text:
    Andrew J. Bates et al. v. Harry A. Norton et al.
    A judgment entered by confession, and which was made up in part of the amount of a note on which the plaintiff was at the time only contingently liable as endorser, is invalid, to that extent, as against other creditors subsequently obtaining judgments, though the note was afterwards actually paid by the plaintiff; and, where the judgment was collusively entered for the purpose of hindering and delaying other creditors, it will be wholly set aside.
    Heard on bill, answer and proofs.

      Mr. James E. Howell, for Bates & Company.

      Mr. Charles A. Rathbun, for Wallace, Elliott & Company.

      Mr. Thomas Anderson, for the defendants.
   Pitney, V. C.

This bill, as originally framed, was a pure creditors’ bill for discovery, filed under the eighty-eighth and subsequent sections of the Chancery Practice act, against Harry A. Norton, a judgment debtor. It was filed on the 25th of November, 1895, and was based on a judgment of Bates & Company against Norton, recovered on the 11th of November, 1895, in the Essex circuit court, for the sum of $440.81, damages and costs. On the same day an order of discovery was made against the defendant Norton, and such discovery was had on the 2d of December; and on the 11th of December an amended bill was filed bringing in as defendant John Norton, the father of the judgment .debtor, and Sophie Platt, his sister. Subsequently the other complainants, Wallace, Elliott & Company, were, upon proper application, made parties complainant upon the basis of a judgment recovered by them against Harry A. Norton in the Essex circuit court, on the 17th of December, 1895, for the sum of $420.88.

The amended bill, set out that the defendant Harry A. Norton was a retail dealer in shoes in Newark; that he started business in the fall of 1894 with an actual capital of $5,000, and in the fall of 1895 had a stock of goods worth $4,000; that on the 30th of October, 1895, he confessed a judgment to his father, John Norton, in the supreme court, for the sum of $1,390 and costs, and a judgment to his sister, Sophie Platt, in the same court, for the sum of $500 and costs; that executions were issued immediately upon these judgments and placed in the hands of the sheriff of Essex, and that the property was immediately advertised for sale for November 6th, including within the time between the advertisement and the sale two holidays — a Sunday and election; and that it was sold on that day in a bulk to either the father or the sister for a sum just enough to pay their judgments; and that the whole stock of goods was shortly after-wards, and before the entry of the Bates judgment, conveyed out of the state and sold or in some way disposed of.

The bill charges that the judgments so confessed to the father and sister were wholly without consideration, and their confession and the sale thereunder a scheme planned and executed for the purpose of defrauding the creditors of the judgment debtor (including the complainants), whom he owed for goods purchased to the amount of $1,500.

The bill prays that the two judgment creditors by confession— father and sister — may make full and true discovery and disclosure of the true consideration of the judgments so confessed, and in what manner the consideration arose and by what the same was'evidenced.

The answer, which was filed jointly by the judgment debtor and his father and sister, admits the allegations of the bill that the judgment debtor commenced business with a capital of $5,000, and that at the time of his failure he was indebted to the two complainants herein, and to other creditors of that character, in the sum of about $1,500; admits the confession of the judgments; sets up that, after the setting off of $200 of the goods to the judgment debtor, under the statute, the sheriff proceeded and sold enough of the goods in the store to pay the two confessed judgments, which left goods unsold to the value of about $230; and that the sister, Mrs. Platt, was desirous of continuing the business, and purchased of the judgment debtor for $400 his right, title and interest in the goods and chattels remaining in the store, which were worth about $230, and gave him her memorandum check for the sum of $400; that she at once bought $105 of new goods, and then found that the business could not be carried on at a profit, and after three or four days sold the whole stock of goods, including the purchase of $105, to a man in New York city, for the sum of $2,500 in cash; and that out of that sum the $400 check was paid to the judgment debtor, and $105 for the goods purchased after the sheriff’s sale, leaving $1,995, a less sum than was due upon the two confessed judgments.

The answer admits that the goods that were in the store at the time of the sheriff’s sale had cost $4,000, but alleges that they were not worth so much, because they were badly selected.

The father and sister, in answering as to the consideration of their judgments, state it as follows:

As to the father’s judgment, that it was the sum of

one thousand dollars loaned by him to the said Harry A. Norton, on or about the first day of September, in the year 1895, and the sum of $390 loaned by him to the said Harry A. Norton, in the middle of September, 1895, making the full sum of $1,390.”

