author: Gummeke, J.

text:
    John H. Patterson, appellant, v. Thomas B. Madden, respondent.
    A testator, by Ms will', gave a farm to bis son X He then gave another farm to Ms second son, and other-two farms to 'his wife, with remainder to his third and fourth sons. He then provided that none of the farms given to his sons should be sold by them during the life of his wife; and that if any of his sons should die without leaving issue, but leaving a widow, the farm of such son should go to his widow during her widowhood and afterwards to the heirs-at-law of the testator. — Held, that X took a vested estate in fee-simple in the farm devised to him, subject, however, to be divested by his death during the lifetime of his mother, without leaving issue but leaving a widow; held, further, that by the death of the testator’s wife during the lifetime of X the limitation over to the heirs of the testator was defeated and the estate of X became indefeasible. - ' ■ ■ ...

      On appeal from a decree advised by Vice-Chancellor Reed, who delivered the following opinion :
    The bill is filed by a vendor to compel the vendee to specifically perform a contract to purchase lands.
    On January 1st, 1895, John H. Patterson, the complainant, contracted to convey to Thomas B. Madden, the defendant, by deed of general warranty, free from encumbrances, a certain tract of land in Monmouth county.
    Madden agreed to pay, upon delivery of a deed for the said property, the sum of $4,000. A deed was duly executed by the complainant, and with it he attended at the time and place at which it was to be delivered, but the defendant did not then and there appear, and, although since requested to perform his part of the agreement, has refused to do so. The defendant sets up, as an answer to complainant’s bill, that the complainant is not seized of a title in fee-simple, and, therefore, is unable to convey to the defendant the title for which the defendant promised to pay the $4,000.
    It is not questioned that the locus in quo is a part of a tract of land which was devised to the complainant by his father, James Patterson. Nor is it questioned that the father had a title in fee-simple in the said land. The single question presented is what interest devolved upon the complainant by force of the devise contained in the will of his father. If such interest is a fee-simple, then the complainant is entitled to a decree, but if less than a fee-simple, he is without equity. As already remarked, to discover of what title the complainant is seized, we must recur to the will of James Patterson.
    The first clause of that will is couched in the following language: “ I give and bequeath unto my son John EL Patterson on the following conditions as follows, the following described tract of land,” describing the farm and one-third of a tract of woodland.
    By the same language he gave Samuel H., another son, another farm and one-third of the same wood-lot.

      By. the same language he gave to Henry Patterson, still another son, a third farm with the remaining third part of said wood-lot, subject to the úse of the tenant thereon for one year from the'1st of 'April next after his decease.
    He gave to his wife the use of the homestead farm and the big meadow adjoining, and of another farm adjoining the homestead farm during her natural life. After her death, he gave to his son Ewing Patterson one of these farms, and to his son Joseph C. Patterson the other of these farms, and divided the big meadow between these two sons. He gave certain legacies to his daughters, one of which was charged upon the farms devised to James H. and Henry Patterson. This legacy has been paid. He then ordered that none of the farms should be sold by any of his sons during the life of the testators’s wife. Then follows this clause :

      “ I order and direct tliat if any of my said sons John H., Samuel H., Henry, Ewing and Joseph should die without leaving issue, and leaving a widow, then the widow of such son so becoming deceased may have the use of the farm which is herein given to such son, so long as such widow of such deceased son remains unmarried; and on the event of the marriage or decease of said widow of such son so becoming deceased, I give and bequeath unto such persons as may then be my lawful heirs forever.”
    The question is whether the first devise, which, under our statute, is one in fee-simple, is cut down by the subsequent clause limiting over the estate in case the devisee should die without leaving issue.
    It was entirely settled at common law that the phrase “ leaving no issue ” or “ without leaving issue,” when applied to a devise of land, meant an indefinite failure of issue; but when applied to a bequest of personalty, it imported failure of issue at the time of the death of the first legatee. 3 Jarm. Wills (R. & T. ed.) 298.
    The effect of a limitation over in the event of the devisee dying leaving no issue or without leaving issue upon a preceding devise of land to a person indefinitely, or to a person for life, or to a person and his heirs was also entirely settled.
    If a devise was to a devisee and his heirs, the limitation over imported that the testator used the word “ heirs ” in the .qualified sense of “ heirs of his body.”
    If the gift was to the devisee expressly for life, or was to him without words of inheritance, the limitation over implying that the testator intended that the estate to be taken by the first devisee should be of such duration as to fill up the chasm in the disposition to prevent the failure of the ulterior devise which would otherwise be bad for remoteness. 2 Jarm. Wills 136,137.

    The gift to the first devisee was in both instances by implication, a devise to him and the heirs of his body, and so his estate if given for life was enlarged, and, if given in fee-simple, was cut down to a fee-tail.
    In the case of Chetwood v. Winston, 11 Vr. 337, the limitation over after a devise in fee was in substantially the same words as appear in the present will.
    Chief-Justice Beasley, for the court of errors, remarked that the legal effect of this language, by an almost unbroken line of authorities, was to create by the rules of the common law an estate-tail.
    This being the effect of the language employed in the present devise, the estate of the devisee is seized by the eleventh section of our statute of descent and transmuted into an estate for life. Hedstralce v. Townsend, 10 Vr. 372.

    It is to be remarked that an implied estate in fee-tail rests .upon the presumption that the testator meant by the words “without leaving issue” an indefinite failure of issue. This, however, is not a conclusive presumption, for, if it clearly appears from other language employed in the will, that issue at death was meant, such language will change the time of the failure from an indefinite to a definite date.
    I fail to discover such intention clearly manifested by the testator in the present will. But if it appeared in the most convincing shape that the testator meant by the phrase “ dying without leaving issue,” that the limitation over was to occur only in the event of the absence of issue at the time of the death of the first devisee, it would not in the least help the complainant.

      It would not clothe him with the estate which he bargained to convey. Instead of an indefeasible fee-simple, which estate he required to fill his contract, he would then be seized of an estate in fee-simple with a limitation over by way of executory devise. His estate would be defeasible upon his dying without leaving issue and leaving a widow. Kennedy v. Kennedy, 5 Dutch. 185; Groves v. Cox, 11 Vr. Ifi.

    In respect to the insistence of counsel for the complainant that the words “dying without leaving issue” refers to the death of the first devisee before the death of the testator, I can draw no such intention from the other language used by the testator. Nor do I regard any one of the cases cited in support of this position as pertinent to the specific devise found in the present instance.
    There must be a decree for the defendant.

      Mr. Garret D. W. Vroom and Mr. Chawncy I~I. Beasley, for the appellant.

      Mr. Edwin Robert Walker, for the respondent.
   The opinion of the court was delivered by

Gummeke, J.

This is a suit brought by the appellant to compel the respondent to specifically perform a contract to purchase lands. The only question in the case is whether the appellant has a title to the lands contracted for which the respondent is bound to accept.

The lands in controversy were devised to the appellant by the will of his father, which bears date August 9th, 1866,' and whether or not he has a valid title to them depends upon the true construction of that will.

The devise of these lands is, contained in the first clause of the will, and is as' follows: “ I give and bequeath unto my son John H. Patterson, on the following conditions, and 'as follows, the following described tract of land,” describing the lands which are the subject-matter of the contract which is sought to be enforced. Then follow devises of other lands to the testator’s sons Samuel H. and Henry. The testator then gave to his wife for her natural life the use of the homestead farm and the meadow adjoining it, and also the use of another farm adjoining the homestead one. After her death he gave the homestead farm to his son Joseph C. and the other farm to his son Ewing, and the one-half of the meadow to each of them. He then gave certain pecuniary legacies to his daughters, one of which was charged upon the farms devised to John H. and Henry. This legacy has been -paid. Then follow these two clauses:

“Item. I order and direct that not any of .my farms that I have herein given to my said sons as herein specified, shall be sold by any of my said sons during the life of my said wife.
“Item. I order and direct that if any of my said sons John H., Samuel, Ewing and Joseph should die without leaving lawful issue, and leaving a widow, then the widow of such son so becoming deceased may have the use of the farm which is herein given to such son so long as such widow of such deceased son remains unmarried, and, on the event of the marriage or decease of such widow of such son so becoming deceased, I give and .bequeath such farm of such son so becoming deceased unto such persons as may then be my lawful heirs forever.”

It is contended by the respondent that the effect of this last provision of the will was to cut down the devise to the appellant to an estate for life; or, if not that, then to a defeasible estate in fee-simple which would be divested upon his dying without leaving issue surviving him and leaving a widow. The view adopted by the court below was in conformity to that advanced by the respondent, and a decree was made dismissing the bill of complaint. I cannot concur in the view expressed by the vice-chancellor as to the true construction of this will: He considered that the estate devised to the appellant was cut down to a life estate, by the provision of the will last cited, on the theory that the words “die without leaving issue” imported an indefinite failure of issue and consequently created an estate-tail at common law; and that such an estate, as soon as it was created, was transmuted by the eleventh section of our statute of descents into an estate for life. But this view of the effect to be given to the words “die without issue” can only be sustained, it-seems ,to me, by ignoring the provision of the fourth section of the supplement to the act concerning wills, approved March 12th, 1851, which was in force at the time of the execution of the will under ■consideration, and which declares

‘ ‘ that in any devise or bequest of real or personal estate in the will of any person dying after this act shall take effect, the words ‘ die without issue,’ or ‘die without lawful issue,’ or ‘have no issue,’ or any other words which may import a want or failure of issue of any person in his lifetime or at his death, or an indefinite failure of his issue, shall be construed to mean a want or failure of issue in the lifetime or at the death of such person, and not an indefinite failure of issue, unless a contrary intention shall otherwise appear by the will.” Gen. Stat. p. 3671.

