text:
    H. B. Claflin & Company et al. v. Julius Freudenthal et al. Daniel A. Currie v. Julius Freudenthal et al.
    [Filed May 20th, 1899.]
    Upon the proofs established — Held, that the deeds in question were not collusively withheld from record and are not fraudulent as against complainants.
    Heard on bills, answers, replications and proofs.

      Mr. Hart, Mr. Qeorge JR. Dutton, Mr. Charles E. Hill and Mr. Edward M. Colie, for the complainants.

      Mr. Eugene Stevenson, for the defendants.
   Emery, V. C.

These are creditors’ suits consolidated for the purpose of hearing, and the bills are filed to set aside as fraudulent a deed executed by Julius Freudenthal, the debtor, to Bernard Katz, one of the defendants, for lands in Englewood, N. J. The deed in question was dated June 9th, 1896, acknowledged June 10th, 1896, and recorded on the following day. The consideration named in the deed is “ one dollar and other valuable considerations.” The'complainants in both suits are attachment creditors-under writs issued subsequent to the recording of the deed. The allegation in the Currie bill is that the deed of June 6th,. 1896, was made by the debtor, in combination with Katz, to defraud complainant and other creditors and to prevent the recovery of their debts; that the deed was without consideration and that the property is worth $35,000 or $40,000. No further particular allegations of fraud are made in the Currie bill. In. the Claflin bill it is alleged that Ereudenthal, being insolvent,, and for the purpose of defrauding complainant, and without any or upon a totally inadequate and merely colorable consideration,, gave the deed in question, and that there was no good or valid consideration for the deed; that the land was worth $75,000; that Katz was a relative of Ereudenthal and must have known of the large value of the land, and that the debtor was attempting to defraud complainant and his other creditors, by the deed, and that the whole transaction was a scheme to remove the land from liability to attachment. The latter bill asks also a discovery of the consideration paid for the conveyance and tlx* “good causes and considerations” mentioned in the deed. The answers of defendant Katz undertake to disclose “the facts and circumstances which led to the giving of the deed,” and say substantially, that for a long time prior to the date of the deed he had been furnishing to Ereudenthal, purely for the accommodation of the latter, his (Katz’s) promissory notes, signed by him as maker, which Freudenthal discounted or sold in the market for his own benefit, using the proceeds solely for his owni business and purposes, and that like notes signed by the firm of Katz Brothers were also given to Ereudenthal and similarly disposed of; that the amount of these accommodation notes was at one time as large as $50,000, and the notes were renewed from time to time, and that at the time the deed was given noles of this character were outstanding to the amount of $44,000, $37,000 being notes of Bernard Katz and $9,000 of Katz Brothers, upon which notes Freudenthal had paid $2,000. A list of the outstanding notes — six in number — dated from November 30th, 1895, to May 26th, 1896, due at various dates from June 30th, 1896, to November 26th, 1896, is given, and it is said that all of these notes represented by renewal, notes given and renewed a long time previous to the dates thereof respectively. The answers then allege that shortly before the date of the deed Freudenthal informed defendant Bernard Katz that he would be unable to take up these outstanding notes or either of them at maturity, and he desired Katz to. assume their payment and release Freudenthal therefrom, offering to convey the property in question, his homestead, absolutely, as satisfaction for the assumption .by defendant Katz of the outstanding promissory notes. Defendant, believing he could get no better recompense or reimbursement, alleges that he accépted the deed upon this basis, took immediate possession of the property and at the time of the answer, September 16th, 1896, had paid three of the notes, and intended to pay the balance as they matured; that all of the notes were in the hands of bona fide holders and that the obligation of the makers thereof was complete at the time of the execution and delivery of the deed. No disclosure is made in the answer of any security upon the property being held by defendant previous to the delivery of the deed, or that the surrender of any such security formed part of the consideration of the transaction.

The transactions and dealings between Freudenthal and Katz have been investigated on the hearing exhaustively and in great detail, and the defendant has satisfactorily established that the deed was given and accepted in consideration of Katz assuming the payment of $44,000 of notes outstanding in the hands of bona fide holders, which Katz and Katz Brothers had signed for Freudenthal’s accommodation, and that at the time of the hearing all of these notes thus assumed had been paid by Katz. It was also admitted at the’hearing and for the purpose of the suit, that the value of the property in question at the time of the conveyance was $44,000. Defendant Katz and Katz Brothers, upon the negotiation of their accommodation notes to bona fide holders, became, as between themselves and Freudenthal, creditors of the latter, and the assumption of payment of these accommodation notes by the acceptance of the deed and the discharge of the liability of Freudenthal upon these notes, constituted them purchasers for value. It appeared, however, at the hearing, and was first disclosed by the evidence of defendant Bernard Katz, that as long ago as 1892 and some years after the accommodation notes began to be made, Freudenthal executed to Katz and Katz Brothers a deed for the property as security against liability on the notes, which deed Katz, at Freudenthal’s request, agreed not to record, and that in October, 1895, this first deed was returned to Freudenthal and another deed to Bernard Katz- and Philip Katz, which included a tract not embraced in the first deed, was received in place thereof for the same purpose of security, and with the same agreement not to record. The debts of complainants were incurred while these previous deeds were unrecorded, and the debts of some of the complainants were incurred in reliance on statements made by Freudenthal before the deed of June, 1896, in relation to his property, by which statements it appears that in addition to other property he owned the Englewood property unencumbered. There was no disclosure to the persons to whom the statements were made that Katz held the unrecorded deed as security. It is claimed by complainants that the retention of these prior deeds from the-record, taken in connection with all the circumstances of their retention, was a fraud on them as creditors, which would entitle-them to relief against these unrecorded deeds, if set up by Katz, and that this fraud has not been purged by the execution of the-deed of June, 1896, but also invalidates this deed as based either wholly or in part on the previous fraudulent transaction. The-defendant, in reference to any claim for relief based on the alleged fraud or invalidity of the previous unrecorded deeds,, raises the preliminary objection that the deed of June, 1896, is the only deed attacked in the bill, and that a claim for relief based upon the alleged frauds in previous deeds is not within the issues, and that the defendant has had by the pleadings or during the hearing no notice of such issue, or warning or opportunity to prepare defences arising thereon. I think, however,, that the existence and' surrender of the previous deed, held as security against future liabilities, entered into and formed part of the consideration of the deed of June, 1896, and that under the issues on the pleadings as they stand, in reference to the fraudulent character of this last deed and its consideration, evidence as to the entire consideration, in all its details, is relevant and admissible. If there is any doubt on this point, an amendment to the bill would now bp allowed specially charging the fraud in -the former deeds, which is now insisted on, inas'much as the deeds were first disclosed, not by the answer, but by defendant on the hearing. This objection, therefore, is not well founded. The important questions in the cause are, first, whether the retention of these deeds, under all the circumstances •of the case, made these deeds fraudulent against the complainant creditors or any of them, and if so, then, secondly, whether the deed of June, 1896, is affected by such fraud in the former deeds. In reference to the first question, the fraudulent character of the earlier deeds, which were given as security, the general rule of law applicable to the case is settled. These deeds in .question were made for a valuable consideration, viz., the security •of the makers of accommodation notes, negotiated by the payee •to bona fide holders, and they must, thérefore, be impeached by subsequent creditors on the ground of actual fraud in which the grantee has himself participated. Flemington National Bank v. Jones, 5 Dick. Ch. Rep. 244 (Vice-Chancellor Pitney, 1892), and cases cited at p. 249 ; affirmed on appeal'for reasons stated, Ibid., p. 486. It is also settled by this case and by the later case; Montgomery v. Phillips, 8 Dick. Ch. Rep. 203 (Errors and Appeals, 1895), that the mere retention from the record by the mortgagee, at' the request of the mortgagor, of a mortgage given to an endorser as security for future liability, is not of itself plenary evidence of actual fraud upon a subsequent mortgagor or judgment creditor. The question as to the existence of actual fraud depends upon the individual' circumstances of ' •each ease, and in the present case, the facts which seem to me to be relevant on the decision of this question, are as follows: Bernard Katz and his brother, Philip Katz, under the name of Katz Brothers, carried on the business of brewers on a large scale at Paterson previous to 1890, about which time their brewing business aud properties were consolidated with others into •the Consolidated Paterson Brewing Company, in which they had the sole or controlling interest. Freudentlial was the uncle •of Bernard Katz’s wife, and previous to 1890 and as early as 1887, Katz Brothers had made for his accommodation notes to the amount 'of $50,000, without seeuritv. Freudentlial was then engaged in business in New York and had the reputation •of being a man of large wealth, he and his two nephews, named Henry and Charles Lesinsky, having sold mining-properties in the west for very large sums, and Bernard Katz, who acted for Katz Brothers in the matter, at the time of these accommodations, supposed Freudenthal to be wealthy. Freudenthal was -the sole or principal owner of the Columbia Typewriter Company, which manufactured typewriters in New York, and he was also a buyer in New York for western houses. - These accommodation notes were made without any questions being asked about Freudenthal’s business situation. He then lived at Englewood, New Jersey, where he has purchased a valuable homestead and lived like a man of wealth. After the incorporation of the brewing company the giving of the accommodation notes continued, but the notes were, for business reasons, made by Bernard Katz alone and not by Katz' Brothers. After the .accommodation had continued for some years (the notes being regularly renewed), and in 1891 or 1892 Katz, according to his account, said to Freudenthal: Here, uncle, we can’t tell what can happen, I would like to have a deed from you give me the •deed so that I will be secured, because we can’t tell what' may happen.” Freudenthal, on this request, made a deed for all the property he then had in Englewood, being his homestead prop■erty. Katz, on his direct examination, stated that he promised his uncle that he wouldn’t record the deed, and his evidence on cross-examination as to the arrangement, is as follows:

