text:
    National Grocery Company, a corporation, complainant, v. National Stores Corporation, a corporation, defendant.
    [Decided February 29th, 1924.]
    1. Competition in business which is unethical, but not illegal, is i^ot unfair.
    2. Unfair competition will be restrained even though the distinctive word used is purely generic or descriptive, or a common adjective of the language.
    Pi. Where it is sought to enjoin the use of :\ geographical name on the ground -of unfair competition, it must appear that such use is with fraudulent intent to deceive the public.
    4. There must be actual competition in business before there can be unfair competition.
    5. Where a business is conducted exclusively in the southern part of the state, it cannot be said to compete with a business conducted exclusively in the northern part of the state, the two businesses being separated by a distance of twenty-five or thirty miles.
    On bill, &C.

      Messrs. Edwards £ Smith, for the complainant.

      Messrs. Wall, Haight, Carey £ Ha-rtf ence, for the defendant.
   Bentley, Y. C.

This is a bill to enjoin the defendant from the use of the word “National” in its corporate name or in connection with its grocery stores. Some confusion appears to have existed 'in the mind of the complainant as to the character of the suit under its bill. Its counsel has repeatedly said, both in argument and in his brief, that it is not a suit to restrain unfair competition. However, it seems to me that it must of necessity be such a suit, because it is beyond argument that it must fall either into the category of such a suit or else of one to protect a trade-mark. Manifestly, it cannot be classed among the latter.

The complainant was incorporated in 1908, for the purpose of conducting what has been described as a “chain of grocery stores” in this state, all being located in the northern counties, depending for its trade upon the excellence of the commodities dealt in, the cleanliness oE its stores, the courteous and attractive treatment of its customers, wide advertising under the name “National,” and the comparatively low prices of its goods, made possible by the purchase and sale of very large quantities of goods for which credit is not extended and which the customers are obliged to carry to their homes or other destination, no deliveries being made by the stores. In carrying on its trade the complainant has built up a very valuable business, and has expanded the number of its stores from a modest beginning to more than four hundred. In all of its existence it has, in all its forms of advertising, stressed and made most prominent the word “National,” -so that its stores are widely spoken of, colloquially, as “National Stores.”

In 1922 a corporation was formed, under the laws of this state, the name of which was the New Economy Stores Corporation, which operated, in the central and southern portion of the state, about forty stores similar in general character to those of the complainant. Following that, in the early part of 1923, another corporation was organized under the laws of the State of Maryland, known as National Stores Corporation (the defendant), and was designed for the purpose of acquiring and operating the stores theretofore known as the New Economy Stores. This last-mentioned company, complying with the statute, secured a certificate from the secretary of state of New Jerseyq authorizing it to do business. The object of the defendant is to carry on a business similar to that of the complainant heretofore described.

In its advertising in the newspapers the defendant, also like the complainant, gives the utmost prominence to the word “National” appearing in its name, so that anyone casually reading such advertisements will unquestionably have his attention arrested by that single word. In one of the advertisements the word “National” appears in letters three-quarters of an inch in height, while the letters composing the term “Stores Corporation” are less than one-quarter of an inch in height. In labeling its name upon the windows of its individual stores the defendant also gives like prominence to the word “National,” so that any ordinal observer would probably fail to pay any attention to the rest of its corporate name. It is true that a number of differences exist in the appearance of the stores of the defendant as distin-' guished from those of the complainant, such as the fact that the former are painted an orange color while the latter are a dark green; the defendant uses white enameled letters on the outside of its windows to proclaim its name, while the complainant has its name in gilt letters painted upon the inside of the glass; all three words of complainant’s name appear in letters of equal size, while the defendant’s name appears in letters of two different sizes, those composing the word “National” being about fourteen inches in height, while the remainder, forming the words “Stores Corporation,” are so small that they are almost negligible.” Nevertheless, there is such a striking similarity that I feel convinced that the defendant has purposely attempted to secure a benefit from the wide and favorable impression already made upon the purchasing public by the complainant. The testimony of the witness Nussbaum, explaining the adoption of the present name in place of the former name of “New Economy” Stores Corporation, is exceedingly weak. He says that there was an apprehension upon the part of the officers that the word “Economy” might import to the housewife’s mind an idea that he expressed as “cheapness,” meaning an inferior line of goods for the purpose of charging a smaller price. If that were so, and I do not think it is, thai was no reason for taking and advertising the name of another company engaged in a like business, except upon, the hypothesis just referred to. In addition, the incorporation of the defendant in this state, where most of its business is transacted in the summer of 1922, and then its subsequent reincorporation in the State of Maryland about a half year later, where it had no business, is very significant.

My trouble with the complainant’s case is that, no matter how sharp this practice may be, it does not give rise to a situation with which this court can deal. Vice-Chancellor Garrison, in the case of Perlberg v. Smith, 70 N. J. Eq. 638, expressed this thought when he said: “Care must be taken in these cases not to extend the meaning of the word ‘’unfair’ to cover that which may be unethical but is not illegal. It may be unethical for one trader to take advantage of the advertising of his neighbor, but his so doing would in many instances be entirely legal.”

Had the grievance of the complainant been the pirating of a trade-mark, a very different situation would be disclosed. The testimony was that neither of these companies is engaged in manufacturing of any sort, except that the complainant bakes bread, and in the few instances where they are engaged in packing goods purchased in bulk under a distinctive trade name, there is no infringement. The grievance is the single one already mentioned, namely, the use of the word which the complainant says it has preempted in the chain-store business in the State of New Jersey as against the entire world. That, in my opinion, excludes this case

from consideration as a suit to enjoin the infringing of a trade-mark, and stamps it as one against unfair competition, there being, so far as I know, no other class of cases under which it can even be argued that it falls. The distinction of the cases is, that the infringement of a trade-mark is a violation of an exclusive right of the complainant to the use of a word, mark or symbol, while unfair competition is much broader and will be restrained, even though the word may be purely generic or descriptive and, a® in this case, a common adjective of the language. Dennison Manufacturing Co. v. Thomas Manufacturing Co., 94 Fed. Rep. 651; Daviess Distilling Co. v. Martinioni, 117 Fed. Rep. 186.

In the case of the infringement of a trade-mark fraud will be presumed, but that element is the very gravamen of a suit for unfair competition and must be pleaded and proved. Elgin National Watch Co., v. Illinois Watch Case Co., 179 U. S. 665.

The general rule is, that where it is sought to enjoin the use of a geographical name on the ground of unfair competition, it must appear that such use is with the fraudulent intent to deceive the public. American Wine Co. v. Kohlman, 158 Fed. Rep. 830; Elgin Butter Co. v. Elgin Creamery Co., 155 Ill. 127; VanHorn v. Coagan, 52 N. J. Eq. 380.

In this last case Vice-Chancellor Van Fleet said, in an opinion adopted on appeal by the court of errors and appeals (at p. 888) : “But it is contended that a geographical name, like Portland, cannot be a trade-mark, nor be so used as to give the dealer, who first adopts it, an exclusive property in it. This, I think, may be conceded without impairing, in the slightest degree, the complainant’s right to the protection it asks. For, as was said, in substance^ by Lord Langdale in the case just cited, the question, in cases like this, is not whether the complainant has a property in the name by which his goods are distinguished in the market, but, on the contrarjr, the pertinent inquiry is, has the defendant a right to use the name by which the complainant’s goods are known for the purpose of deception, and in order to attract to him, self that custom which, without the improper use of such name, would have flowed to the complainant f And the answer to the inquiry is, that the defendant has no such right.” The italics are mine. In all such eases, and in all of those cited by the complainant, there has been present the fraudulent element indicated by the language of Yice-Chancelior Yan Fleet which I have emphasized. In the case sub judice this necessary element to a case of unfair competition is not to be found. Obviously, by force of the definition of the kind <of business in which the parties are engaged, each store must draw its trade from a very small surrounding territory, because customers obliged to pay cash and carry away their purchases will not patronize a store unless within their immediate neighborhood. The proofs show conclusively that not only has the defendant scrupulously remained out of the territory exploited by the complainant, but that the complainant’s activities have been confined to the northern counties of the state, the defendant’s to the southern or central part of the state, and that the most southerly of the former is separated by perhaps twenty-five or thirty miles from the most northerly of the latter. This being so, it can scarcely be said that any unfair competition exists. As tersely expressel in 87 Cyc. 760: “Of course, there must be actual competition before there can be any unfair competition.”

For example, it was held that druggists and physicians conducted businesses, professions or callings not in competition with each other, so that an injunction would not lie for unfair competition. Clark v. Freeman, 11. Beav. 112. To the same effect is Borwick v. Evening Post, 37 Ch. Div. 449, where it was held that an evening paper did not compete with a morning publication, each using in its title the word “Post.”

