May 24th, 1904, less payments, if any, made on account of water supplied by the defendant, and also $50,000 per annum for the same term and subject to same conditions as the estimated cost of operation, that being the basis of the agreement for the temporary supply, such payments to be made quarterly as to the future, and in full as to the past, but without prejudice to either party; nor shall payment or acceptance be taken as a waiver of any right, either in this cause or on the suits enjoined. If performance shall be decreed, the payments can be adjusted in fixing the amount to be paid. If refused, the}' will be considered as so much paid on account. I will advise an injunction order according to the views I have expressed.


author: Bergen, V. C.

text:
    Howard K. Stokes v. Knickerbocker Investment Company et al.
    [Decided August 10th, 1905.]
    A receiver of a corporation appointed at the suit of the holders of less than one-quarter of the stock will be discharged where it appeal's that the corporation is not insolvent; the fraudulent procurement of proxies, by which it is alleged the defendants obtained control, is denied, and there is little evidence of it, and an arrangement is made by which the time of maturity of obligations of the corporation shall be extended till after a change in control of the corporation may be made, if the stockholders so desire, and the collateral given to secure such obligations is protected from being sacrificed.
    On bill for injunction and receiver. '

      Mr. Robert II. McCarter, attorney-general, for the complainant.

      Mr. Richard V. Lindabury, for the defendants.
   Bergen, V. C.

The complainant is one of the stockholders of the defendant Knickerbocker Investment Company, the other defendants being Manhattan Bond and Underwriters Company, Henry P. Towns]ey, Eugene Yan Shaick, William Hanhart, John A. Tiger and Ernest W. Shoneberger, all of whom have answered the bill of complaint.

On an ex parte application, made at the time the bill of complaint was filed, which, among other things, alleged the insolvency of the defendant Knickerbocker Investment Company, the usual injunction order was made and a receiver of the corporation appointed with power to issue certificates of indebtedness to take up certain obligations of the company,- the threatened enforcement of which by the holders thereof, it was alleged, would sweep away all the assets of the company, to the great injury of its creditors and stockholders.

