author: Pitney, V. C.

text:
    Maria J. Bacon and husband v. Thornton W. Fay et ux., Ellen M. Fairchild, Alfaretta E. White and husband, Adelaide V. Geishaker and husband, David J. Pancoast, Gladys M. Fay Fillebrown and husband, Roy Alton Fay, Louisa Fay et al.
    [Submitted January 27th, 1902.
    Decided March 26th, 1902.
    Filed September 8th, 1902.]
    1. Complainant and eight brothers and sisters became entitled, on their father’s death, to equal shares in certain realty. On bill for partition by one of the heirs, their interests were purchased by the other seven, one of whdm took title as trustee. Subsequently there was a partial amicable-partition, by which three of the seven received portions of the land in satisfaction of-their interest, conveyance being made by the trustee. It was claimed that one of the remaining four had received rents and profits, not accounted for by him, sufficient to extinguish his interest. In a suit by the widow and heirs of this heir against the trustee, complainants obtained a decree for- costs, execution issued thereon, and the premises were purchased by complainants’ solicitor. The trustee mortgaged his interest in-the premises, the mortgage was foreclosed, and the same solicitor purchased at the foreclosure sale. In a later suit by two of the parties against the trustee and the purchaser at 'the foreclosure sale, it was decreed that the.claim of the purchaser at the foreclosure sale had been satisfied out of the trustee’s share of the bid at such sale, and that complainants were each entitled to an undivided one-seventh of the premises unaffected by either the execution or foreclosure sale; but-no proceedings were had on-this decree. Thereafter complainant purchased the interest of one of the heirs, who had received no property on the amicable partition.—Held, that under the decree in the former suit complainant was entitled to seven twenty-firsts of the proceeds of sale of the premises, each of the complainants in the former suit to three twenty-firsts, and that if the eight twenty-firsts remaining should not be sufficient to satisfy the principal, interest and costs on the mortgage, the deficiency should be paid from the com-, plainant’s share, provided that not more than one-third of the amount due-on the mortgage should be-taken from such share.
    2. Complainant’s title was wholly equitable, so as to be. cognizable in the first instance in a court of equity, and not subject to the rule that a disputed undivided share in land must be first established at law before the-commencement of equitable proceedings for partition.

      3. The mere fact that one of the parties to the suit at bar was a witness in a former litigation, and therefore had knowledge thereof, could not operate to render the decree therein binding on her.
    4. A parol contract for the partition of. lands is not within the prohi- . bition of the statute of frauds after execution by written conveyances.
    On bill for partition and special relief. Heard on bill, an.swer and proofs in open court.

      Mr. John J. Crandall, for the complainants.

      Mr. David J. Pancoast, for the defendants Mrs. Eillebrown, ' Roy Alton Eay and himself.

      Mr. DU II. Chandler, for the defendant Geishaker.
   Pitney, V. C.

The complainant Mrs. Bacon claims an undivided one-third -'interest in a small portion of the real estate of which Cyrus J. Fay died seized and intestate in 1881, situate in the city of Plammonton and county of Atlantic, and being the same land -Which was in controversy in the case of Fay v. Fay, reported in 5 Dick. Ch. Rep. 260; and again, in the case of Geishaker v. Pancoast, 12 Dick. Ch. Rep. 60, and, on appeal, 13 Dick. Ch. Rep. 537.

The complainant, who is one of the heirs of Cyrus, claims title to an equal undivided one-third part of the premises in ■question, not on her own account as heiress, but as grantee of the children of her deceased brother Edwin.

Her allegation is that she has received, as heiress, her share ■of the property.

It is admitted that Cjtus J. Fay died in the year 1881, seized -of valuable lands in the counties, of Camden and Atlantic, leaving nine children surviving him, namely, Edwin, Thornton, William, George, B. Franklin, Adelaide Geishaker, Maria Bacon, (the complainant herein), Ellen M. Fairchild and Alfaretta E. White.

In 1885 William filed a bill for partition, with the result that there was a judicial sale by Master Pancoast, in which severu. of the children (being all of the- heirs except the complainant. William and the infant children of B. Franklin Fay, previously deceased) united to buy in and hold the premises for their own-, benefit.

The total sale amounted to about $12,000. Money enough, was raised and paid to satisfy the complainant William and.' the infant children of B. Franklin, deceased, and the title was-taken in the name of Thornton for the benefit of himself and his six brothers and sister other than William. The seven for' whose benefit it was held executed releases to the master for their shares in the proceeds, without the receipt of any cash.

George .Fay, from 1881 till his death in 1890, lived, separate • from his wife, upon the portion of the premises in Hammonton here in question, and received the rents of those and of some-other rent-producing premises there situate.

In 1888, or thereabouts, Thornton sold and conveyed the property in Camden, for some $8,000 or $9,000, and out of the proceeds of that sale and the rents received paid the expenses of' the sale and the two shares of William and B. Franklin, and made a division of the net proceeds between, himself and five • of his brothers and sisters, cestuis que trusient, excluding George. Such is the evidence given in the present suit. And it tends to-show that George made no claim to the proceeds of the Camden sale, because he had not accounted for the rents and profits already received by him; and according to the evidence given in this cause he declared that he proposed to live out his share ■ of the property.

Subsequently an actual partial partition, agreed to by parol by all parties interested, was made of the premises in Hammon- - ton. A certain tract of land called the homestead was taken. by Mrs. Bacon, the complainant herein, and Thornton, in full, of their shares in the Hammonton property. This transaction. was accomplished by a conveyance from Thornton to Mrs. Bacon for the consideration of $2,500, and the payment in cash by Mrs. Bacon to Thornton of $250' and the giving of a mortgage-for $1,000, the shares in the Hammonton property being estimated to be worth $1,250 each.

Another piece of the Hammonton property was conveyed to Mrs. Fairchild in full of her share.

So that, according to the theory of the complainant herein, the-.only persons interested in the remainder of the property (that here in question) were Edwin (who died subsequently), Mrs. Geishaker and Mrs. White; George, according to their theory, having, in effect, received from the rents enough to satisfy his share in the whole property. It is on that basis that Mrs. Bacon claims an undivided one-third interest in the premises here in question, as assignee of Edwin’s children.

It was shown in evidence that this setting off a portion of the Hammonton property to the three persons named—Mrs. Fairchild, Mrs. Bacon and Thornton—was upon the basis of an .appraisement made by the equitable owners of all the property there situate at about $7,500, so that each of the six would receive about $1,250; and it is to be inferred from the evidence that the property here in question was supposed, in its then condition, to be of sufficient value to give the three—Mrs. Geishaker, Mrs. White and the children of Edwin—a share equal to that of the three to whom conveyances were made. The land was then covered by buildings and improvements, and occupied by George. Those improvements were afterwards consumed by fire, and were uninsured.

George’s widow and two daughters, who had been living in Massachusetts, filed their bill in 1892 against Thornton, claiming (as amended) one-seventh of the real estate which remained, being that here in question. By their bill they set. up the trust which they asserted arose out of George’s release, along with that of six of his brothers and sisters, to the master. The other cestuis que trust mi were not made parties to that suit, so that whatever decree was made therein bound Thornton only.

The cause was first heard on demurrer (as reported in 5 Dick. Ch. Rep. 260), and the trust established, The answer set up, in effect, that George had. been paid by Thornton his whole share in the estate, whereby his share became vested in Thornton. That issue was found against Tho'rnton, but an account was ordered, and it was held that Thornton might -hold George’s one-seventh share until the amount that was.due fqr rents, &c., was paid; and an order of reference was made to a master to ascertain the state of the accounts between George and Thornton. That, order of reference was never pursued, and no final decree was ever made in the cause. It thus appears that -the issue there was quite different from that herein.