I am not able to find in this will anything which makes it appear that the testator intended that the words die without leaving lawful issue” should import an indefinite rather than a definite failure of issue, nor is anything pointed out in the opinion below. Indeed, it is there stated that the implied estate in fee-tail, which is declared to have been created by the devise, “ rests upon the presumption that the testator meant by the words ‘without leaving issue’ an indefinite failure of issue, but that such a presumption is not a conclusive one,” and that if it had appeared from other language in the will that issue at death was meant, such language would change the time of the failure of issue from an indefinite to a definite date.

The rule applied by the court below in construing the words die without leaving lawful issue,” and determining that they imported an indefinite rather than a definite failure of issue, was that established by the common law. It was applied by this court in the case of Chetwood v. Winston, 11 Vr. 337 (referred to in the opinion below), in construing a devise similar to that now before ús. But in that case the will under consideration was evidently that of a person who had died before the passage of the act of 1851, for the opinion states that the question to be determined was “ whether by force of the testamentary disposition [of certain lands] one I. D., by the rules of the common law,. took an estate-tail.” The will now before us, as has already been ■Stated, was not executed until the year 1866, and consequently-the question to be determined in the case now before us is not what estate the devisee took in the lands devised, at common law, but what estate he took by the rule established by the act of 1851, which is just the reverse of the common-law rule.

Giving to the words “die without leaving lawful issue” the effect required by the statute, they import a definite and not an indefinite failure of issue, and consequently do not operate to cut down the fee-simple estate devised to the appellant by his father’s will into an estate-tail.

Nor can I concur in the view expressed in the opinion below that, assuming the words “ die without leaving issue” to import a definite failure of issue, still the appellant has not a perfect title to the lands in controversy, because, instead of having an indefeasible estate in fee-simple, he has an estate which is defeasible upon his dying without issue and leaving a widow. As I read the will before us, the appellant’s estate becomes divested and vests in the heirs of the testator, upon his death without issue surviving him and leaving a widow, only in case his death occurs during the lifetime of his mother, the widow of the testator.

In the case of Pennington v. Van Houten, 4 Halst. Ch. 745, decided by this court in 1852, the testator devised all his residuary real and personal estate to his son Abraham. He then provided as follows:

“ My will is and I do order that my executors shall rent out all my property for the benefit of my son Abraham, and the proceeds arising therefrom to be put out to interest for the benefit of my son, by my executors until he shall arrive to the age of twenty-one years; and I do further order that my executors give unto my said son Abraham, out of my estate, a good college education and a decent support until he arrives at the age of twenty-one years; but if my said son Abraham should die, having no children, then my mil is, and I do hereby dispose of my property in the following manner, viz.,”

giving it to certain collateral relations. The question presented by that case, as was stated by Chief-Justice' Green, in delivering the opinion of this court, was “ whether, under the provisions of the will, the limitation over of the estate given to the testator’s son Abraham was upon the death of the devisee without children.„ or upon the death of the devisee under twenty-one without children.” The chief-justice, in discussing this question, says: The doubt as to the true meaning of the will does not arise from the terms used, hut from the connection in which they stand. The clause in the will expressing the contingency upon which the limitation over is made to depend is in these words: But if my said son Abraham should die having no children, then my will is ’ &c. There is no reference in this clause, standing alone, to the devisee’s dying under twenty-one. The contingency expressed is simply the death of the devisee without children. It is insisted, however, that the clause under twenty-one years of age’ is fairly implied from the context, or if not, from mere grammatical construction, yet that was the true meaning of the testator as collected from the whole scope of the will. The true meaning of the passage, so far as rests upon its grammatical construction, depends entirely upon the idea with which it is set in opposition. If the limitation over was immediately connected with the original devise the meaning of the will would then be clear, and the only contingency upon which the devise over is expressly limited, or which can fairly be implied or supposed to exist in the mind of the testator, is the death of the devisee without children. But the clause containing the devise over does not stand in the will in that connection, nor does the devise thus stated express the whole idea of the testator. By the will he devises the residue of his estate, real and personal, to his son absolutely in fee-simple, by the broadest and most comprehensive terms. He then provides that the whole estate shall remain in the hands of the executors for the benefit of the devisee until he is twenty-one. That out of it he shall receive an education and a decent support until he is twenty-one, and then occurs the clause in question, but if he die without children then the estate shall go over. The devise over stands not in opposition to the original devise but to the event of the devisee’s coming into possession.” The opinion then, after discussing other portions of the will, for the purpose of strengthening the conclusion reached by the court that the limitation over was not set in opposition to the devise itself but to the event of the devisee reaching the age of twenty-one and coming into possession of the estate devised, declares the result to be that Abraham Van Houten, upon reaching the age of twenty-one years, became seized of an absolute and indefeasible estate in fee-simple in the lands devised to him by the will of his father, and that the limitation over was defeated by his reaching that age.

By the decision in Pennington v. Van Houten, as I understand it, two rules are established in the construction of wills containing a limitation over by way of executory devise after the death of the original devisee without issue, viz.:

[First. If land be devised to A. in fee and a subsequent clause in the will limits such land over to designated persons in case A. dies without issue, and A. so dies, and the substituted devisees are in esse at his death, and there is no other event expressed in the will to which the limitation over can fairly be referred, then A. takes a vested fee which becomes divested at his death and vests in those to whom the estate is limited over.

Second. Where there is an event indicated in the will other than the death of the devisee to which the limitation over is referable (for instance, the distribution of the testator’s estate or the postponement of the enjoyment of the property devised until the devisee reaches the age of twenty-one or until the exhaustion of a prior life estate), such limitation over will be construed to refer to the happening of such event or to the death of the devisee, according as the court may determine from the context of the will and the other provisions thereof, that the limitation clause is set in opposition to the event specified or is connected with the devise itself, v .

Since the decision of Pennington v. Van Houten the rules established by that decision have been frequently applied by our courts in construing limitations over by way of executory devise. In the case of Ackerman’s Administrator v. Vreeland’s Executor, 1 McCart. 23, the testator devised certain lands to his three daughters in fee, to be equally- divided between them, and then provided that if either of them should die without issue that the portion of the daughter so dying should go to the testator’s surviving children. The limitation over stood in opposition to the devise itself, there being no event other than the death of the original devisees expressed in the will to which it could be fairly-referred, and in accordance with the first rule established by Pennington v. Van Houten, it was held that the daughters took a vested estate in fee, subject to be divested at their death and vested in those to whom the estate was limited over, provided they died without leaving issue. The same rule was applied in the decision of Rowe v. White, 1 C. E. Gr. 411 to one of the devises in Wurts’ Executors v. Page, 4 C. E. Gr. 369; and in Groves v. Cox, 11 Vr. 40.

The case of Williamson v. Chamberlain, 2 Stock. 373, is an example of the application of the second rule established by the decision in Pennington v. Van Houten. In that case the testator gave a life estate to his wife in his real and personal property, and then declared that after the death of his wife the same should be sold and divided among his children. He then declared that if any of his children should die without,lawful issue his or her share should be divided among the survivors. It was considered that the limitation over stood in opposition not to the devise itself, but to the event of the distribution'of the estate among the children after the death of the wife, and it was consequently held that the limitation over was defeated by the death of the mother during the lifetime of the children. Other examples of the application of the second rule in Pennington v. Van Houten will be found in the construction put upon certain devises in the case of Wurts’ Executors v. Page, 4 C. E. Gr. 373, 374; in \J Baldwin v. Taylor, 10 Stew. Eq. 78; S. G. on appeal, 11 Stew. Eq. 637; in Barrell v. Barrell, 11 Stew. Eq. 60; and in Bishop v. McClelland, 17 Stew. Eq. 450.

Applying the rules of construction established by Pennington v. Van Houten to the case in hand, it is clear that if the testator, immediately after the devises to his sons, had declared that in the event of any of them dying without issue and leaving a widow, the widow of the one so dying should enjoy the lands devised to him during her widowhood, and that then it should go to .the testator’s, heirs, the construction adopted by the court below would be beyond criticism, for the limitation over would be immediately connected with the devises themselves and set in opposition thereto. But the clause containing the devise over does not stand in the will in that connection. Instead of being immediately connected with the devises to the testator’s sons it follows after that portion of the will which deprives them of the power of alienation during the lifetime of their mother. "What the testator has said, in effect, seems to me to be this: I devise a farm to each of my sons, but they shall not have the power to alienate the same during the lifetime of their mother, my wife; upon the death of my wife, however, they shall hold the lands devised to them respectively free from any condition and with full power to alienate; but if any of my sons shall die without leaving lawful issue &c., then over. Read in this way the limitation over stands not in opposition to the devise itself, but in opposition to the event of the devisees coming into the possession and enjoyment of an absolutely free and unfettered ownership of the lands devised. That being so, the limitation over becomes operative only in case the devisee dies before his power to alienate comes into existence, or, in other words, before the death of his mother.

The mother of the appellant having died before the making of the contract for sale which is sought to be enforced by this proceeding, the appellant was, at that time, seized of an indefeasible estate in fee-simple in the lands which were the subject-matter of the contract, and is entitled to a decree of specific performance against the respondent.

The decree of the court of chancery should be reversed and a decree entered in accordance with these views.

For reversal — The Chief-Justice, Depue, Gummere, Lippincott, Ludlow, Mague, Van Syckel, Bogert, Brown, Sims, Smith, Talman — 12.