The complainant goes further in its demands than I think is justified, when it argues that because under its charter it is authorized to do business in any part of the state under its corporate name it has thereby preempted all the markets that can be found within New Jersey against any company formed with, one adjective in its name to he also found in that of the complainant. Such a rule would be subversive of the underlying principle governing monopolies, and would, of course, be highly detrimental to the public interest by reason of the stagnation of trade while the complainant was making up his mind and securing the capital necessary to expand into territory it might properly occupy and which it hopes and expects some day to invade. While I know of no decision of our own courts in a case on all-fours with the present case, there are, however, many opinions in other jurisdictions that make it clear that the right of a given name previously adopted in a business located in one locality does not invest the proprietor of that business with the right to enjoin the use of the same or a similar name by a junior enterprise in another locality where one does not encroach upon the other. Such were the cases of the Eastern Outfitting Co. v. Manheim, 59 Wash. 428; Investor Publishing Co. v. Dobbinson, 82 Fed. Rep. 56; Olin v. Bate, 98 Ill. 53; Miskell v. Prokop, 58 Neb. 628.; Hygeia Distilled Water Co. v. Consolidated Ice Co., 144 Fed. Rep. 139; Nebraska Loan and Transfer Co. v. Nine, 27 Neb. 507; Levy v. Waitt, 61 Fed. Rep. 1008; Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., 142 Ill. 494; Bingham School v. Gray, 122 N. C. 699. But, the complainant says, this rule is not applicable to the instant case, because, in the very nature of things, the prospect of a so'-called chain-store business is the constant expanding, reaching out and establishing of new stores in neighborhoods not already tapped. Surely, in the great majority of business enterprises, and especially those like the complainants’s, involving a business capable of expansion and the investment of large capital, there is implied the hope, intention and design of constantly invading new territory, for the purpose' of securing an increasing volume of business. For reasons already touched upon, it would be absurd to say that any such intention should permit the preempting of the use of the name at a place and time where such a supposed business enterprise had no customers or business and, therefore, nothing to lose. It is entirely too

remote and fanciful for the complainant to object to another using a name in a certain locality, not because he has already established his trade there, but because he may do so in the future. For it is equally probable he may not. It is significant that in all the cases cited by the complainant in its brief there was an actual competition between the parties, in accordance with that portion of Vice-Chancellor Van Fleet’s opinion in Van Horn v. Coogan, which I have already quoted and emphasized. In none of these cases is there presented the distinguishing features of this case, to wit, that the parties were so separated from each other, territorially, that by reason of that fact and the character of their activities it was impossible for one to injure the other. In the case of Hilton v. Hilton, 89 N. J. Eq. 149, upon which complainant relies, will be found a typical case of the distinction I have pointed out between such cases and the one at bar. In this case Vice-Chancellor Lane distinctly points out (at ¶. 152): “These stores, or some of them, are in comparatively close proximity to some of those of the ‘Hilton Co.’ Joseph now contemplates opening st^e in Brooklyn, in comparatively close proximity to that of the ‘Hilton Co.,’ and another in New York, immediately opposite the Nassau street store of the ‘Hilton Co.’ ”

In all the eases which the vice-chancellor used as precedents in the Hilton Case, the outstanding fact, as expressed in the respective opinions, was the stealing by the defendant of the complainant’s customers, such as the National Biscuit Co. v. Pacific Coast Biscuit Co., 83 N. J. Eq. 869, where the chancellor spoke oh the underlying principle of “filching the business of a rival.” To1 like effect are the other cases of International Silver Co. v. Rogers, 71 N. J. Eq. 560; Cape May Yacht Club v. Cape May Yacht and Country Club, 81 N. J. Eq. 454; R. C. & H. T. Co. v. Rubber Bound Brush Co., 81 N. J. Eq. 419.

Much stress has been laid upon subdivision 1, section '8 of “An act concerning corporations (Revision of 1896),” where it is declared: “No name shall be assumed already in use by by another existing corporation of this state, or so nearly similar thereto as to lead to uncertainty or confusion.” I do not see how the complainant can complain of the adoption of its name by the defendant, under this statute, except as its right may have been infringed, on the theory of unfair competition or the trade-mark theory. I agree with the defendant’s counsel that this section of the act, so far as individuals may be concerned, is but a crystallization of familiar rules as to unfair competition. In this connection, the complainant gives much weight to the opinion in Glucose Sugar Refining Co. v. American Glucose Sugar Refining Co., 56 Atl. Rep. 861, not officially reported. Of course, in that case the court found actual competition between the parties and fraud upon the part of the defendant, and therefore it was determined that the complainant was entitled to an injunction, both under the eighth section of the Corporation act and the theory of unfair competition. When the vice-chancellor summarized the conduct of the defendant in assuming the name of the complainant as “inequitable/’ he used another term for the phrase “unfair competition,” which, of course, in its very essense, is inequitable when it exists. Were it present in the case at bar, the complainant might secure relief against it, irrespective of the statute, but the statute affords- no additional right to it. I do- not believe that it was the intention of the legislature to lay down a flat rule that was to be applied similarly to a yardstick, irrespective of the legal and equitable rights of the parties.

So far as' a fraud upon the act of the legislature is concerned, I do not think the complainant can be heard to speak for the state. I am reminded of the language of the chief-justice in Prindiville v. Johnson, 93 N. J. Eq. 425 (427) : “So far as the vindication of our laws and policies is concerned, it is enough to say that the state does not need his aid for any such purpose, and that his assumed status as a representative of "the state cannot be recognized.”

Should the section of the state now served by the complainant be invaded by the defendant, a new situation will be presented, and one with which I am not now concerned or at liberty to express an opinion.

I will advise that the bill be dismissed.


source: Caselaw Access Project

author: Bentley, Y. C.

license: Public Domain

text:
    Maurice D. Baumohl and Harold W. Danser and the Long Branch Steamboat Company, a corporation, complainants, v. Milton J. Goldstein and Marguerite D. Eisner, defendants.

    [Submitted February 25th, 1924.
    Decided March 20th, 1924.]
    1. The by-laws of a corporation may be enforced as a contract between the corporation and its stockholders and between the latter inter sese.

      2. The light of a stockholder to sell his stock cannot be defeated by any provision contained in the by-laws of a corporation.
    3. Where the by-laws of a corporation provide that the “right to assign or transfer the common stock of the company shall be subject to the company’s option to purchase from the stockholder of record within twenty days on written notice of the desire of said stockholder to sell, assign or transfer the same” this does not amount to a restriction on the power of sale, but is an agreement under which he holds his stock and is enforceable as an option.
    On bill, &c. On order to show cause why a preliminary injunction should not issue.

      Messrs. Treacy & Milton, for the complainants.

      Mr. William L. Edwards, for the defendants.
   Bentley, Y. C.

This is a bill filed by certain stockholders of the Long Branch Steamboat Company and that corporation itself, to establish a trust in certain shares of stock, for a transfer thereof from one of the defendants to the corporation, and to enjoin the voting, transferring, &c., thereof. The defendants also counter-claim with many charges, of no moment in the decision of this motion, praying that the said shares of stock be decreed to be transferred on the books of the company, together with a temporary injunction.

The company was organized in 1919 with two hundred and fifty shares of common stock authorized, whereof two hundred and forty have been issued and are now outstanding, and which are invested with the control of the company, the preferred stock being of the ordinary sort having no- voting power. Originally, the common stock was held by five individuals of whom the complainants Baumohl and Danser, the defendant Goldstein, and one J". Lester Eisner, each held fifty shares, and one Joseph Goldstein forty shares.

The by-laws of the company provide in section 2 as follows :

“The right! to assign or transfer the common stock of the company shall be subject to the company’s option of purchase from the stockholder of record within twenty days on written notice of the desire of said stockholder to sell, assign or transfer the same.

The other pertinent provisions of the by-laws are (a) the right of the corporation to acquire its own capital stock, and (b) that only stockholders ■ of record may vote, they being entitled to one vote for each share of stock owned.

On July 21st, 1922, the said J. Lester Eisner transferred his stock to his wife-, the defendant Marguerite E. Eisner, with the consent of the corporation. She, in turn, on September 20th of that year, sold and assigned the same stock to the defendant Milton J. Goldstein for the sum of $25,000, although it was not until December, 1923, that the same was presented for transfer upon the books of the corporation, whereupon counsel was retained and this bill filed. ' The complainant Baumohl, as secretary of the corporation, has refused to make such transfer. The gist of the bill is, that the sale of stock by the defendant Marguerite B. Eisner to the defendant Milton J. Goldstein was in violation ’ of the section of the by-laws just quoted, and the latter having knowledge thereof is precluded from taking any advantage thereby, and holds the same as trustee for the company, subject to its reimbursing him. The defense is, that the bylaws contravene the policy of this state against restricting the power of alienation of property, is violative of section 15 of the Uniform Stock Transfer act (Chap. 191 P. L. 1916), and, even if innocuous, is too indefinite to- be enforced. •

The bill, answer, counter-claim and affidavits are exceedingly voluminous and as venomous as it was ever my duty to read. However, the charges and counter charges of the respective parties against each other may be disregarded for the purposes of this motion, and the questions to be decided, fortunately', rest upon facts that are-, to all intents and purposes, not in dispute, and which bring the issues within the narrow compass just indicated.

The by-laws of a corporation may be enforced as a contract between the corporation and the stockholders, and between the latter inter sese. 14 Corp. Jur. 346; Miller v. Hillsborough, &c., Assn., 42 N. J. Eq. 459.

