author: Pitney, Y. C.

text:
    James B. Duke v. Lilian N. Duke and Frank T. Huntoon.
    [Decided May 3d, 1906.]
    1. On a husband’s petition for divorce, evidence held to establish adultery on the part of the wife with the party charged as co-respondent.
    2. In such case, where the party charged as co-respondent intervenes as provided under the Divorce act (Rev. 1902; P. L. 1902 p. 506 § 11/), he is liable to the husband for the payment of his costs and counsel fees incurred in prosecuting the suit.
    On petition for divorce on the ground of adultery charged with Frank T. Huntoon, who appeared under the statute and was made a defendant. Final hearing on petition, answer and proofs.
    For previous proceedings in this case, see Duke v. Duke, 70 N. J. Eq. (4 Robb.) 135, 149.

    This cause was heard on the 23d, 26th and 27th of April, and on the 2d and 3d of May, 1906, and a judgment at once pronounced in favor of the petitioner and against the defendant, and on the 4th of May a decree was advised accordingly.

      Mr. Richard V. Lindabury, Mr. Alvah A. Clark, and Mr. Junius Parker and Mr. TP. TP. Fuller (both of the New York bar), for the petitioner.

      Mr. Samuel Kalisch and Mr. Chauncey G. Parker, for the defendant Lilian Duke.

      Mr. Alan H. Strong, for Mr. Huntoon.
   Pitney, Y. C.

An appeal having been taken, I am asked to give my reasons for that decree for use on the hearing of the appeal.

To this end I will give a short history of the cause itself.

The petition was verified by the petitioner on the 31st day of August, 1905, and was filed on the 2d day of September, and a copy served on that day on the defendant at her residence in the city of New York.

Shortly afterward she moved to have the service set aside on the ground that the court could acquire no jurisdiction of her by extraterritorial service, because her husband was not a resident of the State of New Jersey.

That motion was disposed of against the petitioner, and on the 2d of November, 1905, she filed a plea to the jurisdiction, which plea, after hearing, was overruled on December 22d, as reported in 70 N. J. Eq. (4 Robb.) 135. A motion to stay the proceedings pending an appeal from that order was also overruled, as reported in 70 N. J. Eq. (4 Robb.) 149, and that action by this court was sustained by the court of errors and appeals.

On the 19th day of January, 1906, an answer was filed by Mrs. Duke, denying the adultery charged in the petition, and combining therewith a cross-petition against the petitioner charging him with adultery with certain persons named.

This cross-petition was answered by Mr. Duke on the 26th of J anuary.

In the meantime Mr.- Huntoon, the co-respondent named in the original petition, applied on the 26th day of October, 1905, and obtained an order to intervene as defendant, under the fourteenth section of the act concerning divorces. P. L. 1902 p. 502 (at p.506).

In March, 1906, application was made by Mrs. Duke, by petition, for an order against her husband for a counsel fee, and to her petition in that behalf the husband filed an elaborate verified answer, which was afterwards, at the final hearing, put in evidence against him by his wife and the co-respondent.

The cause was set down for hearing on the 23d, 26th and 27th of April, and the 2d, 3d and 4th of May, giving the defendants ample time to prepare their defense after the complainant’s case was made.

On the 23d of April all the parties appeared with their counsel, and the taking of testimony was proceeded with all that day, and was then adjourned over to the 26th.

At the opening of the court on that day neither of the parties defendant appeared in person. No reason was ever offered why Mr. Huntoon did not appear, nor was any postponement asked by reason of his absence. Counsel for Mrs. Duke stated, and offered to prove, that she was confined to her house by illness, and asked for a postponement on that account. In my discretion I declined to postpone, and directed the taking of testimony to proceed on the part of- the petitioner, 'but did not compel the defendant to cross-examine in the absence of the defendants until they should have an opportunity to confer with her, or it should appear that she was able to appear in court.

By consent of all the counsel I instructed a competent physician to visit Mrs. Dulce, ascertain her physical condition, and report it to the court. This was done, and the physician next morning, April 27th, reported, under oath, that he found her somewhat indisposed, but had no doubt that she was entirely able to attend court on that day. Neither she nor Mr. Huntoon, so far as I could observe, appeared further in person, and neither was offered as a witness.

The taking of testimony proceeded on the days named until the afternoon of May 3d, when, as before stated, I at once pronounced in favor of a decree for the petitioner, and advised a decree against the defendant Huntoon for costs and counsel fees.

This latter was done in accordance with a practice which I understood to have the sanction of the chancellor, and seems to me according to reason, and I believe is according to the English practice. The defence was conducted jointly and in concert by both of the defendants, so that in proving a case against the female defendant the petitioner also proved it against the corespondent. There was no allegation of a marital offence committed with any other person. The cross-petition was abandoned.

The defendant Huntoon claimed at the hearing the benefit of the position of a full defendant, and on his objection certain depositions taken in North Carolina were, after full argument, excluded because he did not have notice of their taking. The order for costs against him carefully excluded the costs of the hearing on the plea to the jurisdiction.

Coming now to the merits of the case, the following historical facts appear:

[Here follows an examination of the evidence, concluding with a finding of the defendants guiltj^, omitted by the consent of the vice-chancellor.]

[The remainder of the opinion is a transcript of the stenographer’s notes.]

One other matter which was disposed of by me at the beginning of the defendant’s case may be mentioned here. I have stated that the defendant Huntoon applied for leave to intervene in October, and prior to the filing of the plea to the jurisdiction of the court. Mr. Huntoon had no notice of the trial of that issue, and before any production of evidence on the part of the defence on the final hearing on the merits, his counsel, Mr. Strong, moved the court, on behalf of Mr. Huntoon, to dismiss the petition on the ground “that the court has no jurisdiction to entertain it,” because the complainant had offered no proof of the residence of either of the parties in the State of New Jersey, and there was no proof and the case did not show service of process within this state. And he argued that Huntoon had the right to set up in his defence that the court had no jurisdiction of Mrs. Duke, and that he (Huntoon) was not bound by the finding of this court upon the issue raised by the plea of want of jurisdiction.

Now, previous to the recent revised Divorce act a party charged as a particaps criminis in a suit for divorce based on adultery had no means of defending himself or herself against the charge of adultery, and a perfectly innocent man or woman might be wrongfully subjected to a quasi conviction of that offence without any opportunity to be heard. In fact, by perjured evidence, offered in an undefended case, such conviction might be, and probably was, often pronounced. The suit for divorce might have been collusive, and the procuration of the divorce might in reality have been by consent. Now, this state of things was liable to work, and in many instances did work, an injustice against innocent persons. Now, the object of the statute was manifestly and notoriously to remedy that wrong. Hence the new section introduced into the statute, as follows:

“In actions for divorce, because of adultery, it shall be lawful for the chancellor, in his discretion, at any time before final decree, to allow any person charged in the pleading with committing adultery with either of the parties in the suit to intervene for the purpose of defending himself or herself against the charge so made.”

Now, here it is quite manifest that the purpose for which the defendant may intervene is limited to the defense against the charge. It seems to me quite clear that the intervenor has no right to challenge the jurisdiction of the court over the person of the real defendant. Besides, by intervening generally, as the defendant did in this case, without any protest as to the jurisdiction, he appeared generally and submitted himself to the jurisdiction of the court. And that intervention was made before the plea of the jurisdiction was interposed. Although he did not have notice of the trial of that plea, he is presumed to have kept a general watch on the progress of the cause, and if he had any desire or intention to question the jurisdiction of the court he might have added to his extremely short pleading a pica of that kind. I was unable, after hearing the very ingenious argument of Mr. Strong, to see the least merit in it, and subsequent reflection has not changed my view.

Mr. Lindabiiry—Now, if your honor please, we ask for judgment for costs against the co-respondent Huntoon.

The Court—I have already had occasion to examine that question, and by the advice of the chancellor, after submitting the matter to him, I gave judgment in a case similar to this for costs and counsel fee against the co-respondent, hence you are entitled to that judgment. It will not include, however, the cost of the proceedings to test the jurisdiction of this court. You will have costs against the co-respondent from the time he intervened, but not the costs of that issue of jurisdiction.

Mr. Lindabury—No, your honor; preparation of this case, trial of this case, which he did make by voluntarily coming into it.

The Court—In the case in mind a man came in afterward, and I gave the whole costs against him.

Mr. Strong—Does your honor care to hear from Mr. ITuntoon’s counsel.

The Court—I only tell you what I did after consultation with the chancellor. I will give you the name of that case now if you wish it.

Mr. Lindabury—I can see no reason why Mr. Huntoon should not pay all the costs made in the preparation of and trial of this issue. As one of my associates says, it is a saying in the South that “two dance in company, but one must pay the fiddler alone,” and it would seem highly proper that Mr. Huntoon should occupy that situation. He is a man of very large income, great wealth, I am told, and he has put us-

The Court—That don’t make any difference.

Mr. Lindabury—No, but he has helped to put us to great expense. We have been required, as your honor will remember, to pay the defendant, his co-partner in this defence and the-circumstances that led to it, $3,000.

The Court—I don’t consider anything of that kind. I don’t take that into consideration here, except as measuring the importance of the cause.

Mr. Lindabury—You are making an allowance to the petitioner in this case on account of the costs and on account of the counsel fees which he has incurred, and it strikes me that it is a matter that may be taken into account that the petitioner has been compelled to disburse that sum as one of the items of the prosecution of the cause, and one for which the defendant Huntoon is responsible. I ask that your honor allow us judgment against Huntoon for the taxable costs of the cause and for a counsel fee commensurate with the importance of the case.