For affirmance — None.


source: Caselaw Access Project

author: The Chancellor

license: Public Domain

text:
    Robert Lundy v. Julia B. Seymour.
    Under a writ of fieri facias, issued upon a judgment three years after its recovery, a sheriff levied upon' and advertised for sale, four distinct parcels of land belonging to the defendant in execution, one of which alone, was of sufficient value to have thrice paid the judgment and the other parcels were of value more than enough to pay the judgment several times, and in absence of the defendant, who had no notice or knowledge of the ’‘"ltended sale, lie sold the four parcels in one lot to the attorney of the plaintiff in execution, for one-fourth the amount due upon the judgment, and thereupon the attorney caused the sheriff’s deed to be made to a third party, through whom and another, the title to the whole property, subject to the inchoate dower right of a wife of advanced years, now deceased, within four months and a half after the sale, went to the attorney’s wife, who, though she claims to be an innocent purchaser for value, does not, by her answer, disclose the circumstances of her purchase or state the value she paid for the property, and who appears to have dealt with the property since the sheriff’s sale as though she deemed the title of it to be subject to question. — H'eld, that a preliminary injunction will issue to restrain the attorney’s wife from prosecuting an action of ejectment against the defendant in execution, to recover possession of part of the land, to the end that the status quo may be preserved until full proofs and final hearing shall be had, upon bond being given under rule 126; and this, though the complainant has delayed his application to this court for fourteen years after he was put upon inquiry concerning the sale, it appearing that during that time he suffered mental affliction which was more or less incapacitating, and it failing to appear that the defendant in this suit will suffer prejudice at the hearing, or that the court will be embarrassed or obstructed in administering justice, because of the delay.
    On order to show cause why an injunction shall not issue to restrain a suit in ejectment, heard on bill, answer and affidavits.
    The defendant’s husband was the attorney-at-law of one Ellen Underwood, and, as such, for her, in March, 1879, recovered judgment, in the Hudson county circuit court, for, $372.72, against the complainant. In December, 1881, in virtue of a writ of fieri facias, issued upon that judgment, he caused the sheriff of Hudson county to levy upon and sell four tracts of land belonging to the complainant, all of which were situate in the city of Jersey City, but were wholly distinct and separate from each other. The first of them was a parcel upon which was erected a dwelling-house, having a frontage of one hundred feet on Central avenue and running back therefrom about one hundred and eleven feet. The second was a vacant city lot twenty-five feet wide and one hundred and twenty-five feet deep, which fronted upon the side of Central avenue opposite to the side of that avenue upon which the first tract fronted. The third tract was about five and a half acres of vacant meadow land, having a frontage on Tonnele avenue, and the fourth was a single vacant lot upon Summit avenue, twenty-five feet wide1 and one hundred feet deep. '
    ■ The complainant values the whole property at $26,000. The defendant, in her answer, says that at the time of the sale it was 'not worth more than $8,000, and was encumbered by municipal liens. The value placed upon the first parcel by the tax assessor was $2,500.
    The property appears to have been unencumbered except by municipal liens for taxes, water rents and assessments. .It does not appear what such liens upon the second, third and fourth tracts aggregated at the time of the sale, but it does .appear that, upon the first parcel, with interest, they amounted to about $800. • The complainant did not know of the sale, and was not present when it took place, on the 16th of March, 1882, three years after the recovery of the judgment against him.
    At the sale all four of the tracts of land were offered and sold together in one lot. Mr. Seymour bid for them $100 and they were struck down to him at that price. He signed the conditions of sale “ R. B. Seymour, Atty.” Subsequently he directed the sheriff to make a deed for the property to Charles H. Eurst, ■and when the deed was delivered, on the 4th of April, 1882, he received it from the sheriff and, after paying the.sheriff’s execution fees and deducting their amount from the bid of $100, he receipted for the balance of the bid as the attorney of Ellen Underwood.
    In the month of July following, Furst and his wife, by their •deed, which recited that it was made in consideration of $3,000 •paid to them by its grantee,.conveyed the property to William B. Scott, of Kingston, New York, who, with his wife, on the •'22d of the next month, August, 1882, made three deeds to the defendant in this suit, the wife of Mr. Seymour. By one of those deeds they conveyed to her the first parcel of land, reciting $2,000 consideration paid, and by another they conveyed to her the second and fourth parcels, reciting $2,600 consideration paid, and by the remaining deed they conveyed the third parcel, reciting $3,000' consideration paid. In the deeds thus made by Furst and Scott the only covenants are against encumbrances or impairment in title by the acts of the grantors.

      In the spring of 1882 the complainant leased the first parcel of land, with the dwelling-house, to a man named "Walker for $15 a month, and collected one month’s rent. Later, by letter from Bradford, Pennsylvania, to which place he moved immediately after renting the property, he .demanded of Walker further payments of rent and was informed that he was not entitled to them because a man named Seymour was the owner of the property. The exact date of this communication does not appear. From that time until May, 1887, the defendant collected the rents of the property but did not pay any taxes or assessments. She did pay the water rents, which annually amounted to $12.50, through the year 1886. In 1887 the complainant’s wife took possession of the first tract and lived in the dwelling-house until her death in 1895. While in possession she erected a small store upon part of the property, which she rented for $10 a month, and permitted another store to be erected by a tenant upon another part of the property, for which she received $3 a month.
    The complainant moved from Bradford, Pennsylvania, to Newark, New Jersey, in 1883, and resided there till 1889, when he moved to the city of Bayonne, New Jersey, and lived there till 1890, when he went to the State of Wisconsin and remained there till after his wife’s death, when he returned to Jersey City and took possession of the first tract of the property.
    It does not appear that anyone has been in possession of the second, third and fourth tracts or has exercised any ownership over them since 1882. Nor does it appear to what extent those tracts are or at the sale were encumbered by municipal liens. It is represented that from the time the complainant left Jersey City, in 1882, till within a few months, he has suffered from some mental and physical affliction which, to some extent, has incapacitated him from attending to his affairs, but upon the subject of this affliction the affidavits are so general and vague as to leave the character of the affliction in obscurity and render it a factor of doubtful and uncertain substance.
    In July, 1896, Mrs. Seymour commenced an action of ejectment to recover possession of the first tract of land.

      The complainant insists that the conveyances by Furst and Scott were voluntary and without consideration, and now asks that an injunction which will restrain the further prosecution of the ejectment suit pending the determination of this cause, the object of which is to set aside the sheriff’s deed and the subse- . quent conveyances of Furst and Scott, do issue, or, treating the complainant as trustee of the property, to compel a conveyance of it by her to him upon equitable terms.
    Mr. Seymour died before the ejectment suit was brought.
    Mrs. Seymour claims to be an innocent purchaser for value, but fails in her answer to disclose the particulars of the transaction by which she acquired her title or the value that she gave for the property.

      Mr. Washington B. Williams, for the complainant.

      Mr. Frank M. Hardenbrook, for the defendant.
   The Chancellor

If the assessor’s valuation of the first parcel of land be taken as correct, and from it be deducted $800 for the municipal liens, the clear value of that land will appear to have been $1,700 at the time of the sale. Taking the $2,500 from the $8,000, which the defendant admits the four parcels to have been worth in 1882, we have $5,500 as the value of the remaining three parcels, and if we subtract from that sum the same proportion of value for unpaid municipal liens as was taken from the value of the first parcel, say one-third, the clear value of the second, third and fourth parcels was $3,667, making the clear value of the whole land $5,367, or about fifty-four times as much as it was sold for at the sheriff’s sale. Or, in view of the fact that the defendant claims to be a purchaser from Scott for value, taking as the value of the land above encumbrances, the aggregate of the considerations recited in the three deeds to her, which deeds were delivered four months and a half after the sheriff’s sale, the sum would be seventy-six times the price bid at the sheriff’s sale. Or taking the consideration mentioned in the deed from Eurst to Scott to be the value, it was thirty times the price bid at the sheriff’s sale.

Whatever valuation is taken, it is .clear that there was a startling discrepancy between the price bid and the true value of the property. Upon the presentation of this circumstance, the mind naturally turns to ascertain the attitude of the parties concerned in the sale, when it was made, to find an explanation of the sacrifice. It finds that Mr. Lundy, though aware that he had been sued, had no knowledge of the sale; that the sale took place three years after the entry of the judgment; that after it, -exhibiting an unconsciousness of his loss of title, Mr. Lundy leased the property and- collected some rents. It further finds that the sheriff levied upon and sold four perfectly distinct and separate parcels of land in bulk, the first of which parcels was alone of sufficient value to pay the entire judgment more than three times, for about one-fourth the amount of the judgment, and that the attorney who represented the judgment creditor attended the sale and bid in the whole four tracts in one lot for that sum. The combination of circumstances affecting the sale, shortly stated, is this: A sale of four distinct parcels of land in one lot, one of which parcels was of more than sufficient value to have paid the judgment, for a price so grossly inadequate as to shock all sense of propriety and justice, to the attorney of the plaintiff in execution three years after the entry of the judgment, in the absence of the defendant in execution, who was unaware that his propeety was being sold.

The sheriff’s conduct, in which the plaintiff’s attorney appears to have, at least, acquiesced, remaining as it does unexplained, exhibits an abuse of the discretion which the law vested in him to determine the quantity of land necessary to be sold, and whether it should be sold in bulk or in parcels. The land being in detached, independent parcels, each of considerable value, clearly should have been sold in parcels. Johnson v. Garrett, 1 C. E. Gr. 31; Schilling v. Lintner, 16 Stew. Eq. 444; Holmes v. Steele, 1 Stew. Eq. 173; Tiernan v. Wilson, 6 Johns. Ch. 411. In the last-cited case Chancellor Kent said : The very circumstance of advertising and selling the whole supposed interest of the plaintiff in both lots together' and for so small a demand, was calculated to excite distrust as to the title and to destroy the value of the sale. It was a perversion of the spirit and policy of the power with which the sheriff was entrusted.”

When the consequence of such an abuse of discretion is detrimental to the defendant in execution, equity will interfere as in the case of abuse of a trust. See cases above cited.