Subsequently Thornton mortgaged the premises here in question to one Stout for $500, and Stout foreclosed his mortgage, and the property was purchased at sheriff’s sale by Judge Pan- ' coast, in the interest of his clients, the children of George. He had previously obtained a decree -and execution for costs against Thornton in the cause against him, and levied upon and sold the interest of Thornton in the (premises at sheriff’s sale, and himself purchased at that sale.

In 1897 Mrs. Geishaker and Mrs. Alfaretta White filed their bill in this court against Pancoast, Thornton and George’s children. That bill sets up the facts of the conveyance by Thornton to Mrs. Eairehild of a portion of the Plammonton premises, and to Mrs. Bacon of another portion of those premises, of double the value of those conveyed to Mrs. Eairehild, and of the receipt by him (Thornton), on his own account, of one-half in value of what was conveyed to Mrs. Bacon; but it does not state that such conveyances were made by way of an amicable, partial partition of the Hammonton property, nor that it was received by them (Mrs. Eairehild, Mrs. Bacon and Thornton) in satisfaction of their shares in that property; nor did it set up the facts upon which it is claimed in this suit that the share of George was satisfied out of the rents; nor does the bill distinctly state what the pleader there conceived were the rights of Mrs. Geishaker and Mrs. White sought to be established by the bill; nor does it contain any prayer whatever, except for process.

The bill was evidently aimed solely at the Pancoast title derived under the foreclosure, the result.being that the extent-of the interest claimed by the complainants (Mrs. Geishaker and Mrs. White) could only be ascertained by inference.

■ Pancoast and his clients did not take advantage of the defective prayer in the bill, but answered, setting up his title under the foreclosure, and also that under the execution out of this court against Thornton. -The ease was dealt with by me, as reported in 12 Bide. Gli. Rep. 60, with, the result there stated. The decree (which I think was prepared by the court without further suggestion from counsel) declared that the complainants were, as against the defendants in that cause, each entitled to the equal undivided one-seventh part of the lands mentioned in the bill, subject to the encumbrance of the mortgage executed by Thornton to Stout to secure the sum of $500, and that the title of 'Pancoast derived from the sheriff’s sale under the decree in. foreclosure based on the Stout mortgage was, as against the complainants, no more than a mortgage on the premises to secure the amount due on said decree for principal, interest and costs, It further decreed that the right, title and interest of Thornton should be sold to pay, in the first place, the amount due on the-Stout mortgage, and, if-the proceeds of that sale were insufficient, then the complainants should have the right in equity to-redeem their interest of one-seventh each in the premises by paying the amount due upon the Stout mortgage, after deducting the amount produced by the sale of Thornton’s interest. It further decreed that there should be an accounting of' the-rents and profits; and further, that no right was acquired by Pancoast, under the sale, by virtue of the execution for costs issued out of this court; and decreed a sale of Thornton’s interest by a master.

With regard to the extent of the interest of Thornton in the-premises, I assumed, as appears on page 67 of the report, that Thornton did have some interest in the premises, but what interest did not appear; and I may add here that, looking at the-printed book in that case, I find that the facts set up in that bill, .which are relied on herein to eliminate the shares of Thornton, Mrs. Geishaker and Mrs. Bacon, were not proven; nevertheless, I dealt with Thornton’s share as uncertain.

When that case came before the court of errors and appeals-(as reported in 13 Bide. Ch. Rep. 537) the court assumed (at' p. 51/.2) that Thornton’s interest had been advanced to five-sevenths through settling with four of his brothers and sisters;, and they held that the decree which I advised was not sufficiently favorable to the complainants, and that Stout’s mortgage and 'the execution out of this court were fully satisfied out of' Thornton’s share in the bid—about $1,115—which Pancoast made at the mortgage sale; but they declared that the decree should be affirmed because the complainants had not appealed. I am constrained to think that that statement of Thornton’s interest was based on an erroneous view of the facts. However, be that as it may, notwithstanding the opinion declared that the decree would be affirmed as against all parties because the complainants had not appealed, I find, by looking at a certified copy of that decree, that the court'decreed as follows: “It is, therefore, on this 29th day of June, 1899, ordered,- adjudged and decreed that the decree of the chancellor be modified to the effect that the complainants are each severally seized of and entitled to an undivided one-seventh of the fee of the said premises, free and clear of the lien of the Stout mortgage, and unaffected by either of the sheriff’s sales and conveyances to the said Pancoast, with costs to respondents, and that the record and proceedings,” &c.

No proceedings have been had in this court on that decree.

The children of Edwin, from whom the complainant herein derives title, were not parties to that suit, and are not affected thereby.

Thornton, Mrs. Geishaker, Mrs. White, Pancoast and the children and widow of George are parties to this suit, and the cause is in a shape for a partition as prayed by the bill; and I may add that it is the first time that the matter has been presented to this court in a manner which accords with those rules and that practice of this court which are necessary in order to do complete justice to all parties.

The defendant Pancoast, by his answer, puts the complainant upon proof of the principal allegations of her bill, sets up his title under the sheriff’s sales above mentioned, and then submits to the court that the questions raised by the bill are properly cognizable by a court of law, and that the complainant should establish her title at law before she can proceed and ask this court for a partition.

With regard to this last point, it is only necessary to say that the complainant has no standing whatever at law. Her title is purely equitable; and it is not necessary to cite authority for the familiar principle that a person who claims an equitable title to an undivided share in land is compelled to proceed in this court, and is not within the rule that where the title to an undivided share in land is in dispute the party whose title is disputed must establish it at law before coming to this court for a partition.

If the facts be as I have stated them above, it is at once manir fest that the defence interposed by Thornton to the suit of 1892, brought against him by the widow and heirs of George, was conducted, to some extent at least, upon an erroneous basis. One of the witnesses sworn in this cause in support of the complainant’s theory was sworn in that cause; but no transcript of the evidence therein was introduced, or other mode adopted to contradict her. The apparent object of Mr. Pancoast, in showing the fact that one of the parties to this suit was sworn in the case of Fay v. Fay, was to demonstrate that she had notice of that suit. Granting that she had notice, clearly she could not control Thornton in his defence, and is in nowise responsible for it.

Again, the suit of 1897, brought by Mrs. Geishaker and Mrs. White against Pancoast, must also have been conducted, on the part of the complainants, upon an erroneous basis of fact. The counsel who acted for Mrs. Geishaker and Mrs. White could not have fully understood the real facts of the case, for it is manifest that the failure, so far as there was a failure, to state all the facts, was entirely, against the interest of his clients. This misunderstanding is easily accounted for when we take into consideration the mental characteristics, as manifested on the stand, of these several Fay heirs; and I can easily believe that their counsel first obtained cognizance of the real facts just before he brought the present suit. It was manifest to me that the witnesses never understood just how, at the partition sale of 1886, their rights in the estate were preserved. In fact, I doubt if all of them understood that there was a sale by a master. The only sale which seemed to have impressed itself upon their minds was that made by Thornton of the Camden property in 1888, followed by the subsequent division of the proceeds of that sale among them.

Here and now, for the first dime, all parties interested are brought before the court, and, for the first time, all their rights are set out with some regard to ihe rules of pleading.

With regard to the proof of the partial partition of the Hammonton property, by conveyances of portions of it to Mrs. Fair-child, Mrs. Bacon and Thornton, that rests wholly in parol. The conveyances, or certified copies thereof, were not produced; but no objection was made to that mode of proof at the hearing. Mrs. Fairchild testified to it, as against herself; Mrs. Geishaker admitted it by her answer, and: at the hearing testified to it; Mrs. Bacon also testified to it, as did Mrs. White. In so doing those persons were all swearing.in their own favor. The heirs of- George were represented by Mr. Pancoast, and he, as I said, made no objection to parol proof. The only other person interested was Thornton, and he did not appear, but his interest, be it more or less, was vested in Mr. Pancoast. So that the only person interested in objecting to parol proof was Mr. Pan-coast. If objection had been made on that score, of course, the copies of the conveyances could have been produced. The only point upon which there could have been the least room for contest was as to whether those conveyances were made by way of partition, or, in other words, in satisfaction of the interest of the grantees in the Hammonton property. That I think was satisfactorily proven. It is true that the proof was by parol; but it was proof of the disposition of a purely equitable interest, and the parol contract established was'executed by conveyances made, and such execution of the contract saves it from the effect of the statute of frauds. ■

The only doubt that I have had upon the facts is as to whether the proof was sufficiently clear that George’s equitable share in the property had been extinguished in the manner alleged; and, upon a careful review of the evidence, I am constrained to hold the affirmative—that it was extinguished.