The right of a stockholder to sell his stock cannot be defeated by any provision contained in the by-laws of a corporation. Morris v. Hussong Dyeing Machine Co., 81 N. J. Eq. 256. The questioned provision in the by-laws of the complainant company, however, does not amount to- a restriction on the power of sale. It is, in its very essense of purpose, the first step or agreement in such a sale. No such limitation can be imposed upon one that takes from him the right to dispose of his property, but he may divest himself of the right to do- so- as to aE the world except one individual with whom, he has made a valid and binding contract. This is the purpose of the provision in question and not to- compel the individual stockholder to- keep his shares forever, unless by grace of the governing body of the company. That such an agreement is enforceable as an option under some authorities, is intimated by Vice-Chancello-r Emery' in Morris v. Hussong, &c., supra, although he individually appears to have questioned the soundness of the rule. Vice-Chancellor Backes, in Prindiville v. Johnson & Higgins, 92 N. J. Eq. 515 (at p. 522), say's, unequivocally:

“Charter provisions of this character, obviously, are not restrictions on the transfer, but conditional contracts of sale and specifically enforceable as contracts, and were sustained in the cases upon that theory.”

Then he cites a great many authorities from various jurisdictions supporting'the text. It is true that he was not dealing with a covenant in restraint of trade, but rather, as he himself points out, one “limiting the quality of the shares, not their alienability.” The court of errors and appeals, in affirming this decision in 93 N. J. Eq. 425, did not pass upon the merits of the case, but contented themselves in agreeing with the vice-chancellor, that after many years of complicity the complainant in that case should not be heard to complain of the fraud in which he charged himself with having been a partner. It is true that there is no decision in this state to serve as an authority to enforce the obligation of a contract such as the one under consideration. It is also true that there is no binding authority against it, because Vice-Chancellor Emery, while he did say in Morris v. Hussong, &c., supra, (at p. 261):

“Some authorities are cited sustaining provisions in charters or by-laws, expressly providing for a prior offer of sale to the company, or submitting to directors the name of the transferee for approval. But the weight of authority and—■ in my judgment—the better rule, seems to be against the validity of such provisions, as being an unreasonable restraint of alienation.”

It was entirely unnecessary, and, as he emphatically said, his mere opinion upon a question that was not before him. In this virgin field it may be of some assistance to consider the paths that have been trodden in other jurisdictions in laying down ways to be followed in seeking a similar goal. In the case of New England Trust Co. v. Abbott, 162 Mass. 148, an option on the stockholder’s shares in favor of the corporation was sustained against his executor. The court says:

“It is held in this state that a corporation, unless prohibited, may purchase its own stock [Dupee v. Boston Water Power Co., 114 Mass. 37], and we see nothing opposed to public policy in such an agreement as this with corporations like this. If honestly carried out by the directors it tends to secure a trustworthy body of stockholders from which those having the care and management of the affairs of the corporation naturally would be selected. It certainly cannot be contrary to public policy that the managers of this and similar institutions should be persons of skill who possess the confidence of the public. The restraint upon alienation is no greater than is often agreed to. In England it is not unusual to find in the deeds of settlement or articles of association under which corporations or joint-stock companies have been organized and which correspond to the charter and by-laws here, provisions requiring the stockholder, in case he wishes to transfer his stock, to offer it to the directors, or to submit to them the name of the transferee for approval.”

It is true that in that case the decision was placed upon a written contract by the executor distinct from the provision in the by-laws; but, nevertheless, the court also says:

• “We think that the case may well stand on the ground that the defendant’s testator entered into an agreement with the plaintiff to do what the plaintiff now seeks to compel his executor to do. It is manifest that a stockholder may make a contract with a corporation to do or not to do certain things in regard to his stock, or to waive certain rights, or to submit to certain restrictions respecting which the stockholders might have no power of compulsion over him.”

In Nicholson v. Franklin Brewing Co., 82 Ohio St. 941, a provision of the sort under consideration was sustained. To like effect are Farmers M. & S. Co. v. Laun, 146 Wis. 252; Weiland v. Hogan, 177 Mich. 626; Jones v. Brown, 171 Mass. 318; Barrett v. King, 181 Mass. 476. In some of these cases it is true the issue was framed under a contract distinct from the by-laws, but the reasoning in all of them is applicable to the ease at bar.

In many cases from other states, cited against the validity of such a by-law, it will be found that there are many reasons to distinguish the decision from the one that should be reached in the instant ease. For example, in Ireland v. Globe Milling and Reduction Co., 19 R. I. 180, the opinion, so far as of interest now, turns exclusively upon án absence of legislative authority to adopt such a by-law. In Wells v. Black, a California case to be found in 37 L. R. A. 619, the provision passed upon was entirely different, being a waiver by depositors in a saving bank of all individual liability of officers or stockholders and declared to be void for repugnance to the state constitution. The only opinion I know directly to the point and declaring the rule to be opposite to the one applied herein is Bloede Co. v. Bloede, 84 Md. 129, where an option similar to the one involved in the present case is declared to be an unreasonable restraint upon alienation. Of course, as has alreadjr been said, if such a provision of a by-law does amount, to an unreasonable restraint it is void; but, for the reason I have already referred to, it seems to me it does not.

As among the original incorporators there seems to be no reason in principle why they should not be permitted to retain the control of the corporation in which they have embarked their fortunes among themselves, or such of them as stand by the vessel, where no question of a bona fide purchaser without notice is involved. In this court, where the intent of the parties is the thing sought to be enforced, every effort should be made to hold men to agreements into which they have voluntarily entered, where the same are not obnoxious to any law or policy, and upon the strength of which others have changed their position or circumstances, or parted with a valuable consideration. It is their business and their money which is involved. It is by their efforts that success is attained, if attained at all. Surely, the public cannot be aggrieved, and individuals acting in accordance with equitable doctrines cannot be injured, because if they have no knowledge or notice of a fact they are not injured by it.

It would seem that a condition such as the one under consideration should be distinctly favored by the policy of this state. The commonwealth is benefited by the prosperity and success of the persons domiciled within its borders, whether natural or corporate. Consequently, any effort to keep the stock, and more especially that class thereof in which the control of the destinies of the company are contained, within the hands of the active members of the corporation “is a consummation devoutly to be wished.” If there is no illegality attached thereto it will result in quickening the activities of the shareholders in the success of the common venture.

The state permits a corporation to acquire its own shares of stock (Berger v. U. S. Steel Co., 63 N. J. Eq. 809), and it would seem that there is an implied power to make all reasonable, necessary and valid contracts and agreements in contemplation thereof. To sustain the by-law of the complainant company will not affect the shares of capital stock of the large corporations so widely dealt in by the general public and, in fact, it is obvious that it is not the desire of the men who govern their affairs to place any conditions upon the free circulation of their securities in the ordinary course of trade. Other aggregations similar to the complainant are not obliged to adopt any such practice if they do not care to do so.

The parties meant something when they adopted the by-law under examination, and what they meant is clearly illustrated by the practical construction they placed upon it when, in his' letter of April 6th, 1922, one of them, J. Lester Eisner, expressed his desire to dispose of his stock to his wife as a gift and considered himself bound under his covenant with the Company to first offer it to his corporation and associates. It is apparent that if this is a valid provision of the bjAlaws a breach of its condition will work a serious injury to the rights of the complainants to have first call upon any additional stock of the company that may hereafter be authorized and issued. Wall v. Utah Copper Co., 70 N. J. Eq. 17.

The defendants say, that even assuming the clause to be not obnoxious to the policy of the law, it is too incomplete for this court to decree specific performance thereof. Were this bill filed for that purpose this objection would be fatal to it (Pom.. Eq. Jur. § £189; McClung Drug Co. v. City Realty, &c., Co., 91 N. J. Eq. 216, and cases therein cited). But the purpose and form of the bill is to construe the transaction between the defendants so as to impress a trust upon the stock involved. The defendant Goldstein was at that time, and had been from the creation of the company, an officer and director. Therefore he stood in a position of trust and confidence. Pom. Eq. Jur., §§ 1089 et seq; Perry Trusts, § 207; Stewart v. Lehigh Valley R. R. Co., 38 N. J. Law 505; Gardner v. Butler, 30 N. J. Eq. 702; Keely v. Black, 90 N. J. Eq. 439; Busch v. Mary A. Riddle Co., 92 N. J. Eq. 265.

Nothing can be clearer than that a fiduciary will not be permitted to purchase the trust property over the objection of the beneficiary. When Mrs. Eisner offered her stock to Goldstein it immediately became the latter’s duty to have communicated that .fact to the company, in relation to which he stood as a quasi trustee. Upon failing to do so> and appropriating to himself property which he knew should, if it so desired, become that of the corporation, his suppression of the information, which it was his duty to convey, immediately upon his purchase, gave rise to a constructive trust. Consequently, there is no question of price or value, and, under the familiar practice, he is entitled to be reimbursed by the beneficiary for the amount he has advanced for its benefit, upon turning over to it the stock that is subject of this suit.

Section 15 of the act entitled “An act to make uniform the law of transfer of shares of stock in corporations,” approved March 18th, 1916, provides that there shall be no lien in favor of the corporation upon shares of its stock, and no restriction upon the transfer thereof, by virtue of any such by-law as is now being discussed, unless notice of such lien is stated upon the certificate representing the share or shares of stock. This act, of course, was designed for the protection of innocent purchasers of stock, in the open market or otherwise, and not at all as a shield by one with knowledge of a condition to unconscionably protect himself from the consequences thereof. As I have said, the defendant Gold-stein was one of the incorporators of the company and has been an officer and director thereof from the time of the incorporation down to the present. He cannot plead innocence of the company’s by-laws, whatever they may be worth, and does not undertake to do' so. As has been said -so often, laws are passed for the protection of rights and not for the purpose of aiding in the perpetration of fraud.