Here the inadequacy of the price bid for the land, shocking as it does the conscience, in itself is strong evidence of fraud, and when it is coupled with the now apparent abuse of the sheriff's discretion, the complainant's lack of knowledge of the sale, and his subsequent mental enfeeblement, and the subsequent devolution of the title to the property sold upon the wife of the attorney who participated in the unjust sale, and her hesitating assertion of her title, it becomes, I think, convincing evidence of fraud. 2 Pom. Eq. Jur. § 927; 1 Story Eq. Jur. 256; Wintermute v. Snyder, 2 Gr. Ch. 489, 496; Gifford v. Thorn, 1 Stock 702, 740; Weber v. Weitling, 3 C. E. Gr. 441; Kloepping v. Stellmacher, 6 C. E. Gr. 328; Phillips v. Pullen, 18 Stew. Eq. 836. But to now, before full proofs, speak more conservatively, the situation savors, at least, strongly enough of fraud to induce this court to interfere by preliminary injunction and preserve the status quo until the facts shall be fully developed by those proofs, and final hearing.

It is true that the defendant insists that she is an innocent purchaser for value, but she does not disclose the particulars of her purchase and explain to a just satisfaction how the value she gave was paid or what it was. I think that it was incumbent upon her to do so. She was the wife of the attorney who acquiesced in the sale of the complainant’s property, composed of several lots, in bulk, and who bid in the property when so sold for $100, and afterwards directed the sheriff to make the deed to Mr. Furst, and, when the deed was delivered, took it into his possession. She took her title through deeds in which neither Mr. Scott nor Mr. Furst covenanted against other encumbrances or defects of title than their own acts might have occasioned, which were executed within four and a half months after the sheriff’s sale. Besides, in 1887, after she had been in the possession of the property for five years without struggle, as if conscious that she had an untenable title, she surrendered her possession to the complainant’s wife, who thereafter held it for eight years. The insufficiency of her excuse for this surrender, that the dower right of the complainant’s wife had not been sold, is manifest when it is remembered that such right was inchoate and did not entitle Mrs. Lundy to possession. I think that the natural inference from her situation justifies the proposed issue of injunction, if for no other reason than the maintenance of the status quo, until full production of proofs and a final hearing can be had, and especially so when it is remembered that, under rule 126, she will be protected from damage by a bond.

The remaining objection to the issuance of the injunction is that the laches of the complainant disentitles him to the assistance of the court of equity. In McCartin v. Traphagen, 16 Stew. Eq. 323, 338, Vice-Chancellor Van Fleet said: “Great delay is a good bar in equity. Courts of equity have from the earliest times, upon general principles of their own, even where there was no analogous statutable bar, refused relief to stale demands. More than one hundred years ago Lord Camden said: ‘A court of equity, which is never active in relief against conscience or the public convenience, has always refused its aid to stale demands where the party has slept upon his rights and acquiesced for a great length of time. Nothing can call forth the activity of a court of equity but conscience, good faith and reasonable diligence. "Where these are wanting the court is passive and does nothing. Laches and neglect are always discountenanced, and therefore from the beginning of this jurisdiction there was always a limitation to suits in equity.’ Smith v. Clay, reported in a note to Deloraine v. Browne, 3 Bro. C. C. 639.”

But the neglect or delay which will induce the court to withhold relief is not mere lapse of time which does not amount to a bar by a statute of limitation. In the case last cited Vice-Chancellor Van Fleet continues in this language: He who delays asserting his rights until the proofs respecting the transaction out of which he claims his rights arose, are so indeterminate and obscure that it is impossible for the court to see whether what seems to be justice to him is not injustice to his adversary, should be denied all relief, for by his laches he has deprived the court of the power of ascertaining with reasonable certainty what the truth is and thus of doing justice.” So, in Tynan v. Warren, 8 Dick. Ch. Rep. 321, Vice-Chancellor Green said: I do not understand that mere delay in bringing a suit will deprive the party of his remedy, unless such a neglect has so prejudiced the other party, by loss of testimony or means of proof or changed relations, that it would be unjust to now permit him to exercise his right.” To the same effect are the cases of Daggers v. Van Dyck, 10 Stew. Eq. 130; Van Houten v. Van Winkle, 1 Dick. Ch. Rep. 384; Hall v. Otterson, 7 Dick. Ch. Rep. 535.

In this case the complainant’s delay in seeking his remedy in equity has been more than fourteen years. When his tenant wrote him that a man named Seymour owned the property, and that he would not pay the complainant more rent, if he was in the possession of his mental faculties, he was put upon an inquiry which would have disclosed the necessity of this suit. It appears that he was then in Pennsylvania suffering from some mental and physical affliction. What that affliction was does not appear. Whether it did, in fact, incapacitate him, is not shown, save by the opinions of affiants which are not supported by statements of facts. How long the affliction lasted is left obscure. If he possessed capacity to care for his property, his inattention to it has very much the appearance of an abandonment of it and a waiver of his remedy in equity. Indeed, upon the case, as he presents it, if it had been made to appear that the delay has been prejudicial to the defendant through change in position, loss of proof or other cause, or has obscured the path of the court so as to. leave it in uncertainty, I would hesitate to act. But I do not perceive that the delay has caused any substantial detriment. It is true that Mr. Seymour is dead, but the defendant does not claim that by his death she has lost evidence. Whatever value the defence of laches may have when the proofs are fully developed for the final hearing, is not apparent now, and I do not think that merely because of the lapse of fourteen years since the sale, I should practically deny the complainant an opportunity to come into equity, by refusing the injunction he now seeks. I will grant the injunction upon the complainant paying the costs of the term lost in the ejectment suit, and giving bond with sufficient sureties, in the sum of $1,000, conditioned for the payment to the defendant of all such damages or costs as may be awarded to her, either at law or in this court, in case the decision shall be against the complainant.


author: The Chancellor.

text:
    The Bradley Currier Company (Limited) v. Otto Bernz et al.
    1. Contractors to erect buildings for B., having purchased materials from B. C. Co., which were used on the buildings, gave B. C. Co. an order addressed to B., which required him to pay B. C. Co. §515, “due them for windows, blinds and doors furnished for your buildings, Ninth street, city.” — Query, whether the order impliedly directed payment from an indicated fund, so as to be an equitable assignment to the fund, pro tanto, or was merely an order drawn generally upon the payee, which must be accepted by him before suit can be maintained against him.
    2. Where the owner of buildings, in process of erection under a contract which provided for payment to the contractors when the buildings should be completely finished, takes possession and rents the buildings prior to their completion, protesting, however, when asked to pay part of the contract price due only at completion, that the buildings are not completed, his taking possession is not a waiver of his right to withhold payment until the buildings shall be duly finished.
    3. If a building contract provides that payment to contractors shall be made upon the certificate of an architect, in absence of fraud or waiver of the certificate, the owner may demand the production of such certificate, as a condition precedent to payment.
    4. Where the contract provided that if the contractors should, at any time during the progress of the work, refuse or neglect to supply a sufficiency of materials arid workmen, the owner should have power to provide them after notice, to the contractors and deduct the expense from the contract price— Held, that, if the contractors refuse or neglect to complete the buildings, neither’ they nor those claiming under them can require the owner to complete the work, to the end that he may be compelled to account for the contract price, less the expense of the completion.
    On demurrer to bill. - ■
    The bill alleges that a firm of builders, Koellhoffer & Koenig, agreed with the defendant Bernz to well and sufficiently erect and finish “buildings” for Bernz according to drawings and specifications prepared by Brade, architect, providing the needed materials for the carpenter work, for $2,975, to be paid as follows : One thousand dollars when the buildings shall be raised • and sheathed, $900 when the buildings shall be enclosed, partitions set and floors laid, and $1,075 when the buildings shall be “ all completed, as per the contract and specifications; ” provided, that in case of each payment a certificate shall be obtained, signed by the architect, to the effect that the work has been done in accordance with the drawings and specifications, and that he considers payment due, and provided also that at each payment the contractors shall produce to the owner a release of all persons who shall either have furnished materials or have done work on the buildings, or who shall have a lien on the buildings and land, with an affidavit, by said contractors, that no person or persons other than-those named in the release has any lien upori the buildings and land for work done or materials furnished for the erection thereof; that Koellhoffer & Koenig proceeded, under the contract, with the erection of the buildings and the complainant furnished them windows, blinds and doors, which they used in their work, worth $515, for which they gave the complainant this order:
    “Newark, N. X, October 1st, 1892.
    ‘ * Mr. Otto Berm :

    “Dear Sir — Please pay to the order of the Bradley & Currier Co. (Limited) the sum of 8515, due them for windows, blinds and doors furnished for your buildings, Ninth street, city.
    “ Yours respectfully,
    “ Koeelhoeeer & Koenig.”