If, then, the cause was not complicated and embarrassed by the 'decrees in the former suits, I should come, without hesitation, . to the conclusion .that the premises here in question, at-the time they were mortgaged by Thornton to Stout, were held by him solely for the benefit of his two sisters, Mrs. Geishaker and Mrs. White, and the children of his brother Edwin, now represented by Mrs. Bacon, the complainant herein, and that their original interest therein of one-seventh each had been advanced to one-third each by their giving^ up their interest in the other pieces of property which were conveyed to Mrs. Fairchild, Mrs. Bacon and Thornton, and by the giving up of their share in the rents and profits received by George by way of extinction of his interest. And, following the decision in the case of Geishaker v. Pancoast, I should be disposed to hold that they were subject only to the Stout mortgage put thereon by Thornton, and that the premises, being presumably incapable of division, should be sold, and out of the proceeds the amount of the mortgage should be paid, and the balance divided into three equal shares between Mrs. Geishaker, Mrs. White and the complainant.

It remains to be seen what is the effect of the previous decrees. That in the case of the widow and heirs of George against Thornton (1892) may be laid entirely out of view, except so far as the supposed share of Thornton became subject to the dominion of complainants therein. This results from the fact that none of the other parties interested were made parties to that suit.

Coming now to the decree in the case of Geishaker and White against Pancoast (1899), a more serious problem is presented. The proceedings therein are clearly not binding on the complainant herein, and cannot vary the decree as to her. Neither Mrs. Bacon nor the children of Edwin were made parties thereto.

But I do not see how they can be ignored as to Judge Pancoast.

The logical result of giving Mr. Pancoast and Mrs. Geishaker and Mrs. White their several rights, as declared by that decree, will be to give to complainant seven twenty-firsts of the proceeds of the sale of the premises, less one-third of the amount due on the Stout mortgage, subject to a further contingency presently to be mentioned; to give to Mrs. Geishaker and Mrs. White each three twenty-firsts thereof—making thirteen twenty-firsts to the three Fay heirs here represented; and eight twenty-firsts to Pancoast; and if eight twenty-firsts of the whole proceeds of sale shall not suffice .to pay the amount due on the Stout mortgage, then the amount that it shall fall short must be paid out of the complainant’s share, provided that no more than one-third of the amount due on the Stout mortgage shall be taken from her share.

No proof was offered in this .cause as to what became of the surplus, over and above the decree, which resulted from Pan-coast’s bid of $1,115 at the foreclosure sale. It is to be presumed that he took that surplus ás purchaser under the execution out of this court on the decree for costs. Such presumption must have been the basis of the declaration in the decree of the court of errors and appeals to the effect that Mrs. Geishaker and Mrs. Bacon hold each one-seventh interest in the premises, free and clear of the lien of the Stout mortgage and unaffected by either of the sales by the sheriff and conveyance to Pancoast. So that it appears that he is practically out of pocket only the amount which he paid for the Stout mortgage. Biit from this consideration of the facts it also results that he has received nothing for the supposed interest of Thornton in the premises, and for this interest, on the facts as I have found them, he is not entitled in equity to receive anything.

If, then, he shall receive out of the proceeds of the sale, on a decree framed in the manner just proposed, the amount of the Stout mortgage, he will have received, according to the facts as developed in this case, all that he is entitled to; and the only injustice resulting therefrom' will be the practical shifting of a part of the burden of the Stout mortgage from the share of Edward, represented by the complainant herein, to the shares of Mrs. Geishaker and Mrs. White; and for that result those ladies are probably responsible in not making known to their •counsel the true facts of the case to be set up in their bill, and in not enforcing the rights arising thereout in their suit against Pancoast.

As counsel have not discussed this view of the case, I will, if they so desire, give them an opportunity. If they do not desire to be heard, I will advise a decree framed on the plan just suggested.

The costs of the complainant will come out of the fund.


source: Caselaw Access Project

author: Pitney, V: C.

license: Public Domain

text:
    Richard Siegman v. Martin Maloney, Isaac L. Rice, William W. Gibbs, Philip Lehman, Gustav E. Kissel, Norman Henderson, Edward Tusk, Frederick Vieweg and the Electric Vehicle Company. Richard Siegman v. George H. Day, Isaac L. Rice, Thomas J. Regan, Daniel H. Shea, Robert A. McA. Lloyd, John Jacob Astor, Joseph M. Hill, Arthur Philips and the Electric Vehicle Company. Aaron Appleton and W. M. Bennett v. Randolph Rodman, Grant B. Schley and the American Malting Company.
    [Submitted April 1st, 1902.
    Decided April 25th, 1902.
    Filed September 11th, 1902.]
    1. Under P. L. of 1896 oh. 185 § 80, providing that no corporation shall make dividends except from the surplus or net profits from the business, or pay to the stockholders any part of the capital stock except in accordance therewith, and that the directors violating such provision shall be jointly and severally liable to the corporation and its creditors, in the event of its dissolution or insolvency, to the full amount of the dividend made, with interest from the time the liability accrued, the stockholders of a corporation to whom the directors have paid dividends out of the capital stock cannot maintain a suit in behalf of the company to compel the directors to repay the amount of such dividends to the corporation, without regard to the company’s financial condition, or whether the money is needed to pay creditors, since such section is limited in its operation to cases where the assets of the corporation are insufficient to pay its creditors.
    2. The statute, if construed as authorizing stockholders to maintain a suit to compel directors to repay to the corporation the amount of dividends paid out of the capital stock, without regard to the company’s financial condition, is penal, and a court of equity will not entertain a suit for its enforcement, though the stockholders may have no remedy in any other court.
    3. Where a stockholder, being unable to induce the directors of a corporation whose stock he holds to bring an action at law, applies to a court of equity to aid him, he must show, to excite the favorable action of the court, to its satisfaction, that the result of the action will be to promote justice, and will not produce inequitable results.
    4. In an action by stockholders under P. L. of 1896 oh. 185 § 80, making directors of a company jointly and severally liable to the corporation and its creditors for dividends paid except' from the surplus or net profits, to compel them to repay to the company the amount of dividends ’ paid out of the capital stock, it is immaterial that the complainants were induced by the payment of such dividends to purchase their stock, as an action for the deceit, if any, would lie against the director or directors who deluded the complainants.
    5. Under P. L. of 1896 oh. 185 § 80, making directors of a company jointly liable to the corporation and its creditors for dividends paid except from the surplus or net profits, in a suit in behalf of the company by stockholders who have received dividends out of the capital stock to compel the directors to repay the amount of such dividends to the corporation, it is not material that such stockholders have not paid back the dividends they have received, or that the stock may have been transferred after the payment of the dividends, and the then holders may not have received any of the illegal payments.
    On demurrers to bills. Three causes argued together.
    The first two suits are brought by a stockholder in the Electric Vehicle Company, in behalf of himself and all other stockholders, against successive sets of directors of that company; and the third suit is brought by a stockholder in the American Malting Company, in behalf of himself -and all other stockholders, against the directors thereof.
    The cause of action set out in the bills is the declaring and paying of dividends out of capital, whereby a liability arose under the thirtieth section of the Corporation act of 1896. P. L. of 1896 p. 286. .