The Court—Will you please mention the amount of counsel fee you think you ought to have ?

Mr. Strong—Your honor understands me, of course, as insisting that no order should be made against Mr. Huntoon.

Mr. Lindabury—We think the allowance of counsel fee should not be less than $5,000.

Mr. Strong—It seems to me that the figure suggested is absurd, in the first place; but I started to say before, there is no authority in the court, by statute or otherwise, that I know of, to make any order whatever for the expenses of the suit, counsel fees or otherwise, against Mr. Huntoon, if it were a matter of discretion, nor has Mr. Huntoon in any way enhanced the costs of this suit. I desire to direct your honor’s attention to that point. He has not appeared here and offered independently testimony such as to increase the burden of the petitioner’s case. The proof which the petitioner has made in this case he was obliged to make if Mr. Huntoon had not appeared, and under such circumstances, where the appearance of the co-respondent has not aggravated the expense to the complainant, there seems to be no reason for the exercise of a discretion, if the court had a discretion, to impose upon the co-respondent any of the expenses which he would otherwise have incurred, would otherwise have incurred necessarily.

The Court—I think that when a man makes himself a defendant, under the statute he becomes liable for the petitioner’s costs, and also for counsel fees. I think I will take into consideration the fact that the defendants did not go very far with their defence, Mr. Lindabury, not far enough to trouble you much.

Mr. Lindabury—They made us believe they were going to, and we prepared to meet it.

Mr. Strong—Gave you an awful scare, didn’t we ?

The Court—Well, I don’t see how I can give less than I did to the other side earlier in the proceedings, but I think that is enough, Mr. Lindabury, $3,000. I will advise a counsel fee of $3,000, and the costs of the issue. If you waive the costs of the issue on the jurisdiction, if you omit it entirely, the whole thing will go against both defendants, but if you put those costs in, they can only go against the female defendant. However, you can frame your decree to suit yourself on that hereafter.

Mr. Lindabury—I ask that the costs of supplying copies of the testimony to both parties in the cause be included in the taxed costs.

Tbe Court—The rule, as I recollect about that, is this: You see, the stenographer looks out for his pay from the parties who employ him, except as to one copy for the court, and you are entitled to recover one copy, supplied to your side, costs of one copy, and if you pay the whole of the court’s copy, why, then you are entitled to recover for two copies, and the bill may be made out to you, Mr. Lindabury, just made out to Lindabury, Depue & Faulks, cost of one copy for counsel and cost of another copy for the court. Then all I do is to write across it “tax it in.”

Mr. Lindabury—We have gotten three copies, and one has been furnished to the other side.

The Court—They must pay that. I have nothing to do with that. The stenographer looks to them for that, and looks to you for what he has furnished to you, but the court is entitled to one copjr, and the rule is that each party must pay one-half of the copy furnished to the court, but if that one-half each in point of fact is not paid, and the successful party chooses to pay the whole of the court’s copy, he may include that in his costs. You are not obliged to pay but one-half of that, and the stenographer may call on the counsel for the defendant to pay the half, but I suppose they would prefer that it be taxed in the petitioner’s costs, but you are not obliged to do that. If you choose to do that, Mr. Lindabury, you can have both copies taxed in the costs of the complainant, but you are not obliged to do it. You are obliged to pay one-half, and you are entitled to have that one-half put in the bill of costs. If you think you cannot recover it, you don’t want to take that plan. Perhaps you better take the half and let the counsel for the defendant pay their half.


source: Caselaw Access Project

author: Pitney, Advisory Master.

license: Public Domain

text:
    William R. Wilson v. George Seeber and Phillip Schauble et al.
    [Decided May 15th, 1907.]
    1. In a proceeding by an attorney to obtain part of the proceeds of a compromise of a suit as compensation under a contract of retainer, evidence examined, and held to show that the contract was made.
    2. Where an attorney contracted with his client that, as compensation for conducting the suit, he should receive one-third of the proceeds of the action, the contract gave him an equitable lien upon the proceeds when they took form.
    On order to show canse. Heard on bill and affidavits, and answer and affidavits.

      Mr. Alan H. Strong, for the complainant.
    ilir. Edward M. Colie, for the defendants.
   Pitney, Advisory Master.

This is a contest over a part of a sum of money, which, at the time of the filing of the bill, December, 1906, was in the shape of a promissory note or notes given by the defendant Seeber to the defendant Schauble, and which notes were, I believe, in the hands of the defendant David.

At the filing of the bill an order to show cause, with interim■ restraint, was made thereon returnable in January, 1907. Later, on the 15th of Januar3r, by consent of all parties, the notes in question were paid under order of the court, and enough of the proceeds to cover complainants claim were committed to the custody of the defendant David, to be held by him as trustee in an account in bank in his name as such trustee, and subject to the order of the court. That fund, now in immediate control and custody of the court, was the proceeds of a compromise of a suit brought by bill in this court on September 1st, 1906, by Sehauble against the defendant Seeber, in which the complainant herein, Mr. Wilson, a solicitor of this court, was solicitor. This suit, he contends, was brought by him in pursuance of a preliminary contract made between himself and the defendant Sehauble, by which Wilson was to have one-third of the proceeds of the suit, and the fund in court aforesaid is admitted to be a part of the proceeds of a settlement of that suit.

Two questions are involved, both of which must be resolved in the complainant’s favor in order to give him the relief now sought.

First. Was the contract made as alleged ?

Second. Did it give him, Wilson, such an interest in the proceeds of the suit as to enable him to maintain this equitable action ?

The first question is one of fact, and its solution depends upon the consideration of a variety of circumstances and a careful examination of several rather bulky affidavits. For present purposes, it will be sufficient if I shall find that it is probable that on the final hearing of the cause, and an opportunity on each side for cross-examination, the complainant will succeed in establishing the contract.

The complainant’s contention is, in brief, as follows: In October, 1904, Sehauble was the owner of one hundred and seventy-nine shares of the capital stock of the Rising Sun Brewing Company, and in that year transferred the same, for the sum of $130,000, to one Nugent, who really bought in the interest of the defendant Seeber, to whom the stock was subsequently transferred, and in whose name it has since stood.

Sehauble subsequently thought that he had been unfairly dealt with in the transaction. At and subsequent to that time, Judge Gilhooly, of Elizabeth, was his standing counsel in important matters, but Mr. A. J. David, a young lawyer in Elizabeth, was employed by him in unimportant matters. On divers occasions, and particularly in the early part of 1906, Sehauble consulted with Judge Gilhooly as to his right to undo the transaction and recover the shares of stock, and wished to employ him to bring a suit for that purpose. Judge Gilhooly expressed doubts as to the prospect of a recovery, and finally declined to be retained for that purpose, stating that he had been somewhat involved in transactions connected with or growing out of the transfer of the stock, and suggested to Schauble that he employ the complainant Wilson for that purpose. Shortly after, and in the summer of 1906, Schauble called upon Wilson and expressed a wish to employ him, but stated that, he had no money to invest in the suit, and desired that Wilson undertake it on shares. He gave Mr. Wilson the particulars of the case. That gentleman, learning from Mr. Gilhooly that he had no objections to his (Wilson) undertaking the suit, did undertake it, upon the agreement, as he swears, that he was to have one-third of the proceeds and to run all the risks of expenses and costs, provided that, after an examination of the circumstances, he thought it could be successfully carried through. He did make this examination, and commenced the preparation of his bill and affidavits, which I have seen, and they show a great deal of labor.

At the same time, before filing the bill, he asked Judge Gilhooly to draw a written agreement between him and Schauble as to compensation, which Gilhooly did, and which Wilson handed to Schauble, and which he said Mr. Schauble agreed to and promised to execute.

Before the agreement, however, was actually executed it came to the knowledge of Wilson that there was a scheme on foot by which the ownership of these shares of stock by Seeber might within a very short time be transferred to some other person, and he thereupon hurried matters, finished the preparation of Schauble’s affidavit, and came before me on September 1st, 1906, at Morristown, with Schauble, and upon presentation of the bill I advised an order to show cause, with interim restraint against the transfer of the stock by Seeber.

Naturally, and at once upon obtaining this order, the question arose where the money was to come from in case Seeber should immediately tender a retransfer of the stock and demand a return of the purchase price, and Schauble at once asked the assistance of Wilson in procuring money for him. Nothing was said in the written unsigned contract which made it the duty of "Wilson to raise any money. Mr. Wilson applied to Mr. Gilhooly and learned from him that Mr. Isham, an Elizabeth capitalist, would advance the money, provided he could have the stock for the sum of $155,000. Mr. Schanble, upon learning this from Wilson, agreed to it generally, or in part. Either Wilson or Gilhooly had prepared a contract to that effect to be signed by Schauble. That contract, however, was nominally with Judge Gilhooly, IshanTs name not being mentioned in it. Objection was made to this contract by Schauble because it did not provide for protecting him against a suit which had been brought by the brewing company to enforce a large claim against him, which was then pending, and he wished that the sum to be paid him by Judge Gilhooly for the one hundred and seventy-nine shares of stock should be over and above any amount that he, Schauble, should be obliged to pay as a result of the suit of the brewing company against him.

In this state of affairs Mr. Wilson and Mr. Schauble met by appointment early in the morning at Judge Gilhooly’s office, Schauble having both contracts in his possession—first, the one Judge Gilhooly had drawn between Wilson and Schauble, and second, the one between Schauble and Gilhooly for the sale by Schauble to Judge Gilhooty, acting for Mr. Isham, of the shares of stock, if recovered.