“Q. * * * You arranged with him that you would not put the deed on •record, didn’t you?
“A. Yes, sir; I promised him that I wouldn’t put it on record.
“Q. He told you the objections to putting it on record, it would hurt his .credit?
“A. No, he merely didn’t want it on record, he didn’t say any reason.
“Q. You knew it would hurt his credit?
“A. No, I think he done it more for his pride; he was a very proud man in Englewood, and he didn’t want to have it on.”

After the delivery of this deed Freudenthal purchased additional property at Englewood, and in October, 3895, at Katz’s request, another deed was made, dated October 29th, 1895, including the' property described in the first deed and the additional purchase, and upon the delivery of this second deed the first deed was returned or destroyed. The second deed was not recorded, and Katz’s statement in reference to this is simply that he promised to keep that off the record. Katz’s statement is the only direct evidence as to the intention of the parties in keeping the deeds from the record, and the only evidence or statement on the part of Freudenthal is contained in his letter to Katz, as late as April 8th, 1896, in which, referring to the deed of October, 1895, lie says, “ while I live there will be no need of using the deed.” According to Katz’s statement, Katz Brothers, previous to signing the $50,000 accommodation notes, had received from Freudenthal his notes for their accommodation, but to a much smaller amount — $5,000 to $10,000 and perhaps as high at one time as $25,000 — and this accommodation, while not continuous, occurred at intervals during the whole time now in question, up to a year or so previous to Freudenthal’s failure in June, 1896, Defendant’s witness, Levy, the confidential clerk of Freudenthal, thinks the accommodation may have continued up to the time of the failure, but is not sure. After 1890 Katz Brothers loaned to Freudenthal, at his request, $50,000 in brewing company bonds, for the purpose of his borrowing money on them, the same being without security. Subsequently, $13,000 of these bonds were returned, but the balance were pledged as collateral for a loan of about $27,000 for the benefit of L. B. Freudenthal & Company, a firm of El Pasco, Texas (composed of Julius Freudenthal’s son and nephew), for whom Julius Freudenthal procured the bonds, on which loan Katz was also responsible, and for which, until after the time of the failure, he held no security. Later on and in 1893 Freudenthal, who was then s.till engaged in the manufacture of typewriters, applied to Katz for further accommodation notes, but Katz refused to give further accommodation unless secured, and this security was furnished by the personal notes of Henry Lesinsky and Charles Lesinsky and by notes of the Columbia Typewriter Company. Notlother security was furnished to Katz for these accommodations, -which amounted to over $100,000. The Lesinskys, who had been formerly partners of Freudenthal, had retired from business and were men of wealth, and they gave their notes to Katz. As to the responsibility of the typewriter company, Katz relied on Freudeuthal’s statements as to its prosperous condition, and does not appear to have had or sought other information. Katz, on receiving from Freudenthal the notes of the Lesinskys and the typewriter company to secure his notes, signed additional accommodation notes for Freudenthal’s use at New York banks, and continued the whole series of accommodation notes up to June 6th, 1896, so that at that time the entire amount of Katz and Katz Brothers’ accommodation notes or endorsements outstanding was $183,500, secured as follows:

By Englewood property........................... $46,000
“ Henry Lesinsky notes.............. §65,000
less 3,00,0
—-- 62,000
“ Charles Lesinsky notes........................ 28,000
Typewriter Co. notes................... 18,500
Total secured, §154,500
Unsecured — L. B. Freudenthal & Co. loan on, 29,000
§183,500

The latter item of $29,000 was subsequently partially satisfied or realized by a transfer to Katz Brothers or for their benefit, of property at El Pasco, Texas, held by L. B. Freudenthal & Company (endorsers or makers liable to Katz Brothers), and for whose benefit the loan of the bonds was originally made to J. Freudenthal. During the time when these accommodation notes were being made Freudenthal was incurring liabilities by discounts in banks and otherwise, beyond the notes given by Katz, but it does not appear that he ever disclosed this fact to Katz, or that Katz knew of the extent of his liabilities, or that his business was in a hazardous condition, and Freudenthal’s representations to Katz, as to the condition of the typewriter company —Freudenthal’s principal business — were always favorable, even to within a short time of his failure. A day or two before June 6th, 1896, Freudenthal notified Katz that he could no longer take care of the accommodation notes, and that Katz would have to pay them. Katz at once consulted counsel, informing him of the deed held as security, and after receiving the advice of counsel, subsequently, and on June 6th, 1896, agreed with Freudenthal to pay the $46,000 of notes outstanding, for which the deed of the Englewood property was held as security, and to receive therefor an absolute deed of the Englewood property and $2,000 in cash. The deed in question was given to carry out this bargain, and it was agreed that the unrecorded deed of October, 1895, .should be returned to Freudenthal. The $2,000 was paid on June 12th, 1896, by a check, but Freudenthal absconded on the same day, and the return of the deed of October, 1895, being thus prevented (as Katz says), still remains in Katz’s possession. Freudenthal’s failure carried down the Columbia Typewriter Company and L. B. Freudenthal & Company for whom he bought goods in New York, and for whose purchases he had become liable. The debts of the typewriter company seem to have been principally to banks to whom Freudenthal was indebted on discounts secured to some extent by bonds of the company. Katz, subsequent to the failure, with funds supplied by the Lesinskys, took up, the notes of his own and Katz Brothers, which had been made on collateral security of the Lesinskys’ notes, being about $83,000. The Lesinskys received from Freudenthal on June 12th, $16,000, on account of these notes, and they also received about $30,000 from the proceeds of Freudenthal’s life insurance policies, which had been assigned to Henry Lesinsky and -were cashed at surrender values. Katz lost nothing on these Lesinsky notes. Katz also took up the notes ($18,500) for which he held the typewriter notes as collateral, but on these he lost $9,250, and for the balance received $9,250 of bonds or securities of the company which succeeded it on reorganization, and these he still holds.

While the unrecorded deeds were outstanding Julius Freudenthal procured from the complainant, the Merchants and Traders Bank, credits and discounts for J. Freudenthal & Company, as a firm composed of himself and his son, Ludwin B. Freudenthal, upon written statements signed by himself. In the statement •of April 22d, 1895, the assets of the firm were stated, at about $170,000 with liabilities of about $23,000, and his interest on the ■typewriter company bonds and stock was valued at $200,000, and his real estate and mortgages at over $260,000, including the Englewood property unencumbered at $74,000. The total .assets were given as $648,731 and the total liabilities $22,636.72, with a contingent liability on endorsed bills of $122,335.19. A second statement made May 22d, 1896, substantially similar, •gives total assets, $649,223.50; total liabilities, $24,396.27, with -contingent liabilities on endorsed bills receivable outstanding, .$118,020.90. The Englewood property is valued at $74,000. Written statements substantially similar as to assets and liabilities, .and with the same valuation of the Englewood property uuen■cumbered ($74,000), were made to the Franklin National Bank, • .the real owners of complainant Wylie’s judgment, on July 8th, 1895, and May 1st, 1896, and in reliance on these statements a ■line of discount or credit was allowed J. Freudenthal & Com-pany as endorsers of L. B. Freudenthal’s paper. As to the other complainants it does not appear that their debts were in- ' - corred in reliance upon any statements of Freudenthal as to the Englewood property. It does not appear that Katz knew that these statements, or any of them, had been made, or that dismounts or credits were in fact being obtained by Freudenthal on his statements that the Englewood property was unencumbered. 'The case of the complainants, as to proof of actual fraud on Katz’s part in withholding the deeds from the record, rests mainly upon the contention that Katz knew or must have known of the hazardous nature of Freudenthal’s business and -of his extension of credit beyond what Katz himself was giving him, and that the deeds in question being for Freudenthal’s homestead property, the recording of them, as Katz must be presumed to know, would at once destroy Freudenthal’s credit, .and the agreement to retain from the record must therefore have been with the intention of sustaining his credit' and drawing in creditors on the credit of Freudenthal’s ownership of the ■ property unencumbered. This contention is not, in my-judgr-ment, well founded. Freudenthal seems to have concealed from Katz his true situation at the time of receiving the accommodations, and by his statements in relation to his business, to have; led him to believe, up to shortly before the time of his failure, that his business affairs were not in a hazardous condition but were prosperous. Katz’s conduct in originally giving and con-, tinuing his credit for Freudenthal’s accommodation, in loaning, the brewing company bonds and in further loaning and continuing the credit of his name upon the personal security of theLesinsky and typewriter company notes as collateral, are indications of confidence on his part in Freudenthal’s responsibility which seem to negative any actual intention, to defraud creditors, and until the disclosure of the insolvency in June, 1896, Katz had no information or reason to suppose that Freudenthal was insolvent or that his business was in peril. The fact that Katz, after. 1892, required security, is the main circumstance in Katz’s conduct relied on as indicating his opinion that Freudenthal’sbusiness and circumstances were hazardous; but it would, in my judgment, be exaggerating and misconstruing the effect of an acf of ordinary business prudence, to consider the demand for security for these large additional accommodations as sufficient evidence that Katz either knew or believed that Freudenthal was insolvent or hopelessly involved.

