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    Canadian Improvement Company et al. v. J. Tatnall Lea et al.
    [Decided March 12th, 1908.]
    1. Complainant being indebted to defendants and others, particularly to the province of Ontario, desired to renew its notes to the latter, which demanded as a condition precedent that it secure a renewal from the other creditors also, and accordingly complainant entered into an agreement with defendants, consisting of a letter and a formal agreement, the letter reciting that in consideration of defendants’ bank signing the attached agreement complainant agreed to cause to be transferred to defendants or their nominees, before the maturity of the notes, certain stock of the S. company pledged with defendants as collateral, with express power to vote thereon, and also to procure the resignation of two directors of that company, to be filled by defendants’ nominees, and the formal agreement signed at the same time stipulated that in consideration of the Ontario government renewing the loan to complainant defendants agreed that on payment to it of ten per cent, of its indebtedness at maturity to renew the notes for the balance, to be secured by the same collateral, the agreement not to be binding unless signed by the holders of ninety per cent, in value of the notes of complainant company, and time to be of the essence of the agreement. The Ontario government renewed its notes, but complainant was unable to raise the ten per cent, payment agreed upon, and some two months thereafter a new paper was drawn and signed by the parties, which was the same as the former agreement, except eliminating the provisions for payment of ten per cent, of the indebtedness and requiring all the holders of the notes to sign, and striking out the provision making time of the essence.- — Held, that, while the letter referred in terms to the first agreement, it did not become inoperative when that agreement was modified, and the second agreement was nothing more than a change in the terms of the first agreement, and the letter continued a part of the contract.
    2. While defendants had a right, under the agreement, to insist that complainant secure the election of two directors of their nomination and give them the voting power of the stock, before maturity of the notes and their renewal, they did not lose that right by renewing without requiring this done, since that was one of the considerations upon which the agreement for the renewal was based.
    3. If complainant’s agents, when they made the agreement with defendants to transfer the pledged stock and to secure the appointment of the directors, did not have any authority to do so, complainant must either accept the contract as a whole and be bound thereby, or repudiate the contract in its entirety, and restore defendants to their position before making the contract.
    4. P. L. 1896 p. 290 § 81 provides that every person pledging stock as collateral may represent it at all meetings, and vote thereon as a stockholder, unless in the transfer to the pledgee on the books of the corporation he shall have expressly empowered the pledgee to vote thereon, when only the pledgee may vote thereon. In consideration of defendants’ renewing certain notes, complainant agreed to transfer to them certain stock pledged as collateral for the notes, and to insert in such transfer on the corporate books express power to vote the stock. — Held, that the statute applied to cases in which a transfer gave notice to the corporation that the transferee was a pledgee, and as between the corporation and the parties to the transfer the corporation must recognize the registered holder, and the legal title of the stock being vested in defendants on the corporate books, they had the right to vote it.
    5. The right of a pledgor to vote stock, the legal title to which is in his pledgee, must be obtained by application to equity for a proxy, and the court, if it finds that the pledgee is under obligations to give the^ proxy, will so decree.
    Heard on bill, answers, cross-bills and answers, with respective replications and proofs in open court.
    The bill in this case charges that the complainant Canadian Improvement Company is the the owner of fifty thousand shares of the capital stock of a corporation named Lake Superior Corporation; that the said complainant had pledged this stock with certain banks and bankers in the city of Philadelphia and elsewhere for loans made upon notes of the complainant company aggregating $2,732,000; that the stock in question was issued in the names of Charles E. Orvis and John T. Terry, Jr., who held it for the complainant company; that the stock certificates so transferred in pledge had the power of attorney on the back of each, signed by these persons in whose names the certificates stood; that the loans, to secure which the certificates were deposited, were made upon the 28th day of May, 1907, and ran for one year; that in the early part of September, 1907, the pledgees ■ in each case procured the Lake Superior Corporation to transfer upon its books each certificate of stock to the pledgee thereof, and that these present. holders of record claimed the right to vote the said stock, which the complainants charge, under the law of New Jersey, they had no right to do. The complainants, therefore, prayed an injunction to prevent the persons or corporations into- whose names the certificates of stock had been transferred from voting upon the same.
    The answers set out that the loans of the 28th of May, 1907, were renewals of previous loans made three years prior to that date and maturing on that date; that the certificates of stock had been deposited as collateral with these earlier loans; that the complainant company, in March of 1907, was desirous of procuring an agreement for the extension of the loans to fall due on the 28th of May, 1907; that this desire was prompted by the fact that a million dollars of loans of this complainant company were -obtained from lenders in Canada and were guaranteed by the government of the province of Ontario; that these Canadian loans fell due on the 1st of April, 1907, and the government of the province aforesaid would not consent to renewing the guaranty unless the loans at Philadelphia aforesaid, maturing on the 28th of May, were likewise extended for the period desired, namely, one year; that in pursuance of a desire to secure favorable action by the province of Ontario and a renewal of the notes in Philadelphia, the complainants, acting through the agency of one Clergue, agreed with the bankers, the defendants, on the 27th day of March, 1907, that the stock held by each of the bankers as collateral should be transferred to them with an express power to vote upon the same, and that it was upon this condition that the bankers agreed to renew the loans. They allege that the complainants also agreed to displace immediately two of the existing directors of the Lake Superior Corporation and put in their places two persons selected by the defendants.
    Since, in the findings of fact hereafter to be stated, fuller reference will be made to these matters, it is not deemed useful to expand this statement of the pleadings.
    The answer has accompanying it a cross-bill in which the defendants charge the above facts and pray that it be decreed that they should have from the complainant company an express power to vote, or that the status quo ante should be restored, and the parties should be placed in the position in which they were on the 28th day of May, 1907, namely, that the bankers, the defendants, should have their notes defaulted upon without any agreement to renew the same.

      Messrs. Vredenburg, Wall & Carey, for the complainants.

      Mr. J. Floyd Clarice (of the New York bar), of counsel with the defendant Lake Superior Corporation.

      Messrs. McCarter & English, for all the other defendants.
   Garrison, V. C.

The Lake Superior Corporation is the successor of a previous corporation termed the Consolidated Lake Superior Company. It is the owner of a large plant at Sault Ste. Marie. The original corporation, the consolidated company, got into financial difficulties, and in 1904 was reorganized, and the present company succeeded to it. In the reorganization the Canadian Improvement Company, the complainant herein, was the underwriter. In the course of its underwriting it borrowed some five millions of dollars. For a portion of the money it procured a guaranty from tlie government of the province of Ontario. For the money borrowed at Philadelphia it gave its notes accompanied by fifty thousand shares of stock of the Lake Superior Corporation as collateral.

The notes guaranteed by the province of Ontario came due on the 1st of April, 1907. The notes at Philadelphia (and elsewhere, although always treated by the parties as and called by them “the Philadelphia loans”) came due on the 28th day of May, 1907.

In the latter part of the month of March, 1907, the complainant company sought to renew its notes in Canada for a year, and to obtain a continuance of the government guaranty. At this time the board of directors of the Canadian Improvement Company consisted of seven, namely, Orvis, Terry, Jr., Terry, Sr., Olergue, Moore, Hinchman and Hobby, Orvis being president and Terry, Jr., secretary and treasurer. Messrs. Orvis and Olergue were at Toronto around the 24th and 25th of March, 1907, endeavoring to effect a settlement of these questions with the provincial government. In the course of their negotiations the provincial treasurer wrote a letter to the treasurer of the complainant company as follows:

“Toronto, March 25, 1907.
“John T. Terry, Jr., Esq., Treasurer, The Canadian Improvement Co., 100 Broadway, New York, N. Y.:
“Dear Sir — The Government of Ontario favorably considered the application of the Canadian Improvement Company for an extension of the Guarantee of the loan of that Company for $1,000,000 which is secured by various stocks and bonds, including a special lien upon the Algona Central and Hudson Bay Railway and the Manitoulin and North Shore Railway, which loan falls due on the 1st of April, 1907.
“But the Government desires, that you procure an Agreement of the various creditors of your Company whose loans mature May 28th, and June 1st, 1907, to an extension of their loans.
“As the Government understands that provision for the payment of these loans cannot be-made in the present state of the money market, they are willing to assist by making this renewal of the Guarantee, but it is evident that the object of Government in such renewal, namely, to aid the safe establishment of the important industries at Sault Ste. Marie, would be defeated if renewal of these loans should be refused at their maturity.
“Yours faithfully,
“A. J. Matiieson,
. “Provincial Treasurer."

Taking this letter with them, Messrs. Clergue and Terry went to Philadelphia to negotiate with the Philadelphia bankers for an extension of the loan falling due on the 28th of May, 1907. A Mr. Rowell, a member of the bar of Toronto, was also retained by the complainant company to go to Philadelphia in this same matter.

J. Tatnall Lea, the president of a Philadelphia bank, and Francis B. Reeves, also the president of a Philadelphia bank, were two of the directors of the Lake Superior Corporation, having been elected to look after the large interests of those who had loaned money to the improvement company in its underwriting of the Lake Superior Corporation.

