author: Magie, Chancellor.

text:
    Robert P. Lister and Esther G. Selby, appellants, v. William R. Weeks et al., respondents.
    [Filed November 19th, 1900.]
    1. When the court of chancery has adjudged that a trust fund, invested in the stock of a manufacturing corporation, is in a precarious condition, and, if continued in such investment, there will result an immediate loss of income and a prospective diminution or loss of value of principal, and, under its power over trusts, has sanctioned and directed a sale of the ■stock and the transformation of the stock into money and other stock, it .is unnecessary to consider and determine the power of the court to make ■ compensation out of the corpus of the fund to cestuis que trustent entitled to the income for life, when there is nothing.in the proofs to indicate that ■the income of the life tenants from the transformed fund will be less than ■they would have received if the investment had been left unchanged.
    2. Nor can the castms que trustent for life claim anything from the .corpus of the fund, on the ground that they consented to the sale and ■asked the sanction of the court thereto in the expectation that they would .receive something out of the'corpus.

      On separate appeals by Esther G. Selby and Robert P. Lister.

      Mr. Robert II. McCarter, for Esther G. Selby.

      Mr. Chauncey C. Parker, for Robert P. Lister.

      Mr. Charles L. Corbin, for the respondents.
   The opinion of the court was delivered by

Magie, Chancellor.

Two appeals from a part of the decree of the court of chancery have been taken by Esther G. Selby and Robert P. Lister. They present the same question, and were properly argued together.

As we have not been furnished with the grounds upon which the decree below in the respect now appealed from was made, a brief statement of the pleadings and proofs seems necessary.

The original bill of complaint was filed by appellants against William R. Weeks and others, and it set forth, among other things, that appellants were the only children of Edwin Lister, deceased; that their father, by his last will and codicil thereto, had appointed William R. Weeks his executor, and had directed that his

“interest in the Lister Agricultural Chemical Works should remain in the hands of his executor in trust for the benefit of his children during their lifetime, and after their deaths to go to their children at their majority

that the Lister Agricultural Chemical Works (which will hereafter be called the Lister company) was a corporation of this state, and testator’s interest therein was represented by three thousand five hundred and forty-four shares of stock, which was more than a majority of the stock; that Weeks, without obtaining the sanction of the chancellor, had improperly sold and transferred the stock of testator to a corporation named the American Agricultural Chemical Company (which will be hereafter called the American company). The bill prayed, among other things, that such sale might be declared null and void, and that the American company should be enjoined from asserting any rights under the transferred stock.

Upon filing the bill, an order to show cause, with a restraining order, was allowed, and afterwards it was brought to hearing upon the bill and answer filed by the defendants.

After the hearing the restraining order was continued to the final hearing of the cause, but with a proviso that it should not restrain the American company from returning or retransferring the stock to Weeks.

Thereafter appellants filed a supplemental bill, setting forth, among other things, that the stock in question had been returned and retransferred by the American company to Weeks, and that Weeks had paid back to that company the purchase-price. It further set forth facts which indicated that the best interest of the trust required the sale of the stock, and that they had consented to a sale to the American company, if approved by the court, for the price of $722,149.06 in cash and one thousand five hundred shares of the common stock of the American compairy, of the par value of $100 each. The prayer of the supplemental bill was .that a sale at that price should be sanctioned by the court, and that the court should direct that the proceeds thereof should be paid to the trustee or to such person or persons as the court should direct; and it further prayed that the court should make such order for the compensation of the complainants, on an adjustment of the relative rights of the life tenants and remaindermen in the proceeds of said sale, as should be proper. Answers to the supplemental bill were filed, and the cause was brought to hearing before Vice-Chancellor Stevens. He advised a decree, in respect to the sale of the stock, substantially such as was prayed for, and upon an application for further directions, he advised a further decree, among other things, that the application of Robert P. Lister and Esther G. Selby to receive for their joint benefit the one thousand five hundred shares of the common stock of the American Agricultural Chemical Company, by way of compensation for their loss of income in the future on account of the conversion of the stock of the Lister Agricultural Chemical Works into money and the said stock, be denied. Erom this it would appear that appellants, in the argument, had specifically asked that the common stock of the American company should be transferred to them

The decree, so far as it sanctioned and approved the sale of testator’s stock, had not been appealed from. The sale has been carried out and the purchase-price has been paid over, according to the direction of the decree. Appellants have severally appealed from so much of the decree as has denied them relief by way of an allowance for their separate benefit out of the purchase-money accruing from the sale.

Appellants claim such allowance on two grounds. They first insist that the change of the investment of the trust fund will diminish the income to which, as tenants for life, they are entitled, and they are therefore entitled to compensation. They further insist that they gave their consent to the sale in the expectation that an allowance by way of compensation for diminished income would be made to them.

There was no testimony taken in the cause in respect to the probable diminution of appellants’ income from the fund, other than that taken with respect to the advisability of making sale of testator’s stock. It thus appeared that dividends upon that stock had, for some time, been declared at the rate of fifteen per cent, per annum, but that the last dividend at that rate had exhausted the earnings of the Lister company, and had been paid, at least in part, out of an accrued surplus. It also appeared that the competition of the proposed purchaser of the stock, which had already secured a very profitable contract which the Lister company had previously controlled, was. likely to greatly diminish the earning power oE that company, and consequently to reduce its dividends, if not wholly prevent the declaration of any dividend. It was doubtless upon this evidence that the court below was induced to sanction and approve the sale of testator’s stock, and its decree to that effect must have proceeded upon the ground that it was judicious and prudent lo transform the '“interest” in the Lister company, which had been directed to be held in trust, into the money and stock which could be acquired by its sale, and that the amount so to be acquired was a fair equivalent of the value of the “interest” under the circumstances. It results that by such transformation, sanetioned by the solemn act of the court, of -which no complaint is made, that the money and stock has become the corpus of the trust fund, and represents the interest, not only of the appellants, who are entitled to its income for life, but of their children, to whom it will eventually go.

On behalf of the appellants it is argued that the court below had no power to sanction the sale of testator’s stock in the Lister company, and transform the trust fund into money and other stock, without the consent, or against the objection, of appellants, who are cestuis que trustent for life, and without having adjudged that the transformation of the trust fund was for the best interests of the cestuis que trustent in remainder, who, it should be said, are infants. Assuming such to be the limitation of the power of the court, the exercise of that power cannot now be challenged by the appellants, for, by their supplemental bill, they formally gave their full consent thereto. They also set out in the supplemental bill the reasons why a sale of testator’s stock was desirable, and even necessary, in these words:

“Xour orators show that an emergency has arisen which calls for the sale of the said shares for the terms mentioned in the said agreement. The said Lister company is threatened with such disastrous competition from without, and such internal dissension, that it cannot in the future continue to do business with profit, and the value of its shares is likely in the near future to become of little or no account, and the trust fund is imperiled to the irremediable injury of your orators and the grandchildren of the said Edwin Lister, who are the beneficiaries entitled to share in said fund.”

It is further evident, from the recitals of the decree, that it was adjudged that the interest of the cestuis que trustent in the Lister stock was in jeopardy, and that a change in the investment of the trust fund was required for the protection of the infants’ interests therein.

Appellants have not appealed, and could not have successfully appealed, from the decree which they prayed, and which was made upon the grounds which they presented to the court in support of their prayer.

It is not necessary to consider or determine the power of the court of chancery to apportion losses or profits arising from the management of a trust fund between the tenants for life and the tenants in remainder, for there is nothing in the cause to indicate that the income of the tenants for life will be hereafter reduced by the new investment of the trust fund. It is true they will not receive the dividend on the par value of the Lister stock at the rate of fifteen per cent, per annum, but, upon their appeal and the proofs, it clearly appears that their income was seriously imperiled, and that if the stock had been retained it would probably be reduced to very little, or nothing. Out of a judicious and prudent investment of the money received upon the sale they will be assured of an income. Tt results that no prbbable diminution of income in the future is so disclosed as to raise any question as to the equity of the appellants to resort to the corpus of the trust fund for co'mpensation, and thereby reduce that fund to the injury of the infants entitled thereto in remainder.

It seems almost unnecessary to consider the argument advanced in behalf of appellants that they consented to the sale upon the express understanding that they were to receive the one thousand five hundred shares of the common stock of the American company for their own separate benefit. The proofs do not support this contention. The consent to the sale, which they set out in their supplemental bill, is contained in an agreement annexed thereto. It thereby appears that their consent was given upon an offer, in behalf of the American company, to purchase the shares of stock in the Lister company for cash and common stock of the American company, to be paid to the trustee or to such person as the court should direct. It is true that the comjolainants thereby also agreed, as between each other, to apply to the court of chancery for an adjustment of the rights between them and the cestuis que irusient in remainder, but such application could only invoke the equitable jurisdiction of the court over trust funds, and could not require the court to dispose of the application in their favor because of some unexpressed expectation in that respect.

It should be further said that the proofs show that the original draft of the agreement to purchase the Lister stock upon the consent of appellants and the approval of the court upon their application, expressly provided that the purchase-price for the stock should be the cash sum of $722,149.06, and that one thousand five hundred shares of the common stock of the American, company should be transferred to appellants in equal amounts and become their absolute property. Their counsel properly advised against the execution of the agreement as so drafted, and it was revised, and when executed it contained the provisions above set forth, whereby the purchase-price to be paid into the trust fund included both the cash sum and the common stock. There was, therefore, no agreement that appellants should be awarded the common stock in question, nor be made any allowance out of the corpus of the trust fund. If they had any expectation that an allowance would be made to them, it was obviously to be submitted to the determination of the court whether or not they had any equity thereto. The determination of the court was against them, and no error is found therein.

