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    General Electric Company v. The Transit Equipment Company, The Union Traction Company (William M. Johnson, receiver of each of the foregoing companies), The Berlin Iron Bridge Company, The Sterling Company, The Pierce & Miller Engineering Company and The Metropolitan Trust Company. Metropolitan Trust Company v. The Union Traction Company (William M. Johnson, receiver of the same), The Pierce & Miller Engineering Company, The Sterling Company, The Berlin Iron Bridge Company and Crocker-Wheeler Electric Company.
    [Decided December 19th, 1898.
    Filed June 10th, 1899.]
    1. Motors, controllers and trolley poles belonging to an equipment company are not so mingled with the car to which they are attached, belonging to the railroad company, as to preclude the seller from maintaining a lien thereon as against judgment creditors, where they are of standard make, and their removal would leave the car ready to receive other equipments of similar character.
    2. An affidavit proving the signature of the president of a corporation to a conditional contract of sale, and the affixing of the corporate seal, is a sufficient compliance with the statute (Gen. Stat. p. 2706) requiring such contracts to be “ acknowledged.”
    3. The statute (Gen. Stat. p. 891) declares that an unrecorded conditional sale of goods shall be void as against judgment creditors of the vendee; and section 6 provided that every conditional contract of sale hereafter recorded as required shall be valid as against creditors of the vendor, &e., from the time of the recording. — Held, that a conditional contract of sale, which was recorded before creditors had reduced their claims to judgment, was valid as against them.

      4. A mortgage covering after-acquired property of the mortgagor does not include chattels delivered to him under a conditional contract of sale.
    5. An electric generator, weighing fifteen tons, resting on rails on a wooden platform on brick piers built from the earthen floor of a building, through the doors of which the generator may be taken, leaving the structure on which it rested intact, ready for the reception of a similar generator, is not a fixture enabling a mortgagee of the realty to claim it as against a vendor claiming title under a conditional sale.
    6. A switchboard, consisting of a large metallic plate, set up on the side of a building, and affixed by spikes driven into a brick wall, on which is placed apparatus for the distribution of an electric current, is not a flxtuz-e enabling a mortgagee of the realty to claim it as against a vendor claiming title under a conditional sale.
    Two causes tried together by consent.
    The object of the first bill is to enforce a title reserved by the General Electric Company in certain electric motor-car equipments and controllers furnished and delivered by that company to the defendant the Transit Equipment Company and placed by it on certain street railway cars of the defendant the Union Traction Company, of which the defendant Johnson is receiver in insolvency, appointed by the Court of Chancery, and of which the defendants the Berlin Bridge Company, the Pierce & Miller Engineering Company and the Sterling Company are severally judgment creditors, and upon whose property the Metropolitan Trust Company is the holder of a mortgage.
    The object of the bill of the Metropolitan Trust Company is to foreclose a mortgage which it holds upon all the property, real and personal, of the Union Traction Company, and the several judgment creditors above mentioned are made parties defendant by reason of their holding judgments, and the Crocker-Wheeler Electric Company is made a party defendant by reason of a claim which it sets up and manifests by a cross-bill of a title reserved to certain generators or dynamos, together with a switchboard and various other fixtures manufactured by it and delivered to the Transit Equipment Company and the Union Traction Company and placed in the power-house of the latter.
    The only matters litigated up to this stage of the case are the claims of the General Electric Company and the CrockerWheeler Company.
    The case was heard on the pleadings and proofs in open court.

      Mr. William, H. Corbin and Mr. Charles L. Corbin, for the Metropolitan Trust Company.

      Mr. James B. Vredenbwrgh, for the General Electric Company.

      Mr. Edward M. Colie and Mr. Noble (of New York), for the Crocker-Wheeler Company.

      Mr. Charles D. Thompson, for the three judgment creditors and for the bondholders secured by the mortgage.

      Mr. Eugene Stevenson, for the receiver.
   Pitney, V. C.

The several claims of the General Electric Company and the Crocker-Wheeler Company are quite distinct — depend upon different facts — and so must be considered separately.

I will first take that of the General Electric Company, premising that the lien of the Metropolitan Trust Company, as trustee for the bondholders, is prior in point of time to that of either of the other parties.

The Union Traction Company was organized on the 2d of November, 1894, and shortly afterwards and in the same month the mortgage in question was made and executed, which also covered future-acquired property, the language used being “ all property now possessed, or which may be hereafter acquired, by the” Union Traction Company.

The same persons who organized the traction company also organized the Transit Equipment Company, and by arrangement or contract between the two companies the Transit Equipment Company undertook to equip the railway. Later on, in executing that contract, it applied to the General Electric Company for certain car equipments, with the result that on or about the 9th of November, 1896, a contract in writing was entered into between the General Electric Company and the Transit Equipment Company for the furnishing of certain car equipments. That contract was in the shape of a proposal and acceptance. The proposal was made by the General Electric Company at its Philadelphia office, and submitted on the 9th of November to the Transit Equipment Company, to furnish certain equipments mentioned in the part of the proposal called “specifications.” The greater part of the proposal is in a printed blank containing printed descriptions of the articles to be furnished, in which, however, there are interpolated in typewriting some extras and also some erasures and written interlineations. It is signed by Mr. Mullen, the authorized agent and manager of the General Electric Company. At the foot of it is a printed acceptance in these words: “ To the General Electric Company. The proposal as above hereby accepted this twenty-fourth day of November, 1896. Transit Equipment Company, by J. W. Gilmore, President.” In addition to that there is a special acceptance on a separate piece of paper, which was, however, attached to the original proposal, addressed to the General Electric Company, in these words :

“Your proposal as contained in the foregoing instrument is hereby accepted this twenty-fourth day of November, 1896. In witness whereof, the Transit Equipment Company has caused its corporate seal to be hereunto affixed, and its president to execute these presents for and in behalf of the corporation, this twenty-fourth day of November, 1896. Transit Equipment Company, by J. W. Gilmore, President. Witness — Gilbert T. Gale, Secretary,”

and the seal of the corporation. On the same day — November 24th — Mr. Gale, as secretary, made affidavit before a master of this court, in the ordinary form, proving the signature of the president and the affixing of the seal, and that it was so affixed by the order of the transit company. This document was recorded in the clerk’s office of Bergen county, on the 19th of April, 1897, and in the office of the secretary of state, on the 7th day of May, 1897.

The proposal which forms the body of the contract contains this clause:

“The title to the apparatus herein sold shall not pass from the company until all payments hereunder, including deferred payments, if any, shall have been fully made in cash. The purchaser agrees to do all acts necessary to perfect and maintain such retention of title in the company.”

In the first part of the proposal it is provided that the General Electric Company is thereinafter to be called the “ company.”

The contract provides for the delivery of the articles as required by order. The equipment company did not order all the articles at once or at all, but the first of the deliveries was made in the latter part of the month of April, 1897. The first bill of lading from the factory of the company was dated the 22d of April, 1897, and reached the premises of the Union Traction Company on one of the last days of April, and on one of the first days of May the agent of the electric company attended at the premises of the Union Traction Company and applied the articles to the trucks and cars of the latter company.

The apparatus consists mainly of the “motors” attached to each of the trucks or running-gears of. the cars, and the “ controller” attached at each end of the car, and a “pole” upon the top of the car. There were two motors and two controllers to each car. To each one of these articles the name of the General Electric Company was fastened on a brass plate, in strict accordance with the terms of the third subdivision of the act of March 8th, 1883 (P. L. of 1883 p. 87), as amended by the act of March 5th, 1895 (P. L. of 1895 p. 158; Gen. Stat. p. 2706). The act of 1883 is entitled “An act relating to certain contracts for the lease or conditional sale of railroad equipment and rolling stock and providing for the record thereof,” and provides, first, that contracts for the leasing or conditional sale of railroad equipment and rolling stock shall not be valid as against

“ any subsequent judgment creditor or any subsequent purchaser for a valuable consideration without notice unless the same shall he evidenced by writing, duly acknowledged before some person authorized by law to take acknowledgments of deeds;”

'second, that it shall be recorded in the office of the recorder of deeds of the county in which is located the principal office or place of business of such vendee.

Third., Bach locomotive or oar so sold, leased or loaned shall have the name of the vendor, lessor or bailor, or the assignee of such vendor, lessor or bailor, plainly marked upon both sides thereof, followed by the word owner, lessor, bailor or assignee, as the case may be.”

By the amendatory act of 1895 the act is extended to street railway equipments, and the contract is to be recorded in the office of the secretary of state whenever the railroad company is operating in more than one county.

The third condition above recited remains unchanged.

By a new section, provision is made that the provisions of the act entitled “An act requiring contracts for the conditional sale of personal property to be'recorded,” approved May 9th, 1889, shall not be construed to apply to railroad and street railway equipment and rolling stock which shall be the subject of contracts of the kind specified in the first section of the act relating to railroad equipment.

Two objections are made to the enforcement of the claim of the General Electric Company. Eirst, that the articles sold are so mingled with other property of the Union Traction Company that they cannot be separated from such other property.

