text:
    Martin L. Trimmer v. Jane E. Todd et al.
    A person who is an executor, and who, in his individual capacity, holds a-, mortgage upon the lands of which the testator died seized, may file a bill to foreclose such mortgage; but he cannot in such bill ask for an administration of the estate of the testator, in whole or in part, without joining himself as executor as a party complainant, nor in case it is alleged that the personal property is insufficient to pay the debts, without making all creditors parties defendant. Without such allegations, a bill asking for partial administration, is demurrable for multifariousness and for want of parties.
    On bill and demurrer.

      Mr. J. Newton Voorhees, for the demurrant.

      Mr. Charles A. SJdllman, contra.

   Bird, V. C.

The bill in this ease is filed by Martin L. Trimmer. It sets-forth the fact that one Peter N. Todd, in his lifetime, gave three-several bonds, each of them secured by a mortgage upon the-same parcel of land, amounting in all to $13,000, and that after-wards the said Todd made his last will and testament, in and by which he directed payment of his debts and funeral expenses,, and gave three legacies, of $250 each, and the said tract of land to his wife during her natural life, upon her paying the taxes and interest from time to time becoming due upon the said mortgages, and then making disposition of the residue of his estate,, appointing the said Martin L. Trimmer as executor. The said testator died, and his will was offered for probate by the said Martin L. Trimmer, to whom letters testamentary were granted. He.undertook the settlement of the estate. After he became such executor he procured an assignment of the said bonds and mortgages to b‘e made to himself. He alleged by liis bill that the inventory of the personal estate shows that it was worth only $366.85, and that the indebtedness of the said Todd, over and above said mortgages, amounts to about $1,000, and that the-only estate .with which the same can be paid is the personal property so inventoried and the real estate covered by the said mortgages. In this bill he not only asks that the said mortgages be-foreclosed, but that the surplus money be paid over to him that it may be administered by him as executor and used in the payment of the debts and legacies aforesaid.

The bill is demurred to for multifariousness and for want of proper parties.

It will be seen from the above statement that the bill clearly has two objects in view: one is the foreclosure of the said mortgage and the other is the partial distribution of the estate of the-said decedent. It is alleged that these two objects are so inconsistent that the bill is necessarily multifarious. In the first place,. I desire to say that it may be possible for an executor who has alien upon the estate which he is administering to proceed by a bill in equity to enforce his lien, and in doing so be justified in asking for the complete administration of the estate. In an undertaking of this kind, however, it would be essential for him to-appear before the court in his character as executor as well as in his own behalf. It should also appear that all parties in interest in such an administration suit should be before the court, so-that the rights of every party in interest could be determined.

With these general statements in mind, it will be seen by looking at this bill that Mr. Trimmer does not appear as a party in the capacity of executor, but only in his individual capacity.. Therefore, the condition presented is that of an individual invoking the aid of the court of chancery to enforce his debt and also to partially administer the estate. I say partially, for all of the parties in interest, as will be seen hereafter, are not before-the court so that the extent of their interests can be determined. Flow there can be no objection to the holder of these mortgages-proceeding to foreclose them; but I cannot perceive how a creditor can assume the control of the estate and seek its administration until it appears upon the face of the bill that the person to whom the law has committed that trust has become delinquent or in some way exhibited a refusal to perform the offices ■of the trust. So long as there is ho allegation of this nature in the bill, the presumption that the trustee is proceeding in the performance of his duty according to the. law must prevail. Therefore, this case must be dealt with, with respect to the subject of multifariousness, upon the ground that Mr. Trimmer has proceeded in his individual capacity. Looking at the case from this standpoint, I can come to no other conclusion than that the bill is multifarious in that it seeks not only the foreclosure of the mortgage, but, as intimated, to take charge of the business of administering the estate.

The difficulty thus suggested is not overcome by the statement in the bill that there is an insufficiency of personal estate to pay the debts, and that it will be necessary to make sale of a portion •of the real estate for that purpose, together with the prayer that the surplus arising from the sale of the real estate be paid to the ■complainant as executor. For it is not Martin L. Trimmer as executor that makes the prayer for the sale and for the payment •of the surplus to -him as such executor, but it -is simply Martin L. Trimmer the individual. This is not a refinement upon words or phrases, but it springs from the essential nature or character of good pleading. No decree can be made for or against Martin L. Trimmer as executor. As such he occupies no position whatsoever in this bill, nor are any allegations made against him as such executor. The only possible decree that can be made for or against him is in his individual capacity. Nothing else, for a single moment, would be supposed or urged. If he had filed this bill as Martin L. Trimmer, and John Doe had ■been the executor, and the same allegations and prayer had been made respecting John Doe and nothing more, I apprehend that ■no creditor, either a mortgagee or judgment or simple contract, •could be permitted to assume the position claimed by Mr. Trimmer in this case and be sustained, if there were not any allegations making it apparent that the trustee was guilty of default •of some nature which a court of equity would condemn.

Hence I think that because the complainant in this case does not also show to the court that he files this bill as executor as well as in his own behalf, and seeks a partial administration of the estate referred to in the bill, which can only be done by him as executor, the bill is multifarious.

And as to the question of parties, it seems very evident, from what has already been said, that the executor is most essentially interested, and that the cause cannot be proceeded with from any standpoint, so long as the administration of the estate is contemplated, until he is made a party, either as' complainant or defendant. Upon the question of assets and liabilities, he, above all others, has a right to be heard, and he ought to be required to speak in such a case, either affirmatively or negatively. And in such case the general creditors as well as devisees and legatees have a right to be heard. It will not do, in this particular case, to say that it will be sufficient to make the executor a party, since he has charge of the personal estate and is supposed to represent the interests of creditors, for the executor, having the lien by virtue of these mortgages and an interest which may be-proved to be hostile to the interests of the general creditors, and certainly would be so in case of a deficiency of assets, real and! personal, to pay all the debts. As the same person is the assignee of the mortgages which are being foreclosed, and also the executor of the last will and testament of the decedent, whose estate is sought to be administered, he can only be made a party by making him a party complainant.