The case of complainants must be based, therefore, upon the-effect of the retention of the deed for the -homestead from the record, while the endorsements were continuing, and while Freudenthal was obtaining credit to some extent on the strength of its occupation and ownership.

Several cases have been cited which hold that where a deed of mortgage of lands is retained from record, under circumstances-which show an intention on the part of the mortgagee or grantee, as well as the grantor or mortgagor, to draw in creditors of the grantor or mortgagor on the faith of his ownership of the lands unencumbered, the retention from the record will make fraudulent against creditors so drawn in, a deed or mortgage originally valid and on full consideration. This preference of subsequent-creditors, who became such in reliance on the debtor’s ownership of the property, over the secret or unrecorded mortgage or deed,. is based, not on rights resulting from the registry acts, but upon ■conduct of the mortgagee or grantee as well as the debtor, which, is actually fraudulent against subsequent creditors and fraudulent at common law dependent of registry acts. In some cases the withholding of the instrument from record for the purpose of helping the mercantile or general credit of the mortgagor is held to be plenary proof of actual fraud, but this doctrine has not been adopted in our courts. Flemington National Bank v. Jones, 5 Dick. Ch. Rep. 259, 260; affirmed Ibid., p. 486. And in the latest case, Montgomery v. Phillips, 8 Dick. Ch. Pep. 203 (Errors and Appeals, 1895), the effect as against subsequent creditors of retaining from the record real estate mortgages, was directly involved, and the rule declared to be (aty>. £19) “ that the mere failure to record a mortgage is not of itself .a conclusive reason for setting it aside for the benefit of subse■quent- creditors, but that any concealment of an instrument of this kind is a badge of fraud, which may by reason of the circumstances surrounding the concealment be sufficient ground for avoiding the instrument in respect to subsequent creditors.” Tlie fact iti this case that the unrecorded deed was for the debtor’s homestead property, rather than' other lands, is urged as decisively indicating the' intention of both parties, on the ■retention of the deed, to be the giving a false crédit to Ereudenthal, and it is said that the placing of the deeds for. his homestead on record would at once have destroyed Ereudenthal’s •credit. Whether it would have had this effect is doubtful. The ■record of a deed upon nominal consideration'would undoubtedly ■call for explanation from Freudentlial, but if he gave the true explanation, viz., that it was given to secure an endorser of responsibility, who had given to him the benefit of the endorser’s -own credit, it is not clear that Freudenthal’s credit would have been seriously affected. With some creditors, those who discounted the notes of Katz so secured, it would strengthen the •credit, to be given to the notes. And the real question in refer•ence to this retention of a deed for the homestead from record, is whether this was a certain inference under the circumstances, and whether Katz must be so conclusively presumed to be charged with knowing it, as to make the mere retention a fraud. The fact that the property was the homestead is, in my judgment,, simply one circumstance to consider in connection with the whole case, and cannot be given any such conclusive effect as is claimed. The question in every case where the unrecorded deed or mortgage is given upon a valuable consideration and the fraud charged is the retention of the instrument from the record, is whether under all the circumstances of the case the intent to-hinder, delay or defraud these subsequent creditors, by retaining from the record, existed on the part of the grantee or mortgagee as well as upon the part of the grantor or mortgagor. In Montgomery v. Phillips, supra, the unrecorded mortgage in question was held under the circumstances to be fraudulent. The mortgage in that cáse was in fact in actual control of the mortgagor — - a corporation which was embarrassed — the mortgage was given to secure the liability of the mortgagee as endorser on a note of the corporation discounted to pay (in part) its own debt to him —the future success of the company was problematical — the-mortgage was to be given up if the company succeeded and to be recorded if it failed, and the experiment of its business waste be conducted by the mortgagee himself at the risk of future-'creditors. Eor the purpose of leaving the credit of the company unimpaired while the experiment continued, the mortgage which secured the debt and liability of the manager of the company's affairs and who created its subsequent debts, was kept from the-record. These circumstances, in connection with the fact that the mortgagee continued in the active control of the mortgagor corporation from the time of the execution of the mortgage until* its registry after the insolvency of the company, were sufficient to establish, as the court found (at p. 221), an arrangement equivalent to an agreement between the mortgagor and mortgagee to keep the mortgage, from the record for the purpose of sustaining the credit of the company by concealing its existence, and the mortgage, although given for a valuable consideration, was therefore declared to be fraudulent against the subsequent creditors. Sustaining the credit of the company ” in this case was an actual drawing in of creditors by the directs act of the mortgagee. ISTo circumstances (beyond the retention from the record) of the same or like character appear in this case, nor does the evidence disclose facts from which it can be concluded that the deed was retained by Katz, the grantee, with the intention of drawing in creditors to trust Freudenthal on the faith of his ownership of the property unencumbered. Under the rule settled by the above cases, evidence sufficient to justify the finding of an intention on the part of the holder of the unrecorded instrument to assist'in the drawing in of subsequent creditors, to give credit on the ownership of the lands, must appear, in order to make an instrument, valid in its inception, fraudulent by reason of its retention from the record. And in the present case the proof of such retention on Katz’s part should clearly indicate this intention, and not be merely such as would give rise to a suspicion of its existence. The reason.for requiring clear proof is that two facts appear in the case, which of themselves go far to negative the existence in Katz’s mind of any such intention to draw in other creditors to their loss. First, he himself gave credit to Freudenthal largely beyond the amount he was secured for, and has been himself drawn in for a subsequent loss of over $20,000 beyond the loss he may sustain in the Englewood property if he be allowed to retain it. In the second place, the Englewood property, by the deed to him, has been, by Katz’s payment of the notes on which he was surety, substantially appropriated to the payment of subsequent creditors of Freudenthal to the extent of $44,000, viz., those who discounted the notes on which Katz or Katz Brothers were sureties and including the Franklin Bank as the holder of one of these notes. Clear and, as it seems to me, decisive proof should be made under these circumstances of an intention on Katz’s part, by the retention of the deed, to draw in or defraud other subsequent creditors, in order to require the Englewood property to be doubly liable in Katz’s hands for the.payment of Freudenthal’s debts.

Upon the whole evidence in the case I conclude that the prior deeds of 1892 and 1895, held by Katz as security for the accommodation notes, were not fraudulent as against any of the complainauts, and that the subsequent absolute purchase of the property by the deed of June 6th, 1896, upon the assumption by Katz of the payment of $44,000 of these notes, being the full value of the property, was valid as against the complainants, whose liens were obtained subsequent to the delivery and record of this deed. It is charged in the bills that Ereudenthal,-after the record of this deed of June 6th, 1896, continued in possession of the property, but it appears that Katz (who was not entitled to possession under the previous deeds which were merely mortgages) took possession of the property shortly after the record of the deed and has since retained possession. This conclusion as to the validity of the unrecorded deeds renders it unnecessary to consider the further question as to whether if fraudulent as against creditors, this fraud was purged by the subsequent deed. The bill also brought into court certain defendants having or claiming rights as mortgagees, under a mortgage for $30,000, made by Katz to Eisele & King and by them assigned to the Western National Bank. This mortgage, as appears by the evidence, was given for the purpose of enabling Katz, with the assistance of Eisele & King (the latter being Katz’s son-in-law), to raise money on the property for the purpose of meeting some of the Ereudenthal notes. The money was raised by a loan from the Western'National Bank upon the security of the mortgage, which was assigned to the bank, but after the attachments in these cases and filing of lis pendens, the loan was returned by Katz, and the mortgage was re-assigned to Eisele & King who now hold it as collateral for notes subsequently endorsed to assist Katz in making payments of the Ereudenthal notes. No claim has been made on their behalf, that they now hold as against complainants any interest, in the lands or under the mortgage, as bona fide mortgagees superior to Katz’s own title, and the case as against them must be considered as the case against Katz and- involves no separate consideration. Their present interest in the mortgage is held with notice of complainants’ claim.

