text:
    George H. Renton v. Charles L. Chaplain and Amos K. Carter.
    1. Where, under a judgment and execution against one partner, his interest in the partnership effects is sold, and the purchaser files a bill against the partners, praying for an injunction and the appointment of a receiver, the complainant, on the hearing of the application for injunction, may read an affidavit in support of that part of the bill which presents the case as somewhat analogous to one of waste, where the general rule on this subject does not apply.
    2. A sale of partnership effects, under a separate execution against one partner, operates as a dissolution of the co-partnership.
    3. If the sale be fraudulent, by collusion between the purchaser and insolvent partner, for the purpose of depriving the other partner of rights secured to him by the co-partnership articles, a court will not aid the purchaser in obtaining his object.
    4. If the sale be bona fide, the court will not, as a matter of course, grant an injunction and appoint a receiver; the purchaser stands in no better condition in reference to the partnership matters than the defendant in execution stood, and the court will not interfere with the other partner in winding up the partnership, unless his gross misconduct calls for such interference. _
    This was an injunction bill, and after notice to the defendants of the intended application, and an answer put in by one of them, the motion for injunction was argued before the Chancellor, whose opinion- discloses enough of the allegations of the bill and answer for a full understanding of the case.

      A. C. M. Pennington, for the motion.

      A. Whitehead, contra.

   The Chancellor.

Upon filing this bill an application was made for an injunction and the appointment of a receiver. Notice was directed to be given to the defendants, that an opportunity might be afforded them to be heard, if they desired it. Charles ~L. Chaplain filed an answer, and Carter, the other defendant, did not appear. At the hearing, the complainant was permitted to read an affidavit in support of some of the allegations of the bill, upon the ground that the affidavit referred to those features of the bill wliich present the case as somewhat analogous to one of waste, and where the general rule as to reading affidavits upon a motion like this does not apply. 1 Green’s Ch. Rep. 182; Peacock v. Peacock, 16 Ves. 49.

The defendants were partners, carrying on the business of manufacturing and vending spokes, handles and other articles, under and by means of a certain patented machine, known as Blanchard’s patent for turning and cutting irregular forms. Their place of business was the city of Newark, where they had considerable real and personal property — - machine shops, and the necessary buildings and machinery for their business operations.

Several judgments at law were recovered against Amos K. Carter, one of the partners, amounting to about $3500. Upon these judgments executions were issued, and under them the sheriff of the county of Essex, on the 23d of February last, sold all the right, title and interest of the said Amos K. Carter in the machinery, stock, tools, materials and fixtures at the Phoenix Works in the city of Newark,” and “ all the right, title and interest of the said Amos K. Carter of, in, and to all and singular the stock, property, and effects of the partnership doing business under the name of Charles L. Chaplain, composed of the said Charles L. Chaplain and the said Amos K. Carter.” Of this property and interest in the partnership the complainant became the purchaser, as he alleges, at the sheriff’s sale. By this bill, he prays: that the said partnership may be declared and decreed to be dissolved and void — that accounts may be taken of all and every the said co-partnership transactions, and that the real and personal estate, and all other the property and effects of the said partnership, may be sold and turned into money — and that a receiver may be appointed.

It is insisted, on behalf of the complainant, that the sale by the sheriff was, ipso fado, a dissolution of the co-partnership, and that upon his exhibiting his bill in this court for an account, an injunction and appointment of receiver follow as matters of course.

And again. It is argued if this proposition, to the extent stated, is not true, yet the fraudulent conduct of the defendants, and the mismanagement and waste of the property by Charles L. Chaplain, who is now in possession of it, make a case for such interference of the court.

It is laid down by all the elementary writers on partnership, and seems now well established by judicial decisions, that a sale of partnership effects, under a separate execution against one partner, operates as a dissolution of the co-partnership.”

It is true that in many cases this rule must necessarily work great hardship; and particularly so where a large capital has been expended in a manufacturing business — the partnership entered into for a definite period unexpired— and the anticipated profits depending upon the skill that could be acquired only by time and experience. And yet the dissolution seems to follow as an unavoidable consequence. The capital and the interest of the insolvent partner are withdrawn. There is no longer any inducement for him to devote his time or his abilities to the business of the partnership. A stranger has, by law, assumed a position which he never would have occupied with the consent of the other partners, and it would be unwise and unreasonable for the law to force him into the partnership, either against his own consent, or the consent of the other partners. Whether, by the deed of co-partnership, provisions may not be made for a dissolution of this kind, which may in some measure lessen the inconvenience and disasters which in many cases necessarily follow, is a question of moment.

In the case of Wilson v. Greenwoood, 1 Swanston’s Rep. 471, by the deed of co-partnership it was provided that on dissolution by death, notice, or misconduct of a partner, the remaining partner should have the option of taking his share, at a valuation payable by yearly- installments, in the course of seven years. Four years subsequent, the partners, by another deed, declared (after a recital that such was their intention in the articles) that in the event of bankruptcy, or insolvency, the same arrangement should be adopted as on dissolution by death, notice, or misconduct. Within a few months after, one of the partners became bankrupt. The assignees of the bankrupt partner filed their bill for account, and the appointment of receiver. The co-partnership deed was set up in opposition to the bill. Affidavits were read on both sides — on the part of the assignees, going to show that the latter agreement as to dissolution, in case of insolvency, was made in contemplation of bankruptcy, and on the part of the solvent partners, denying this to be so. The Lord Chancellor determined that the provision was made in contemplation of bankruptcy, and was void. He asks the question “Whether, supposing the original deed had provided for the dissolution of the partnership by bankruptcy, as it has provided for the dissolution by other means, that provision would be good ?” He adds, “ I will not say that it would not, but I have heard nothing to convince me that it would.” But the question was answered, with reference to the English statutes and laws repeeting bankrupts. Reasonable provisions in articles of co-partnership, in reference to tlie insolvency of one or more of the partners, and which would not be clearly against public policy, cannot be objectionable, and may be made greatly to the advantage of all parties concerned, both of debtors and creditors, as well as of the solvent partners.

In this case, the partnership was for a term of five years —no provision was made for dissolution, but its continuation during this period, was provided for, in case of the death or physical disability of either of the parties.

If, then, the complainant is a bona fide purchaser of Carter’s interest in the partnership, under a judgment and execution against him, I am bound, by authority, to declare that, by the sale, the partnership, was dissolved, with the qualification hereafter mentioned.

But the answer denies that the complainant is a bona fide purchaser, and it insists, and sets up a variety of circumstances to show that he is not — that the complainant has confederated with Carter and others to break up the partnership —that the sale by the sheriff was resorted to for that purpose — that the complainant is a mere agent of one Quimby, who, together with Carter, has unlawfully endeavored to deprive the defendant Chaplain of the use of the Blanchard patent, which was the chief inducement for his forming the co-partnership. The friendly relationship existing between the complainant and Carter — the manner in which all this property was sold — the time and mode of advertising it — the place of sale, being at the defendant’s dwelling-house — the price for which complainant purchased, which was $30 only, which fact the bill does not state — making the sale without Chaplain’s knowledge — with a variety of other circumstances, are detailed to show the mala fides of this whole transaction.

The complainant’s counsel insists that, admitting it to be true that the complainant and Carter had acted fraudulently, here was a sale at law of Carter’s interest — the judgment, execution, and sale all standing good — Carter’s interest passed by the sale, and, ipso facto, the partnership was dissolved.

But if all this proceeding was a mere contrivance of Carter to involve his co-partner in difficulty, and to force a dissolution of the co-partnership; and if the complainant has lent himself to Carter, and become a purchaser of Carter’s interest, for such purposes, he does not stand in any better position than if he had come into this court, the assignee of Carter, under an assignment made for the fraudulent purpose of breaking up the partnership. I know it. has been held that the voluntary assignment by one partner, of all his interest in the concern, dissolved the partnership, though it was stipulated in the articles that the partnership was to continue until two of the partners should demand a dissolution. Marguand v. The New York Manufacturing Company, 17 John. Rep. 525. But, by other authorities, it has been held otherwise, and I do not consider that point settled. In one case, where the partnership was for no limited period, a bill was filed to prevent one partner from dissolving the partnership. See note to case, Cranshay v. Maule, 1 Swanston's R. 511. And in another case, referred to in the same note, the court, before dissolving the partnership, ordered a reference, to inquire whether the business could be carried on according to the true intent and meaning of the articles. But be this as it may, admitting the law as Chancellor Kent, in his Commentaries, vol. III., 54, inclines to consider it, that there may be a dissolution by the voluntary act of either partner, whether the partnership was for a definite period or not, can it be doubted that, where one partner makes an assignment fraudulently, and for the purpose of dissolving the partnership, and depriving his co-partner of the benefit of certain advantages secured to him by the articles of co-partnership, that a Court of Chancery will aid the assignee in securing the benefits of his assignment, to the injury and oppression of another, whom he is attempting to circumvent and defraud ?