The position ot the holder of the mortgages and of the executor being such as is above indicated, one that may materially interfere with general creditors’ interests, they should be made parties, in order that they may contest the claims of the complainant as the holder of such mortgage, in case there should be a deficiency of assets. The complainant cannot be heard to say that they have no lien upon the estate, for this was expressly adjudicated in their favor in the case of Castner v. Haston, 4 Stew. Eq. 697. Hor can he be heard to say that the creditors are numerous, for since he has seen fit, after accepting the office of trustee, to place himself in a position that may become hostile to the interests of such creditors, he cannot complain of the consequences which flow from his own conduct; nor will such conduct make the court less vigilant" in its efforts to protect the rights of the ■others, whose rights, under other circumstances, might safely be .lodged in his keeping.

It is apparent that the complainant has a right to proceed to the foreclosure of his mortgage in his individual capacity. As such he has no other interest in this estate. He has no other interest than had his assignor before the death of Peter N. Todd. As between him and Martin L. Trimmer and the devisees and legatees,' the relation is simply that of debtor and creditor and ■nothing more.

Next, as above intimated, when he, as Martin L. Trimmer ■simply, and as assignee of the mortgages, attempts, in addition to the foreclosure of the mortgages, to administer, in whole or in ipart, the estate of the decedent mortgagor in and by the same bill in which he seeks to foreclose his mortgages, he is undertaking two very inconsistent lines of work, and hence multifarious. I have dwelt somewhat upon the question presented by this demurrer in order that I may not be understood as insisting that Mr. Trimmer, as executor, could not come into court, ■under the circumstances detailed in his bill, and ask for'an •administration of the assets in this estate in this court. That •an executor may, under certain circumstances, do this I think is beyond question, as above intimated; but whether the facts presented in this case are sufficient for that purpose I do not feel •called upon to decide. When the cases of Pearce v. Hewitt, 7 Sim. 471, 478; Doran v. Simpson, 4 Ves. 650, 665; Burrows v. Elton, 11 Ves. 29, 35, are considered, they will be found to throw some light upon the questions above presented.

I will advise that the demurrer be sustained, with costs.


source: Caselaw Access Project

author: Bird, V. C.

license: Public Domain

text:
    William R. Henninger et al. v. Charles E. Heald et al.
    1. A corrupt bargaining between one of the parties to an exchange of lands •and the agent of the other, renders such exchange voidable at the instance of :the party aggrieved.
    2. While the law seems to be firmly settled that fraud without damage to the party complaining affords no ground of relief even .in equity, yet both law and equity have a most tender regard for the rights of the complaining party, growing out of the peculiar relations existing between principal and agent and ■cestui que trust and trustee, so that where any abuse of such relation is discovered the complaining party is entitled to be relieved, whether any actual damage has been established or not; it matters not that there is no fraud meditated and no injury done. The rule is not intended to be remedial of actual wrong, but preventive of the possibility of it.
    3. A party who obtains possession of property by corruptly bargaining with the agent of the owner, c'an be compelled to surrender what he has thus ■acquired.
    4. A party who asks for the rescission of a contract upon the ground of fraud, and still has the possession of that which he received under the contract, at the time of the discovery of the fraud, is obliged to retain such possession that he may return it or offer to return it before or at the time of filing his bill.
    5. If, for any cause, after the fraud is discovered, a party finds himself unable to retain possession of property, and he intends to ask for a rescission of the contract, it is his duty to inform his adversary of his inability and give him an opportunity to take control of it.
    6. A party asking the rescission of a contract upon the ground of fraud, will only be required to restore so much of the property in specie as he reasonably can, and the full consideration for so much of it as he may have disposed of before discovering the fraud.
    7. A deerée dismissing a bill of complaint, after a full hearing upon the merits, is an effectual bar to the complainant and to all who claim under him, so long as such decree is unreversed.
    8. The purchaser of the title of lands sold by virtue of an execution issued upon a decree obtained in a suit for the foreclosure of a mortgage which embraces said lands, takes all the title which the mortgagor had and which was conveyed by such mortgage.

      9. A grantee' from a bona fide purchaser stands in the same position as tliegrantor, and will be equally favored by a chancellor, although affected with notice at the time of the grant.
    10. Although a party with notice cannot take title with impunity directly, bu.t may take such title at the hand of an innocent third party, yet if he himself has participated in the fraud, or was acting in the capacity of a trustee, then he will be liable, notwithstanding the title be purged of the fraud as to-strangers.
    On final hearing on pleadings and proofs.

      Mr. Theodore Little, for the complainants.

      Mr. John R. Emery, for the railroad company.

      Mr. R. Wayne Parker, for Heald and others.
   Bird, V. C.