      Which order was served by the complainant on Bernz, October 3d, 1892; that on the ÍOth of November, 1892, the complainant demanded payment for the blinds, doors and windows so furnished from Koellhoffer & Koenig, and, payment being refused, caused notice to be served upon Bernz that there was due to it $515 for the blinds &c. aforesaid; that payment thereof had been refused by the contractors, and that he (Bernz) was required to withhold that amount from Koellhoffer & Koenig and pay it to the complainant; that in October, 1892, Koellhoffer & Koenig “substantially finished” the buildings and the “ work to be done by them in accordance with the contract and delivered up to the said Otto Bernz possession of said buildings, and the said Otto Bernz entered into possession thereof, and during the said month of October and since that time, and prior to the commencement of this action, leased the said buildings to different tenants, and from the time of said leasing has received the profits and rents thereof;” that the complainant has demanded of Bernz payment of the $515, but Bernz has refused to pay, “ claiming that the said Koellhoffer & Koenig had not entirely completed their said contract, * * * and that some work remained to be done; ” that Bernz also refused later, upon the demand and notice of the complainant, to proceed under a clause of the contract which gave him power to notify the contractors to proceed to complete their work, and upon their failure to comply with the notice, to complete it himself, and, after taking the cost of so doing from the moneys that might be due to the contractors under the contract upon the completion, pay the complainant its $515 from the residue; that the work remaining to be done is of “ very trifling amount and in no way detracts from the full use of the said premises or from the income received by the said Otto Bernz therefor;” that Bernz and his attorney-at-law, to whom he has referred the complainant, upon the complainant’s demand, have refused, to state the amount due from Bernz to Koellhoffer & Koenig or to disclose what orders, notices or other claims have been presented against the amount due, and have refused to pay the money into court upon a bill of interpleader; that, upon inquiry of Koellhoffer & Koenig, the complainant has ascertained that the only-claims for materials and labor unpaid are $19.73 due to one Goeller, and $51.69 to the Newark Lumber Company, a corporation of this state; that $1,175 or some part of it, more than’ sufficient to pay the $515 and the amounts due Goeller and the Newark Lumber Company, is due from Bernz to Koellhoffer & Koenig, and that the architect, Brade, did not superintend the erection of the buildings and did not give certificates for the two payments which Bernz made, and, when the complainant applied to him to ascertain if the work was complete, replied that he did not superintend the building, and had not given and would not give a certificate.
    The bill prays, first, that Bernz, Goeller, the Newark Lumber Company and Koellhoffer & Koenig, who are the defendants, may answer; second, that Bernz and Koellhoffer & Koenig may make discovery of the names of the persons who have done work or furnished materials and remain unpaid, and the amounts and nature of their claims, and of the moneys paid by Bernz and to whom paid; third, that Bernz, may be required to complete the building, if it is not already completed; fourth, that he may be required to pay the complainant’s order for $515, and fifth, that the complainant may have such other and further relief as shall seem meet and proper and in accordance with equity.
    To the bill the defendant Bernz demurs for the reason that the bill has not made a case for discovery or relief in equity because, first, it does not allege that the order for $515 was accepted by Bernz, or that he agreed to pay the amount of it, or that there is any contract between Bernz and the complainant by which Bernz is to pay it; second, it does not show that any money is due to Koellhoffer & Koenig (a) by their completion of their contract, (b) by their procurement of the releases of materialmen and workmen and an affidavit of Koellhoffer & Koenig as the contract requires; third, it does not allege a fraudulent arrangement between Koellhoffer & Koenig and Bernz, in -pursuance of which Koellhoffer & Koenig have not completed the buildings or have failed to procure release and affidavit as aforesaid; fourth; it does not allege that the failure to procure a certificate from the architect is the result of arrangement between Bernz and the architect or Koellhoffer & Koenig, or arises from any dishonest or fraudulent practice; fifth, it does not show that the failure of Bernz to proceed, after notice to Koellhoffer & Koenig to complete the work, was the result of arrangement with Koellhoffer & Koenig or defeats the complainant in its recovery; sixth, it does not show that the conditions precedent to payments have been fulfilled; seventh, it shows that if the complainant has any remedy it is at law.

      Mr. Elias F. Morrow, for the demurrant.

      Mr. Elwood G. Harris, for the complainant.
   The Chancellor.

The complainant grounds its right of action upon two claims, one in virtue of the order of October 1st, 1892, which directs the defendant Bernz to pay it $515 which is due to it for materials furnished to Bernz’ buildings, and the other in virtue of demand and notice under the third section of the Mechanics’ Lien law. Rev. p. 668.

First. It is observed that the order does not expressly direct payment of the $515 out of a particular fund. It states that the money is due to the complainant for materials furnished for Bernz’ buildings; but does that statement imply that the order is intended to be paid out of a particular fund, arising from the erection of those buildings, or is it merely a specification of the consideration which supports the order ?

There can be no doubt that if the order, being founded on a valuable consideration from the payee, is drawn upon a particular fund due at the date of the order or thereafter tó become due from Bernz to the drawers, it operatéd as an equitable assignment, pro tanto, of the fund, and upon its presentation to Bernz (although he did not accept it) fixed the portion- of the fund assigned, in his hands, subject to the appropriation directed, and that upon the funds being or bécoihing available, it will be enforceable in a court of equity. Bank of Harlem, v. Bayonne, 3 Dick. Ch. Rep. 246; S. C. affirmed on appeal, 3 Dick. Ch. Rep. 646, and cases cited. But if the order was drawn generally upon the drawee, to be paid by him on the credit of the drawers and without regard to the source from which the money to be used for its payment was to be obtained, it did not operate as an assignment, and the payee of the draft cannot have an action against the drawee unless the latter duly accepts the order (Brill v. Tuttle, 81 N. Y. 457; 3 Pom. Eq. Jur. § 1284), which cases the action will be at law.

To support an action in equity, for the purpose of enforcing payment of the money mentioned in the order, it must appear not only that the order was drawn upon a particular fund, but also that when the bill was filed such fund had become available, so that, in absence of the assignment, it would be recoverable in an action by the assignors. The assignee takes their place and right, as to the portion of the fund assigned, and cannot enforce the assignment before the assignors could have sued for the fund. As presently stated, I conclude that when the bill in this suit was filed, there did not exist a fund available either to the contractors or to their assignee. It is manifest, then, that it is not necessary to the disposition of this demurrer that I shall decide whether the order considered is an equitable assignment or a mere money draft which must be accepted before it can be sued upon.

Second. Where the statutory requisites exist, notice given according to the statute works an assignment pro tanto to the workman or materialman of the rights of the contractor against the owner. Wightman v. Brenner, 11 C. E. Gr. 489; Kirtland v. Moore, 13 Stew. Eq. 110; Reeve v. Elmendorf, 9 Vr. 125. But if when the notice is served on the owner, there be nothing owing to the contractor, and he is without right against the owner, the notice is without legal effect. Craig v. Smith, 8 Vr. 549 ; Kirtland v. Moore, supra. “ The test,” said Vice-Chancellor Van Fleet in the last-cited case, “is whether a suit for the money demand will lie by the contractor against the owner; if it will not, the owner is not liable to a suit by the workman or materialman.”

Third,. The bill admits that the buildings here involved were not completely finished. Its allegation is that they were “substantially finished,” and that that which remains undone “ is of very trifling amount, and in no way detracts from the full use of the said premises or from the income received by the said Otto Bernz therefor.” It seemingly relies upon possession and use of the buildings by Bernz as a waiver of the completion of the “ very trifling ” remaining work. Its allegation is, that the contractors “ delivered up to the said Otto Bernz possession of said buildings, and the said Bernz entered into possession thereof,” and since taking that possession, has leased the buildings to various tenants, and has taken the profits and rents therefrom, but further on, it adds the allegation that when the complainant demanded of Bernz its $515, he refused to pay upon the ground that the contractors had not yet completed their work, and that some work yet remained to be done.

In Bozarth v. Dudley, 15 Vr. 312, Mr. Justice Magie said: “ When a contract for erecting a building has not been so performed that a recovery can be. had thereon, a recovery in assumpsit upon the common counts for work and materials furnished in the erection, will only be permitted when the owner has actually accepted the building erected. * * * Such acceptance by the owner may be express or implied from his conduct. It seems well settled that mere occupancy of the building by the owner, while appropriate, is neither presumptive nor conclusive evidence of acceptance. The reason is obvious. The building belongs to the owner of the land on which it stands. As was said by Lord Campbell, in Munro v. Butt, supra (8 El. & Bl. 738), ‘ the owner cannot be appropriately said to take possession of that which is thus affixed to his own land.’ In the case to which Mr. Justice Magie thus refers, Lord Campbell added this: ‘ If, indeed, the defendant had done anything, coupled with the taking possession, which had prevented the performance of the special contract, as if he had forbidden the surveyor from entering to inspect the work, or if the failure in complete performance being very slight, the defendant had used any language or done any act from which acquiescence on his part might have been reasonably inferred, the case would have been very different.’ ”

Here the only allegation is that the contractors delivered up possession and that Bernz entered. He entered upon his own property. It is not alleged that he obstructed the completion of the buildings, nor that he took possession without expecting that completion in the future. On the contrary, it is a significant circumstance that soon after, when the complainant demanded its money, he refused to pay, protesting that the work was not complete. It may be.that the completion of the work was unduly delayed and that possession pending completion was taken so that income should become available and some return be had for the cost of the land and expenditures on the buildings, without any intention to waive the completion contracted for. .As Lord Campbell intimates, something more than mere entry into possession by the owner is necessary to show the waiver contended for. Here, instead of having an additional circumstance in proof of waiver, we have the owner’s protest that his buildings áre not finished, and that consequently the last payment upon them is not due. I do not think that waiver of the completion has been shown.

Fourth. The point made by the complainant that the defendant Bernz should be compelled to proceed under a clause of his contract which permits him to do so, and notify the contractors to complete their contract work, and, in the event of their failure, to do it himself, and after deducting from the contract price remaining unpaid, its cost, account for the balance, to the end that its demand may be paid, has been dealt with adversely to this insistence in Bernz v. Marcus Sayre Co., 7 Dick. Ch. Rep. 275, 284, by the court of errors and appeals, upon the ground that such a clause in a contract similar to the one here involved conferred upon Bernz a privilege available to him if he wished to exercise it, which did not supersede or qualify the other provisions of the contract, and did not impose upon him any obligation or duty. And so, also, the same case deals with the duty of producing the architect’s certificate as a condition precedent to the maintenance of an action for money under the contract, unless it is waived by the owner. It does not appear that such a certificate was waived in this case. The facts that the first payments were made without it and that the architect did not in fact superintend the building, may be attributable to dereliction upon his part or to the fault of the contractors. They do not prove the owner’s waiver of the certificate.

The bill does not charge fraud, nor does. it allege facts upon which a charge of fraud could properly be predicated.

. If there be no fraud available for claimants, there is nothing to raise question as to priorities among them and show the necessity of the discovery asked for.

No case for the interference of equity is presented.