But take the case before the court as an illustration. It appears, by both the bill and the answer, that the great inducement, and, indeed, the only inducement, for Chaplain to enter into this partnership, was the enjoyment of the use of this patented machine, which had been secured by Carter. By the articles of co-partnership, Carter covenants that Chaplain, as his partner, shall have the right, power and authority to use, with him, the license granted by Blanchard for this machine. He covenants, also, to secure to Chaplain other valuable rights and interest in this machine, and their enjoyment in case of his, Carter’s, death. How, had Carter undertaken to dissolve the partnership of his own mere will, and, by an assignment, to deprive Chaplain of the benefits which Carter, by his covenants, engaged to secure him, and had the assignee filed his bill to obtain the aid of this court in effecting his object, would the court have entertained such a bill ? I think not. And if the allegations of the answer are true in reference to the actings and doings of Carter in the premises, and the complainant is the mere agent, by whom it is attempted to embarrass and defraud Chaplain, and to deprive him of the enjoyment of this patent, then the complainant stands in no better plight in this court than such a fraudulent assignee "would.

But, admitting the sale and purchase to have been in ordinary and fair dealing, it does not follow, as a matter of course, that the complainant is entitled to the injunction and the receiver prayed for.

It is true the partnership, by the sale, is dissolved. But why should the court interfere with the other partner in settling up the concerns of the partnership ? Why should its management be taken out of his hands, and transferred to an officer of this court ? The object in view is to secure to the purchaser the benefit of his purchase. But the rights of the solvent partner are entitled to some regard, and the interest of the creditors of the firm are to be protected. Who so competent to protect and secure these rights and interest as the solvent partner, who has everything at stake, and whose familiarity with all the engagements and transactions of the concern gives him very greatly the advantage over any one else that could be substituted for the purpose ? Does it follow'because one partner has become insolvent, the other is dishonest, and must be dealt with as a wrong-doer — be deprived of his property, and subjected to great embarrassment and unnecessary expense and loss ?

• What rights and interest does the purchaser acquire, and how does his purchase affect the other partner ?

He stands in no better situation than the debtor himself. The solvent partner has a specific lien upon the property, to liquidate the partnership debts, and upon the residue until all the equities between the partners are settled.

In a sale under execution against one partner, the vendee will be tenant in common with the other partner; Heyden v. Heyden, 1 Salk. 393. In West v. Skip, 1 Ves. 242, the Lord Chancellor says, “ Then, as between one partner and the separate creditors of the others, the law, and those two cases before mentioned, (referring to the case in Salkeld, and another in 2 Lord Raymond,) say that this cannot affect the stock any further than that partner could, whose creditors they are.”

“ The purchaser at sheriff’s sale, becomes tenant in common with the other partner, and does not thereby acquire a right to possession of the partnership property, but takes it cum onere.” Sitler v. Walker, 1 Freeman C. R. 77.

In Fox v. Hammery, Cowp. 445, Lord Mansfield, in examining the question, What right, in law and justice, one partner has against another, after a dissolution of the partnership, says : “ It clearly is not to change the possession of specific effects. One partner may bo a creditor of the partnership to ten times the value of all the effects. The other partner, in that case, only has a right to an account. No person deriving under the partner can be in a better condition.” And, quoting Lord Hardwicke: “If a creditor of one partner take out execution against the partnership effects, he can only have the undivided share of his debtor, and must take it in the same manner the debtor himself had it, subject to the right of the other partner.”

In the case of Wilson v. Greenwood, 1 Swanston’s Rep. 480, Lord Elden says: “ When a partnership expires,

whether by the death of the parties or by effluxion of time, without special provision as to the disposition of the property, in all these cases, to which I may add, the bankruptcy of a partner, the partnership is considered, in one sense, as determined, but in a sense also as continued — that is, continued till all the affairs are settled ; and, as in the ordinary course of trade, if any of the partners seek to exclude another from taking that part in the concern which ho is entitled to take, the court will grant a receiver; so, in the course of winding up the affairs, after the determination of the partnership, the court, if necessary, interposes on the same principle.”

Chancellor Kent, in considering the consequences of dissolution by death, notice, or other effectual modes, remarks : “ But, until the purpose of finishing the prior concerns be accomplished, the partnership may be said to continue ; and if the object be in danger of being defeated by the unjustifiable acts or conduct of any of the partners/ a court of equity will interfere, and appoint a manager or receiver to conduct and settle the business.” 3 Kent’s C. 63. See also Peacock v. Peacock, 16 Ves. 51.

It does not follow that, because a partnership is dissolved, and a partner entitled to an account, that therefore there must be an injunction and receiver. "Where the dissolution takes place by a decree of the court, such consequences do generally follow. But why ? Because the same necessity which calls for a decree of dissolution, requires this further aid of the court. It is a common occurrence, of a partner to resort to a Court of Chancery to obtain a decree of dissolution, in a case where his own will would have effected it. The object of going to the court for a decree is, that it may be followed by the order for a receiver and an account. But the decree for dissolution cannot be obtained merely because one party desires it. A dissolution will be decreed only for misconduct, or abuse of trust and confidence, and where necessity calls for it. As a general rule, if the case is one which requires the court to decree a dissolution, it will justify an injunction and the appointment of a receiver.

But there must be some actual abuse of the partnership property, or of the rights of a co-partner, and not a mere temptation to such abuse, which will induce the court to interfere.” Henn v. Walsh, (2 ed.,) Ch. Rep. 130; Glassington v. Thwaites, 1 Simon & Stewart 124; Goodman v. Whitcomb, 1 Jac. & W. 569; Littlewood v. Caldwell, 11 Price Ex. R. 97; Lawson v. Morgan, 1 Price 303; Harding v. Glover, 18 Ves. 281. Lord Eldon says: “I have frequently disavowed, as a principle of this court, that a receiver is to be appointed merely on the ground of a dissolution of partnership. There must be some breach of the duty of a partner, or of the contract of partnership.”

In the case of a dissolution by the sale or the voluntary assignment of the interest of one partner, the court will be governed by the same rules, in interfering with the other partner, as in the case of a dissolution by death.

On the dissolution by death, the surviving partner settles the affairs of the concern, and the Court of Chancery will not arrest the' business from him, and appoint a receiver, unless confidence he destroyed by his mismanagement or improper court '-t. Carey on Part. 292; Gow 356; 9 Paige 178.

Ln us case of Evans’ Executrix v. Evans, the surviving partner was residing in England, and was settling the affairs of the. partnership by an agent sent out to this country for the purpose. The bill was filed by the executrix of the deceased partner, but the court refused to interfere.

Mr. Justice Story (Story’s Eq. Jur., § 678,) remarks that the English decisions do not distinguish between the case of an assignee of a partner and that of an executor or administrator of a partner, or of the sheriff, or of an assignee in bankruptcy.

In Field v. Taylor, 4 Ves. 396, Lord Mansfield says: “In law there are three relations : First, if a person chooses, for valuable consideration, to sell his interest in the partnership trade — for it comes to that; or if his next of kin, or executors take it upon his death ; or if a creditor takes it in execution, or the assignees under a commission of bankruptcy. The mode makes no difference.”

I adopt the rule, which I consider founded upon just and equitable principles, that a vendee at sheriff’s sale, of the rights and interest of one partner, stands in no better condition in reference to the partnership matters, than such partner himself stood — that the rights which he acquires are at least not superior to those which devolve upon the representatives of a deceased partner — and that a Court of Chancery will not interfere with the other partner, in winding up the partnership, unless his gross misconduct calls for such interference.

Upon these principles, is there anything in the case before us to warrant the interference of the court ? Does the case made against the defendant Chaplain show such misconduct on his part, as to justify the court in dealing with him as a wrong-doer?

He is charged with fraud in the commencement of this partnership — that the conveyance of Carter’s real estate, which had before been covered under the name of John Hartshorne, Jr., was conveyed to Chaplain, and that the business was carried on in Chaplain’s name, for the purpose of covering and concealing the interest of Carter in the business from his creditors, and to prevent such creditors from reaching the same by execution, or otherwise, Carter at that time being involved in pecuniary embarrassments.

This charge is as general in the bill, as I have here stated it. There is no allegation that there were any judgments against Carter at this time, nor any intimation as to what extent he was involved in debt; there is no allegation that his interest in the partnership was in fact at. any time concealed or denied, or that the complainant himself, or the creditors of Carter, or the public generally were ignorant of it. To a charge so general, and upon which, from the manner of its statement, so little reliance was placed to impeach the conduct of Chaplain, I consider the account given by the defendant, of the manner in which, he became connected with Carter, and the reasons of his taking the title to the property and conducting the business in his own name, a satisfactory explanation and answer. Indeed, the complainant admits that as soon as he made any inquiry as to the interest Carter had in the partnership, he ascertained what it was, and that the articles of co-partnership were shown to him. When this was he does not state, though this is material.

It is charged that Chaplain is keeping improper books of account — that there are mistakes, omissions, alterations and improper charges to the prejudice of the complainant, and that Carter has been permitted to draw large sums of money for his own indi vid uál use since the several levies under the executions against him.

The charge as to the books is very fully answered, and every impropriety in reference to the manner in which they have been kept, denied; a regular book-keeper has been, and is still employed for the establishment, who has the sole control and management of the books.

And as to permitting Carter to draw large sums of money since the levies, there is no pretence by the bill that Chaplain in this, or in any other way, connived at Carter’s withdrawing any funds from the partnership, to defraud the judgment creditors, or to depreciate the value of the liens, by virtue of the executions and levies upon Carter’s interest in the partnership. As to this charge, Chaplain answers that, as early as April last, Carter had drawn funds from the partnership, beyond all his interest in the same, and that Chaplain then refused his consent to Carter’s drawing any further funds; but, without his knowledge and consent, Carter has, since then, appropriated to his own use, funds outstanding, and others, to an amount of about six hundred dollars.