This bill was filed to rescind an exchange of title to lands and' to compel the defendant to reconvey the title which he received from the complainant, or in case the said Heald has conveyed the title of the land which he received in exchange, and it be thought more equitable to do so, that then the court should direct Heald to pay the consideration money which he has received. The ground upon which this bill rests is fraud. Henninger employed an agent by the naipe of Taylor to negotiate the exchange, and it is alleged that Taylor and Heald, in arranging the terms of the exchange, entered into a corrupt agreement by which Taylor was to share one-half of the profits resulting from the subsequent sale of the Henninger farm over and above $150, and also the false representation to Henninger that the land conveyed to him was subject to a mortgage of only $3,000, with interest at five per cent., when in fact it was $3,000 and for six per cent. The Henninger tract was subject to a mortgage of $5,000. After the negotiations were completed, in which it was-agreed that Henninger should pay to Heald $450, in addition to conveying the title to his land, Henninger and Heald met in the presence of Taylor, Henninger’s agent, and expressed their agreement in writing, Henninger and Heald both signing. This instrument is dated November 16th, 1889. The deeds were exchanged on the 21st day of December following. On the second day after such exchange, Henninger sold and conveyed the land which he took from Heald to his father for $3,000 in cash, subject to the encumbrance which had been referred to in the conveyance from Heald to Henninger.

Before the conveyance of the Henninger tract to Heald, the Jardines, who held the $5,000 mortgage on that tract, commenced foreclosure of their mortgage, which was prosecuted to decree and sale. Heald, as the owner of the title or equity of. redemption, by his attorney, attended the sale and entered into an agreement with the Jardines, by which they were to purchase the title and to convey it to him within thirty days thereafter, upon his payment of the whole amount due upon the decree, with interest. The Jardines purchased the title. "Within the thirty days Heald tendered the whole amount that was due to them. This they refused to accept for the alleged reason that Heald had entirely abandoned his contract, and that they had agreed to sell the land or a portion thereof to others.

Upon the Jardines refusing to convey to Heald, he immediately filed his bill asking for a specific performance of the agreement. The Jardines answered and replication was filed, and the cause went to a hearing before one of the vice-chancellors, who filed his conclusions sustaining the complainant.

Within three days after said conclusions were filed, and before any decree had been entered, Henninger filed a bill asking for the rescission of said exchange, charging fraud as above stated, and, among other things, offering to reconvey the premises which had been conveyed to him, but made no mention of the fact that he had made conveyance thereof for the consideration of $3,000. * Heald and the Jardines were made parties defendant to this suit. They answered, and it appeared by their answers that Heald had agreed to convey a portion of the land which he took in the exchange to one Elwood Buyers, an agent of the Port Reading Railroad Company, and that the Jardines had con-veyed their interest in a portion of the lands to the said railroad company. It also appeared that the title to the entire tract, both of Heald and the Jardines, was so conveyed as to pass to the railroad company. These facts appearing in the answers, a supplemental bill was filed by Henninger. When ripe for hearing the cause was referred to one of the vice-chancellors, and after the partial hearing and examination of witnesses, the complainant’s bill was dismissed.

Within a few days thereafter, and before the present bill was filed, the title to the property which Henninger seeks to have reconveyed to him was perfected in the said railroad company, so far as it was possible in the face of a lis pendens and of actual notice. Besides this, the Jardines procured a decree dismissing the bill of complaint which Heald had filed against them ás aforesaid, seeking a specific performance of their agreement to convey the said premises to him. This, it will be perceived, left the title of the premises absolutely in the Jardines upon the foreclosure and sale by virtue of their mortgage, under which they purchased and after which they conveyed to the railroad company as aforesaid.

The present bill states all of the principal foregoing facts. By it Henninger does not tender a reconveyance of the land t© Heald which the latter conveyed, nor does he offer to pay the $3,000 which he received in cash for the said land, but states as a reason for not offering to convey that the land was conveyed beyond his control by virtue of a sheriff’s sale under a judgment obtained upon the said mortgage. The prayer of the bill is as follows, amongst other things :

That it may be decreed that the said exchange was procured by fraud; and that the contract may be rescinded and a reconveyance subject to the Jardine mortgage; and that Heald having the title became a trustee for Henninger ; and because of the agreement between Heald and the Jardines, Henninger had a right to redeem the said mortgaged premises; and that thenceforward the Jardines held the title in trust for Henninger; that the railroad company and all other grantees took with full notice of the rights of Henninger ; and that the railroad company may be required to reconvey the title to said lands to Henninger, or to account to him for the full value of the premises; or that the said Jardines may be directed to pay to Henninger all t'he moneys received by them,” ‘

and the prayer for general relief.

There is no prayer for relief against the decree dismissing the 'bill filed by Heald against the Jardines.

In the first place, I find that there was a corrupt agreement between Taylor, as the. agent for Henninger, and Heald, which rendered the exchange voidable and justifies Henninger in asking for a rescission.

In the second place, I find that in other respects the exchange was fair, and the consideration of the one parcel of land for the •other, including the boot-money, was fair and reasonable. Because of this it is insisted that the complainant is not entitled to relief, it being claimed that equity will not interfere unless it is •established that the .complainant has sustained actual damage. The general rule is fully in accord with this insistraent. Fraud without damage is no ground for relief either at law or in equity. Bisp. Eq. 273; Kerr Fr. 94; Garrow v. Davis, 15 How. 277; Clarke v. White, 12 Pet. 178; Big. Fr. 85; Taylor v. Guest, 58 N. Y. 266.