    The allegation in the first two bills is that the Electric Yehicle Company was organized in 1897, and that its articles of association provided for two kinds of stock—common and preferred—■ of which there has been issued $5,000,000 of preferred stock and $7,000,000 of common stock; and that at various times between April 1st, 1899, and April 15th, 1900, dividends to the amount of $704,800 were declared and paid to the stockholders out of the capital stock, and that there have been no net earnings.
    That early in the year 1899 the company purchased a plant for the manufacture of electric vehicle appliances in Chicago, and invested a large sum of money—about $1,000,000—therein, and that the company operated the same and expended large sums of money in it—over $1,000,000—and afterwards sold it, and suffered a great loss; so that in April, 1901, the company was without funds with which to carry on its business, and, in pelled to borrow the sum of $1,500,000 to continue business, and issued bonds to that amount, and mortgaged its property to secure them. order to prevent suspension of business, the company was com-
    The further allegation is that the complainant did not ask the company to bring suit, because the majority of the directors were the very persons who had declared the illegal dividends, so that it would have been idle to do so.
    The complainant admits having received all the dividends which have been declared on his shares of stock; that he accepted them in full belief that the statements and representations of the directors of the company were true, namely, that the said several dividends were declared out of the profits of the rasiness; but that he had ascertained, upon inquiry, that such vas not true, having been driven to make his inquiries by the great decline in the price of the stoclc after payment of dividends were stopped.
    The prayer is for discovery of-the facts with regard to the profits and loss of the company, and that the actual amount of the unlawful dividends may be ascertained and the defendants decreed to pay the amount to the company.

      The bill in the third suit, namely, Appleton v. Rodman et al., .states that the complainant is the owner of stock in the American Malting Company; that the articles of incorporation of that company authorized two kinds of stock—preferred and common—$15,000,000 of each, of which over $26,000,000 have been issued, and that the directors of the company, between the time of its incorporation in the year 1897 and the 1st of January, 1900, declared four quarterly dividends of one and three-quarters per cent, each on the preferred stock of the company, and that the same was paid to the holders of the stock, although the •directors then well knew that the surplus or net profits of the •company, on the day the same were declared, did not amount to that sum; and at the same time they declared a large dividend on the common stock of the company; that the total dividends .amounted to $1,855,350, and that the net earnings did not e2> ceed $700,000, being a payment of dividends over earnings of $1,155,350; and that, by reason of such unlawful payments of •dividends, and of general mismanagement, the capital of the company, on August 31st, 1900, was found to be impaired to the extent of $1,395,688; and alleges that the directors (naming them) are liable to make that good; that complainant has not requested the company to bring a suit, because the persons who •declared the unlawful dividends still constitute a majority of the board of directors. The prayer is that the directors who •declared and paid the dividends may be decreed to repay the .amount to the corporation.
    There is no allegation in either of the bills that the corporations had stopped business, or were unable to pay their debts, ■or that the business, at the time of filing the bill, was not profitable.

      Mr. James E. Howell, for the complainant Siegman.

      Mr. John A. Carver, Mr. Victor K. McETheny, Jr. (of the New York bar), and Mr. J. Herbert Potts and Mr. Charles L. ■Carriclc, for the complainant Appleton.

      Mr. William M. Bennett (of the New York bar), complainant, pro se.

      Mr. Richard V. Lindabury, for the defendants in Electric Vehicle Case. '

      Mr. Thomas Thacher and Mr. Alfred B. Thacher (of the New York bar), for the defendants Schley and Rodman.

      Mr. Charles L. Corbin, for the defendants Maloney, Schley and Rodman.

      Mr. John M. Dickinson, for the defendant Kissel.
   Pitney, V: C.

The statute upon which the complainants base their right, acting in behalf of the corporation, to compel the directors to repay the dividends which have been declared and paid to the stockholders, is as follows:

“30. No corporation shall make dividends, except from the surplus or net profits arising from its business, nor divide, withdraw or in any way pay to the stockholders, or any of them, any part of.its capital stock, or reduce its capital stock, except according to this act, and in case of any violation of the provisions of this section, the directors under whose administration the same may happen shall be jointly and severally liable, at any time within six years after paying such dividends, to the corporation and to its creditors, in the event of its dissolution or insolvency, to the full amount of the dividend made or capital stock so divided, withdrawn, paid out or reduced, with interest on the same from the time such liability accrued; provided, that any director who may have been absent when the same was done, or who may have dissented, from the act or resolution by which the same was done, may exonerate himself from such liability by causing his dissent to be entered at large on the minutes of the directors at the time the same was done or forthwith after he shall have notice of the same, and by causing a true copy of said dissent to be published, within two weeks after the same shall have been so entered, in a newspaper published in the county where the corporation has its principal office.”

Tbe contention of tlie complainants is that the act creates a liability on the part of the directors to repay to the corporation all dividends declared and paid not out of net earnings, without regard to the financial condition of the company, and without regard to the question whether the money is needed to pay creditors, and without regard to the question whether any actual injury has resulted to the company from such payment. In short, they contend that such improper and illegal payments of dividends are to be treated precisely as if paid without value to strangers.

The position of the demurrants is that the liability to repay the dividends arises only in case such payment is needed to satisfy creditors.

The demurrants further argue that the contention of the complainants would result in the enforcement of a penalty, to which a court of equity does not generally lend its aid; and that the enforcement of the penalty would result in increasing the assets of the company for the benefit of the stockholders, who already have in their pockets the unearned dividends, which, it is argued, is manifestly unjust.

Against this last view the complainants argue that the construction they put on the statute does not result, properly speaking, in enforcing a penalty. They contend that the reduction of the capital stock of the corporation is unlawful, without regard to the prohibition contained in the statute; that it is a breach of the contract between the stockholders; that it tends to cripple the company and to embarrass it in its operations, and is a means of diminishing and dividing the capital among the stockholders in a mode not provided for in the statute; and that such diminution of the capital stock may operate injuriously to the general interests of the stockholders, to an extent not easily capable of judicial estimate and determination; and that the sum fixed by the thirtieth section to be repaid by the directors is in the nature of liquidated damages fixed by the statute to cover uncertain damages, and so clearly distinguishable from a penalty.

The demurrants support their line of argument as to the true construction of the act as follows: They trace the section back to a statute of New York entitled “An act to prevent fraudulent bankruptcies by incorporated companies, to facilitate proceedings against them, and for other purposes,” found in Laws of N. Y. p. The title of this statute, they argue, shows clearly that this section was to be enforced for the benefit of creditors in a case of insolvency. This section was introduced into our laws in 1846, in the “Act concerning corporations.” Rev. Stat. 1816 p. 188 tit. 5 ch. 1¡.%7. It was readopted in the Rev. of 1877 p. 178 § 7.

The language in the revision of 1846 was this:

“Shall, in their individual and private capacities, jointly and severally, 'be liable to the said corporation, and to the creditors thereof, in the event ■of its dissolution or insolvency, to the full amount of the capital stock so divided,” &e.

Note the comma after “corporation.”

The same language and punctuation occur in the revision of 1877.

In the revision of 1896 the comma after the word “corporation” is dropped, and it reads as follows:

“Severally liable to the corporation and to its creditors, in the ■event of its dissolution or insolvency.”

The demurrants argue, from the punctuation itself, that the words “in case of dissolution or insolvency” relate back to the word “corporation,” and annex the condition of insolvency to the right of the corporation to recover; and in support of the propriety of resorting to punctuation they refer to the very recent case of Howard Savings Institution v. Newark, 34 Vr. 547 (at p. 551). There the court did rely, in part, on the dropping of a comma out of an act upon its repassage—aided by the reasonableness of the construction which resulted from that punctuation. That argument is repeated here; and it is contended that the construction to which it leads is reasonable; that the holding that the corporation might sue and recover back the money paid to the stockholders, when such recovery would inure directly to the benefit of the stockholders and was not necessary in order to pay debts, is so unreasonable and inequitable as to turn the scale in favor of the construction indicated by the punctuation found in the later act.