The bills, therefore, will be dismissed. I will hear counsel of defendants as to whether costs should-be allowed.


source: Caselaw Access Project

author: Emery, V. C.

license: Public Domain

text:
    John J. Cronin v. Charles B. Bloemecke et al.
    [Filed June 8th, 1899.]
    1. A court of equity has jurisdiction to protect, hy preliminary injunction, a dwelling-house against a nuisance which renders it uncomfortable, though the existence of such nuisance is disputed.
    2. The mere fact that crowds of disorderly persons upon the highways, drawn there by entertainments given hy a third person upon his own lands for pecuniary profit, are a public nuisance, does not deprive a private person of relief by injunction against a special nuisance to his dwelling-house by reason of such disorderly crowds.
    On application for preliminary injunction. Heard on bill and affidavits and answer and affidavits.

      Mr. Chandler W. Hiker, for the motion.

      Mr. Thomas N. MoCarter, Jr., contra.

   Emery, V. C.

The bill is filed to enjoin a nuisance alleged to result from ■the playing of the game of base ball in the grounds known as ■the Shooting Park, in the borough of Yailsburgh, adjoining or near the city of Newark. The Shooting Park is located 'on Myrtle avenue and Eodwell avenue, extending about three hundred and fifty feet on. Myrtle avenue and a less distance on Eodwell avenue. Complainant owns a- lot, twenty-five by one hundred feet, on the corner of the two avenues, upon which lot is his dwelling-house which has been occupied by himself and family for six years, his family consisting now of his wife, two small children and his mother. The rear of complainant’s lot (twenty-five feet) bounds on the park, but on the side of his lot towards the north another lot owned by one McAdam, fifty by one hundred feet, directly joins complainant- and is unoccupied. The Shooting Park, as appears by the answer of the defendant Bloemecke, is in the possession and control of the Essex County Amusement Company, who use or control it as a place of recreation and amusement for pecuniary profit, and the defendant Bloemecke is the manager in charge of the park and the owner of the base ball business conducted by the Newark Base Ball Club, whose games at the park are alleged to create a nuisance to complainant and his family. The nuisances or annoyances to which complainant and his family are alleged to be subjected-are several in number, some of them arising from the manner' in which the games themselves are carried on upon the grounds. These are (1) the driving of the balls upon complainant’s grounds- and the consequent trespassing upon his grounds to recover the-balls, by which his use of his grounds is rendered dangerous, his peace and quiet interfered with and his property destroyed;; (2) the noise occurring in the game itself by the shouts of the players and spectators, and the loud, profane and obscene language used by the players or spectators and audible at his residence, together with the noise of fights and brawls during the game. The third nuisance complained of is the collection of large numbers of idle and disorderly persons in the neighborhood of the grounds and of complainant’s house while the games-are in progress, which crowds, by their noise, vile language and behavior, disturb the peace and quiet of the neighborhood and subject complainant and other residents to insults and abuse ifi they venture from their homes.

The principal annoyance arises from the games which are carried on at the-park on Sundays. The games commenced in-April and are scheduled to continue during the season at intervals tmtil after the 1st of September. Complainant’s bill prays-that the playing of the games may be altogether enjoined, and" the present application is for a preliminary injunction to the-same extent pending the final hearing.

Considering first the facts of the case as now presented by the-ex parte affidavits on both sides, I think complainant has made-out on the facts such a prima faeie case of serious annoyance as-entitles him to a proper protection against the continuance thereof pending the final hearing. As to the dropping of balls upon complainant’s premises, the affidavits of complainant and. his wife are, without specifying instances, positive and direct that this “frequently” occurred; that when this occurred the players trespassed on his premises and damaged it and abused both of them when they remonstrated. Defendants submit affidavits of the manager and score-keeper of the games (whose place of observation is not stated) that the balls never drop on complainant’s land and only occasionally on the lot of McAdam adjoining complainant, and that the players do not leave the grounds during the games. These affidavits do not fully meet complainant’s case on this point, which rests on the danger and annoyance of dropping balls. I am not satisfied, on their present affidavits, that the manager and score-keeper are not mistaken as to the balls dropping on McAdam’s lot instead of complainant’s, and McAdam’s lot is so near complainant’s that if they are driven on McAdam’s lot, there is evident danger of their being driven twenty-five or fifty feet further on to complainant’s, and the trespassing on' complainant’s lands to recover balls by persons outside the grounds would equally occur whether the balls fell on the lot of McAdam or complainant. Defendants’ affidavits show that the players personally may not recover the balls, but these positive affidavits of the complainant and his wife, as to the trespassing, are not overcome by these affidavits or by the general affidavits of police officers and others that trespassing is not allowed and has .not occurred. These affidavits fail to show such continuous attendance on or near complainant’s premises while the games are in progress, as to conclude upon these affidavits alone that the statements of complainant and his wife are false.

The same observations apply to the large number of affidavits of thoroughly credible persons ■ submitted to show that as observed by them (from the places occupied by them at the games) the games were conducted in an orderly mánner, with only occasional outbursts of'applause and without indecent or profane outcries from players or persons within the grounds. The ques■tion here is whether any such language and outcries are heard at complainant’s house, and either' from the players or others, ■either inside or outside the grounds. As to this the affidavits of complainant and his wife, Orben, Mr. and Mrs. Cope and Mrs. Mink, are positive and specific that the’annoyance of such loud, indecent and profane noises in the vicinity of complainant’s residence, from the grounds and outside, occur while games are in progress, and I think the defendants’ affidavits do not overcome these specific charges. On the affidavits, therefore, I think complainant has made out a prima facie case of serious annoyance which entitles him to protection pending the final hearing, unless he is, for reasons set up by defendant, barred'from this protection. But this protection, if given, should not extend to an absolute restraint against playing the games of base ball upon the park. A decree to this extent might not be proper, even upon final hearing, unless it appeared after full hearing that the games could not be carried on under defendants’ management without creating a. nuisance. In the present status of the case defendants’ affidavits, which are necessarily somewhat genera!in their character, do not fully meet the specific charges of nuisance or annoyance made by complainant’s affidavits; but, taking defendants’ affidavits to be true, I think that they show a case where the nuisance-or annoyance may probably be removed by the defendants with the aid of sufficient ‘and proper police. Defendants make out a case-which at least entitles them, pending the hearing, to show that the games can be so conducted as not to unreasonably annoy complainant and his family. An interlocutory injunction should- not go further than to restrain the defendants, pending the hearing, from using or permitting to be used the premises called ■ the Shooting Park mentioned in the bill, or any part thereof for the purpose of base ball games, ■so that a nuisance may be occasioned'-to the- annoyance and injury of the complainant and his family at his residence or premises mentioned in the bill, either by the driving or dropping ■of balls upon his premises, or by trespassing from the players or spectators of the games, or by profane or indecent language upon the grounds, or from idle or disorderly persons in the streets -collected by the games.

An injunction pendente lite should not extend to the noises-upon the grounds incident to the playing of the games in a lawful and orderly manner, such as shouts of applause, for- as to-these a question as to acquiescence of complainant is shown,, which disentitles him to an interlocutory injunction, although it may not bar relief on final hearing. This acquiescence arises,, first, from the fact that complainant appears to have, at one time, requested and secured some privileges in the erection by defendants of a fence upon their own grounds, which would enable-him and his friends to witness the games from his premises; and second, because games have been going on- for some time at the park (a year or more), and a delay in applying for injunction will prevent an injunction pendente lite against the mere noises-incident to the games. And an injunction cannot extend to-nuisances created by the use on the grounds of vile or indecent language which is not audible at complainant’s residence, or-the-unlawful or disorderly sale of liquor upon the premises. Protection against these nuisances, if they exist, must be sought in other tribunals. The whole extent of equitable jurisdiction is-the protection of a person’s dwelling-house or home against nuisances upon other premises, of so serious a character as to-render his life therein uncomfortable.