But, in the third plac'e, while the law seems to be so firmly settled that fraud without damage to the party complaining ■affords no ground of relief even in equity, yet both law and equity have a more tender regard for the rights of the complaining party, growing out of peculiar relations existing between him and the defendant under some circumstances than others. - Perhaps no business relations awaken greater vigilance on the part of courts than that between principal and agent, or what is the samé, cestui que trust and trustee. So comprehensive are the authorities, both as expressed by elementary text-writers and by the cases considered and determined by judges and chancellors of the highest celebrity, that it may safely be stated that the cases are very few, if any, in which ■ any abuse of such relations has been discovered that the complaining party has not been relieved, whether.any actual damage has been established or not. The question has not been whether the breach of confidence resulted in profit to the agent or trustee, or damage to the principal or cestui que trust, but whether there has been such breach. The great solicitude of courts has been rather wholly to avoid any recognition of a principle that might, in the hands of avaricious and cunning men, be turned to their own account,, than to inquire whether the beneficiaries have suffered any actual disadvantage. Story Ag. §§ 210, 211; 1 Story Eq. Jur. §§ 315, 316; Lord Hardwick v. Vernon, 4 Ves. 410; Lord Abingdon v. Butler, 1 Ves. Jr. 206; Watt v. Grove, 2 Sch. & L. 492; Campbell v. Walker, 5 Ves. 678; Davoue v. Fanning, 2 Johns. Ch. 252; Cram v. Mitchell, 1 Sandf. Ch. 251; Van Epps v. Van Epps, 9 Paige 237; Farnam v. Brook, 9 Pick. 212; Torrey v. Bank of Orleans, 9 Paige 650; Dobson v. Racy, 3 Sandf. Ch. 60; Taylor v. Salmon, 4 Myl, & C. 138; Wilson v. Hart, 1 J. B. Moore 45; Lees v. Nutall, 1 Russ. & M. 53; Maclean v. Dunn, 4 Bing. 722; Parkist v. Alexander, 1 Johns. Ch. 397; Coles v. Trecothick, 9 Ves. 244, 245; Lord Selseg v. Rhoades, 2 Sim. & S. 50; Purcell v. McNamara, 14 Ves. 91; Crowe v. Ballard, 3 Brown Ch. 104, *120; Massey v. Davies, 2 Ves. 317.

But our own courts have had this very question under consideration. Marsh v. Buchan, 1 Dick. Ch. Rep. 595: “An agent who assumes to act for the vendee in the sale of land is bound to disclose to the vendee his existing agency for the vendor, and such failure to disclose is a fraudulent concealment of a material fact. A written contract of sale procured by the agent without this disclosure will not be specifically enforced, even though the price is shown to be a fair one and the vendor is ignorant of his agent’s fraud.”

This principle had the support of the court of errors and appeals. Marsh v. Buchan, 1 Dick. Ch. Rep. 604; Young v. Hughes, 5 Stew. Eq. 383.

The effect of concealment and neglect of duty such as this-upon the transaction, so far as Warren is concerned, does not all depend on the question whether or not the result was injurious to the principal. The contract is affected by the misconduct of the agent from considerations of public policy rather than of injury to the principal. The rule which applies to trustees has been equally applied to the relations between the real estate broker and his principal. It matters not that there is no fraud meditated and no injury done. The rule is not intended to be remedial of actual wrong, but preventive of the possibility of it. Everhart v. Searle, 71 Pa. St. 256.

Again, supposing it to have been ascertained that the fraud perpetrated was of such a nature as to require the interposition -of the court, then the question is, whether or not the court ought to lend its aid to the complainants in their efforts to rescind the entire contract. This depends upon the question whether or not Heald had knowledge of or participated in the fraudulent conduct of Taylor.

In Hegenmeyer v. Marks, 37 Minn. 6, a reconveyance was decreed. A like result was reached in the case of Miller v. Louisville and Nashville R. R. Co., 83 Ala. 274.

Notwithstanding the former considerations, I find upon looking into the allegations of the first bill, that although there was a sale by the sheriff of the land which was conveyed to Henninger by Heald, Henninger must have had the control of the ■title or he would not have made the allegations in such first bill; and that having such control of the title after he discovered the fraud, it was his duty to preserve such control in order to reconvey the title to Heald; or, in ease he found himself unable to preserve such title for the- purpose indicated, to make known his inability to Heald and thereby give him an opportunity to protect such title or to abide the consequences. Had he done this, and then found the title swept away from him by the decree of the court, nothing further would have been required of him. All the law demands under such circumstances is that a party asking rescission shall restore his adversary to his former estate or condition as far as he reasonably can.

“A party demanding a rescission of a contract must return, or offer to return, the consideration received by him. It is a settled principle in courts of equity that relief will never be extended to a party against his own conduct without exacting from him ■strict justice to his adversary.”

The duties or obligations of the party asking relief on the one hand, and the rights of the person against whom relief is sought upon the other, will be found fully expressed in the following cases: Cobb v. Hatfield, 46 N. Y. 537; Gould v. Cayuga County National Bank, 86 N. Y. 75, 82; Mason v. Bovet, 1 Denio 69; Chesterfield v. Janssen, 1 Lead. Cas. Eq. 831, 832; McCrillis v. Carlton, 37 Vt. 139; Gay v. Alter, 102 U. S. 79; Estabrook v. Swett, 116 Mass. 303; Burton v. Stewart, 3 Wend. 236; Schiffer v. Dietz, 83 N. Y. 300; Latham v. Hicky, 21 La. Ann. 425; 1 Beach Eq. § 76; Bartlett v. Drake, 100 Mass. 174; Voorhees v. Earl & Kellogg, 2 Hill 288; Coolidge v. Brigham, 1 Metc. 547.

To the same effect are the cases, in our own state, of Doughten v. Camden Building and Loan Asso., 14 Stew. Eq. 556; Bayard v. Holmes, 4 Vr. 119. See, also, Baird v. Mayor &c., 96 N. Y. 598, 599.

I find, if he could not restore the property in specie, it was and is his duty to restore,'or offer to restore, or to account for that which he received for it. This is in accordance with the-spirit of all the cases. No excuse whatever is offered by Henninger for not offering to restore the money received by him for-the Blanchard farm. The question is not what the court may compel him to do in case an account should be ordered between him and Heald, but what in equity it is his duty to tender himself ready and willing to do.