A meeting was had at Philadelphia on the 26th day of March, 1907, between Mr. Terry, Jr., Mr. Rowell and»Mr. Clergue on behalf of the Canadian Improvement Company, and Messrs. Lea and Reeves.

Either the letter from the provincial treasurer, above quoted, was shown to Lea and Reeves, or its contents were stated to them, and they were requested to agree to an extension of the loans falling due on the 28th of May, 1907, for the period of one year. They at first suggested that they would not contemplate an extension unless twenty per cent, of the face of the notes was paid on account. Subsequently, this amount was reduced to ten per cent. Those acting on behalf of the Canadian Improvement Company stated that they had no authority to agree to any cash payment, and would have to go back to headquarters to obtain the same. Before a final separation on that night Mr. Lea stated to Mr. Clergue, in a conversation held between them apart from the others, that the Philadelphia parties were entitled to four directors In the Lake Superior Corporation under the understanding between them, and that he would not advocate any renewal of the loans falling due on the 28th of May, 1907, unless the right to vote upon the pledged stock was expressly guaranteed to the pledgees.

Without now deciding what weight is to be given to the fixed impression that I have, I will state that I find that at that time the purpose of Mr. Lea, in insisting upon the voting power, was so as to insure the election of the four directors to which he claimed the Philadelphia parties were entitled.

Nothing, was determined upon whatever at this meeting, and Clergue, Rowell and Terry, Jr., returned to New York, where the office of the Canadian Improvement Company was.

The next morning, in the course of a telephone conversation, Mr. Lea renewed his insistment concerning the lodging of voting power upon the stock in the pledgees thereof, and that night, namely'’, the 27th of March, 1907, Mr. Rowell returned to Philadelphia and spent the evening with Mr. Lea, endeavoring to get him to recede from the position which he had taken concerning the immediate displacement of two directors so that two more, together with himself and Reeves, might be upon the board of the Lake Superior Corporation as the four directors to which the Philadelphia parties claimed they were entitled and the express power to vote upon the pledged stock.

Mr. Clergue reported to Mr. Orvis concerning Mr. Lea’s demands, and also, I think it is clear, talked with the Terrys concerning the same. It is not proven that he was given any express authority to accede, nor is it proven that he was expressly directed not to accede.

Mr. Rowell failed in his attempt to get Mr. Lea to recede from his demands, and the attorney for the banks, Mr. Fletcher, was directed upon the morning of the 28th of March, 1907, to prepare a written agreement expressive of the understanding between the parties. It was stated to Mr. Fletcher that it was the desire of Mr. Clergue, acting on behalf of the improvement company, that any agreement concerning the number of directors to which the Philadelphia party should be entitled and the voting power upon the stock should be separate from the paper containing the renewal agreement to be signed by the various banks. Two papers were therefore prepared by Mr. Fletcher, assisted by Mr. Rowell, acting for the improvement company. They were dated March 27th, 1907, although prepared upon the 28th of March. These two papers were taken by Mr. Rowell to the bank of which Mr. Lea was president, where, upon the morning of March 28th, were gathered Mr. Lea, Mr. Clergue and Mr. Rowell-. Mr. Rowell explained to Mr. Clergue that he had failed to get Mr. Lea to recede from the demands, and that the agreement as Mr. Lea .was willing to assent to it was represented by the two papers above mentioned.

Up to this point I think there is little or no conflict in the testimony of the respective witnesses. But as to just what happened at the time these papers were presented there is dispute.

I shall not quote from the testimony, but shall state my findings of fact. I find that when these papers were presented to Clergue and he was informed that they represented that to which Mr. Lea would assent and would advocate the acceptance by the other banks, he stated that he had authority to close the matter, and signed the paper containing the conditions concerning the directors and the voting power. Throughout the case this has been called “the Clergue letter,” and is as follows:

“J. Tatnall Lea, Fsq., Pres., First National Banh, 815 Chestnut St., Phila. :
“Dear Sir — In consideration of your bank signing the agreement, a true copy of which is hereto annexed, and of the other holders of notes referred to in said agreement signing the same to the extent in said agreement mentioned, the Canadian Improvement Company agrees forthwith, and in any event before the 28th day of May, 1907.
“I. To cause to be transferred into the names of the parties signing the said agreement, or their nominees, the stock pledged with them respectively as collateral security for the payment of the promissory notes of the Canadian Improvement Company held by them respectively, and to cause to be inserted in such transfers on the books of The Lake Superior Corporation an express power to the respective pledgees to vote thereon.
“II. To procure the resignation of two of the present directors of The Lake Superior Corporation, and to cause the vacancies created thereby to be filled by persons nominated by the Philadelphia bankers signing the said agreement.
“The word ‘bankers’ herein shall be deemed to include all the financial institutions executing the said agreement.
“The Canadian Improvement Company further agrees to execute and do all such further assurances and things as shall reasonably be required by the parties signing said agreement to give them the full benefit of this agreement.
“It is expressly understood and agreed that unless the above conditions are complied with the said agreement for extension, a true copy of which is hereto annexed, shall be null and void.
“Yours very truly,
“The Canadian Improvement Co.,
“By F. H. Clergue.
“Philadelphia. March 27th, 1907.”

After it was signed Mr. Rowell suggested that it would perhaps be better if it were also signed by Mr. Orvis as president of the company, and should have the seal of the company placed upon it; there was also a suggestion that it would be well to have it ratified by the formal vote of the directors of the company. At any rate, the letter itself, after it was signed, was given by Mr. Lea to Mr. Rowell for the purpose of having him take it back to New York, to have some one of these things done with it by or on behalf of the impi ovement company.

Immediately after the Clergue letter was signed the parties busied themselves with getting the signature of the various pledgees or lenders to the renewal agreement, so-called, which is as follows:

“In consideration of the Government of the Province of Ontario extending the time for payment of the one million dollar ($1,000,000) loan due by the Canadian Improvement Company on the first day of April a. d. 1907 and guaranteed by the said government, we, the undersigned, being severally the holders of promissory notes of the said Canadian Improvement Company bearing date the 28th day of May, A. D. 1904 and payable three years after date for the amounts set opposite our respective names hereunder, severally covenant and agree with the Canadian Improvement Company that on payment to us respectively of ten per cent. (10 f>) of the face amount of our said respective notes on the date when the said notes fall due, together with all interest then due thereon, we will renew the said promissory notes for the balance, or ninety per cent. (90 ¡É) of the face amount thereof, for the period of one year from the said 28th day of May, A. D. 1907, the renewal notes to be in the same form, to bear the same rate of interest, and to be secured by the same collaterals as the notes now current.
“This agreement not to be binding on the undersigned unless signed by the holders of notes of the Canadian Improvement Company falling-due on the said 28th day of May, a. d. 1907, holding at least ninety peícent. (90$) of the total amount of said notes. Time to be of the essence of this agreement.
“Dated at Philadelphia this 27th day of March, a. d. 1907.”

Endeavors to get signatures to this agreement continued for a long time. The Ontario government did make its renewal of guaranty on the 1st of April, 1907. Along in May, 1907, the improvement company found itself unable to raise sufficient money to pay the ten per cent, provided for in the above-quoted renewal agreement. It thereupon sent Mr. Clergue to Philadelphia to secure a change in that term of the above agreement. This he accomplished, and a new paper was drawn np, which, as will be seen, only varies from the first paper by substituting additional collateral for cash and by striking out the provision for ninety per cent., signing and requiring the signatures of all creditors, and by eliminating the statement that time is of the essence.

The latter paper is as follows:

“In consideration of the Government of the Province of Ontario extending the time for payment of the one million dollar ($1,000,000) loan due by the Canadian Improvement Company on the first day of April, a. d. 1907, and guaranteed by the said Government, we, the undersigned, being severally the holders of promissory notes of the said Canadian Improvement Company bearing date the 28th day of May, a. d. 1904, and payable three years after date for the amounts set opposite our respective names hereunder, severally covenant and agree with the Canadian Improvement Company that on delivery to us respectively on the date when said notes fall due, of an amount in first mortgage and collateral trust bonds of the Lake Superior Corporation equal at ninety per cent. (90 jí) of their face value, to ten per cent. (10 #) of the amount of our respective notes as additional security for the payment of the indebtedness evidenced by said notes, and on payment to us respectively on the first day of June, 1907, of all interest then due on our said respective notes, we will renew the said promissory notes for the period of one year from the said 28th day of May, a. d. 1907, the renewal notes to be in the same form, to bear the same rate of interest, and to be secured by the same collateral as the notes now current, and in addition thereto the said bonds provided to be delivered on the date when said notes fall due.
“This agreement not to be binding on the undersigned unless signed by all the holders of notes of the Canadian Improvement Company falling-due on the said 28th day of May, A. D. 1907.
“Dated at Philadelphia, this 21st day of May, A. D. 1907.
“Witness. Name. Amount.”