Mr. Schauble then informed Judge Gilhooly that he was entirely satisfied with the contract with Mr. Wilson for his compensation, but he wished the contract for the advancement of the money and the sale of the stock to Gilhooly to be amended in the respect previously mentioned. Mr. Gilhooly thereupon drafted a new contract between himself and Schauble, which was supposed to, and did in fact, cover the objection. Upon this new draft being shown to Schauble he expressed no dissatisfaction with it, but said that before executing it he wished to submit it to Mr. David. This remark seems to have irritated Judge Gilhooly, and he declared that he would have neither of the papers executed in his office, and hastened the departure of Mr. Schauble. The result was that neither the contract with Mr. Wilson or that with Judge Gilhooly was ever executed.

On the return of the order to show cause, Mr. Wilson employed Mr. Marsh, of Plainfield, as assistant counsel, and the hearing went over by consent.

In the meantime Schauble seems to have become either suspicious of complainant’s sincerity in his devotions to Mr. Schauble’s interest in the suit, or his ability to properly conduct it, and, besides employing Mr. David, sought to employ Mr. Colie, of the Essex bar, and asked Mr. Wilson to go with him to Mr. Colie’s office as soon as the latter should return from Europe. A meeting took place at Mr. Colie’s office about September 13th, in which the subject of Mr. Wilson’s compensation was taken into consideration, Mr. Wilson insisting upon his contract in writing as already agreed upon, and that it should be signed. Mr. Oolie, after hearing all the parties, acting as counsel for Schauble, prepared another agreement, which distinctly recognized and provided that complainant should have one-third of the recovery and one-third of any compromise, but in a subsequent clause provided that Schauble might discharge Wilson at a certain stage of the cause by paying him a comparatively small sum of money. This contract Wilson declined to sign.

I have stated Mr. Wilson’s contention. It is thoroughly supported by his own affidavits, and as to the consent of Schauble to the terms of the contract, it is sustained by the affidavit of Judge Gilhooly. It is also sustained by the account of what occurred on the 13th day of September in the office of Mr. Colie. It is quite impossible to account for the provision for one-third compensation found in the contract prepared by Mr. Colie except upon the assumption that such proportion had been previously agreed upon.

The defendant Schauble, in opposition to the deposition of Judge Gilhooly and complainant, denies some of the allegations of the circumstances leading up to his employment of Mr. Wilson, and he denies that he ever agreed to give one-third, and he denies a part of what occurred in Judge Gilhooly’s office on the occasion when the judge swears that the second draft of the contract was prepared by him between himself and Mr. Sehauble. But I think that denial, when carefully examined and compared with the other affidavits, is not sufficient to overcome their probative force, and I think that the great probability is that at the final hearing the complainant will be able, by clear preponderance of proof, to show that the written draft of a proposed contract between himself and Schanble was clearly assented to by Mr. Schanble, and that the suit which was commenced by him was so commenced on the strength of that contract.

I am entirely satisfied that Schauble was aware that Wilson prepared the bill and affidavits, and appeared before the vice-chancellor and procured an order to show cause, and employed assistant counsel on the occasion of the return of that order, upon the honest supposition that the written agreement which had been prepared, but not executed, was agreed to by Schauble, and would be executed. If I am right in this conclusion from the affidavits and circumstances of the case, then upon plain principles the mere non-execution of the contract is of slight importance.

No answers were ever put in to complainant’s bill, and the result was that in the latter part of October that suit was settled bjr Schauble, behind complainant’s back, by paying or securing to Schauble the sum of $40,000, a portion of which, sufficient to pay the complainant, is, as before mentioned, now in the custody of Mr. David and under the control of the court.

The second question is whether that contract gives such an interest in the proceeds of that settlement as to enable the complainant to succeed in this suit.

The paper itself, prepared by Judge Gilhooly, purports to be dated on the day of August, 1906, and recites that Schauble had stated to Wilson the facts and circumstances attending the transfer of the stock, and that Schauble claims that the same was procured from him by fraud, and that he is now the owner of the stock, and that it is worth a larger sum than Seeber paid him, and that Schauble has asked Wilson to take proceedings to have the transfer set aside and the stock returned to him, and had proposed to Wilson that his compensation should be paid out of the sale of the stock when recovered, and not otherwise, and that Wilson should pay the court expenses, and that, in consideration of his services and assumption of costs, Schauble should pay Wilson a sum equal to the one-third part of the value of the stock over ancl above the amount for which it was sold to Seeber. Then comes the contract itself—that "Wilson should commence suit in chancery praying for the annullment of the sale and a recovery of the stock, and

“will devote his best endeavors and energies in the prosecution of the suit until its final determination, and agrees to accept as compensation for his services and for such disbursements as he may be required to make, the one-third part of the value of said stock over and above the amount or sum paid by Seeber to Schauble, or the amount or sum that may be required to be paid by Schauble for the redemption of said stock.”

This event has never happened, but then follows this further provision:

“And he further agrees that in case a compromise is made by his consent in writing or settlement otherwise effected, in like manner to accept in payment of his services and disbursements as aforesaid the one-third part of the amount paid upon such compromise or settlement whether the same be received by said Schauble or not.”

Then follows this covenant on the part of Schauble:

“And the said Philip Schauble on his part, on performance by said Wilson of the services and covenants above named, agrees to pay said Wilson the one-third pwrt of whatever money shall he paid or received by said Schauble or by any other person on his behalf in compromise or settlement of the aforesaid claim.”

There was a further agreement on his part that he would not settle or compromise, or sell or dispose of, his interest in the stock without the consent, in writing, of Wilson; and further,

“that if there is a decree that the stock shall be returned to Schauble that he would pay to Wilson one-third part of the value of the stock over and above the amount required to be paid by him for the redemption of the stock.”

Then follows a definition of what is meant by the “value of the stock.”

It is not necessary for present purposes to consider whether the agreement for one-third of the value of the stock, taken in connection with the clause providing against a settlement of the claim or a transfer of the stock without the consent of Wilson, gave Wilson an interest in the stock itself, for it seems to me that the sole question for present purposes is the true construction of the clause by which Schauble

“agrees to pay said Wilson the one-third part of whatever money shall be paid to or received by Schauble or by any other person on his behalf in compromise or settlement of the aforesaid claim.”

A great many authorities were cited by counsel on each side, showing commendable industry and research. I have gone through them all.

The general rule undoubtedly is that it must appear that the complainant has an interest, by the contract, in the very fund itself; either existing at the date of the contract or thereafter to come into existence.

In examining and considering the authorities, two matters must be borne in mind—first, that in England, and in many of the states of the union where the common-law doctrine of champerty still prevails, the question could not arise, and hence they are no authorities, and second, in examining the English cases, a rule arising out of their Bankrupt law, dealt with by-me in Board of Education v. Duparquet, 50 N. J. Eq. (5 Dick.) 234 (and see Ward v. Duncombe, L. R. App. Cas. 369 (at p. 383 et seq.), Lord Macnaughten, 1893), must be borne in mind, since it has no application here.

Moreover, it must be remembered that this is not, in its present shape, a suit in which a third party is interested, but between the sole parties to the contract themselves.

It may, for present purposes, be admitted that a mere promise to pay out of a particular fund when received by the promisor will not amount to an assignment of an interest in the fund. I noticed this rule in Lanigan v. Bradley & Currier Co., 50 N. J. Eq, (5 Dick.) (at p. 205, near the bottom). The cases referred to by the learned annotators of 2 Lead. Cas. Eq. 1644 were those where the fund sought to be charged was in nowise connected with, or the result of, the transaction out of which the debt arose which it was sought to charge upon it.

On the other hand, it seems clear that an order by a debtor in • favor of his creditor, addressed to a third party,'to pay that creditor out of a certain fund, either then existing or thereafter to exist, in the hands of that third party, gives an interest in that fund to the party in whose favor the order is drawn. And further, it may be said with safety that the rule is that the solution of the question will depend upon the proper construction of the language of the contract—whether that language be committed to writing or not—to be taken in'connection with all the facts and circumstances of the case. ,

So construed, it seems to me that the complainants case is free from serious doubt.

The first important element is that the fund in question is the immediate result of the litigation instituted by complainant, and is the very fund mentioned in the contract. In the next place, no other creditor, or assignee is claiming it, and the case is free from all complications arising out of conflicting 'claims between two creditors or two assignees of the same fund, such as we find in most of the adjudged cases. . ' •

And the lánguage is clear. Schauble agrées' to pay Wilson “one-third part of whatever money shall be paid to or received by Schauble” by way of compromise, &c. The language is not to pay a sum equal to one-third, but to pay the one-third part.

The question of the effect of several such writings making up a contract was discussed first by Lord Langdale, as master of the rolls, in Rodick v. Gandell, 12 Beav. 325, and, on appeal from his decision, by Lord Truro, lord-chancellor, as reported in Rodick v. Gandell, 1 De G. Macn. &. G. 763 (1851, 1852), where there is an exhaustive examination of the authorities.

Subsequently, in 1855, the subject came before Sir W. Pi Wood, vice-chancellor, afterwards Lord Hatherly, in Riccard v. Prichard, 1 K. & J. 277; 1 Jur. (N. S.) 750. The vice-chancellor there abstracts the rule laid down by Lord Truro, supra, thus (1 Jur., N. S.), “that where there is an agreement between debtor and creditor that the debt owing shall be paid out of a particular fund coming to the debtor that creates a valid equitable charge upon the fund and operates as an equitable assignment of the fund pro tanto.”