The only other charge in the bill impeaching the conduct of Chaplain, is as to the manner in which he is managing the property.

It is admitted the business is not worth carrying on, without the use of Blanchard’s patent machine.

In December last, a fire occurred on the premises belonging to the partnership, by which all the patent machines, except the iron work, and considerable other personal property, and the principal buildings, were destroyed. Since then, the buildings iiave been re-built.

The bill charges that the right to use the patent has been forfeited; that Chaplain, without the concurrence of Carter, is now expending a large sum of money, and incurring debts and liabilities to a large amount, in constructing machinery and fixtures which will be almost worthless, from the fact that when completed, they cannot lawfully be used.

The history which Chaplain gives in his answer, respecting the patent, and which is fairly responsive to the bill, presents this whole matter in such a light as to make me extremely cautious in prejudging, or in any way prejudicing, by the action of the court, the rights which, by his covenants with Carter, and Carter’s connection with this patent right, Chaplain has acquired to use this machine. In view of the situation he has been placed in by Carter’s conduct, I am unwilling to say that the expenditures Chaplain has made are unwise — that they have not been made in an economical way, is not pretended. If the answer is true, the defendant’s rights will not be impaired, or his interest be injuriously affected, by any use which the defendant Chaplain is making of the property.

But it is insisted that the case made by the bill and answer, shows that there are irreconcilable difficulties existing, which make it necessary to have the affairs of the partnership settled, under the direction of, and by a person appointed by this court.

But look at the interest, and the rights of the complainant and of Chaplain, for Carter’s are gone.

Chaplain has put into the partnership, together with what he paid Carter, upwards of ten thousand dollars. Out of the partnership earnings, he has discharged liens on the property, and assumed liabilities, to upwards of fourteen thousand dollars. The present value of the partnership property, as appraised, is twenty thousand eight hundred and thirty-six dollars and seventy-two cents, and the partnership liabilities are fifteen thousand six hundred and eighty-six dollars and forty-eight cents. Carter has drawn out upwards of eighteen thousand dollars, and Chaplain a little over ten thousand dollars. It is charged that Carter has overdrawn his interest some twenty-six dollars.

On the other hand, all that the complainant has risked is thirty dollars. It is not alleged that he is in'any way interested in the judgments, or that he has any claims against Carter, to secure which he was induced to make the purchase. It is to be presumed that he gave an amount somewhat approaching to the value of Carter’s interest. He made the purchase as a mere matter of speculation, and does not occupy a position before the court, to entitle him to ask for any interposition, not a strict matter of right, which will tend to the injury or embarrassment of Chaplain.

The bill does not charge that Chaplain is insolvent, or involved in any pecuniary embarrassments, or that he is not fully able to respond for any interest, it may appear, upon taking the accounts, Carter was entitled to at the time of the purchase.

It does not appear that the complainant has ever called upon Chaplain to account, or that he had any reason to suppose that if he had done so, Chaplain would not have given him every satisfaction, and rendered an appeal to this court wholly unnecessary.

Chaplain now puts himself upon his strict right. He deities that the complainant is a bona fide purchaser, and that he ought to account to him.

The motion for an injunction and receiver is denied. The bill is retained, and if, upon further investigation, it should not be made to appear that the complainant is not a bona fide purchaser, the partnership accounts must be settled, and Carter’s interest at the time of the sale ascertained. In the meantime, the whole matter will be under the direction of the court, and application may be made at any time, if the case demands it, for the protection of the property, or the appointment of a receiver.

Cited in Birdsall v. Colie, 2 Stockt. 63; Cox v. Peters, 2 Beas. 42; Randall v. Merroll, 2 C. E. Gr. 346.


source: Caselaw Access Project

author: The Chancellor.

license: Public Domain

text:
    Samuel Nesbit v. St. Patrick’s Church and Patrick Moran.
    1. If a defendant fails to notice his demurrer for argument, and the complainant omits to take advantage of the failure at the first term thereafter, he may do it at a subsequent term, without first taking an order on the defendant to bring it to argument; but, in that case, he should serve the rule to answer on the defendant before taking a decree pro covfesso.

    2. Where work has been done and materials provided, under a written contract, for building a church, and partial payments have been made, the precise amount of which the contractor does not know, and he claims a balance due for the work and materials, and that he has sustained damages by being improperly prevented from finishing his contract, he cannot sustain a bill in chancery praying for an account, a discovery of the payments made to him, and a decree for the balance due him for the work, and his damages.
    3. The court cannot take jurisdiction of the case on the ground of account, or of discovery, or of preventing a multiplicity of suits.
    This cause was heard before the Chancellor, at February Term, 1852, upon demurrer to the bill. The questions involved sufficiently appear by the Chancellor’s opinion.

      Mr. A. Gifford, in support of the demurrer, cited 2 Daniell Ch. P. 62; 2 Mad. Rep. 289; Story’s Eq. Pl., § 74; 2 Wash. Rep. 213; Mitford’s P. 46 ; 2 Dick. 489 ; 1 Mad. Rep. 212; Cooper’s Eq. Pl. 200; 4 Johns. Ch. Ca. 294; 2 P. Wms. 591; 2 Ves. 343; 10 lb. 546; 4 Black. 359; Holcomb’s Eq. 73, 74.

      Mr. Runyon and Mr. A. Whitehead, contra, cited 3 Johns. Ch. Rep. 351; 2 Caine’s Ca. in E. 38, 52; 9 Johns. Ch. Rep. 407; 4 Cowen 719; 17 Johns. Rep. 374; Str. Eq. In., § 451; Edwards on Parties 73, 49 ; 1 Dan. Ch. P. 449.
   The Chancellor.

This cause was heard upon demurrer to the bill. The counsel of complainants objected to the defendant’s being heard upon demurrer, on the ground that an order overruling the demurrer had heretofore been made, and which had not been vacated.

The bill was filed September 18th, 1849, and this demurrer on the 19th of December of the same year.

The demurrer was regularly noticed for argument and put on the list of causes in March Term, 1850. The following June Term it was not noticed, and the complainant did not take advantage of the default at that term.

On (he 23d of October, 1850, of the term of September, 1850, the complainant took an order overruling the demurrer, and for the defendants to answer within forty days. The order was not served. No answer was put in, and at the following December Term, 1850, the complainant took a decree pro eonfesso, with an order of reference to Theodore Freiinghuysen, Jr., Esq., one of the masters of the court, to take and stale the accounts between the parties as prayed for in the complainant’s bill.

On the 6th of February, 1852, Patrick Moran, one of the defendants, made his affidavit, setting forth that the order overruling the demurrer was a surprise upon the defendants and their counsel, occurring in consequence of a misapprehension of an arrangement made between the solicitors of the respective parties as to the argument of the demurrer.

Upon this affidavit notice was given for setting aside the decree, and Chancellor Halsted, on the application of the defendants, made an order to this effect, that notice having been given of such application all further proceedings on the decree should be stayed until the further order of the court; thus the cause has since stood, until now noticed for argument on the demurrer, without the defendants having taken any further measures to set aside the decree.

The argument was heard with the understanding and arrangement of counsel, that the complainant should have the benefit of his decree, or the court decide the cause upon the demurrer, as the court might consider right and proper under the circumstances.

The defendants insist the decree is irregular, and should be vacated; that it was taken contrary to the practice of the court; that the complainant was entitled to his order overruling the demurrer at the June Term, 1850, for default in the defendants not having noticed it at that term, and having failed to take it at that time, he could not take it at a subsequent term, without first taking an order for the defendant to bring his demurrer to hearing, and that the decree pro eonfesso having been founded on an order irregularly taken, the decree cannot stand.

Such has not been the practice, as far as my own experience goes, and I have been unable to ascertain, upon inquiry, that it has been considered by others as the practice of the court» We have no rule upon the matter. The only one in any respect analogous is that regulating taking of decrees pro eonfesso, and which is this: where a complainant omits to take a decree pro eonfesso at the first term at which he is entitled to-it, he shall not thereafter move such decree until he has first taken and served an order on the defendant or defendants, if in this state, to file their answer or answers at such short day as the court may appoint, unless in cases where the time for final decree in the same cause against-other defendants shall not have arrived. The rule, it will be seen, does not apply to orders overruling demurrers. I think, where the complainant takes a rule overruling a demurrer, at a subsequent term to that in which the default occurs, he should serve his rule upon the defendant before taking his decree. Yet,' I believe, such has not been the practice. I should, however, order service in such a case, if my attention was called to the circumstances under which the order was taken.

But in the case before us the affidavit of Mr. Moran shows that the reason why the demurrer was not noticed, was, in consequence of an arrangement made between the solicitors of the respective parties, that there should be a hearing of the cause upon the demurrer before the Chancellor at his chambers in Newark.

There has been too much delay on the part of the defendants, first, in not bringing the demurrer to hearing, and again in not following up the rule to show cause why the decree pro eonfesso should not be set aside. I should not have been willing to deprive the complainant of the advantage of his decree if on looking at the bill I could have satisfied myself he had a ease which entitled him to a standing in the court.