It is objected that inasmuch as the fact of nuisance is disputed, complainant is not, under the rule settled in the Coach Co. Case, 2 Stew. Eq. 299, entitled to a preliminary injunction pending the hearing. But the jurisdiction of a court of equity in relation to protection of one’s dwelling-house against nuisances-which render it uncomfortable, stands upon a different basis from the kind of injury considered in the Coach Co. Case, and this right is one which has been constantly protected in this court by preliminary injunction in a proper case, even when the existence-of the nuisance is disputed. Such injunctions were granted in Ross v. Butler, 4 C. E. Gr. 294; Cleveland v. Citizens Gas Light Co., 5 C. E. Gr. 201; Meigs v. Lister, 8 C. E. Gr. 199, and the general jurisdiction of equity to protect such rights is stated in Leonard v. Mart, 15 Stew. Eq. 416 (Court of Errors and Appeals, 1886), in which.the above cases are cited with approval oh this point.

And in the present ease there are two circumstances which make the case as one proper for preliminary injunction — -first, this injunction can be directed in a form which will not interfere with the games if lawfully carried on; and second, the protection to which complainant is entitled against the unlawful carrying on of games must be granted at once to be effectual, as the case could not be regularly heard before the close of the present base ball season.

Two other objections to the issuing of a preliminary injunction were raised. The first is the acquiescence of the complainant in the alleged nuisance by his request for facilities in viewing the games from his grounds, which facilities were for a time allowed him. I have indicated above my view of the extent to which this action, as well as his choice of location, should be considered in framing a preliminary injunction. The other objection which is urged specially against any injunction, based on the collection of disorderly persons outside of defendants’ grounds, is that the nuisance is a public nuisance only and cannot be reached by injunction at the suit of complainant. But the right to relief in behalf of one who suffers private injury or annoyance from that which is a public nuisance is well settled. The only question is as to the character of the relief or remedy, and the right to relief by injunction against the special nuisance to one’s dwelling-house by reason of crowds of disorderly persons upon the highways, drawn there by entertainments given by a third person upon his own lands for pecuniary profit, is based upon fundamental principles which have been recognized and enforced wherever they have been called in question. In Rex v. Moore, 3 Barn. & Ad. 184 (which was an indictment), Lord Tenterden says : If a person collects together a crowd to the annoyance of his neighbors, that is a nuisance for which he is answerable.” In Walker v. Brewster, L. R. 5 Eq. 25 (where an injunction was granted), it was held that a case of nuisance was established by the collection of a crowd on the highways in the neighborhood of grounds upon which entertainments, with music and fireworks, were given continuously for profit. In Bellamy v. Wells, 89 W. R. 158, cited in Barber v. Penley, 2 Ch. 457, 458 (1893), an injunction was granted against holding boxing or prize-fight entertainments, which had the effect of collecting large and noisy crowds in the streets outside of the premises.

I will advise a preliminary injunction in the form above indicated. The preliminary injunction will be granted upon the •condition that if defendants desire to appeal from the order and file a notice of appeal within ten days, complainant shall consent to so speed the hearing of the appeal, by stipulations as to filing of answer or otherwise, as will enable the defendants to bring •on the hearing of the appeal at the next term.


text:
    Catherine Schwarzwalder v. Frederick Tegen, Jr., et al.
    [Filed June 8th, 1899.]
    1. Act of April 9th, 1888 (P. L. of 188S p. 414), declares that any of the mutual insurance companies already chartered hy the legislature or already •organized under general laws, may, after giving ninety days’ notice in three public papers, change to joint stock companies, by proceeding in accordance with, and conforming their charters to, its provisions. Act of 1899 (P. L. of 1899 pp. 17, 18) is the same as act of 1888, with the omission of the word “already.” — Held, that the word “already” found in act- of 1888, read in •connection with act of 1899, relates only to the date of the application for change, and a mutual fire insurance company organized after the passage of act of 1888, and prior to act of 1899, may change from a mutual to a joint stock company.
    2. Act of April 9th, 1888, authorizing mutual insurance companies to •change from mutual to joint stock companies, fails to give direction as to the method of effecting the change. The change can be made only by corporate action taken at a meeting of the corporation, after special notice of the intended action has been given to the members.
    3. A provision in a policy of fire insurance issued by a mutual insurance •company allowing the cancellation of the policy at any time by the holder without previous notice, and by the company upon giving five days’ previous notice, without assigning any reason, does not render the right of the holder of such an uncertain and precarious nature as to disentitle him to an injunction against a change of the company, as the right of such policyholder is-not the mere pecuniary right of a policyholder, but also that of a stockholder in the compaiiy.
    On application for preliminary injunction. Heard on bill and affidavits and answering affidavits and stipulation.

      Mr. Samuel F. Leber and Mr. Thomas S. Anderson,, for the-complainant.

      Mr. Joseph A. Beecher, for the defendants.
   Emery, V. C.

The complainant is the holder of a policy of insurance in the-German Mutual Fire Insurance Company of Newark, N. J., a corporation organized on April 27th, 1893, as a mutual fire insurance company under the general laws of this state, and files-this bill against the defendant company and its individual-directors, to enjoin them from changing the company from a mutual to a joint stock company. The General Insurance law requires companies organizing under it to designate in their certificate whether they propose to organize a mutual fire insurance-company or a stock insurance company. There is also a provision (section 39) in the General Insurance laws which were in-force at the time of the incorporation of the defendant company that mutual companies might unite a cash capital to any extent as an additional security to the members over and above their premium and stock insurance, and that the company might allow interest on such capital and a participation in its profits, and prescribe the liability of the owner or owners thereof to share the-losses of the company. The defendant company, under this section,.has provided for a cash capital of $48,000, and it has accumulated a surplus, which in the bill is charged to be-$20,000, and in the answering affidavits is admitted to be $6,000. Where persons become members of a mutual insurance company by reason of holding the policies, it has been-usual, if not general, for such- members to give premium notes which are assessable to pay the losses of members and the expenses of management, and the General Insurance law seems to contemplate this method of fixing the liability of the members of a mutual company who became such by reason of taking out policies. There is, however, no express provision against the issuing of a policy to a person as member upon the payment of a premium in cash in lieu of the giving of a premium note, and the charter of the company in this case, as amended in March, 1895, contained a provision — article 5, section 4 — under which “ any person calling for insurance may ■ elect to pay a cash premium or definite sum in money to be fixed by the. directors of the company in lieu of a premium note; ” and it was further provided by this section of the charter that

“the liability of the members of the company for losses and expenses incurred during the term of their policies, shall be limited to an amount not exceeding twenty-five per cent, of the amount of the assessment premium written in their policy and in addition thereto.”

The complainant in the present case became a member of the company on April 12th, 1898, by receiving a policy for $2,000 and paying a cash premium of $20, and it was also expressed on the face of the policy that there was a liability to the extent of twenty-five per cent, in addition. There is no objection to this method of becoming a member of a mutual insurance company by the payment of a cash premium down instead of the giving of premium notes assessable, and this has been the view of several courts of high authority where the question has been raised. Mygatt v. Insurance Co., 21 N. Y. 52 (1860). (The New York statutes seem to have been statutes on which our first General Mutual Insurance Company act of 1852 was based.) Union Insurance Co. v. Hoge, 21 How. 35.

The charter of defendant company further provides, in reference to the rights of those members who are such by reason of the holding of a policy, by article 2, section 1, of its charter, that all persons who shall insure in or with said company shall be deemed and taken for members of said corporation, and section 2, that every member shall be entitled to cast one vote for every $1,000 and fraction of $1,000 worth of property insured for him with this .company, and also to one vote for every $100 invested in cash to the capital stock of said company; provided, always, that every member shall be entitled to at least one vote.

In reference to the distribution of profits between the members of the company who are such by reason of holding policies, and those who are holders of its capital stock, it is provided (By-laws, art. 13). that the board of directors may divide the profits between the capital stockholders and persons insured in the company holding policies of one year’s standing, or for a less period, as they shall determine; provided, such dividends shall not be less than $2. There are no other express provisions in the charter or by-laws regulating the respective rights of the policyholder members and the capital stock members. No dividends have yet been declared under this section, nor have the directors established any rule of division between the two classes. The question in the present case arises under a proceeding which has been taken to change the company from a mutual company to a joint stock company purely, and the effect of which will be to terminate the right of the policyholders who are not capital stockholders to have a voice in the management of the company. All of the directors and three-fourths of the cash stockholders have consented to the change, and the proceedings for a change have been commenced on this consent, and without (so far as appears) the consent of any of the policyholders who are not stockholders. The entire number of policies issued is about three thousand, insuring over $2,000,000, but the number and amount of the policies held by stockholders does not appear. The complainant, whose policy is still outstanding, bases her ■claim to enjoin this change upon several grounds, the two principal ones being — -first, that this action cannot be taken without her consent, and is one which requires the unanimous consent of the policyholders and stockholders; and second, that if it can be effected without such unanimous consent of the members, it can only be effected by the vote of a majority of the members .of the company holding the right to vote under their charter .and in attendance at a meeting where notice has been expressly given of the intent to make the change. The authority to make the change from a mutual to a joint stock company is claimed ,by the defendants under two acts of the legislature, one of which was in existence at the time of the formation of this company, and the other of which has been passed since. The act in exist- • ence was an act of April 9th, 1888 (P. L. of 1888 p. 414), •which provided at the end of the section:

“And any of the mutual insurance companies already chartered by the legislature of this state, or already organized under the general laws of this state, may, after giving 90 'days’ notice in three of the public papers in this state, change to joint stock companies, by proceeding in accordance with and confirming their charter to the provisions of this act.”