It results that the decree, in the respect complained of, was entirely correct, and must be affirmed.

For affirmance—The Chancellor, Ci-iiee-Justice, Van Syckel, Dixon, Collins, Fort, Garretson, Hendrickson, Bogert, Adams, Vredenburgi-i, Voorhees—12.

For reversal—None.


source: Caselaw Access Project

license: Public Domain

text:
    Patrick White et al. v. John P. White et al.
    [Filed December 18th, 1900.]
    1. An appeal from a final decree in a cause respecting lands and real estate, of the pendency of which notice has been duly filed, pursuant to the provisions of section 57 of the Chancery act, is required, by the provisions of section 114 of the same act, to be taken within three months from the filing of such decree, whether such decree be in favor of the complainant or of the defendant.
    2. While notice, under section 57, is ineffectual before bill filed and subpoena served, it may be thereafter filed at any time before final decree, and the time for appeal will be thereby abridged.
    On motion to dismiss appeal from a decree advised by Vice-Chancellor Pitney, whose opinion is reported in IB Dick. Gh. Rep. 10k-

      Mr. Alan PL. Strong, for the motion.

      Mr. Willard P. Voorhees, contra.

   The opinion of the court was delivered by

Magie, Chancellor.

The appeal in this cause was taken from a final decree made upon a bill for relief respecting lands and real estate. In order that the filing of the bill and the proceedings thereunder, before final decree, should become constructive notice to purchasers or mortgagees of the land, the complainant was required to file in the county cleric’s office a notice of the pendency of the suit by the provisions of section 57 of the Chancery act of 1875, as amended in 1888. Gen. Stat. p. 1/0%.

By a stipulation of counsel it is admitted that the bill was filed July 17th, 1899; that defendants filed answer September 6th, 1899; that the cause was heard before a vice-chancellor February 17th, 1900; that he. advised a final decree in favor of complainant, setting aside a deed, which decree was made February 26th, 1900, and filed the next day; that a notice of Us pendens was duly filed February 14th, 1900, and that the appeal was taken by the defendants October 9th, 1900.

A motion to dismiss the appeal is now made on the ground that it was taken too late. This objection is based upon the provisions of section 114 of the Chancery act (Gen. Stat. p. 394), which, after a general limitation of appeals from final decree to a period of three years after the decree is made, adds the following:

“Unless a notice of Us pendens has, in the manner hereinbefore provided for, been filed in the county clerk’s office, in which cases all appeals from final decrees shall be made within three months after filing the decree appealed from.”

It has always been conceded that the provisions of section 57 of the Chancery act, as to all cases within it, restricted the effect of the doctrine of lis pendens theretofore applicable. Haughwout v. Murphy, 7 C. E. Gr. 531; Turner v. Houpt, 8 Dick. Ch. Rep. 526.

The language of the clause above quoted from section 114 of the Chancery act applies to the appeal before us, for it was not taken within three months from the filing of the final decree appealed from.

It is not contended that the legislature may not fix a period of limitation within which a review of a judicial determination must be sought in this court. The contention is that, in the statute before us, the words used to express the limitation in this class of causes are not to be interpreted in their plain and obvious meaning, but that a meaning is to be attributed to them restricting their operation to a portion of the class.

The rule applicable to the construction of statutes in this respect was laid down in this court by Mr. Justice Elmer thus: “No principle is better settled or more important to be faithfully adhered to by courts called upon to enforce written statutes than that, in the absence of ambiguity in the language used, no exposition shall be made which is in opposition to the express words, or, as the maxim is sometimes expressed, it is not allowed to interpret what has no need of interpretation.” The learned justice then proceeded to quote, with approbation, the statement of the rule by Mr. Justice Washington, in United States v. Fisher, 2 Cranch 399, to this effect: “When a law is plain and unambiguous, whether it be expressed in general or limited terms, the legislature should be intended to mean what they have plainly expressed, and consequently no room is left for construction. But if, from a view of the whole law, or from other laws in pari materia, the evident intention is different from the literal import of the terms employed to express it in a particular part of the law, that intention should prevail, for that, in fact, is the will of the legislature.” Rudderow v. State, 2 Vr. 512.

In the same line Chief-Justice Beasley declared that where the letter of the law is absolutely unambiguous and definite and is susceptible of but a single meaning, the clause under construction must be read in such sense, no matter to what futility it may lead. Van Riper v. Parsons, 11 Vr. 1.

These doctrines have been repeatedly announced by our courts. Douglass v. Chosen Freeholders, 9 Vr. 214; State v. Parker, Receiver, 6 Vr. 576; Water Commissioners v. Brewster, 13 Vr. 125; Koch v. Vanderhoof, 20 Vr. 619.

My examination of the act in which the words to be construed are included, and níy consideration of the general doctrine of lis pendens which was affected thereby, and of every act in pari materia (if any can be thus justly characterized), has failed to disclose any indication that, when the legislature enacted that all appeals in certain definitely described cases shall be made within three months, they evidently intended that certain appeals in such cases should not be so limited. Failing to discover such evident intention, it is the duty of the court, in my judgment, to construe the words in their plain, obvious and unrestricted sense. It is not within the province of the courts to construe the language of legislative acts by an inquiry into what the legislature ought to have intended thereby. Their duty is restricted to the question what the legislature did intend thereby, as discovered from its acts. To step beyond this restriction is judicial legislation and not judicial construction.

The argument in opposition to this view essays to discover in this legislation indications that the legislature, though using language which was general, really intended it to be special and restricted. These indications are supposed to be found, first, from the provisions of section 57, which are assumed to enable a complainant in such cases to burden the lands in dispute with a sort of lien for his claim, and second, from the fact- that when a defendant in such a cause has succeeded in obtaining a decree in his favor, it is to his interest that an appeal questioning such decree should be speedily disposed of.

This argument ignores the real significance of the provisions of section 57. But for the enactment of those provisions, the mere filing of a bill of the sort in question would have created the like burden upon the lands in respect to which relief was sought. The effect of those provisions is to relieve the lands from such burden, before final decree, unless the complainant should give the prescribed notice. The appropriateness of a short limitation, upon proceedings to review such decrees, was in no sense created or increased by the provisions of section 57. Besides, the enactment leaves such lands to the former rule after final decree.

In the second place, it is plainly erroneous to assume that the inconvenience and injustice which would result from a long period of limitation of appeals in cases of this sort to the defendant who has obtained a decree in his favor, must have been the sole motive for the legislation which abridged the period of limitation. I have no doubt that such inconvenience and injustice did furnish a motive for such legislation. But it is obvious that a long period of limitation may well have been considered to operate unjustly in eases in which the complainant was the successful party. I can best illustrate my meaning by a supposed case. If A, who has a contract with B, whereby B agrees to convey lands to him, has filed a bill for specific performance of the contract and obtained a decree in his favor, a long period during which B may appeal from such decree, may be well conceived to operate unjustly toward A. It is true that if B refuses to comply with the decree, it will operate as a conveyance under the provisions of section 63 of the Chancery art. Gen. Stat. p. 888. But notwithstanding the decree has such operation, it is obvious that prudent purchasers or mortgagees will be unwilling to deal with A in respect to such lands until the possibility of an appeal or reversal of his decree ceases to exist. The inconvenience and injustice resulting from a long period of limitation to a complainant who has obtained a decree in such cases may well have been within the legislative contemplation. If so, it is not for the court to say that it did not operate to produce an abridged limitation by general words purposely applicable to cure a similar injustice in all cases.

The language of the restriction in question must, therefore, in my judgment, be construed in its obvious and unrestricted meaning, and therefore to apply to the appeal before us.

It is suggested, rather than argued, that this appeal should not be dismissed, because the notice of Us pendens was not filed when the bill was exhibited, but only a short time before the hearing of the cause.

It is settled that notice, under section 57, is ineffectual before bill filed and subpoena served. Haughwout v. Murphy, 6 C. E. Gr. 118; S. C., 7 C. E. Gr. 531. But nothing in that section requires the notice to be filed within any specified time thereafter, but its effect is limited to proceedings before final decree. Its filing at a late day is not necessarily oppressive, for a defeated party in such a case may always ascertain, by an examination in the clerk’s office, whether the period during which he may appeal has been abridged or not.

The motion must prevail.


author: Van Syckel, J.

text:
    May Dunning et al., complainants and appellants, v. Augustus Crane, individually and as executor of Nathan Bolles, deceased, The Newark City National Bank, John Eberhard Faber et al., defendants and respondents.
    [Filed December 19th, 1900.]
    1. The act requiring written notice of the pendency of suit to be filed in order to constitute constructive notice (Gen. 8tat. p. ¡fifi pi. 161), applies only to Iona fide purchasers and mortgagees.
    2. Creditors under an attachment; who acquire their rights pendente Ute, are chargeable with notice, although Us pendens was not filed.
    3. The mortgagee in this case, who acquired his lien subsequent to the filing of the bill for the construction of the will of Nathan Bolles, is chargeable with notice, and is bound by the decree in that case, because he was a party to the bill, and a decree pro eonfesso was taken against him.