It will be recalled that on July 21st, 1922, J. Lester Eisner, one of the original stockholders, transferred his stock to his wife, one of the defendants. The bill alleges that he gave as the reason for desiring to make this transfer that it was “for tax purposes only, and that he would continue to be the beneficial owner of such stock.” The defendants now say that the maxim of clean hands should be applied to this transaction, with the result that the complainants are besmirched with the conspiracy they chaige against Eisner, to violate the revenue laws of the national government. I am unable to follow this reasoning. The laws of the United States said to have been broken are exceedingly complex, so that the interpretation of them has become a specialty in the practices of law and accountancy. If there is any explanation consistent with any reasonable theory in connection with the language of the bill I am bound to accept it. It might very well be that because of their respective bank accounts at that time it was advantageous to the family partnership that Mrs. Eisner temporarily assume the burden of the tax upon this and other property of her husband, and immediately afterwards convey it back to him. Besides which consideration, there is a further fact that in his affidavit, read on the return of the order to show cause, he denies that there was any corrupt or unlawful purpose in the assignment to his wife, and says that it was done out of “natural love and affection.”

The twentieth section of our Corporation act contains the following language:

“* * * and whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.”

Arguing'from this, the defendants say that the complainants Baumohl and Danser, in violation of this act, made the transfer absolutely upon the books of the company, whereas it should -have been made “for tax purposes only.” It is sufficient to point out in this connection that the transfer from Eisner to Mrs. Eisner was not “made for collateral security,” but, on the other hand, was made “absolutely,” even though it was to be a temporary arrangement such as the one I have indicated, although Eisner himself says, as I have pointed out, that it was an outright, irrevocable gift in consideration of love and affection.

Since the argument on the return of the order to show cause, I have been informed of the death of the defendant Mrs. Eisner, and as the proofs show that there is a considerable proportion of the purchase price due her still unpaid by Goldstein, some provision will have to be made to' protect the interests of her legatees or next of kin.

For the reasons I have referred to, it is proper that, at least until the final hearing, the defendant Goldstein should be enjoined from voting stock which this time appears to' be, in equity, the property of the corporation which is empowered by the statute to acquire it, because otherwise the annual election will be affected by his voting of the stock in question, to the irreparable' injury of the complainants should they eventually sustain their bill, as it now appears they will. The facts necessary for a determination of this motion are sufficiently established, and while there has been no adjudication in this state settling the questions involved, the principles of law on which they depend are so’ well settled as to bring the matter within the opinion of Chancellor Zabriskie in Blade v. Delaware and Raritan Canal Co., 22 N. J. Eq. 130.

Of counsel are unable to agree upon the terms of the order, notice shall be given.


text:
    Serial Building Loan and Savings Institution, complainant, v. John H. Ehrhardt et al., defendants.
    [Submitted January 20th, 1924.
    Decided March 20th, 1924.]
    One who advances money to pay off a valid mortgage, taking in good faith a mortgage executed by the owner of the property and a woman represented to be his wife, is entitled to be subrogated to the valid lien of the extinguished mortgage, as against the true wife and her heirs.
    On bill to foreclose.

      Messrs. Morrison, Lloyd & Morrison, for the complainant.

      Messrs. Mctckay & Mackwy, for the defendants.
   Bentley, Y. C.

This is a suit to foreclose a mortgage.

On June 28th, 1922, the defendant John H. Ehrhardt was the owner of certain premises in Bergen county, and borrowed thereon from the complainant $3,000 and gave his bond, secured by a mortgage upon the premises mentioned. The mortgage purported to have been also executed, by his wife. This is the mortgage sought to be foreclosed.

Previously, and on April 26th, 1915, the defendants Ehrhardt and his wife had executed a mortgage to secure the payment of $2,400 to the complainant, the same mortgagee. At the time the complainant made the second loan there remained due upon the prior mortgage the sum of $1,351.73, and this sum was retained by the complainant out of' the $3,000 loaned, and with it the prior mortgage was satisfied and canceled of record.

The mortgage for $3,000 (the second one in point of time) was not signed by Mrs. Ehrhardt, but her name was forged thereunto. The complainant prays a sale of the mortgaged premises and distribution of the proceeds as follows: (a) to the complainant the sum of $1,351.13, the amount paid on account of the former mortgage, with interest and costs; (b) to- the defendant Mrs. Ehrhardt the present value of her inchoate right of dower in the balance then remaining; (c) to complainant the balance due it; (d) to the second mortgagee the amount of her mortgage, and (e) any sum of money then remaining to be deposited with the clerk. The defendant Mrs. Ehrhardt maintains that there should be no decree against her as to the $3,000 mortgage, because she was not a party to it, and that her condition should not be changed by an act to which she never consented and which was the result of the complainant not exercising the degree of care proper under the circumstances, and that recourse to the other mortgage should not be had, because it has been canceled.

When Ehrhardt, the owner of the land and the man who had formerly secured a loan from the complainant, applied to it for a larger loan, the complainant made the usual investigation and search and, upon determining to grant the request, sent the mortgage to- a commissioner of deeds before whom a woman appeared and was introduced to him as the mortgagor’s wife. The complainant was located and doing business in the city of New York, and the property upon which the mortgage was taken was in the suburbs in this state. The commissioner of deeds testified that he was acquainted with Ehrhardt, who- brought a woman to his office and introduced her to him as Mrs. Ehrhardt. Our statute does not require, as those of some states do, that the officer taking an acknowledgment shall personally know or be acquainted with the grantor, but only that he shall be “satisfied” that the person executing an instrument is the one named therein. I think that even a very careful officer would take the acknowledgment of any woman introduced to him by a man with whom he was acquainted as the latter’s wife.

The complainant prays that it be subrogated to the rights it had under the prior mortgage, winch it canceled upon receiving the mortgage that it concedes to be defective and for the foreclosure of which its bill was filed. It relies upon the decision in Barnett v. Griffith, 27 N. J. Eq. 201, while the defendant maintains that, under the authority of Gaskill v. Wales, 36 N. J. Eq. 527, its right of subrogation has been lost. 1 do not think this latter case applies to the one now awaiting decision. In that case the pertinent part of the decision of Chancellor Runyon, reversing the circuit court of Burlington county, turned exclusively upon the intervening equities of third parties who stood in the position of Iona fide purchasers without notice, as was the situation in Rankin v. Coar, 46 N. J. Eq. 566. In Gaskill v. Wales, supra, the circuit court undertook to apply Barnett v. Griffith, but the court of errors and appeals reversed,_ on the distinction I have just pointed out. Of course, the doctrine of subrogation being purely equitable, will accordingly be 'applied only in an equitable discretion and with a due regard to the legal and equitable rights of others, as was said in Gaskill v. Wales.

In Barnett v. Griffith the facts pertinent in this discussion were, that the owner of real estate, encumbered by two mortgages, borrowed the sum of $2,500 to pay off the existing mortgage and make some improvements. His wife joined with him in the new mortgage, but when the mortgagee therein foreclosed she set up the defense of infancy at the time the mortgage was executed. Nevertheless, Chancellor Runyon who, it will be recalled, wrote the opinion in Gaskill v. Wales, supra, said-;

“The complainant advanced the money paid on account of those two mortgages on the security of his mortgage, and to release the mortgaged premises from the encumbrance of those mortgages, which were prior liens to his mortgage and to the claims of the lien claimants. He is entitled to be subrogated to the rights of the mortgagee under those mortgages, to the extent of the money paid and interest thereon.”

These facts and those of the case at bar are so similar as to malee this authority controlling,

This is in line with the overwhelming, if not unanimous, rule to be found in all the jurisdictions. Pomeroy, in his work on Equity Jurisprudence, lays it clown, as will be found in sections 1211, 1212 and 2346. In addition, a wealth of authorities are collected in 5 L. R. A. (N. S.) 838; 46 L. R. A. (N. S.) 1049, and 50 L. R. A. (N. S.) 489. A case on all-fours in found in Gordon v. Stewart, 96 N. W. Rep. 624, where it was held that one who had advanced money to pay off a valid mortgage, taking in good faith a mortgage executed by the owner of the property and the woman with whom he was living as his wife, was entitled to be subrogated to the valid lien of the extinguished mortgage, as against the true wife and the heirs. Where the owner of property, charged with two mortgages, sold his equity of redemption without disclosing the existence of the second mortgage, it was held by the house of lords in Whiteley v. Delaney, 1914; A. C. 132, that he was entitled to be subrogated, on the ground that to protect the equity of redemption he had advanced' the money to pay off the first mortgage without any knowledge or notice of the rights of the second mortgagee. The supreme court of the United States in MacGreal v. Taylor, 167 U. S. 688, held that one who loans money to a minor, whose infancy is not disclosed, on the supposed security of a deed of trust which is subsequently disaffirmed because of the infancy, is entitled to be subrogated to prior liens which were pa id off with the money loaned.