I think the evidence does not sustain this objection. The trucks and bodies of the railway ears were originally made and designed to be propelled by electricity, and by apparatus of the kind here provided by the electric company. No particular alteration or cutting was required in order to attach the apparatus provided by the electric company to. those cars, and the articles so furnished are each still distinct and may be removed. The essential quality of neither the motors nor controllers on the cars is changed by the annexation, and when removed each will have its own distinct existence and quality. The motors and controllers are of a standard make, such as may be applied to any street railway car, and their removal will leave the street railway cars and trucks ready and fit to receive other equipments of the same character and of the same value in all respects as if they had never been attached. I see no substantial difficulty in removing them.

The second objection is that the statute with regard to railway ■equipment requires that the contract shall be acknowledged before being filed, and that the contract in question was not acknowledged, but proven.

It was suggested, and I think rightly, that the language of the act, which is peculiar in that respect and varies from other acts of like nature on our statute-book, was copied from some statute of another state, and the words “ or proven ” left out by inadvertence. Be that as it may, I think that the word “acknowledged” is broad enough to cover and include proof by witnesses. It is well known that the regular common-law mode of establishing ex parte, for purposes of registration, the execution of a deed by a corporation was to prove it by an officer of the corporation in precisely the manner in which this contract •is proven, and that the machinery of an acknowledgment was seldom resorted to, and its validity when resorted to was not approved by the profession until the decision of the court of errors and appeals in the case of Hopper v. Lovejoy, 2 Dick. Ch. Rep. 573, which was announced at the November Term, 1890. The act in question had its origin in the year 1883, when the general sentiment of the profession was, as I have said, that the execution of a deed by a corporation must be proven and not acknowledged. And it seems to me that the force of the word “acknowledged” in this act must be determined in view of the state of the law, to which I have called attention. It is difficult to believe that the legislature intended to exclude a mode of authentication universally recognized by the profession as the proper one and substitute therefor one of doubtful value. I think that proof of the execution of a deed by a corporation according to the common law is to all intents and purposes an acknowledgment of the deed in the sense in which that word is used in the act, and that the objection fails.

But, in the next place, the strength of the objection depends entirely upon the assumption that the apparatus supplied here is within the purview and meaning of the act of 1883 as amended by the act of 1895. Taking the act altogether, it seems to me to be a serious question, which, however, I do not find it necessary to decide, whether or not these appliances are “equipments” such as are within the purview of the act. The third •condition, with regard to the placing of the names on each of the “ said locomotives and cars,” indicates that it did not apply to mere attachments to a car. If the apparatus here in question is not within the act of March 5th, 1895, then it comes within the Conditional Sale act of 1889 (P. L. of 1889 p. 421), as .amended by the act of March 14th, 1895 (P. L. of 1895 p. 302; Gen. Stat. p. 891), the terms of which include “ proof” as well as the “acknowledgment” of contracts, and the other provisions ■of which have been complied with by the electric company.

I think the General Electric Company is entitled to relief.

Next, the case of the Crocker-Wheeler Company.

That company, on the 21st of August, 1896, entered into a written contract, inter partes, with the Union Traction Company and the Transit Equipment Company for the furnishing to those companies of “ three standard types of belt-driven railway ■^electric] generators,” of a particular but standard fashion and strength, with fittings and cables for connecting the generators to a switchboard, also a switchboard connected therewith.

The contract contained a clause

“ that the title to the generators and other apparatus shall not pass from the •said electric company to the said transit company or to the Union Traction Company until the same is fully paid for in lawful money of the United States as herein agreed,”

with a right to enter on the premises and remove the same or any part thereof.

The three generators and switchboard were duly installed in •the power-house of the traction company some time after the -making of the contract, but in complete compliance with the .terms of it; and some time afterward, to wit, on the 26th of August, 1897, the contract was duly recorded in the office of the clerk of Bergen county, and such record was prior to the re■covery of either of the judgments of the three judgment creditors, which were recovered two months later, while the receiver was .appointed in January, 1898.

The first question presented by these facts is as to whether or not the Crocker-Wheeler Company lost any rights by failing to record its contract for so long a time.

The question of failure to record arising under the Chattel' Mortgage act was elaborately discussed and thoroughly consid-; ered and settled in the case of Meding v. Roe, 8 Dick. Ch. Rep. 350, and it was there held that both the language and policy of the Chattel Mortgage act required that the mortgage should be recorded immediately, and if not so recorded it was void as to all existing creditors and such as became creditors at any time before the recording of the mortgage. So far as this result depended upon a matter of construction, it was held, both in this court and in the court of errors and appeals, that the word .“immediate,” in the fourth section of the Chattel Mortgage act> extended not only to the change in the possession of the articles mortgaged, but also to the recording of the instrument, and Mr. Justice "Van Syckel, in speaking for the court (at p. 368), says: “I agree with .the vice-chancellor that the force of the word immediate’ extends throughout the sentence, and applies to the filing or recording as well as to the delivery of possession.”

By the ninth section of the Chattel Mortgage act it is provided that every chattel mortgage thereafter recorded shall be valid against the creditors of the mortgagor and against subsequent purchasers and mortgagees, from the time of the recording thereof; and it was held that the effect of that clause was that the chattel mortgage was good as against all creditors who did not become such before the recording of the mortgage.

But the language of the fourth section of the Chattel Mortgage act declares that failure to record immediately renders the mortgage “ absolutely void as against the creditors of the mortgagee,” and therein varies from that of the Conditional' Sale act, as well as from the Real Estate Mortgage act, which latter declares that a mortgage

shall be void and of no effect against a subsequent judgment creditor, or bona fide purchaser, or mortgagee for a valuable consideration, not having notice thereof.”

Now the language of .the Conditional Sale act — resembling that of the Real Estate Mortgage act — ^declares that in every contract for the conditional sale'of goods and chattels accompanied by actual delivery and continued change of possession, all conditions and reservations which provide that the ownership of such goods and chattels is to remain in the person contracting to sell until the articles are paid for, “ shall be absolutely void as against the judgment creditors of the person so contracting to buy the same, and subsequent purchasers and mortgagees thereof in good faith.”

This use of the words “judgment, creditors” instead, of “ creditors,” distinguishes it from the Chattel Mortgage' act and shows that the act was not made for the benefit .of concurrent creditors at large, but only for judgment creditors• and-subsequent bona fide purchasers who become such before the record of the contract; for the act in question has in its sixth section a provision almost precisely similar to that of the ninth section of the Chattel Mortgage act, namely : “That every contract'of sale hereafter recorded pursuant to the provisions of this act shall be valid against the creditors of the person contracting to buy and against subsequent purchasers and mortgagees, from the times of the recording thereof uutil the same be canceled of record,” &c.

The utmost that could be claimed in behalf of the judgment creditors in this case would be that, by analogy to the case of Meding v. Roe, creditors who becomé.such after the delivery of the machines upon the grounds of the traction company and before the recording of the contract, should be protected. .But none such were shown in this case, and, in my opinion, if there had been, their claim would not be protected by the language of the act. This limitation of the benefit of the act to judgment creditors disposes of the claim of the receiver, who can have no higher standing than that of a judgment creditor.

The next question is as to whether or not the reservation of title in this case can be effectual against the mortgage of the Metropolitan' Trust • Company, which by its terms covers • all property of the mortgagor, the Union Traction Company,.“ now possessed or which may be hereafter acquired by ” that company.

And the first question is whether this is after-acquired property, and if not, second, whether it can be held under the mortgage by reason of its having become a fixture, and so by conversion a part of the freehold.

Now, as to the first claim, it seems to me too plain for argument. The mere statement of the case shows that the mortgage-cannot prevail, for, in point of fact, this propérty never was-“acquired” by the traction company, the mortgagor.' When-furnished it was a chattel, and for the purpose of the present argument we must treat it as still a chattel, and if the title never-vested in the traction company then the property never was acquired by the traction company and never became subject to-the mortgage. In other words, the acquisition of the title to-it by the mortgagor was a condition precedent to its becoming subject to the mortgage.

The second question is whether it became so affixed to the-freehold as to come under the dominion of the mortgage as a part of the real estate.

Now, going back to the leading case in New Jersey (Brearley v. Cox, 4. Zab. 287), and coming down through Blanche v. Rogers, 11 C. E. Gr. 566; Penn Mutual Life Insurance Co. v. Semple, 11 Stew. Eq. 575; Speiden v. Parker, 1 Dick. Ch. Rep. 292; Feder v. Van Winkle, 8 Dick. Ch. Rep. 370, to Lee v. Hubschmidt Building, &c., Co., 10 Dick. Ch. Rep. 623, we find the question of fixture or no fixture, as between mortgagee and the creditor of the mortgagor, to depend mainly on three elements — -first, the actual annexation to the freehold; secondr the application of the chattel to the use or purpose to which the part of the realty with which it is connected is appropriated, and third, the intention of the parties making the annexation to-make a permanent accession to the freehold. And where the actual annexation is but slight and the question is as to an article which is capable of an actual separate existence and of being moved and used in some other place, and its removal will work no material injury to the freehold, the prevailing element is one,of intention. I so found it in the case last cited—Lee v. Hubschmidt. See Ewell Fixt. (ed. of 1876) 21, 23, 39, 42, 43.