The bill shows that the complainant entered into a written contract with "Saint Patrick’s Church,” a body corporate under the laws of this state, for doing the mason work in the erection of a new church edifice at the city of Newark. He sets out the contract, by which it appears that the corporation had the privilege, if at any time during the progress of the work they should be short of funds, to give the contractor, the defendant, notice and suspend the work. The complainant commenced working on the 25th of July, 1848, and worked about two months. The work was suspended, on notice, in conformity with the provision of the contract referred to.

On the 4th of November, 1848, the corporation gave him notice to resume the work. He alleges that the weather was then unfavorable, and complains that in July following, eight months after giving him the notice, he, in the meantime, never having tendered himself ready to proceed with the work, the corporation employed another person to complete the work.

The complainant alleges the work done by him was worth fifteen hundred dollars; that during the period he was at work he received various sums of money on account of his work, of which he has, to use his own language, no reliable memoranda, and cannot tell with entire certainty to what sum in the aggregate the same amounted.

He further alleges that Patrick Moran, who was then the president of the corporation, has the receipts in his custody and possession. There is no allegation, however, that the complainant ever called on Mr. Moran for the vouchers or receipts, or for copies of them, or for information as to their contents.

He further alleges that he verily believes there is a considerable sum of money due him for work done and materials found, and that he has sustained damage by breach of the contraed on the part of the defendants, Saint Patrick’s Church,” to the amount of one thousand dollars.

The bill prays for an account — for discovery as to the receipts and vouchers' — and that the respondents be decreed to pay the amount due for such work, and the damages for breach of the contract.

Upon what ground can this court take jurisdiction of the ease ?

Surely not on the ground of account. There has been work done by the complainant under a written contract, and some payments have been made to him on account of this work. , But it is not pretended there is anything intricate in these accounts, nor is any reason given why they ought to be settled in a Court of Chancery. If this bill can be maintained on the ground of the accounts between the parties, then a Court of Chancery has jurisdiction of every case when a debt has been contracted and payments made upon it.

Courts of Chancery assumed the jurisdiction in cases of accounts, in consequence of the inadequacy of the remedy at law. The bill in equity is the substitute for the action of account at law, which, in consequence of its intricacy, and the delay and expense attending it, and even then failing to do complete justice, has become obsolete.

Can this court get jurisdiction of the case, either upon the ground that by reason of the complexity of the accounts the relief at law is imperfect or inadequate, or on the grounds of discovery, or of suppressing multiplicity of suits ?

So many perches of mason work have been done at a specific price per perch ; the defendants have made some payments, but for aught that appears in the bill of complaint, not more than three, and such are the accounts to be settled between the parties. It would be a mere pretext for assuming jurisdiction .and of transferring the forum of litigation from a court of law to a court of equity, to say that there is any propriety in the court’s retaining the case by reason of the nature of the accounts; and there is just as little reason for retaining it on the ground of discovery. What discovery is really needed? None but the contents of two or three receipts and vouchers of payments given by the complainant to the defendant, the knowledge of which it is not pretended is now needed for any specific purpose by the complainant, •and which the defendants can use only to reduce the amount which may be due on taking the accounts. If they are lost, or are not forthcoming at the proper time, the complainant can sustain no injury, but the loss will fall on the defendants.

The peculiar power of this court to compel a discovery, is not required in the case, that the ends of justice may be attained. Is it invoked as a mere pretence to give the court jurisdiction, and change the forum of litigation ?

Of what advantage can it be to the complainant to have the discovery he asks ? He did not do the work, nor were these payments made through the agency of others. To know the exact amount of the payments before trial cannot be of any advantage to the complainant.

Cited in Jewett v. Bowman and Dringer, 2 Stew. 176.


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    Peter Howell v. Thomas Ashmore.
    1. In the case of a bill for mere discovery, if it appears reasonable that the complainant should be entitled to the disclosure, and no principles of law or equity are violated in enforcing it, the court will not be as nice in the application of technical rules as when an injunction, or relief, is asked for.
    2. So, in a bill for discovery only, it is not necessary to aver that the discovery is absolutely necessary, or indispensable, to the defence. It will be sufficient to state and show that it is material evidence.
    3. Nor is it necessary to allege in the bill that the plaintiff has no other witness or evidence to establish at law the facts of which the discovery is sought; for he is entitled to i.t if it is'merely cumulative evidence of material facts.
    4. A mere clerical mistake of a single figure the court would permit to be corrected instanter, upon the suggestion, unless by any possibility the defendant had been- misled by it.
    5. A bona fide purchaser, without notice, and for a valuable consideration, is entitled to have his title protected by this court, nor will he be compelled to discover anything which will invalidate that title. But when the defendant is charged with a fraud, and that he has procured a title fraudulently, and is fraudulently setting it up to defeat the complainant, it is the peculiar jurisdiction of the Court of Chancery to compel such fraud-doer to disclose the fact alleged as a fraud, and all the circumstances attending the act, in order that the court may determine whether those circumstances establish the fraud or not.
    6. It is a proper object for a bill of discovery to ascertain, in a case where the defendant’s title can only prevail, upon the ground of his being a bona fide purchaser, without notice of the plaintiff’s title, whether he had such notice, and to call upon him to disclose all the circumstances which may go to probe his conscience upon that point.
    7. The act of the legislature of this state, of March 1st, 1849, permitting the plaintiff to call on the defendant as a witness, upon the trial, does not deprive the plaintiff of the right to the discovery before the trial by exhibiting his bill in this court. The Supreme Court is not competent to grant the same relief which this court is able to afford the plaintiff in this proceeding.
    8. It is a general rule, regulating the practice of the Court of Chancen that a bill of discovery, filed in this court to aid in the prosecution of \ suit at law, cannot be maintained against one who might be a witness in til^ suit. ' ^
    9. But the statute of 1849 has introduced a new principle, unknown tot the common law; a new case has arisen, to which the rule could not have\ been applicable when adopted. It is, therefore, a question addressed to rhe sound discretion of the court.
    10. The statute ought not to deprive the plaintiff of his right to file his bill to aid him in the prosecution of his suit at law.
    This bill was filed by the complainant, seeking discovery-in aid of his prosecution of a suit at law. The bill alleges that Sarah Milward, wife of John Milward, as the heir-at-law of her father, became entitled to certain real estate in the county of Mercer. That, on the seventeenth day of September, 1814, the said John and Sarah, for the consideration of $100, granted and conveyed a part of the same to Joseph Ashmore, which is the land in question between the parlies to this suit. That the deed was acknowledged before a proper officer, but that, in taking the acknowledgment, the officer did not certify that the said Sarah was examined privately and apart from her husband. That Joseph Ashmore entered into the possession under the deed, and so continued until the 24th of June, 1816, when he sold, for a valuable consideration, to James Ashmore, the brother of defendant, who entered into the possession. That James, being about to leave the state for a considerable time, and wishing to make some provision for the care of his aged lather, permitted the defendant to take possession of the premises, under an agreement to cultivate them for the mutual support of himself and his father. That, under that arrangement, the defendant entered and kept the possession until the death of his father in 1846.
    That, in December, 1845, James Ashmore, for the consideration of $200, sold and conveyed the premises to the complainant, and which deed was duly acknowledged and recorded. That, at the time of his purchase, the complainant did not know of the defect in the acknowledgment of the deed from Milward and wife. That, afterwards, discovering the defect, the complainant applied to Mrs. Milward — -told her the difficulty, and thereupon, without hesitation, on the 24th day of June, 1847, she, for the nominal consideration of $1, duly executed and delivered to complainant a deed for the premises, which was recorded on the 22d day of April, 1848. That then the complainant commenced an action of trespass and ejectment for the land, and, in July Term of the Supreme Court, the defendant applied and entered into the usual consent rules to defend as the owner. That, on the 20th of September, 1847, the defendant being fully apprised of the fact that the said Sarah M. had given the last-named deed to the complainant, but finding it was not recorded, procured her to execute a deed to him, of the date last named, purporting a consideration of $170, and which deed, on the-next day, was recorded.
    The bill further charges that the defendant did not pay any consideration for the conveyance to him, and at the time he obtained it, had full knowledge of the complainant’s title. That the deed to defendant was privately and secretly executed, and that defendant has refused to give any information in relation thereto. That Sarah M. resides out of this state, and that complainant cannot discover whether she is aware that, at the time when she made the deed to him, he had any knowledge of the prior deed to the complainant, nor has complainant been able to discover who was present when the deed to defendant was executed.
    The bill then prays a discovery as to the knowledge of the defendant of the complainant’s deed from Sarah Milward, at the time of the execution of her deed to. him, and ‘the consideration upon which, and the circumstances under which it was executed.
    The defendant has demurred to the bill.

      Mr. Dayton, for demurrer.

      Mr. Beasley, contra.

       The “Act concerning evidence,” reported by the law commissioners, and passed in 1855, contains a section which avoids the necessity of filing a bill in chancery for discovery in such cases. — Reporter.

   The Chancellor.

This is a bill for discovery only. The complainant asks the discovery in aid of' his prosecution of a suit at law, instituted by him against the defendant in the Supreme Court, and for the purpose of using the disclosure upon the trial of the said suit. No interference with that suit is asked, nor is relief prayed for. The principles applicable to a bill for discovery only, are in some respects different from those which govern the court, where the bill prays for an injunction to stay proceedings at law, or in any way to interfere with such proceedings, until the bill is answered ; or where, in addition to the discovery, relief is prayed for. In the case of a bill for mere discovery, if it appears reasonable that the complainant should be entitled to the disclosure, and no principles of law or equity are violated in enforcing it, as the complainant must pay the costs of the suit, whatever may be the defendant’s answer, the court will not be as nice in the application of technical rules as where an injunction or relief is asked for. Seymour v. Seymour et al., 4 John. C. R. 409; Bishop of London v. Fytahe, 1 Brown C. C. Rep. 69.