These English cases- are all based upon the decision of Lord Hardwicke, in Row v. Dawson, 1 Ves. Sr. 331 (1749). There Tonson and Conway loaned money to Gibson, who, by way of reimbursing those gentlemen, drew a draft on Swinburne, who was the deputy of Horace Walpole, a member of the cabinet in charge of the exchequer of England, with these words added: “Out of the money due to me from Horace Walpole out of the exchequer and what will be due at Michaelmas pay to Tonson and. Conway, value received.” Gibson became bankrupt and the question was whether the holders of this draft were first entitled to be paid the amount of the draft out of the moneys due to Gibson from the exchequer. Lord Hardwicke held that the draft was clearly distinguishable from an ordinary bill of exchange and worked an assignment of so much of the money due to Gibson in favor of Tonson and Conway and gave them a preference.

Lord Hatherly’s terse statement of the rule was approved by Mr. Justice Dixon in his opinion in Terney v. Wilson, 45 N. J. Law (16 Vr.) 282. The supreme court was there exercising its equitable jurisdiction in the matter of set-off to a judgment.

And the same doctrine was acted upon in Brown v. Dunn, 50 N. J. Law (21 Vr.) 111, also a case of the exercise of equitable jurisdiction by the court.

There is a case in New York of Williams v. Ingersoll, 89 N. Y. 508, which deals with the construction of instruments of this character, which seems to show that the law in the State of New York was, at one time, somewhat different. • The learned judge there states (at p. 518) that “whatever the law may be elsewhere it must be regarded as the settled law of this state that an agreement either by parol or in writing to pay a debt out of a designated fund does not give an equitable lien upon the fund or operate as an equitable assignment thereof,” but he proceeds in that very case (at p. 521) to state a rule of law which seems tome directly in conflict with that previously stated. He uses this language: “It is not important to inquire here whether the-agreement proved by the plaintiffs was an agreement to assign or an agreement for a lien upon any sum which might be recovered, for either agreement would have the same effect, as the plaintiffs’ claim is for the full amount of the award. The agreement was not alone that the plaintiffs should be paid out of any sum recovered. Such an agreement, as I have above shown, would not have been sufficient to give the plaintiffs any claim upon the award. But there was also proof tending to show that it was the intention to assign to the plaintiffs or to give them a lien upon any sum recovered and retain out of it their compensation, and to pay the balance, if any, to Heath; and for the purpose of- upholding the judgment we may assume that the trial judge found any facts which the evidence tended to establish. The form of words used in making the agreement is not alone to receive attention, but all the circumstances of the transaction are to be considered.”

This was accompanied by an elaborate examination of the authorities and resulted in an unanimous decision of the court in favor of the lien in that case.

The later New York cases seem to have abandoned the seeming doctrine of the older. Holmes v. Evans, 129 N. Y. 140, is an example, and also a still later ease of Harwood v. La Grange, 137 N. Y. 538, decided in 1893. The headnote of that is as follows:

“That when an attorney renders services in an action under an agreement that he shall receive his compensation out of the proceeds thereof he has an equitable lien upon or ownership as equitable assignee in such proceeds.”

And the court, in sustaining that principle, refer to Williams v. Ingersoll, supra; Fairbanks v. Sargent, 104 N. Y. 104; Boyle v. Boyle, 106 N. Y. 654, and Chester v. Jumel, 125 N. Y. 237.

Defendant relies upon the recent case of Weller & Lichtenstein v. Jersey City Street Railway Co., 68 N. J. Eq. (2 Robb.) 659. In that case the decision against the solicitors went on the grounds, in the first place, that the claim against the railway company was in its nature not capable of being assigned; and that there was in point of fact no actual product of the litigation, and no fund capable of assignment, and that the parties had a right to settle between themselves, which they had done. The suit was not, as here, by the solicitors against their client, but by the solicitors against tbe defendant, the railway company, in the suit which they had brought for their client. That circumstance and the nature of the action—tort for personal injuries—combine to distinguish it from the present case.

The same may be said of several other caseá cited by the defendant. Eor instance, Kusterer v. City of Beaver Dam, 14 N. W. Rep. 617. That was also an action for personal injuries against the city, where the plaintiff had entered into a contract with his attorneys to conduct the suit upon shares, and after issued was joined the city settled with Kusterer and took a release under seal, which they were allowed to plead puis darrein, and at the trial the court dismissed the action against the protest of the attorneys, and the latter appealed. It was held that it was impossible to grant the attorneys relief in the suit. The court made this remark: “Impressed with the equity of the claim on the part of the attorneys for the plaintiff, we have carefully reviewed many decisions with the view, if possible, of protecting them, at least to the extent of the taxable costs. But as the cause of action was not assignable, and hence remained, prior to judgment, under the absolute control of the plaintiff,” the court concluded it was unable to assist them.

Another case is Williams v. Miles, 68 Neb. 851; 89 N. W. Rep. 455. That was a bill to set aside the probate of a will which had been instituted by several parties claiming under a supposed later will and as heirs-at-law. The solicitors had undertaken it under a contract for a 'share of the estate. After a defeat of the plaintiffs in the court below, and also on appeal, three of the plaintiffs moved to dismiss the bill of complaint as against themselves on equitable terms. This was resisted by the solicitors and it was held that they could not resist it. The court remarked: “Had the action proceeded to judgment on which would attach a lien in favor of plaintiff’s attorneys, or were the controversy of such a character as to bring funds, money or property into -the possession of the court or custody of the law on which the plaintiff’s attornej^s could claim a lien, legal or equitable, for the value of the professional services,” &e., the court then asserted it had power to act, but went on to show that it would be impossible to compel the moving plaintiff to continué the action. The court did not determine as to whether the contract in that case, which seemed to be similar to that in this case, created a lien or not.

Another case cited is Cameron v. Boeger, 65 N. E. Rep. 690 (1902). The contract in that case was much like the present, and there was an attempt by the solicitor to open a decree of dismissal of the suit which had been entered by consent of the plaintiff in the suit behind the solicitor’s back, and the court held it could not be done. The learned judge, however, proceeded to go into the merits and expressed the opinion that, according to the decisions in Illinois, the solicitor’s contract gave him no lien on the fund.

One other western case cited by complainant is worthy of notice, viz., Canty v. Latterner, 31 Minn. 239; 17 N. W. Rep. 385. That, as here, was an action by an attorney against his client, and the subject of the suit was in court. There a contract had been made by the defendant with the attorneys that they should prosecute an action against a railroad company to recover the amount due from the latter to the former for damages to his land by reason of the railroad company occupying it, and receive for his services a certain sum if he won the cause and nothing if he failed to do so; and the contract contained this further clause:

“I hereby agree that he (the attorney) shall receive said money from the Minnesota and St. Louis railroad out of the amount duo me from said railroad company for running through my land, to be paid when suit is settled.”

It was held that that contract amounted to an equitable assignment of the portion of the chose in action referred to entitling the attorney to receive the same specifically, and the railroad company having paid the money into court, it was held that he had a lien on the fund in court to that extent.

A consideration of all the cases cited do not alter the view above expressed, that the intention of the parties hereto, namely, the complainant, Wilson, and Mr. Schauble, was to have one-third of the very proceeds of the action, and that the contract gave him an equitable lien upon those proceeds when they took form, and that this result is in accordance with equity and good conscience.

The defendant sets up against the whole of the complainant’s case a charge that the complainant was not, in all that he did, in reality working for Schauble’s interest, but that he was really working in the interest of Mr. Isham. Defendant asserts that Isham was under a contract to purchase this stock from Seeber at a date just after the 1st of September, which required a large amount of money on Isham’s part; that the money market at that time was very stringent, and that Isham wished this injunction to be granted in order that he might-be relieved of the necessity for carrying out his contract just at that time, and that the procuration of the injunction was in reality the scheme of Isham, devised and set on foot by him and his attorney, Judge Gilhooly, the real object of which was to relieve Isham.

He further asserts that it was a part of the scheme that advantage was to be taken* of Schauble’s necessity for money to extort from him a contract to sell the stock to Isham, and that Wilson, the complainant, was a party to the whole scheme. Without going into the details, it is enough for me to say that these assertions of defendant do not seem to me to be established by the affidavits in connection with the circumstances, to such a degree as to justify me in using them at this stage of the case in defeating complainant’s lien on this fund. The great difficulty in adopting that view is that, in its worst aspect, it still left or resulted in a great benefit to the defendant. It put a large sum of money in his pocket. He was put into possession of facts and circumstances which went to support his claim to the stock which he had been seeking for a considerable time to enforce, and which he was unable to find any lawyer to take up, and which facts and circumstances, when set forth in a bill and supported by affidavits, procured by Wilson’s industry, and possibly and probably with the help of Judge Gilhooly, the defendant, Seeber, was unable to meet, and finally was willing to pajr $40,000 in settlement.

It is further said that Wilson was all the while urging his client, Schauble, to accept Isham’s proposition to furnish the necessary redemption funds, and that he declared that he felt bound to furnish the money. I have already called attention to the fact that there was no such undertaking on his part found in the written contract. At the same time he was naturally anxious to have Mr. Schauble provided with means necessary for the recovery of the stock, and very likely urged him to sign the second contract prepared by Gilhooly by which he was to receive $25,000, beside a payment not exceeding $7,500, for the purpose of settling the suit of the brewing company against himself.