In his first bill he offered to reconvey. Hé had sworn to the truth of the statements in that bill. Hid he speak the truth then? He cannot complain if the court takes him at his word. If a strict application'of equitable rules as expressed in the foregoing cases were to be applied, this case would end here with a dismissal of the complainant’s bill. But since the court feels-itself under obligations to discountenance fraud whenever presented, and thinking that equality may be reached by an accounting, I will look further into the case.

I find that the land which Henninger conveyed to Heald, and the equity of redemption therein -which Heald thereby acquired, was effectually conveyed to the Jardines by the foreclosure and sale under their mortgage. I find, also, that the-decree dismissing the bill of complaint which Heald filed against the Jardines for the specific performance of their agreement to-convey to him the last-named premises, effectually secured to-them the absolute fee thereof, since it was the absolute fee that was mortgaged and foreclosed and purchased by them. Mount v. Manhattan Co., 16 Stew. Eq. 25; S. C., 17 Stew. Eq. 297; Vroom v. Ditmas, 4 Paige 526, 531; McGee v. Smith, 1 C. E. Gr. 462. See, also, cases cited in Baldwin v. Howell, 18 Stew. Eq. 519.

While said decree of dismissal is universal, it is an effectual bar to the complainant in that suit and to all who seek to stand in his stead, since that case was fully heard upon its merits.

The Jardines having a perfect title, it is proper that I should find that the defendants, who took title under them, have also a good title. A grantee from a bona fide purchaser stands in the same position as the grantor and will be equally favored by a chancellor, although affected with notice at the time of the grant; the grantor’s conscience is clear and he may transfer that which he might honestly retain. The rule is not less politic than just, because theyws disponendi would otherwise be clogged by a restraint of indefinite duration. Bumpus v. Platner, 1 Johns. Ch. 213; Fletcher v. Beck, 6 Cranch 87; Wood v. Chapin, 13 N. Y. 509; Boon v. Chiles, 10 Pet. 177, 206, 207, 209; Holmes v. Stout, 3 Gr. Ch. 492; Condit v. Wilson, 9 Stew. Eq. 372; Sharp v. Shea, 5 Stew. Eq. 66; Baldwin v. Howell, 18 Stew. Eq. 519; Mount v. Manhattan Co., 16 Stew. Eq. 25; 2 White & T. Lead. Cas. 33.

This being so, the complainant’s bill must be dismissed as to all of the defendants except Heald, with costs.

Since the proof shows that some of the consideration money passed to Heald, and since I find that he entered into, a corrupt agreement with Taylor, the agent of Henninger, it is proper that I should also find that he is liable to account to. Henninger for so .much of the consideration money as he received. Although a party with notice of a fraud cannot take title directly but may take such title at the hand of an innocent third party, yet if he himself has participated in the fraud or was acting in the capacity of a trustee, then he will be held liable, notwithstanding the title be purged of the fraud as to strangers. Oliver v. Platt, 3 How. 401; Cram v. Mitchell, 1 Sandf. Ch. 251; 2 White & T. Lead. Cas. 34; 1 Perry Trusts § 222; May v. Le Claire, 78 U. S. 217, 236.

If there be any uncertainty as to the amount of money which Heald actually received from the Jardines or the railroad company, testimony may be submitted on that point.

The complainant is entitled to costs as against Heald.


author: Pitney, V. C.

text:
    Rudolph A. Loewenthal and C. Edward Murray v. The Rubber Reclaiming Company, Dana Bartholomew, N. Chapman Mitchell, Edward R. Solliday and George O. Schneller.
    The certificate of incorporation of a trading company organized under the General Corporation act, together with the by-laws adopted at the time and as a part of its organization — Held, under the circumstances of this case, to constitute a contract between the stockholders which cannot be altered by legislative authority unless with the consent of all the stockholders or in the manner provided in the certificate and by-laws.
    On bill for injunction. Final hearing on pleadings and oral proofs.

      Mr. Charles L. Corbin, for the complainants.

      Mr. William 8. Gummere, for the defendants.
   Pitney, V. C.

The complainants are stockholders in the defendant company. The individual defendants are officers and directors of it. The company was organized under the General Corporation act of this state. The object of the bill is to restrain a change in the certificate of its organization and in its by-laws which the indi■vidual defendants propose to make by the vote of a mere majority of the stockholders, under the authority of the sixth section of a supplement to the Corporation act, approved March 21st, 1893 (P. L. of 1893 p. 445), which provides—

“That it shall be lawful for any corporation organized or that maybe organized under any general law of this state, with the assent of a majority in interest of its stockholders, at a special meeting to be called for that purpose, to amend its original certificate of incorporation by a certificate which shall be .duly signed by its president and attested by its secretary, under its corporate •seal, and in all respects executed in the same manner as its original certificate of incorporation, which amended certificate shall be recorded in the office of the clerk of the county wherein the original certificate was recorded and filed in the department of state; and thereupon such amended certificate shall take the place of the original certificate of incorporation and shall be deemed to have been recorded and filed on the date of the recording and filing of the original certificate.”

'Complainants allege and contend that the certificate of organization and the by-laws contemporaneously adopted constitute a contract between the stockholders, and tbat it is not competent for the legislature to authorize either to be changed without the consent of all the stockholders, except it be done in the mode provided by the by-laws themselves.

The law as contended for by complainants is well settled. Mills v. Central R. R. Co., 14 Stew. Eq. 1, and cases cited. If the certificate of incorporation and the by-laws of a corporation form a contract between the stockholders, then the legislature has no power to authorize a mere majority to alter it except in ■the manner provided by the contract itself.