I think this argument has great force. I am unable to perceive how it is possible, under the "facts stated in these bills, to hold that there is, in equity, any distinction, for present purposes, between a company and its stockholders. The payment into the treasury of the company of the amount of these illegal dividends will inure directly to the benefit of the stockholders,, who are the very persons who have received the money. This, it seems to me, would be highly inequitable and unjust.

If the money improperly paid out to the stockholders is needed to pay creditors, it should, in justice,,be recovered from those-stockholders; but as they are generally numerous and possibly not pecuniarily responsible, and pray have received the money innocently, the statute properly fixed a liability for its repayment upon the directors, who are fewer in number and primarily responsible for the improper payment. And they cannot complain of being made so responsible, for the reason that they should have been more careful in their conduct; and, as against the creditors, the money is as thoroughly dissipated and wasted and put beyond the reach of creditors when it is paid to stockholders as if dissipated by any other method.

But as between the company, where there are no creditors,, and the stockholders who have received the money, and the directors who ordered it paid, the equity is entirely different. It is true that in law, and for purposes of making contracts, and suing and being sued, the stockholders and corporation are-separate entities, but when it comes to subtractions from and accretions to'the funds of the company there is no distinction, because the stockholders own the company and are entitled to-share in its assets. Its gain is their gain, and its loss is their loss.

This consideration leads me to incline to adopt demurrants’ construction.

• But, say the complainants, the construction put upon the-act by the demurrants reads out of it, so to speak, the word “corporation,” since the act says the directors shall be “liable-to the corporation and to its creditors.” This argument assumes that a corporation can never, in practice, be at liberty to bring an action and collect a debt, or enforce a claim, after it has found itself in a situation to be unable to pay its debts—found itself to be, in other words, actually insolvent, although not judicially declared insolvent. I cannot accept that result. Corporations may, unless interfered with, proceed and wind up-their own affairs. Creditors may have such confidence in the-officers of the corporation as to be willing to permit them to perform those functions, and may refrain from setting in motion the machinery of this court to have it declared insolvent; and it may well be that a case may arise where a corporation, acting in the interest of its creditors, and of its creditors alone, would have a right to bring an action against its directors to recover back dividends by them unlawfully declared and paid; but in so doing the amount of the recovery would, on the theory of the demurrants, be limited to the amount necessary to pay its debts after its other assets were exhausted; and such was the expression of Lord-Justice Cotton, in Flitcroffs Case, L. B. 21 Gh. Div. 519 (at p. 588), one of the cases relied upon by the complainants. He there says:

“The argument that the money has in fact been received by the company, and that the company cannot get it back, is ingenious, but unsound. The corporation is not a mere aggregate of shareholders. If the corporation were suing for the purpose of paying over again to the shareholders what the shareholders had already received, the court would not allow it. But that is not the case here. The company is insolvent, and there is no objection to allowing it to get bach its funds for the purpose of paying debts. The case of the liquidator is stronger, for, in some respects, he, as a quasi trustee for creditors as well as shareholders, stands in a different position from the company. But I rely on this, that the money was not paid to the corporation, but was paid improperly to individuals, and the corporation can sue the directors to get it bach, that it may be applied in payment of the debts of the corporation. I do not see how to make any distinction between what the directors retained and what they paid to other shareholders.”

It is said by the complainant that this court has nothing to do with the question of the justice and equity of the action; that the complainant is compelled to come into equity and to ask this court to enforce what is strictly a legal right; that it is quite idle for the complainant to ask the company itself to bring the action when its conduct is controlled by the very men who are to be sued, and when, even if it should consent to bring an action at law, the suit would be conducted, in effect, by the defendants against whom the action is brought, and hence, this court has no right to inquire whether it would be equitable and just to aid in bringing such a suit.

I cannot accede to that proposition. I am of the opinion that when a stockholder, being unable to induce the directors of a corporation, whose stock he holds, to bring an action at law, comes into a court of equity to aid him, he must, in order to excite the favorable action of that court, show, to its satisfaction, that the result of the action will be to promote justice, and will not produce any inequitable results. The helpless circumstances in which the complainants in these causes find themselves do not warrant them to ask this court to prostitute its process to promote an unjust and inequitable end.

The demurrants rely upon the further circumstance that, although this act, or one like it, is found in a great number of the states of the union, and the liability which it declares is substantially, on the complainants’ own theory, part of the common law of the land, and enforced as such in England, no well-considered precedent can be found for an action brought by a company while solvent and able to pay its debts to recover back dividends declared and paid out of the capital.

Looking at the adjudged cases, we find only one in this state in which the section has come under judicial consideration. Williams v. Boice, 11 Stew. Eq. 364; That was an action by the receiver of an insolvent bank to recover from the stockholders dividends which had been paid to them out of the capital; and the point made was that, under this section of the Corporation act, the remedy of the receiver was, in the first instance, against the directors who made the improper dividends. In answer to that Chancellor Runyon says (at p. 369) : “The statutory liability thus created, however, does not exonerate the stockholders who have received the money from liability to repay it for the benefit of the creditors. The statute does not transfer the liability from the stockholders to the directors, but it creates a liability on the part of the latter in favor of the corporation or the creditors in certain events. The section is penal, and so far as it gives a remedy to the corporation, it is for the benefit of stockholders as well as creditors. So far as the latter are con cerned, it provides what may he an easier and more economical mode of recovery than suit against the stockholders. It might be very difficult’to reach the stockholders (there might be a very large number of them, and they might be greatly scattered, or might be all non-residents), while it might not be difficult, or not so difficult, to reach the directors. The stockholder who-has received part of the capital by way of dividend, without legislative authority, has no right to it as against the creditors of the corporation, and no wrong is done him if he be compelled to repay it when it is required to pay the debts of the corporation. He or those from or under whom he derives his title ter his stock placed that money in the treasury of the corporation to answer for its debts if necessary, and it was devoted to that object so long as it might be required for the purpose. If he withdraws or receives it back again, except where the amount of the stock is reduced according to law, it will, in his hands, be subject to that trust—the trust for the payment of the debts of the corporation if needed for the purpose.” This language, so far as it is not necessary to the decision of the question in hand, is. mere dictum, but it shows that the learned chancellor considered the enforcement of the liability beyond what was necessary to satisfy creditors as purely penal.

Looking at the English cases, the liability of directors there is under the common law, and by virtue of a statute different from ours. The one hundred and sixty-fifth section of the Companies’ act of 1862 is as follows:

“Where, in the course of the winding up of any company under this-act, it appears that any past or present director, manager, official or other liquidator, or any officer of such company has misapplied or retained in his own hands or become liable or accountable for any moneys of the company or been guilty of any misfeasance or breach of trust in relation to the company, the court may, on the application of any liquidator or of any creditor or contributory of the company, notwithstanding that the offence is one for which the offender is criminally liable, examine into the conduct of such director, manager or other officer and compel him to repay any moneys so misapplied or retained or for which he has become liable or accountable, together with interest after such rate as the court thinks just; or to contribute such sums of money to the assets of the company by way of compensation in respect of such misapplication, retainer, misfeasance or breach of trust as the court thinks best.”

A leading case is Evans v. Coventry, 8 De G. M. & G. 835 (1856), and was the case of a sort of mutual life assurance company. The bill was filed on behalf of the insured, whose position combined that of creditor and stockholder, the company having declared dividends among all the assured. The suit was against the directors to recover dividends improperly declared after the company had become hopelessly insolvent. The case was heard before Vice-Chancellor Kindersley, an abstract of whose judgment is found on p. 840, and the question was whether all the shareholders who had received a dividend should not be brought before the court. Vice-Chancellor Kindersley said: “That although the shareholders.ought to have been before the court, yet that, having regard to the great difficulty of finding them, and to the fact that the defendants were unable to give any effectual assistance in finding them, a decree ought to be made against those who were before the court, to the extent as against each of his unpaid share of the capitalj that the purchases of shares with the funds of the company were breaches of duty, and that the directors must replace the moneys thus expended.” Qn appeal the decree was varied (see p. 845), and a clause was inserted that the decree against the directors would be “without prejudice to any right which they, or any of them, may have against the other shareholders of the company or society who may have received dividends”—showing a disposition to reach the very persons who received the money.