The bill of complaint alleges that the only available assets of the Knickerbocker company are six hundred and twenty-six shares of the capital stock of the Bankers’ Life Insurance Company; that in the purchase of this stock the Knickerbocker company incurred a debt which, at the time of the filing of the bill of complaint, amounted to about $44,000; that this indebtedness was represented by promissory notes of the company, to secure the payment of which all the assets aforesaid were assigned as collateral; that the Knickerbocker company was organized in 1902, under the Corporation act of this state, the number of the board of directors being originally fixed at five; that in September, 1903, John A. Tiger and others, directors and officers of the company'-, obtained sufficient proxies from stockholders to increase the number of this board to fifteen, the purpose being to obtain a board of directors the majority of whom would assist Tiger and his confederates in carrying out the conspiracy then inaugurated as subsequently set out in the bill; that, in furtherance of such conspiracy, Tiger and his associates, by deception, obtained sufficient proxies to control the annual meeting of the Knickerbocker company in January, 1904, and elect a majority of the board in sympathy with them; that in March, 1904, Tiger induced three of these directors to resign, and thereafter procured the election as directors to fill such vacancies the defendants Townsley, Van Shaick and Hanhart; .that for the purpose of inducing stockholders to favor increasing the number of directors, Tiger represented that the increase was for the purpose of providing an opportunity to afford representation to different localities where blocks of its stock were held; that in the election of directors this plan was not carried out; localities in Pennsylvania and New Jersejr, in the neighborhood of which resided persons holding together large quantities of this capital stock, were left without representation; that the three persons last named, at the time of their election, promised in writing that they would put in the company from $50,000 to $65,000 in cash, and would take care of the company’s obligations by providing funds to carr3r them; that if they could obtain control of the Bankers’ Insurance Company, they would pay dividends on the Knickerbocker stock at the rate of five per cent, within six months thereafter, and would negotiate loans for the Knickerbocker company on a time basis instead of on call. The bill of complaint further charged that .when the board of directors of the Knickerbocker company was so reorganized, the notes of that company were held by banks in different localities, guaranteed..by the endorsement of stockholders; that the company was without resources to pay interest on or take up the notes if called, and it was vital to the success of the company that its obligations should be protected and the promises made to do so performed, and charges that the defendants, as part of the conspiracy to obtain the assets of the company for their own use, and in violation of their duty, authorized Tiger to take up all of the loans; that $32,000 of such loans was thereupon taken up and replaced by loans in New York City, under the control of Townsley and Yan Shaick, without endorsements, but secured by the pledge, as collateral, of the trustees’ certificates of the Bankers’ Insurance Company’s stock, the stock of the latter company having been placed in a voting trust, the owners accepting these certificates as evidence of their title; that to carry out the conspiracy charged, the defendants caused a resolution to be passed by the’board of directors that no more stock of the Knickerbocker company should be sold, and as the company^ had nó income, the adoption of this resolution deprived it of all resources and of any method to provide means to pay its obligations; that because of the acts of these conspirators, the company was then in the hands of a group of directors who owned but $8,100 in value out of the $261,000 of capital stock issued; that it had no assets other than the six hundred and twenty-six shares of the'Bankers’ company stock; that its ■obligations amounted to $44,000, carrying interest at six per cent., to secure the payment of which it had pledged as collateral the only asset it hack The bill further charged that, as a part of this conspiracy' to obtain the assets of the Knickerbocker company at a price much below its value, the defendants circulated, through the insurance press of the country, and otherwise gave wide publicity to the statement, that there were internal dissensions among the stockholders of the company and improper management by 'its officers of its affairs. It was further made to appear that the defendants charged as conspirators had caused to be organized, under the laws of the State of Kew York, a corporation known as Manhattan Bond and Underwriters Company, to be governed by a board of eleven directors, of those elected nine being members of the board of directors of the Knickerbocker Company; that this company began business with a ¡raid-in capital of $40,000, the most of which was used in taking up the obligations of the Knickerbocker company, for which it held as collateral nearly all of the stock of the.bankers’ company, issued to the Knickerbocker company, and it was charged that the acts of the said defendants, as above set out, had in view the calling of the loans due by the Knickerbocker company and the sale, without notice of the' collateral, which would result in stripping the Knickerbocker company'' of all of Its assets and the acquirement thereof by these conspirators at a price much below its real value, to the injury of all of the stockholders of the Knickerbocker company, other than those of them who were a part of the combination. As the collateral was in the hands of those persons who, it was charged, intended to privately sell this stock under a pledge made by themselves, on behalf of the Knickerbocker company, to themselves, as directors of the Manhattan company', in a foreign state, not only prompt, but effective action was demanded, the result of which has preserved the property and .brought it within the jurisdiction of this court. An application was made to the chancellor by the defendants, based on the moving papers, to discharge the receiver and dissolve the injunction upon the ground that the action complained of was improvident, but after full bearing this application was denied.

The present motion, made on answer, duty verified, is to have the injunction dissolved upon the ground that the answer meets and overthrows all the facts upon which the equities stated in the bill of complaint are based, and that under the law and the rules of this court, having completety answered the bill of complaint, the preliminary injunction should be dissolved, and as a proper sequence thereto, the receiver discharged. The answer does, as it appears to me, fully answer and deny all the charges of conspiracy and all intention to sell or absorb the assets of the Knickerbocker company, and while it admits that practically all of the assets of the Knickerbocker company have been pledged to the Manhattan company as collateral for loans, it shows that there is sufficient equity in the collateral to provide for the current expenses of the Knickerbocker company for some years to come, and the defendants tender themselves ready to provide such necessary funds upon the strength of the same collateral. The answer and its accompanying affidavits show that the Knickerbocker company was organized, among other things, for the purpose of buying and holding stock in life insurance companies; that in carrying out this object, they purchased, or secured options to purchase, the shares above referred to, which constitute a majority of the capital stock of the Bankers’ Life-Insurance Company; that at the time of the purchase a voting trust was created by and between the Knickerbocker company of the one part and three persons, who appear to be strangers to the Knickerbocker company, as voting trustees, by the terms of which the stock of the Bankers’ company was transferred to said trustees, giving them the exclusive power to vote thereon for a period of five years from and after the date of the agreement, and in lieu of the stock so transferred, the trustees issued to the-Knickerbocker company trustees’ certificates to represent the stock; that these trustees voted for and elected a board of directors for the Bankers’ company, who have appointed one of the trustees as president, at a salary of $6,000 a 3rear, and the complainant as third vice-president, at a salary of $4,000; that no dividends are at present being paid on the Bankers’ company stock, although dividends were regularly paid upon said stock until the said voting trustees acquired control thereof; that at the time the stock was purchased, the Bankers’ company was a prosperous one, and charges that if properly managed it would be prosperous still, and that it is for this reason only that the Knickerbocker company is not now in receipt of an income, and that at the expiration of the voting trust, the Knickerbocker company will be able to so manage the Bankers’ company as io make it a profitable investment; that with its present assets the holding company will be amply able to meet its current expense until that time, and thereafter be able, from such income, to repair its losses, for all of which reasons it cannot be said that the Knickerbocker company is insolvent.