      On appeal from a decree advised by Vice-Chancellor Pitney, whose opinion in Newark City National Bank v. Crane, reported in 15 Dick. Ch. Rep. 121, controls this case. See, also, Crane v. Bolles, 1/. Dick. Ch. Rep. S7S.

      Mr. John R. Meeker, for the complainants.

      Mr. Joseph P. Osborne and Mr. William R. Osborne, for the defendant bank.

      Mr. Charles A. Feich and Mr. William R. Francis, for Faber.

      Mr. Joseph R. Woodruff, for Crane.
   The opinion of the court was delivered by

Van Syckel, J.

This bill is filed by the children of Thomas N. Bolles, deceased, to compel Crane, the surviving executor of Nathan Bolles, deceased, to pay them such sums of money as have become due to them since the death of said Thomas N. Bolles under the will of said Nathan Bolles.

On the 24th of April, 1889, the executors of Nathan Bolles, deceased, filed a bill in chancery for the construction of the will of the said testator.

To this bill Thomas N. Bolles and all other persons who, at the time of filing the bill, had any interest in the estate of said decedent, were made parties.

On May 17th, 1892, the chancellor made his decree construing said will, and holding that the fee of Nathan Bolles’ real estate vested in his executors, and that Thomas N. Bolles took his share of the proceeds of sale of said lands by the executors only in the event that he should be living at the time of distribution.

After the bill was filed, on the 7th of October, 1889, the defendant Eaber obtained from Thomas N. Bolles a mortgage upon his interest in said lands, and on the 15th day of the same month the Newark National Bank procured an attachment to be issued against said Thomas N. Bolles, by virtue of which his interest in said lands was attached and judgment was entered therein for the claim of the bank.

On the 1st day of November, 1890, Crane, one of Nathan Bolles5 executors, filed his bill in chancery to have the validity of the Faber mortgage determined, and to ascertain the order of priority between said mortgage and the claims of the creditors under said attachment, and for directions as to payment to them.

February 3d, 1892, a decree was rendered in said last-mentioned suit, declaring the Faber mortgage and the claims of creditors in attachment to be a lien on the interest of Thomas N. Bolles in said real estate, and directing how his interest in the proceeds thereof should be .applied as between said creditors.

To this bill the only parties were Crane, executor of Nathan Bolles, as complainant, and Thomas N. Bolles, the said Faber, the said bank and other creditors who had come in and proved their claims under said attachment.

The decree in this case expressly declared that the liens upon the interest of said Thomas N. Bolles are “subject to the provisions of the last will of said Nathan Bolles."

At the time this decree was rendered the said Thomas N. Bolles was living.

This decree could not affect persons not made parties to it, and although the decree was made prior to the decree upon the bill filed by the executors of Nathan Bolles for the construction of his will, the bill was not filed until after the filing of the bill for the construction of the will.

The attaching creditors acquired their rights pendente lite, and are bound by the decree made in the first suit, although a Us pendens was not filed. The filing of a written notice of pendency of suit is necessary only in case of a bona fide purchaser or a mortgagee. Gen. Stat. p. 402 pl. 161.

“He who purchases during the pendency of the suit is bound by the decree that may be made against the person from whom he derives title; the litigating parties are exempted from the necessity of taking any notice of a title so acquired; as to them it is as if no such title existed." McPherson v. Housel, 2 Beas. 300; Allen v. Morris, 5 Vr. 159; 1 Story Eq. § 406.

Faber, the mortgagee, was a party to the original suit for a construction of the will of Nathan Bolles, and a decree pro confesso was taken against him. Therefore he is chargeable with notice, although a lis pendens was not filed. He acquired his mortgage subsequent to the filing of the bill, and is bound by the decree in that case.

These creditors could acquire no right superior to that of Thomas N. Bolles, which was measured and limited by the decree in the first-suit, to which he was made a party before the liens of said creditors had existence.

The decree of May 17th, 1892, declares that, under the will of Nathan Bolles, the said Thomas "N. Bolles took a share of the proceeds of sale of the lands of the testator only in the contingency that said Thomas was alive at the time of distribution, and that if he was not living at that time, his children were entitled to the share which he would have taken if he had survived.

This decree is unappealed from, and is binding and conclusive upon the said creditors of said Thomas N. Bolles. The decree obtained in the second suit was effective only as to the rights of said Thomas N. Bolles if he had dived until the period of distribution; it has no force as against the children of Thomas N. Bolles, whose rights are derived under the will of Nathan Bolles, and were not in anywise subject to the control of Thomas N. Bolles.

The remedy of these creditors, if any they had, was through an appeal from the decree in the first suit, made on the 17th of May, 1892.

Whether that case was correctly decided we have not considered; the question is not before us.

The decree of the court of chancery should be affirmed.

For affirmance—The Chancellor, Chief-Justioe, Van Syckel, Dixon, Collins, Fort, Hendrickson, Bogert, Adams, Vredenburgh, Voorhees—11.

For reversal—None.


author: Dixon, J.

text:
    Charles Frederick Tepper, complainant and respondent, v. The Supreme Council of the Royal Arcanum, Anna Worth et al., defendants and appellants.
    [Filed November 19th, 1900.]
    1. In the supplement, passed in 1882, of tbe Massachusetts statute of May 9th, 1877, providing for the organization of beneficial societies, the word “relatives” includes relatives by marriage as well as relatives by blood.
    2. The constitution and by-laws of the supreme council of the Royal Arcanum permit benefits to be made payable to the “members of the family” of the member designating them. Held, that stepchildren of the member, who had been brought up in his household, could' lawfully be designated, even after they had married and left his household.
    3. According to the decisions of the supreme court of Massachusetts, if a society organized under the Massachusetts statute of 1877 issues a beneficial certificate in favor of persons who are included in the statutory classes of beneficiaries, but are not included in the classes covered by the constitution and by-laws of the society, a rival claimant of the benefit cannot set up lack of authority in the society to make such persons beneficiaries.
    4. A member of the Royal Arcanum, in his application for a benefit certificate, described his stepchildren as “my children,” naming them as the beneficiaries. Held, that if this was a misdescription which rendered voidable the certificate thereupon issued, the society only could take advantage of the defect, and that its answer in the cause averring its readiness to pay the certificate, filed after full notice of the truth, was a waiver of the objection and a ratification of the contract.
    On appeal from a decree advised by Vice-Chancellor Pitney, whose opinion is reported in 11¡. Diclc. Gh. Rep. 321.

    , Mr. Rudolph F. Robe, for the appellants.

      Mr. J. Emil Walscheid and Mr. James B. Vredenburgh, for the respondent.

      Mr. W. Holt Apgar, for the Royal Arcanum.
   The opinion of the court was delivered hy

Dixon, J.

On June 5th, 1885, William Tepper became a member of ‘Hoboken Council, No. 99, a subordinate lodge of the supreme •council of the Royal Arcanum, and on July 8th, 1885, he received a benefit certificate of the order, by which the supreme •council bound itself to pay to Anna Plondrick, Antoinette Siebury,- Wilhelmina Ranges, August Zuber, Wilhelm Zuber and Friedrich Tepper a sum not exceeding $3,000, on the death of said William Tepper. This certificate was issued to him on an ■application in which he described the persons above named as being “related to me as my children.” ' He died January 16th, 1898. Afterwards a dispute respecting the right to the $3,000 .arose between Friedrich Tepper, who is the only child of William Tepper by nature, and the other beneficiaries, who were the stepchildren of William Tepper through his marriage with their .mother; and thereupon Friedrich filed a bill in chancery against ■the stepchildren and the supreme council to secure the payment • of the whole sum to himself. By its answer the council declares itself ready to pay the money as the court may decree.

The question in the case, therefore, is whether the complain•ant is entitled to the entire fund, or only to a share in conjunction with the stepchildren.

The Royal Arcanum was organized in Massachusetts on November 5th, 1877, under a statute of that state passed May 9th, 1877, which provided for the organization of such societies _“for the purpose of assisting the widows, orphans or other dependents • of deceased members.” In 1882 a supplement to the statute was passed, empowering such organizations to adopt by-laws and provide funds “for the purpose of assisting the widows, orphans or -other relatives of deceased members, or any person dependent ■upon deceased members.” In 1884 the Royal Arcanum adopted ■.an amended constitution, according to which a member’s benefit certificate was to be made payable “to his family or those dependent on him, as he may direct,” and also amended by-laws, •which required the member applying for a certificate to “enter :upon his application the name or names and relationship or dependence of the members of his family, or those dependent upon him, to whom he desires his benefit paid,” and which also provided that "when no relation by marriage or consanguinity is shown in the direction for payment of benefit, proof of dependency must be furnished to the supreme secretary, before the benefit certificate is issued.”

William Tepper married the mother of these stepchildren in 1864, when the oldest of them was about eleven years of age, and thereafter thejr lived with him and his wife as members of his family, assisting, as soon as they were able to work, in meeting the expenses of the household, until they married. But before 1885 they had all married and left their parents’ home.