Now let us see liow the principles alluded to apply to this ease.

The building in which the machines were erected and are at present found is a large barn-like structure, which comprises under one roof a car-barn and a power-house, including steam-boilers and engines for power and the machines in question. The place was prepared for the machines without touching the structure proper by simply building up solid brick piers from the earth to the proper level, of a size sufficient to bear the weight of the machines, which is about fifteen tons each. Upon those brick piers was fastened to each a wooden platform. This was all done by the Union Traction Company, and the same forms no part of either the building or the machines, but simply a foundation and bed upon which the latter rest. The removal of the machines will leave those foundations uninjured and undisturbed and ready at once for the reception of other machines of the same size and character. The actual annexation is effected by simply placing upon the wooden platform certain iron rails and fastening them thereto with ordinary screw-bolts penetrating the wood. On those rails, which are called shears,” the machines are placed and so arranged that they may be moved slightly in a direction corresponding with the direction of the belts by which they are driven, so that when the machines are not in motion certain set-screws may be loosened and the machin'es moved along on these iron rails or shears in such a manner as to tighten the belts and thus save the labor and expense of cutting them and shortening them every time they become a little too loose to be efficient. The door of the building is large enough to permit their removal without injury to the structure.

So much for the three machines.

With regard to the switchboard, that is a large metallic plate set up on one side of the building and affixed by bolts or spikes driven into the brick wall, and upon it are placed all the apparatus by which the electric current is distributed. That, too, may be removed without any serious injury to the building; is in itself a complete instrument and may be set up in another building and used for the same purpose as it is used Ithere.

There is nothing, then, in , the annexation which would make these articles fixtures against the will and intention of the parties. As between landlord and tenant, no respectable argument could be made in favor of the position that the tenant would not have the right to remove them. The general right of removal on the part of a tenant includes many objects much more securely fixed to and thoroughly incorporated with the real estate than those here in question.

In respect to annexation the case resembles that of Lee v. Hubschmidt, supra, and the cases there cited, and upon the question of.intention there can be no doubt but that, as in Lee v. Hubschmidt, the machines were placed as they were with, the intention of making them a part of the freehold, and, moreover, they come in under the second element above mentioned, viz., their application to the use or purpose to which the realty with which they are connected is appropriated. The building was designed for,the purpose of receiving these various machines or others similar thereto, and the whole purpose and object was to establish an electric power plant for the purpose of propelling the cars of the traction company, thereby making one system.

But that adaptability and that purpose and intention, it seems to me, must be held subject to the lack of right and power of the party to make the application and carry out the intention to make an addition to the freehold. It seems to me that it is an essential part of .an efficient annexation of a chattel of this character and its resultant conversion, that the chattel shall be the property of the person who performs the act of annexation, or that'the purpose of annexation shall be acquiesced in by the owner of the property. The intent and purpose of the mortgagor in the act of annexation must be accompanied with the power to do it, arising out of either the ownership of the chattel or the consent of the owner thereof. And here we encounter the element of the hardship and injustice of taking one man’s property, without his consent, to advance the pecuniary interests of another. It was the hardship and injustice in this.respect of the old law'of fixtures which led to its modification in favor of the tenant against his landlord.

If the case were res nova, I should be of opinion, on general principles, that the right of the owner of the chattel, under present circumstances, should prevail. It is impossible, under the evidence, to charge the owner with having consented that the chattels should become a part of the freehold. The contract itself, which contains not only a reservation of the title but also a right to remove them from the premises, forbids the idea of such consent. In fact, as it appears to me, the maker’s right in this case is quite as perfect as it would have been if there had been no provision for a sale and a passing of the title on payment, but that instead of a sale the machines had been rented and delivered on a bailment of hire to the traction company. Upon such a bailment it seems to me that it would be contrary to fundamental principles to say that the owner had consented that the chattel should be converted into freehold and subjected to a mortgage upon the premises. Nor does the case present' any features requiring such a forced inference from the contract and the action of the parties. The fact that equipments of all-sorts are let out on a bailment of hire is so common and so well known that no one can be misled by it.

But I think that the question is res adjudicata in New Jersey, and is covered by the case of Campbell v. Roddy, 17 Stew. Eq. 244, which is a decision of the court of errors and appeals. The syllabus of that case is this:

“A vendor of an engine, boiler and machinery, knowing that they were to be annexed to real estate, took a chattel mortgage upon them for a part o'f the price, but failed to register it. The mortgagor of the chattels afterwards annexed them to real estate upon which he had already given a mortgage.— Held, that the lien of the chattel mortg- ge should be protected, so far as it would not diminish the security which the real estate mortgagee would have had if the annexation had not been made.”

The machinery there, as appears by the report below, in 15 Stew. Eq. 218, was one large steam crane, one jack, one steam engine and boiler, one large lathe, one small lathe, one planer, one drill press, one drill upright, one Mackenzie blower, two small pumps; shafting, belting, &c.; one large truclr scale, one wire -rope and drum, one jig-saw and stand,-one pair of bellows,. two anvils, one large anvil, one iron hoisting-block and chain, &c., machinery for operating an iron foundry and pipe factory. The description, in 15 Stew. Eq. 223, of the mode in which they were attached to the land shows that they were annexed with much greater thoroughness than the machines here in question. In that case the sale was absolute, and a chattel mortgage was taken back, so that there was a passing of the title with a retention of a lien only. Here there is a retention of the title itself, so that the argument from that case to this is a fortiori.

The reasoning of the learned judge who spoke for the court of errors and appeals is exhaustive of the whole subject, leaving nothing to be said, and I should have simply referred to that case as authority but for a recent decision of the federal court, relied upon by the receiver. I refer to the case of Phœnix Iron Works Co. v. New York Security and Trust Co., decided December 7th, 1897, in the circuit court of appeals, sixth circuit, and reported in 54 U. S. Cir. Ct. App. 408 (West Publishing Company), and in 83 Fed. Rep. 757 (reported below in 77 Fed. Rep. 529). It is not exactly in point, but nearly so, the machinery there being an engine, stack, boiler, pump, &c., constituting the steam plant and furnishing the power which created the electricity for the railroad. It is manifest at once that the annexation of a steam-power plant is much more thorough and extensive than that of the machines in this case. But the reasoning of the court would, I think, include this case.

In the opinion the court put itself upon the authority of the following cases: Dunham v. Railway Co., 1 Wall. 254; Railroad Co. v. Cowdrey, 11 Wall. 459; United States v. New Orleans Railway Co., 12 Wall. 362; Dillon v. Barnard, 21 Wall. 430; Fosdick v. Schall, 99 U. S. 235; Porter v. Steel Co., 120 U. S. 649, and again in 122 U. S. 283; Thompson v. Railroad Co., 132 U. S. 68, and Railroad Co. v. Hamilton, 134 U. S. 296.

Before examining those cases, which I propose to do presently, I will notice the ground outside of authority upon which the court put itself, which is that announced in the case of Porter v. Steel Co., 122 U. S. 283, to wit: It is well settled, in the decisions of this court, that rails and other articles which become affixed to, and a part of, a railroad covered by a prior mortgage, will be held by the lien of such mortgage in favor of bona fide creditors, as against any contract, between the furnisher of the property and the railroad company, containing stipulations like those in the contracts in the present ease [reserving title].” And the circurt court of appeals held that there was no distinction between the kind of property there mentiond and stationary machinery such as a steam engine and boiler there in controversy.

In the report of the case in 77 Fed. Rep. 529, it appears that the judge below put the decision on the ground that the furnisher of the boiler and engine had' consented to the conversion of those machines from personalty to realty, and this was approved by the court of appeals, and both courts gave the furnisher a lien upon the articles furnished, subject, however, to the superior lien of the mortgage. How that result could have been effected consistently with the well-settled principles upon which courts act in such cases I am unable to perceive. It was distinctly held in some of the federal cases on which the court in Phœnix Iron Worhs v. Trust Co. relied, as well as in the case of Campbell v. Roddy, that a mortgagee of after-acquired property takes that property subject to all liens that were upon it, and when the circuit court of appeals, in the case just cited, held that the furnisher of the boiler and engine had a lien upon them, but failed to give that lien preference over the first mortgage, it seems to me that it went directly counter to the decisions of the supreme court of the United States.

But let us examine the cases above cited.

The case in 1 Wall. (Dunham v. Railway Co.) was that of a contractor for a particular part of a railway, where the company defaulted in making its payments and contracted with him that he should finish the part and hold possession of and operate it until his debt was paid, the property being subject to a prior mortgage which covered after-acquired property, and the court held that the contract between the company and the contractor was not sufficient to divest the title of the mortgagee. The difference between that case and this is apparent.