That situation sufficiently, for present purposes, explains certain clauses in some of the affidavits made by the complainant in the main cause of Schauble v. Seeber, in opposition to a motion to dismiss that cause, which he resisted.

Upon the whole case I come to the conclusion that the restraint should be continued until the final hearing.


text:
    William J. Longley v. William M. Sperry and Edward Grau.
    [Decided May 15th, 1907.]
    1. Plaintiff and B. purchased a livery stable in common, executing a chattel mortgage to the seller to secure their several notes for a part of the price, each being an endorser for the other. Plaintiff paid off his note, but while the other was outstanding B. applied to S. for a loan, and on being asked if he was the individual owner of the property replied that he was, “as the interest of another party therein had been paid off,” without mentioning the name of the person otherwise interested, and also stated that there was a chattel mortgage on the property held by the original vendor to secure $500 which was subsequently paid with a part of the money borrowed from S.—Held sufficient to charge S. with notice of plaintiff’s interest in the property.
    2. Plaintiff and B. having purchased a livery business, mortgaged the property to secure their several notes given for part of the price, on which each was endorser for the other. Plaintiff paid his note, and thereafter B., having wrongfully obtained possession of the mortgage, borrowed more money'from S., giving a chattel mortgage on the property with which he paid his note to a bank which had discounted it, and also executing an assignment of the vendor’s original mortgage to S. B. then applied to plaintiff, offering to purchase his interest, producing to him the original chattel mortgage with the seals torn off, and the note stamped “paid” by the bank, whereupon plaintiff sold his interest to B., taking a chattel mortgage for a part of the price without knowledge of the assignment.—Held, that the assignment of the mortgage without the transfer of the unpaid note secured thereby conferred no rights on the assignee as against plaintiff.
    3. The fact that the note and mortgage were, presented by B. to plaintiff, the one with the seal torn off, and the other marked “paid” two months before its maturity, was insufficient to put plaintiff on inquiry, or excite suspicion that the note and mortgage had been stolen.
    4. P. L. 1902 p. 1/89 § S, providing that chattel mortgages duly recorded shall be valid against creditors of mortgagors and against subsequent purchasers, and mortgagees from the time of recording until the mortgages are canceled of record, was ineffective to validate, as against a subsequent mortgagee in good faith, a prior mortgage which had been in fact paid but which was not canceled of record.
    5. P. L. 1902 p. 1/88 § 6, relating to chattel mortgages, provides that no chattel mortgage shall be recorded until its execution shall be first acknowledged or proved and certified in the manner required by the act respecting conveyances, which (P. L. 1898 p. '678 § 22) provides that the officer having first made known the contents of the instrument to the party making the acknowledgment and being satisfied that such party is the grantor, &e., shall make a certificate on, under or annexed to the deed or instrument.—Held, that where the certificate of acknowledgment to certain chattel mortgage assignments did not state that the contents of the assignments had been made known to the party acknowledging the execution thereof, the acknowledgments were fatally defective.
    6. The record of chattel mortgage assignments not properly acknowledged, and, therefore, not entitled to record, did not operate as constructive notice to a subsequent mortgagee.
    7. The rule that a chattel mortgage may be kept alive notwithstanding payment in order to secure another creditor of the mortgagor as against subsequent encumbrances or purchasers is inapplicable where the attempt to keep the mortgage alive has been made by only one of the mortgagors having only a third interest in the mortgaged chattels for the purpose of defrauding his co-owner.
    8. Where an assignee of a mortgage permitted the note which it was given to secure to come into the hands of the mortgagor with evidence on its face that it had been paid and did not secure possession of the mortgage itself, which the mortgagor thereafter used to induce the belief on the part of his partner and subsequent mortgagee that the note had been paid, such assignee was not entitled to claim that the mortgage should be kept alive to secure money which he loaned to take up the note secured by the mortgage.

      9. Where one of the members of a firm engaged in operating a livery stable mortgaged the entire assets of the firm to raise money which he converted to his own use, such mortgage was only effective to create a lien on the mortgaging partner’s interest in the firm after an accounting.
    10. Where a chattel mortgage was properly executed, acknowledged and recorded, it operated as notice to a subsequent mortgagee under the express provisions of P. L. 1898 p. 690 § 83.

    On final hearing on bill, answer and proofs:

      Mr. Berheley 0. Austin, for tbe complainant.

      Mr. William D. Wolfslciel} for the defendant Sperry.
   Pitney, Advisory Master.

The contest in this cause is over a sum of money in the hands of the court, which is the proceeds of the sale, by consent of the parties and the order of the court, of certain chattels constituting a livery stable plant known as the Golf Stables, situate at Cranford, New Jersey. '

The question involved is, Which of two innocent parties— Longley and Sperry—shall suffer by the manifest fraud of a third party ?

Both parties claim under chattel mortgages, and the question is one of priority, depending upon the effect of certain facts and circumstances in the cause. The facts are as follows:

In the last days of July, 1905, one James Z.. Smith was the owner in possession of the chattels in question, and all parties claim through him.

On the 29th day of July, 1905, he conveyed the stable and contents and the lease of the realty to the complainant, Longley, and to one William E. Brock (who is the fraud-doer in the case), jointly, for the sum of $3,000. Of this sum, $2,000 was paid in cash, $1,500 being paid by Longley and $500 by Brock, and for the balance of $1,000 they delivered to Smith their several promissory notes for $500 each, one made by Longley, endorsed by Brock, payable six months after date, and one made by Brock, endorsed by Longley, payable twelve months after date.

Mr. Austin, a lawyer practicing at Cranford, seems to have attended to this matter professionally, and he swears that he promptly lodged the mortgage for record, and it so appears, and that it was duly returned to him from the office of the register, and that he mailed it immediately to Mr. Smith at Cranford. Mr. Smith swears that immediately after the sale, and while Brock was in possession managing the business for himself and Longley, his, Smith’s mail, continued to be delivered at the stable. The fair inference from all the evidence, and this is Mr. Smith’s theory, is that this mortgage was delivered from the post-office to the livery stable and there taken and kept by Brock. It is certain that it never came to the hands of Mr. Smith, and was next seen in the hands of Brock under circumstances presently to be stated.

Mr. Longley left the management of the business at the livery stable mainly, if not entirety, to Brock, but the bill and letterheads of the concern were printed and the bills made out in the name of William E. Brock & Company.

Mr. Longley paid his note at maturity, which made him the ■owner of two-thirds interest in the plant.

Mr. Smith procured the note of Brock, with Smith’s endorsement in addition to that of Longley, to be discounted at the Cranford bank.

Some time shortly before the 1st of June, 1906 (two months before maturity of Brock’s note), Brock applied to the defendant Sperry (who was engaged in business in New York City, but seems to have lived and been acquainted in Cranford) for a loan of $2,250 to be secured by a chattel mortgage on the stable. Sperry seems from his carefully prepared ex parte affidavit (received in evidence by consent without cross-examination) to have been satisfied to loan that amount, and for the purpose of carrying the affair through employed his regular New York attorney, Mr. John Hall Jones, with an office at No. 320 .Broadway. Sperry learned from Brock that Smith held a chattel mortgage on the premises to secure $500 and instructed Jones to procure an assignment of that mortgage. Jones thereupon communicated by telephone with Smith and arranged with him for a meeting on June 4th at Jones’ office. On that day Sperry, Smith and Brock met in Jones’ office, and it then appeared and was stated that the original mortgage could not be produced, and that the $500 note of Brock was held by the Cranford bank. Sperry thereupon drew his cheek for $525.33—the amount of the note with interest—-to the order of the bank, and another check for $1,724.67 (the balance of the $2,250 to be loaned) to the order of Brock and delivered the same to a Mr. Nolan, apparently an attorney, but who was called in the case assistant to Mr. Jones, and whom I will call his clerk, with instructions that the same were to be delivered upon receiving from Mr. Smith an assignment of his mortgage and upon the execution by Brock of a chattel mortgage to Sperry. Mr. Jones caused to be prepared and executed by Smith an assignment of Smith’s mortgage in which it is erroneously described as a mortgage dated August 1st, 1905, and made by Brock alone without stating the name of the mortgagee, and that assignment was executed on the same 4th day of June before Jones as a notary, and recorded that same afternoon.

On the same afternoon—according to Sperry’s theory of the facts—Nolan, Brock and Smith proceeded to the bank at Cranford, and there Nolan handed the $525.33 check to the proper officer of the bank, who produced Brock’s note, endorsed by Longley and Smith, accepted the check, stamped the note paid, and handed it to Brock, the maker, and thereupon Smith delivered his assignment to Nolan, who caused the same to be- recorded promptly.

The error in the description in Smith’s assignment being detected—just when does not directly appear—a new assignment was prepared in Jones’ office, executed, dated and recorded on the 5th day of June, wherein the mortgage was properly described, both as to date and the names of the mortgagors, Longley and Brock.

On the same 4th day of June Brock executed a chattel mortgage, prepared by Jones, to secure the whole sum of $2,250, to which is annexed an affidavit made by Brock, the mortgagor, and not by Sperry, the mortgagee, stating that the true consideration was a loan of $2,250, and that mortgage was acknowledged on the same day before Mr. Jones as a notary public, and was recorded on the samé day, and the check of Sperry for $1,724.67 was duly delivered to Mr. Brock and'paid on that day by the bank.

Mr. Jones, on being informed that 'the original note of Brock had been handed to Brock and kept by him, required and received from Brock a substituted note for $500 to the order of Sperry, and due on August 1st, 1906, with interest from August 1st, 1905. Jones also prepared and required Brock to sign a statement under date of June 6th, 1906, that he, Brock, had destroyed, the $500 note and also the chattel mortgage given to secure it.