This paper was signed by all of the parties in interest, and on the 28th day of May, 1907, the additional collateral and the new notes were tendered by the improvement company and accepted by the banks, and the old notes surrendered by the banks to the improvement company.

The theory of the draftsman of the bill of complaint evidently was that, since ninety per cent, of the note holders in question did not sign the agreement dated March 27th, 1907, the contemporaneously signed paper termed the Clergue letter was inoperative because it was so- integrally a part of the March :27th paper that it fell with it. I cannot agree with this contention. I think it perfectly evident from all of the testimony and the written papers that it was clearly understood between the parties who were carrying on the negotiation that the extension asked for would only be granted if the demands made on behalf of the Philadelphia, bankers were met. Those demands were incorporated in what has been termed the Clergue letter. That letter, it is true, refers in terms to- the agreement dated March 27th, 1907. But, in my view, what was after-wards done was nothing more than changing certain terms of the March 27th, 1907, agreement, and the rest of the agreement stood as theretofore. In my opinion the case must be viewed as if all of the terms of the agreement were stated on one piece of paper, which, at first, was dated March 27th, 1907, and after-wards this identical piece of paper had erased from it certain terms and others inserted in their place.

It is necessary, therefore, to take upi the consideration of the-matter as if the agreement dated May 21st, 1907, and the so-called Clergue letter were one document.

Yiewed in this light, the first question to be determined is-whether they constitute an agreement binding upon the Canadian Improvement Company. It is not pretended by anyone that the company itself, by the formal action of its board of directors, ever either authorized the contract or ratified it. When Mr. Clergue and Mr. Rowell returned to New York on the evening of the 28th of March, 1907, they had with them — or rather Rowell had — the Clergue letter. On the next morning the letter itself was shown to the Terrys, senior and junior, and its contents were disclosed to Mr. Orvis. The testimony shows that Mr. Orvis violently opposed the carrying out of the terms of the letter, as did also the Terrys. Mr. Rowell returned the letter to Mr. Lea, writing as follows:

“As requested, I beg to hand you herewith seven (7) copies of the-Agreement as executed in Phila. yesterday, for the different Banks and Trust Companies executing- same. I also enclose seven (7) copies of Mr. Clergue’s letter for the different banks and Trust Companies.
“I find that we overlooked yesterday the Franklin Bank, and I have-this day phoned Mr. Fletcher to speak to you about obtaining their signature to the Agreement. I presume that there will be no difficulty-in obtaining this.
“Mr. Clergue was not able to arrange for a Meeting of tbe Directors of the Improvement Company to-day, to formally ratify the letter signed' yesterday on behalf of the Canadian Imp. Company, and as he is leaving to-night for Toronto, the matter will have to stand over for a few days. I therefore return the original herewith, as signed by Mr. Clergue, together with further letter from Mr. Clergue, in which he promises to have the letter formally ratified at the earliest practicable date. All the New York people have signed, except Mr. McHarg, who is out of the city, but Mr. Clergue is to reach him by Telegraph.
“Kuhn, Loeb & Co., however, exacted as a condition of their signature, that all the note holders should sign, and they endorsed this on the face of the agreement. Under these circumstances it becomes necessary to have all the Philadelphians — including the small ones — execute the agreement.
“I was pleased to hear from Mr. Fletcher of the very satisfactory progress he had made; he expects to close up the matter with you to-morrow forenoon.
“Yours very truly,
“N. W. Rowell.
“P. S. — Did not have time make copies Mr. Clergue’s letter. N. W. R.”

and Mr. Clergue on tlie same day also wrote to Mr. Lea. as follows :

“I find that it will be impossible to arrange for a meeting of the directors of the Canadian Improvement Company before I leave the city, to formally ratify the letter I gave you yesterday on behalf of the Improvement Company In re Extension of the Improvement Company Loans, but I will have the letter formally ratified at the earliest practicable date.
“As the Extension agreement was handed over by you on the terms of a letter signed by me, unless the letter is formally ratified by the Improvement Company, and the terms therein duly carried out, the Extension Agreement, of course, does not go into effect.”

It is the contention of the complainants that since no ratification ever was had, the defendants must be presumed to have acted without reliance upon the provisions of the Clergue letter, and to have made the renewals upon other, considerations and without the right to avail themselves of the consideration contained in that letter.

The force of any decision so much depends upon the constrhction to be placed upon the letter if viewed as a contract that I think it useful to take up the consideration of that question before determining the other.

Broadly speaking, there are two views to be considered.

One view is that, by the terms of this paper, the improvement company bound itself to displace two directors and replace them with, nominees of the Philadelphia bankers and to give an express power to vote to the pledgees of the stock, provided the banks should renew the notes.

The other view is that the Canadian company secured from the banks what might be termed an option to renew, so that if the improvement company should displace two directors in the Lake Superior Corporation and should give them the voting power, then the banks would be bound to renew the notes.

The reasonableness of considering the construction of the Clergue letter first will be seen because if the latter construction is found to be the true one, then, of course, it is utterly immaterial whether the improvement company ever authorized or ratified the contract .or agreement contained in the Clergue letter, or shall be held to be estopped with respect to it, because, if the whole thing were tentative and optional, the improvement company: could do as it chose and would only be bound in case it acted by displacing the directors and giving the voting power.

I am clearly of opinion that it was the intention of the negotiating parties concerning this most important matter that the power to determine whether a renewal should be had or not rested with the banks, who' were not to be bound to renew unless upon tire date of the maturity of the notes to be renewed, the improvement company had completely carried out its obligations. The question, however, is whether, failing to insist upon the execution by the improvement company, of its obligations, and renewing without obtaining fulfillment of the same, the banks have now lost, or, perhaps more correctly stated, after the renewal never had the right to insist upon the fulfillment thereof.

The case was argued with thoroughness and ability by the various counsel, but no one of them furnished the court with any authority the facts of which so nearly resembled those in this case as to make the principle applied at all useful. It will have to be considered, therefore, rather-in the light of reason than of authority. Viewed thus, it seems to. me that the proper finding of tire relations of the parties is as follows: The improvement company, being urgently desirous of securing an agreement to extend tbe loans maturing May 28th, in the month of March, 1907, so as to aid them in procuring an extension of the guaranty of the provincial government of the loan falling due there April 1st, 1907, secures from the banks or their representatives, signatures to an agreement based upon certain considerations, among them the having of two additional directors and the giving of a voting power upon the stock deposited as collateral. While it was within the power of the banks to have insisted upon the fulfillment of these obligations before the maturity of the notes of May 28th, 1907, and the renewal thereof, they did not lose that right by renewing without insisting. It was one of the considerations upon which the renewal was procured. Its performance may therefore be insisted upon by those in favor of whom the consideration ran.

If what was done and written between the parties is to be treated as a contract made by an agent on behalf of a principal, then I think the utmost right of the improvement company is to either accept the contract in its entirety and be obligated to carry it out; or, if it stands upon the ground that it did not know, at the time that it partially performed the contract, what the terms made by its agent were, and has not ratified the same, then its right is to repudiate the contract in its entirety and restore the other party to the position in which it was before any attempted change was made.

I think it undoubtedly true that the Philadelphia bankers were induced to make the renewal because they believed that the written papers gave them certain considerations, namely, the additional collateral, the two additional directors, and the power to vote upon the stock. I do not find that they were required by any principle of law to insist upon the performance of the consideration ; and I find that they have the right — viewing what was done and. written as a contract — to perform their part as they have done, and call upon the other party to perform its part. This, as I have just said, is so if it is viewed as a contract.

If, on the other hand, the improvement company makes good its contention that it did not know all of the terms agreed upon by its agent assuming to act on its behalf, then the utmost limit-to which it is entitled to rights, as I find, is to repudiate the contract in its entirety and restore the status which existed at .the time that the attempted change .was made.

The embarrassment in which I would find myself in determining the question of ratification by other than formal action, or by estoppel, if that be the more correct term to apply to the situation, is, I think, relieved by the action of the defendants in their cross-bill. It is proven beyond question that, of the seven directors of the improvement company, four at least, Clergue, Orvis and the two Terrys, knew of the agreement signed by Clergue on behalf of the improvement company; and, in face of this knowledge, they, on the 28th of May, 1907, did renew the notes and secured the benefit thereof. To adopt the view contended for by the complainants it would be necessary to find that the contract for renewal was made on the day of the renewal, or was made on the 21st day of May, 1907, the day of the last-signed paper. But, in my view, this is not a correct inference from the facts. I think it clear that the renewal was in consideration of the extension by the provincial government of its guaranty, of the receipt of cash or securities, of the concession of two additional directors, and the right to vote upon the stock; that some of these terms were fixed in the first negotiation and set down in the first written paper, which was varied later, at the request of the improvement company, by eliminating the cash and substituting the additional collateral in its place; but that the provisions in the Clergue letter were settled as consideration moving to the banks, and were part of the transaction.