That upon this branch of the case insolvency is a jurisdictional requirement is so well settled in this state as to avoid the necessity of citation in support of it.

A careful examination of the papers fails to convince me that the internal dissensions between the officers of this company and its stockholders have reached any such point as to require the intervention of this court. Manifestly the present board of directors is supported by a large majority of the stockholders. Out of a par value of $267,000, only $60,000, approximately, have intervened and asked to be permitted to be made parties complainant with the original complainant, and the presumption is that the residue, amounting to $200,000, are in sympathy with the management of the board of directors. This important fact cannot be overlooked in determining the question whether the dissensions in the company have reached the point demanding interference. Such a contest as this, provoked by a minority of stockholders, would' constantly arise if the court should say that the protest of every dissatisfied stockholder was a basis for such internal dissensions as to warrant a receivership.

The situation, as disclosed by this bill and answer, is substantially this: In a contest for the control of the Knickerbocker company, the complainant and his allies were defeated. They charge it was because proxies were obtained by some of the defondants through misrepresentation to the stockholders granting them, and that by reason of the power so acquired, the defendants intend to fraudulently dispose of and secure for their own use all the property of the Knickerbocker company. The fraudulent procurement of these proxies is denied, and but very little evidence has been produced to support the charge. It is not disputed that the only business of this company is the holding of the capital stock of the Bankers’ company, and it is impossible to sustain the allegation of insolvency, therefore, if the threatened disposition of the assets of the company is prevented until the stockholders, at a meeting to be called, or at their next regular meeting, can have an opportunity, either by a proper resolution or the election of a new board of directors, to express their wishes, the complainant will have secured all the judicial protection he is entitled to under the circumstances here existing.

The only matter contained in the bill of complaint of vital consequence to complainant is the alleged apprehension that the present holder of the collateral, the Manhattan company, being a foreign corporation, may at any time call the loans and sacrifice the collateral by a private sale of it. But that company, on the argument, professed its willingness to accept from the Knickerbocker company, in lieu of its present obligations, new evidences of the indebtedness, postponing the maturity of the loans until after the expiration of the voting trust. That ofier, made in open court by parties who have answered and thus submitted themselves to the jurisdiction of the court, is one that ■may be availed of in disposing of this matter, and thereby the real danger of injury to the complainant averted.

If the defendants, the Knickerbocker company, the Manhattan company, and any other defendant holding obligations of the Knickerbocker company, collaterally secured by the stock of the Bankers’ company, will convert the present obligations of the Knickerbocker company into others that shall not mature during the life of the voting trust, and will incorporate in a written instrument pledging the stock of the Bankers’ company as collateral a stipulation that the collateral stock shall not be sold except at auction in some public place, after fifteen days’ public. advertisement, and upon due notice to the stockholders of the Knickerbocker company, I will advise an order discharging the receiver and dissolving the injunction. Under the circumstances, I think the reasonable expenses of the receiver should be paid by the Knickerbocker company.