The next is Ranee’s Case, 6 Ch. App. 104 (1870). That was a winding-up ease, and was an action by a liquidator against a director to compel him to return moneys which he had received; and the director was directed simply to pay back the dividends which he had himself received, and went no further.

The next ease is Holmes v. Newcastle-upon-Tyne Freehold Abattoir Co., 1 Ch. Div. 682 (1876). There ten persons, all butchers, of whom the plaintiff was one, formed an association to buy land to be used for slaughtering cattle, each putting in an equal amount of money. Some of the land not being needed, nine of the directors sold £1,000 worth, and divided'the amount among the ten shareholders. The plaintiff declined to receive his share, and afterwards sued the other nine shareholders, and prayed that they might he decreed to repay to the company the amount each of them had received, for the purpose of keeping up its credit and ability to do business. Vice-Chancellor Hall decreed the return of the money on the ground that the public trusted the company on the strength of the amount of its published capital. He made this remark (on p. 688): “The only way, therefore, in which the public 'can be protected with reference to this transaction is by having that money restored; and it was, I consider, the duty of the plaintiff, holding the position of a shareholder in this company, to see, on behalf of the creditors, present and future, that the money was brought back.”

In re National Funds Assurance Co., 10 Ch. Div. 118 (1878), was an action by a liquidator against directors to compel them to pay back money which had been improperly paid out by way of dividends; and a decree was made against them to that effect, without prejudice to their right to recover from each shareholder the amount of the capital he had received.

The next is Wye Valley Railway Co. v. Hawes, 16 Ch. Div. 489 (1880). There five directors of a railway company, recently launched, had united with the contractor who undertook to build the road, and the financial agents who handled the cash, in an arrangement by which the contractor had advanced and charged to the company money to pay dividends before there were any earnings; and the action w-as Rf the company against the five directors and the contractor and the financial agents, asking that-they should pay back that money. The defendants moved, under the English practice, to have all the stockholders who had received the dividends made parties, in order to enable these directors to recover, in the same action, the money from the stockholders who had received it. The order was refused on the ground that the number was so great and the different issues likely to arise so.variant and distinct that it would be inconvenient to have them made parties. The merits of the case were not discussed.

The next case is In re Denham & Co., 25 Ch. Div. 752 (1883). The company was in liquidation as insolvent, and the proceeding was by the creditors against four directors of the company to recover back moneys which had been declared by way of dividends when nothing was earned; and the question litigated was .as to one of the directors who had acted innocently in voting -for the dividends, which were made upon fraudulent reports and balance sheets, the character of which he did not know; and it was held that this director “had not been guilty of such negligence or abnegation of duty as to render himself liable to repay the whole amount of capital paid away as dividends to himself and the other shareholders, nor even the amount received ly himself alone as a shareholder, nor the single dividend for ivhich he had formally moved the resolution.”

The next is In re Alexandra Palace Co., 21 Ch. Div. 149 (1882). That was an action by a liquidator against the directors to compel them to repay dividends which they had declared and paid out of the capital and not out of the earnings; and they were held liable.

The next is Flitcroft’s Case, 21 Oh. Div. 519, before the court -of appeals, previously cited, which also was a winding-up and .a suit by the official liquidator to compel directors to return moneys which they had improperly paid out to the stockholders as dividends. That resembled the Alexandra Case.

In re Oxford Benefit Building and Investment Society, 35 Ch. Div. 502 (1886), was also a winding-up case, and the directors were decreed to repay the amount.

To the same effect is Leeds Estate Building and Investment Co. v. Shepherd, 36 Ch. Div. 787 (1887), a case of voluntary liquidation, and action was brought by a liquidator against directors.

The latest case is In re National Bank of Wales, Limited, L. R. 2 Ch. 629 (1899), and in the house of lords, App. Gas. 177 (1901). That case held that although a trading corporation might have lost part of its capital, yet if afterwards it earned .'a fair dividend on the remaining capital, it might divide those •earnings without being guilty of declaring dividends out of capital ; and the court held that a man who did that innocently was not liable. At p. 675 they sayr “It follows that Mr. John Cory -Is not only not liable to make good the dividends declared, but ;also that he is not liable to refund those which he himself received as a shareholder, whether before or after June 14th, 1889,-for there was no breach of trust in this matter by him. His conduct before that date was not more remiss than it was after-wards.” His conduct prior to 1889 was inside the statute of limitations. In that case the court of intermediate appeal expressly approved what was said by Lord-Justice Cotton in Flit-croft’s Case. This decision was affirmed in the house of lords.

It is plain to see from all these cases that -the disposition of the English courts is’not to hold directors liable, except where it is necessary to pay debts.

There are a few other English cases to be found in the unofficial reports.

Salisbury v. Metropolitan Railway Co., 22 L. T. (N. S.) 839 (1870), is relied upon as a case showing a recovery in the ease of a solvent company. .There were in that case two classes of stockholders—one entitled tó dividends (if earned) from the beginning of the company, and the other were holders of shares-called new shares, and were entitled to dividends (if earned) after a certain date; and one of the deferred stockholders filed-his bill, before the time 'to which he was entitled to receive aj. dividend,, to restrain payments of dividends on the old stock,- and to compel the directors to restore the dividends already declared. His position was that of a quasi creditor, and gave’ him a right to have the capital preserved intact, so that he might receive his dividend when the time arrived- that it was-payable. Vice-Chancellor (afterwards lord-justice) James ordered the restoration of the improperly declared and paid dividends, on the strength of Evans v. Coventry, 8 De G. M. & G. 835, but expressly reserved the right to the directors to recover' and recoup from the stockholders who had received their dividends the amount so received; and said that he had no doubt the directors would be able to recoup themselves, “for, having to pay future dividends, it will be presumed that they will take care to stop out those already paid from the next dividend warrants.”

The next is Municipal Freehold Land Co. v. Pollington, 63 L. T. 238 (1890). There the action was by the company against ■the stockholders, and it was heard by Judge Kekewieh. It does not affirmatively appear that the money sought to be recovered was necessary to pay debts, but I think it may be fairly inferred -that such was the case. The judge, in his opinion, speaks of the heavy losses incurred by the company. Its business was to finance building operations; and the stockholders, being'per.sonally liable, may have managed to avoid winding-up proceedings. It is the only case in England that I have found where there was a recovery in which it did not appear-affirmatively that it was for the benefit of creditors.

The case of London Trust Co. v. Mackenzie, 62 Law Jour. Ch. (N. S.) 870, is not in point. It was a suit to recover from -individual directors sums of money which they had improperly paid to themselves. It was not a .ease of improper dividends.

Turning to the cases in this country, we have, first, Roebling’s Sons v. Mode, 1 Penne. (Del.) 515. That was an action by a judgment creditor against the directors of an insolvent corporation to compel them to apply to the payment of the judgment the amount of dividends which they had declared in excess of profits while they -were administering the corporation. The. Delaware statute is precisely like ours, with the exception that a comma appears after the word “corporation.” And it was lreld,'on demurrer, that the judgment creditor could not recover. Chief-Justice Lore, in enforcing his argument that the action must be for the benefit of all concerned, and not by a single •creditor, uses language which indicates an opinion that it might be recovered by the corporation whether it was needed to pay •debts or not; but what was said was merely illustrative, and is nothing more than dictum.