In determining the right of these stepchildren to share in the fund, we must first consider the scope of the Massachusetts statute, for it is settled that these beneficial societies cannot create funds for the benefit of persons outside of the classes mentioned in the statute. American Legion of Honor v. Perry, 140 Mass. 580; American Legion of Honor v. Smith, 18 Stew Eq. 466; Britton v. Royal Arcanum, 1 Dick. Ch. Rep. 102; affirmed in 2 Dick. Ch. Rep. 325; Golden Star Fraternity v. Martin, 30 Vr. 207. But in determining who constitute those classes, the supreme court of Massachusetts, in the case first cited, declared: “It is the duty of the court to construe the statute liberally and in such manner as to carry out the benevolent purpose sought to be provided for, and in no event, unless absolutely required by its language, to construe it so as to defeat such purpose.” 140 Mass. 589.

The classes mentioned in the statute existing when the present certificate was issued, are those described as “widows, orphans or other relatives of deceased members, or any person dependent on deceased members.”

According to the opinion of this court, in Bennett v. Van Riper, 2 Dick. Ch. Rep. 563, where the words “related to” in the by-law of a benevolent order similar to the Royal Arcanum was under consideration, the relatives of deceased members include relatives by affinity as well as relatives by blood. Following the lead of that case, we should regard stepchildren as relatives, within the meaning of the Massachusetts statute. But it is urged that the meaning of this word has been fixed by the supreme court of Massachusetts as being confined to relatives by blood (Esty v. Clark, 101 Mass. 36; Kimball v. Story, 108 Mass. 382), and that we are bound by that definition. We think, however, that these cases are not in point. They deal with a statute declaring the effect of a “devise of real or personal estate * * * to a child or other relation of the testator,” when the devisee dies before the testator, leaving issue who survive the testator. Under the settled rule for the construction of wills, which limits the meaning of “relatives” to those who would take under the statute of distribution, the court held that this statute used the term in this -“strict legal and technical sense.” But to apply the same rule to the statute now in -hand would certainly not be “to construe the statute liberally,” as the Massachusetts court, in American Legion of Honor v. Perry, ubi supra, said was proper, and we incline to think that that court would make the same distinction as was made by us in Bennett v. Van Riper, ubi supra, where the rule applied to wills was expressly held to be too narrow for these benevolent associations.

We therefore conclude that the statute of 1882 permitted the designation of stepchildren as beneficiaries.

The next question is whether the constitution and by-laws of 1884 permitted such a designation. They authorized payment to be made to a member’s “family * * * as he may direct,” and required the member to declare “the relationship of the members of his family * * * to whom he desires the benefit paid,” and provided for what should be done when “no relationship by marriage or consanguinity is shown.”

As to the term denoting relationship, we see no reason for giving it a narrower meaning than that borne by the same term in the statute. The express reference to relations by marriage adds to the probability that it was used in the broad sense, including not only the spouse, but also the kindred of the spouse. But these internal laws of the order indicate that the beneficiaries must also be “members of the family” of the applicant designating them. These words also have much elasticity of signification. Eor their true import the constitution and by-laws must be read in connection with the statute under which they were adopted. The statute, as above interpreted, authorized- the establishment of a fund for two classes of beneficiaries, viz., relatives, by blood or marriage, of the member, and those dependent on the member. The constitution declared that a member’s share of the fund was to be paid to “his family, or those dependent on him,” as he had directed. By the by-laws the member was to state “the names and relationship or dependence of,the members of his family, or those dependent upon him,” i. e., as to members of the family, the relationship must be stated; as to others, the fact of dependency must bo stated. There is a natural probability that, when the members of this society were adopting their constitution and by-laws, they would take to themselves as wide a liberty of choice for their selection of beneficiaries as the statute permitted. Bearing in mind the elasticity of the word “family,” it is not unreasonable to believe that they intended it to be as broad as the word “relatives” in the statute. Eelatives and dependents are the statutory classes; family and dependents are the terms which the association used to describe the same classes. Such seems to have been the understanding of Vice-Chancellor Van Fleet, when, in American Legion of Honor v. Smith, 18 Stew. Eq. 466, 471, speaking of a constitution and by-laws just like those now before us, he said: “The complainant undoubtedly had capacity, when it made the contract in question, to agree to pay other relatives of Smith than those constituting his family,” using the term “family” in its strict sense.

But if the word “family” was intended to be more restrictive than the word “relatives,” still it may include these stepchildren. When William Tepper married their mother, they became members of his family in the strictest sense, for they became part of his household and were supported by him as his own offspring. Did, then, the fact that, when the application for this benefit was made, they had, in the usual course of family development, separated themselves from his household, exclude 'them from membership in .his family within the purview of these laws ? If it did, then, by the same rule, his own offspring would, in like case, be excluded. Such a rule, we think, would antagonize the benevolent designs of these associations, and we axe not disposed to sanction it.

But, with regard to the effect of the constitution and by-laws on this certificate, there is another feature of the case to be considered. In Order of Foresters v. Callahan, 146 Mass. 393, and Marsh v. American Legion of Honor, 149 Mass. 512, the corporations had been organized under the Massachusetts statute of 1877, and in their constitutions and by-laws recognized widows, orphans and dependents as the only permissible beneficiaries; after the passage of the supplement of 1882, each of the corporations, without making any change in its internal laws, accepted the application of a member which designated his mother, who was not dependent upon him, as the beneficiary. The court sustained the claim of the mother, holding that, after the passage of the act of 1882, neither the corporations nor any claimant of the fund could be allowed to set up that the former were exercising, and were only authorized to exercise, the more limited powers conferred by the earlier statute. In the Marsh Case the prior decisions in Elsey v. Association, 142 Mass. 224, and Tyler v. Association, 145 Mass. 135, were referred to, and on this point substantially overruled. These later decisions of that court, on the powers of corporations established under the Massachusetts statute and on the mode of exercising those powers, have almost, if not quite, absolute authority. American Legion of Honor v. Green, 71 Md. 263. The principle on which they rest is not disturbed by such cases as Skillings v. Massachusetts Association, 146 Mass. 217, where a person outside of the statutory classes was designated as beneficiary, and McCoy v. Roman Catholic Mutual Insurance Co., 152 Mass. 272, where the person claiming to be a member was not within the class of persons eligible to membership.

On these grounds we reach the conclusion that the stepchildren could legally be named as beneficiaries, according to the laws in force when this certificate was issued.

But it is further contended that changes subsequently made in the constitution and by-laws of the order so restricted the class of relatives to whom benefits could be made payable as to exclude stepchildren. We have carefully examined the changes referred to, and, in respects said to be applicable to the present case, they appear not designed to have retroactive force. In those respects their terms can have reasonable effect if applied only to designations of beneficiaries thereafter made, and in such conditions the settled rule of construction is not to extend the laws to past transactions. Citizens Gas Light Co. v. Alden, 15 Vr. 648. The cases cited by counsel to support the proposition that changes in the by-laws may affect such certificates as that before us, all relate to changes which clearly expressed a purpose to reach prior contracts.

The designation of the stepchildren as “my children” is also made the ground of attack on behalf of the complainant, because of the provision in the agreement that any untrue or fraudulent statement or any concealment of facts in the application should forfeit the rights of the applicant and his family or dependents to all benefits and privileges. It is questionable whether this clause bound the member to anything beyond honesty in his disclosures, and we are quite satisfied that the description of these beneficiaries as “my children” was honestly made. But if it bound him to accuracy, and the description be deemed inaccurate, the objection could be taken advantage of by the association only. Under the view which we have adopted of the statute and the laws of the order an accurate description of these beneficiaries does not show the contract to be illegal, and as the corporation could have made the contract without any description at all, it is within the power of the corporation to waive the defect and ratify the agreement. Its answer averring its readiness to pay, filed after full notice of the truth, is such waiver and ratification.

The decree of the court of chancery holds the stepchildren entitled to an equitable lien on the fund for money advanced by them to pay the annual dues of William Tepper in the society. No such claim is presented in the pleadings; on the contrary, the answer of the stepchildren prays that the fund may be divided among themselves and the complainant in equal shares. We therefore need not consider whether such a lien exists. ••

On the issues raised in the case our judgment is that the fund should be paid in equal shares to the beneficiaries named in the certificate.

Let the decree below be reversed, and a decree be entered in accordance with this opinion.

For reversal—The Chancellor, Chief-Justice,Van Syckel, Dixon, Collins, Eoet, Hendrickson, Bogebt, Vbedenburgh, Voorhees—10.

. For affirmance—None.


text:
    Nicholas W. Bindsell, trustee in bankruptcy, complainant and respondent, v. Edwin F. Smith, defendant and appellant.
    [Filed November 19th, 1900.]
    1. A state court is not prevented from acquiring jurisdiction over a cause instituted by a trustee in bankruptcy to recover property unlawfully assigned by the bankrupt to the defendant, merely because, in the bankruptcy proceedings, the United States district court, at the instance of the petitioning creditors, had enjoined the defendant from disposing of the property until the further order of that court.
    2. The court of chancery has jurisdiction of a suit brought to compel the defendant to transfer to the complainant a promissory note, a bond and mortgage and book accounts, to which the defendant has a legal title voidable, under the federal Bankrupt act, at the option of the complainant.
    On appeal from au order advised by Vice-Chancellor Pitney, whose opinion is reported in II DicTc. Ch. Rep. 116.

      Mr. Robert II. McCarter, for the appellant.

      Mr. Joseph D. Gallagher, for the respondent.
   The opinion of the. court was delivered by

Dixon, J.