This was a supplement to the General Insurance Company act.

By the terms of this law the right to change from a mutual -to a joint stock company was given to mutual insurance companies already chartered or already organized, and the first ■ question which arises is whether, by the use of the word “ already,” ■ under the act, it was meant to fix the time and ■ description as applying to the date of the passage of the act or to the date when the companies applied to make the change. If “ already ” is to be construed as equivalent to “ now ” the act would be confined to companies which were in existence at the date of the passage of the act. After considering the arguments of counsel upon this point, I reach the conclusion that ■the use of this term “already” is fairly susceptible of two interpretations, one as applying to the date of the passage of the act and the other to the date of the application for change, ■and inasmuch as the first construction would make the act unconstitutional, I must adopt that construction of the act which would give it legal effect and hold that the act of 1888, -in giving to companies “already organized under the general laws ” the privilege of changing, meant already organized at the •time when the change was desirable to be made. If this be the proper construction of the act, then this right to change having 'been in existence at the time of the organization of the defendant company, their charter must be considered to have been made and accepted as incorporating this power to make the change, and therefore the change might, in my judgment, be made in any way in which, under the law of 1888, the companies were organized to make the change. The act of 1899,. which was passed subsequent to the organization of the company, omits this word “ already ” and reads (P. L. of 1899 pp, 17, 18): • “Any of the mutual insurance companies chartered by the legislature of this state or organized under the general laws of this state may change to joint stock companies,” &c. This amendment was made, it is said, to meet the objection of the insurance department that there was some question whether the law of 1888 applied to companies incorporated after its-passage. I think the better view is that the effect of the law of 1888 is identical with that of the law of 1899, and that the-law of 1889 may be considered as a legislative declaration of the real intention of the law of 1888. Upon the first question,, then, as to whether the company has the right to make this-change without the consent of all the policyholders, my conclusion is that, inasmuch as, at the time of the organization of the'company, there was in force a law authorizing the change. from a mutual to a joint stock company, the charter, to the knowledge-of .every person becoming a member of the company, must be taken to incorporate in it the right of the company to make this-change. Meredith v. Zinc and Iron Co., 10 Dick. Ch. Rep. 211, 218; affirmed for reasons stated, 11 Dick. Ch. Rep. 454; Pronik v. Spirits Distributing Co., 42 Atl. Rep. 586.

The acts both of 1888 and 1889 leave the method of effecting-this change absolutely without statutory direction, and the company having the power, the method in which the change is to-be carried out must be settled upon the principles regulating; the rights of corporations and the individual rights of its members in proceedings of this character. In the first place, no-special authority being given' to the directors or any other officers of the company to make this change, the change is one-which can be made only by the corporation itself, and it must be by corporate action taken at a meeting of the corporation.. In the second place, this action at a corporate meeting, whether ¿a. regular meeting or a special meeting, being a matter which •affects the rights of every individual policyholder as a member, inasmuch as the change would terminate his voice in the management of the company, is a matter of such an extraordinary nature that notice of the intended action must be specially given. The policyholders cannot be charged with notice that -such a change would be either made or applied for at any meeting of the company unless notice of the intention to make the •change was expressly given, either by the call for the meeting or perhaps by personal notice: In the present case, the resolution to make the change was first passed at a regular meeting in .January, 1898, without a special notice that it was to be brought /before the meeting, but subsequently the proceedings under this ■resolution were abandoned or suspended by reason .of the refusal •of the department of insurance to grant the certificate. The proceedings for the change are now being taken under the ¿authority of a resolution passed at the meeting held in January, 1899, after the complainant became a member of the company, ■the meeting being the regular meeting for the election of directors. There is in the charter or by-laws no express provision «that this shall be the annual meeting, but this meeting for the ■election, of directors seems to have been taken as the annual meeting. -The charter of the company (article 5, section 1) provides that at the annual meeting or any general meeting of the ■corporation a resolution may be adopted for amending, altering ■or changing ally of the articles of the charter or for any or all of these purposes, provided always that nothing .in this article -contained shall be carried into effect without the consent of a majority of the members of said corporation present at such •meeting.

• This provision for the action of a corporate meeting does not •reach, in my judgment, to the present case. The amending, mitering or changing of the articles which are referred to in ■that section cannot be considered to extend ió a change-without notice of the relation of the policyholders to the stockholders £n the management of the company under the charter. Each policyholder had the personal right to be heard and present his views before the general meeting upon the question of the-change, and in -order that the company at a meeting might make-this change, it was necessary that notice be given to the policy— holders that this change from a mutual to a stock company was-proposed. ' The general rule is that extraordinary matters and such ás cannot be fairly embraced in the transaction of business-provided for by the charter itself, cannot be taken at a meeting" únless notice be given. See People’s Insurance Co. v. Westcott, 14 Gray 440; Morawetz Corp. 483; Ang. & A. Corp. (10th ed.) 489.

In the present case no notice of this kind was given and few policyholders attended the meeting. The change was directed by a vote of the stockholders. I therefore reach the conclusion-that while the company has the right to make this change under the laws as they stand, that change cannot be made under the-present proceedings, because it has been taken without proper' notice to the policyholders who have been by the action deprived of their right to participate in the future management of the-company. It was objected that the policy which has been issued in this case contained a provision of -such a character as to dis-entitle the complainant to an injunction, this clause being one-which allowed the cancellation of the policy at any time by the-complainant herself without previous notice, and by the company upon giving five days’ previous notice without assigning-any reason. It is provided by this clause that on such cancellation there shall be a return of a proportion of the premium-which has been paid, and it was urged that the right of the-complainant being of this uncertain and precarious nature, she-was not entitled to the protection of her right under the policy by injunction. But while this might perhaps be true, if the-only right of the complainant during the proceedings which are-here attacked was a pecuniary right, yet the complainant, so long-as her policy exists, has more than a pecuniary right, and has aright of an entirely different character. She has a right as a policyholder to be regarded as a member of the corporation and has all the privileges of such member, including the right to appear at its meetings and at a proper time and in a proper method present her views as to the management of the affairs of the company and take part in the election of its directors. She therefore had the right to be notified that at a meeting of the company it was proposed to take from her this right to share in the management and to be heard upon this question, and it is the protection of the complainant’s rights considered in this aspect, rather than in the mere light of the amount of her pecuniary interest, that, in my judgment, entitles her to an injunction against this change. If her rights be of the character which I have supposed, they can only be protected by the preliminary injunction, and I will, therefore, advise the injunction.

There being in the case a question which, in the interest of both parties, should be put in the course of decision by the court of appeals, I will make a direction that preliminary injunction issue upon the condition that if the defendants desire to appeal and file a notice of appeal within ten days, the complainant shall consent to so speed the hearing of the appeal by stipulations as to filing of answer or otherwise as shall enable the defendants to bring on the hearing of the appeal'at the next term of that court.


author: Emery, Y. C.

text:
    Hugh Holmes et al. v. The Trustees of the Wesley Methodist Episcopal Church at Belleville et al.
    [Filed February 24th, 1899.]
    1. The fact that persons not members of a church society contributed to the fund which was used by it in the payment of land sought to be impressed with a trust for charitable uses does not make them donors of the land itself, nor authorize them to impose restrictions on the right of alienation, the church not being a mere donee under a donor for charitable uses, though the grantor as to the balance of the price was a donor.

      2. The members of a church society, as against the society, cannot enforce a parol gift to charitable uses, where the society accepted a deed purporting to be one of purchase and not of gift.
    3. Members of a church society, as against the society, cannot show, dehors a deed to the society, that its legal effect is different from what it purports to be.
    4. A bill by a member of a religious society alleging personal interests and fraudulent motives in the sale of church property by the trustees, who, under the statute, sustain fiduciary relations to the church, sets forth a breach of trust against which complainant is entitled to relief.
    On amended bill for injunction and motion to strike out portions of amended bill.

      Mr. George Biller, for the motion.

      Mr. Chauneey G. Parker, contra.

   Emery, Y. C.