The demurrer will be sustained and the bill will be dismissed, with costs.


text:
    William E. Hebberd et al. v. The Southwestern Land and Cattle Company.
    1. A mortgage made by a New Jersey corporation upon personal property in the Indian territory, which was neither filed nor recorded in any .public office in this state or elsewhere pursuant to statute, and under which possession of the mortgaged property was not taken by the mortgagees, is without validity-as to creditors of the corporation who, upon the appointment of a receiver, because of the insolvency of the corporation, and the receiver’s taking possession of the property, had their claims fastened upon the property.
    2. Capital stock of a corporation, issued for property not worth five per cent, of the'par value of the1 stock, in pursuance of a scheme designed to secure the issue of the stock as fully paid without value having been received by the corporation for it, is not fully-paid stock in the hands of those who were cognizant of or parties to the scheme and its execution.
    3. The bonds of such corporation, issued pursuant to a further fraudulent scheme to put such bonds in circulation without value having been paid for them, having the qualities of commercial paper in the hands of innocent holders for value before .maturity, are valid obligations of the company to the extent of the value paid for them.

      4. Where purchasers of bonds of a corporation which has become insolvent and has been so adjudged and is being accordingly dealt with under the statute, have received shares of capital stock as a bonus, for which they have not paid anything, they will not be paid a dividend upon their bonds until it shall be ascertained whether they will be subject to calls by reason of their stock, and they shall have responded to calls made, to the end that there may be offset against the dividends.
    5. D., the president of the S. W. L. & C. Co., drew a note for $10,000, to his individual order, signing it with the name of the company, by himself as its president, and endorsed it and presented it for discount at a bank. With it he presented to the bank a statement, signed by one H., who was represented to be “ in charge ” of the company, which exhibited that the company was indebted to D. in a larger sum than the amount of the note. The bank discounted the note and passed the proceeds to the individual credit of D.— Held, that the note was a valid claim, in the hands of the bank, against the company, though in fact it owed D. only $55, the bank having taken the note in good faith and before maturity.
    6. D. used the proceeds of the note to buy cattle, which he put upon the cattle range belonging to the company. — Held, that a trust was impressed on the cattle in favor of the company.
    7. The receiver of the company took actual possession of the cattle and sold them. — Held, that his right to the proceeds of sale is superior to the claim of a. mortgagee of the cattle who never was in possession of them.
    On petition by the receiver of the defendant company for instruction &c.

      Mr. William C. Spencer, for the receiver.

      Mr. Charles B. Meyer (of New York), for William Keating Clare, William Clark, George A. Clark & Brother, William W. Andrews, administrator of the estate of J. W. Canfield, and Carrie M. Damon, executrix of the will of George A. Damon, deceased.

      Mr. Herbert J. Haff (of Missouri), for the German-American National Bank of Kansas City.

      Mr. John H. Clapp (of New York), for George F. Moore and himself, as executor of the will of George A. Damon, deceased.

      Mr. Charles G. Leeds (of New York), for C. C.- Leeds and W. M. Murray, trustees, himself as a creditor of the Southwestern Land and Cattle Company, and William W. Hebberd.
   The Chancellor.

The receiver of the Southwestern Land and Cattle Company, an insolvent corporation of this state, appointed by the court of chancery, by his petition asks to be instructed what disposition he shall make of the proceeds of the sale of certain cattle to which particular reference will hereafter be made, and as to the validity and status of certain claims which have been presented to him. All persons interested in the desired instruction, upon the presentation of the petition, appeared by their respective counsel, and, in pursuance of their written assent, it was ordered that evidence be taken upon the issues suggested, and upon the coming in of the evidence the several parties were heard.

The Southwestern Land and Cattle Company was incorporated on the 15th day of February, 1884, by certificate under the General Corporation law of this state, approved April 7th, 1875, and its supplements. The object for which it was formed, as indicated- by its name, was, in substance, to deal in lands and cattle and their products. Its capital stock was fixed at $500,000, divided into twenty-five thousand shares of the par value of. $20 each. The certificate stated that the company would commence business with $500,000; that the stockholders were George F. Damon, Henry A. Dickinson, Effingham H. Warner, John T. Dutcher and William T. Mersereau, each of whom held five thousand shares, and that the company would continue fifty years. It was signed by each of the stockholders named.

It appears that stock certificates for five thousand shares each, marked in the margin “ for property purchased,” were issued to the several corporators, but that cash was paid by the stock subscribers for only five shares each, and that subsequently the five-thousand-share certificates were returned to the company, and in their place certificates for five shares to each were issued, leaving untransferred twenty-four thousand nine hundred and seventy-five shares. This transaction is styled, on the journal of the corporation, “a contribution” of twenty-four thousand nine hundred and fifty shares, “to enable the Southwestern Land and Cattle Company to carry out its contract for the purchase of the assets of the New York Cattle Company.”

■ Later, oh the 1st day of March, 1884, an agreement fabricated .by Damon was entered into between the Southwestern Land and Cattle Company and the New York Cattle Company (Limited), ■a corporation of the State of New York, in both of which companies Damon was a. stockholder and active manager, whereby the latter company agreed to sell and assign to the former a lease for five years from October 1st, 1883, of a cattle range in the Indian territory, which it had obtained from the Cherokee Strip Live Stock Association, and also cattle, horses, mules and the range equipment, for $499,500, to be paid by the transfer and delivery to it of twenty-four thousand nine hundred and seventy-five shares of the capital stock of the Southwestern Land and Cattle Company, and the assumption of the- payment of a note for $29,000, which the vendor had given-to a third party.

The agreement recites that it was the intention of the Southwestern Land and Cattle Company to issue a mortgage upon the property so to be acquired, for $500,000, to secure the payment of bonds, and that when the mortgage should be executed the Southwestern Land and Cattle Company would exchange $142,000 of the bonds for eleven thousand seven hundred and twenty-five shares of the capital stock held by the vendor. Pending the exchange of the eleven thousand seven hundred and twenty-five shares of stock, the stock was to remain in the possession of a trustee.

Subsequently a mortgage of even date with the agreement of sale was executed. It purported to mortgage all the .assets, present and future, of the Southwestern Land and Cattle Company-to secure bonds aggregating in amount $500,000 and payable in ten years, the privilege being reserved to the company to pay any bond with a premium of five per cent, at an earlier date.

The mortgage was made to Charles C. Leeds, then the legal adviser of the Southwestern Land and Cattle Company, and William M. Murray, -a stockholder in the New York Cattle Company (Limited), as trustees. It was never either filed or recorded in any.public office in this state, New York state, the Indian territory, or elsewhere. Nor was possession of any property delivered or taken in virtue of it. As to creditors obtaining a lien, it is without validity. Rev. p. 709 § 39; Jones Chat. Mort. § 176; Currie v. Knight, 7 Stew. Eq. 485, 486. The claims of creditors fastened upon the property of the insolvent company upon the appointment of the receiver. Graham Button Co. v. Spielman, 5 Dick. Ch. Rep. 120.

Of the bonds, $184,500 in face value were issued, and of that amount, $142,000, together with thirteen thousand two hundred and fifty-five shares of capital stock, of the par value of $264,500, went to the New York Cattle Company (Limited), and were divided among its stockholders.

The property thus sold by the New York Cattle Company (Limited) to the Southwestern Land and Cattle Company, with the exception of some cattle bought of one Creswell by the note of $29,000, which the Southwestern Land and Cattle Company subsequently paid, was substantially the same property which the New York Cattle Company (Limited) had previously, in April, 1883, bought, through one Sandford, from a corporation called the Jackson Cattle Company (Limited), of Goshen, for the stated consideration of $25,000. An examination of the books and papers of the several owners of these assets reveals a progressive inflation of the valuation of them as they passed from owner to owner to the enormous sum of $499,500. The assets thus purchased are entered and valued in the books of the Southwestern Land and Cattle Company in an inventory in this form:

1. Lease and good will of New York Cattle Company... 5400,000
2. Cattle account.................................................. 175,000
3. Horse and mule account.................'.................... 10,000
4. Supply account.............................'................... 5,000
5. Fixtures and outfit........................... 9,500
6. Franchise.................. 200,000
5>499,500

What the real value of the assets purchased was is not shown by determinative proofs, but the strong indications are that it did not exceed one-twentieth part of $499,500.

William E. Hebberd, who appears to have been the sole clerk or factotum of the company’s principal office in New York city, testifies that the last item of the statement or inventory, Franchise, $200,000,” was a fiction of .his inventory to force the valuation to the desired $499,500, and also that the first item of the inventory, “ $100,000 for the lease and good will,” was made in face of the fact that the New York Cattle Company had been operated at a loss. He further testifies that George F. Damon, the leading spirit of the fabrication and the president of the company, some time after the organization, declared that the valuation should not have been put higher than $150,000; that it was a mistake to put it so high as half a million.

I think that it abundantly appears that the transaction by which the stock was issued for property purchased was not an honest one, at least so far as Damon was concerned, and that, in his hands at least, the stock cannot be considered as fully paid.

As one of the stockholders of the New York Cattle Company (Limited), among whom the shares and bonds of the Southwestern Land and Cattle Company delivered to that company were divided, Mr. Damon took nine thousand seven hundred and seventy-one shares of stock and $24,500 in bonds. Upon paying the company $10 a share, half par value, he caused six hundred additional shares of the capital stock to be transferred to himself. He also purchased $12,500 in bonds at par, and thereupon took one thousand two hundred shares of stock, without payment, as a bonus for that purchase of bonds. He also took five hundred and sixty-seven more shares of stock in payment for coupons from his bonds which had been defaulted upon, and in January, 1889, through the assumption of some obligations, aggregating less than $7,000, he purchased from certain stockholders of the New York Cattle Company (Limited) six thousand seven hundred and seventy shares of stock and $132,500 in bonds, ihcluding $20,000 in bonds which had been purchased by one. Sandford for cash from the Southwestern Land and Cattle Company. The only shares of stock for which he paid par were the five shares subscribed for by him as a corporator of the company. He subsequently parted with some of his shares' and bonds, but his estate now holds seventeen thousand five hundred and three shares of stock and $170,500 in bonds, including the $8,000 in bonds held by George E. ■ Moore as security, presently mentioned.