A trustee in bankruptcy, appointed'by the United States district court in this district, filed a bill in the court of chancery to obtain the legal title to a note, bond and mortgage and certain accounts, which the bankrupt had assigned to the defendant, one of his creditors, within four months before the filing of the petition in bankruptcy, which assignment was alleged to be voidable, as a preference made in violation of the Bankrupt act. The defendant pleaded to this bill that the United States dis-, trict court had acquired exclusive jurisdiction of that controversy, by reason of the fact that, before this bill was filed, the creditors on whose petition the bankruptcy was adjudged had presented to that court another petition, praying that this defendant might be enjoined from disposing of the property so assigned to him, and thereupon the court, after the appearance of the defendant and argument against the issuance of such an injunction, had enjoined the defendant from disposing of the property until the further order of the court. This plea having been overruled, the defendant appeals.

It is manifest that the district court never had any jurisdiction over the present controversy, which is joined between the trustee, as the representative of all the creditors, and the defendant. This suit is not a part of the “proceedings in bankruptcy” instituted in the district court (Bardes v. First National Bank, 20 Sup. Ct. Rep. 1000), and nothing in these proceedings affects the right of the trustee to determine for himself in what forum, within those permitted by the law, he will bring an action to enforce his title to property against adverse claimants. The right of the trustee to bring such an action as the present is distinctly recognized in clause 2 of the twenty-third section of the Bankrupt act, but he cannot maintain it in the United States district court, “unless by consent of the proposed defendant.” Bardes v. First National Bank, ubi supra. The consent there intended is consent to the suit by the trustee.

The contention that such a suit as this is not embraced in ^cla.use 2, because the bankrupt himself could not have main-tamed the suit, is fully met by the decision of the United States supreme court, just cited, that the clause concerns jurisdiction only, not the merits of the controversy.

The question whether the district court has, by its injunction, taken such control of the property as will interfere with the power of the defendant to surrender it to the trustee, in case the court of chancery should require him to do so, will be more properly presented for consideration after the right of the trustee is ascertained. It is unlikely that any difficulty can arise, seeing that the trustee has been appointed by the federal court, and that, according to the decision of the federal supreme court, the jurisdiction of the state court is complete.

The appellant further insists that, as fraud in the transfer is not alleged, but merely illegality under the Bankrupt act, a court of equity has no jurisdiction by common law, and such jurisdiction cannot be conferred on a state court by a federal statute. Conceding that our own laws must point out which of our own courts is competent to afford a remedy in such cases, we think the relief prayed is properly sought in the court of chancery. The complainant seeks to compel the defendant to transfer the legal title of certain choses in action which he now holds. Such a transfer requires the execution of a written instrument by the defendant, for obtaining which the procedure in equity is more adapted than that in the courts of law. A judgment against the 'defendant for damages would not be an adequate remedy for the loss of claims against other persons, one of which is secured also by a lien on lands. The jurisdiction of a court of equity to decree the transfer of such writings is clear. Jackson v. Butler, 2 Atk. 306; cases cited in notes to Pusey v. Pusey, 1 Lead. Cas. Eq. *820; 1 Pom. Eq. §§ 175, 185.

The plea was properly overruled, and the order appealed from is affirmed.

Bor affirmance — The Chancellor, Chief-Justice, Van Stckel, Dixon, Collins, Fort, Hendrickson, Bogert, Adams, Vredenburgh, Voorhees—11.

Bor reversal—None.


author: Collins, J.

text:
    James N. Fuller, respondent, v. Alexander Hollander & Company (a corporation), appellant.
    [Argued June 26th, 1900.
    Decided November 19th, 1900.
    Filed December 6th, 1900.]
    1. The power conferred by the General Corporation act (P. L. of 1896 p. %92 § 1/4) summarily to order books of a corporation to be forthwith brought within this state, is exercisable by a justice of the supreme court, or by the court of chancery, only when a situation exists in which the judicial authority whose action is invoked can exercise control over the books after compliance with the order. That situation constitutes the “proper cause” contemplated by the act.
    2. The jurisdiction of the court of chancery to compel production, for inspection, of books and papers, whether of an individual or corporation, is confined to cases where the same are evidential in a cause pending in the court, and cases arising under a bill filed for relief as well as discovery, or under a bill filed for discovery only, in aid of a prosecution or defence in litigation pending or contemplated.
    3. For mere denial to a stockholder of the right of inspection of the books and papers of a corporation, the sole remedy is by mandamus.

    On appeal from the following order, advised by Vice-Chancellor Reed :
    “This matter being opened to the court by W. Holt Apgar, of counsel with the petitioner, and Robert H. McCarter, of counsel with the defendant, and the arguments of counsel having been heard, it is, on this 14th day of November, 1899, ordered that the said Alexander Hollander & Company do forthwith bring within this state all and every the books of the said corporation, whether in the form of bound volumes or single writings, as well as day-books, journals, cash-books, check-books, bank-books, order-books, shipping-books, rebate-books, ledger checks, receipts, check stubs, letter-books, letter press copies, balance sheets, ciphers, cipher keys, as all and every other book and books, whether of original entry or otherwise, by whatsoever name or names designated, known or styled, containing or showing, or in any way relating to or concerning any of the business and affairs, the receipts, commissions, disbursements, expenses, income and profits, and all the business and transactions, of whatsoever name, nature and character, of the said Alexander Hollander & Company, from the day of the date of its incorporation, on the 25th day of April, 1898, to and until including the day of the date of this order, and deliver the same at the office of Frank P. McDermott, at No. 259 Washington street, in Jersey City, on or before the 25th day of November, 1899, the same to there remain, and to be left and kept, at the said office, and in the custody' of the said Frank P. McDermott, until including the 2d day of December, 1899, and thereafter for such longer period, if any, as said petitioner may then be advised to ask, and this court may grant, and until the further order of this court permitting the removal thereof by the defendant from the said office, and that during the said period the said 'petitioner and his attorneys and counsel, with such agents, clerks, accountants and experts as said petitioner or his attorneys or counsel shall choose to assist him and then therein, shall have and be given, and be and they hereby are granted and given, full and free access thereto, and to all thereof, and full inspection thereof, in order that he and they may make full and complete examination, abstract and copy thereof, as he and they may be advised.
    “And it is further ordered that the said defendant, Alexander Hollander & Compaq, shall pay the costs of filing this petition and order.”
    The following is the vice-chancellor’s memorandum opinion:
    “Whatever books the company has, except the stock and transfer-books, are at its New York office. The petitioner is denied an inspection of them. The denial is put upon the ground that he has no real interest in the affairs of the corporation which entitles him to an inspection of the corporate books. It is charged by the respondent that while a certificate for one share of stock was issued to him, and he was elected a director and treasurer and secretary of the newly-fledged corporation, nevertheless all this was illusory, and, in fact, the petitioner never paid for his share, and by an understanding between Mr. Hollander and himself lie was to be a mere shadow, with no interest whatever in the corporation.
    “The certificate having been issued and receipted for, the inference is that it was paid for.
    “I am not satisfied that Mr. Hollander paid for it, but if he did, Fuller, by virtue of the certificate, became the owner of one share. Otherwise his election as director and the whole scheme was a fraud upon the Corporation act, which Hollander should not be permitted to set up.
    “I will order the books to be brought to the Hew Jersey office, to be kept there for one week for the inspection of the petitioner at such time as the parties may select, or on failure to agree upon the time, at such time as I hereafter direct.”

      Mr. Robert H. McCarter (with whom was Mr. Albert E. Seibert, of the Hew York bar), for the appellant.

      Mr. W. Holt Apgar (with whom was Mr. W. R. Spooner, of the Hew York bar), for the respondent.
   The opinion of the court was delivered by

Collins, J.

We have not examined the question considered by the learned vice-chancellor, because we think that the order advised was coram non judice. The order was made after summary hearing upon an original petition not filed in, or referring to, any pending cause. The petitioner alleged that he was the holder of stock in a company formed under the General Corporation act of this state, and was also the secretary and treasurer thereof, and that, except the stock and transfer-books, all the books of the company were in the city of Hew York, in the custody of the president of the company. He further alleged that the president owed the company, and that he believed its funds had been illegitimately used. He further alleged that he had demanded and had been denied an accounting by the president, and had been refused an examination of the books and papers of the company. He prayed that the president might be ordered forthwith to produce, at a convenient place within this state, for examination by the petitioner, all the books, accounts and memoranda that would show the financial condition of the company.

Unless support can be found for such a proceeding- in section 44 of the revised General Corporation act (P. L. of 1896 p. 292), it can be found nowhere. The inherent jurisdiction of the court of chancery to compel the production, for inspection, of books and papers, whether of an individual or corporation, is confined to cases where the same are evidential in a cause pending in the court (Lawless v. Fleming, 11 Dick. Ch. Rep. 816), and cases arising under a bill filed for relief as well as discovery, or under a bill filed for discovery only, in aid of a prosecution or defence in litigation, pending or contemplated. Pom. Eq. Jur. §§ 190, 209; Dan. Ch. Pl. & Pr. ch. 42. We have found no judicial opinion declaring any ampler power, except In re Steinway, 159 N. Y. 250, 258, which was on mandamus, but in which it was said, by Mr. Justice Vann, that, from an early day in England, the court of chancery had enforced by motion and the king’s bench by mandamus the right of a cofporator to inspect, for a proper purpose, the books and papers of the corporation. The chancery cases cited are instances of incidental orders, in pending proceedings, authorized by recent acts of parliament, and do not bear out the dictum of the learned judge.