I am of opinion that one circumstanced as this complainant company was may not retain the fruits of a contract made on its behalf by an agent without fulfilling all of the obligations on its part assumed on its behalf by the same agent in the same negotiation. Whether the improvement company has proven in this suit that it is not to be held to have ratified the agreement made on its behalf by Clergue, or to be estopped to deny it, is as I have before said, not necessary for me to determine, because, the defendants by .their cross-bill, have offered to agree to a mutual rescission of the contract, or to act as if there were no contract and •have the status quo ante restored. This latter is the utmost limit of what I find the complainants would be entitled to under the circumstances.

My conclusion is that the improvement company must elect either to repudiate the entire contract and restore the status quo ante — that is, give back the old notes, which would then be due as of the 28th of May, 1907, and receive back the additional collateral deposited with the pledgees; or to be bound to carry out the terms of the Clergue letter by giving the two additional directors to the defendants and giving them an express power to vote on the stock.

With respect to this express power the defendants have again limited themselves by an offer made in open court that the court shall restrict their right to vote thereon to the question of directors, so that they may not use the power to vote for any other purpose than in the election of the directors.

In my view it will not be necessary to issue a mandatory injunction under the cross-bill requiring the complainants to give to the defendants an express power to vote upon the stock. This is so because of the situation existing at the time of the filing of the bill, which situation also, I think, reinforces the conclusions arrived at and stated by me above. It will be recalled that at the time of the filing of the bill the stock in question had been transferred upon the books of the Lake Superior Corporation to the defendants by force of powers of attorney duly signed by the holders of the stock.

Under our statute, section 40 (P. L. 1896 p. 290 § 37), this indisputably vested the voting power, in the defendants. The complainants seek an injunction to prevent the defendants from voting upon the stock, the legal title to which is thus vested in them, and contend that by virtue of the thirty-seventh section of our Corporation act they are entitled to such injunction. So much of that section as is relevant reads as follows:

“* * * Every person who shall pledge his stock as collateral security may, nevertheless, represent the same at .all'such meetings, and may vote thereon as a stockholder, unless in the transfer to the pledgee on the books of the corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the_ pledgee or his proxy may represent said stock and vote thereon.”

I think this statute was intended to apply to eases in which the stock was transferred to one as “pledgee,” or, at least, to-cases in which the transfer gaye notice to the corporation that the transferee was a pledgee. Certainly, as between the corporation and the panties, the corporation was not intended by this statute to have the burden cast upon it of determining the question, as between the parties, as to whether the transfer was in pledge or not. The duty of the corporation is to recognize the registered holder shown on its transfer books.

As was said in the case of Argus Printing Company, 12 L. R. A. 781: “It would indeed be a startling doctrine that The legality of business transacted at stockholders’ meetings should be subject to the ultimate decision of complicated questions arising between different claimants of the same stock/ ”

In the same case it is clearly pointed out that the right of a pledgeor to vote upon stock, the legal title to which is vested in his pledgee, must be obtained by application to a court of equity for a proxy, and that court, if it finds that the pledgee is under an obligation to give a proxy, will SO' decree.

It will be seen, therefore, that tire situation existing at the time of the filing of this bill was such that the defendants had the right to vote upon this stock unless there was some agreement or some legal or equitable reason why the complainants, the pledgeors, should have this right. I do not find that the complainants have proven any legal or equitable right to compel the defendants to give them a proxy, even if they had prayed for that relief, nor do- I find that they have sustained the burden of showing any equitable reason why an injunction should issue to restrain the defendants from exercising the right to vote upon the stock the legal title to which is vested in them.

The terms of the decree may be settled upon notice.


source: Caselaw Access Project

author: Leaming, V. C.

license: Public Domain

text:
    Robert H. McCarter, attorney-general, ex rel. v. Nelson Y. Dungan et al.
    [Submitted February 10th, 1908.
    Decided February 14th, 1908.]
    1. The power and duty to regulate and control the use of armories being conferred on the state military board, acting as an armory board, by State Militia act (P. L. 1906 p. 482 § 114), providing that such board shall have full charge of armories, and shall issue from time to time regulations for the control and use thereof, the court will not assume to exercise such duties, unless necessity therefor is clearly apparent.
    2. Under the statements in affidavits for the defence, in a suit to enjoin use of an armory for dancing and roller skating — Held, that it must be assumed the regimental officers in charge had in good faith inaugurated the amusements for the good of the guard; that the military board, entrusted with the general powers and duties of regulating and controlling the use of armories, deems such uses conducive to the military needs of the regiment; that it could not be assumed that the uses were inconsistent with the general purposes for which the armory was intended ; and that therefore a temporary injunction could not issue.
    3. A bill for injunction, in effect, charging that an armory is being applied by the regimental officers in immediate charge to uses which are in no sense military uses, that such officers are conducting a private business in the armory for commercial purposes and with intent to injure the business of relators, and that the business is destructive of the armory, states a cause of action.
    4. The persons in immediate charge of an armory, who are stated to be using it for improper purposes, are the only necessary parties defendant to a suit to enjoin such uses.
    On bill by the attorney-general and relators to restrain certain use of the Second Eegiment armory at Trenton.
    The bill is filed by the attorney-general,' in behalf of the state, upon the relation of Barker G. Hamill and others, to restrain the officers of the Second Eegiment of the National Guard, now in the immediate charge of the state armory at Trenton, from using the armory building for roller-skating and dancing. The cause has been heard, at the return of an order to show cause, on the bill and affidavits filed by the respective parties.

      Mr. John H. Baches, for the complainant.

      Mr. Peter A. V. Van Doren and Mr. Barton B. Hutchinson, for the defendants.
   Leaming, V. C.

Section 114 of the State Militia act of 1906 (P. L. 1906 p. 482) contains the following provision:

“The state military board shall be the armory board, with full charge of armories, and shall issue from time to time regulations for the control and use thereof.”

It will thus be seen that the legislature has delegated to the state military board, acting as an armory board, the power and duty to regulate and control the use of the armory buildings of the state. This court will not assume to exercise the duties thus conferred upon a state board unless the necessity for such course is clearly apparent. It may be assumed that the distinctive purposes for which our armories are primarily intended are military purposes; but the term military purposes, thus used, must be understood to comprehend all such uses as may be said to be incidental to the general purpose to conserve the military needs of the regimental organization. Military balls and other entertainments which are frequently given at armories cannot be said to be for military purposes except in the sense that they contribute to the interest and good feeling of the members of the military organization. In that sense they are clearly consistent with the general purposes for which the armory buildings are intended. On the other hand, it seems equally apparent that an armory could not be properly devoted to a purely commercial use in disregard of military needs. In this view the issue now presented is essentially one of fact. On the part of complainant it is asserted that on the afternoons and evenings of Wednesdays and Saturdays the assembly or drill hall of the armory at Trenton is thrown open to the public for the purpose of roller-skating and dancing, and that an admission fee is charged for its use. The bill charges that this is done by the regimental officers now in the immediate charge of the armory building for the purpose of pecuniary gain and profit of the regiment and with a view to injure relators who are interested in skating rinks in the same city. It is also alleged that the roller-skating will injure the floor of the assembly hall. On the part of defendants affidavits are filed by the adjutant-general of the state and several regimental officers. By these affidavits it is asserted that dancing and skating have been introduced at the armory at the times stated in the bill for the primary purpose of affording amusement and diversion for the members of the national guard and their friends, and in no sense for profit or with any design or purpose to injure others; that the admission fee is charged for the purpose of defraying the extra expenses of light, heat and music, and not for the purpose of carrying on a business, and any surplus arising from receipts in excess of expenses is paid to the treasury of the regiment. The affidavits state with ¡oositiveness that in order to maintain a proper esprit de corps amusements must be furnished to the members of the guard, and that the use of the armory now complained of has for its primary object that purpose, and that the admission fee is charged because no appropriation exists from which the expenses could be otherwise defrayed. It is also stated that the skating and dancing are arranged for hours when the use of the armory is not needed for other purposes. The affidavit of the adjutant-general, who is a member and recording officer of the state military board and armory board, discloses that on February 5th, 1907, a formal action was taken by the board touching the use of the armory building at Camden for skating and dancing, and that the use was approved by the following resolution:

“That such use of the armory is not improper, being held under the auspices and authority of the regiment and approved by the custodian of the armory, and for the financial support of the regiment,”

It is also stated by one of the regimental officers that the floor of the Camden armory is similar to the floor of the armory in Trenton, and that the use of the floor of the Camden armory for roller-skating for two successive winters has not injured it. In view of these statements upon the part of the defence it is apparent that this court cannot at this time properly grant a preliminary injunction. From the present record it must be accepted as a fact that the regimental officers now entrusted with the immediate control and use of the armory building have in good faith inaugurated these amusements believing them to operate to increase the interest of members of the guard and strengthen the organization, and that the military board which the legislature has entrusted with the general powers and duties of regulating and controlling the use of the armories deems the present use of the Trenton armory conducive to the military needs of the regiment. It is, therefore, manifestly impossible for this court at this time to assume that the uses now complained of are inconsistent with the general purposes for which the armory was intended. The prayer for a preliminary injunction must be denied.