As to the Sophie Platt judgment, the answer says that the consideration of it was “ the sum of $500, which sum she loaned and advanced to the said Harry A. Norton on or about the 15th day of September in the year 1895.”

The foregoing is all the answer made to the specific interrogatories on this subject inserted in the amended bill.

The statutory affidavits annexed to the judgment rolls are severally as follows: That of the father is

that the promissory note for $1,390, upon which judgment is about to be confessed, was given for the sum of $1,390, money loaned and advanced by deponent, the plaintiff, to said Harry A. Norton, the defendant, on the 8th of October, 1896."

The affidavit of Mrs. Platt to her judgment is as follows:

“ It being the promissory note for $500, upon which the judgment is founded, and is the sum of $500, money loaned and advanced by said Sophie Platt, the deponent, to the said Harry A. Norton, the defendant, on the 20th day of September, 1895.”

John Norton, the father, when examined before the master in the discovery proceedings on the 2d of December, swore, in substance, that on the 30th of August, 1895, he borrowed from the National Newark Banking Company, on the note of his son at thirty days, endorsed by himself, the sum of $1,000, less discount, and himself handed the money to his son Harry. He swore he drew his check for the amount and received the money in currency and handed it right over to his son.

The fact with regard to this $1,000 is that John Norton endorsed Harry’s note for that amount, and that it was discounted and placed to Harry’s credit in the National Newark Banking Company, where he kept an account, and that Harry himself drew his check for $850 of it on the same day, August 30th, and later on drew out the balance of $150. That note was not paid at maturity, but was renewed for two months, on the 30th of September, and was finally paid at maturity by the father, as endorser, a day or two before he was examined before the master and a month after his judgment was entered.

At the hearing John Norton was called as a witness for the defendants, and his attention was called to what he swore to before the master, whereupon he testified that he had not so sworn and that the master had wrongly reported him. But I have no doubt at all that he was correctly reported. The evidence was taken by a reliable master, who is himself a skillful stenographer. Besides, the clear interest of the defendants at that time was to fortify as best they could the truth of the affidavits annexed to the judgment rolls by proving that the father did in fact loan the money to the son.

With regard to the $390, John Norton swore that it was loaned by him to Harry, in small sums of $50, $25 and $75 at a time, during the month of September, 1895, in cash taken out of the father’s safe, where he kept his money. No written memorandum was produced in support of this statement, and no note or due-bill was taken or entry made.

Mrs. Platt was also called and examined in the discovery proceedings on the 2d of December. She swore that she was a married woman and lived with her husband, and that she loaned her brother Harry $500, in small sums of money, $50 and $75 at a time, on various days, during the month of September, 1895, and did not take any note or other memorandum of the affair.

Mrs. Platt further swore, and to a certain extent she. is corroborated by the bank account, that in the month of October, 1895, she loaned Harry, in one sum of money, $500, and that he returned it to her the same day. It is true that $500 was deposited to his credit in bank on the 15th of October and the same amount drawn out again on that day. She says she borrowed that $500 from her father, but that the other money loaned Harry belonged to her.

The proofs further show that on the 15th of October Harry Norton called at the store of Bates & Company, in New York city, and asked for a statement of his account, which was made up and showed $402.27 due. He thereupon drew a check for $402.27 on the National Newark Banking Company (where he had just deposited $500, borrowed from his sister) to the order of A. J. Bates & Company and handed the check to them. After this was done and his account receipted, he said he wished to buy some more goods, and the credit man of Bates & Company, to whom the payment was made and who determined to what extent each customer should be trusted, told him to go and pick out his goods and come and see him further. He went and picked out goods to the amount of $1,000, came back to the credit man and stated that he had ordered goods to that amount. The credit man then asked for a statement of his affairs, which being given, the credit man declined to sell him so much as $1,000, but offered to sell him about the amount of the bill which he had just paid, whereupon Horton declared that he would not buy any, left the store, went home and immediately drew out the $500 standing to his credit in the bank, and the check given to Bates & Company was protested for non-payment and was the foundation of their judgment. Suit on it was commenced October 28th and served on Harry Horton on the 30th of October," 1895, and judgment was confessed the same evening to his father and sister.

The proofs show that the father was aware that the son’s business had not been and was not prosperous, and that he was somewhat in debt and embarrassed, and that the sister knew that her brother was borrowing money of his father as well as of he'rself.