The case in 11 Wall. (Railroad Co. v. Cowdry) was between prior and subsequent mortgagees, where the subsequent mortgage was given to raise money specially to finish the. railroad, and it also dealt with a claim by the man who furnished the iron for a part of the road. He did.not claim the right to take away the rails, but to have a prior lien for their value. There was no reservation of title. . ...

In the case in 12 Wall. (United States v. New Orleans Railway Co.) the result was favorable to the superior lien óf the vendor of chattels, which consisted in that case of rolling stock. The principle was laid down by Mr. Justice Bradley (at p. 365), as follows: “A mortgage intended to cover after-acquired'property can only attach itself to such property in the condition in which it comes into the mortgagor’s hands. If that property is already subject to mortgages or other liens, the general mortgage does not displace .them, though, they may be. junior to it in point of time. It only attaches to such interest as the mortgagor acquires.”

The case in 21 Wall. (Dillon v. Barnard) is a mere reiteration of Dunham v. Railway Co., 1 Wall. 254.

Fosdick v. Schall (99 U. S.) is a reiteration oí. United States v. New Orleans Railway Co. (12 Wall.), and these cases constitute the authority upon which Mr. Justice Reed relied in the case of Campbell v. Roddy, supra, and sustained the prior lien of a vendor of rolling stock of a railroad. The contract for sale in United States v. Railroad Co. was precisely like that'in the present case; and see Daly v. Railroad Co., 10 Dick, Ch. Rep. 595, affirmed on appeal.

The case of Porter v. Steel Co. (120 U. S. and 122 U. S.) was an attempt to-establish a lien upon a railroad, or rather the proceeds of its sale, for certain materials furnished, and did not involve a claim of a right to enforce a reserved title to machinery or chattels, and, as stated at the rehearing, it appeared that the claim arose upon certain bridges built for the use of the railway. The building contractors had 'reserved -the right to remove the bridges if not paid for, and the question was whether, under that reserved right, the bridge builders- were entitled to a prior lien on the fund in court, proceeds of the sale of the road, for the value of the bridges. Held they were not. And then follows the statement of .the principle applying to such cases, previously cited. The difference between a bridge and the property now in question is apparent.

Thompson v. Railroad Co. (132 U. S.) is like the case reported in 1 Wall.

Railroad Co. v. Hamilton (134 U. S.) was the case of a dock on the Maumee river, in the city of Toledo, and the claim of priority there was not by reason of reserved title in the materials of the dock, but, first, under the Mechanics’ Lien law of Ohio, and second, an equitable right arising from the construction of the dock and consequent improvement to the railroad company. The claim was for priority of payment out of the proceeds of the sale of the railroad. Held that it could not be allowed, on the principle of Dunham v. Railway Co., 1 Wall. 254-

This review of the authorities seems to me to show that they do not sustain the decision of the circuit court of appeals in the case relied upon of Phœnix Iron Works v. New York Security and Trust Co., supra.

The court, in the latter case, declared in substance that the case did not turn upon the question of conversion of personalty into realty, but, with great deference, I am. of the opinion that it did and that there was no conversion.

For these reasons I think that the claim of the CrockerWheeler Company must prevail.

The question remains how the right of these parties shall be enforced. Upon that I will hear counsel.


source: Caselaw Access Project

author: Pitney, V. C.

license: Public Domain

text:
    Edward Ordway v. Ira C. Chace, George Engert, J. Park Henderson, Dorman T. Warren and The Agricultural Insurance Company.
    [Decided December 28th, 1898.
    Filed June 10th, 1899.]
    1. Where a policy provides that it shall be void if the interest of insured be other than unconditional and sole ownership, and his interest is that he has given his bond for a debt secured by a mortgage of the premises, and is the holder of a subsequent mortgage made by the owner, the company is not liable, ■either to insured or the owner.
    2. A policy is not contrary to public policy because it provides that it shall be void if insured conceals or misrepresents any material fact or circumstance concerning the insurance or the subject thereof, or if his interest in the property is not truly stated, or if his interest be other than unconditional and sole ownership, or if the subject of insurance be a building on ground not owned by him in fee.
    3. To sustain a policy not made to the owner of the property because the .company had notice thereof, actual notice must be shown.
    4. A property-owner procured a policy in the name of a purchaser, describing it as located “at the head of Union street in Montclair, N. J., and occupied as a dwelling, and §1,000 on a frame stable situate on said premises.” A broker, on the expiration of a prior policy, which he had procured on the property, applied to the same company for a policy in the owner’s name, de.scribing the property as located “at the junction of Upper Mountain avenue ,and Union street in Montclair, N. J.” The agent who issued this policy knew nothing of the first, which was issued by his predecessor, and before issuing it he caused a survey of the premises to be made. — Held, that because of the variance in the descriptions the company was not charged with notice that both policies were issued on the same property.
    5. Where an insurer issued two policies on the same pro'perty by mistake, caused by a variance in the descriptions, the policies cannot be reformed, since there was no meeting of minds, and the company did not consent to insure the same property twice.
    C. Where a policy was issued to a mortgagee on the supposition that he was ■the owner, of the property, and the premium was paid by the owner, without ■the company’s knowledge, its failure, after notice of the facts, to cancel the policy, does not estop it from declaring the policy void as to the owner according to its terms, where it was still valid as to the mortgagee, to whose rights the company was entitled to be subrogated on payment of a loss.

      On foreclosure. Heard on pleadings and proofs.

      Mr. William W. Ames, for the complainant.

      Mr. Edwin B. Goodell, for the defendant Warren,
    cited Waring v. Loder, 53 N. Y. 581; Franklin Fire Insurance Co. v. Martin, 11 Vr. 568; Trade Insurance Co. v. Barracliff, 16 Vr. 543; Hartford Fire Insurance Co. v. Haas, 87 Ky. 531; Brothers v. California Insurance Co., 3 N. Y. S. 89; Agricultural Insurance Co. v. Potts, 26 Vr. 158; Martin v. Jersey City Insurance Co., 15 Vr.274; Miller v. Hillsborough Mutual Fire Assurance Association, 17 Stew. Eq. 224; Dewees v. Manhattan Insurance Co., 6 Vr. 366.

      Mr. C. H. Gest (of New York), for the defendants Henderson .and Engert,
    cited Carson v. New Jersey Insurance Co., 14 Vr. 300; Rich. Ins. §§ 63, 69, 70, 75, 78; Encycl. L. vol. 20 p. 713 n. 3.

      Mr. James Buchanan, for the Agricultural Insurance Company,
    cited Martin v. Insurance Co. of North America, 28 Vr. 623; Hare v. Headley, 9 Dick. Ch. Rep. 545; 7 Dick. Ch. Rep. 496; 4 Am. & Eng. Encycl. L. (2d ed.) 962; Green v. Stone, 9 Dick. Ch. Rep. 387, 399; Rowley v. Flannelly, 3 Stew. Eq. 614; 11 Am. & Eng. Encycl. L. (1st ed.) 343, 344; Bennett v. St. Paul Co., 26 Vr. 377; Sun Insurance Co. v. Greenville Building and Loan Association, 29 Vr. 367.

   Pitney, V. C.

This suit is for foreclosure of a mortgage dated January 28th, 1893, for $11,500, upon property in Montclair, Essex county, made by the defendant Chace (and securing his bond) to the defendant Warren, and by him assigned to the complainant, Ordway. The defendant Warren is the holder of a second mortgage, dated February 21st, 1896, for $4,500, made by the defendant Engert, to whom Chace on that day conveyed the premises subject to the complainant’s mortgage, and who gave back the mortgage to Chace which he assigned to Warren. Afier the giving of the second mortgage the premises were conveyed by Engert to his wife, and by her to the defendant Henderson.

The only contest arises over a claim made by the defendant the Agricultural Insurance Company to a right of subrogation to a part of the amount due upon the complainant’s mortgage, which claim is based upon the fact that the insurance company had written a policy of insurance upon the dwelling upon the premises, which was held by the complainant, Ordway, as mortgagee, and the dwelling having been destroyed by fire the insurance company was obliged to pay, and did pay, the sum of $4,128 to the complainant as his share of the loss.

The legal ground of the claim of subrogation is found in a clause in the contract of insurance which provides as follows:

‘‘Whenever this company shall pay the mortgagee any sum for loss or damage under this policy, and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee the whole principal due or to grow due on the mortgage, with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities ; but no subrogation shall impair the right of the mortgagee to recover the full amount of claim.”

The allegation of the insurance company is that it was under no liability to pay the loss by fire to the then owner, Henderson, or to Chace, the mortgagor, because the policy was issued to the defendant Chace after he had conveyed away the title to Engert and while Engert was the owner, and that fact was not disclosed to the insurance company or stated in the policy.

One of the conditions of the policy is as follows:

“This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof; or if the interest of the insured in the property be not truly stated herein ; * * * or if the interest of the insured be other than unconditional and sole ownership; or if the subject of insurance be a building on ground not owned by the insured in fee-simple.”

At the date of the policy the only interest of Chace in the premises was, first, that he had given his bond for the debt secured by the mortgage held by the complainant, and second, was the holder of the mortgage made by Engert.