Another case is Minnesota Thresher Co. v. Langdon, 44 Minn. 37. There the corporation was insolvent, and the only question before the court was whether a suit for the benefit of a creditor should be by the creditor or by the receiver of the corporation; .and it was, in accordance with the Delaware case, held that it should be brought by the receiver, and not by the creditor.

In People v. Savings Union, 72 Cal. 199 (1887), the case was made up amicably between the attorney-general and the directos of a corporation to test the question -whether, in a certain condition of the company, they were, under the statute of California, entitled to declare a dividend. It was held that they were not so entitled.

In the case of Excelsior W. & M. Co. v. Pierce, 90 Cal. 131 (1891), the judgment was for the defendant on the merits. It does not appear whether the question here involved was found or was considered in that ease.

The case of Railroad Co. v. Bridges, 7 B. Mon. 556, altkough-entitled railroad companjq plaintiff, was really an action brought by a judgment creditor of an. insolvent company to recover from the directors illegal dividends. It was held that directors were entitled to have any money they were compelled to pay by the-judgment of the court refunded to them by the stockholders who received the dividend. . '

Grant, Assignee, v. Ross, 100 Ky. 44, was a suit by an assignee in insolvency.

The State of New York has a statute nearly, if not quite, like our own, .which was dealt with and received great consideration in the case of Dykman v. Keeney, 10 App. Div. 610, and, again, 16 App. Div. 131, and by the court of appeals in 160 N. Y. 677. That was a suit by a receiver to recover from the directors of an insolvent bank the amount of a dividend which they had declared contrary to the provisions of the Banking act of New York under which the bank was organized. That act made it unlawful to declare dividends out of capital, and laid down a stringent rule as to what assets it should be lawful to consider as good in making up a balance sheet for the purpose of a dividend. The balance sheet, upon which the dividend, which was alleged to be unlawul, was based, included a large asset—a promissory note—without counting which no profit was shown, which note, at the time of the declaration of the dividend, was not a lawful asset, under the banking act, but was subsequently paid. The receiver contended that the liability having once attached, the fact that the asset was after-wards realized was immaterial. The court held otherwise; and, in answer to the argument that the statute was penal, held that the section under which the action was brought was not to be treated as a penalty, but as an indemnity for any loss which the corporation or its creditors might sustain from the prohibited acts. The reason for this judgment is set forth at length in 10 App. Div. 610.

Cockerell v. Cooper, 86 Fed. Rep. 7, was an action by the receiver of an insolvent national bank against the directors for losses incurred by reason of loans made by the directors on bad security and contrary to the act of congress. The matter came up on demurrer, and the only question was the application of the statute of limitations; and it was held that it did not apply. The case has no application here.

Kisterbock’s Appeal, 51 Pa. Si. Jf88,. was this: A company was organized which was partly in the nature of a building loan association and partly in the nature of a savings bank, and seémed to have a capital stock aspect. Kisterbock was a director and was interested in keeping the institution going, and the directors declared what were called dividends, but which were really payments of interest on deposits, beyond what the company was.able-to pay, the object undoubtedly being to allure further deposits, or payments to the company in the nature of deposits, and to make up the money necessary to pay the last dividend of that nature he loaned the company $1,000. It went into insolvenc3r, and he claimed a preference for his debt of $1,000 over that of the depositors or stockholders—whatever they might be termed. The company was badly insolvent. It was held that he was not entitled to that preference.

There can be no doubt that, independent of the statute, the-action of directors in knowingly declaring- dividends that are not earned is entirely unwarranted, and may be enjoined at the instance of a stockholder.

Further, such action on the part of directors may—I do not say it will—render them liable in an-action brought by individual stockholders who have been induced, by the publication of such dividends, to believe, contrary to the fact, that the company was prosperous and earning dividends, to purchase shares therein. But the fact, if it be a fact, that the complainant stockholders herein have been deceived—and such is claimed in the arguments of counsel—by the dividends set out in the bills of complaint, and induced thereby to purchase their stock, can have no effect on the merits of the present question. An action based on such deceit would be one directly between the deluded purchaser of stock and the director or directors who had deluded him, and the measure of damages would be the amount which he had lost by reason of the deceit; and a recovery in the present suits would be no bar to such action.

Dividends declared for the purpose of inducing purchases of stock have been the subject of severe censure by distinguished judges. See the language of Lord Campbell and Lord Brougham in Burnes v. Pennell, 2 H. L. Cas. 497 (1849), and of Lord Campbell in Regina v. Brown, 7 Cox C. C. 442, which was an indictment. But, again, the justness of such censure can have no effect on the solution of the present question.

The most plausible argument in favor of the construction contended for by the complainants is that there may be, and naturally is, more or less of injury resulting to the prosperity of the company by a withdrawal of a part of its capital, and that the damages resulting from such injury are difficult of ascertainment, and hence such a case is properly classified with that class of cases in which the law permits the parties to agree upon a sum as liquidated damages, to be recovered for a breach of a contract. I am unable, however, to'adopt that view. I think it not warranted by the wording of the act. In this connection the words “shall he liable * * * to the full amount” are significant. The word “to” seems to me to indicate that the liability may, under supposable Circumstances, be less than the whole amount of the dividends paid. In the ease of a contract for liquidated damages the precise sum agreed upon is always recoverable. In short, I think the rule adopted in Dykman v. Keaney, supra, more reasonable, namely, that the provision in the act is intended as an indemnity against injury, such as is capable of computation in dollars and cents, and, giving it that construction, will avoid enforcing a pure penalty.

The difficulty of giving the statute any construction, except to provide a fund to satisfy creditors, is so great, that I conclude that to be the safer and better one.

One other aspect of the case has been discussed and considered. Siegman—complainant in the Vehicle Co. Case—admits that he received each of the illegal dividends, but avers that he did it innocently in the honest belief that they were actually earned.

Appleton—complainant in the Malting Co. Case—is silent in his bill as to the receipt of' dividends. He neither admits their receipt, nor excuses himself for receiving them. I think the presumption must be that he has been a stockholder from the start, and that he has received all the illegal dividends.

One of the points made by the demurrants in Appleton’s case is that, by reason of receiving dividends, he is estopped from prosecuting this suit. After the demurrer was filed, one Bennett applied by -petition to Vice-Chancellor Stevenson asking to be made a co-complainant with Appleton by reason of his ownership of shares of stock in the Malting company. The application was resisted by the defendants, and was at first refused by the learned vice-chancellor, on the ground that the petitioner could not entitle himself to act as a complainant in behalf of the company (in the absence of the element of needy creditors) without showing affirmatively that he was guiltless of complicity in the illegal conduct of the directors. The petitioner amended his petition in this respect, and was .admitted as a party complainant. In giving his reasons orally for this action the learned vice-chancellor took the view of the statute which I have adopted, namely, that, except-when necessary to pay debts, the enforcement of the act was highly penal, and not to be favored by a court of equity.

Upon this state of the pleadings it was argued by demurrants, on the one side, that the complainants cannot be heard without offering to pay back the dividends they have received, and, on the other side, on behalf of the complainants,' that such offer is not necessary, but, if necessary, it may be made orally at the argument; and I understood counsel to make such offer; and it was further argued by counsel for complainants that much of the stock of these companies may have changed hands since the dividends have been paid, and the present holders may not have received any part of the illegal payments.

I think that neither of these arguments, on either side, can prevail. The suit is brought, not for the complainants or either of them, or for any particular set or class of stockholders, but for the benefit of the corporation, and, through it, for the benefit of all the stockholders. There can be no distinction made between different stockholders, and no inquiry as to which has, or has not, received these dividends.