A motion was made by defendants to dismiss the bill. I think -that the bill, on its face, is sufficient. It in effect charges that the armory building is being applied by the regimental officers to uses which are in no sense military uses; that these army officers are conducting a private business in the armory for commercial purposes and with intent to injure the business of relators, and that the business is destructive of the corpus of the armory. Assuming these charges to be true, I think relief can be had through the bill as filed, and that the persons in immediate charge of the armory are the only necessary parties defendants. Even though a building belonging in whole or in part to the state is being devoted to a proper use, I apprehend that the state is entitled to prevent such use being exercised in a manner unnecessarily destructive of the property. The motion to dismiss will be denied.


text:
    Robert H. McCarter, attorney-general, v. Pitman, Glassboro and Clayton Gas Company et al.
    [Submitted February 1st, 1908.
    Decided February 7th, 1908.]
    1. An information filed on behalf of the state by the attorney-general on the relation of an individual to set aside an alleged illegal issue by a gas company of stock for property purchased in excess of the value of the property, need not disclose any special interest on the part of relator.
    2. General Corporation act (P. L. 1896 p. 294 § SO) authorizing gas companies to issue their capital stock for property purchased from or labor supplied by a construction company to the amount of the value of the property or services so received, requires that the value received by the company shall be equal to the amount of stock issued for it.
    3. General Corporation act (P. L. 1896 p. 298 § 49) provides that any corporation formed under the act may purchase property necessary for its business, and issue stock to the amount of the value thereof in payment therefor; and that, in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive. 'Section 50 (p. 294) authorizes gas, &c., companies to issue their capital stock for property purchased from or labor supplied by a construction company “to the amount of the value” of the property or services so received. — Held, that the effect of section 50 must be essentially the same as that of section 49, and, where a transaction whereby stock and bonds are issued in payment for property or services is fully completed and the stock and bonds have been delivered, actual fraud must be found to have existed to justify the setting aside of the issue.
    4. Though a court of equity cannot interfere at the instance of the state to prevent an usurpation of corporate authority by a private corporation, a quasi public corporation, entrusted by the state with public powers for the public good, must perform its duties with due regard to its trust, and equity will not permit an ultra vires act on the part of such a corporation which will impair its owners’ ability to properly discharge its public duties, and in such cases the state is a proper party to enjoin the threatened act.
    5. General Corporation act (P. L. 1896 p. 294 § SO) authorizes gas companies and other quasi public corporations to issue stock for property purchased to the amount of the value of the property so re
      ceived. — Held, that a court of equity will entertain a proceeding by the state to set aside an issue by a gas company of stock for property purchased in excess of the value of the property.
    O. An averment that complainant is informed and believes, and therefore avers, that defendant corporation in violation of law issued stock to another defendant in payment for property purchased in excess of the value of the property, was a positive averment of fact, and admitted by demurrer.
    7. General Corporation act (P. L. 1896 p. 293 § 49) provides that any corporation formed under the act may purchase property necessary for its business, and issue stock to the amount of the value thereof in payment, and that, in the absence of actual fraud, the judgment of the directors as to the value shall be conclusive. Section 50 (p. 294) authorizes gas companies to issue capital stock for property purchased from or labor supplied by a construction company to the amount of the value of the property or services so received. — Held, that in an information charging that defendant gas company illegally issued to defendant construction company in payment for a plant erected by the latter $300,000 in bonds and stock, and seeking to set aside the issue, the mere averment that the plant is not now worth more than $75,000 was insufficient to warrant the conclusion that the construction contract was fraudulently made; it not appearing when the plant was constructed or when the agreement for its construction was made.
    8. The information further averred that the persons owning the stock in and controlling the construction company are the persons who created and have always controlled the stock and policy of the gas company, and have elected the directors and officers of such company “who are practically the same persons” as are the officers of the construction company.— Held, that, in the absence of any averment that the conditions referred to in any way entered into or influenced the terms of the construction contract, ?md especially in the absence of an averment that any member of the board of directors of either company was a member of the board of directors of the other company when the contract was made, the information was insufficient.
    9. The validity of stock or bonds issued by a gas company is not affected by the failure of the company to file, as required by Gas act (Gen. Sbal. p. 1610 § 12), a certificate stating the amount of capital stock fixed and paid in.
    10. An information charging a corporation with failing to comply with the provisions of an act must allege that the transaction complained of occurred after the act took effect.
    11. Where an information on behalf of the state sought to set aside stock and bonds issued by a gas company as a violation of law, and also to declare void a mortgage by the company on its real estate to a foreign corporation as trustee to secure payment of the bonds, the court acquired jurisdiction over such foreign corporation through substituted service of process.

      On demurrers and plea to an information filed by the attorney-general to set aside certain stock and bonds issued by defendant gas companjc
    The information is filed on behalf of the state by its attorney-general on relation of the Millville Improvement Company. The defendants are the Pitman, Glassboro' and Clayton Gas Company, a corporation of this state, organized under the Gas act and now engaged in supplying gas to consumers, the Union Eailway Supply Company, a corporation of this state operating as a construction company, and the Franklin Trust Company, a corporation of Pennsylvania, the latter company being the trustee in a mortgage executed by defendant gas company. The information seeks to have declared fraudulent and void certain stock and mortgage bonds issued by defendant gas company to defendant construction company as the consideration for the erection of the plant-’ of the gas company by the construction companj-, and to have the mortgage securing the bonds declared void. Discovery is also sought. Demurrers are filed by the Pit-man, Glassboro and Clayton Gas Company, and the Union Eailway and Supply Company, and a plea to the jurisdiction is filed by the Franklin Trust Company.

      Mr. Louis II. Millar and Messrs. Gaskill & Gaskill, for the informant.

      Messrs. French & Richards and Messrs. Berry & Riggins, for the defendants.
   Leaming, V. C.

It is urged by demurrant Pitman, Glassboro and Clayton Gas Company that the information fails to disclose any special interest upon the part of relator. I think it unnecessary. Grey v. Greenville and Hudson Railway Co., 59 N. J. Eq. (14 Dick.) 372, 378.

It is further urged by the same demurrant that this court is without jurisdiction; that the remedy of the state in cases of this nature is at law. The information claims that the stock and bonds of the gas company were issued to the construction company for more in amount than the real value of the property received. It is asserted that $150,000 in stock and a like amount in bonds were issued to the construction company in payment for what is now worth not more than $75,000. Section 50 of the General Corporation act (P. L. 1S9<6 p. 89k) authorizes gas companies "to issue their capital stock for property purchased from or labor' supplied by a construction company “to the amount of the value” of the property or services so. received. This section clearly requires that the value received by the company shall be equal to the amount of stock issued for it. If $150,000 in stock was issued in payment for but $75,000 of value received, the act was clearly unauthorized by the section of the statute referred to> irrespective of the additional fact that a like amount of bonds was also issued for the same work. The effect .of similar legislation (section 49 of the same act) has been clearly defined in Donald v. American Smelting Co., 62 N. J. Eq. (17 Dick.) 729. It is there held that before the transaction has reached completion, full judicial scrutiny should be exercised to guard against a violation of the statutory requirement of full value, but after the property has been purchased and the stock issued “nothing short of actual fraud in the transaction can impair the rights of the holder to- hold his stock as full-paid stock, free from other calls.” The same view is there taken as to the effect of that statute before the provision was added touching the conclusive force of the judgment of the board of directors as to values. Bickley v. Schlag, 46 N. J. Eq. (1 Dick.) 533, is clearly to that effect The effect of the provisions of section 50 must, therefore, be here treated, as essentially the same as that of the provisions of section 49. In the present case the transaction having been fully completed and the stock and bonds now in question having been'issued and delivered, actual fraud must be found to have existed in the transaction to justify relief.

Assuming actual fraud to be sufficiently averred by the information, can this court afford relief at the instance of the state? The remedy of the state in such cases by quo warranto is conceded, but the right of the state to relief in a court of equity is challenged. It has been held that a court of equity cannot interfere, at the instance of the state, to prevent a bare usurpation of corporate authority by a private corporation. I understand the underlying principle of such cases to be that there is no reason why .chancery should, at the instance of the state, enjoin or relieve against acts of a private corporation constituting a breach of the law in any case in which similar relief would not be granted against an individual. Whether this view should prevail in a case where the state seeks to enjoin or set aside an attempted fraudulent issue of stock by a private corporation does not concern us here, for the relation to a quasi public corporation to the state is peculiar to itself. A quasi public corporation which is entrusted by the state with public powers to be exercised for the public go'od must perform its duties with due regard to its trust, and I think it may be said to be well settled that equity will not permit an ultra vires act on the part of such a corporation which will operate to impair its ability to properly discharge its public duties, and that in such cases the state is a proper party to enjoin the threatened act. See 2 Morawetz on Priv. Corp. § 1043; Stockton v. Central Railroad Co., 50 N. J. Eq. (5 Dick.) 52, 78; Attorney-General v. American Tobacco Co., 55 N. J. Eq. (10 Dick.) 352, 365. In the present case, defendant is a gas company incorporated under the Gas Company act of 1876. Gen. Stat. p. 1608. An examination of that act discloses many provisions touching the capitalization of gas companies which are apparently designed to prevent the possibility of any company organizing or operating under the act without a capital sufficient to enable it to properly discharge its public duties. The relation between the amount of capital and the population of the territory of operation is prescribed. The articles of incorporation cannot be filed until fifty per cent, of the stock is subscribed for in good! faith and twenty per cent, paid in cash. All stock must be fully paid within eighteen months from the date of incorporation. Reports must be made and published showing the amount paid in and the amount of debts owing by the company. By section 50 of the General Corporation act, heretofore referred to, stock may be issued for property purchased “to the amount of the value" received therefor. It seems to me to be apparent that when a corporation accepts the public powers conferred by this act and assumes the trust of discharging the public duties incident to those powers, it engages to comply with the provisions of the act which are designed to insure that it shall be able to efficiently perform its public functions, and that any failure upon the part of the corporation in that respect is not only a breach of its engagements to the state, but also operates as an impairment of its powers to. discharge its public duties at the standard of efficiency prescribed by the legislature. Any act leading to these results is clearly an act which may be enjoined by the state.