There can be no doubt that upon the facts so stated the insurance company was not liable upon this contract to either Chace or Henderson, the actual owner of the fee. Martin v. Insurance Co., 28 Vr. 623; Sun Insurance Co. v. Greenville Building and Loan Association, 29 Vr. 367; 2 Beach Ins. §§ 630, 631; C. F. Insurance Co. v. Manufacturing Co., 31 Mich. 346; Dowd v. Insurance Co., 41 Hun 139.

The contract used is, and was at the time, the standard policy in common use, approved by the commissioner of insurance, under section 191 of the act concerning insurance, and there is no ground in the case for the assertion of fraud or concealment.

Much of the learning found in the books as to insurable interest and the like, has been rendered obsolete by the adoption of this standard policy.

The distinction is now well established between mere insurance brokers whose business it is to place insurance for the insured, and an authorized and acknowledged agent of the insurance company who has authority to fill up and issue policies. A clause in this policy provides that no mere agent can waive the terms of the policy, and that clause has had the effect of also rendering obsolete much of the learning with regard to waiver of conditions and notice to brokers.

There can be no doubt that it is of much importance to underwriters that they shall be informed of the exact state of the ownership of the property they insure, especially in view of the keen competition and low rates of premium which now prevail. ’

The contract in question is one which the insurance company had a right to insist upon, and it is not contrary to public policy. It accords with public policy in that it tends to prevent the destruction of property by fires which are the result of carelessness and sometimes of criminal action.

The present is clearly distinguishable from that class of eases found in the books, where the insured was seized of a mere equ - table, but in other respects complete and unassailable, title, so that the whole loss of a fire would fall directly upon him, as where he is in possession under a contract of purchase, and has paid the whole or a part of the purchase-money, and is personally liable for the remainder.

It is also well settled that the condition in a policy as to ownership, like the one here to be dealt with, is not satisfied with a mere insurable interest, such as mortgagee or the like, which Mr. Chace had in this case. In the case above cited, reported in 31 Mich., the court said that the question was not whether the assured had an insurable interest in the property, but whether that interest was “other than an unconditional and sole ownership.”

In Van Schoick v. Niagara Fire Insurance Co., 68 N. Y. 435 (at p. 436), Mr. Justice Folger uses this language in speaking of a somewhat similar clause: “It is a condition precedent, lying at the threshold of the making of the contract, and which, if not then performed or not then obviated, prevents the formation of an enforceable contract. It is obvious that this building being on leased ground, the very moment that the policy passed from the defendant to the plaintiff the insurance on it was void if the condition holds. They were concurrent acts, the delivery of the contract and a breach of this condition, so that, at the same instant that the defendant said we insure this building, at the same instant the condition was broken and the insurance was void. So that if nothing is shown to break the rigid effect of this condition, there never was any insurance by this defendant upon that building.”

If, then, the policy was void as to Ciiace or Mrs. Engert, the then owner of the premises, it is clear that the insurance company’s right of subrogation must prevail. Hare v. Headley, 9 Dick. Ch. Rep. 545.

This last proposition is not challenged by the defendants Warren, the holder of the second mortgage, and Henderson, the owner of the equity of redemption, who put their case upon the ground that the policy was not void.

They contest the claim of the insurance company, based upon the above-stated facts, on the ground that the insurance company had notice and knowledge, at the time that it wrote the policy to Chace, that he was not the owner of the premises, and that the owner at that time was Mrs. Engert, the wife of the defendant George Engert.

The burthen of proving such notice and knowledge is, of course, on the parties alleging it, and such burthen, in my judgment, cannot be sustained in this case by anything short of proof of actual knowledge, as distinguished from constructive or implied notice, such as arises out of statements in a chain of title or the record of mortgages or conveyances. The question is whether the insurance company’s officers had in mind, at the moment of executing this policy, the fact that the title to the land was not in Chace, but was in another person. To hold otherwise is to fasten upon the insurance company a contract that it never consciously entered into, and non constat, that it would have been willing to enter into. With this premise I proceed to consider the facts, which in detail are as follows:

Chace was a gentleman engaged more or less in the business of buying building lots and erecting thereon dwellings and selling the same, and in carrying on that business had occasion to procure a considerable amount of insurance. Eor that purpose he employed as his broker one Peck, who has since died. Peck was himself not the agent of any insurance company, with power to write and issue policies, but was a mere broker, whose business it was to procure and place insurance for clients. And the dealing between Chace and Peck must be viewed in the light of the well-known fact that insurance brokers of that class always keep a record and abstract of the policies which they procure for their clients and watch their expiration and look after their renewals.

The complainant’s bond and mortgage were given, as we have seen, in 1893, and a policy of insurance collateral thereto had been procured from the Germania Insurance Company, and apparently expired in the latter part of May, 1896. The complainant’s mortgage, by its terms, required the keeping up of the insurance, and Chace’s personal' liability on the bond made him interested in the same direction.

When the policy of insurance in the defendant insurance company for $6,000, held by the complainant. (Ordway) as collateral, was shown to Mr. Chace on the stand, he swore that he procured that policy through Peck on behalf of Mr. Engert, but afterward he swore that Peck procured it without his personal knowledge; that he subsequently recognized Peck’s conduct in that behalf by paying the premium to him. Taking the latter as the correct statement of what occurred, it must be presumed that Mr. Peck either had in his possession the old policy in the Ger-mania Insurance Company, or such a record of it as informed him of the description of the property insured, the amount of insurance, and that it was held as collateral by Mr. Ordway, as mortgagee, for it is entirely clear that Peck, on or about the 29th of May, 1896, made a formal written application to the Agricultural Insurance Company for a policy covering the building in question. That company had an office in New York city, and an authorized agent there, named William Morgan, who was entrusted with blank policies of insurance, and had authority to fill them up and issue them. Peck’s application to Morgan was in writing, on a blank such as is- used by the insurance company to contain a description of the property, which its officers paste on the policy instead of writing it out at length. (That was done in this case.) It reads thus :■

“Ira G. Ghace, $6,000, 3 years, May 29, ’96, at 60 cents; $6,000 on the frame building and additions, &c., at the junction of Upper Mountain avenue and Union-street in Montclair, N. J., and occupied as a dwelling.”

Then follow other clauses about the use of combustibles, and other insurance permitted, and a lightning clause.

It is fairly inferable that this description was the same as that written in the policy in the Germania company. The evidence discloses no other source from which Peck could have obtained it. Its importance will appear presently.

It is admitted on all hands that this application was properly construed by the insurance company as stating Chace to be the owner of the premises.

On that application the policy in question was issued to Chace, and by its terms declared that the insurance company “ does insure Ira C. Chace,” <&c. It was delivered to Peck. In a few days it was' brought back by Peck, who required that it should be made payable to the complainant as mortgagee. The insurance company’s agent then — June 5th, 1896 — pasted on it in the usual way a slip containing a clause known as the mortgagee clause, making it payable to Mr. Ordway as mortgagee as his interest should appear, and also the clause above quoted providing for subrogation. The amount of the premium was charged by Morgan to the broker (Peck), and paid by him in due course of business. It was repaid to Peck by Chace, who, as he swears, subsequently put it in a bill against Engert, and it was paid by Engert to Chace.

Previous to that, on the 9th of April, 1896, Chace, through Peck, had applied to the defendant insurance company for a policy of insurance, in favor of George Engert, for “$4,000 on a frame building, &c., at the head of Union St., in Montclair, New Jersey, and occupied as a dwelling, and ‡1,000 on a frame stable situate on said premises.”

At that time a gentleman by the name of Perrin, who was not called as a witness, was acting as agent for the insurance company and issued a" policy accordingly. Whether he occupied in New York the same office that Mr. Morgan did does not appear. So far as the evidence indicates, however, it does indicate that he did occupy the same office, but that he was succeeded by Mr. Morgan. This policy was, by force of a slip pasted upon it similar to that on the later policy, made payable to Ira G. Chace as mortgagee, and passed with his mortgage to the defendant Warren when he assigned it to him, which, it is worth noticing, was on June 6th, the day after the mortgagee clause was attached to Mr. Ordway’s policy.

The dwelling covered by this policy of April 9th, 1896, is confessedly the same as that covered by the policy of May 29th, 1896, with the addition of the stable; but it will be seen by comparing the descriptions that the identity is not apparent on the face of the description, and could only be discovered by going upon the ground. Not only was the description of the premises different, but the older policy covered a stable, which was not mentioned in the application for the second policy, and the name of the person insured was different, so that there was nothing in the writing to call the attention of the insurance company’s agent to the identity of the premises.

Mr. Morgan swears that, at the time he underwrote the policy of May 29th, he did not know that the policy of April 9th, to Engert, had been issued, and this assertion is sustained by the fact that he caused to be made a particular survey of the premises before issuing the later policy. This he probably would not have done if he had known that his company held a previous policy upon the premises.