In the case in hand, Mrs. Ehrhardt does not deny the validity of the prior mortgage [>y which she was bound. To restore the complainant to its rights under that mortgage will cause her no loss that she would not have been liable to sustain had the defective later mortgage never been made. Under no circumstances appearing in this case could she escape liability to the extent of $1,351.73. It would be a most inequitable decision that would declare dissolved the lic-n upon the property in which she claims an inchoate right of dower, and so defeat that much of the consideration which she and her husband had received upon a valid instrument that no longer exists through no fault of the complainant whose money she had enjoyed. It was she who set up the earlier mortgage in her answer and astonished the complainant by pleading a forgery in the later mortgage, and, under the replication of the complainant, she has been afforded full opportunity to litigate any defense she might have been able to prove against the mortgage upon which $1,351.73 was due when the complainant paid it. The building and loan association was not a volunteer, a mere intermeddler. It had a right to protect its interest in seeing that the earlier mortgage was paid off. Pom. Eq. Jur. §'8846.

Under the authorities to which I have referred and the plain equity of the suit, I will advise a decree of foreclosure and a sale, and that out of the proceeds thereof payments be made in the proportions and order of priority prayed.


author: Bentley, V. C.

text:
    Lena M. Saling, complainant, v. John W. Saling et al., defendants.
    [Submitted March 6th, 1924.
    Decided March 18th, 1924.]
    1. Where lands were regularly sold under the Martin act, the only affect of a bargain and sale deed from the former owner, given after the sale, is to convey to the grantee therein his right to redeem the premises under the tax sale.
    2. Where the owner of the tax title constructed greenhouses on the lands covered by his tax deed, resting on posts stuck into the earth, such buildings were fixtures and went with the freehold.

      3. Where a mortgage was made on lands to a stranger who assigned it to the wife of the owner of the lands, such mortgage passed to the husband on the death of his wife intestate, and was merged in his fee-simple title.
    4. A mortgage upon the lands of a testator should be paid out of his personal estate, and the lands devised exonerated thereby.
    On bill, &c.

      Messrs. Eyer & Armstrong, for the complainant.

      Mr. Orlando E. Dey, for the defendants.
   Bentley, V. C.

This is a bill for partition, with an answer and counterclaim.

The complainant is a sister of the defendant, and the remaining defendant, being the latter’s wife, is a mere, formal party, and no account of her will be taken in the language of this opinion.

In or about 1912, Magdalene E. Saling, the mother of the parties to this suit, died seized of three tracts of lands, designated in the pleadings as tracts A, B and C. She died intestate and, in consequence, the parcels of real estate mentioned descended to the parties as tenants in common. As to this there is no dispute, and it is admitted that as to them there should be a partititon, and that a sale will be necessary to effect the same. The main question relates to the title of a fourth parcel of land claimed by each of the parties.

On the 25th day of February, 1891, one Eldridge executed a bargain and sale deed to the mother, Magdalene, for the purpose of conveying the premises in dispute. On the 8th day of October, 1890, however, the premises had been sold by the city of Eahway for delinquent taxes under the Martin act (4 Comp. Stat. p. 5205) to William Saling, the father of the parties and husband of Magdalene, who perfected the sale and received a deed therefor from the city treasurer on the 6th day of October,-1891. In 1921 William Saling, the father, died leaving a last will and testament, in which, among other things, he devised the premises in dispute to the defendant. Thus, the situation is presented of the complainant claiming title to an undivided one-half by descent from her mother, while the defendant maintains that he is entitled to the parcel in severalty by purchase. The proofs disclose that the title was regularly acquired by the father under the provisions of the Martin act, and, therefore, I am at a loss to see how I can give any effect to the deed from Eldridge to the mother except as she took his right to redeem the premises from the tax sale which,'df course, was effectually cut off by her failure to avail herself of this opportunity in the manner provided by the statute. I fail to see how any effect is to be given to complainant’s argument that the father’s title is defective because a husband cannot secure a valid tax title in his wife’s real estate, because, under my finding, this never was the property of luis wife. It is true that she secured from Eldridge the right he formerly had to redeem, but of this she never made any use, and, therefore, under the statute her interest was extinguished. When Eldridge undertook to convey, by his deed of February 25th, 1891, to the mother, the sale had already been held, and when the notices to redeem were served and published there was nothing of record to put the father on notice. Section 6 of the act of 1889 (P. L. 1889 p. 811), one of the supplements to the Martin act, provides for cutting off the estate or interest of all persons with unrecorded deeds, mortgages, &c., and the seventh section thereof is to the same effect as to “any person or persons claiming 4 * * through or

under the person or persons so served” where the claimant’s predecessor has been served, as was the case in this instance, because the affidavit of Christopher D. Marsh, admitted in evidence pursuant to section 6 of the supplement to the Martin act, found in P. L. 1892 p. 480, discloses that on March 9th, 1891) notice to redeem, in conformity with the act, was mailed to the said Eldridge as well as-published in a newspaper. So that the estate or interest of the mother was in two ways extinguished by the-statute—first, because notice to redeem was served upon her predecessor in title, and secondly, because her deed had not been recorded. There is no proof that her husband had any actual knowledge of her deed or assignment of mortgage.

In her bill the complainant prayed the judgment of this court on the question of title, and the defendant in his answer raised the question of jurisdiction as to the legal title of the premises in question. On the hearing the attitude of the parties was reversed, the defendant submitting himself to the jurisdiction while the complainant sought to avail herself of the objection contained in her adversary’s answer. On the question of practice so presented, I see no1 occasion to make any ruling, for the reason that on the merits of the question of jurisdiction I am convinced that a relegation of the parties to a court of law is unnecessary. It is undoubtedly the general rule that where the complainant’s legal title is disputed by the defendant, a court of c-quity will not try the question but retain the cause until the issue shall have been tried at law. Pom. Eq. Jur. § 1888. To this rule, however, there are a number of well-established exceptions. The authority on this question is the opinion of the court of errors and appeals in Hart v. Leonard, N. J. Eq. 416, where it is laid down that this is an appropriate tribunal in which to enforce a legal right where, though formally disputed, it is clear on facts which are not denied and legal rules which are well settled, and where the object of the bill is to ascertain the extent of the right and enforce or protect it in a manner not attainable by legal procedure. In the present ease, the bill is properly filed under the undoubted jurisdiction of equity in suits for partition, and because of the. other equitable doctrines raised by the pleadings. It will be observed from what has been said of the devolution of title that the facts are all of record. The question that would be presented to the law court would be exclusively one of law, and no jury question would be presented for determination.

During his lifetime, William Saling, the father, constructed upon the premises mentioned in the bill several greenhouses used in his business, which was that of a florist. These were constructed, in the usual'manner, of frames containing glass, a walk running through the length of each greenhouse, with beds for flowers on each side, and pipes buried thereunder from a central heating system to maintain the necessary temperature in cold weather. The testimony was that these greenhouses rested upon posts sunk into the earth, but from this I gather no more than that the posts were the foundations upon which the various superstructures were reared, and that, consequently, they were by this means annexed to the soil. This makes it evident that they were fixtures and went with the freehold, especially in view of the fact that some of them had been in existence for a period of about forty years prior to the death of William. It seems to me that these facts bring the case within the decisions in Spciden v. Parker, 46 N. J. Eq. 292; Feder v. Van Winkle, 53 N. J. Eq. 370; Knickerbocker Trust Co. v. Penn Cordage Co., 66 N. J. Eq. 305; Chancellor v. Cruse, 83 N. J. Eq. 232.

In his counter-claim the defendant describes two mortgage charged upon the particular parcel of property under consideration, and asks for a decree of cancellation of the one prior in point of time. On July 26th, 1880, the said Eldridge and his wife joined in a mortgage to one Charles Storrs to secure the payment of $2,000. This mortgage ran for the unusually short period of six months. On February 23d, 1891, Sarah Storrs Proctor Howe, as sole surviving executor of the estate of Charles Storrs, the mortgagee, as-r signed this lien to the mother of the parties, Magdalene R. Saling, just two days prior to the conveyance to her of the fee by the said Eldridge. This is the mortgage the cancellation of which is sought. When the assignee, Magdalene, died, in or about the year 1912, intestate, this mortgage, as part of her personal property, passed to', and became the property of, her husband under the law as it then existed. 3 Comp. Stat. p. 8877. In this posture of affairs, and on April 4th, 1913, the father, William Saling, executed another mortgage on the same land to one August Begerow, in the sum of 1,000, and containing the following language: “Being the same lands conveyed to William Saling by deed of H. S. Langstaff, city treasurer of the city of Rahway, dated October 6th, 1891.” As 1 have said, the defendant seeks a decree relieving this land from the lien of the Storrs’ mortgage, arguing from (a) the common law presumption of payment after twenty jrears; (b) the statute of limitations; (c) the foreclosure effected by William Saling’s tax title, and (d) the doctrine of merger. As to the validity of the first three reasons for cancellation, I feel such hesitation as causes me to disregard them, and rather place the decision of this prajrer under the last-mentioned head. The fact of coverture between the persons through whom the parties, respectively, claim, unquestionably complicates the situation. A serious question is presented whenever a tax title is relied upon by a husband' in property of his wife, and, for the reason I have indicated, it is unnecessary for me to enter upon an examination of it in this case. The first and second reasons advanced by the defendant for this relief is also thrown into1 confusion by the conflicting opinions in' Swinley v. Force, 78 N. J. Eq. 52, and Metlar v. Williams, 86 N. J. Eq. 330. In a suit such as the one at bar, where it is unnecessary to consider the application of this rule of the common law or the statute, another pronouncement by the same court would serve no useful purpose, and might, indeed, but add to- the existing uncertainty.