The original bill in this case was filed by complainant as a member of a religious society, whose trustees are incorporated under the general act, to enforce a trust alleged to have been created by the deed under which the defendant church holds its church lot and burying-grounds, and to enjoin a sale which, as is claimed, would violate this trust created by the deed.

Upon the application for a preliminary injunction on the original bill, I considered the nature of the title of the defendant church to its church lot and burying-ground, under the statute and under the deed now in question, made by one Williams to the church, taking the deed to be what on its face it purports to be, a deed of purchase for a substantial money consideration ($565) expressed in the deed. Holmes v. Methodist Episcopal Church, 41 Atl. Rep. 102. The amended bill (paragraphs 4-10 and 26-30) alleges facts showing, or relied on as showing, that the transaction whs not in fact a purchase by the church', but that Williams and others contributed for the purchase of' the land in question (these other persons who did not belong to the society contributing about $170 and Williams the balance), and that the church itself, as a society, gave no consideration to Williams for the lands. Whether Williams was a member of -the society does not distinctly appear. It is claimed that these nnd other facts dehors the deed set up in the amended' bill, show that the transaction evidenced by the deed was not a purchase by the church from Williams, but a gift or donation upon the -charitable uses expressly declared in the deed; that the limitations against alienation, imposed by these uses expressed in the -deed, are therefore valid to restrict the power of alienation which, ■under the statute and on the face of the deed, the society would possess, and that the complainants, as members of the religious -society, have the right as against the society itself to enforce the -execution of the trusts as charitable trusts. In my judgment this contention is not well founded. In the first place the facts dehors the deed set out in these amendments, do not when taken in connection with the deed itself, as one of the facts in the transaction, show that the relation of donor and donee for charitable uses was the relation finally intended and agreed on by the parties to the deed. The contribution by the persons other- than Williams, for the purchase of property to be conveyed by Williams to the church, while it may be in one sense a donation to the church, to be used by it for the purchase from Williams, ■did not constitute the contributors, in a legal sense, donors of the land itself to the church, or give them the right as donors •of land for charitable uses to impose restrictions upon the right of alienation given by the statute incorporating the church. Their rights as contributors to the church of a-portion of-the fund for purchase, were extinguished when the church applied -the contributions for this purpose. The church using these funds so contributed for the purchase, becomes, as to its grantor, .-a purchaser, and cannot be made a mere donee holding under a -donor for charitable uses, even if Williams, the actual grantor, be considered, on all the facts alleged, to be a donor to the extent -of his contribution to the purchase fund.

Second. The complainants, whose rights are only those of members of the religious society,.the grantee in the deed, which, by the final agreement of grantors and grantee, was made a deed ¿purporting to be a deed of purchase and not of gift, have - no standing as such members to rescind this final contract, evidencing the relation of the parties, which both parties were competent to make, and did make. The complainants do not claim to-be themselves donors on the original purchase, and the contribution of complainants, or either of them, to the building fund subsequent to the conveyance, must be intended to have been made as subject to the rights and powers of the church under' a deed of purchase.

Third. Evidence dehors the deed is not admissible on behalf of' persons standing in the relation of complainants to the-society, to prove that the legal effect of the deed is other than that which is in law given to it by the-recital of the payment-of a substantial money consideration. The case in this respect comes within the general rule of estoppel against proof by parol of a consideration which would affect the legal character of the-instrument. Big. Estop. (5th ed.) p. 479. The complainants in this case do not occupy the double character of contributors-to the-fund and persons interested in the fund so contributed ascestuis que trust as was the case in Ludlam v. Higbee, 3 Stock. 342, 347, and their sole standing on the facts stated in this bill is that of members of a society which had received title as by purchase and under the statute, and not by deed of gift or donation, For the reasons stated in the former opinion, I hold that the only trust on the part of the church toward complainants-under this purchase is that of holding aud disposing of the property under the authority and for the uses and purposes declared by the statute.

The motion to strike out these paragraphs will therefore be • granted.

The motion to strike out paragraphs 14 to 20 must be denied. Under the statute the defendant trustees sustain fiduciary relations in their management and disposal of the church property,, and these paragraphs, of the bill allege personal interests and fraudulent motives on the part of these defendant trustees in the sale of the property and .in the discharge of their trusts. These charges, unanswered and unexplained, constitute a breach-of trust, against which complainants are entitled to relief against:a sale by the trustees in violation of their duties, and the charges should therefore be answered. Van Houghten v. Reformed Dutch, Church, 2 C. E. Gr. 126, 132, is a qualified authority on this point, if any authority be needed.


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    Charles Smith v. Eastwood Wire Manufacturing Company.
    [Filed June 8th, 1899.]
    The power to extend the existence of a corporation beyond the period fixed, by its charter, on complying with the statute providing therfefox", may be exercised unless it is specially excluded by its charter.
    On application for preliminary injunction. Heard on bill and affidavit and answer and affidavits.

      Mr. L. D. Howard Gilmour, for the motion.

      Mr. Frank H. Sommer (Guild, Lum & Sommer), contra.

   Emery, V. C.

Complainant, who holds sixty out of a total of three hundred and twenty shares in the defendant company, files a bill to enjoin defendant company from continuing its corporate existence beyond the time limited by its original certificate. It was organized under the General Corporation law on February 18th, 1880, and in the certificate the duration of the corporate existence was fixed at twenty years, and to terminate on February 19th, 1900. By the Corporation act in force at the time of the organization — act of April 7th, 1875, § 11 (Rev. p. 180) — the period of existence was limited to fifty years, and by a supplement to this act, passed April 21st, 1876 (Rev. Sup. p. 150), also ¡then in force, it was made, lawful for any corporation before or .afterwards created, at any time before the expiration of the period named in -its certificate, to file a certificate under its seal, attested by its presiding officer, declaring its desire to extend' the' period ■of corporate existence for any time mentioned, not exceeding fifty years, and upon the making and filing of this certificate, it is provided (section 2) that the period of existence shall be extended as declared in the certificate as fully as if the said period had been named in the original certificate. No special method in which the corporation was to take action extending its existence was provided in this act, or by any other act, until. the revision of 1896 (oh. 185 § 27) provided that the extension should be made by the passage of a resolution of the board of directors, •declaring the change advisable and calling a meeting of the stockholders upon notice, and upon two-thirds of the stockholders voting in favor of the extension, a certificate to that effect is to be signed by the president and secretary under seal, and after .acknowledgment to be filed in the office of the secretary of state. It is further provided that upon so filing this certificate, the •original certificate of incorporation shall be deemed to be amended accordingly. In the present case the proceedings for the extension of the corporate existence for fifty years from the time limited in the original certificate have been taken under this section, the resolution of the board duly passed, the meeting of stockholders held and the extension authorized by a vote of two hum •dred and sixty shares (all of the shares except complainant’s sixty) and the certificate has been duly signed and acknowledged and is ready for filing. The filing is restrained by temporary stay pending this application.

The case of complainant is based on the claim that by ‘the certificate of organization a contract between the stockholders dn reference to the time of its existence was created, and that this contract between the stockholders themselves as to its duration cannot be affected by the right to extend the period of existence, under the law which existed at the time of organization, but the provisions of which as to extending duration were not incorporated in the original certificate itself. In the absence of such express incorporation of the provisions of the law into the-certificate of stockholders, it is claimed that the original contract is not affected by the act of 1876, allowing the corporation to' extend its existence, for the reason that this act is to be considered only an act authorizing and validating the act as between the state and the company, but not intended to affect the contract as to the essential feature of duration which is left to be-determined by the stockholders themselves. Upon the part of defendant it is claimed that this provision of the law of 1876,. as to the extension of corporate existence, was a grant of power to corporations organized while the act was in force, and must,, as between the stockholders who entered into the certificate contract, be considered to be incorporated with it like other general powers of corporations to affect the contract relation.

The latter view is the one which has been taken by our courts-in reference to many of the powers of corporations conferred upon them by laws in force at the time of the organization,, although these laws, to some extent, give power to change or modify the contract relation as it appears on the certificate itself, and are not specially adopted or incorporated in the certificate. Such existing laws are read into the contract of incorporation as-part of it, and on this doctrine of incorporation, provisions of existing laws for the increase of capital stock, and for a change-in the nature of the business, and provisions for the purchase of property with stock, constitute part- of the contract between stockholders. Meredith v. Zinc and Iron Co., 10 Dick. Ch.Rep. 211, 218 (Vice-Chancellor Pitney, 1897); affirmed on appeal for reasons stated, 11 Dick. Ch. Rep. 454. And in Pronik v. Spirits Distillery Co., 42 Atl. Rep. 586, it was said that the same rule was to be applied to the general powers of amendment of certificates authorized at the time of organization.