That the ordinary certificate of organization does form such contract seems too plain for argument. It takes the place of the special charter under which our corporations were usually organized before the constitutional amendments of 1875. Whether any particular by-law also forms a part of such contract depends upon the time when, and the cifcumstances under which, it was adopted. If it was adopted as a part of the original organization of the company, so that the subscriptions of stock were made and money paid thereon upon the strength of it, then it becomes a part of the fundamental contract between the stockholders. This position was held by the court of appeals of New York, after elaborate argument and full consideration, in Kent v. Quicksilver Mining Co., 78 N. Y. 159, and is supported by vigorous and weighty reasons and a careful consideration of the adjudged cases found in the opinion of Chief-Justice Folger (at pp. 179, 182). It was there held that vested rights acquired under such a by-law could not be disturbed by a later by-law, although such later by-law was adopted in pursuance of a power reserved in the original by-laws to alter the same.

In the same direction is Belfast v. Belfast, 77 Me. 445, and Hazeltine v. Belfast, 79 Me. 411.

The facts here are that prior to the organization of this company, four distinct corporations and one mercantile firm, five in all, viz., the Philadelphia Rubber Works, the L. & M. Rubber Company, the New Jersey Rubber Company, the Derby Rubber Company and the mercantile.firm of Murray, Whitehead & Murray, were each engaged in the manufacture of reclaimed rubber; that in February, 1890, they associated themselves together for business purposes, under a written agreement containing, among others, this provision :

“Each corporation or partnership subscribing hereto shall be entitled to-one membership and to one vote at all meetings, and may be represented by any person selected by itself, and this person may appoint, in writing, a proxy (who shall be a member or officer of the company or partnership) to represent his corporation or partnership in his absence at any. meeting of this association.”

Subsequently, on May 9th, 1891. a certificate of incorporation-was duly executed by five persons, each representing one of the-original parties to the unincorporated association, which certificate was filed in the office of the secretary of state on May 12th,. 1891, and thus the defendant corporation was' created. The certificate provided for a capital stock of $200,000, divided into-two thousand shares of $100 eath, which were distributed as follows : to Mr. Mitchell, of the Philadelphia Rubber Works, three-hundred and twenty-eight shares) to Mr. Loewenthal/of the L. & M. Rubber Company, two hundred and nineteen shares; tpMr. Bassett, of the Derby Rubber Company, one hundred andi sixty-eight shares; to Mr. Murray, of Murray, Whitehead & Murray, one hundred and fifty-five shares, and to Mr. Solliday,. of the Yew Jersey Rubber Company, one hundred and thirty shares — in all, one thousand shares, amounting to one-half of the authorized capital, upon the payment of which one-half the company, by its certificate, was authorized to commence business. This distribution of stock appears to have been made in proportion to the amount of the interests of the several original parties-to the unincorporated association. This certificate was filed, on the 12th of May, in the office of the secretary of state. On. the 16th of May all the corporators met for organization, and by-laws were on that occasion duly adopted by the consent of all. One of these provided for six directors, who, by common consent, were to be, and in- fact were, distributed among the representatives of the five original parties to the unincorporated association, one to each, except the Philadelphia company, to which, on account of its greater holdings of stock, two directors were assigned. Other by-laws were as follows :

“ Section 3. Each stockholder shall be entitled to one vote for each share of stock held by him, at any election of directors, for .each director to .be elected, which votes he may cumulate upon one or more directors, giving to such director as many votes for each share of stock held by him as there are-directors to be elected, or, at his option, give one vote to each of the persons he may desire to elect as directors, not exceeding the number to be elected. Such vote shall only be given by the stockholder in person, or, in case of his-absence, by written proxy, given to and presented by a stockholder. No stock held by the company shall be voted upon.”

The validity of this by-law was not questioned.

“Article 6. These by-laws may be amended, added to, altered or repealed by the affirmative vote of the stockholders representing at least two-thirds of the whole capital stock, at any annual meeting or at a special meeting called for that purpose.”

After the adoption of these by-laws, the company was duly organized and the capital stock paid in, and all of the parties to-the original association leased to it their respective manufacturing plants.

The allegation of the complainants is, and I think it is sustained by the clear weight of the evidence, that the provision for cumulative voting was adopted in the by-laws for the-purpose of perpetuating the provision in the original articles of association, that each of the parties to it should be represented in the board of directors, and that for that reason it formed a fundamental contract between the parties. The defendants do not deny that there was an understanding among all the parties at the creation -of the corporation, to the effect that each of the parties to the unincorporated association should be represented by a director in the corporation, excepting the Philadelphia company, which ■should have two, but they say that such understanding extended no farther than for the first year. The witness who is relied upon to sustain this allegation swears, however, that nothing was ■said, one way or the other, as to subsequent years, and he swears that it was understood among some of the parties that the •arrangement about directors should continue as long as the original concerns continued to hold the stock subsequently subscribed for and issued to their several representatives.

But I think that the solution of this question of fact is immaterial, since the payments for stock were made, and the certifi•cates of stock were issued, and the several manufacturing plants leased to the corporation, after, and not before, the adoption of these by-laws, They, therefore, became and were, under the •circumstances, essentially a part of the contract between the stockholders, and therefore, for the reasons above stated, cannot be altered except in the manner therein provided or by the consent of all the stockholders.

On the 12th of June, 1893, at a meeting of the directors, of •which the complainants were two, a resolution was passed by the other- four directors, against the protests of complainants, initiating proceedings, under the section of the act of 1893 above ■quoted, for the avowed purpose of altering the certificate of organization in such a manner as to do 'away with cumulative voting. This action was restrained by an interlocutory order of this court, and I think such restraint should be made perpetual, and will so advise.