William Clark took five hundred shares of stock and $5,000 in bonds as one of the stockholders of the New York Cattle Company (Limited), and five hundred more shares of stock as a bonus for the purchase of $5,000 of the bonds. He now holds $10,000 in bonds and one thousand shares of stock.

.George E. Moore bought $5,000 of the bonds but subsequently sold them to Damon. With them he received five hundred shares of stock as a bonus for his purchase of the bonds, and subsequently sixty shares more of stock, at $10 per share, in payment for interest coupons which fell due. All this stock ■was sold to Damon, though it yet stands in the name of Moore on‘ the stock-book of the company. Moore claims to hold it, together with $3,000 additional in bonds, $1,000 of which Damon got from the New York Cattle Company (Limited) and the other $2,000 of which he purchased from the Southwestern Land aud Cattle Company as collateral security for an indebtedness from Damon to him, hereinafter mentioned.

Damon transferred one of his bonds to J. W. Canfield, now dead, represented by 'W. W. Andrews, his administrator, but whether for value or not does not appear. The bond was one of those which Damoii got from the New York Cattle Company (Limited) stockholders in January, 1889.

Damon also transferred to George A. Clark & Brother three bonds, for $1,000 each, which he obtained from the New York Cattle Company (Limited), but the proofs fail to show that the transfer was for value.

Erom its very organization the Southwestern Land and Cattle Company was under the dominion of Mr. Damon. It had directors, but they appear to have performed their duties in a merely perfunctory manner, meeting seldom and then only to resolve to clothe Damon with more abundant power and control of the company.

In May, 1889, Damon drew a note of the Southwestern Land and Cattle Company, at four months, for $10,000, to his' own order, signing it with the name of the company, by himself as its president, and, on the 1st day of June, endorsed it and. presented it to the Germau-American National Bank of Kansas City for discount. "With it he handed the bank a statement which.he had previously caused William E. Hebberd to prepare, having the double purpose thereby to exhibit a solvent maker of the note and also an indebtedness from that maker to him which would justify his making the note. That statement was in the form of a letter written upon note paper with a printed heading which, among other things, states the name of the company, the announcement of the fact that W. E. Hebberd was “in charge,” the address of the company’s New York office and the location and address of its ranch in the Indian territory, called the “K. H. ranch.”

The letter is as follows:

“New York, May 8th, 1889.
Q. F. Damon, Dsg.:
“ Dear Sir — In reply to your inquiry of the 13th inst. asking what sum in cash the assets of this company represent, also the amount of the company’s indebtedness at this time and to whom payable, would beg to say that the assets represent a cash investment of $150,000 and that the indebtedness of
the company at this time is as below:
“ To G-. F. Damon for advances............................$10,893 36
“ Sundries.................................................... 1,500 00
$12,393 36
“ Less amount due company............................ 1,955 00
“Net indebtedness....................................$10,438 36
“Yours truly,
“ The S. W. Land and Cattle Co.,
“ Per W. E. Hebberd.”

Assured by Damon’s representations, which were corroborated by this communication, the bank discounted the note and passed the proceeds of the discount to Damon’s individual credit. In fact, at that time the total indebtedness of the cattle company to Damon was about $55, and its assets were not worth one-tenth of $150,000. With the money thus had, during the same month Damon bought eight hundred and ninety-seven head of cattle from one Toms and put them upon the cattle company’s range in charge of K. H. ranch,” taking a- written acknowledgment from the foreman and auditor in charge that they were received from him. Hebberd was not informed of the issuance of the $10,000 note until it was renewed in October, 1889, and later, in November, he was instructed by Damon to enter it in the books of the company among the bills payable, who represented it to be a loan for our company.” Later in November Damon’s financial .affairs became so involved that he was unable to meet or adjust his obligations, and he succumbed to nervous prostration. While in this condition, on the 14th of December, after securing several creditors, he executed a general assignment to William Keating Clare for the benefit of his creditors. About this time he was greatly alarmed lest the misrepresentations he had made to the German-Aruerican National Bank would lead to criminal prosecution and possibly to his incarceration in a penal institution. He continually consulted Mr. John H; Clapp, a lawyer, who was his neighbor, and besought him to, in some way, appease the bank. According to the testimony of Mr. Clapp, he insisted that a bill of sale of the Toms cattle and some cattle purchased by him from one Goodrich, and marked K. H. should be made to the bank, and prevailed upon Mr. Clapp to prepare such an instrument. It bears date on the 15th of December, 1889, and purports to have been executed on that day in the presence of Mr. Clapp, who certifies upon it in his official capacity as notary public, that on the day of its date Damon acknowledged his execution of it.

The fact that the instrument purports to have been executed prior to the general assignment to Clare, led to the taking of considerable testimony upon the contention that its date and the date of the notarial certificate of its acknowledgment were false, but since the taking of that testimony the assignment has been declared to be void and set aside by the circuit court of the United States for i the southern district of New York, upon the ground that Damon did not possess mental capacity to make it. This event dispenses with the necessity of determining the question which of the two instruments, the bill of sale or the general assignment, is to have precedence.

Because of a sweeping statement in the decree of the United States court, to the effect that on the 9th of December, 1889, and thereafter until the death of Mr. Damon, on January 20th, 1890, he was subject to delusions, his widow and executrix of his will has petitioned that she be allowed to intervene and take testimony in this proceeding to show that her husband was incompetent to make the bill of sale, and represented by the same counsel who represented the assignee, Clare, she has presented a brief upon the case originally presented to me. While I admit the executrix as party to this controversy as representing the estate of Mr. Damon, I will not now permit her to stay the determination of the issues here concerned, which will not be affected by the contest she proposes. I will first eliminate them, and then, as hereinafter indicated, will afford her an opportunity to test the validity of the instrument she questions. I have concluded not to' give effect to the bill of sale, or rather, I apprehend, the chattel mortgage, for a memorandum written thereon by Mr. Clapp, to the intent that the instrument is only security for the indebtedness to the bank, appears to give it that force, because, primarily, ás against the Southwestern Land and Cattle Company, I think that the possession necessary to give it validity was not taken. The German-American National Bank, the receiver and Mr. Clare, each declared their claims to the cattle, but until what is called the “ round-up ” and “ cutting out ” of the cattle in the spring of 1890, actual possession could not be had.

It is in proof that the ranch consisted of many thousands of acres of pasturage, over which the cattle, for miles, ran wild, mixing with the cattle of many owners. They were distinguishable only by their brands, those of the ranch of the Southwestern Land and Cattle Company all bearing the brand “ K. H.,” with additional subordinate brands of various designs to distinguish the lots or herds to which they respectively belong. The Toms cattle and the Goodrich cattle were distinguished by such brands.

By the custom of cattlemen there exists what is called a general “round-up” or gathering together of the cattle every spring, at which the brands are examined and the cattle of the several ranches and owners are separated or “cut out.” At such “roundup ” only, it became possible to take possession of cattle and ‘market them. It is not .permissible to “ round up.” -and cut .out ” cáttle at any. other period of the year.

If cattle on the range are sold a delivery, usually recognized by cattlemen, is made by authoritative admission by tlie owners or lessees of the ranch to which the cattle are attached that they are held for the vendee, and subsequent actual deliveries are .accordingly, made at the “ round-up.”

- After the receiver had been appointed, the German-American National Bank attempted to take possession of the Toms and iGoodrich cattle. Its agent went to the ranch, there exhibited its bill of sale or mortgage, declared that he intended to take possession, rode aboirt and' saw a few of the cattle and took from the man who, until the appointment of the receiver, had been employed by the Southwestern Land and Cattle Company as foreman, at the ranch, a receipt that the Toms and Goodrich .cattle were received upon the range for the German-American -National Bank. That the foreman could not bind the receiver, in whom all the assets of the company were then vested, is too .clear for argument. When the “ round-up ” in the spring came, actual possession of all the cattle was delivered to the receiver, who sold them.by order of the court, and now holds the proceeds of sale subject to the legal and equitable claims upon them.

The German-American National Bank insists that it has a valid subsisting claim against the Southwestern Land and Cattle Company for the payment of the $10,000 note which Damon .caused it to discount.- I think it is right in its contention in this respect. It took the note in good faith for value and before maturity. It is true, upon its face the note appeared to be drawn by the president of the cattle company, to his own order,-and the proceeds of the discount were used by the president to open an account in the discounting bank in his individual name. These are circumstances which challenge the good faith of the bank in the transaction (Town of Sterling v. Town of Genoa, 23 N. Y. 452; Claflin v. Farmers’ and Citizens’ Bank, 25 N. Y. 293; Camden Safe Deposit and Trust Co. v. Abbott, 15 Vr. 257; Fifth Ward Savings Bank v. First National Bank, 19 Vr. 513); but when they are considered in connection with the representations -made' by Damon, corroborated by the statement prepared by Hebberd, which represented an existing indebtedness to Damon in excess of the amount of the note offered, they, at best, suggest but a suspicion, the disregard of which will not justify the conclusion that the note was taken in bad faith. Hamilton v. Vought, 5 Vr. 187; Read v. Abbott, 16 Vr. 303; National Rank of Republic v. Young, Receiver, 14 Stew. Eg. 531.

But if the note was good in the hands of the bank against the cattle company, it clearly was unwarrantably made by Damon in abuse of his relation to that company. He had no right to .the note and no right to the proceeds of its discount, and as he used those proceeds in the purchase of the Toms cattle, I perceive no reason why I should not adjudge that a trust was impressed upon the cattle in behalf of the Southwestern Land and Cattle Company. It is true that Mr. Damon, by endorsing the note, added his credit to that of the cattle company to obtain the money, but without the liability of the cattle company he could not have had the money. That liability exceeds the fund realized from the sale. The proceeds from the sale of the Toms cattle must therefore go to the receiver.

The proceeds of the sale of the Goodrich cattle, less the reasonable charges in behalf of the cattle company and the receiver for the pasturage and care of those cattle, which are admitted by all parties to justly belong to the receiver, may be made the subject of a bill of interpleader by the receiver, to which the bank and the representatives of the estate of Damon may be the parties defendant, and in that suit there will be opportunity to contest the validity of the assignment or mortgage to the bank.