That the son intended to practice a fraud on Bates & Company, on October 15th, is plain enough. He pretended to pay, by check, a balance of $402.27 due them, and then, on the strength of his ability and disposition to pay "promptly thus manifested, he proposed to buy $1,000 of goods on credit at a time when the indications are that he did not need them.

There is, however, no direct evidence that this dishonest project was known by his father and sister.

Complainants, as against the father and sister, rely upon the general aspect of the case, supported by certain specific matters of detail.

Bates & Company’s suit was commenced October 28th, and the papers were served October 30th. On the same day these two judgments are confessed, not in the circuit court where most convenient, but in the supreme court where their existence would attract less attention; the levy and the formal advertisement for sale are made at once, and the property sold on the 6th of November, so alleged in the bill and admitted in the answer. There was no ■ general advertisement or any serious effort made to obtain the full value of the goods, but they are sold in this hurried way and removed from the state before Bates & Company recovered judgment. The complainants contend, and, I think, with some reason, that there were goods enough in the store to pay complainants’ several claims, as well as the amount due on the confessed judgments, admitting all to be due, if complainants had been permitted an opportunity to get a levy and a fair sale after full advertisement; and that the affair was purposely so managed that not only were the complainants prevented from getting a levy, but $400 in cash was put in the pockets of the debtor, after satisfying the whole amount due upon the judgments.

Again, the judgment debtor was a married man and kept house, and yet $200, for his exemption, was set off to him out of the store goods, without inquiry as to whether he had not furniture &c. in his house of that value.

I think this general aspect, to say the least, throws a heavy burden upon the father and sister in any effort to sustain the bonafides of their judgments and to show that no fraudulent use was made of them. As to those, the father’s judgment was clearly invalid at law to the extent of $1,000. The note which represented that part of the debt was running in the bank and matured on November 30th, one month later; the father was contingently liable upon it, but had not advanced a cent, and yet the affidavit stated that the consideration was $1,390, cash loaned by the father to the son on the 8th of October. No explanation was made of the palpable falsity of this affidavit.

Then the evidence of the father, as to the other items going to make up the $390, is unsatisfactory in the extreme. After swearing that the whole sum of $1,390 was loaned on the 8th of October, he swears that the $390 was loaned, as already stated, in small sums from time to time during the month of September, and yet not a scratch of a pen is produced in support of that statement.

Taking into account his prevarication with regard to the loaning of the $1,000 borrowed from the bank, the clear falsity of his affidavit annexed to the judgment roll, and his unsatisfactory evidence as to the $390, I am led to the conclusion that fraud in his judgment is clearly proved, and no credit should be given him as to the $390. It is well settled that where a debtor and creditor conspire to give the creditor a preferential security showing an amount due greater than is actually due, for the purpose of hindering and delaying other creditors, such security is wholly void as to the other creditors.

The only point upon which I have had trouble in the father’s case was as to the $1,000 actually paid by him upon an obligation for which he was contingently liable at the time the judgment was confessed.

If the complainants could have got a judgment and levy on the goods before they went out of the state, and the proceeds of the sheriff’s sale had been paid into the law court, there can be no doubt but that John Norton would not have been allowed for that much of his judgment. The authorities on that subject are clear. I refer to Ely v. Parkhurst, 1 Dutch. 188; S. G. on error, 3 Dutch. 555; Warwick v. Petty, 15 Vr. 542, and Stirling v. Fleming, 24 Vr. 652, the latter in the court of errors and appeals.

In this last case a judgment was entered by confession, in which the affidavit plainly stated that a part of the judgment was founded upon promissory notes endorsed by the complainant for the accommodation of the defendants and discounted, the payment of which is this day assumed.” There was no fraud or concealment, or any unfair use made of the execution. But in the contest between different execution creditors the judgment was reduced to the amount actually due at the time the judgment was entered.

There is also a case in the court of chancery of Sayre v. Hewes, 5 Stew. Eq. 652, decided by Vice-Chancellor Van Fleet, affirmed, as to the matter in question, on appeal, and cited with approval by Mr. Justice Depue in Warwick v. Petty, 15 Vr. 547. In Sayre v. Hewes Vice-Chancellor Van Fleet held that a judgment confessed to secure a party against a contingent liability was not good even in equity. But in that case the judgment creditor had not at any time been called upon or obliged to pay anything upon the contingent liability secured against. Notwithstanding the difference between that case and this, I think the principle applies here.