It does not appear distinctly or directly who was responsible for the variation in the description of the premises in the two policies. Presumably and inferentially Chace was responsible for it, since the policy of April 9th was issued upon a new application in the name of Engert, the recent purchaser of the premises, who, so far as appears, was previously unknown to Peck. Chace swears positively that he himself directed Peck to procure that policy. No attempt was made to account for the variation in the language, although it was pointed out at the hearing.

The ordinary course of business would have been for Chace, when he sold to Engert and took back a mortgage, to have directed Peck to take out a policy in Engeft’s name upon the same premises covered by the old policy issued by the Germania Insurance Company, of the contents of which there is no reason to doubt Peck had a record.

If Peck had known that the Engert policy was to cover the same premises as the previous Chace policy in the Germania covered, he would naturally have used the same description in making the application.

There rvas certainly no motive on Peck’s part for making a different description, unless he intended to deceive the insurance company and induce it to insure for a larger amount than the premises were worth, and it cannot be inferred that he would practice such a deceit except at the request of Chace.

There was no doubt a motive on Chace’s part to secure a large insurance, arising out of the fact that he was interested in both mortgages; he was bondsman in one and the holder of the other, which he was presumably desirous to market by assignment, and which he did market on the 6th of June, 1896. It is fairly to be presumed that there was an over-insurance, for while the whole insurance was $10,000, the company paid on the loss only $4,128 on the one policy, and $2,724 on the other, or $6,852 in all. There was no direct proof as to the extent of the loss, but the defendants Warren and Henderson, in their separate answers, each speak of it as caused by a conflagration which nearly or quite destroyed the dwelling-house.”

My conclusion on this part of the case is that, under the circumstances, the insurance company did not have knowledge, and is not chargeable with notice, that the later policy of May 29th was issued iipon the same premises as the previous one of April 9th, and that it is not responsible in anywise for the issuing of the policy to a man who was not the owner of the premises. In fact, I am unable to find in the evidence sufficient to even charge Peck, the broker, with such notice.

It is next urged that the issuing of the policy to Chace was a mistake of a character which this court will reform as against the insurance company, and leave was asked at the argument, and after the evidence was closed, to make the necessary amendment to the pleadings.

I am not sure that it would be fair to the insurance company to allow the amendment and consider the question of reformation without giving it a further opportunity to be heard. It produced its evidence and framed its case in view of the pleadings as they stand. But, be that as it may, I will consider the case as though it were competent to reform if the evidence warrants it.

Now, the reformation, as distinguished from the rescission of a contract, can only be decreed in the absence of fraud in the defendant, where the minds of the parties have met contractually, but a mistake has been made in writing out the contract in expressing the meaning, so as to make them appear to enter into a contract which they have not entered into, and the reformation must result in making the contract correspond precisely with that upon which their minds have met. 2 Pom. Eq. Jur. § 870; 3 Pom. Eq. Jur. § 1376; Kerr Fr. 418, 419.

Now, applying that simple rule here, the allegation of the defendants is that the minds of the parties met in insuring the owner of the premises for $10,000 on the one dwelling, first in the policy of April 9th, to George Engert, and subsequently in the policy of May 29th, to the same person as owner, and that they knew that the two policies covered the same premises.

This short statement of the case shows that it is not one for reformation, for it does not appear that the insurance company ever knowingly agreed to insure the premises twice to the same person, or that they would have done so had they known it.

If we should admit, for present purposes, that the officers of the insurance company knew, when they issued the last policy, that the dwelling-house mentioned in the two policies was the same, it still, in my judgment, would not follow that such knowledge showed that the company was willing to enter into the contract of insurance which the court is now asked to force upon it. It might well have been willing to insure the mortgagee of the first mortgage directly, with a right of subrogation, to the extent of $6,000, and at the same time insure the owner of the fee to the extent of $4,000, upon the same premises, and yet be unwilling to insure the owner of the fee to that extent.

The familiar rule is that the proof of the mistake and of the actual meeting of minds must be clear and convincing. Hupsch v. Resch, 18 Stew. Eq. 657, 1 Dick. Ch. Rep. 609 and cases cited.

It does not appear at what time the officers of the company discovered that the policies covered the same premises. In support of the allegation that they did know it at some time before the fire, the defendants rely upon the fact that the insurance company reinsured the large policy of $6,000 in another company to the extent of $5,000, but just when this reinsurance was effected does not appear.

The defendants further urge that the fact that the company’s officers did discover the real facts before the fire and did not at once cancel one or both of the policies, is a circumstance which works by way of equitable estoppel against the company.

I am unable to adopt that view. Both the policies were, by virtue of what is called the mortgagee clause, perfectly good and unassailable in the hands of the mortgagee, and the intention of both policies was to secure the mortgagees.

It is true that the insurance was paid by Eugert, and that circumstance is relied upon by the defendants. But that important fact is not brought home to the knowledge of the insurance company. So far as it appeared to its officers, the premium was paid by Chace, and he was the bondsman in the first mortgage and the mortgagee in the second. The intention of the parties, so far as it appeared to the insurance company, was entirely carried out by retaining both the policies in force in their present form, and I see nothing inequitable in the conduct of the insurance company in so doing and at the same time relying upon the right to be subrogated to the first mortgage. It had been lured into an over-insurance, and I am unable to see that it was not justified in taking precisely the position it did.

Moreover, it had every reason to suppose that the peculiar situation was known to all the parties interested; and if the owner, who was presumed to know the situation, was not dissatisfied with it, and did not call upon the insurance company to rectify it, I am unable to see that it was the business of the insurance company on its part to volunteer to do so.

Another circumstance is to be noted here. Mr. Chace, in order to keep good the policy of $5,000 of April 9th, took it to the company’s office on the 2d of July, 1896, and had endorsed thereon, “Interest now vested in Johanna Engert, and loss, if any, payable as before. H. H. Kellogg, per H. L. S.” Now, he must have known at that time that the other policy had been' taken out to secure the first mortgage, and the matter to be remarked is that he did not attempt to do anything to keep that policy good by having a note of the transfer of title endorsed upon it.

I will advise a decree that the insurance company is entitled to subrogation. to the rights of the complainant as first mortgagee, to the extent of its payment to him, with costs to be added to the amount and form a part of its decree.

Of course, it must, if required, pay the whole amount due complainant upon his mortgage and stand in his place.


text:
    Francis Collingwood et al. v. William P. White, Lysander E. Watson et al.
    [Decided January 4th, 1899.
    Filed June 10th, 1899.]
    In proceedings by abutting property-owners to restrain a municipality from paying for an improvement because it was not constructed according to specifications, an injunction pendente lite is warranted where the evidence whether the improvement was defective is conflicting, and where it appears that the municipality will not defend against a demand by the contractor for payment.
    On order to show cause why injunction should not issue. Heard on bill and affidavits, and affidavits on the part of the defendants.

      Mr. William B. Guild, for the complainants.

      Mr. J. Flavel McGee, Mr. Samuel A. Patterson and Mr. David Harvey, Jr., for the defendants.
   Pitney, V. C.

The bill is filed by seven gentlemen, severally owners of real estate in that portion of the borough of Neptune City, Monmouth county, known as Avon-by-the-Sea, against the mayor and members of the common council of Neptune City and Lysander E. Watson, contractor with the borough for the grading and graveling certain of the streets of Avon-by-the-Sea.

Upon tne presentation of the bill, with an exhibit and affidavit annexed, an order to show cause, without interim restraint, was made, and before the return day the defendants served upon the solicitors of the complainants numerous affidavits to be read on the argument.

At the hearing of the order the counsel of complainants, against the protest of the defendants, was permitted to read certain affidavits which were partly in further support of the allegations of the bill, and partly in answer to the affidavits served and read by the defendants. The court offered to the defendants time to enable them to answer these additional affidavits, if they desired to do so, but the defendants declined to take advantage of the offer, and the motion was argued on the affidavits presented.

The object of the bill is to prevent the payment by the common council to the defendant Watson of a balance of about $1,700 alleged to be due him as a last payment upon a contract for upwards of $17,000 for grading and graveling certain enumerated streets in the borough of Neptune, comprised in the suburb known as Avon-by-the-Sea.

The affidavits established the fact that the complainants are severally the owners of land abutting on the streets included in the contract, and are liable to assessment for the cost of doing the work, which was done under the provisions of the act of April 24th, 1897 (P. L. of 1897 p. 285), known as “A general act relating to boroughs.”

In the spring of 1898 the common council solicited, by newspaper advertisement, proposals for grading and graveling the several streets in question agreeably to a map and specifications on file with the clerk of the borough. Those specifications, and a contract to be used therewith, had been prepared by Mr. Niart Rogers, civil engineer and official engineer of an adjoining borough. The specifications called for the use of the “ best clay gravel ” as a covering, of a certain specified depth, &c. The contract, as originally prepared in blank, provided that the work should be done according to specifications hereunto annexed, prepared by Niart Rogers, civil engineer,” and according to the map made by Rogers and filed in the office of the clerk, and “ all said work to be done under the direction and supervision of the said Niart Rogers.” In another part of the contract he is named as the engineer “in charge of the work.” But by a special direction of the common council the clause which declared that the work should be done “ under the direction and supervision of the said Niart Rogers ” was altered so as to read that it should be done “ under the direction and supervision of the street committee ” of the common council of said borough. And, in point of fact, the work was done under the supervision of the street committee.