The bonds issued to the cattle company were coupon bonds, payable to bearer and transferable by delivery. According to well-established rules they had all the qualities of ordinary commercial paper; therefore, such of them as reached the hands of innocent holders for value before maturity must be held to be valid obligations of the company to the extent of the value paid for them. Knapp v. Hoboken, 10 Vr. 397; Force v. City of Elizabeth, 1 Stew. Eq. 406; S. C. on appeal, 2 Stew. Eq. 587; Copper v. Jersey City, 15 Vr. 634; Hackensack Water Co. v. De Kay, 9 Stew. Eq. 567; Fifth Ward Savings Bank v. First National Bank, 19 Vr. 513.

It is noticed that out of the $184,500 of bonds issued, $142,000, or all but $42,500, went to the New York Cattle Company (Limited), in pursuance of the agreement for the purchase of its assets in consideration of the return of eleven thousand seven hundred and twenty-five shares of the capital stock of the Southwestern Land and Cattle Company, and that subsequently all those $142,000 of bonds became the property of Damon.

The mere statement of the transactions by which the stock and bonds were issued to the New York Cattle Company (Limited), and through that channel reached the hands of, Damon, who contrived and controlled the scheme, satisfies me that the object of his acquirement of the stock and bonds for an insignificant price as compared with the par value thereof) through dishonest device, detrimental to creditors of the Southwestern Land and Cattle Company, who, if the transaction should stand as the proper disposition of the stock and bonds, would be deprived of the fund which the honestly-paid capital would have afforded them for the payment of their demands. All the value that was had for the stock of the company appears to have been about $1 a share, and for each $1,000 bond bought by the return of stock issued for that value, about the sum of $82.50.

When Damon took the $142,000 bonds from the New York Cattle Company (Limited) he knew what consideration had been paid for them, and I think that now he should not be paid more for them than that value, about $82.50 each. Because the proofs do not determinatively fix the value of the property of the New York Cattle Company (Limited) I am unable to precisely fix the amounts which should be credited as paid for the stock or as the value of the bonds in Mr. Damon’s hands. Approximately, he is entitled to about $11,725 for the bonds he had from the New York Cattle Company (Limited), $20,000 for the Sandford bonds, for which Sandford paid par, and $12,500 for -the bonds he bought from the Southwestern Land and Cattle Company, at par, or about $44,225 in all. But it is remembered that his estate is the holder of seventeen thousand five hundred .and three shares of the capital stock of the Southwestern Land and Cattle Company, five of which shares are fully paid for, six hundred of which shares are half paid for, one thousand two hundred and fifty of which shares he took as a bonus, with his purchase of $12,500 in bonds, five hundred and sixty-seven of the shares were issued to him in payment of interest coupons of the bonds he held, and the remaining fifteen thousand and sixty-six shares he had from the New York Cattle Company (Limited).

I am of opinion that he is liable to calls by the receiver, for the payment of the debts of the company, upon so much of the par value of the stock he holds as is unpaid for. Proximately, that liability will be the unpaid half of the six hundred shares, or $6,000; that which remains unpaid upon the fifteen thousand and eighty-six shares, about $286,584; the excess of the par value of the five hundred and sixty-seven shares taken by him for unpaid interest coupons over the just interest, upon the price paid for the bonds as has been indicated, and so much as may be necessary of the par value of the bonus stock to pay the creditors, after the exhaustion of the sums available upon calls from the amounts unpaid npon other shares.

As to the bonus stock, the contract between the purchaser of bonds and the company was that he should not be called upon to pay for the stock. Such ,a contract is binding upon the company and its shareholders, but as the capital stock constitutes a trust fund for the payment of debts, it cannot be given away from the demands of creditors, and hence the holders of bonus stock may be required to pay for it in satisfaction of the demands of creditors, after the exhaustion of all other assets, upon the ground that its issuance to them was a fraud in law upon the creditors. Richardson v. Green, 133 U. S.30; Handley v. Stutz, 139 U. S. 417.

It appears that while $44,225 may be due to the estate of Mr. Damon, his liability to the creditors of the company, on his various stock holdings, amounts to something in the neighborhood of $330,000. He would not be allowed to set off his demand against his liability on account of his unpaid stock holding, for the reason that the assets of the company are insufficient to pay its liabilities and the unpaid stock demands now constitute a fund for the equal benefit of all creditors; but on the principle which forbids such set-off there is nothing to preclude a set-off, in behalf of the insolvent company, of the liability of Mr. Damon against his demand, and the more so when the fact is, as it appears in this case, that Mr. Damon’s estate is insolvent. Thomp. Corp. § 8800.

It is quite clear that upon the application of all assets to the satisfaction of the demand against the insolvent company here, the calls upon Mr. Damon’s estate must exceed his demands against the insolvent company, and hence I think that nothing should be paid at present upon his demands, but that they should hereafter, as calls may be made and established by reason of unpaid stock, be offset against those calls. In addition, I am of opinion that because of the misrepresentations made by Mr. Damon to the German-American National Bank, his entire demand should be postponed to the full payment of the bank’s demand. He represented to the bank that the indebtedness of the insolvent company did not exceed $12,393.36, whereas, exclusive of his own demands and the claim of the bank, the indebtedness was in excess of that sum. The bank relied upon his statement and suffered detriment thereby, and it is inequitable that Mr. Damon’s, estate should assert, as against the bank, a claim in excess of it. I deem that an equitable estoppel exists in favor of the bank against Mr. Damon’s estate.

Passing to the demand of William Clark. His claim for $5,000 for bonds which he purchased for cash from the company, at par, is good. His claim for $5,000 for bonds which he had as a stockholder of the New York Cattle Company (Limited) must be reduced to the value paid for those bonds, as has been indicated above. He appears to be liable to calls on account of the five hundred shares of stock he had from the New York Cattle Company (Limited) and for calls upon the five hundred shares of bonus stock, to be postponed to the exhaustion of the liabilities of all holders of other stock liable to calls. As in the case of Damon, his demand is subject to set-off upon proper calls by the receiver, and payment to him should therefore be postponed until those calls shall be made.

As to the claim of George F. Moore. In December, 1884, Mr. Moore purchased five bonds of the company, of the value of $1,000 each, for which he paid cash. With those bonds he received five hundred shares of the capital stock of the company as a bonus. During the year succeeding his purchase two interest coupons from each of his bonds were paid. At the end of the second year sixty shares of capital stock were issued to and accepted by him for $300 interest remaining unpaid. In 1887 Mr. Moore insisted that Damon was accountable for his unfortunate purchase, and upon his insistence Damon gave him his (Damon’s) note for the amount of the purchase, leaving with Mr. Moore the bonds and stock as collateral security for the payment of the note. That note was ultimately paid, but just before the last payment upon it, in December, 1888, Damon proposed to Mr. Moore that he and Moore should go into a cattle speculation. The money necessary for it was a little over $6,000, which was to be contributed equally by Damon and Moore, Moore discounting Damon’s note for the $3,000 Damon Avas to contribute, to secure which discount or loan the five hundred and sixty shares of stock and the five bonds, with three additional bonds of $1,000 each, making in all eight bonds, were left with Mr. Moore as collateral security for the payment of Damon’s note and also, as Mr. Moore alone testifies, for the security of Moore from all loss in the speculation. The money in excess of $3,000 which was used in the speculation was paid by Damon; In 1890 the cattle thus bought were sold by Mr. Moore for $4,340.25, from which sum he proposes to deduct $] ,660.82 for the expense of selling the cattle. The proofs do not justify such a deduction. It is almost impossible to say Avhat a proper charge for the expense of sale would be, but I think, upon consideration of the Avhole testimony, that an allowance of $1,200 in that behalf will be ample.

The claim that the bonds and stock were to be held by Moore as security from all loss to him in the speculation is supported by the testimony of Moore alone, as to conversations Avith Damon and has been received under objection in behalf of the representatives of the estate of Damon that he is not a competent witness to testify to any conversations with Damon to establish a liability against them. I think that the objection is well taken. They are parties in this proceeding. They are here to assert and defend the rights of Damon. Damon’s estate is entitled to all the proceeds from these bonds and stock in excess of that which is chargeable against them in behalf of Mr. Moore, and, so far as the interests of Damon are concerned, the executors of his will virtually here sue and are sued in a representative capacity. I think, therefore, that his testimony in the particular referred to was incompetent under the act of 1880. Rev. Sup. p. 287.

This being so, Mr. Moore has shown that he should have credit only for $3,000, with interest from the maturity of Damon’s note, and that he should be charged with $3,140.25, proceeds of sale of cattle, with interest from the time when the same was released. If there be a difference in his favor the dividend upon the amount due upon the bonds and stock in his hands will be used in the payment thereof. The excess of the dividend over that amount must be credited to Damon and be dealt with as in case of his other similar holdings of bonds and stock. Seven of the bonds are to be treated, with reference to him, as fully paid for in cash, and the remaining bond, which was had from the New York Cattle Company (Limited), will be reckoned as similar bonds held by him are. Mr. Moore, however, will not be paid a dividend until the receiver shall have made such calls upon the stock unpaid for as may be necessary. Under such calls Mr. Moore must answer for the five hundred shares of bonus stock. The Germania National Bank v. Case, 99 U. S. 628; Thomp. Stock. 288.

It does not appear whether the bonds transferred by Damon to J. W. Canfield and George A. Clark & Brother were transferred to them as innocent purchasers for value. They were bonds which he had from the New York Cattle Company (Limited), and proof that value was paid for them is necessary to enable the amount due upon them to be ascertained.

The situation of other claims presented to the receiver has not been discussed before me. I understand that there are other claims, some having a preference in payment, but that their adjustment is not involved in the matter herein treated of, and that they do not affect the questions considered.