That a merger occurred when the fee and the charge thereon under consideration came into the possession of William 'Saling, appears to me to admit of no question. In Nagle v. Conrad, 79 N. J. Eq. 124, Vice-Chancellor Howell, it is true, said:' “It is a- thoroughly well-settled rule that merger is not favored in equity and is never' allowed unless for special reasons and to promote the intention of the partjq and that where the equities are subserved by keeping the mortgage alive, and no injury or injustice is thereby wrought, it is not extinguished.” Citing many authorities. In that branch of the doctrine illustrated by the casé at bar, the controlling fact in all instances is the intention of the person in whom the respective interests are united. 2 Pom. Eq. Jur. § 791. That intention, if' expressed, is dispositive of the matter, and, if not expressed, is to be sought' from the facts and circumstances surrounding the case, and the question of benefit to the hypothetical person, in this case, William Saling. In other words, “it is presumed that his intention was to keep it alive, because it is manifestly for his benefit.” Idem. In Nagle v. Conard, supra, the decision of the vice-chancellor discloses that in the will in that ease, the person who held both the interests in the land expressed his intention in the following explicit language: “As it is not my intention that there shall be any merger of said mortgage by reason of my holding an estate in remainder in said property.”

It was also pointed out that there was an intervening estate, as the foregoing language indicates, which would alsoy in itself, have defeated a merger. In the case at bar, the facts come directly within the exception to the rule deduced by Vice-Chancellor Howell from the authorities. At the time William Saling acquired the mortgage, it had been due for more than thirty years, and, inasmuch as there is no proof of any interest having been paid by him, it is difficult to understand of what value it could have been to have kept it alive. But more important is the fact that when, in the following year, he executed the mortgage to Begerow, no mention was made of it being subordinate to the Storrs’ mortgage. He also covenanted with Begerow that after default the latter might p'eaceably and quietly enter and enjoy the mortgaged premises. It surely cannot be said that no “injury or injustice” would be wrought by this mortgagor having secretty intended that he would keep the mortgagee from satisfying his debt against the premises in case of default, by interposing his thirty-year-old mortgage as a shield. The prior mortgage became merged in the feey and, therefore, the cloud it casts upon the defendants’ title should be removed.

The next question presented for consideration refers to the second mortgage described above, made by the father, William Saling, to Begerow. Saling, by his will, after devising certain lands to the complainant and the lot in dispute to the defendant, bequeathed all his personal property to the complainant. In consequence, the defendant demands that. 'out of the personalty of his father’s estate, the complainant discharge the land so devised by the elder Saling to him of the lien, encumbrance and charge of the Begerow mortgage. The recent opinion of the court of errors and appeals in the case of Hill v. Hill, 1 N. J. Adv. R. 1371; 95 N. J. Eq. 233; affirming the decision of Vice-Chancellor Lewis in. 93 N. J. Eq. 567, while concerned principally with the scope of the provisions of chapter 170 (P. L. 1880) refers to the principles that are controlling, and the exonerations prayed by the defendant in the counter-claim will be decreed. It appears that the bond, to secure which William Saling executed the mortgage to Begerow, was signed by the defendant as well as his father, from which, it is argued that the right of exoneration does not exist, because the debt was as much the defendants’s as his father’s. There was nothing in the proofs that I can remember upon winch I can so' find. Rathef, is there every indication that the defendant was an accommodation obligor. It is, of course, a common practice for one about to make a loan to insist upon some person joining with the borrower as surety for the repayment thereof.

Further objection was made to the prayer for exoneration, upon the ground that the ^complainant sues in her own right and not in her representative capacity. She is the executrix under her father’s will, however, and the prayer for this relief in the counter-claim is unquestionably directed against her in this' connection. Any amendment necessary, of course, would be allowed for the asking.

It is conceded by both parties that there should be an accounting.

I will advise an order in accordance with the foregoing.


author: Walker, Ordinary.

text:
    Edwin Robert Walker, Ordinary. Edmund B. Leaming, Vivian M. Lewis, John H. Backes, John Griffin, John E. Foster, Malcolm G. Buchanan, James F. Fielder, Alonzo Church, Robert H. Ingersoll and John Bentley, Vice-Ordinaries. In re estate of Florence Walker, deceased.
    [Decided January 28th, 1924]
    1. The legislature cannot deprive a constitutional court of any of its jurisdiction, either by denying its use or authorizing another tribunal to employ it.
    2. The prerogative court has constitutional sanction and cannot be shorn if any of its inherent functions or substantial jurisdiction.
    3. The prerogative court has, and always has had, exclusive jurisdiction to entertain and pass the accounts of executors, administrators and guardians, whose letters have been issued by it; and, consequently, the provisions in section 6 of the Orphans Court act (Comp*

      8tat. p. 8818), that when any will has been admitted to probate or letters of administration or guardianship shall be granted by the ordinary, all subsequent proceedings relating to the administration and settlement of the estate of such testator, intestate or minor shall be had before the surrogate and orphan-s court of the county in which by law such probate might have been granted or letters issued, is invalid and unconstitutional.
    On accounting by executor.

      Mr. Robert M. Boyd, Jr., for the accountant.
   Walker, Ordinary.

The Montclair-Essex Trust Company, formerly the Montclair Trust Compaq, executor of the last will and testament of Florence Walker, late of the county of Essex, deceased, whose will was admitted to probate in the prerogative court on June 19th, 1922, has presented its first and final account as such executor for settlement, with the suggestion that under the Orphans Court act (Comp. Stat. p. 8818 § 6) this account should be filed in the orphans court, submitting, however, to the decree of this court in the premises. This presents the question as to whether the provisions of section 6, that when any will shall be admitted to probate, or letters of administration or guardianship shall be granted by the ordinary, all subsequent proceedings relating to the administration and settlement of the estate of such testator, intestate or minor shall be had before the surrogate and orphans court of the county in which by law such probate’ might have been granted or letters issued, is valid and constitutional. And this in turn will require a review of the power and authority of the prerogative court under the constitution and statutes.

In England, in. former times, the probate of wills and granting of administration resided in the ecclesiastical courts. And in England the ordinary and judge of the prerogative court were different functionaries. But in New Jersey they are, and always have been, one and the same. In re Dittman’s Executors, 87 N. J. Eq. 297, 298. By the commission and explanatory instructions given to Lord Cornbury, the first royal governor, all the ecclesiastical jurisdiction of the province relating to the collating to benefices, o granting licenses for marriages and probate of wills, was reserved to the governor. He was not only ordinary, but metropolitan of the province. For one hundred and forty years the governor or ordinary had been the only judge of probate known to the constitution of New Jersey. In re Coursen’s Will, 4 N. J. Eq. 408, 413. A statutory jurisdiction was, however, exercised by the surrogates after a period of some eighty-two years, as will be hereafter shown.

In the instructions from Queen Anne to Lord Cornbury as governor of New Jersey in 1702 (2 N. J. Arch. (1st series) 529 § 75), which was then the organic law, it is laid down:

"And to the end the ecclesiastical jurisdiction of the said lord bishop of London may take place in our said province so far as conveniently may be, we do think fit that you give all countenance and encouragement to the exercise of the same, excepting only the collating to benefices, granting licenses for marriages and probate of wills, which we have reserved to you, our governor, and the commander-in-chief of our said province for the time being.”

And Blackstone says:

“The prerogative court was established for the trial of all testamentary causes, where the deceased hath left bona, notabilia within two different dioceses. In which cases the probate of wills belongs, as we have formerly seen, to the archbishop of the province, by way of special prerogative. And all the causes relating to the wills, administrations, or legacies of such persons are, originally, cognizable herein, before a judge appointed by the archbishop, called the judge of the prerogative court.” 3 Bl. Gom. 95.

The first constitution of New Jersey (1776) denominated the governor as ordinary and surrogate general, and the present one (1844) the chancellor as ordinary or surrogate general and judge of the prerogative court. In re Merrill, 88 N. J. Eq. 261, 269.

As ordinary of New Jersey the governor possessed the prerogative powers of the ecclesiastical jurisdiction with reference to probate, administration and guardianship. Griff. L. R. (N. J.) 1185 note 1, infra. And this was the only probate jurisdiction exercised in New Jersey from the grant to Lord Cornbury in 1702, until the first Orphans Court act was passed in 1784, a period of about eighty-two years. During this time, of course, accounting by executors and administrators was had in the prerogative court, which appointed them and out of which their letters issued. And this accounting feature was a matter of inherent jurisdiction.

"In the thirteenth century it was settled law that the executors * * * ought to prove his (decedent’s) will in the proper court.

In History of Eng. Law (by PoIIqcIc & Maitland), vol. 2 p. 840, it is stated:

That court was the court of the judge ordinary, who was in the normal case the bishop of the diocese. Having established the will, they swore that they would duly administer the estate of the dead man, and they became bound to exhibit an inventory of his goods and to account for their dealings.”

In History of Eng. Law (by W. S. Holdsworth), vol. 8 p. 465, it is stated:

“Finally, at the close of the administration, the ordinary compelled the representative to account. 'Though the testator or the ordinary could dispense with the inventory, neither could dispense with the liability to account. We can see from the extant accounts and inventories that the rules of the ordinary were a considerable safeguard.”