The law on the subject is stated with great clearness by Mr. Justice Depue in Warwick v. Petty, 15 Vr. 548, as. follows: “ It may therefore be considered as decided by the court of errors that a judgment by confession for a gross sum, made up in part of a debt then actually due and owing and in part of a contingent indebtedness of a definite amount to become due in the future, will be set aside as to the latter, at the instance of subsequent judgment creditors, although such contingent indebtedness matured and became an actual debt before the other judgment creditors recovered their judgments, and that such confessed judgment will be allowed, to stand for so much as was actually due and owing when it was entered, if the affidavit, to that extent, truly stated the consideration, provided it appears that the judgment was taken for the larger sum, without any fraudulent intent.”

And again (at p. 550): “Whether the judgment shall be set aside entirely or only in part will depend upon whether or not it was entered for a greater sum than was actually due, with a fraudulent intent. * * * A judgment laid upon the property of a debtor for more than is due is in clear violation of the law. It tends to keep other creditors from pressing for: their debts and gives the debtor repose from the harassment of other creditors-by conveying the assurance that creditors’ suits would be useless, nothing could be collected, and this is obnoxious to the policy of the law which denominates as illegal all transac-' tions the tendency of which is to hinder and delay creditors. Such a burden is, prima, facie, wholly fraudulent, and the burden of rebutting and overcoming the inferences of fraud lies upon the party who seeks to uphold the transaction. And the burden of proof is not successfully met by mere proof that all the money was afterwards advanced on the judgment which the judgment creditor was required by the statute to advance before he took his judgment and covered the defendants’ property with it. On the issue of fraud, proof that the money which was not actually due and owing when the judgment was entered was subsequently advanced, is evidence, and evidence only, of more or less weight according to the circumstances of the particular case.”

Applying that test here the result is, I think, that the father’s judgment must be held to be wholly void. The proof that a fraudulent use was made of the judgment overcomes all equity arising from the actual payment of the $1,000.

With regard to the judgment of the sister: While there is no proof that she did not loan the money to her brother, yet her own affirmative proof in that behalf is very unsatisfactory, and when we find her judgment used in concert with her father’s for a fraudulent purpose, I think that it must be declared void also, although the complainants may have a full remedy without resorting to her.

I will advise a decree accordingly.


source: Caselaw Access Project

author: Pitney, V. C.

license: Public Domain

text:
    George A. Benwell and John D. Everitt, partners, v. The Mayor and Council of the City of Newark.
    1. Coupon bonds issued by a city contained a provision that “this bond may be registered” on the books of the comptroller, at the option of the holder, after which the same should be transferred only by the endorsement of the comptroller on the bond. They also contained a clause providing for the semi-annual payment of interest “ on the production and surrender of the interest coupons or warrants hereto annexed, or, if registered, on proper authority.” — Held, that a holder was entitled, on demand, and a surrender of the coupons, to have his bond converted into a registered bond, the interest on which should be payable only to the registered holder, or on proper authority from him.

      2. The holder of the coupon bonds of a city, containing a provision which entitles him to have them converted at his option, into registered bonds, may enforce such contract by an action for specific performance; the duty to register the bonds being purely contractual, and not enforceable by mandamus, and the remedy by an action for damages being inadequate.
    Final hearing on bill, answer and proofs.
    This is a bill for the specific performance of a contract not relating to lands. It is found in a series of bonds known as the “ funded debt city improvement bonds ” issued by the defendants, dated March 15th, 1893, for $1,000 each, payable, with interest at four per cent, semi-annually, on the 15th of March, 1923 — that is, thirty years from their date. By their terms they are made payable to bearer, and to each are annexed sixty interest coupons for $20 each, also payable to bearer. In their form they are what are known in the market as coupon bonds, or, rather, convertible coupon bonds. The complainants are the lawful holders, by purchase, of one hundred of them.
    Each bond, after providing for the payment of the principal “on the surrender of this bond” on the 15th of March, 1923, contains this clause,
    “with interest thereon at the rate of four per cent, per annum, payable semiannually on the 15th days of March and September in each and every year, on the production and surrender of the interest coupons or warrants hereto annexed, or,, if registered, on proper authority.”
    Then, after other recitals of no bearing upon the present question, follows this clause:
    “This bond may be registered on the books of the comptroller at the city hall, in the city of Newark, at the option of the holder, after which the same shall be transferred only by the endorsement of such transfer by the comptroller on this bond.”
    . It is for the specific performance of this last clause that the suit is brought, and the question involved is as to what is the true construction of it. The complainants contend that the holders of the several bonds under that clause are entitled thereby to have them converted into regular “registered bonds,” so that the interest will be payable to the registered holder thereof, either in cash or by check, and without the production of the coupons, and that the act of registration shall be so done and performed as that the holder will not thereafter be obliged to present the coupon in order to obtain the regular semi-annual payment of interest, and to that end they offer to surrender the coupons and demand to be relieved of any care or responsibility for them.
    The defendants, on the other hand, decline to register the bonds in such manner as to be obligated thereafter to pay the interest directly to the registered holder, or in any other manner than by the mere .production of the coupons (which they admit will remain negotiable) over the eov/nter of the bank where they are made payable.,
    It is said that the law or practice of the defendants is that all payments of this sort out of the treasury' must be made by a check signed by each of the several commissioners of the sinking fund, consisting of the mayor, comptroller and three gentlemen who give their services to the city without compensation, and that it would be imposing upon these three gentlemen too much labor to ask them to sign separate checks for the interest on each bond or set of bonds held by any individual.