It was urged that the complainants, representing severally two of the original parties to the unincorporated association, have lost their right to representation in the board of directors by parting with the bulk of their holdings of stock. The answer to this position is, that the right to a voice in the management of the corporate enterprise inheres in the actual ownership of the shares of stock, as shown in White v. The Thomas Inflatable Tire Co., 7 Dick. Ch. Rep. 178. * Each new holder of stock by transfer becomes a party to the original contract between the stockholders and entitled to all its benefits. *

It was urged by the counsel of defendants, in his able and ingenious argument, that the rule of the majority is the law of the corporation and must govern; and that to hold this by-law irrepealable except by a two-thirds vote of all the stockholders, is in derogation of this law. The authority relied upon for this position is Durfee v. R. R. Co., 5 Allen 230. That case, as I read it, is in direct conflict with the line of cases in this state culminating in Mills v. Central R. R. Co., above cited. Its reasoning is expressly repudiated by Chancellor Zabriskie, in Zabriskie v. R. R. Co., 3 C. E. Gr. 178 (at p. 190).

The other instances cited by counsel in which the courts have held that a mere majority may repeal a by-law which contains a provision that it shall not be repealed except by a two-thirds vote, were either cases of municipal corporations, with which we have here no concern, or cases where the by-law in question was passed long after the organization of the company and where no vested rights had arisen or been acquired under it, so that no harm could be done by a change.

The practical operation of this by-law is not, as contended by defendants, to prevent a mere majority from governing, for it leaves it in the power of the majority of stockholders to elect a majority of the directors. All that it can accomplish is to prevent a majority of stockholders from electing all the directors, and to insure the minority of the stockholders a representation on the board of directors and a voice in its deliberations.

In this connection it is worthy of remark that the stockholders, as such, have no power to make any contract or execute ■•any work. Their power is confined to electing directors and •advising them in their conduct of the business of the company. Plaquemines Tropical Fruit Co. v. Buck, 7 Dick. Ch. Rep. 219.

Complainants are entitled to costs .against the individual defendants.


author: Pitney, Y. C.

text:
    Prudence J. Stiles v. A. Judson Stiles.
    The mere fact that a husband, by frequent acts of,adultery, justified his wife «i leaving him, does not render him guilty of the statutory offence of desertion.
    On petition ex parte, for divorce for desertion.
   Pitney, Y. C.

This is an undefended divorce suit. The petition alleges ■desertion. The proofs show that while the parties were living together in the ordinary way the husband devoted himself to other females, but continued to reside with his wife and their child. His acts of adultery were known to the petitioner, and she remonstrated with him, and. upon his refusal to promise to give up his attentions to other women and to devote himself to her alone, she refused to live with him any longer and left him. The wife does, indeed, swear that for the last years that they lived together he did not provide her with sufficient food and clothing, but she does not give any details or state how the deficiency was made up, and it is quite plain from the whole case that the real cause of her separation from him was his attention to other women. The petitioner was entirely justified in leaving her husband, but it does not seem to me that the mere fact that a husband, by his acts of adultery, justifies his wife in leaving him, renders him guilty of the offence of desertion mentioned in the statute.

The case falls far short of any proof of such cruelty on the part of the husband as would justify the petitioner in leaving him, under the doctrine laid down in Mc Vickar v. Mc Vickar, 1 Dick. Ch. Rep. 490, and the cases there cited. The proof of adultery in this case is quite satisfactory, but it is not charged in the petition.

It seems to me that the prayer of the petition must be denied, and the petitioner be put to a new petition setting out the real .¡grounds of her complaint.


text:
    William M. Greenwood v. Adelaide H. Henry and James C. Ogden, administrator of Eliza R. Thompson, deceased.
    1. Suit for specific performance of a contract dealing with both real and personal estate, brought by one party against both the personal representative and the heir-at-law, who is also sole next of kin of the other party to the contract. On the trial the heir-at-law was offered and sworn as a witness, and testified to transactions with, and statements by, the deceased party. — Held, that thereby the complainant was made a competent witness under the act of February 25th, 1880 (P. L. of 1880 p. 52), and the canon laid down in Me~ Cartin v. MaCartin, 18 Stem. JEq. 265.

    2. Value of testimony of experts in handwriting discussed.
    On bill for specific performance. Final hearing on pleadings •and proofs.

      ■Mr. Bichard V: Lindabury and Mr. William H. K. Davey, for the complainant.

      Mr. Bobert E. Ghetwood and Mr. Foster M. Voorhees, for the •defendants.
   Pitney, V. C.

This is a bill for specific performance of a written contract in these words:

Lobbaine, March 9, 1892.
“ Know all men by these presents, that William M. Greenwood agrees to work faithfully for Mrs. Eliza R. Thompson as a general manager of all her business, to do any kind of work that he may be called upon to do, for the period of her lifetime, in consideration of the services to be performed, the said Eliza R. Thompson agrees to that William M. Greenwood is her sole-heir to all my real estate and personal property.
“We have signed as above dated. Eliza R. Thompson,
“ W. M. Greenwood.”

Mrs. Eliza R. Thompson, one of the parties to the contract,, died on the 19th of July, 1892, intestate, leaving the defendant,. Mrs. Adelaide H. Henry, her only heir-at-law and sole next of kin. Administration of her estate was granted to the defendant Ogden, and on the 28th of September, 1892, this bill was filed against Mrs. Henry, as heir-at-law, and Mr. Ogden, as administrator, setting out the contract, alleging its performance on the part of the complainant, and that the deceased died seized of real estate in both New Jersey and New York, that in New Jersey being described by metes and bounds, and also possessed of personal property of considerable value which had come to the possession of the defendant Ogden as administrator; praying specific-performance of the contract, and that the complainant may be adjudged and decreed to be entitled to all the property, real and personal, of which Mrs. Thompson died seized and possessed; and that Mrs. Henry may be decreed to convey to the complainant all the real estate of which Mrs. Thompson died seized ; and that the defendant Ogden be required to pay and deliver to the complainant the personal estate of Eliza R. Thompson which may remain in his hands after settlement of his accounts.