The foregoing, facts are abstracted from the several affidavits of Sperry, Jones, Smith and Nolan, carefully prepared for use in contesting a motion by complainant for interim restraint against Sperry pending suit, and admitted in evidence by consent without cross-examination.

In this condition of affairs, on the 9th day of June, Brock proposed to Longley, who resided in Elizabeth, to purchase out his, Longley’s, interest in the stable, and in that connection produced and'showed to him the'chattel mortgage, given by the two to Smith, duly canceled by tearing off the- seals, and the promissory note made by Brock and endorsed by Longley duly stamped paid by the bank. The chattel mortgage did not bear any evidence of having been satisfied of record. ’ .

A week later, on the 16th day of June, Longley and Brock concluded the contract of purchase and sale.- Longley gave Brock k bill of salé and Brock gave Longley his note at one year for $2^328.04 and a chattel mortgage covering the stable and having annexed an affidavit by Longley describing the note and stating that the note was executed and delivered for property purchased; The note and mortgage were dated back to June 1st in order to render it more easy to settle the partnership accounts 'between hem.

Mr. Longley testified, and' is not contradictéd therein, that he had no notice of any facts or circumstances which could lead him to’suspect, and he did not in. fact'suspect, that the Smith mortgage and note were paid by anybody but Brock, or that the mortgage had been assigned to anybody by Smith, or that Brock had executed any other mortgage to any other person.

‘On the other hand, Mr. Spérry swears that he ’had no notice that Longley had any interest in the business or in the stable. But not only was he a customer oí the stable, whose bilhheads were printed William E. Brock & Company, but his affidavit before referred to contains a clause which is significant. It is as follows:

“Throughout this transaction deponent verily believed that said Brock was the individual owner of the chattels described in said mortgage, and that the same were free and clear from all encumbrances except the lien of $500 held by said Smith, and had no information to the contrary until after the 18th day of June, 1906, deponent having been informed by said Brock that a claim formerly held by said Longley had been paid off. Deponent acted in entire good faith throughout the entire transaction, desiring to help said Brock and making the loan, as an accommodation to him.”

Tbe witness bere undoubtedly refers to tbe circumstance that shortly after Longley sold to Brock the latter in turn sold to Grau and absconded with some' of tbe chattels conveyed. Sperry’s information from Brock as to the state of the title of the goods was obtained in connection with the negotiation for his loan to Brock. Moreover, the ex parte affidavit of Jones, the attorney of Sperry, states that on tbe 1st day of June Sperry brought Brock to him and gave him instructions to prepare the necessary papers for a loan upon the Golf Stables. The affidavit then proceeds:

“Deponent asked said Brock if he was the individual owner of the goods and chattels in said Golf Stables and whether there was any encumbrance upon them. Said Brock replied that he was the owner, thereof, as the interest of another party therein had been, paid off, without mentioning the name of such other party, and that' there was a chattel morfc gage upon said property held by James Z. Smith to secure the payment of $500.”

Then the affidavit proceeds to state the negotiations with Smith.

Here I find distinct notice to Sperry that Longley had previously had an interest in the property, and direct notice to his attorney employed by him to transact the business that some other party did have an interest, bnt that he had been paid oE.

On this point of previous notice to Sperry of Longley’s interest there is another little piece of evidence furnished by the exhibits on the part of Sperry which was not noticed by counsel in argument, and which is not consonant with the order of events which I have previously given. Two checks, as we have seen, were drawn by Sperry, both dated June 4th, 190.6, on the Cranford National Bank; one for $1,724.67 in favor of Brock, and one for $525.33 in favor of the bank. Now, the theory of Sperry’s counsel is that the check to the order of the bank was presented and accepted by the bank, and the promissory note for $500 delivered over to Brock on June 4th, and that the mistake in the description of the mortgage found in the first-assignment was not discovered until the next day, June 5th, when a new assignment was prepared. Now, the chattel mortgage from Brock to Sperry was filed for record on June 4th at twenty-nine minutes after three in the afternoon, and the first assignment from Smith to Sperry was lodged for record on the same day at twenty-eight minutes after three.

Now, the larger check to Brock’s order was stamped “paid” by the bank June 4th, 1906. Hence we may fairly infer from all the depositions that the check to Brock was not delivered to him until the chattel mortgage was lodged for record, so that he had time, after the recording of the mortgage, to get from Elizabeth to Cranford before the bank closed for business, and if Brock could get to the bank so could the clerk, Nolan. But the smaller check given to pay the note in the bank is stamped as having been paid on June 5th, a day later.

Now, the clerk, Nolan, fails in his affidavit to state or give the date or hour for any of these transactions. He simply says that he carried out his instructions from Mr. Jones as to the giving of the check to the bank in payment of Brock’s note, and neglected to get possession of the note itself.

Jones swears that on June 4th an appointment was made to close the transactions at the Cranford bank on the afternoon of that day, but he saj^s that on the 5th of June he sent Nolan over to the register’s office at Elizabeth to verify the description of the assignment in the mortgage, and Nolan found the description incorrect; that he, Jones, then prepared another assignment, and procured the execution of it by Smith and its record.

A careful examination of these carefully-prepared affidavits on the part of Sperry fail to state, except by inference, just when it was discovered that the description in the first assignment by Smith to Sperry of the Longley-Brock mortgage was erroneous. Now, if we ask why the smaller check given to the bank directly was not stamped “paid” at the same time that the larger check was so stamped, we find the answer in the circumstance that Nolan discovered the error when he went to the clerk’s office to lodge the papers for record, and embraced that opportunity to examine the record of the missing mortgage. And this he would naturally do, for he was aware, undoubtedly, of the non-production of the older mortgage by Smith when he attempted to assign it to Sperry. And then, having discovered this error, he declined to use the smaller check until a new assignment was prepared and executed. This being done on the morning of the 5th of June, that second assignment was executed and recorded, and the Brock note paid and stamped accordingly. It is well to note in this connection that the stamp used by the bank in marking notes and checks “paid” is changed every morning, and it seems quite impossible to account for the smaller check bearing the stamp of June 5th while the larger check bears the stamp of June 4th, on the supposition that they were both paid on the same day.

Here, then, is evidence tending to show that the clerk, Nolan, discovered that the mortgage which was the subject of the assignment was executed by Longley, and that it contained the clause describing the notes accurately, adding, “which notes were given for a part of the purchase price for said goods and chattels,” and the same expression occurs in the affidavit of Mr. Smith in that mortgage, and that this information was probably received by Nolan at the moment of the delivery of the chattel mortgage and the larger check to Brock. This was in ample time for him to have halted the transaction, either by withholding the check from Brock or stopping its payment at the bank.

For all these reasons I come to the conclusion that Sperry had notice of such facts and circumstances as clearly to put him on inquiry as to Longley’s interest in these chattels, and the case must be considered on that basis.

But Sperry, in his affidavit prepared for use on the motion for injunction, states that he first commenced foreclosure proceedings on the $500 mortgage, and shortly after also proceeded under the mortgage direct from Brock to him, and that shortly after that, ascertaining that the mortgage given by Brock was fatally defective, he had abandoned proceedings under that and had fallen back on his assignment of the smaller mortgage. But it is proper to say that in his answer he claims under both instruments.

We come now to the. situation of the complainant, Longley, and inquire whether he is chargeable with notice that the older mortgage had been assigned to anybody.

And in the first place, it was brought to him by his co-mortgagor, Brock, with the seals torn off and with the note which it was given to secure stamped “paid” by the bank. Now, it seems to me that such production of the mortgage and the note was the very best evidence that the whole had been actually paid and discharged.

The case might have been different if the note had not been produced stamped “paid” by the bank. In this respect the case is in marked contrast with the famous case of Harrison v. Johnson, 18 N. J. Eq. (3 C. E. Gr.) 420; S. C., on appeal, Harrison v. New Jersey Railroad and Transportation Co., 19 N. J. Eq. (4 C. E. Gr.) 488, where the mortgage was produced without the bond which it secured, or any proof of its payment, and under circumstances which the court thought put the party relying upon its cancellation upon inquiry. The rule is there stated with great clearness, and acted upon, that if the debt is paid the mortgage is gone as a lien.

In the case on appeal (at p. 500) Chief-Justice Beasley uses this language: “For it is clear, I think, that the'exhibition of the mortgage did not show that the debt secured by it was paid. On the contrary, it evinced that there was a bond outstanding which was the legitimate evidence of such indebtedness. The mortgage is the mere adjunct of the bond, which is the obligation manifesting .the debt, and which, wherever it may reside, draws its adjunct to it. It is common knowledge that when the bond is assigned it carries in equity the mortgage security with it, and the consequence is that the mortgage is often in one hand and the equitable right in the other.”

It follows in this case that the assignment of the mortgage, without the transfer of the note unpaid with it, amounted to nothing. Nor can I perceive that the fact that the note and mortgage were presented by Brock to Longley, the one with the seals torn off and the other marked “paid,” two months before their maturity ought to have put Longley on any inquiry or excitable suspicion that they had been stolen. My reason is that the exhibition of these papers was accompanied by a proposition to buy Longley out, and Longley may well have supposed that Brock had prepared himself to deal with him by first paying the note on which Longley was endorser. And here it may be well to mention that if anybody was in fault in permitting Brock to be in possession of the mortgage it was Smith, for, as we have seen, he knew that his mail was being handled by Brock, and jret it never occurred to him that Brock might have been tempted to get possession of the mortgage. And Sperry, taking title from Smith, not only was put on inquiry.as to the actual possession of the mortgage, but he took it, so to speak, subject to whatever negligence Smith had been guilty of up to the date of the assignment.