The period of corporate existence is a matter which prima faeie concerns the state only, and the limitation to a definite-period is an exercise of control in the interest of the public. Stockholders may perhaps, under the laws which authorize special restrictions in-charters, exclude the power of continuing corporate existence beyond a fixed period; but, unless this-power, is excluded, the corporation may, as between itself and the stockholders, extend its corporate existence under the laws for that purpose, which existed at the time of the incorporation (provided these laws still remain in force at the time of the proceedings for continuance) or under subsequent laws, by which the state, as it has a right to do, in its control over corporations, restricts rather than enlarges the power of continuing the existence. Under the law of 1876, the corporation could have acted by a majority of its stockholders; under the act of 1896, which repeals the act of 1876, a two-thirds vote is required. The change under the latter act is therefore lawful, and an injunction restraining the filing of the certificate will be refused.


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    Charles A. Buddensiek v. Frances K. Lipman et al.
    [Filed July 8th, 1899.]
    Upon the facts as shown in this case — Held, that the evidence is insufficient ¡to establish a trust in the defendants in respect to the lands in question.
    On bill, &c. Heard on bill, answer, replication and proofs taken orally.

      Mr. Leslie Lupton and Mr. Phillips (of the New York bar), for the complainant.

      Mr. Charles E. Hill and Mr. Ransom (of the New York bar), for the defendants.
   Emery, V. C.

The defendants are the executors and devisees of Julius Lip-man, deceased, who died in November, 1895, seized of lands at Key East, in Monmouth county, adjoining Shark riyer. These lands comprised three tracts and the complainant was the owner of all these lands in 1885, and he now claims that the defendants hold all the lands in trust for him by virtue of transactions between himself and the deceased, set out in the bill. On August 11th, 1882, complainant gave a mortgage to Lipman upon one of the tracts to secure the payment of $6,000 on February 11th, 1883, with interest, from August 15th, 1882, according to the condition of a bond recited in the mortgage. ■On March 6th, 1883, complainant and his wife executed to Lip-man another mortgage for $6,000, payable August 15th, 1883, with interest, from August 15th, 1882, upon the tract included in the first mortgage, and also upon another tract. Two years later and about May 8th, 1885, complainant and his wife exe■cuted to Lipman another mortgage bearing that date, upon the three tracts of land to secure the payment of $18,600, which was recorded May 13th, 1885. On June 1st, 1885, complainant .and his wife executed a deed for the entire premises to one Jacob •Cohen (father-in-law of Julius Lipman), by which, for an expressed consideration of $32,000, the premises were conveyed .subject to mortgages of $29,975. The entire amount of the mortgages to complainant was $30,600, and there was also in addition upon the property a small balance due upon a prior mortgage held by one Bennett. This deed to Cohen was acknowledged on June 1st, 1895, and recorded on June 2d, 1895. .Subsequent to this deed and on August 18th, 1885, Lipman ■filed a bill to foreclose the second mortgage of $6,000 on the first two tracts in the deed of June 1st. The only defendants to this foreclosure were Buddensiek and his wife and Butler and ■Constant, attachment creditors on an attachment issued April 23d, 1885, previous to the deed to Cohen. Service for the attaching creditors was acknowledged by the late Governor •Green as solicitor, and personally by Buddensiek and his wife, whose signatures were proved by an affidavit of one Spitzer, then in Lipman’s law office, and by an affidavit taken before •one Patch, a notary public, who was also in Lipman’s employ.

After decree pro oonfesso against all the defendants, final ■decree in this suit was taken on the 20th of November, 1885r and on February 5th, 1886, the property included in this mortgage was sold to Julius Lipman for $2,000, and after confirmation of the sale a deed from the sheriff to Lipman was executed,, dated March 6th, 1886, and recorded on March 31st, 1886. Subsequent to this foreclosure of the second mortgage, there was-also a foreclosure of the third mortgage by Lipman. The proceedings in this foreclosure have not been put in evidence, and the only evidence relating to them is that derived from the-sheriff’s deed, for the premises which recites some of the proceedings in the foreclosure. This deed, which is dated on April 17th, 1891, and is made by the sheriff to one Simon Arendt,. one of the defendants in this suit, recites a final decree in foreclosure as having been made on November 24th, 1886, in a suit in which Julius Lipman was the complainant, Buddensiek and his wife, Butler and Constant, and one Harry M. Bennett were-defendants, and directing a sale to pay, in the first place, a balance of $203.13 due Bennett on a mortgage given to him February 28th, 1882, on the premises, and, in the second place, to-pay Julius Lipman $20,295.70, the principal and interest on a mortgage of Buddensiek to Lipman, dated May 8th, 1885, with-interest from November 15th, 1886. Execution was not issued on this decree until February 3d, 1891, and a sale was made on-April 6th, 1891, when Arendt bid off the property for $1,000,. and a deed was subsequently made to him. Simon Arendt and wife, by deed bearing date the day after the sale, and being-April 7th, 1891, quit-claimed the premises to Julius Lipman for the expressed consideration of $1 and other good and valuable consideration. This deed was acknowledged June 16th,. 1891, before Patch, the same notary public, but was not recorded until February 19th, 1895. On the same day, when Arendt conveyed to Lipman, Jacob Cohen and wife also executed toLipman a deed dated .April 7th, 1891, for $1 and other good and valuable consideration, for the lands and premises in question. This deed was acknowledged June 2d, 1891, before Patch,, but was never recorded. Lipman, at the time of the execution-of these mortgages and up to the time of his death, was engaged in the practice of law in the city of New York, and Buddensiek was a client for whom he did legal business and for whom also, as appears by the evidence in the case, Lipman transacted other business in the way of assisting him to procure loans upon premises where he was erecting buildings, Buddensiek being a builder who carried on building operations on a large scale.

Complainant files his bill alleging that the $18,600 mortgage and the deed to Cohen were made without any consideration and under a written declaration of trust executed by Lipman to Buddensiek, by virtue of which the property, after being disposed of for the payment of Buddensiek’s debts, admitted or to be ascertained, was to be held in trust for Buddensiek. Nothing is alleged in the bill in reference to the two prior mortgages. This declaration of trust (signed by Lipman and not by Cohen) is not produced. The evidence of its contents is that of a witness, 'Mr. Jelliffe, a lawyer who is employed in Lipman’s office, who drew it in 1885, at Lipman’s direction, and after it was signed by Lipman took it to Buddensiek, then in confinement in a New York prison, and at his request returned it to Lipman for custody. The deed of trust, according to this witness, declared that Lipman was the holder of the property, and held it in trust to pay Buddensiek’s debts sustained’(qucere ascertained) by law, and after their payment to reconvey to Buddensiek or his heirs. The declaration of trust was not signed by Cohen, nor, according to the statement of the witness, was there any reference to the mortgage of $18,600 which was executed some weeks previous to the declaration of trust, nor was there any reference to either of the prior mortgages. No evidence has been offered by complainant in reference to the bonds and mortgages sufficient to overcome the evidence of indebtedness created by the execution and delivery of the mortgages themselves, and in reference to the consideration of the $18,600 mortgage the defendants produce a statement signed and verified by Buddensiek, apparantly showing how the amount of this mortgage was made up, and they also produce his affidavit taken at the time that the entire amount was due.

Without stating the evidence in detail, I find upon the whole case that the defendants have, as against complainant, sufficiently-shown title as mortgagees to the lands in question under the mortgages and the foreclosure proceedings thereunder.

In reference to relief against the deed I also find that although some facts appear in the case, which seem to indicate that the title in Cohen’s name was controlled by Lipman and for his benefit as mortgagee, yet these circumstances are not sufficient, either alone or in connection with the other proofs, to establish the trust set up in the bill.

If the complainant’s proofs had established a trust in the lands or their proceeds, over and above the amount due on the mortgages, he would only establish a right of redemption. And in view of these facts that the value of the land at the time of the foreclosure sale was less than the amount due, that Lip-man since his purchase has expended over $10,000 in the improvement of the property, and that the value of the premises at the present time is shown to be less than the amount due on the mortgages at the time of the sale and the amount so expended, there is no reason for holding the bill as a bill to redeem, even if it had been framed in that view. And it should also be noted that the trust set up in the bill is a trust first to pay creditors of Buddensiek. The evidence shows that these creditors whose debts then existed have not been paid, but they are not parties to the bill, and the recovery on this bill is claimed, for Buddensiek’s personal benefit without paying or providing for the payment of these creditors. If a case of trust as alleged had been made out by complainant, either as to the real or personal property, it would have been a serious question whether relief could have been given in the absence of these creditors or without providing for their protection and payment. As to the personal property complainant’s proofs also fail to make out a case, and I advise a dismissal of the bill, with costs.