The sole remedy of a stockholder wrongfully refused inspection of the books or papers of a corporation is by mandamus. In the earlier English cases the judges of the king’s bench generally refused that prerogative writ where the defendant was a private corporation, but its jurisdiction to grant it is indisputable,, and in this country, where the corporate rights rest on statute, the exercise of such jurisdiction is universal. Rosenfeld v. Einstein, 17 Vr. 479; Commonwealth v. Phœnix Iron Co., 105 Pa. St. 111, where the authorities are cited.

It will be found that the cases in this country where production, for inspection, has been ordered in an independent proceeding, not strictly mandamus, have been in states where the jurisdiction of the courts of law and equity has been blended, and the line of demarcation between remedies has become indistinct. Thomp. Gorp. § 4432.

Our court of chancery claims no inherent jurisdiction in this regard. In Stettauer v. New York and Scranton Construction Co., 15 Stew. Eq. 46, 53, Chancellor Runyon held that the mere refusal of permission to a stockholder to examine the books of a corporation was not a ground for equitable interference, the law furnishing an adequate remedy in the writ of mandamus, and he sustained a demurrer to a bill filed to compel such permission. The same learned chancellor, however, was of opinion that a provision of the General Corporation act, substantially the same, as that above cited, authorized the compulsory production in this state, and, impliedly, inspection, of the books (but not other papers and memoranda) of a corporation that, by the grace of the legislature, were customarily kept without the state, and this on the mere petition of a stockholder that he was denied such inspection; and he made order accordingly. Huylar v. Cragin Cattle Co., 13 Stew. Eq. 392; S. C., 15 Stew. Eq. 139. Vice-Chancellor Bird ordered production for inspection under like circumstances. Mitchell v. Rubber Co., 24 Atl. Rep. 407. There are probably other unreported cases of the assumption of such a power, but we think it unauthorized. It is, at least, doubtful whether, since the adoption of the constitution of 1844, this branch of the jurisdiction of our supreme court can be conferred on another tribunal. Flanigan v. Guggenheim Smelting Co., 34 Vr. 647; Green v. Heritage, 35 Vr. 567. As we construe the statute involved, the legislature has not attempted to do so.

As now subsisting, section 44 of the General Corporation act, after declaring that the directors of any corporation may, if the by-laws or certificate of incorporation so provide, keep the books of the corporation, except the stock and transfer-books, outside of the state, provides as follows:

“The court of chancery or the supreme court, or any justice thereof, may, upon proper cause shown, summarily order any or all of the books of said corporation to be forthwith brought within this state, and kept therein at such place and for such time as may be designated in such order, and the charter of any corporation failing to comply with such order may be declared forfeited by the court making such order, and it shall thereupon cease to be a corporation, and all its directors and officers shall be liable to be punished for contempt of court for disobedience of such order.”

We discern in this stature no legislative purpose to enlarge jurisdiction for the compulsory production of books for inspection. The true construction of the section quoted, so far as it confers power upon a justice of the supreme court or upon the court of chancery, is that whenever proper cause is shown to the judicial authority whose action is invoked, the books of a corporation that are by law permitted to be kept outside the state may be summarily ordered brought within the territorial control of such judicial authority. Proper cause would be shown by presenting a situation within the range of such authority, in which the production of the books would subserve some lawful or useful end within the judicial control. No other jurisdiction is conferred.

The statute is useful, if not necessary, because of the summary character of the proceeding it authorizes, because of its drastic penalty for disobedience, and because eases may, and frequently do, arise where the corporation itself is not a party to litigation in which, nevertheless, its books may be legal evidence, but it cannot be construed so as to support the order appealed from, which must, therefore, be reversed.

For reversal—The Chancellor, Chief-Justice,Van Syokel, Dixon, Garrison, Collins, Port, Hendrickson, Bogert, Adams, Vredenburgh, Voorhees—12.

For affirmance—None.


text:
    Peter G. Polhemus, complainant and appellant, v. The Holland Trust Company, defendant and respondent.
    [Argued June 27th, 1900.
    Decided November 19th, 1900.
    Piled November 20th, 1900.]
    1. Annulment of a contract induced by fraudulent misrepresentation may be decreed in equity, but for recovery of damages sustained through such misrepresentation, the exclusive remedy in this state lies with the law courts. The case of Krueger v. Armitage, IS Dick. Gh. Rep. 357, approved.
    2. A complainant appealing from a decree in chancery is not aggrieved by a failure or refusal to grant relief upon matters disclosed in evidence that are not within the scope of the bill.
    3. If a mortgage trustee, without proper certificate, authenticate and issue bonds that by the terms of the trust are issuable only on a certificate to the trustee by the mortgagor that their amount has been expended on the mortgaged premises, when, in fact, such amount has not been so expended, a court of equity should, decree that the trustee put the holder of such bonds in as good a position as if a certificate proper in form and true in fact had been given.
    4. Answering fully, on the merits, a bill in chancery submits the defendant to the jurisdiction of the court, notwithstanding any objection to jurisdiction over the defendant reserved in the answer.
    On appeal from a decree advised by Vice-Chancellor Reed, whose opinion is reported in 1J/. Dick. Gh. Rep. 98.

      Mr. John S. Voorhees, for the appellant.

      Mr. Washington B. Williams, for the respondent..
   The opinion of the court was delivered by

Collins, J.

The elements of this controversy are sufficiently stated in the opinion of the learned vice-chancellor. We have not found it needful to determine whether or not the business transacted with the complainant in this state was authorized by the defendant, because we think that if it was not, the court of chancery, for reasons to be hereinafter stated, had, nevertheless, jurisdiction over the defendant. As to the principal claim for relief made by the complainant, we agree with the vice-chancellor in holding that the defendant had no trust for the sale of bonds, and that mere recovery of damages, sustained through alleged fraudulent misrepresentation, cannot be effected in the court of chancery. The annulment of a contract induced by such misrepresentation may. be decreed, but for the recovery of damages the exclusive remedy in this state lies with the law courts. We approve, on this subject, the doctrine declared by Vice-Chancellor Emery, in Krueger v. Armitage, 13 Dick. Ch. Rep. 357, followed in this case. We have, therefore, not considered whether any misrepresentation was, in fact, made by anyone acting for the defendant.

As to the claim that the complainant is entitled to relief because of the omission of the defendant to secure subrogation, in the New York foreclosure, to the rights of the Terwilliger bonds taken up by new bonds, and as to the claim, first advanced in this court, that the complainant is entitled to a share of $342 held by the defendant to meet coupons due March 1st, 1892, it is sufficient to say that neither object is within the grounds of relief alleged in the bill. A complainant appealing from a decree in chancery is not aggrieved by a failure or refusal to grant relief upon matters disclosed in evidence that are not within the scope of the bill.

With respect to the claim for indemnity for the issue of bonds numbered from sixty-one to sixty-four, inclusive, without due certificate from the mortgagor, we agree with the learned vice-chancellor that such authentication and issue were a breach of duty, for which the defendant, as trustee, should be held responsible, but we differ with him both as to that claim being within the scope of the bill and as to the court having jurisdiction to decide it. The bill alleges that the money realized from the sale of bonds was not applied

“after and upon the certificate of the board of directors of said gas light company that an amount equal to the amount of bonds issued had been actually expended by said company for extensions and permanent improvements of its plant.”

Particular answer is prayed and given as to

“what proofs or certificates, if any, were made by the directors of said Ellenville Gas Light Company of what money had been expended in such extension and permanent improvements,”

and there is a nrayer for general relief. The allegation of the bill is not quite apposite to the true ground of relief, but it is plain that the claim in question was fairly involved in the suit.

That the certificates of January 8th, 1891, on which the defendant, as trustee under the mortgage, authenticated and delivered the bonds in question, were not in conformity with the requirement of the mortgage is unquestionable. The requirement was of a certificate of a resolution of the board of directors of the mortgagor, the Ellenville Gas Light Company, showing that the company had actually expended in extensions and permanent improvements to its works and systems of mains and pipes a sum of money not exceeding $12,500, on which the trustee should deliver to the company as many bonds as should equal the sum of money so expended. The following is the certified resolution, on which two of the complainant’s bonds were, in fact, delivered, and the other is in almost identical form:

“At the meeting of the trustees of the Ellenville Gas Light Co., held on this date, it was resolved that the treasurer is hereby instructed to draw one thousand dollars of the bonds of this company in the hands of the Holland Trust Company for improvements, the improvements to that amount having been placed therein.”

By no ingenuity can this resolution be construed as declaring that the sum stated therein had been expended in extensions or permanent improvements on the gas company’s works or system of pipes, and, in fact, nothing at all had 'been so expended since the last delivery of bonds on that account.

The trustee, therefore, failed in its duty to the persons who might purchase those bonds, and the proper measure of relief to be granted in the present case would seem to be that the defendant, being such trustee, should be compelled to put the complainant, being the purchaser, in as good a position as he would have been in had the certificate been proper in form and true in fact.