For instance, in a bill for discovery only, “ it is not necessary to aver that the discovery is absolutely necessary, or indispensable to the defence. It will be sufficient to state and show that it is material evidence. Thus, for example, it is not necessary to allege in the bill, that the plaintiff has no other witness or evidence to establish at law the facts of which the discovery is sought; for he is entitled to it, if it be merely cumulative evidence of material facts. It would be otherwise, if the bill should not only ask discovery, but should ask relief in equity.” Stor'y’s Eq. P., § 324.

An objection was made to this bill, because it does not sufficiently aver that the complainant cannot make proof of the facts of which discovery is sought without the aid of this court.

If the interference of this court was asked with the suit at law, then perhaps the bill, or affidavit, ought to have stated the belief of the complainant, that the answer would furnish discovery material for the defence, and that the complainant had no means of obtaining the facts without such discovery. 4 John. C. Rep. 411. But no interference is asked for; and besides, though there is no direct averment that the disclosure is material and requisite, the case made by the bill, and which the demurrer admits, shows manifestly the materialty and importance of the facts of which discovery is asked. As regards the most important fact, and the one which it is the principal object of the bill to reach, to wit, whether at the time the defendant obtained the deed from Mrs. Milward, he had knowledge of the plaintiff’s deed from her of the 24th of June, 1847, that is a. matter so peculiarly within the exclusive knowledge of the defendant, that it might almost be considered as superfluous to aver, even if formality required it, that the plaintiff had not the means of obtaining the fact without such discovery.

The bill alleges that the deed from Sarah Milward to the defendant, and which he sets up to defeat the plaintiff’s title, Was privately and secretly executed, and that the defendant has at all times refused to all persons to give any information in relation thereto ; that Sarah Milward resides out of the state, and that the complainant cannot discover whether she is aware that the defendant, at the time when she made the deed to him, had knowledge or information of the deed to the complainant; and that the complainant has been unable to discover who. were present at the execution of the deed.

With regard to all the other facts and circumstances of which the defendant is called upon to make disclosure, they all relate to and bear upon the material question — whether or not the defendant was a bona fide purchaser without notice.

I think the bill sufficiently shows the materiality of the facts to the plaintiff’s case at law, and also that he cannot safely rely upon any testimony from other sources to supply the evidence.

It is again objected that the complainant does not show his action at law was commenced subsequent to the time when his title accrued. It is true this is not very explicitly stated, but it is evident the counsel who drew it supposed that it so appeared by the bill. There is certainly a confusion as to dates, arising from want of care.. The bill states the complainant commenced his action of ejectment, and such proceedings were had therein, that in the July Term of the Supreme Court in the year last aforesaid, the said Thomas Ashmore appeared, &c. The year “ last aforesaid,” in the bill, is the year 1848, and yet it is staled that the cause was noticed for trial in September, 1847. There is certainly a mistake as to dates.

But the complainant, after setting forth the manner in which his title accrued, states that, having then become entitled to the said premises, he went to take possession, and the defendant refusing to deliver the possession, he commenced his suit. The whole statement of the case by the bill shows, I think clearly, that the suit was commenced after the plaintiff's title accrued, but before he had his deed recorded. A mere clerical mistake of a single figure the court would permit to be corrected instanter upon the suggestion, unless by any possibility the defendant had been misled by it.

It is further insisted, in support of this demurrer, that the subject matter is not one entitling the complainant to a disclosure from the defendant; that a defendant cannot be compelled to discover his own title; that the prayer of the bill is not simply a discovery as to whether the defendant had notice, but of the consideration the defendant gave for the property, and of other matters attending the purchase.

“ One of the fundamental rules of this branch of equity jurisprudence is, that the plaintiff is entitled only to a discovery of what is necessary to maintain his own title, as, for example, of deeds under which he claims. But he is not entitled to have a discovery of the title of the other party from whom he seeks the discovery.” Sto. Eq. Ju., § 317.

In this case, the bill does not seek a discovery of the defendant’s title, nor of the defence he seeks to set up against the plaintiff’s right of recovery. But the complainant alleges that the defendant has procured a title, which title the complainant sets out in his bills, and insists that such title ought not to prevail against his, and that the defendant procured his title with notice of the complainant’s prior title. All he seeks to discover is, whether the defendant had the notice at the time of his purchase.

A Iona fide purchaser, without notice, and for a valuable consideration, is entitled to have his title protected by this court, nor will he be compelled to discover anything which will invalidate that title. But when the defendant is charged with fraud, and that he has procured a title fraudulently, .and is fraudulently setting it up to defeat the complainant, it is the peculiar jurisdiction of a Court of Chancery to compel such a fraud-doer to disclose the fact alleged as a fraud, and all the circumstances attending the act, in order that the court may determine whether those circumstances establish the fraud or not.

The defendant is called upon by this bill to state whether he had notice of the complainant’s deed, and the circumstances under which he procured his own deed, in order that by them it may be determined whether he is a bona fide purchaser without notice. The disclosure sought is as to the notice, and inquiry is made as to the consideration he paid, and of other circumstances only as they affect this point. They all bear upon the question of notice, and are introduced to test the defendant’s conscience as to that matter.

It seems never to have been questioned but that the object which is sought by this bill is a proper one for discovery.

A defendant may object to the discovery that he is a bona fide purchaser of the property for a valuable consideration, without notice of the plaintiff’s claim. To entitle himself to this protection, he must not only be a bona fide purchaser, and without notice,' and for a valuable consideration, but he must have paid the purchase money. Story’s Eq. Ju., § 1502. But was it ever objected that he could not be compelled to disclose whether, he was a bona fide purchaser without notice, or what consideration he gave, or the circumstances under which he purchased ?

“ If a defendant has in conscience a right equal to that claimed by a person filing a bill against him, though not clothed with a perfect legal title, this circumstance, in the situation of the defendant, renders it'improper for a court of equity to compel him to make any discovery which may hazard his title; and if the matter appears clearly, on the face of the bill, a demurrer will hold. The most obvious case is that of a purchaser for a valuable consideration without notice of the plaintiff’s claim.” Mitford’s Pleading 162.

But upon the case made by this bill, has this defendant, in conscience, a right equal to that claimed by the complainant? Is it not most unjust that a title acquired in the manner as it is alleged the defendant’s was, should be set up and prevail ? The defendant has no equity whatever. He admits by his demurrer the fraud he has practiced, and insists that the court should aid him in taking advantage of it by extending to him the same protection that a man, holding an honest title, would have a right to claim.

In Jerard v. Sanders, 2 Ves., Jr., 187, the bill was filed for discovery oí' deeds relating to the plaintiff’s title, and to restrain proceedings in ejectment. The bill charged constructive notice of a settlement in the party under whom the defendant claimed. . The defendant pleaded purchase for valuable consideration, and averred that J. D., under whom he claimed, had not, to his knowledge or belief, any notice of the title set up by the plaintiff. The Lord Chancellor says he must set forth the facts charged in the bill, from which the court will construe notice. He assumes to himself the proposition. He judges what is constructive notice, and then denies that, to his knowledge and belief, he had constructive notice. The bill does not impute direct notice to him. He must let the court judge of that. The plea was overruled. The case is further reported in the same book, 454. The defendant answered, and fully and in the most precise terms denied all the circumstances alleged, from which notice might be inferred. He showed he was a bona fide purchaser without notice, and then the Chancellor said that against such a purchaser the court will not take the least step imaginable, and no advantage the law gives him shall be taken from him. But it was not set up in that case that the subject matter of which discovery was sought, was one of which the defendant could not be called upon to make disclosure, on the ground it was discovering his own title.

In 14 Ves. 57, Claridge v. Hoare, Lord Eldon says: “ It is then said this plea (referring to the plea in that case) should be supported by an answer. Such a plea does not require the support of an answer as a plea of purchase for valuable consideration without notice, does. That plea requires the aid of an answer, the bill insisting upon notice and charging facts to make that out. The defendant must answer, either admitting, denying or qualifying all the circumstances upon which it is contended that if the defendant will speak, notice, though denied, will appear.”

It appears to me very clear that it is a proper object for a bill of discovery to ascertain, in a case where the defendant’s title can only prevail upon the ground of his being a bona fide purchaser without notice of the plaintiff’s title, whether he had such notice, and to call upon him to disclose all the circumstances which may go to probe his conscience upon that point.

In support of this demurrer, it is further insisted that under the act of the legislature of this state, of March 1st, 1849, the plaintiff can call upon the defendant as a witness upon the trial of the suit in ejectment, and that therefore this bill is objectionable upon two grounds :

1st. That this court is called upon to assist a suit in another court competent to grant the relief here sought.

2d. That you cannot have a bill of discovery in aid of a suit pending against any one who is a competent witness in that suit.