The specific act against which relief is now sought is that of issuing stock for property to an amount in excess of the value of the property. As already stated the transaction has been consummated and the stock delivered. The company to whom the stock was issued and who now holds it is a party defendant. The court of errors and appeals having held, as hereinbefore stated, that a transaction thus completed can only be set aside in case of actual fraud, the question now arises whether the information sufficiently discloses such fraud. The material averments of the information touching the existence of fraud in the issuance of the stock and bonds will be found in paragraphs numbered four, five and six. An objection is made by demur-rant that the averments of paragraph number four of the information are based on information and belief and therefore not admitted by the demurrer. It has been held that where the averment is that the complainant is informed and believes that certain things are true, the demurrer admits that complainant is so informed and does so believe, but not that the information is true. Trimble v. American Sugar Refining Co., 61 N. J. Eq. (16 Dick.) 340, 346; Fletch. Eq. Pl. & Pr. § 199. But it is also held that where the averment is that “complainant is informed and believes, and therefore avers," the force of the expression is a direct and positive averment of the fact, and that the averment is not impaired by the statement that it is made on information and belief. This view is also especially favored when the facts so averred are peculiarly within the knowledge of defendant and discovery is sought. See cases collected in note to 3 Encycl. Pl. & Pr. 363. The averment here made is in the latter form and I shall treat it as a positive averment of fact. The paragraph referred to (paragraph 4) charges that defendant gas compan}'- issued to defendant construction company $150,000 in bonds and a like amount in stock as consideration for the construction of the gas plant and extensions, “and that the issue of said bonds and stock is in violation of the laws of this state as hereinafter more fully set forth.” Paragraph 5 then avers:

“And informant further shows that a careful estimate and appraisal of the value of said plant and extensions shows the same to be worth a sum not exceeding $75:000; and that a great fraud and injustice is being perpetuated upon the public in soliciting subscriptions to said bonds and stock as well upon the taxpayers of the community in which said plant is located.”

It will thus be seen that the essential averments of facts are that the gas company issued in payment for the plant $150,000 in bonds, and $150,000 in stock, and that a careful estimate and appraisal of the value of the plant shows it to be worth not more than $75,000. It is not shown when this estimate was made, but the language is in the present tense and the information was filed May 7th, 1907. It does not appear when the plant was constructed, or when the agreement for its construction was made, but the seventh paragraph of the information states that the bonds bear date May 1st, 1906, and that the mortgage securing the bonds was executed and delivered long before the completion of tire plant and its extensions. It seems obvious that any forceful averment of overvaluation should have reference to the date when and the conditions under which the agreemerrt for the construction of the plant was made. It is not averred that any combination was made between the construction company and the gas company whereby a fictitious valuation of the work to be performed was arrived at for the purpose of issuing bonds and stock in excess of the proper amount. The fraud, if any, must be inferred from the mere fact that the plant is not now worth more than $75,000. No relief can now be had unless the stock and bonds can be said to be fraudulently in the hands of the construction company. As is said in Bickley v. Schlag, supra, in the absence of deceit, or some other corrupt constituent, the bargain between the parties cannot be disturbed, as the gas company and construction company stood upon the common footing of buyer and seller. It seems impossible to escape the conclusion that the mere averment that the plant is not now worth more than $75,000 is an insufficient averment to warrant the conclusion that the construction contract was in fact fraudulently made. If it appeared that at the time the construction contract was made, the parties to that contract knew or could have known that the work could have been completed for not to' exceed $75,000, a very different question would be here presented, but the averment now under consideration falls far short of an averment of that fact. As is said in 1 Cook Corp. § 35:

“The property is not to be considered as overvalued merely because, subsequently, it turns out to be so. The various circumstances under which the valuation was made should be considered in determining the dona fides of the transaction.”

I think it clear that these averments are insufficient to support a claim that the construction contract was fraudulently made. The sixth paragraph of the information avers that the persons owning the stock in and controlling the construction company are the persons who created and have always controlled the stock and policy of the gas company, and have elected the directors and officers of the gas company “who are practically the same persons” as are the officers of the construction company. In the absence of any specific averment that the conditions here referred to in any way entered into or influenced the terms of the construction contract as made, and especially in the absence of an averment that any member of the board of directors of either company was a member of the board of directors of the other company at tire time the contract was made, I am unable to find in this paragraph any support to the claim for relief.

The eleventh paragraph of the infqrmation sets forth that no certificate has been filed by defendant gas company as required by the twelfth section of the Gas act. The penalty for the failure of a corporation to comply with the terms of that section is contained in the preceding section. It in no way affects the legality of the stock or bond issued. The same paragraph of the information alleges that the provisions of chapter 331 of the laws of 1906 (P. L. 1906 p. 730) have not been complied with by defendant gas compan]', but it nowhere definitely appears by the information that the transaction complained of occurred after September 1st, 1906, that date being the date on which the act referred to took effect.

The information also contains various averments touching misrepresentations now being made to the public by defendant construction company touching the stock and bonds of the gas company, which it now holds and seeks to sell. As has already been suggested, this court has no control at the instance of the state over such conduct upon the part of a private corporation, and these averments must be here treated as immaterial. The demurrer must be sustained.

The demurrer filed by defendant Union Railway and Supply Company raises substantially Hie same questions which have been considered, and must be sustained.

Franklin Trust Company, the trustee of the mortgage securing the bonds in question, has filed a plea to the jurisdiction, setting forth that it is a corporation of another state, and has transacted no business in this state, and that informant has procured an order of publication and served on defendant trust company a notice to plead pursuant to the rules of this court in proceedings against absent defendants.

The plea asserts that this court has no jurisdiction over defendant trust company as a foreign corporation. The sufficiency of this plea is to be determined. The information seeks, among other things, a decree declaring the mortgage to be void. The mortgaged land is in this state, and defendant trust company is the owner of the legal title in trust to secure the payment of the bonds. There can be no doubt of the power of this court to bring in a non-resident defendant by substituted service in a ease of this nature. The res of the controversy is in this state and the ease, so far as the validity of the mortgage is concerned, clearly falls within the-well-established principles under which fraudulent conveyances of real estate situated here are set aside through jurisdiction acquired oven non-resident owners of the legal title by means of substituted service of process. The plea, as such, must therefore be overruled. Any question as to the insufficiency of the averments of the information to warrant the relief sought must be raised by motion or demurrer.


text:
    John F. Harned v. Benjamin E. Rowand et al.
    [Submitted February 17th, 1908.
    Decided February 18th, 1908.]
    Where two lieu claimants have the right to presently enforce their liens on perishable property, and the owner of the property does not deny the existence of the liens, and the only question is as to their priority, a court of equity has jurisdiction of a bill filed by one lienor, asking for an injunction and appointment of a receiver, the averments of the bill being denied by the other lienor, and will appoint a receiver to turn the property into cash, to be held by the court until the rights of the parties can be determined, as the case is an exception to the rule that equity will not give preliminary relief where the averments of the bill are denied.
    On bill for injunction and receiver of mortgaged personal property.

      Mr. John F. llarned, for the complainant pro se.

      Messrs. Scovel & Boyle, for the defendant,Isabel N. Braddock.
   Leaming, V. C.

Complainant and defendant Braddock each hold liens on the perishable personal property set forth in the bill. The validity of complainant’s lien is not disputed. The lien of defendant Braddock, as chattel mortgagee, is superior to the lien of complainant if it is a valid lien for the full amount for which it is claimed. Complainant concedes that defendant Rowancl, as owner of the chattels, had the right to make defendant Braddock a preferred creditor by executing to him the chattel mortgage in question, provided the right was honestly exercised; but complainant avers that the mortgage is fraudulent as to Mm and that the amount which the mortgage on its face professes to secure is not owing to the mortgagee, and also that the mortgagee’s conduct has been such as to equitably deny to him the right to now claim the mortgage as a lien paramount to the lien' of complainant. Defendant Rowand, owner of the chattels, makes no defence. Defendant Braddock, as mortgagee, denies the fraud and avers that the full amount of his mortgage is due. The condition of the mortgage has been broken by the removal of the chattels to another county by the mortgagor, so that the mortgages may be treated as due.