But, be all that as it may, there can be aro doubt that Sperry, through his attorney, is responsible for the note coarring to the hands of Brock, who was thereby enabled to practice the fraud.

But coirnsel for Sperry rely on the eighth section of the Chattel Mortgage act of 1902 (P. L. 1902 p. 487), which provides that chattel mortgages duly recorded shall be valid against the creditors of the mortgagors, and against subseqrrent purchaser» and mortgagees, frorrr the time of the recording thereof until the saaaae be canceled of record.

That section is a. repetition of section 9 of the Chattel Mortgage act of 1885 (Gen. Stat. p. 2114), and the object of its insertion ioa the origiaaal act, as is well Imown, was to change the old law, which provided that chattel mortgages must be filed and refiled, or in some way renewed, every year. Besides, it is quite impossible to suppose that the legislature meant to validate a mortgage that had been actually paid. And this view is strengthened when we observe that the language used is “creditors, subsequent purchasers and mortgagees,” omitting the words “in good faith,” which are found in section 4 of the revision and the corresponding section in the original statute. That this is the correct exposition of this section of the statute was held in Meding v. Roe, 53 N. J. Eq. (8 Dick.) 350 (at p. 358, near the bottom).

But the counsel for the defendant relies upon the fact that there was an assignment of the mortgage on record before Longley dealt with Brock on the strength of his possession of these securities, and that Longley is chargeable with notice of that assignment.

The complainant’s counsel makes two answers to this. In the first place, that the possession under the circumstances of those securities, especially the note, was a dispensation to Longley of any duty on his part to examine the records. He knew that his own note, secured by the mortgage, was paid. His co-mortgagor brings him the other note stamped “paid,” accompanied with the mortgage, and the question is, Why should he look further on the records? I am unable to understand on what principle he could be called upon to inquire any farther. And on this subject much of what was said by Justice Knapp, in Heyder v. Excelsior Building and Loan Association, 42 N. J. Eq. (15 Stew.) 403 (at p. 407), speaking for the court of errors and appeals, applies. The opinion of Advisory Master Williams in that case, and the opinion of Master Wilson in Harrison v. Johnson, supra, contain all the authorities up to that date.

The other answer made by counsel for Longley to the argument of the counsel for Sperry, based on the assignment, is this —that neither of those assignments as recorded were entitled to record because not acknowledged according to the laws of New Jersey, in that the certificates of acknowledgment do not contain the statement that the contents were made known to the party acknowledging the execution, and hence their record is not constructive notice. Their examination verifies that contention, and it remains to be determined what effect must be given to it. The chattel mortgage revision of 1902, in its sixth section, provides that no chattel mortgage shall be recorded until its execution

“shall be first acknowledged or proved and such acknowledgment or proof certified thereon in the manner prescribed by the act respecting conveyances.”

That “Act Respecting Conveyances” is found in P. L. 1898 p. 670 et seq., and the twenty-first section provides what deeds and instruments may be acknowledged and recorded, among which are “chattel mortgages, assignments, releases and discharges thereof.” The twenty-second section provides how these instruments shall be acknowledged and the acknowledgment certified. After enumerating certain officers to take acknowledgments, it proceeds as follows:

“Such officer having first made known the contents thereof to such party making such acknowledgment, and being also satisfied that such party is the grantor in such deed or instrument, of all which the officer shall make his certificate on, under or annexed to said deed or instrument.”

These certificates here in question fail in both these respects. Then the fifty-third section provides

“that any deed, &c., which shall have been duly executed, acknowledged or proved and certified as aforesaid, and shall have been duly recorded, &c., such record shall be notice to all subsequent judgment creditors, purchasers and mortgagees of the execution of said deed or instrument and the contents thereof.”

The original act providing for the assignment of mortgages of real estate (Gen. Stat. p. 2108) provided that where a mortgage of lands is assigned and the assignment recorded, such record shall be notice to all persons concerned that said mortgage is so assigned; and further, that if the assignment is not recorded, payments made to the assignor in good faith, and without notice of the assignment and releases of mortgaged premises, shall be valid in the absence of actual notice. It will be observed that the language above quoted from sections 53 and 54 of that act respecting conveyances (1898) do not, strictly speaking, apply to the case in hand; and further, the Chattel Mortgage act of 1902, respecting chattel mortgages, contains no clauses such as I have quoted relating to assignments of land mortgages.

But granting that the sections from the act respecting conveyances are broad enough to apply to the present case, we are then met with the old question whether an instrument, deed, mortgage or contract, not properly proved or acknowledged, but nevertheless recorded, is constructive notice binding on a party who has no actual notice because he thinks it not worth while to examine the public record.

My examination of that subject leads me to the conclusion that the great weight of authority and reason is that such record is not constructive notice. I shall not take time or space to cite the authorities. They are largely gone, into by Mr. Wade in his treatise on the Lam of Notice, and in the various treatises on mortgages. Jones Chat. M. §§ 247, 248. In the American notes to LeNeve v. LeNeve, 2 White & T. Lead. Cas. (4th Am. ed., from the 4th Lond. ed.) 206, the doctrine is thus stated:

“So a purchaser need not take notice of an instrument which does not appear to have been proved or acknowledged in accordance with the statute,”

citing a large number of cases.

Counsel for Sperry falls back upon the well-settled rule that a mortgage that has been paid may be kept alive, notwithstanding such payment, to secure another creditor of the mortgagor, or may be appropriated to other purposes than that for which it was originally executed and kept alive as against subsequent parties, encumbrancers, or purchasers. The doctrine is a familiar one, but has no application here, where the attempt was made to keep it alive by only one of the mortgagors, and that one having only a one-third interest in the chattels mortgaged, and that one-third interest subject to the superior lien of his co-mortgagor and co-owner for any balance due to him on a settlement of the partnership affairs.

Further, in order to uphold the mortgage under such circumstances, the parties to the novation or new delivery of the mortgage must be careful not to do or omit anything which may lead a subsequent purchaser or encumbrancer to the just belief that the mortgage has been discharged. Here the parties to the attempted assignment of the mortgage permitted the leading document, the promissory note which it was given to secure, to come to the hands of the mortgagor with evidence on its face that it had been paid, and not only that, but did not secure possession of the mortgage itself.

Upon this, the most important part of the case, I conclude that Sperry’s case fails, and that he can claim no relief under the old mortgage.

We come now to the larger mortgage from Brock to Sperry, given to secure the whole $2,250. The joint ownership of the property having been established beyond all peradventure, the question is, What effect has that mortgage, or what effect could it have had if it had been properly and lawfully executed ? The answer is plain that, as in favor of any person having notice of the joint ownership and quasi partnership, its only effect was to convey to the mortgagee the equitable interest which Brock had' in the chattels covered by it after the affairs of the partnership were wound up and the actual amount coming to Brock ascertained. In other words, Sperry obtained the right, and no more, to have the partnership wound up in an orderly manner, and to receive the part coming to Brock. Longley had the superior right,, as a partner, to enforce his general lien upon the partnership assets to secure anything that might be due from Sperry to the partnership upon a winding up.

But counsel for Sperry puts himself upon the proposition that each partner has the power to sell and dispose of the partnership property.

It is familiar law that the power of one partner over the property of the partnership is that of an agent, and is confined to the scope of the partnership business. It would be absurd to hold that one partner in the business of keeping a livery stable would have the implied right, from the mere fact that he was keeping a livery stable, to sell out the whole plant and give a good title to it without the knowledge and consent of his partner, and the same consideration applies to the mortgaging of it.

The general rule is stated with approximate accuracy by Vice-Chancellor Reed, in Carr v. Hertz, 54 N. J. Eq. (9 Dick.) 127 (at p. 131), a case cited by counsel for Sperry in his argument. What was said by the learned vice-chancellor must be read in connection with the facts of the case, which was an attack upon certain mortgages given by one partner to creditors of the firm for the purpose of preferring such creditors against other creditors of the firm, and those mortgages were set aside by the vice-chancellor, and his decree was affirmed (at p. 700).

Turning to the present case, it does not necessarily appear that it was a part of the business of Longley and Brock to buy and sell horses as dealers. But, presumably, had Brock sold a horse and carriage apparently in the ordinary course of business he would have passed a good title. That, however, is quite a different matter from executing a chattel mortgage on the whole and appropriating the proceeds to his own use. This point, taken by counsel for Sperry, in my judgment, completely fails.

His next point is that although there is what in law amounts to no affidavit at all annexed to the mortgage, still, as it was properly acknowledged and recorded, the complainant being merely a subsequent purchaser of Sperry’s one-third interest, and not a creditor, the mortgage is not invalid as against him because he has had constructive notice of it through the public record.

There is undoubtedly a decided difference in the standing of creditors and subsequent purchasers under the statute here in question, as was pointed out in the opinion of this court in Roe v. Meding, 53 N. J. Eq. (8 Dick.) 350, and the cases there cited, and counsel relies on the case of Boice v. Conover, 54 N. J. Eq. (9 Dick.) 531. But that was not a case where the prior mortgage was attacked for want of any affidavit made according to the statute, or that the affidavit which was properly made by one of the mortgagees was absolutely untrue, but the attack was made on the ground that the affidavit was misleading, and the consideration therein stated was false in that it treated a mere endorsement by the mortgagee as an indebtedness constituting part of the consideration, and that the remainder of the consideration was a debt due by one of the mortgagors only. For that reason it was held to be an improper and unlawful attempt to prefer creditors, and fraudulent and void as to creditors.