As to the first ground. The principle is correctly laid down in Story’s Eq. Jur., § 1495; in Cooper’s Eq. P., ch. 3, p. 191, and in Mitford’s Plead. 52, that in the case of suits merely civil, in a court of ordinary jurisdiction, if that court can itself compel the discovery required, a court of equity will not interfere. The cases referred to in support of the principle are those of Dunn and others v. Coates and Balguy, 1 Atk. Rep. 288, and an anonymous case in 2 Ves. 152, which were cases where the plaintiffs sought a discovery in aid to the ecclesiastical juriádiction, and in which eases the discovery was denied on the grounds as stated by the Lord Chancellor, that the coming into this court in aid of the ecclesiastical jurisdiction is always denied here,” and the party does not there want it, “ because he may exhibit articles in that court, and have an answer on oath, which is the constant method there.”

It would seem that, in the ecclesiastical courts, the party could exhibit articles in the nature of a hill of discovery, and have an answer on oath, which would afford him the same relief as a bill of discovery would in the Court of Chancery.

But is the Supreme Court, where this suit is pending, to assist which this bill has been filed, competent to grant the same relief which this court is able to afford the plaintiff in this proceeding ?

That court can compel no discovery by any proceeding in the nature of a bill of discovery. It can compel the defendant to answer as a witness on the trial of the cause, if cabed upon by the plaintiff But the disclosure he may make then, may he of no avail to the plaintiff The plaintiff has a right to the discovery, before the trial, to aid him in preparing to meet the very case the defendant may make by the disclosure. A party may exhibit his bill before his suit is commenced, so as to enable him rightly to frame his action and declaration.

Story’s Eq. Ju., § 1495, and cases cited in the note.

In Story’s Eq. Ju., §§ 1486, 1487, the means provided by the Boman law for obtaining the oath of parties is stated. Interrogatories in writing were propounded which were answered by the other party under oath, and the relief afforded was as effectual as that obtained by a bill of discovery in a Court of Chancery.

The mode of proceeding in the ecclesiastical and civil courts is concisely pointed out in Story’s Eq. P., § 850: “ In the civil law the defendant first puts in his defensive allegation to the claim made by the plaintiff, and after an answer to that is put in, the plaintiff propounds, in a sort of supplemental libel, called the libellus articulatus, liis interrogatories respecting the charges made in the positions of the plaintiff, as they are called (that is) in his bill of complaint; and the defendant then responds to those interrogatories. In the ecclesiastical courts, where also the defendant is required to make an answer or discovery upon oath, the answer to the interrogatories is in a wholly distinct instrument from the responsive allegation (as it is called) to the libel which contains the defence of the defendant.

But the remedy afforded by our statute was not intended to supply the place of a bill of discovery. In does not afford the adequate relief, for it does not meet the wants of the party.

As to the other ground, that you cannot have a bill of this nature in aid of a suit at law against one who is a competent witness in the suit.

The general rule is, that it is a'good objection to a bill of discovery that it seeks a discovery from a defendant who is a mere witness, and has no interest in the suit. But the rule has its exceptions.

Story’s Eq., § 1499 ; Cooper’s Eq. P. 200.

Whenever the rule is laid down, this reason is always given for it: that there is no ground for a bill of discovery, since his answer would not be evidence against any other person. The reason is not applicable here.

One exception to the rule is the case of making the agents,' officers, and directors of a corporation parties. There are reasons given for this exception in the authorities where such bills have been sustained, but no better reasons, nor as good as those which may be suggested, why the case before should not be an exception to this general rule.

In the case of Glasscott v. Copper Miners’ Company, 11 Simons’ R. 305, the doctrine was firmly established that a bill; for discovery merely, may be maintained against a corporation and its officers.

If these objections prevail, it strips the court very much, if not entirely, of its jurisdiction, in cases of this kind.

As the object of this jurisdiction is to assist and promote the administration of public justice in other courts, bills of discovery are greatly favored in equity, and will be sustained in all cases where some well-founded objection does not exist against the exercise of the jurisdiction. Story’s Eq., § 1488.

Now, the statute of 1849 was passed for the benefit of the party who might see fit to call upon his adversary in a suit to testify as a witness; but if this court should determine that the statute deprives the plaintiff in this suit of the benefit of this bill, and thus compels him to resort to his adversary as a witness on the trial, this statute, instead of proving, as it was intended, an. ad vantage in the prosecution of his suit, may operate greatly to his prejudice. It compels him to make the defendant a witness not only as to the simple fact about which he wishes to interrogate him, but makes him a witness in his own cause, competent to give testimony on his own behalf.

But this principle which has heretofore governed courts of equity in entertaining bills of discovery, is not an inflexible rule, and one which cannot, or ought not, to be subservient to any new exigency that may arise in the administration of justice.

Here is presented a new question. The legislature has snot, by positive act, abolished or limited the jurisdiction of this court as to bills of discovery, but has introduced a new principle unknown to common law. A party in a suit may now call upon his adversary as a witness. It is a general rule regulating the practice of the Court of Chancery, that a bill for discovery could not be maintained against on.e who might be a witness in the suit. It is a rule of policy, founded upon good and substantial reasons. Under the peculiarity of this statute, a new case has arisen, one to which the rule referred to could not have been applicable when it was adopted, for such a case could not then have Arisen. We have now to deal with it, and it is a question addressed to the sound discretion of the court, whether the ends of justice will be best promoted by making a case like that before us an exception to the rule.

I do not think that this statute ought to depi’ive the plaintiff of his right'to file his bill in this court to aid him in the prosecution of his suit at law. I do not think that he should be compelled to resort to the alternative of making the defendant a general witness in the suit, or be deprived of having the benefit of a disclosure before the trial, so that he may prepare himself to meet the facts .which may be presented by the disclosure which he seeks.

Let the demurrer be overruled, with costs.

      Story, in his Eq. Jnr.; § 64, in speaking of the jurisdiction of the Court of Chancery, says: One rule is, that if originally the jurisdiction has properly attached in equity in any case, on account of the supposed defect of remedy at law, that jurisdiction is not changed or obliterated by the courts of law now entertaining jurisdiction in such eases, when they formerly rej ected it. This has been repeatedly asserted by courts of equity, and constitutes, in some sort, the pole-star of portions of its jurisdiction. The reason is, that it cannot be left to courts of law to enlarge, or to restrain the powers of courts of equity at their pleasure. The jurisdiction of equity, like that of law, must be of a permanent and fixed character. There can be no ebb or flow of j urisdiction dependent upon external changes. Being once vested legitimately in the court, it must remain there, until the legislature shall abolish or limit; for without some positive act, the just inference is, that the legislative pleasure is, that the jurisdiction shall remain upon its old foundation.


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    Joshua Rawnsley and Andrew Barricklo vs. The Trenton Mutual Life Insurance Co.
    1. The powers conferred upon this court by the act to prevent frauds by incorporated companies, are extraordinary powers, and are to be exercised with caution, and only when the circumstances of the case and the ends of justice require it.
    2. Nor is the Chancellor bonnd, as a matter of course, to issue the injunction, although it is made satisfactorily to appear that the company is insolvent; but he must exercise his best discretion and exert the powers conferred for the safety of the public and the advantage of the stockholders and creditors.
    3. The bill or petition must set forth the facts and circumstances of the case. Affidavits and proofs may be read, but for no purpose except to sustain the case made by the bill, and by the opposite party in its disproof and denial.
    4. It will not do to simply charge that the company is insolvent, and then take affidavits to show facts and circumstances not alluded to in the bill, to make out such insolvency.
    5. Motion to restrain and enjoin refused, where the ease made by the pleadings and the proof corresponding therewith, did not justify the court in declaring the company insolvent, and subjecting it to the provisions of the act to x>revent frauds by incorporated companies.
    This was a proceeding under the “Act to prevent frauds by incorporated companies.” The bill was filed by a creditor and a stockholder of the company, and the complainants now applied for an injunction to restrain the defendants from exercising their corporate franchises, and for the appointment of receivers to wind up its concerns.

      Messrs. Beasley and Halsted, for application.

      Dayton and Vroom, contra.

   The Chancellor.

This bill is filed by Joshua Eawnsley, a policy-holder, and as such, by virtue of its charter, a member of “ The Trenton Mutual Life and Fire Insurance Company,” and by Andrew Barricklo, who alleges himself to be a creditor of the said company.

The proceedings are under the act entitled “An act to prevent frauds by incorporated companies,” and I am asked now to - declare this company insolvent, and to' appoint receivers to wind up its concerns. •

By virtue of the general equity powers of the court, this bill could not be maintained. The relief sought for is under and by virtue of the statute which must guide the court in its decision of the case.

The court is authorized by the act, whenever an incorporated company has become insolvent, by petition or bill, exhibited by a creditor or stockholder, setting forth the facts and circumstances of the ease, to hear the matter in a summary way, upon the affidavits, proofs and allegations by or on behalf of the parties. If, upon such inquiry, it shall be made to appear that the said company has become insolvent, it shall be lawful for the Chancellor to restrain the company and its officers, by injunction, from exercising the privileges and franchises granted, and if the circumstances of the case, and the ends of justice require it, to appoint receivers, &c.

The powers conferred upon the court are extraordinary powers, and are to be exercised with caution, and only when the circumstances of the case and the ends of justice require it.

Where a creditor or stockholder comes into court under this act, it is not his particular grievance the court is to redress, or, his individual interest that is to be protected; but the very object of the act is to protect the public at large from imposition, and to promote and s.ecure the general interest of the stockholders and creditors.