While the denial of the averments of a bill will ordinarily operate to prevent preliminary relief, yet in the present case the whole controversy is one touching the priority of liens, the existence of which are not disputed by the owner of the chattels. As against the owner both lien claimants appear to be entitled to presently enforce their liens. For complainant to enforce his lien by sale the sale must be made either in defiance of the mortgage or subject to it. If sold subject to the mortgage, the sale would necessarily be in bulk, and to that extent to a disadvantage, and the purchaser would stand where the complainant now stands with the same right that complainant now has to contest the validity of the mortgage. If sold in defiance of the mortgage, no purchaser could know whether he was purchasing a clear title; and it is also manifest that such a sple would be at once enjoined by this court should the mortgagee apply for that purpose. The case is therefore one of that class where equity may appropriately intervene to convert the perishable property into cash in order that the fund may remain in tact for distribution according to the respective rights of the parties as they shall be ascertained. The propriety of preliminary relief of this nature in cases of this class is dis-. cussed and sustained in Long Dock Co. v. Mallery, 12 N. J. Eq. (1 Beas.) 93, and in same case on review, Ib. 431. The interests of all parties seem to be reasonably conserved by this course.

I will advise an order appointing a receiver to make sale of the property on which complainant has a lien, free from encumbrances, with direction to the receiver to pay the proceeds of the sale into court to await the final determination of the rights of the respective parties.


text:
    Henry J. Bergman v. Jane Fortescue et al.
    [Submitted February 21st, 1908.
    Decided March 2d, 1908.]
    1. By the terms of a purchase-money mortgage the mortgagee, upon the mortgagor’s failure to pay the taxes when due, and to produce a tax receipt within thirty days thereafter, might declare the whole principal debt due and payable. On December 20th, 1906, taxes became due, and were unpaid. On March 1st, 1907, a semi-annual installment of interest fell due, which the mortgagor paid on March 30th. At the time of payment the mortgagee did not know that the taxes were unpaid. Between May 8th and June 19th, 1907, the mortgagee ascertained that the taxes had not been paid, and filed his bill of foreclosure. On July 1st the mortgagor paid the taxes, and on September 10th paid the assignee the interest due September 1st. — Held, that, by accepting the interest payment of March 30th, the mortgagee did not waive the benefit of the covenant allowing foreclosure on default of payment of the taxes, since the non-payment was not known to him at the time, the non-production of the tax receipt not being sufficient to charge him with notice of the fact.
    2. The mortgagee having elected to declare the mortgage due, and having already instituted foreclosure proceedings at the time of the interest payment of September 10th, it was the mortgagor’s duty to pay the principal with interest and costs, and his payment of the interest merely could not defeat the mortgagee’s right to enforce his security in the-absence of any agreement by him to that effect.
    3. The rights of the assignee of a mortgage to elect to call in the prin-. cipal in case of a default, provided for in the mortgage, and to foreclose-for breach of' condition, are the same as the rights of the mortgagee would have been had the mortgage not been assigned.

      4. If the purchaser of land under a deed containing a covenant of warranty who has given a mortgage for the purchase price is kept out of possession of a portion of the premises by reason of a paramount title, which is a breach of the covenant in the deed, she is entitled, in proceedings to foreclose the mortgage, to be relieved against the mortgage to the amount of damages sustained by the breach of covenant.
    5. Where the mortgagor at the time of proceedings to foreclose the mortgage has pending an action at law for the damages resulting from the breach of covenant in the deed, the decree in the foreclosure proceedings should be stayed until a judgment can be rendered in the law action, upon proper indemnity of complainant against any loss arising from the stay.
    The bill is filed to foreclose a purchase-money mortgage for $100,000 made by Jane Forteseue to the Columbia Real Estate Company and dated March 1st, 1906. The mortgage, by its terms, matures five years after its date; but the mortgage and the bond which it secures contain a provision to the effect that the mortgagee may declare the whole principal debt due in the event of any failure on the part of the mortgagor to pay all taxes which may at any time be assessed against the property and to produce t'o the mortgagee a tax receipt therefor within thirty days after such taxes shall have become due and payable. The bill avers that the taxes which became due December 20th, 1906, were not paid by defendant, and that complainant has fox that reason exercised his election to declare the whole principal debt due and payable.
    The answer of defendant Forteseue asserts that complainant has waived his right to declare the mortgage due and payable by receiving certain interest payments since the default of the mortgagor. The following facts may be said to be admitted: December 20th, 1906, the taxes for the year 1906 became due and were not paid. March 1st, 1907, a semi-annual installment of interest fell due. March 30th, 1907, defendant paid to the mortgagee the interest which had fallen due March 1st. At the time this payment was made the mortgagee^id not know that the taxes were unpaid. May 8th, 1907, the mortgage was assigned to complainant. Between May 8th and June 19th, 1907, complainant ascertained that the taxes were not paid, and on the latter date filed his bill of foreclosure. July 1st, 1907, defendant paid the taxes which fell due December 20th, 1906. September 10th, 1907, defendant paid to the complainant the interest which fell due September 1st, 1907, and subsequently amended her answer setting forth the interest payments.
    By way of cross-bill defendant asserts that the mortgage was made to secure the payment of a part of the purchase-money for lands at that time conveyed by the Columbia Real Estate Company to defendant Eortescue by deed containing a covenant by special warranty, and that the covenant was broken by reason of the fact that a portion of the premises were held by a tenant under a lease from the Columbia Real Estate Company. The cross-bill seeks to offset against the mortgage debt damages sustained by defendant by reason of the breach of the covenant of warranty. An action at law is now pending which has been brought by defendant to recover damages for the breach of covenant referred to in the cross-bill.

      Messrs. Thompson & dole, for the complainant.

      Messrs. Bourgeois & Sooy, for the defendants.
   Leaming, V. C.

I am convinced that neither of the interest payments operated as a waiver of complainant’s rights to enforce the payment of the entire mortgage debt.

In accepting the interest payment of March 30th, the mortgagee cannot be said to have waived the benefit of the covenant touching the non-payment of the tax, for such non-payment was unknown to the mortgagee at that time. It would be unreasonable to hold that the non-production of the tax receipt operated to charge the mortgagee with knowledge that the tax was unpaid. It is entirely consistent with common experience in such cases for the mortgagors to neglect the formal production of tax receipts when the taxes have in fact been paid. I am unable to treat that transaction as in any sense operative to afford to defendant a license to continue in default. It was not so understood by either party. Had defendant continued in default by reason of such an understanding reasonably attributable to the mortgagee’s conduct, equity could properly relieve. Bell v. Romaine, 30 N. J. Eq. (3 Stew.) 24. But defendant’s own testimony discloses that the only reason for the non-payment of the tax prior to July was purely a matter of personal convenience to defendant. The decisions cited by counsel in landlord and tenant cases are of but little assistance. The right of forfeiture for failure to promptly pay rent is treated as a penalty for the landlord’s security and is properly relieved against if the landlord gets the rent with interest and costs. Fulton v. Greacen, 36 N. J. Eq. (9 Stew.) 216, 222; Fleming v. Fleming, 69 N. J. Eq. (3 Robb.) 715, 717. In landlord and tenant cases the effect given to the act of receiving rent which has accrued after a known breach, is based upon the fact that such a transaction manifests a mutual purpose of lessor and lessee to continue that relation. On the other hand, the stipulation in a mortgage for the whole debt to mature upon default in an interest payment is not treated as a forfeiture clause, but rather as a stipulation for a period of credit on condition. Breaches of such clauses are only relieved against when purely equitable grounds, incident to the individual case, are presented. Sprig v. Fisk, 21 N. J. Eq. (6 C. E. Gr.) 175, 178. A stipulation for the prompt payment of taxes cannot be regarded as differing essentially from a like stipulation touching the prompt payment of interest. I think nothing can be found in the decisions touching the effect of paying rent after default which may be said to be analogous to the situation here presented.

The interest payment of September 10th was not made with any understanding, express or implied, that it should operate to defeat the foreclosure proceeding then pending. Complainant had at that time lawfully elected to declare the mortgage due, and it was then defendant’s duty to pay it with interest and costs. The payment of a lesser amount could not be operative to defeat the right of complainant to enforce his security in the absence of some agreement upon his part to that effect. Defendant does not even claim that the interest payment was made by her with that understanding either upon her part or upon the part of complainant.

Complainant’s rights as assignee of the mortgage were the same as the rights of the original mortgagee, had the mortgage not been assigned.

I am unable to afford relief to defendant by reason of the interest payments.