      Mr. Cortlandt Parker, Jr., for the complainants.

      Mr. Frederick T. Johnson, for the defendants.
   Pitney, V. C.

The question presented must be determined upon the true construction of the clauses of the bond above recited, viewed in the light of the meaning of the language among persons engaged in making, floating, negotiating and investing in such securities.

Several expert witnesses on this subject were sworn. They all agree substantially in declaring that securities of this kind in this country are grouped or classed as follows:

'First — “Registered bonds.” A registered bond is one which is a simple certificate of indebtedness, in favor of a particular individual, payable at a day named, with interest at days named. The name of the payee is entered on the books of the corporation debtor — municipal or private — as the registered owner, or, if it be a government bond, on the register of the government. On the days when, by the terms of the bond or certificate of indebtedness, the interest falls due, it is paid directly to the registered creditor, without presentation of the bond, usually by check drawn to his order and sent by mail, or, if he so demands, by cash in hand, but by long-settled course of practice the payment is made by check to the order of the creditor.

These bonds or certificates of indebtedness are not negotiable, and can be transferred only by an entry on the books of the debtor corporation, with a proper endorsement on the bond itself, or by the issue of a new certificate if it be a government indebtedness. The peculiar value of this class of securities lies in the fact that it is not necessary to produce them to the debtor at each ■time that the interest is due, and the danger of loss by robbery or fire is entirely removed. As they are usually made to run for a long term of years, so that, as in the present instance, the amount of interest in the aggregate is really greater than the principal, this peculiarity is of great importance.

Second — “ Coupon bonds.” These are made payable to bearer and are provided with interest warrants called coupons, for each installment of interest, also payable to bearer, which, when actually detached, are negotiable and payable to bearer. The result is that a security of this class is passed easily from hand to hand — is convenient for use among bankers and moneyed institutions that desire a security which is easily, readily and quickly convertible into money by sale, the title to which may be passed from hand to hand without any formality except the mere tradition of the paper. This ease of transfer gives this class of securities its peculiar value. The collection of the interest is made by simply detaching the coupon and presenting it at the place of payment, either directly or through the usual course of bank exchanges, where it is paid without inquiry as to the ownership of the bond from which it has been cut. The disadvantage of this sort of security is the danger of its loss by theft or fire.

These distinguishing characteristics make the registered bond more valuable to persons who desire a permanent investment and wish to eliminate the danger of loss by robbery or fire, such as large savings institutions and the like, while, as before observed, coupon bonds are more valuable for such as desire something easi)}r negotiable from day to day.

A third class of bonds has its origin as follows: Parties desiring to borrow large sums of money naturally attempt to put their securities in such shape as to attract all classes of investors, and to that end have devised a third class of bonds, known as “convertible coupon bonds” — that is, coupon bonds which may, at the option of the holder, be converted into registered bonds. And this option is expressed in a clause contained in the bond itself, and when inserted produces a convertible coupon bond. The usual process of converting a coupon to a registered bond is to present the bond, cut off and surrender the coupons to the debtor, have the name of the creditor entered on a proper book kept by the debtor and a proper endorsement made upon the bond itself, showing its registration, thus reducing it, as nearly as possible, to the form and shape of an original registered bond.

The complainants claim that the bond here in question belongs to this third class.

Ordinarily, as everybody knows, a bond which has once been converted from a coupon bond into a registered bond, cannot be reconverted into a coupon bond without the issuance of a new bond. This results from the fact that the ordinary registered bond does not include coupons for the payment of interest, and to convert a registered bond into a coupon bond would require the issuing of a set of coupons for each bond.