Nor is the court bound, as a matter of course, to issue the injunction, though it is made satisfactorily to appear that the company is insolvent. The Chancellor must exercise his best discretion, and exert the powers conferred, for the safety of the public and the advantage of the stockholders and creditors.

Nor has the Chancellor any right to act in the premises except on the case made before him. The bill or petition, the act expressly says, must set forth the facts and circumstances of the case.

Affidavits and proofs may be read, but for no purpose except to sustain the ease made by the bill, and by the opposite party in its disproof and denial. It will not do simply to charge that the company is insolvent, and then take affidavits to show facts and circumstances not alluded to in the bill, to make out such insolvency. It is no trifling matter for the court, where the legislature have incorporated a company with extensive powers, by the exercise of which a large amount of capital has become employed, and in which thousands of our citizens have become interested and their property involved, to strip it in a summary way of all its franchises and privileges, and determine the rights of individuals connected with it. It is a case where the court is to exercise great caution ; and I think I may safely say, where a single stockholder, together with a creditor of the company, files a bill under this act, if the bill, taking all the facts and circumstances stated as true, will not justify the issuing of an injunction •, no affidavits, or proofs, respecting collateral matters, though they tend to prove the company insolvent, will justify the court in granting the prayer of the bill. The complainant may amend his bill, and make a case upon which the court can act. But it would be in violation of the well-established practice of this court, and I think unjust, for the court to exercise the powers conferred by this act of the legislature, unlesá the facts and circumstances of the ease, as set out in the bill, will warrant it. It is a summary proceeding, and, in its nature and effect, a final hearing upon its merits. By every principle of practice and pleading, the proofs must be pertinent to the issue: seoundum allegata.

It is very proper in a case of this kind, when there has been any fraudulent conduct on the part of the directors or agents of the company, any misapplication of funds or violation of trust, to set out such acts and violations of duty in the bill, not because the court can, upon any or all of these grounds, grant the relief contemplated by the act, but because they have a bearing upon the question at issue, and give point and strength to the circumstances relied upon to make the insolvency of the company.

But it is not competent, where there are no corresponding charges in the bill, to impugn, by affidavits, the character or conduct of the directors or agents of the company, and make a case upon which the court is to act, not even alluded to in the bill of complaint.

These remarks are made because they have a direct bearing upon the ease in hand.

This company was incorporated by an act of the 5th of February, 1847, and the privileges and franchises conferred upon it may be summed up in a few words. It has power to insure lives, and to make all and every insurance appertaining to or connected with life risks, of whatever kind or nature, and also to insure all kinds of property, both real and personal, against loss or damage by fire. And. the act would seem to confer power enough to devise and contrive, at the discretion of the directors, any and all schemes to insure life risks, and against fire, and to any extent the public might see fit to embark in the risk. There are no restrictions in the charter, except that the company is subject to those contained in the act entitled' “An act concerning corporations/ and which, in this case, amounts to little or nothing in limiting the discretion of the directors in the exercise of the powers conferred by the charter.

By the second section of the act, it is declared that all persons insured in the association, while they so continue, shall be deemed and taken as members thereof.

Joshua Rawnsley, one of the complainants, effected an insurance on his house in the city of Trenton for the sum of $3000, for which he paid $12 cash, and gave his premium note for $120, on which the $12 was credited.

Andrew Barrieklo, the other complainant, had ah insurance upon his store goods to the amount of $3000. His goods were destroyed by fire, and he claims to be a creditor to the amount of this insurance.

Do these complainants make out a case by their bill, to justify the court in declaring the company insolvent ?

The bill charges distinctly that the company is insolvent. But what are the facts and circumstances stated to sustain the charge ?

.Let us look first at the general, and then at the specific allegations.

It is charged “ that the said the Trenton Mutual Life and Eire Insurance Company, on or about the 21st day of April, 1852, stopped payment, and stopped carrying on the business of insurance, and have neglected and refused to pay their losses for want of funds, when the same were presented for that purpose ; and neglect and refuse to pay their just debts when demanded within the usual hours of business ; and have suspended from the time last mentioned the ordinary business of the said company for want of funds to carry on their business.”

Now, I may remark generally, it was never in contemplation of the legislature, that this company should transact business with the promptness and punctuality of a hank, and should, during what are called business hours, meet any pecuniary demand against them at the moment it should be made at their counter. So far from it being contemplated that they should at all times have funds on hand to meet demands against them, it is in express terms provided by their charter, that “ if at any time it shall so happen that there shall be just claims on the corporation for losses sustained, to a greater amount than they have funds on hand to discharge, in such cases the directors, for the time being, shall, with all convenient expedition, proceed to assess such deficiency, in a ratable proportion, on the members of the association.”

The allegations referred to are very pertinent where the bill is exhibited against a bank.

It is an evidence of insolvency for a bank to refuse to transact business during the usual hours, and a refusal to redeem their bills, pay deposits and meet the calls upon them promptly, are, from the nature of their business, strong evidences of insolvency.

But in this case the complainants stop short of making out a case that could be required even against a bank. What evidence is there, either in the bill or aliunde, that this company have stopped payment, or' stopped carrying on their business, or have refused to pay any just debt for want of funds, or have ever, for any reason whatever, refused to pay a just debt?

To meet these general allegations, the only specific instance referred to is that of Mr. Barricklo, the complainant. His loss occurred in November, 1850. He says that they neglected and refused to pay him, and that he has commenced a suit against the company. But he does not state that they refused to pay him for want of funds; and it appears that the reason why they did not pay was not because they had not the funds, but because there was a dispute, and which the company deemed well founded, as to the justness of Mr. Barricldo’s claim.

There is not, in the whole bill, another instance stated where the company have ever refused to meet their liabilities, and not an instance where they have neglected to meet all the demands against them during business hours.

Nor is there anything in the proofs or affidavits to show that this company have ever in any case refused or neglected to pay just demands against them. The great effort which was made to show that it was for want of funds they hesitated for so long a time to pay the life risk which was placed in the hands of Mr. Halsted for collection, would seem strongly to indicate that whatever may be the actual condition of the company, they have, thus far, fulfilled their engagements in paying to the policy-holders theiram'ount of losses sustained by fire.

By every principle of law and equity, in absence of all proof to the contrary, they are entitled to the benefit of this conclusion, when it was of such importance to the success of the complainants to make out a default in this respect. Indeed, it is a matter of surprise that in an investigation of the charge of insolvency against the company which has been doing such extensive business, and where so much money has been paid out for losses, so little could be found to make out any delinquency in- meeting promptly their pecuniary engagements.

That they have stopped carrying on the business of insurance, is no evidence whatever of their insolvency; and this charge is in strange contrast with the ground stated in the next paragraph of the bill for asking the interference of the court, that the policy-holders being liable to make up losses to the amount of their premium notes, the liability of the complainant, Joshua Rawnsley, as well as that of all the other policy-holders, will continue to increase, if the said company should continue to carry on their business of insuring. That they have stopped insuring, and are husbanding their resources to meet their recent heavy losses, is a circumstance much more to the credit of the directors, than a cause of censure against them, and the safety of the public, as well as the interest of the stockholders, demanded such a course. It is the very protection and relief which would be afforded by granting the prayer of this bill.

But let us examine other facts stated in the bill as the foundation for the interference of the court. Perhaps it will be most satisfactory to take them up in the order they are stated.

After setting out the charter and several of the by-laws, the bill alleges that the company established agencies in New York and Philadelphia; that, by the laws of the State of New York, it became necessary that they should furnish proof of the amount of capital, and of the manner in which the same was invested ; that, under pretence of complying with the laws of New York, they created what was called their guaranty capital.

There are several particulars alleged as to this guaranty capital, for the purpose of showing the improper manner in which the directors have acted in administering the affairs of the company.

Among others, the insufficiency of the securities taken to constitute this capital — the utter unavailability of the capital itself for the purposes for which it was created — that a large part of this capital was withdrawn while the agents of the company continued to effect insurances upon the representation that the whole capital still existed — that the act of the directors in constituting this capital was illegal, and that they have misappropriated money in paying interest upon it.

There is no charge in the bill that any officer or agent of the company has been benefited, directly or indirectly, by the creation or the use of this capital, or that it was not created in good faith, and for the purpose of promoting the general interest of the stockholders. The complainants themselves make an exhibit among their proofs, by which it appears that the affairs of the company were investigated by a committee of the legislature, and that, in their report dated Feb. 6th, 1850, they particularly mention this guaranty capital, and the causes which induced the directors to create it, and the terms upon which it was secured, to wit, the payment of six per cent, per annum, to those who furnished it. The report states : The committee have carefully examined the bonds and securities composing the guaranty capital, and find them to be absolute money bonds, with collaterals and while they have full confidence in the responsibility of many of the names attached to the bonds, they are not sufficiently acquainted with the value of the real estate and other securities found as collateral, to express, from personal knowledge, an opinion with regard to their value.”

But the committee furnish the certificate 6f the then mayor of the city of Trenton, certifying that he had examined these securities ; that they were good, and possessed an actual value of one hundred and fifty thousand dollars. After the use of this capital for two years or more, and its having been brought to the knowledge of the legislature, who had instituted an inquiry by committee, for the very-object of ascertaining whether this company was conducting its business according to law, and the terms of its charter, and no disapprobation expressed by them with the creation or use of this capital, I should be going too far to determine upon the facts and issue before me, that this guaranty capital was illegal, and that the individuals furnishing it had incurred no pecuniary liability. There are too many policyholders having a deep interest in this question, for me to decide upon their rights in this collateral and unsatisfactory manner. And I do not think it proper that I should intimate an opinion which may in any way impair the rights of a large portion of the community which this question affects. It is not necessary that I should do so, in order to decide the question now at issue.