But as to Mrs. Boice it was held good because her mortgage, though subsequent in execution, was given by the same mortgagors, and she had full notice of the prior mortgage, and was therefore not a "Iona fide purchaser,” but must content herself with taking whatever interest the mortgagors had when they executed their mortgage.

The notice to Mrs. Boice of the prior mortgage was an actual notice, hence the question still remains whether the record in this case became, in the absence of any actual notice to Longley, constructive notice which binds him.

The mortgage to Sperry was properly acknowledged. The certificate declares that the contents were made known to Brock, &c. In fact, the mortgage was a New Jersey form with a New Jersey form of certificate. Hence it was entitled to record, and is not within the category of the two assignments of the older mortgage, whose acknowledgments were defective, and it only remains to inquire whether, under our statute, it is constructive notice. I have already cited a part of the twenty-first section of the act respecting conveyances of 1898, which shows that chattel mortgages are entitled to be recorded. By the fifty-third section, if properly acknowledged and recorded, all such

“instruments shall be thereafter notice to all subsequent judgment creditors, purchasers and mortgagees of the execution of said deed or instrument and of the contents thereof.”

This statute is peremptory, and in effect declares that the record of the Sperry mortgage was notice to Longley of the existence of the mortgage and its contents.

Counsel for Longley, having his attention called to this aspect of the case, argues that in the case of Boice v. Conover, supra, Mrs. Boice had actual notice of the former mortgage, and he attempts to distinguish between actual notice and the constructive notice resulting from registry. The language of the act as to the effect of registry is explicit—“shall be notice”—and I am unable to distinguish between actual notice and constructive notice due to the statute. No authority was produced by counsel to sustain his argument in that respect, and in my judgment, to sustain the distinction as claimed would have the eff ect of destroying the whole of the Registry act in the matter of notice.

The result, then, to which I have come is this—that Longley’s mortgage is the first lien on the two-thirds interest in the chattels, and also that Longley has a partner’s lien on the other one-third for any amount which, upon taking the account, it may be found that Brock has reduced his proportionate share in the property, if any, by overdraft. The evidence does not show how the amount for which Longley sold his interest to Brock was arrived at, and probably the absence of Brock from the state will render the taking of the account very difficult, and perhaps the books have not been kept in such a manner as to render it possible under any circumstances.

Be that as it may, unless the parties can agree upon a partition of the funds upon a basis of two-thirds to one-third, or some other basis, an account must be taken. I will settle the decree upon notice. The question of costs is reserved.


author: Embry, Y. C.

text:
    Eureka Fire Hose Company v. Eureka Rubber Manufacturing Company.
    [Decided February 13th, 1907.]
    1. A manufacturer of rubber goods who uses the word “Eureka,” misleads the public, and gains an unmerited advantage from the trade reputation given to such word by another company which used such word in its corporate name, will be restrained from the use thereof, not only in its corporate title, and in connection with competitive goods, but also in connection with non-competitive goods manufactured by it, so long as it continues to manufacture any goods in competition with the company first using the word.
    2. A final decree granting an injunction will not be modified by striking out words deliberately placed in the decree by the court, for the reasons given in deciding the case, which decree was affirmed on appeal, for the reasons given by the court below, since the application for the modification is substantially an application to the trial court for a rehearing after affirmance on appeal.
    3. Provisions in a final decree authorizing either party to appeal to the court for further directions necessary to effectuate the decree or protect the rights of either party do not authorize the striking out of material words in such decree deliberately placed there by the court after due consideration.
    4. A decree granting an injunction will not be construed on application for such construction, nor until the question comes regularly before the court, in proceedings requiring its construction and application to acts alleged to be done or omitted under it.
    On application for modification of injunction issued on final decree.

      Mr. John V. B. Wic-off, for tlie petitioner defendant.

      Mr. Randolph PerTcins and Mr. Richard V. Lindabury, for the complainant.
   Embry, Y. C.

The bill in this case was purely an injunction bill, the terms of the injunction were defined by the decree, and on appeal the decree was affirmed. The injunction, issued after affirmance on appeal, follows precisely the terms of the decree. The present application to modify the injunction is therefore substantially an application to modify the final decree after its affirmance on appeal.

The final decree recited

“that the use of the word or name ’Eureka’ by the defendant in its corporate title, or otherwise, in connection with the marketing of conductive hose in competition with the complainant, was and is unfair and fraudulent competition,”

and decreed that defendant be enjoined from using the word “Eureka” as part of the corporate title of the defendant, or in any form or combination, on or in connection with the advertisement or sale of conductive hose,

“and also from using the word ‘Eureka’ in the corporate title of the defendant, or otherwise, so long as the defendant manufactures or sells, or continues to manufacture or sell, conductive hose,”

and directed that a perpetual injunction do issue accordingly. The injunction against which relief is sought followed these terms. Defendant since the affirmance of the decree for injunction on appeal has changed its name to “Acme Eubber Manufacturing Companjr,” and now applies for a modification of the injunction, by striking out the words “or otherwise” in the last paragraph, so that it shall read,

“and also from using the word ‘Eureka’ in the corporate title of defendant so long as it manufactures or sells, or continues to manufacture or sell, conductive hose.”

Thus modified, the defendant, so long as it discontinues the use of the word “Eureka” in its corporate title only, would be able to use the name or word “Eureka” on or in connection with the non-competitive goods, which constitute its principal business, and have, as it says, acquired a value in connection with such use. The effect or probable effect of this use of the name “Eureka” on or in connection with the non-competitive goods, but while it still markets goods in competition, was, however, one of the points especially considered on the evidence at final hearing.

The complainant, as I concluded, had given a special reputation to “Eureka” goods in the market, and the defendant adopted and used this name in its corporate title and otherwise for the purpose of availing itself to some extent of the trade reputation complainant had given to goods marketed under that name. Eureka Fire Hose Co. v. Eureka Rubber Manufacturing Co., 69 N. J. Eq. (3 Robb.) 159. On this special subject, the extent to which the use of this trade name “Eureka” should be enjoined, my opinion was as follows:

“As to the extent to which the use of the name should be enjoined, the protection of complainant’s trade name in connection with the marketing of goods manufactured in competition, is the limit of its rights. The bulk of defendant’s business is in rubber mechanical goods, not dealt in by complainant, and for the purposes of this business it has the right to use the word as part of its name or otherwise. But, so long as it puts on the market goods in competition with complainant, the use of the word, in its name or otherwise, in connection with these goods, seems, under the evidence in the case, necessarily calculated to mislead the public, and to give defendant some advantage of complainant’s trade reputation. I cannot see how complainant can be sure to receive the full benefit of the trade name to which it is entitled, except by enjoining defendant’s use of the name in its title or otherwise, so long as it continues the manufacture or sale of the goods sold in competition with complainant. * * * The form of a limited injunction was not specially considered at the argument, and I will settle this upon notice if necessary.”

These extracts show that the use of the name “Eureka,” otherwise than in the corporate title, was specially considered in deciding the case, and it was again considered, or open for consideration, at the time of settling the final decree on special notice. The insertion of the additional words “or otherwise” was therefore deliberate, and they were inserted because, under the evidence in the case, complainant seemed to be entitled to their insertion.

This portion of the injunction, it should be noted, was directed against unfair competition, not against the use of the name “Eureka” on the goods, and necessarily the terms of such injunction are best settled upon final hearing and as part of the whole case, while the whole evidence bearing on this subject is before the court.

On the appeal the whole question as to the extent of this and every other part of the injunction was open as to the propriety of their insertion in the decree, and if it was supposed to be improper, the attention of the court of errors and appeals should have been called to the objection.

The printed briefs of counsel for defendant on appeal do not, however, seem to have raised the question of this modification, or any modification, the principal contention being that no injunction should go against the use of the name in the corporate title.

On tire appeal the decree was affirmed, for the reasons given by the court below, and these reasons must now be treated as the opinion of the appellate court on all points necessarily involved in the decision and decree.

The present application to modify the injunction and decree is thus substantially an application to this court for a rehearing of the cause on this point, after affirmance on appeal. One ground upon which the application to modify is based is the express provision in the final decree,

“that either party have leave to apply to this court at the foot of this decree for further directions, if it should appear to be necessary in order to effectuate this decree or to protect the rights of either party thereunder.”

But it is well settled that, under a general leave reserved for further directions, an alteration of the decree made on the original hearing cannot be made, nor a decree inconsistent with it. 2 Dan. Ch. Pr. (Perk, ed.) 1452 (6th ed.) 1370, 1371.

The leave here reserved was, however, special, and extended only to directions for enforcing or protecting the rights granted by the decree, not to a modification of those rights.

Nor can the canse now be reheard in this court, for the purpose of altering or modifying this part of the decree’ or the injunction based on it, in order to remedy a supposed grievance or inconvenience consequent on the decree. Defendant also asks on this application a construction of the decree and injunction on the point whether its proposed use of the word “Eureka” will be a violation of the injunction, but the court has no authority to affect in advance the rights of the ¡larties under the terms of the decree by a construction of the decree. Such construction cannot be given until the question comes regularly before it in proceedings requiring its construction,' and application to acts alleged to be done or omitted under it.

The application to modify the injunction must therefore be denied, and the temporary restraint of the operation of the injunction must be discharged.