The desire, however, to have a bond which may be converted and reconverted at the pleasure of the holder, has given rise to a half-way process, producing a mongrel bond (a fourth class), known as a “ registered coupon bond,” which is registered as to the principal or body of the bond, but not as to the interest. The coupons remain negotiable and are collected precisely as if the principal had never been registered. They are payable to whoever presents them for payment, and no questions are asked as to whether the person presenting them is the registered owner and holder of the bond itself or not. The advantage of this fourth class is that, after having once been registered, the bonds may be reconverted into pure coupon bonds by an assignment on the back payable to bearer, and having them so marked on the register of the debtor.

It will be observed that it is necessary to keep the coupons alive in order to give them this capacity of being reconverted into coupon bonds. Such bonds have been issued, in a few instances, by railroads, but very rarely, so far as the evidence shows, by municipalities, and never by either the general government or any state government.

It is to be observed that this matter of conversion and reconversion is always, so far as appears, made optional with the holder.

Then there is, as claimed, a fifth class, which, however, as far as I understand the evidence, can hardly be called a class, in which the coupons are registered as well as the bond itself, but are not detached, so that the coupon becomes simply a convenient mode by which the holder of the bond, by means of a power of attorney or other written order, may collect his money.

I do not think the evidence warrants me in treating these last as a distinct class, and a consideration of their peculiarities renders it quite certain that they have not heretofore, and will not, probably, come into any general use, for the reason that once the coupons are registered, and so marked on their face, they never can be restored to their original negotiable character.

The question is whether, by the language of the clauses quoted from the bonds here in question, the complainants, as holders of them, are entitled to have them converted into pure registered bonds and be relieved of the duty and responsibility of presenting the coupons at each time that they desire to collect their interest. As before remarked, that must, I think, depend upon the language of the contract. How it says: '■

This bond may be registered on the books of the comptroller at the city hall, in the city of Newark, at the option of the holder, after which the same shall be transferred only by the endorsement of such transfer by the comptroller on this bond.”

The complainants contend, and I think with great force, that the force of that language is that the bond shall be converted into what is-known in the market as a registered bond, with all its peculiarities. That to register the bond in such a manner as to leave the coupons outstanding as negotiable instruments, payable to bearer, and compel the holder thereafter to preserve and present them as often as he needs his interest, would not convert the security into a completely-registered bond, but would amount to a partial registration only, which would make it no more than a registered coupon bond, the registration of which would extend to the principal only, leaving the interest which is secured by the terms of the bond itself and amounts in the aggregate to more than the principal, wholly unregistered in ownership and unsecured against loss by fire or theft. In other words, the argument is that the interest grows out of and follows the principal ; that the promise to pay both principal and interest, as found in the instrument, is a single promise, and the interest warrants are merely mercantile machines invented to facilitate the payment of the interest, and as .such are mere repetitions of the promise contained in the body of the. instrument, and. are essentially a part of and included in the descriptive word “ bond.” Hence, a promise to register the bond cannot be satisfied except by the registry of it as a promise to pay interest as well as principal.

The city, on the other hand, contends that the language is satisfied by simply registering the bond itself, leaving the clause that the interest can be paid only upon presentation of the coupons standing in. full force, and that in the absence of any language indicating that the coupons are to be surrendered and the holder of the bond relieved of all responsibility for their safe keeping, they cannot be included in the term “ registered.” And counsel points to instances shown in evidence of convertible coupon bonds which contain express provision for surrendering the coupons upon the registry of the bonds, and relies upon the absence of that language in the bond here in question.

But the complainants, in answer to that argument, point, and I think with force, to the previous clause showing how the bond and the interest are to be paid, which is that the interest is to be paid on the surrender of this bond on the day of maturity,

“with interest thereon at the rate of four per cent, per annum, payable semiannually, * * * on the production and surrender of the interest coupons or warrants hereto annexed, or, if registered, on proper authority.”

The argument of counsel for complainants is that the words u or, if registered, on proper authority ” apply especially to the interest, and not at all to the principal, but if they do apply to the principal, then they certainly do also apply to the interest as well; that they follow immediately after the promise to pay the interest, and, by the ordinary rules of construction, relate to the nearest antecedent and must be so applied; that they evidently provide a substitutionary mode of payment by dispensing with the production of something which, by reason of the registry, cannot be supplied, and that “ something ” can refer only to the interest coupon, and not to the body of the bond whose surrender is not a necessary part of the process of registration.