Touching the relief sought by way of cross-bill, it may be said that if defendant was, contrary to the covenant in her deed, kept out of possession of a portion of the premises by reason of a title paramount emanating from the Columbia Real Estate Company, she is clearly entitled to be relieved against the mortgage to the amount of damages sustained by her by reason of the breach of covenant in the deed. The testimony touching the breach of covenant is in conflict; and should a breach be at this time ascertained it will.be necessary to take further testimony to adequately determine the amount of damages sustained by defendant which may be reasonably attributable to the breach. Under these circumstances, and in view of the fact that an action at law is now pending for the recovery of damages for the alleged breach of covenant, it seems manifest that the appropriate action of this court is to stay the foreclosure decree until a judgment can be rendered in the pending action at law. See cases collected in Kuhnen v. Parker, 56 N. J. Eq. (11 Dick.) 286. To entitle defendant to the stay complainant should be indemnified against any loss arising by reason of it.

I will advise an order to that effect.


text:
    Mary E. Kelsey v. Sarah Dilks et al.
    [Submitted March 7th, 1908.
    Decided March 10th, 1908.]
    Where a cause in equity came on for trial, and after two witnesses had been examined in behalf of complainants a dismissal without prejudice was asked for by them and denied, and a final decree entered stating such facts, and that complainants were not entitled to relief, and dismissing the bill, such decree was a bar to a subsequent action identical as to subject-matter and relief sought brought by one of the former complainants against two of the defendants.

      On bill, plea and replication.
    In 1903 complainant and her husband, Orlando C. Kelsey, filed a bill in this court against the present defendants and Jane Stevenson for certain specific relief therein set forth. The present defendants answered and after a replication filed by complainants the cause came on regularly for hearing before Vice-Chancellor Grey. After two witnesses had been examined in behalf of complainants, counsel for complainants asked leave to dismiss their bill “without prejudice.” This request was opposed by counsel for defendants: The vice-chancellor then stated: “I am quite confident there should not be a dismissal without prejudice. If the complainants choose to dismiss their bill that is another matter, but the element ‘without prejudice/ by -which he has a right to renew the case, I do not think should be allowed. I am quite clear that the case should be tried.” •Counsel for complainants then stated that he would simply ask 'to dismiss the bill. The vice-chancellor then stated:' “If counsel refuse to prosecute his suit further I do not think he has any remedy; I do not think the bill can be maintained. He seems "to be of that opinion himself. I will make an order that the bill be dismissed.” Upon counsel for complainant asking for a decree, the vice-chancellor stated: “I propose to make a decree.” A decree styled a final decree was then advised and signed and enrolled. The decree, after reciting that the cause 'had come on regularly for trial in the presence of respective counsel, and that the pleadings were read and that two witnesses had been produced, sworn and examined by complainants, and that complainants had then moved to dismiss their bill without prejudice to the filing of a new bill and that this motion had been opposed by defendants and denied by the court, and that thereupon complainants had moved to dismiss their bill, and that it had appeared to the court that the complainants were not entitled to the relief sought~and prayed for by them 'in their bill, it was ordered, adjudged and decreed that the bill be dismissed, with costs to defendants.
    More than three years thereafter a petition was presented to bhis court by complainants praying that the decree referred to be opened. The prayer of the petition was denied. Kelsey v. Dilles, 7$ N. J. Kg. Buch.) 88J,.

    The present bill is filed by Mary E. Kelsey against Sarah Dilks and George R. Dilks and contains substantially the same averments and seeks substantially the same relief as the former bill. To the present bill defendants have filed' a plea asserting the former suit as a bar. The plea was set down for hearing and its sufficiency sustained by a. decision of Vice-Chancellor Pitney. Complainant then filed a replication to the plea deny"ing its truth and at the hearing, defendant, in support of the plea, offered in evidence the pleadings and decree in the former suit and complainant offered in evidence the proceedings at the trial of the former suit.

      Mr. Timothy J. Middleton and Mr. John J. Crandall, for the complainants.

      Mr. John Boyd Avis, for the defendants.
   Leaming, V. C.

An examination of the pleadings in the former suit, which are now pleaded as a bar to the present suit, discloses that the former bill and present bill are identical so far as the subject-matter and relief sought are concerned. The present complainant was one of the complainants in the former bill and the present defendants were two of the defendants in the former bill. The two suits may therefore be said to be between the same parties and concerning the same subject-matter and for the same relief. It is urged on behalf of complainant that although the decree in the former suit is a final decree, when considered in connection with the proceedings at the trial, on which it is based, it cannot be treated as operative to bar another suit of like purpose for the reason that the merits of the claim asserted by complainants were not in fact investigated or passed upon at the trial. I entertain grave doubts whether this court is privileged to look behind or beyond the terms of a final decree, which is complete on its face, to ascertain its force. In a case of this nature the pleadings of the former suit are necessarily examined to ascertain whether the former suit was between the same parties and touching the same subjectmatter and relief. The decree is necessarily examined to determine the disposition made of the former suit. But when the decree is intelligible and complete in itself any investigation of the proceedings had at the trial on which the decree is based, would seem to partake of the nature of review and encroach upon the essential conclusiveness of decrees. See Weehawken Ferry Co. v. Sisson, 17 N. J. Eq. (2 C. E. Gr.) 475, 482. In the present case the decree recites that witnesses were examined in behalf of complainants and that a motion was made by complainants to .dismiss their bill without prejudice to the filing of a new suit and that the motion was denied, and that it appeared to the court that complainants were not entitled to the relief sought by their bill, and with these recitals- as grounds of action, coupled with complainant’s own motion to dismiss, the decree dismisses the bill. Without going behind this decree and examining the proceedings at trial, it cannot be said that the merits of complainant’s claim was not passed upon by the court, for the- decree, on its face, asserts the very contrary. Nor is it clear that it is necessary that the merits should be in fact adjudicated in order to constitute the decree of dismissal a bar to the subsequent suit. In 1 Dan. Ch. Pl. & Pr. § 659, it is said:

“By the original practice of the court a decree or order dismissing a former bill for the same matter could only be pleaded in bar to a new bill, where the dismission had been upon the hearing; for a dismissal was a bar only, where the court had determined that the plaintiff had no title to the relief sought by his bill. It was not. however, necessary, in order to entitle a defendant to plead a former suit and decree of dismissal, that the decree should have beerf made upon discussion of the merits; if the dismissal had been merely for want of evidence, the decree would have been equally a bar to another suit. Under the later practice if the plaintiff, after the case is set down to be heard, causes the bill to be dismissed on his own application, or if the cause is called on to be heard in court, and the plaintiff makes default, and by reason thereof the bill is dismissed, such dismissal, unless the court otherwise orders, is equivalent to a dismissal on the merits, and may be pleaded in bar to another suit for the same matter.”

Regarding the text quoted as an accurate statement of the English practice, it will be observed -that the dismissal of a bill in equity for failure of proofs has never been treated as similar in 'effect to a voluntary nonsuit at law, but that, on the contrary, such a dismissal has always been treated as a bar to a new suit unless accompanied with an order to the effect that the dismissal shall be without prejudice. I know of nothing which may be said to have modified our practice in this respect, unless it be section 37 of our present Chancery act (P. L. 1902 p. 528). That section provides that after a hearing shall have been commenced, a complainant shall not be allowed to dismiss his bill “except upon good cause shown and by special order,” and also that when a complainant has begun taking proof and fails to further prosecute his bill, the defendant

.“instead of applying' to dismiss the bill * * * for want of prosecution, may apply to proceed to final decree upon the hearing, notwithstanding the failure of the complainant * * * to take further proofs, or to further appear regularly at the hearing, and upon such application being granted, may so proceed to final decree.”

If, indeed, this section can be treated as applicable to cases heard viva voce under the present practice, I am unable to discern that it in any way operates to' lessen the severity of the rule stated by Daniell. If complainant’s proofs have not proceeded far enough to make a case, there is manifestly no office for testimony upon the part of defendant, in the absence of a claim upon the part- of defendants, for affirmative relief. The privilege given to defendant to “apply to proceed to final decree” can be no more, in such case, than a demand that a final decree be entered. That is what the decree now under consideration asserts as having been done.

But if this court is privileged to examine the proceedings at trial, the same result is reached. It there appears that after examining two witnesses, complainants were unable to offer more evidence and the evidence produced failed to malee a prima facie case. Complainants then asked leave to dismiss their bill without prejudice to a new suit. That request the court denied. Complainants then asked, leave to dismiss the bill, and defendants objected and asked for a decree. The vice-chancellor then stated that he proposed to make a decree, and accordingly entered the decree already referred to. There was no evidence for defendants to offer as they sought no affirmative relief and complainant’s proofs failed to make a case. These proceedings which were had at the trial clearly disclose that it was the purpose of the trial court to deny to complainants the right to bring a new action. Any error of the trial court in that respect or in the proceedings taken or rulings made should have been remedied on appeal. I am convinced that I am at this time powerless to treat the former case in such manner that it may be considered inoperative as a bar to the present suit.

The plea fled by defendants being found to be true, complainant’s bill must be dismissed. Fennimore v. Wagner, 68 Atl. Rep. 230 (Court of Errors and Appeals).