On the question of jurisdiction we think that, by answering in full on the merits, although attempting to reserve the objection pleaded, the defendant submitted itself to the court. Such, undoubtedly, is the general rule. In Livingston's Executrix v. Story, 11 Pet. 351, the supreme court of the United States held that, by answering on the merits, a defendant who, by reason of non-residence, was not suable in the circuit where sued, had submitted to the jurisdiction of a United States circuit court in equity, although in his answer he had alleged the facts as to his residence and had protested against the jurisdiction, and although a general regulation of United States equity practice provided that a defendant, instead of filing a plea, might insist on special matter in his answer and have the same benefit as if he had pleaded the same. The court held that the regulation was not applicable to pleas to the jurisdiction, but only to pleas on the merits, and was merely affirmative of the general rule of chancery. In the case in hand the defendant did file a plea to the jurisdiction, which was afterwards overruled, and now claims that its answer, although filed long after, was only an answer “in support of” the plea. There can be no answer in support of a plea to the jurisdiction of the court over the defendant. The function of such an answer is to respond to allegations or interrogatories in the bill germane to the facts pleaded and calculated to overcome their force as a defence. 1 Dan. Ch. Pr. & Pl. 615, 616.

It is urged that the plea overruled in this case was not strictly one to the jurisdiction, but was anomalous in involving, to some extent, the merits of the controversy. Even so, no answer in support of it was needed. An answer in support of a plea should be limited to the discovery sought on the subject of the plea (Id. 617), and there was none sought on that subject in this ease. The answer was to the whole bill and each part of it, and must stand on the footing of an answer on the merits. If the plea was wrongly overruled, the remedy was by appeal: if rightly overruled, the answer still stood. The defendant did not appeal, but voluntarily submitted to a trial on the merits under its answer and a general replication. It could not, on final hearing, object to the jurisdiction to which it had submitted.

Let the decree to dismiss the bill be reversed, and let the cause be remitted to the court of chancery to be referred to a master to ascertain how much, if anything, the complainant would have realized upon his bonds, numbered sixty-one to sixty-four, if $2,000 had been expended in permanent improvements upon the mortgaged premises after the previous issue of the same series and before January 8th, 1891; and on the coming in of such report, let a decree be made accordingly, with costs to the complainant.

For reversal—The Chancellor, Ci-iiee-Justice,Van Syokel, Dixon, Collins, Rort, Hendrickson, Bogert, Adams, VredenBURGH, VOORHEES—11.

For affirmance—-None.


author: Garretsoe, J.

text:
    Charles E. Chapman, complainant and appellant, v. Theodore C. Bates and William H. Lee, defendants and respondents.
    [Filed December 18th, 1900.]
    1. A proxy_andjpwer_of,attpriiey made by a stockholder in a eorporaticn, giving vcting powers and rights to deal with the stock in various ways, and to sell and exchange it, and conferring an interest, and, by its terms, irrevocable for a period less than three_years, will not be revoked, upon a EiirmecThy the maker for that purpose, unless it appears that the purposes are illegal, or in violation of some statute, or against public policy.
    2. What are known as pooling agreementsjje^ not: necessarily, illegal, but each case will depend upon tEVoEJects t(f be attained.
    On appeal from a decree advised by Vice-Chancellor Pitney, whose opinion is reported in 15 Dick. Qh. Rep. 17.

      Mr. Charles L. Corbin, for the appellant.

      Mr. Charles D. Thompson, for the respondents.
   The opinion of the court was delivered, by

Garretsoe, J.

The complainant, being the owner of fifty-one shares of stock of the Union Terminal Association, a corporation of this state, on the 6th day of July, 1899, executed a paper called a proxy and power of attorney, appointing the defendants his proxies and attorneys in fact, and in pursuance thereof delivered to them the certificates for said shares of stock.

This proxy and power of attorney was therein declared to be in force for the period ending January 1st, 1902, and to be and remain irrevocable^ during said period.

It is sought in the bill filed in This case to revofej;his__instrUr ment, which, in terms, is declared to be irrevocable before the expiration of the period limited, upon' the grounds that its provisions are in violation of the terms of the act concerning corporations under which the Union Terminal Association was incorporated, and are in conflict with public policy and with the laws of the State of New Jersey.

The case was heard on bill and answer and a decree dismissing the bill.

The proxy and power of attorney executed by the complainant recites that certain owners and holders of shares of the capital stock of the Union Terminal Association deem it to be for their best interests and as especially desirable to aid in securing the speedy completion of the properties represented to unite their stock, and all that is represented therein and thereby, by placing, t£Sr certificates of stock in the possession and control of certain persons, as proxies and attorneys in fact, to he held, managed and used by them, in their discretion, for the equal pro rata benefit of all stockholders who may join in this proposed union of interests; it then appoints the defendants proxies and attorneys in fact, to have, use' and exercise any and all complainant’s rights and powers in, to and under any and all of his said stock of the said Union Terminal Association, and to receive, take, retain, hold, use and employ any or all of his said stock to aid in the promotion of any and all purposes which his said proxies and attorneys in fact may deem best, and to join any and all his shares of stock of the said Union Terminal Association, and all his rights and powers thereunder with any and all shares of stock of other stockholders who may deposit their certificates of stock with said defendants, and execute and deliver to them a proxy and power of attorney of the same tenor and effect, for any and all purposes which his said proxies and attorneys in fact shall deem to be for the best interest of all such stockholders, for the period ending January 1st, 1902; this proxy to be and remain irrevocable during said period.

It authorizes the proxies and attorneys in fact, at their discretion, to vote and act upon any or all of the shares of the capital stock of the Union Terminal Association, at any or all meetings of the shareholders of said corporation. All stock deposited under the proxies to constitute one holding in the attorneys. It authorizes the proxies and attorneys in fact to make any and all demands and exercise any and all rights which he might make or exercise as a holder or owner of said stock of said Union Terminal Association, and to recover and receive all moneys and obtain payment of all indebtedness due to such holder, and to represent him in any suit and at any sale of properties in which, as a stockholder of the Union Terminal Association, he might be interested, and to make bids and use the stock for bidding for and acquiring all such properties, and to take title and dispose of such properties; to procure the organization of a corporation; to exercise all the rights granted to the attorneys; to appoint an agent to hold title to such property as may be represented by his stock, and direct' the management and disposal thereof.

It authorizes them to take all action necessary to form a corporation under the laws of Missouri; to make available all properties controlled by his stock of the Union Terminal Association, and to manage such new corporation, and sell the stock therein, and to exchange the stock of the Union Terminal Association for stock in the new corporation, and exercise all the powers granted over the new shares of stock in the new corporation; to hypothecate the shares of stock of the Union Terminal Association, or of the new corporation; to sell the stock of the Union Terminal Association, or of the new corporation, at not less than $100 a share, accounting for the proceeds, after deducting the proportionate share of all costs, expenses and compensation of the attorneys; no distribution need be made before and the stockholder agrees not to sell or dispose of his stock prior to the termination of the power of attorney; to receive all dividends and earnings on the stock of the Union Terminal Association, or of the new corporation, and disburse the same, or retain them until the termination of the power of attorney; to substitute new attorneys, with the same powers; to relinquish the powers, granted and return the stock; to receive from attorneys previously appointed certificates of stock in the Union Terminal Association.

It appears by the answer that the Union Terminal Assoeia-, tion was organized on the 6th day of July, 1898; that, by its certificate of incorporation, it was authorized:

First. To acquire and dispose of the stock, bonds, &c., of the. Kansas City and Atlantic Railroad Company, of Missouri; the Terminal Improvement Association, of Kansas City, Missouri, and of the Missouri Agricultural and Fair Grounds Association, of Gallatin township, Missouri, corporations of Missouri, or of any other corporations of' Missouri organized for similar purposes.

Second. To acquire and convey all properties and rights of the foregoing corporations.

Third. To buy, sell and deal in real estate; to promote agriculture and the improvement of stock; to reclaim land; to promote, erect and construct dykes, breakwaters, canals and embankments for the reclaiming of land; to build, erect and construct wharves, docks and levees; to build, lease, erect and construct warehouses, grain elevators, storage-houses and other buildings; to promote, lease, erect and construct, maintain and operate toll bridges, railroad terminals, stations and depots for the reception and transmission of personal property; to convey and transport personal property on land or by water, or across rivers and other waters, by any mode of conveyance whatsoever, and to charge and receive compensation therefor.

Fourth. To issue bonds and secure them by mortgage.