The contention on the part of the city is that these words “ on proper authority ” apply only to the principal, and not to the interest coupons. It was not suggested that they were used merely to provide for the case of the loss of the bond. The words now under consideration have never been used in any bond, except a portion of those issued by the city of Newark, and have not, so far as appears, either been passed upon judicially or acquired, by usage, any settled signification.

I think that the complainants have the better argument on that language. In fact, I think that the better opinion is that the words just quoted — “ or, if registered, on proper authority ”— apply to the payment of the interest, and to that only. They are to be read as follows: or, if the bond be registered, the interest to be paid on proper authority.” This, I think, is the common-sense view of'this writing. Consider the result of adopting the other view. The interest on one of these bonds amounts to $1,200 — $200 more than the principal — and becomes due, on the average, in fifteen years from date, which is just half the time within which the principal becomes due. Hence, the present value of the interest is more than twice that of the principal. A construction which would hold that a registration of the principal only was contemplated, leaving the interest wholly unprotected, should not be adopted except upon very clear language. And I think that if the case rested alone upon the clause above recited, which expressly provides for the registration of the bond, and the other language — “or, if registered, on proper authority” —had not been used, that the construction contended for by the complainants should obtain to the extent, at least, that the coupons shall be rendered non-negotiable and the interest be payable to the registered holder.

It is to be observed that the court is not called upon, and it is not necessary, for present purposes, to construe the words “ upon proper authority.” They do not constitute a part of the contract to be performed, which is contained entirely in the clause which provides for the registration of the bonds. The words just quoted are found in a previous separate clause, and are appealed to simply to show that the registration provided for in the clause in question included interest as well as principal, and contemplated the destruction of the negotiability of the coupons as well as of the bond itself. Hence, it is not necessary to express any opinion as to what shall be deemed “proper authority ” in the further dealing with these bonds after they shall have been registered.

It was urged by the counsel of defendants that, at best, the clause to be construed is so obscure, and the result so far from clear — in fact so doubtful — that it should not be specifically performed.

But I do not find myself entertaining any serious doubts. And in this connection it is to be observed that this language was devised and inserted by the city’s officials. It is wholly their handiwork, and I think this clearly a case for the appli.cation of the maxim that the words of. an instrument shall be taken most strongly against the party employing them.” Broom Leg. Max. *594, 597, 598. It would have been quite easy for the draftsman of this bond to have expressed himself in language that could not have misled any proposed purchaser, and I think it was the duty of the city to see that such language was used. If it had intended to present to the public a bond which could only be registered as to less than one-third of its value, leaving the other two-thirds negotiable and subject to loss by fire or theft, then I think it was the duty of the city to see to it that that was clearly expressed in the bond. I further think that any person desiring to invest in this sort of security was perfectly justified in construing the language herein used as an obligation on the part of the city to convert its coupon bond into a fully-registered bond.

During the argument I, of my own motion, raised the question as to the jurisdiction of this court, and suggested that perhaps the complainants’ remedy was at law, either, by mandamus or by action for damages. The defendants, however, distinctly waived any objection on that ground, and asked the court to decide the questions presented by the record, and agreed to submit to the judgment of the court, whatever it might be, subject to appeal, of course. Subsequent reflection, however, on that topic, leads me to the conclusion that the case is within the jurisdiction of this court.

With regard to the remedy by mandamus: The relations between the parties are. purely contractual. The defendants are ordinary debtors, owing money by contract, and in that regard stand upon the same footing as an ordinary trading corporation. The contractual nature of these obligations is not altered by the municipal character of the defendants, and the duties imposed upon them by the bonds held by the complainants are in no sense public duties. The obligations were entered into, indeed, by virtue of legislative enactments, but they were merely enabling acts, giving the municipal authorities power to enter into the contracts in question. The relations between the parties being, therefore, contractual merely, for reasons given in the case of Bradbury v. Mutual Reserve Fund Association, 8 Dick. Ch. Rep. 306, I am of the opinion that mandamus will not lie.

With regard to an action for damages for non-performance of the contract, that would not be an adequate remedy. In the first place, the matter of the ascertainment of the damages is so uncertain as to give the complainants no adequate remedy, and in the next place, they are entitled to the remedy of specific performance because they are entitled to have the exact thing that the defendants agreed to give them. It would be inequitable to leave them to their remedy in damages.