Both the defendants answered, denying the execution of the contract by Mrs. Thompson and also its performance by the complainant.

At the hearing the defence mainly relied upon was that the signature of Mrs. Thompson to the contract in question was not genuine, but was forged by the complainant or by his procurement.

The defendant Mrs. Henry was offered as a witness on behalf of the defendants, and testified to conversations and transactions with the deceased and between deceased and the complainant. Subsequently, the complainant was called in his own behalf and was permitted, subject to timely objections made by the- defendants, to give evidence upon the whole case, including conversations and transactions with the deceased, the question of the admissibility of the evidence being reserved for the final hearing.

I conceive it to be convenient to determine this question of competency at the start. The objection raised by the defendants was, of course, based upon the fact that the administrator is sued in a representative capacity, and was not sworn as a witness. On the other hand, the claim for the competency of the evidence is based upon the ground that Mrs. Henry, the heir-at-law and next of kin, is also sued in a representative capacity, viz., as heir-at-law, and was offered and sworn as a witness in her own behalf and testified as above stated; and hence it is claimed that under the canon laid down in McCartin v. McCartin, 18 Stew. Eq. 265, the complainant, as the opposite party, is rendered competent to give testimony on all subjects.

If this suit had been confined to a recovery of the realty, and Mrs. Henry was, as well she might be, the only party defendant, the complainant’s position would have been above dispute, for Mrs. Henry would have found herself in this dilemma: if she was not sued in a representative capacity, then complainant was clearly competent; if she was sued in a representative capacity, she had rendered him competent by offering herself as a witness and testifying in her own behalf within the interdicted range.

The real merits of the question are not changed by the fact that complainant, by his suit, claims the personal estate as well as the realty, and makes the personal representative a party, since Mrs. Henry is sole next of kin as well as heir-at-law, and is,the only person in the least degree interested adversely to the complainant in any part of the estate. The amount of the indebtedness of deceased was but trifling as compared with;the.amonnt of the personal estate, so that Mrs. Henry, as sole next of kin, was clearly master of the suit and entirely responsible for being called as a witness.

Nevertheless, the bar of the statute against the evidence in question remains, unless Mrs. Henry was sued in a representative capacity, and its competency must be determined accordingly.

The precise question arose in Colfax v. Colfax, 5 Stew. Eq. 206, an exactly similar case, and it was there decided by Chancellor Runyon that the heir was sued in a representative capacity, ■and that the complainant, who stood precisely as does the complainant here, was not a competent witness unless made so by the action of the defendant.

The same rule was laid down by the supreme court in the very recent case of Joss v. Mohn, 26 Vr. 407. That was an action, brought upon contract for money loaned, against the devisee of the original borrower, and it was held that the defendant was sued in a representative capacity, and that the plaintiff was not competent. That decision renders it unnecessary for me to consider whether or not the intervening cases of Hodge v. Coriell, 15 Vr. 436; S. C. on error, 17 Vr. 354; Palmateer v. Tilton, 13 Stew. Eq. 555, and Crimmins v. Crimmins, 16 Stew. Eq. 86, can be reconciled with the earlier case of Colfax v. Colfax.

The defendant Mrs. Henry, being thus sued in a representative capacity, and having been offered and sworn as a witness in her own behalf, and having testified to conversations with, and transactions by, her ancestor, she thereby, under the canon laid down in McCartin v. McCartin, rendered the complainant competent to give testimony on all subjects.

[Here follows a statement of facts and discussion of evidence.]

Now I stop here to say that I put a high value upon the evidence of a competent expert, so far as that evidence points out differences and similarities and other grounds upon which a juryman or a judge, acting as such, may form a judgment as to the genuineness of the signature.

In this case the evidence of Mr. Ames was of great assistance to me. I sat by his side while he gave it, attended carefully to every word he said and to every gesture he made and followed •each' item of his evidence as he went along. I have since gone all over his evidence with the same care, spending a great deal •of time upon it and examining with the utmost care the disputed signatures and the standards used by him and many other standards not used by him, and without going into details I will say that he has not satisfied me that the signatures are forged. I place little or no value upon his judgment expressed under oath, for the simple reason that it was not formed under such circumstances as to be impartial. He knew which signatures were ■suspected when they were submitted to him for examination, and he also knew what judgment would be agreeable to his ■employers, and experience has shown that in such case the mere ■sworn judgment of an expert is of little value.

[Here follows a discussion of the evidence.]

These considerations lead me to the conclusion that it was the ■duty of complainant to protest against this testamentary disposition if he did not. intend to observe it; and having not only failed to protest, but having, as already remarked, substantially promised to carry it out and permitted Mrs. Thompson to suppose that he would do so, he came under a corresponding obligation in equity.

It is proper to add that when this aspect of the case was pressed upon the learned and cautious counsel for the complainant he very frankly conceded its strength and substantially assented to the view above expressed.

I will advise a decree in accordance with the above views. The provision in favor of Mrs. Henry will be enforced upon condition that she shall place at the disposal of the court the title to the real estate in New York state, free and clear of any encumbrance put upon it by herself.

I have not considered what lights Charles W. Greenwood may have under the so-called will.- He is not a party to these proceedings.

Unless the parties can agree upon some arrangement, the appointment of a trustee and the establishment of a fund will be necessary to raise the annuity for Mrs. Henry.

I will hear counsel as to the details of the decree and the question of costs.