It further appears by the answer that the authorized capital stock of the Union Terminal Association is $5,000,000, of which $1,962,900 has been issued and is outstanding, and that the same is held by about five hundred stockholders, and that the defendants are personally both large stockholders in said corporation, owning and holding several hundred shares of stock therein; that after said corporation was formed, and in order to carry out the purposes set forth in the certificate of incorporation, the directors proceeded to acquire, and have acquired, over ninety-six per cent, of the total issue of stock of the Kansas City and Atlantic Railroad Company, amounting to over $2,000,000 par value, and have every share of stock of the Terminal Improvement Association, of Kansas City, amounting to two thousand shares, of the par value of $200,000, and have a majority of all the stock of the Missouri Agricultural and Fair Grounds Association, of Gallatin township, Missouri, amounting to $48,000 par value out of a total capital stock of $90,000, and have also acquired all the issued and outstanding first mortgage bonds of the Kansas City and Atlantic Railroad Company, amounting to $600,000; that the underlying purpose of said corporation was the completion of a partially-constructed combination double-track, triple-deck railroad and highway bridge for railroad traffic and general business over the Missouri river, and in connection therewith the construction and operation of a grand union passenger station in the city of Kansas City, with the approaches, yards and accessories thereto, and that much has been done and valuable property acquired in furtherance of said purposes, all of which possesses great prospective value, but that the project, as a whole, was incomplete and imperfect, and that the titles, rights and franchises obtained had not been perfected, and that, in order to be completed and become of financial value, much of what had been done had to be gone over—defects in title remedied, important legislation secured and actual construction carried on; and that, in order to properly develop the rights, privileges, franchises and property owned by the said several corporations, some plan must be adopted which would extend over a period sufficiently long to secure the desired results, and to that end all of the stockholders of the Union Terminal Association were advised that some agreement should be entered into which would provide for a union of interests and confer upon such individuals as they should select all the powers and privileges contained in the proxy and power of attorney, and should surrender their certificates of stock to said attorneys for the term therein named, in order that the interests should continue unchanged during the term within which it was confidently expected that the desired results might be accomplished, and the foregoing proxy and power of attorney was prepared, and, after careful examination and full discussion, was executed by about eighty per cent, both in number of stockholders and in shares of stock of the Union Terminal Association, and the certificates of 'stock delivered. The answer further sets forth that the action of the stockholders in thus conferring the rights, powers and privileges contained in the proxy and power of attorney has enabled the directors of the company to undertake and pursue a policy of development of the plans of the company and to obtain certain important action by which they have been able to secure very valuable rights and franchises, the removal of clouds upon the titles of land already acquired, and other valuable advantages for the said corporation, which has already greatly enhanced the value of the stock held by the several stockholders of the company, and which would have been impossible had not the right and power given under the proxy and power of attorney been irrevocably conferred.

The answer further sets forth that, in order to secure the said rights and property, a great deal of work was done by the defendants and much money expended, and that the directors would not have expended the money nor the defendants devoted the time and labor to its accomplishment had it not been believed that the proxy and power of attorney was irrevocable; that much still remains to be accomplished to secure the results and value which the plan adopted contemplates; that the desired results can only be obtained through the continuance of said union of interests for the period named, within which it is confidently believed that the necessary work can be completed, and that the withdrawal by the complainant and other stockholders therefrom would not only cause the loss of much that has already been accomplished— the value of which depends on the completion of the general plan—but would also prevent further work in development thereof, and a loss of the great prospective value thereon; that amongst other powers given them by the proxy and power of attorney was the power of absolute disposal or exchange of said shares of stock in the said corporation, either for cash or for shares of stock in some corporation, and that, in pursuance of the powers thus given them, the defendants have entered into negotiations for the sale and have offered for sale, in one lot, the entire amount of stock so held and controlled by them under said proxy and power of attorney, and which negotiations are now pending, and which offers may be accepted at any time; that the complainant knew of the fact that the defendants had entered into negotiations for the purpose of disposing of the property of the Union Terminal Association, and had offered the same for sale, and had given options thereon; that the defendants have themselves loaned large sums of money and have secured other large sums of money, amounting to many thousands of dollars, which have been expended for the benefit of said corporation and its stockholders, on the faith of the representations and agreements entered into by the complainant and other stockholders.

This instrument which gave the defendants control over the complaiñañFs stock appears to have been for a common interest; it is consistent with LhApurposes'f oh which the corporation was created, and. its continuance appears to .be necessary for the advantage of all who are interested in the development of the property.

A power of attorney may become irrevocable whenever the object is to create an interest; and this is so even if it is not stated in the instrument itself to be irrevocable. While the general rule is that a principal may revoke the authority of his agent at'his mere pleasure, an exception to this rule is when the principal has expressly stipulated tfiat the authority shall be irrevocable and the agent has an interest in its execution. Story Ag. § 476. But where an authority or power is coupled with an interest, or where it is given for a valuable consideration, or where it is part of a security, there, unless there is an expressed stipulation that it shall be revocable, it is, fromMts very nature and character, in contemplation of the law,^irrevocable, whether it is expressed to be so upon the face of the instrument conferring the authority or not. Story Ag. § 477; Hunt v. Rousmaniner, 8 Wheat. 174; Durbrow v. Eppens, 36 Vr. 10. In this last ease illustrations of irrevocable power of attorney can be found.

We also agree with the learned vice-chancellor in the view' that this instrument conferred upon the defendants powers to be executed as a trust for the benefit of all concerned, and conferred upon them a duty to account, as trustee, to all who joined in this power of attorney.

By “An act concerning corporations” (P. L. of 1896 p. 282) it is provided, in section 17:

“Absent stockholders may vote at all meetings by proxy, in writing; and every corporation may determine by its certificate of incorporation or by-laws the manner of calling and conducting all meetings, what number of shares shall entitle the stockholders to one or more votes, what number of stockholders shall attend, either in person or by proxy, or what number of shares or amount of interest shall be represented at any meeting in order to constitute a quorum.”

This section applies to all stockholders’ meetings, and has been held, in the absence of any provision in the certificate of incorporation or by-laws to the contrary, to secure to each shareholder one vote for each share of stock held by him and appearing by the books of the company to be in his ownership (Cam den and Atlantic Railroad Co. v. Elkins, 10 Stew. Eq. 273), but the certificate of incorporation or by-laws may make different provisions. Loewenthal v. Rubber Reclaiming Co., 7 Dick. Ch. Rep. 440. There does not appear, however, to be anything in the certificate or by-laws varying the statutory provision.

It is further provided in section 36 of the Corporation act:

“Unless otherwise provided in the charter, certificate or by-laws of the corporation, at every election each stockholder, whether resident or nonresident, shall be entitled to one vote in person or by proxy for each share of the capital stock held by him, but no proxy shall be voted on after three years from its date.”

This section applies only to voting at elections. Both of these sections seem to have been enacted for the convenience of stockholders who, for any reason, do not attend stockholders’ meetings, and provides a method by which their wishes, as set forth in the proxy, may be given expression in their absence, and there is nothing in either of the sections which prevents a stockholder who has given a proxy from exercising his right to vote in person, if present, at any meeting at which a vote of the stockholders is taken.

The only limitation as to time for which such proxies may eontmuéiirThe thirty-sixth section, which prevents,the use of ajrroxjr for vbting.atjffections after, .three, years i50m its date.

There is nothing in either of the sections which prevents a stockholder from appointing an attorney to vote his stock for him at any stockholders’ meeting for any time he may choose, save only meetings for elections above the time limit of three years.

They do not, in terms, prevent a stockholder from giving an irrevocable power of attorney to vote at stockholders’ meetings, subject to the time limit as to elections, nor can we see any reason why a stockholder may not give such a proxy if he chooses, and be bound by it; he can easily avoid the effect of it by appearing and voting in person, at all meetings.

There is no statutory provision, nor can we perceive any reason offensive tojpublic policy, preventing ajatockholder from giving another powers over, or rights in, his shares in a corporation to the same extent that he might give-in any property.

We recognize the principle laid down in Cone v. Russell, 3 Dick. Ch. Rep. 208, and White v. Thomas Tire Co., 7 Dick. Ch. Rep. 179, that every stockholder is entitled to the benefit of the judgment of every other stockholder in the management of the affairs of the corporation," but in this case complaint is not made by one claiming that injury has been done to his interest by reason of a stockholder divesting himself of control of his stock, but by one of the very parties who has entered into this agreement and to which his consent has been given. He cannot complain of the injury done to his interests by this action, for he is a consentmg__party. Such arrangements, with regard to the control of stock, as contemplated in this proxy and power of attorney, and which have been' denominated pooling agreements, are not necessarily void as being against public policy. ' In the case of Cone v. Russell, supra, the court, while holding the agreement in that case void as against public policy, expressly holds that “this conclusion does not reach so far as to necessarily forbid all pooling or combining of stock, where the object is to carry out a particular policy, with a view to promote the g best “mtefest ""of""all the"~stockholders. The propriety of the object validates the means, and must affirmatively appear.”

The following are cases in which pooling agreements have been held valid: Brown v. Pacific Mail and Steamship Co., 5 Blatchf. 525; Smith v. San Francisco, &c., Railroad Co., 115 Cal. 584; S. C., 35 L. R. App. Cas. 809; Mobile and Ohio Railroad Co. v. Nicholas, 98 Ala. 92; Hey v. Dolphin, 92 Hun 230.

No illegal purpose is manifest upon the face of this agreement, nor has"any^been~alleged in the bill. It appears to be consistent with the purposes for which the company was created, and which continuance appears to be necessary for the advantage of all who are interested in the development of the property; it is expressly declared to be for the benefit of all who join in it. No stockholder is prevented from joining in this agreement, and no stockholder who has not availed himself of the opportunity to join in it is excluded from the benefit of it; no one appears to have been injured by it. The complainant does not allege in what way he is damaged by its continuance; be, with about four hundred out of five hundred stockholders, executed it, and he alone of all the stockholders asks to have it revoked. We do not think he should be allowed to revoke it.

The decree should be affirmed.

For affirmance—The Chief-Justice, Van Syckel, Dixon, Collins, Fort, Garretson, Hendrickson, Bogert, Adams, Yredenburgh, Yoorhees—11.

For reversal—Hone.