In Com. Dig. tit. “Prohibition”. 188 § G-21, it is stated that the spiritual 'court may require an executor, or administrator, to account before them. Citing 1 Rol. 128, 858.

In 1 Phillimore’s Eccl. Rep. (Phillips & Bignell) 239 an executor was held bound to exhibit an inventory and account in the prerogative court of Cantabury at the suit of a party interested in the property for which he is executor.

Archbishop of Cantabury v. Wills, 1 Salk. 315, per Holt, C. J.: “It appears by the statute of Edward III. that an executor was compellable to account before the ordinary and so was an administrator.

In Toll. Law (Exrs. & Admrs.) *491, is the following:

“In case a legatee or next of kin elect to sue in the spiritual court the executor or administrator must there exhibit an inventory of the property, if he has not done so before, and bring in an account.” Citing 4 Burn Eeel. L. .425.

Such being the law, inventories were filed and accounts passed in the prerogative court, in cases where that tribunal had issued the letters, during the colonial period, and also during the statehood of New Jersey, down to and including the present time.

In Griff. L. R. (N. J.) 1185 note 1, the author states:

“The jurisdiction of the governor as the ordinary of New Jersey, before the revolution and since, extended throughout the state, and a will, administration or guardianship proved or granted by himself or a surrogate * * * was valid,- without regard to the place where the goods lay. Hence he possessed the prerogative powers of the ecclesiastical jurisdiction in these particulars.”

In re Coursen’s Will, 4 N- J. Eq. 408, supra, it was held by Chancellor Pennington, in the prerogative court, that the ordinary had the same original and appellate powers then (1843,) that he ever had; that the original jurisdiction of the ordinary over the probate of wills and the granting of letters of administration was general and full and not limited and special, and that the acts of 1784 and 1820 are merely declaratory so far as they attempt to specify the subjects of the jurisdiction of the ordinary or his surrogates. And the learned chancellor said (at p. 416) that the original jurisdiction of the ordinary was not taken away or impaired by the act of 1828, which authorizes any surrogate to grant letters testamentary upon an exemplified copy of a foreign will; that it did not in the least interfere with the general ex officio powers of the ordinary. And he said (at p. 418) that notwithstanding the complete original jurisdiction which the ordinary had in all cases of probate and administration, his jurisdiction was concurrent with that of his surrogates, and that whenever a surrogate had obtained cognizance of a particular case the ordinary could not interfere. That, of course, meant that when probate or administration had been applied for to a surrogate the ordinary could not assume jurisdiction of the cause to the exclusion of the surrogate.

The act of 1784 was entitled “An act to ascertain the power and authority of the ordinary and his surrogates, to regulate the jurisdiction of the prerogative court and to establish an orphans court in the several counties of this state.” Pat. L. p. 59 § 1, provides that from and after the passing of that act the authority of the ordinary shall extend only to granting of probate of wills, letters of administration, letters of guardianship and marriage licenses, and to the hearing and finally determining of all disputes that may arise thereon. Section 7 provides that the orphans court shall have full power and authority respecting the allowance of the accounts of executors, administrators, guardians or trustees audited by the surrogate as thereinafter directed, and section 16 provides that the surrogate shall audit and state the accounts of executors and administrators exhibited to, him and report the same to the orphans court. This, I take it, meant accounts of executors whose letters were granted by the surrogates or orphans courts.

It cannot be contended that these provisions of the act of 1784 divested the ordinary of the power of entertaining and passing accounts of executors, administrators and guardians in the prerogative court, and that it vested that jurisdiction in the orphans court in cases where the letters had issued out of the prerogative court. By every rule of construction the grant was simply one of power to the orphans court, a statutory tribunal, to take cognizance of accounting in eases where the surrogates had issued the letters, acting alone, or on its orders. The orphans court being a statutory court in derogation of the powers of the courts established by the constitution, it is to be restrained in the exercise of its powers to the words of the statute. Ludlow v. Ludlow, 4 N. J. Law *189, 191. And this clearly would restrain the orphans court to the passing of accounts where it had ordered the issuánce of the letters to the accountants, or the surrogate had issued them in the exercise of his own jurisdiction. The restriction of the powers of the ordinary in the act of- 1784, in my opinion, is to restrain his jurisdiction only to the subjects mentioned, namely, probate, administration and guardianship, and not to provide that his powers shall be exhausted upon issuing the letters, but leaving him the full ecclesiastical jurisdiction over accounting and all other matters incident to the powers mentioned.

A grant of jurisdiction implies the necessary and usual incidental powers essential to effectuate it, and every regularly constituted court has power to do all things that are reasonably necessary for justice within the scope of its powers. 15 G. J. 810 § 108. A court which granted letters testamentary or of administration is generally the proper court to exercise jurisdiction in the settling of the accounts of the executor or administrator. 24 C. J. 940, note 60 p. 941. Of course the court of chancery will take jurisdiction of an accounting in a proper case, and thus deprive either the prerogative or the orphans court of their jurisdiction in the premises. In Gillen v. Hadley, 15 N. J. Eq. 602, Vice-Chancellor Howell said that it appeared from the opinion of Vice-Chancellor Pitney (72 N. J. Eq. 505) that proceedings were pending in the prerogative court on behalf of trustees to have their account stated and passed, and while the prerogative court, which was the court in which the will was probated, was a proper jurisdiction for entertaining accounting, yet seven days before the accounting proceedings were begun in that court the bill in the instant case was filed, so that the court of chancery obtained jurisdiction of that portion of the subject-matter of the bill, prior to the filing of the account in the prerogative court. This case was affirmed by the court of errors and appeals in a per curiam which in nowise criticised the observation of the vice-chancellor as to jurisdiction of the prerogative court in the matter of an accounting, where probate was granted in that tribunal.

If the ordinary’s jurisdiction was restricted to the granting of probate, letters of administration and guardianship, and if he could take no further step in those matters, then he could not punish for contempt, which it has been expressly held in this court he has power to do. See In re Merrill, 88 N. J. Eq. 261. And Chancellor Pennington (In re Coursen’s Will, supra,), speaking to the question of a caveat against proving a will before the ordinary, said that a caveat is incidental to all ecclesiastical courts, thus asserting that the prerogative court exercised the ecclesiastical jurisdiction and not strictly a statutory jurisdiction, as, in fact, elsewhere in the opinion, he decided that it did. No special, form of words is necessary to confer jurisdiction. If the design to do so is fairly to be gathered from the act, it is sufficient. McLorinan v. Ryno, 49 N. J. Law 603, 606.

It is stated in 1 Bouv. Law Dic. (Rawle’s rev.) 634, that the jurisdiction of the ecclesiastical courts, generally speaking, extended to matters concerning the order of clergy and, their discipline; also to such affairs of the laity as concerned the health of the soul; also cases of marriage and divorce and testamentary causes. It will be recalled that Queen Anne’s instructions to Lord Combury were to encourage the ecclesiastical jurisdiction of the bishop of London, excepting only the collating to benefices and granting of licenses for marriage and probate of wills, which were reserved to the governor (Cornbury); and it will also be observed that the act of 1784- still further restricted the governor’s reserved jurisdiction, for it took away the collating to benefices, while enlarging it in respect to granting letters of guardianship.

The title of the act of 1820 (Rev. 1821 p 776) is identical with that of the act of 1784, and the first section of the act of 1820 is the same as the first section of the act of 1784, except that the act of 1820 omits the granting of marriage licenses as'an authority of the ordinary. The act of 1820, in section 30, likewise provides that the surrogate shall audit and state the accounts of executors and administrators exhibited to him. Bjr the act of 1820 the act of 1784, and sundry other acts, were repealed.

In the Orphans Court act of 1874 (Rev. p. 195) it is provided in section 7 that when any will shall be admitted to probate, or letters of administration or of guardianship shall be granted by the ordinary, all subsequent proceedings relating to the administration and settlement of the estate of such testator, intestate or minor, may be had before the surrogate and orphans court of the county in which by law such probate might have been granted or letters issued; but before any such proceeding shall be had a transcript of the will, &c., shall be filed in the surrogate’s office; and provided, nevertheless, that the inventory cf any administrator pendente lite appointed by the prerogative court shall be exhibited to the register, and his account settled before the ordinary in that, court. In the Orphans Court act (Rev. of 1898, P. L. p. 715; Comp. Stat. p. 8818), it is provided in section 6 that when any will shall be admitted to probate, or letters of administration or of guardianship shall be granted by the ordinary, all subsequent proceedings relating to the administration and settlement of the estate of such testator, intestate or minor, shall be had before the surrogate and orphans court of the county in which by law such probate might have been granted or letters issued, provided, nevertheless, that the inventory of any administrator pendente lite appointed by the prerogative court shall be exhibited to the register, and his account settled before the ordinary of that court.

Thus it appears that in the Revision of 1874, for the first time, it was permitted that an account might be settled in the orphans court where the letters had issued from the prerogative court, and in the Revision of 1898 it was commanded that an account shall be settled in the orphans court where the letters had issued from the prerogative court. These provisions, I take it, are clearly unconstitutional. Of course, we are concerned now only with section 6 of the Revision of 1898. And I here call attention to the fact that these very acts of the legislature recognize accounting in the prerogative court in some eases, namely, in the case of administrators pendente lite appointed by that court. And, furthermore, in the Revision of 1874, it is provided in section 5 that all powers and authority granted by that act to the surrogates and orphans court in relation to the administration of estates of testators, intestates or minors, and the settlement of accounts of executors, administrators, guardians or trustees, may be exercised by the ordinary, in the administration and settlement of estates, where the will shall be admitted to probate or letters of administration or of guardianship granted by the ordinary.