Mr. Rogers, in addition to furnishing the contract and specifications, agreed, for a specific sum, to furnish a map and to do the engineer work of making the assessments of benefits; but, in point of fact, he did not undertake, and was not expected to undertake, the supervision of the work, or to see to it that the materials furnished were in accordance with the contract. He was, however, employed to measure up the work from time to time and report the number of square yards that had been done up to the date of his measurement, and he gave certificates to that effect, none of which, however, certify to the quality of the work or materials.

The contract was dated April 25th, 1898, and provided that the work should be finished by the 1st of July, 1898. In point of fact, it was not finished until about the 1st of October.

Some time during the summer, while the work was being done, complaints were made by some of the complainants and others to the common council as to the character of the material used by Mr. Watson, the specific complaint being that it was not “ best clay gravel,” but was of an inferior quality.

On the 24th of August, 1898, a resolution was presented and adopted by the council reciting that complaints had been made by citizens and taxpayers that the Watson contract was “not being filled in accordance with the proposals and specifications,” and it was resolved

that no more payments be made to Watson until the engineer in charge of • the work duly certifies to the council that the same is correct, and that Niart Rogers, engineer in charge, be and is hereby requested to make a full detailed report of work done and quality of materials used under such contract, and submit the same at the next regular meeting of the council, and that the clerk of the board is hereby directed to serve a copy of this resolution upon said engineer at once.”

In pursuance of that resolution, Mr. Rogers made an elaborate examination of the gravel already used and being used by Mr. Watson, and compared it with other specimens of gravel in the neighborhood, and subjected several specimens of it and other gravels to proper tests, the result of which was all set forth in a long written report, which was submitted to the council about the 12th of September, a copy of which is annexed to the bill. After stating that the gravel in use was much inferior in quality to other gravels in the neighborhood, he summed up the result as follows :

“ There is no reasonable doubt but that the specifications have been violated in regard to the ‘ best clay gravel,’ as numerous complaints and warnings from myself and others since the commencement of this work and at the beginning have implied, and that the contractor and his supervisors have been at fault in not having more carefully examined the quality of the material in order to avoid any such complications as have since arisen.”

So far as appears, the common council paid no attention to this report, and after its receipt proceeded to formally accept the work as done by Mr. Watson, and made a large payment on account, which, with the former payments, aggregated nine-tenths of the whole amount, reserving just one-tenth as security, as provided for under the forty-fourth section of the act.

It was the affidavit of Mr. Rogers, verifying under oath the accuracy of his work and the truth of his report, and the affidavits of several engineers and others supporting him, to which objection was made, and which the defendants were offered and declined further time to answer.

In answer to the case thus made several members of the common council, and several other persons claiming to be experts, made affidavits in which they state that the gravel used by Mr. Watson was the best average clay gravel — whatever that may mean — but only a few of defendants’ affiants venture to swear that it was the best clay gravel.

I have read all the affidavits carefully, and come to the conclusion that there is enough in them to warrant this court in enjoining the payment of the money until the final hearing of the cause, unless the defendant Watson shall choose to bring a suit at law at the end of the three months’ time allowed by the statute, and the common council will defend the action and permit the complainants to make the defence which they set up by their bill.

It is manifest that the common council will refuse to defend against the payment unless directed so to do by this court. A majority of them are satisfied with the materials used, and propose to hold back the ten per cent, payment to the extent only of securing the repair of some soft spots which have developed in the work, and which they affirm can be repaired for $200.

In the affidavits of the defendants and argument thereon stress was laid on the monthly certificates given by Mr. Rogers as controverting his later report and affidavit. But, as we have seen, those certificates only covered the quantity and did not certify to the quality of the work.

The power and propriety of the court interfering at all in this matter was vigorously challenged by the counsel of defendants, but it is thoroughly sustained by the leading case of Bond v. City of Newark, decided on final hearing by Chancellor Zabriskie in 1869, and reported in 4 C. E. Gr. §376. In that case the original injunction had been granted by Chancellor Green in his lifetime. That case was followed by Vice-Chancellor Dodd in Schumm v. Seymour, 9 C. E. Gr. 143, which was in many of its aspects much like the present case. Both these cases contain instructive dissertations on the principles governing such cases, and were approved by Chief-Justice Beasley, speaking for the court of errors and appeals, in the case of Lodor v. McGovern, 3 Dick. Ch. Rep. 275, with the single exception that in the previous cases this court had undertaken itself the task of ascertaining what amount should be allowed to the contractor, no objection being made to the jurisdiction of the court in that respect. The chief-justice, in Lodor v. McGovern, held that practice to be improper, and that the disputed question should be settled by an action at law if the contractor chose to adopt that remedy.

Liebstein v. Newark, 9 C. E. Gr. 200, differed from the present case in that there the whole contract price had been paid before the bill was filed, and the object of the bill was not to stop the payment of money, but to enjoin the assessment of the amount of the work upon the complainants as abutting landowners. The injunction was refused on the ground that the result would be to cast the whole burden upon the city at large. It was apparently held in Lodor v. McGovern, supra, that the suit should be brought as well for the complainants as for the benefit of all other persons situate as were the complainants who might come in and contribute to the expense of the suit, and an amendment was permitted for that purpose. Such an amendment may be made here; but I cannot leave the topic without suggesting that I am unable to see sufficient reason for requiring the bill to have that feature. I had occasion to examine that question in the recent case of Iauch v. de Socarras, 11 Dick. Ch. Rep. 524. Here, if the seven complainants choose to undertake the burden of defending a suit by the contractor, and are successful, the result will' be to defeat his entire recovery, and will inure to the benefit of all persons situate as are the complainants, whether they desire it or not. It is not necessary for any other abutting landowner to be a party to the suit in order to obtain .the benefit of its successful result.

I will advise an order in accordance with the foregoing views.


text:
    Robert Fair and "The Trustees of the Bloomingdale Methodist Episcopal Church" v. The First Methodist Episcopal Church of Bloomingdale, David R. Sloan et al.
    [Decided January 12th, 1899.
    Filed June 10th, 1899.]
    A deed of property in trust for the benefit of members of a certain church according to the rules and discipline which from time to time may be adopted by the general conference, and to permit duly-appointed preachers to preach in the church to be erected thereon, authorizes a majority of the church members, acting in accordance with the discipline of the church, to sell the property and devote the proceeds towards building a larger church on a different site.
    On order to show cause why an injunction should not issue. Heard on bill, affidavits and exhibits on the part of the complainants, and affidavit on the part of the defendants.

      Mr. George Biller, for the complainants.

      Mr. Ralph W. Shaw, for the defendants.
   Pitney, V. C.

The contest in this case is over the title in equity to a small church and parsonage situate in the village of Bloomingdale, in the county of Passaic, and the present question is whether the complainants, or either of them, have shown such a prima faeie equitable title as to induce the court to stay until final hearing an action of ejectment commenced by the defendant corporation.

The complainant Eair is in possession by virtue of a conveyance from certain individuals naming themselves as trustees of a then unincorporated association known as the “Trustees of the Bloomingdale Methodist Episcopal Church,” which association was, after the conveyance, duly incorporated and assumed the name of the “Trustees of the Bloomingdale Methodist Episcopal Church,” and is one of the complainants, and .they assert that one or the other of them holds the equitable title. Fair is in possession by the consent of the other complainant, and holds as its representative if not as its grantee. The individual defendants and the First Methodist Episcopal Church of Bloomingdale claim that the latter holds both the legal and equitable title, and the last-named corporation has brought an action of ejectment against Fair to recover possession.

As soon as that action was commenced the complainant Fair presented his bill, with affidavits and exhibits, to a vice-chancellor, and obtained an order to show cause why an injunction should not issue, with interim restraint, which still continues. On the return day of that order it appeared that the bill was framed mainly with the view of procuring the legal title, and that the authority from the church dignitaries for the conveyance of the equitable title from the “Trustees of the Bloomingdale Methodist Episcopal Church ” to Fair was not sufficiently set forth, whereupon the hearing of the order was postponed and liberty given to the complainant to amend in that respect. Upon the adjourn day an amended bill was presented, in which the “Trustees of the Bloomingdale Methodist Episcopal Church ” was joined as a complainant and the mode of making title from it to Fair was set forth. It may be inferred that the object of joining it was that in case it should appear that, by reason of any defect in the conveyance from it to Fair, even the equitable title failed to pass, the principal object of the bill might be attained.

All parties claim under a deed of conveyance from Martin John Ryerson, made in 1843, to certain individuals as trustees, on certain conditions and trusts, which may be abbreviated to be in trust, first, for the benefit of the members of the Methodist Episcopal Church in the United States of America, according to the rules and discipline which from time to time may be agreed upon and adopted by the ministers and preachers of said church at their general conference in the United States; and second, to permit such ministers and preachers as might be for that purpose appointed by the annual conferences of that church to preach in the church to be erected thereon; and third, a condition providing for a perpetuation of the legal title in the trustees and their successors by the selection of new trustees in a particular manner —all in accordance with the discipline of the church at the date of the deed.