I will advise a decree in accordance with the foregoing views, the precise terms to be settled on notice unless the parties are able to agree.


author: Emeky, V. C.

text:
    William S. Stanbery v. Eva M. Baker et al.
    1. Chancery rule 213, allowing objections to any pleading to be made on motion, does not authorize a motion to strike out a demurrer.
    2. A court of chancery has inherent power to strike out a frivolous demurrer on motion.
    3. Where, pursuant to statute, a demurrer to a bill is accompanied by defendant’s affidavit that it is interposed in good faith, and the certificate of counsel that it is well founded, and it has been set down for hearing at the next term, such demurrer will not be stricken out, on motion, as frivolous, unless it appears that complainant will be prejudiced by the delay necessary to bring the case on for hearing.
    Oh bill &c. On motion to strike oht demurrer as frivolous.

      Mr. William R. Coddington, for the motion.

      Mr. Winfield S. Angleman-, contra.

   Emeky, V. C.

This motion to strike out a demurrer is made upon the ground that it is frivolous, uncertain and without merit. The motion cannot be considered as made under the two hundred and thirteenth rule, allowing objections to any pleading to be made upon motion, for such motion, under this rule, is one which is made in lieu of a demurrer or exception, and is a waiver of demurrer or exception by the express provision of the rule. The rule, therefore, does not authorize a motion to strike out a demurrer. Nolan v. Nolan (Chancellor McGill, MS., Conclusions). The notice of motion here does not purport to have been given under the rule, and it may therefore be considered as based upon the general power of the court of chancery to strike out a frivolous demurrer on motion. The existence of such right is denied by the defendant, but I think the court of chancery has the power inherent in every superior court of striking out a demurrer clearly frivolous, or clearly intended for the sole purpose of delay. Bowman v. Marshall, 9 Paige 78, 80 (Chancellor Walworth, 1841). And this seems to be the opinion of Chancellor Green. Travers v. Ross, 1 McCart. 254, 258 (1862). This right of the court of chancery to overrule and suppress pleadings as sham and frivolous would seem to be necessary for the due administration of justice, and to be the same in its character as the right constantly exercised in our superior courts of common law. Such right to strike out sham and frivolous pleas and demurrers in these courts has been expressly affirmed by our court of errors and appeals in Brown v. Warden, 15 Vr. 176, 178 (1882), in which case it was, moreover, held that the order striking out a demurrer as frivolous was not reviewable on error. And by a later ease (Mershon v. Castree, 28 Vr. 484), the same rule was applied to the review of an order striking out a plea as sham and frivolous. In order to guard against the filing of frivolous demurrers to bills, the statute expressly requires (Chancery act § 27) an affidavit of defendant that the demurrer is-interposed, not for delay, but in good faith, and also the certificate of counsel that he has read the bill and that the demurrer is well founded. And in order to avoid delay in the hearing of a demurrer, the party demurring is required, within ten days, to notice the cause for argument at the next term (Gen. Stat. p. 406 174; P. L. of 1893 p. 199 § 3), and if, upon the argument of the demurrer, it appears to be frivolous or intended for the purpose of delay, it shall be overruled as frivolous, and no order extending the time to answer shall be granted unless, on full examination of the circumstances of the case, evident injustice «will be done unless the extension is granted. Chancery act § 36.

Where the case is set down regularly for hearing at regular term and the demurrer is found frivolous, the bill may then be taken as confessed at once and proper decree entered, unless time to answer is given. These strict and punitive statutory regulations of the practice relating to frivolous demurrers are manifestly sufficient to reach all ordinary cases of demurrers claimed to be frivolous, and to allow the disposition of them, under the practice prescribed by statute, without any unreasonable delay, and the summary relief of striking out should not be resorted to unless the circumstances of the case are such that the complainant will be prejudiced by the delay necessary to bring the case on regularly for hearing. In the present case, the statutory affidavit and certificate are annexed to the demurrer, and the demurrer has been set down for hearing at the May term. The case, moreover, as presented by defendants’ counsel, strikes me as one where the court, at the hearing, even if it overrules the demurrer as frivolous, ought, perhaps, to permit an answer and cross-bill to be filed, in order to reach the real questions which defendant desires to present for adjudication'. If the demurrer should be stricken out on motion, the court would not be in a position to exercise this power. The case, therefore, should come regularly to hearing, and the motion to strike out is denied, but without costs.