It appears that a large amount of money has been paid for interest on this capital. But it is not charged that it was corruptly paid, or that any director, officer or agent of the company, directly or indirectly, participated in any benefit derived from it. If any error has been committed in .reference to the creation and use of this capital, it is not pretended by the bill that it was anything more than an error of judgment.

The bill then refers to the report of the committee of the legislature in 1850, and to an advertisement made by the company in the State Gazette, on the 27th of January, 1851. But it appears by this report that at that time the company was solvent, and in the advertisement referred to, the assets of the company are stated at upwards of two hundred thousand dollars. The very object of this advertisement was to show the solvency and safety of the company as an insurance company. There is no allegation by the complainants that these statements made by and on behalf of the company, were not strictly true; and how they go to show the insolvency of the company then, or now, or what bearing they have on that question, was not stated in the argument, and I have been unable to conceive. If the bill had proceeded to allege that those statements were false and made to impose on the public, and did not represent the true condition of the company at the time, or that since they were made, the large amount of funds then on hand had been abstracted improperly, and squandered, there would have been some virtue in setting out these matters.

I have now referred to all the facts of the bill except one, and that is the declarations made by the president at a meeting of the policy-holders, in reference to the condition of the company.

As these declarations appear to me to be the only real foundation for this proceeding, and probably the cause of this suit being instituted, I will quote the language of the bill respecting them: “ That it appears by the statement of the president of the company, made at a public meeting of the members of the said company, and in the presence of several of the directors of the said company, that up to the spring of the year 1851 the company was in a prosperous condition; that they had a surplus over everything; that a series of losses followed; that the news arrived of a loss of twenty thousand dollars; it was astounding — it was regarded as a death blow. The question then was, can we go on ? could we take the money of any man, when we thought there were doubts about being able to pay his loss ? As honest men we could not do so; and.we resolved to take no more risks; we issued circulars to our agents to issue no more policies.”

It is evident that in these declarations there is nothing to show the company insolvent. They .had met with a heavy loss of twenty thousand dollars. There was no doubt expressed as to the ability of the company to meet the loss already incurred. The determination to take no more risks was because the funds of the company were so far exhausted as to render the insurance of the persons insured insecure. Further losses might make the company insolvent. But the company had met all the losses already sustained, and the fact that their resources were such, that if any further losses occurred the company would not be able to meet them, induced the directors to determine wisely, that they ought not, and would not take any more risks.

But the bill alleges further, “that the said president, at the said public meeting of the members of the said company, ádvised gentlemen to get insured elsewhere than in the said company, and to get their policies canceled. And upon being inquired of whether he considered the policies in said company good, he replied no; and being asked whether the whole amount of premium notes would pay the losses, the said president answered no. He further said that the losses were forty-five thousand dollars, and the premium notes twenty thousand dollars, and that these losses all occurred in the last six months.”

It is not pretended, and cannot be with any plausibility, that the test of the insolvency of this company is, whether they have funds or resources enough to meet all the risks they have taken, or indeed any considerable portion of them. The question is, have they paid, or are they able to pay, all legal demands made upon them for losses that have actually been sustained ? There is no capital provided by the charter to which the insured is to look for a remuneration ia the event of a loss, except that which is furnished by the insured themselves as a premium for their policies. The first insured had nothing to look to but the premium he had himself paid; and the very principles upon which the company is established, exclude the idea of a capital sufficient to pay the whole amount for which insurances had been effected, if every risk should prove a loss.

It appears from the evidence furnished by the complainants, as to these allegations of the bill respecting the statements made by the president, that they were made at a public meeting of the policy-holders; that the president then and there invited inquiry; that he answered fully and frankly all questions propounded. The bill does not allege that his statements were incorrect, disingenuous or unsatisfactory. It does not pretend that he said the company was insolvent, or that they had not funds amply sufficient to meet all their losses. I am unable to discover that he stated any fact which goes to show the company insolvent. His statement that the losses were forty-five thousand dollars and the premium notes twenty thousand dollars, only shows that the premium notes are not sufficient to pay the losses. That may well be, and yet the company have funds enough besides the premium notes to pay double the amount. If such were the fact, or there were any plausible grounds for suspicion that the only fund or resources to meet the losses, were the premium notes, why did not the bill so charge ?

It appears, from other parts of the bill, that the company, from time to time, had large sums of money invested, and there is no charge nor intimation that they have not now resources enough to meet their losses, independent of the premium notes. There is another fund provided by the charter, and to which no allusion is made in the bill, and that is the “ one per cent, on the principal sum mentioned in each policy.” It was urged in argument that this fund amounted to nothing, for two reasons. First. Because of the expense of collecting it; and, Second. Because a large number of the policies were effected upon misrepresentation, and payment cannot be enforced on that account.

As to the objection of the non-availability of the capital, it may be answered that this mode of furnishing funds being provided by the wisdom of the legislature in the charter itself, it would hardly answer for this court to declare in advance its inadequacy from the mode of its existence. And as to its being void for fraud, there is not the slightest foundation for the charge from anything alleged in the bill.

The president, in the affidavit which he puts in on behalf of the defendants, after some explanations of the real situation of the company, says the amount of the premium notes and one per cent, on the amount insured, and for which the insured are liable under their charter, makes an amount much more than sufficient to pay and satisfy all the just liabilities of the said company.” If that is true, this court is not authorized to grant an injunction or appoint a receiver, and there is nothing in the bill, or in the evidence taken, to contradict this statement. There is not a charge of corruption or fraud against these directors, nor one from which fraud should be inferred. This company may be insolvent, and the directors may have acted with all the indiscretion and fraud with which they were charged in the argument, but I must decide this case as it is made by the pleadings, and I cannot give weight to allegations of counsel, or to statements under oath, of matters which have no correspondence with the charges contained in the bill.

It was said, in argument, that this affidavit of the president should be governed by the same rules as an answer, and that the allegations in the bill, not responded to by the affidavit, should be taken as true. Admitting this as so, the affidavit does respond to every fact in the bill which bears’ upon the question in issue, to wit, the insolvency of the company ; and if that affidavit is true, this company is not insolvent.

Among other things, it was insisted in argument that the refusal of the company to produce their books, upon notice, before the master, and the refusal of the president and officers to be sworn when called on as witnesses, should be considered by the court as strong evidences of insolvency.

Without intimating any opinion as to the correctness of the advice of counsel, by which the company and its officers were governed in these respects, I will only say that, in a case of doubt, these matters might be urged with force. But giving to them all the consideration to which they are entitled, without other facts to warrant it, they are insufficient, in my judgment, to authorize the interference of the court.

In conclusion, I would remark that if one-half of the charges made in argument against the managers of this company, and as to its condition, were before me in a proper shape, I would not hesitate to take its management out of the hands of the directors.

If the directors have been guilty of the fraud and corruption, and the concerns of this company are in the hopeless condition represented by counsel, why was not such a case made by the bill ? If this guaranty capital is all fictitious, and was concocted for private speculation — if certain officers and directors of the company have been receiving interest on worthless bonds and mortgages — -if unnecessary and exhorbitant sums have been paid for salaries of officers, and for agencies, and in other ways squandered —if insurances, in and out of this state, to the amount of several millions, have been effected upon gross false misrepresentations — if the funds of the company have been illegally abstracted, and the guaranty capital and premium notes spirited away, why has not such a case been made and presented to this court by the complainants in their pleading ? If such a state of things exists, it is nó fault of the law, or of this court, that the remedy is not applied. But I cannot act upon my own suspicions, nor upon public rumor or public excitement. It would be unwise, and in violation of individual rights, for me to do so; and should it turn out that such suspicions and rumors and excitement were not well founded, I should have inflicted an injury which I could not repair.

There is one important consideration which would prevent me from interfering with this company by the appointment of receivers, except in a very plain case, and one of pressing necessity.

It is manifest that the policy-holders who have sustained losses must look for their remuneration to the assessment provided for by the charter — the premium notes — and the one per cent, on the policies of the insured. This must necessarily, from the extensive business transacted by the company, produce a large fund. From the nature of the contracts with the policy-holders, can this assessment be made by any one except by the directors ? Could it be legally made by receivers appointed by the court? At best, these are doubtful questions; and the action of the court, asked by this bill, may work the total destruction of this whole fund.

These directors are the trustees appointed by the stockholders and policy-holders to protect their interests. Upon the application of a single policy-holder, charging no breach of trust, or any unfaithfulness on the part of their directors, I could not justify myself in putting in jeopardy the fund to which the insured look for a remuneration of the losses they have already, or may hereafter, sustain.

I have examined this case with care, and commenced the investigation with feelings strongly predisposed to grant the prayer of the bill. It is my conviction, not only that it is not a doubtful case, but that there is not the slightest ground afforded to justify me in declaring this company insolvent, and subjecting it to the provisions of the act to prevent frauds by incorporated companies.

Nothing that I have said can be construed into an approval by this court, as to the manner in which the affairs of this company have been conducted.

My opinion is founded, and my conclusion reached, upon the case made by the pleadings, and the proofs corresponding therewith.

The injunction is denied.