The allegations of the bill and admitted facts are that an ordinary unincorporated religious society, conducted according to the discipline of the Methodist Episcopal Church, was organized at or about the date of the conveyance, and by voluntary contributions raised the money and built the church and parsonage upon the premises, and continued to occupy and use them for church purposes down to the year 1897.

No legal incorporation of the trustees was had. It does not appear that there was any election of new trustees in the place of those named as grantees in the deed in the precise manner therein provided for, and all of the old trustees are dead.

The word “heirs” was not used in the deed, so that the trustees took an estate for life in the legal title and the fee stood in the heirs of Martin John Ryerson, who had died in the meantime. And if the ease rested there, one question would be whether or not those heirs could be compelled to convey, as in Methodist Episcopal Church v. Town, 2 Dick. Ch. Rep. 400. But that question does not arise, because the heirs of Ryerson have recently conveyed to the defendant the First Methodist Episcopal Church of Bloomingdale. And it seems to me that the mode of transmitting the legal title from one set of trustees to their successors prescribed in the Ryerson deed is impracticable under our legal system. So that the fact that the case does not show any election of successive trustees in accordance with the scheme laid down in the deed, does not affect the merits of the present controversy.

Some time after the 16th of November, 1897 — the precise date is not given — certain persons, being members of the congregation worshiping at the church in question, attempted to incorporate themselves under the Religious Corporation act, taking the title of the “Trustees of the First Methodist Episcopal Church of Bloomingdale.” Whether that incorporation was regular or not does not appear. It is, however, made a defendant as such.

Subsequently, in the month of April, 1898, the complainant corporation was duly organized by certificate duly recorded, a copy of which is annexed to the bill. By its certificate it states that the congregation of the Bloomingdale Methodist Episcopal Church met at their tabernacle at Butler, which is their usual place of meeting for public worship, and elected trustees and incorporated themselves according to the act of the legislature.

One question, and probably the principal question in the cause, is whether or not the complainant corporation or the defendant corporation is the true representative and trustee of the unincorporated association, which for over fifty years used and occupied the church property in question, or, rather, whether the religious association which originated and supports the complainant corporation is the true continuation and successor of the association which used and occupied the premises for so many years.

Other facts disclosed by the pleading and affidavits are as follows : Bloomingdale is a small village in Passaic county, on the banks of the Pequannock river, a narrow stream. Immediately across the river, in Morris county, is the village of Butler, which has recently grown up as a manufacturing town until it has become more populous than Bloomingdale. But for the circumstance that the river is the boundary between two counties, the 'two villages would be known as one town. They are practically one. With the growth of population a large majority of the attendants upon the Bloomingdale church came from Butler and there resided. The church grew to such a size in numbers that the church edifice in Bloomingdale became too small, and the lot is too small for a larger one. Mr. Butler, one of the proprietors of the town of that name, made a present to the Bloomingdale congregation of a large and valuable site for a church and parsonage in Butler. Whereupon the congregation met, and, by a large majority, decided to move to Butler, and to accept the gift of Mr. Butler and to build there; and they did ;build a parsonage and chapel, and used' the latter for worship. They retained the possession and use of the old church at Bloomiugdale, and finally resolved to sell it. They took proceedings for that purpose under the act of March 28th, 1895. P. L. of 1895 p. 707. They also applied to what is called the “ quarterly conference” for leave to sell, and obtained its permission. This was necessary under the discipline of the church, which also requires the consent of the presiding elder. The bill and affidavits do not show distinctly that consent by the presiding elder was given. It was stated by counsel that that officer is a necessary member of the quarterly conference, and that his consent was actually given. The proceedings show that the quarterly conference authorized the church to convey, and that at a meeting of the congregation a very large majority were in favor of selling and conveying, and that they did agree to sell and convey, and caused a deed to be executed by the trustees to Mr. Fair before either of the attempted incorporations.

The minority were dissatisfied with this action of the majority in selling out the church property at Bloomingdale and moving over to Butler, and one of their members applied to this court for an injunction to restrain the sale, but the application was met, as I am informed, by an expression of opinion against the complainant, and the proceeding was abandoned.

The minority thereupon attempted to incorporate themselves under the name of the First Methodist Episcopal Church of Bloomingdale, and procured from the heirs of Ryerson conveyances of the Bloomingdale church lot, without consideration, to the First Methodist Episcopal Church of Bloomingdale, its successors and assigns, in which it is declared that

“ it is tlie intention of the party of the first part to convey and. confirm to the party of the second part all the right, title and interest in and to the premises which have or may accrue to the party of the first part by reason of any errors or defects contained in the deed from their ancestor, but only for the uses and purposes as are in the said deed mentioned and set forth.”

The object of these deeds was undoubtedly to make up for the lack of the word heirs ” in the original deed. So that if the complainants, or either of them, ever had an equity against the heirs of Ryerson to be invested with the legal title, that equity still exists as against the defendant the First Methodist Episcopal Church of Bloomingdale, which paid no consideration to the Ryerson heirs for the deed of confirmation.

This deed of confirmation puts at rest any question whether the trusts declared in the original Ryerson deed were so declared for the benefit of Ryerson or the benefit of the church association, and eliminates one of the questions discussed in Holmes v. Church, 41 Atl. Rep. 102, and Mills v. Davison, 9 Dick. Ch. Rep. 659.

I am satisfied that the trusts were declared entirely for the benefit of the church association, and their effect is simply to prevent the appropriation of the property conveyed to any purposes other than those specified in the deed. The trusts were ■strictly in accordance with the discipline of the church at that ■time, and it follows that the legal title, wherever it was held, was so held for the benefit of the unincorporated association known as the Bloomingdale Methodist Episcopal Church, and that that association, by and with the consent of the proper •church authorities, and acting always in strict accordance with the discipline of the church, was empowered to make a conveyance of the church property. For it must be borne in mind that the corporation proper, in the case of organizations of Presbyterians and Methodists at least, consists entirely of the duly-elected trustees, and does not include the congregation. Everett v. Church, 8 Dick. Ch. Rep. 500; Holmes v. Church, 41 Atl. Rep. 102. The legal corporation holds the legal title to the church property in trust for the congregation, and subject to its ■disposition, so far as the congregation acts in accordance with the church discipline.

To make the conveyance here attempted, under the circumstances stated, was, in my judgment, no breach of the trust declared in the Ryerson deed. The discipline of the church for the time being forms a part of the declaration of trust, and that ■discipline now provides for the abandonment of church properly by sale thereof. Of course the church authorities are presumed to see to it that the proceeds of the sale are properly applied to church purposes, aud hence not diverted from the purposes to; which the property was originally devoted. Here it is to be presumed that the proceeds of the sale will, under the direction of the quarterly conference, be applied in such a manner as it shall see fit, probably and naturally to the building of a new church edifice at Butler.

Whether the attempted conveyance was efficient,or not to pass-the equitable title, is a question entirely between the two complainants herein.

The majority of the church members, as I have said, had a right to sell that property and to move the congregation across the creek to the adjoining town of Butler, providing they had the sanction and approval of the church authorities. Such action-did not amount to a secession by the majority, accompanied by rejection of the authority of the church dignitaries, and an attempt to divert the property from the purposes to which it was-originally devoted, which, as in Knights of Pythias v. Germania Lodge, 11 Dick. Ch. Rep. 63, and Schubert Lodge v. Schubert Verein, 11 Dick. Ch. Rep. 78, would forfeit the right of the-majority to govern and work an abandonment of the church organization by the majority to the minority, nor did it give rise to any right upon the part of the minority to appeal to the courts against the action of the majority on the ground of a breach of trust. See Hendrickson v. Decow, Sax. 577; Altmann v. Benz, 12 C. E. Gr. 331. And, in my opinion, it was incompetent for the minority, by going through the form of incorporating themselves — whether such action was efficient for that purpose or not — and obtaining the title to the premises, to thwart the will of the majority in that respect. If the deeds of the Ryerson heirs passed the legal title to the defendant corporation,, it is still held by it for the benefit and subject to the control of the congregation. And I will add that the bill and affidavits indicate, to say the least, that the majority party in this unfortunate controversy has been recognized by the quarterly conference as the true and real association entitled to control the property in question, and, if this be so, I am unable to see how the defendants can succeed in retaining the property.

The bill does not state distinctly why the corporation complainant was added to the amended bill. A reason quite sufficient, independent of the one first suggested, is disclosed by the affidavit presented on the part of the defendants, which shows that Fair holds the warranty deed of the individual trustees of the unincorporated association, and that he has given back a mortgage for a part of the consideration, which is presumably still held by the other complainant. It thus appears that it is distinctly interested in maintaining Fair’s title.

Upon the whole case it seems to me that the injunction should-be held and the possession of Fair maintained until the final hearing.