The question presently decided has already been passed upon in this court, though not in any- written opinion. The decision was made in the matter of the accounts in the estate of Thomas A. Sperry, deceased (New Jersey prerogative court, file No-. 1397), whose will had been proved in this court. An exception was filed, as follows:

“This court has no jurisdiction to entertain an accounting proceedings of the estate of the decedent in view of the exclusive jurisdiction over accounts of executors and trustees of the orphans court under the provisions of section 6 of the Orphans Court act.”

A motion was made to strike out the exception, and on February 26th, 1916, after hearing, it was ordered that the exception be struck out, dismissed and overruled, and the account was allowed. The decree was made by the ordinary on the advice of Vice-Ordinary Backes.

That this court does not content itself with probating wills and granting administration, but that it asserts its jurisdiction to require an inventory and an account in all cases, is evidenced by the fact that every executor takes an oath that he will make and exhibit into the register’s office of the prerogative court, a true and perfect inventory of all and singular the goods, chattels and credits of the deceased, and that he will well and truly account when thereunto lawfully' required; and the bond of every executor provides that he shall make such inventory and exhibit it into the register’s office within three calendar months, and, further, shall make a just and true account of his administration within twelve calendar months, and the rest and residue of the goods, chattels and credits which shall be found remaining upon the account of such administration, the same being first examined and allowed by the ordinary, shall deliver and pay unto such person or persons respectively as is, are or shall by law be entitled to- receive the same.

These requirements were contained in the oath of an executor and the bond of an administrator in earliest colonial times in this state, as well as at the present. In fact, there has never been any other sort of qualification and obligation by executors and administrators. This I have ascertained by an inspection of such oaths and bonds filed in the register’s office during the colonial period. See the facsimile of the form of letters testamentary and of administration by Governor (Ordinary) Morris, prefixed to 23 N. J. Arch, (first series), in which these requirements of inventory and accounting are contained.

The constitution of New Jersey, 1844 (art. 6 § 1 1), provides that the judicial power shall inter alia be vested in a prerogative court.

In Harris v. Vanderveer’s Executor, 21 N. J. Eq. 424, Chief-Justice Beasley, speaking for the court of errors and appeals (at p. 434), said: “The prerogative court has constitutional sanction, and according to the principles already propounded (in the opinion), cannot be shorn of any of its inherent functions or substantial jurisdiction.”

In Flanigan v. Guggenheim Smelting Co., 63 N. J. Law 647, the court of errors and appeals, speaking by Judge Adams, said (at p. 651): “It has been held that the legislature cannot constitutionally deprive the supreme court of its exclusive right to issue, as heretofore, a prerogative writ, either by denying the use of such writ or by creating in another tribunal a co-ordinate authority to employ it.”

Of course, the reasoning applied to the supreme court, that the legislature cannot deprive it of the right to issue its prerogative writ, either by denying its use or creating in another tribunal a co-ordinate authority to employ it, applies equally here, for the legislature cannot deprive the prerogative court of the right to take cognizance of accounting in cases where it has issued letters testamentary or of administration or of guardianship—a power inherently enjoyed by it and constitutionally saved and protected to it.

Upon the authorities, therefore, I ana clearly of opinion that the instructions of Queen Anne to Lord Cornbury were not a grant of merely naked powers to probate wills and issue letters testamentary and of administration, without more, but a grant of the full and complete ecclesiastical jurisdiction in those particulars, including, of course, the power to entertain and compel accounting before the ordinary, where he had issued the letters; that the act of 1784 did not restrict the power of the ordinary to the mere granting of letters, but limited the jurisdiction only as to- the subjects over which it was made to extend, namely, to granting of probate and issuance of letters testamentary and of administration, &c., and while the act of 1820 cook away the granting of marriage licenses by the authority of the ordinary, it left the prerogative court plenary jurisdiction over the subjects thereby recommitted to it, including probate powers; that the acts of 1784 and 1820, being in derogation of the inherent powers of the prerogative- court, restricted the orphans courts in the exercise of their powers to the words of the statute, and those courts were confined to the powers by the acts bestowed, namely, a concurrent jurisdiction with that of the ordinary to grant probate, administration, &c., without in anywise curtailing the powers of the ordinary over the accounting- of executors and administrators whose letters had been issued by him; that section 7 of the act of 1784, permitting proceedings subsequent to the issuance- of letters by the ordinary to- be had before the surrogate and orphans court was, and section 6 of the act of 1898, compelling such subsequent proceedings to be so taken is, an attempt to deprive the ordinary of his constitutional jurisdiction, and, consequently, null and void.

The result reached is that the prerogative court is the only tribunal in which the executor of Miss Walker may lawfully account, as the provisions of the Orphans Court act requiring such accounting there is an invasion of the jurisdiction of this court, and, therefore, unconstitutional and void.


author: Churci-i, Vice-Ordinary.

text:
    In the matter of the estate of Mary Smith, deceased.
    [Decided December 21st, 1923.]
    1. The law abhors intestacy, and it is the duty of the coux-t to sustain a will if there is any way in which it can do so reasonably.
    2. Where a testatrix devised and bequeathed her estate to her two sisters, and provided that in case either died before her the survivor should take the whole estate, and both sisters Predeceased the testatrix, one childless and the other leaving one child, such child takes the whole estate.

      Mr. William H. Morroiv, proctor for the respondent.

      Messrs. Pitney, Hardin <& Skinner (Mr. Skinner, of counsel).

      Messrs. King & Vogt, proctors for the appellant.
   Churci-i, Vice-Ordinary.

This is an appeal from the Warren county orphans court from an order dismissing exceptions to the account of an ad- ' ministrator on the ground that the exceptants had no interest in the estate. It involves the construction of the will of Mary Smith, late of Hackettstown. The facts in the case are as follows:

Mary Smith, late of Hackettstown, died testate in the year 1921, having made a will dated September 7th, 1880.

She was one of seven children. Three sisters, Susannah, Marilda and Mary, made similar wills dated September 7th, 1880, and each gave to the other sisters the residue of the estate with the provision, "and in case at the time of my decease, either one of my sisters as aforesaid should not be living, then it is my will, and I do hereby give the whole of my estate to the one so surviving.”

Susannah married, September 8th, 1880, to a Mr. Winter-mute and by her marriage had two sons. She died in 1917, testate, having destroyed the will made September 7th, 1880, and by a later will gave her estate to her children. At the time of her death she was survived by one son, Elwyn Winter-mute.

Marilda Smith died in 1919, unmarried, survived by Mary. Under the will made by her in 1880, all her estate went to her surviving sister Mary.

Mary married in 1890. Her husband died in 1910. There were no children of the márriage. She died in 1921, the last survivor of the three sisters.

On the death of Mary, she was survived by nephews and nieces, the children of predeceased brothers and sisters, of whom Elwyn Wintermute, the son of Susannah, was one.

The entire estate was disposed of by the second clause of the will which reads as follows:

“It is my will and I do hereby give and bequeath to my two sisters Susannah Smith and Marilda Smith, to be divided equally between them, after the payment of my debts and funeral expenses as above' mentioned, the balance and residue of my estate both real and personal .property in whatever it may consist, or wherever situate; and in ease at the time of my decease either one of my sisters as aforesaid should not be living then it is my will and I do hereby give the whole of my estate to the one surviving.”

In the court below the learned judge decided: “The condition attached to that provision in the second paragraph became absolutely nugatory and the remaining portion of the paragraph remained in effect, that is, the first paragraph of the will.”

The contention of the respondent is that Elwyn Winter-mute talces the estate of Mary because he represented his mother, one of the sisters mentioned in the second clause under section 22 of the compiled statutes (at p. 5866), which reads as follows:

“Whenever any estate is devised or bequeathed to a child or brother or sister, or descendant, and such devisee or legatee shall die in the lifetime of the testator, leaving a child or children, who shall survive such testator, such devise or legacy shall not lapse, but shall vest in such child or children, ‘hut this provision shall not apply where the testator or testatrix shall, by the will or codicil thereto, or other instrument, have otherwise directed in regard to the children or descendants of the said devisee or legatee dying as aforesaid.’ ”

The contention of the appellant is that the last clause of the section above quoted operates to create an intestacy and, therefore, the property of Mary Smith should go in equal parts to her nephews and nieces. But this last clause does not, in my opinion, mean any such thing. It says there shall be a survivorship in the children unless the testator otherwise directs. In the instant ease the testatrix made no provision whatever except to say that the property should go to her sisters or the survivor.

In approaching the construction of a will, the first question is how can it be sustained in order to avoid an intestacy? It is a well-known principle of law that the law abhors an intestacy and it is the duty of the court to sustain the will if there is any way in which it can do so reasonably.

Considering the will, the clause in the compiled statutes and the circumstances of the case, I am of the opinion that it was the intention of Mary Smith to exclude from participation in her estate all her relatives except two sisters and that the fact that the two predeceased her does not create an intestacy but that the surviving child of the sister take the whole estate.

I will therefore advise a decree in accordance with -this, memorandum.