Further, I think there can be no presumption that-any of the stock has been sold and transferred on the books of the company at any time. If any shareholder who has received a- dividend has afterwards transferred his stock, the transferee takes it subject to all the equities existing between its former holder and the corporation. To attempt to give any preference to a recent transferee would lead the court into insurmountable difficulties. All the stockholders, after receiving the illegal dividends, might transfer their stock,, and, upon the theory advanced by the complainants, might assure the transferees that they could compel the directors to make good to the company the dividends so paid, and such restoration would make the stock as valuable intrinsically as it was before the dividends were paid. In other words, the shares of stock, plus the dividend paid out, is, in contemplation of law, worth as much as it was before the dividend; and if the amount of the dividend is repaid to the company by the directors, the shares without the dividend become worth as much as before the dividend was paid, and the amount of the dividend is just so much clear profit to the shareholder; and the presumption is that the purchaser of the shares inquires into and becomes aware of the true status of the affairs of the company before purchasing. This court cannot undertake to act as guardian of persons who buy shares 'of stock on the market upon mere street information, and without actual inquiry into the intrinsic value thereof.

The result of my examination of the1 questions raised by the demurrers and elaborately argued on both sides is—^fvrsi, that the true, construction of the .section of the act in question limits its operation to cases where the assets of the corporation are-insufficient to pay its creditors; second, if, however, the construction contended for by the complainants is the true one and the action may be maintained by the corporation without regard to its financial needs, then I am of the opinion that its use for that purpose is highly penal, and this court will not entertain a suit for its enforcément, although, by reason of the peculiar-circumstances of the case, the stockholders may have no remedy in any other court; in other words, it would be unjust and inequitable for the stockholders, directly or indirectly, to recover from the directors the very moneys which they have already received.

I will advise that the bills be dismissed, with costs.


text:
    Frank & Dugan v. Clemens Herold et al.
    [Filed October 11th, 1902.]
    1. The act of February 14th, 1883 (P. L. of 1888 p. 86), providing “that i't shall not be unlawful for any two or more persons to unite, combine or bind themselves by oath, covenant, agreement, alliance or otherwise' to persuade, advise or encourage, by peaceable means, any person or persons to enter into any combination for or against leaving or entering into the employment of any person, persons or corporation,” merely renders innocent as against the public an act which, previous to its passage, was a misdemeanor punishable by indictment, and does not take away or in anywise affect any private rights which may arise out of the acts which are legalized thereby.
    2. Every free person not subject to criminal restraint has a right to work where he sees fit, and no other person has a right to prevent his doing so, or, without his consent, even to endeavor to persuade him to quit.
    3. To make out the relation of master and servant, it is not necessary that there be any written,- or even verbal, contract between the parties to work for any particular length of time, but the relation exists where •one person is willing to work for another from day to day, and that other desires the labor and makes his business arrangements accordingly.
    4. Employers, where third parties interfere with their employes against the latter’s consent, and endeavor by unlawful means to induce them to •quit work, have a right to sue for relief.
    5. Injunction is the proper remedy for an employer where numerous third parties interfere with his employes against the latter’s consent, and ■ endeavor by unlawful means to induce them to quit work.
    The bill in this cause was filed on the 18th of April, 1901, 'by the complainants, Frank & Dugan, against upwards of eighty •defendants, and to it was annexed numerous affidavits charging that the defendants were conspiring and acting together and .separately to'prevent certain operatives of the complainants from •continuing to work for them.
    On presentation of the bill and affidavits to a vice-chancellor .an order was made, returnable on May 20th, commanding the ■ defendants named to show cause why an injunction should not issue in accordance with the prayer of the bill, and in the mean-dime restraining them from doing a variety of things specified, •which tended, as was alleged, to prevent the operatives of the ■complainants from continuing in their employ.
    On the 1st of May, and before the return of the previous order, ■numerous affidavits were presented to the vice-chancellor tending to show that certain of the defendants named in the bill had ■disobeyed the order of the 18th of April; and on that day— May 1st—an order was made calling on twenty-three of the ■defendants to show cause, on the 20th of May, which was the return day of the original order, why they should not be adjudged guilty of contempt of the court and punished therefor.
    On or before May 20th the hearing on both these orders was ¡adjourned, by written consent, until the 3d of June.
    On June 3d the complainants, by their counsel, and the1 defendants, by their counsel, appeared before the court, at the ■chancery chambers in Jersey City, and a motion was made by the counsel of complainants for the issuing of an injunction in accordance with the prayer of the bill, and for an adjudication ■of contempt against the defendants who were charged in the affidavits with disobedience of the interim restraint. That motion was resisted by the counsel of the defendants, and a counter motion made to modify the restraining order in several particulars. ,
    The restraining language of the order is as follows:
    “Be and are hereby restrained and each and every of them, from collect- - ing and attempting to collect in crowds in the street at or near said complainants’ premises, consisting of two silk mills, one in Market street, at the.foot of Jersey street, in Paterson, N. J., and the other on Railroad avenue, between Grand and Ward streets and the mill of complainants known as the greater Barnert mill, being in the rear thereof, and fronting' on Dale avenue in said city of Paterson, N. J., and from entering or attempting to enter complainants’ said premises and from following in the street for the purpose of annoying or intimidating any person employed, by complainants, and from obstructing or attempting to obstruct the free passage of such employe or employes of complainants in going to and from - complainants’ premises; from in anywise threatening or using any coercive language or coercion whatever in order to induce any employe of complainants not to work for complainants, or in anywise to interfere with. or annoying by acts or words such employe of complainants against his will, and from in any manner interfering with, hindering, obstructing or ’ stopping any of the business of complainants or their agents, servants or employes, in the operation of their said plants at Paterson, New Jersey,. and from entering their grounds and premises for the purpose of interfer- - ing with, hindering or obstructing their business, from compelling, inducing or attempting to compel, or induce by threats, intimidation, annoying - language or acts of force or violence, any of the employes of complainants to refuse to or fail to perform their duties as such employes, or from compelling or inducing or attempting to compel or induce by threats, intimidation, annoying language or acts, force or violence any of the employes of complainants to leave the service of complainants, and from preventing' or attempting'to prevent any person or persons by threats, intimidation, annoying language or acts, force or violence, from entering the service of complainants, and from using money of the said association or other money in furtherance of the purpose of preventing further employes of' complainants from returning to their work and paying money to such employes to induce them to leave, and from doing any act whatever in furtherance of any conspiracy or combination to restrain complainants or ■ its agents or employes in the free and unhindered control of its business, and from ordering, directing, aiding, assisting or abetting in any manner • any person to commit any or either of the acts aforesaid, and from congregating at or near the said premises of complainants for the purpose of intimidating complainants’ employes or from preventing them from rendering their service to complainants and from inducing or coercing -by threats, annoying language or acts, said employes to leave their employment and from in any manner interfering with complainants in carrying on their • business in its usual and ordinary way, and from in any manner interfer— ing witli or molesting any person or persons who may be employed by complainants in the operation of its plants, and from collecting either singly •or in combination with others in and about the approaches to complainants’ said plants for the purpose of picketing, or patroUng, or guarding the streets, avenues, gates and approaches to complainants’ said property for the purpose of intimidating, threatening or coercing any of the employes ■of complainants in going to and from their work and the said plants of complainants, and from congregating at or about any places at said Paterson for the purpose of intimidating, threatening or coercing any person or persons seeking employment of complainants and from going either singly or collectively to the homes of complainants’ employes or any of them for the purpose of intimidating or coercing any or all of them to leave the employ of complainants, or from entering complainants’ employment, or from intimidating or in any manner threatening the wives and families of said employes at their said homes; and from conspiring in .meetings or otherwise conspiring together by threats or other unlawful coercion to induce or coerce any of the employes of complainants to leave the service of said complainants or prevent any person by threats, intimidation, force or violence from entering the service of complainants.” -
    Tbe language italicized was particularly objected to by counsel for defendants.

      Mr. John W. Harding, for the complainants.

      Mr. James G. Blauveli and Mr. William Hughes, for the defendants.
   Pitney, V. C.

(orally, after hearing Mr. Blauvelt and Mr. Hughes).

I do not care to hear you, Mr. Harding.

I have had occasion to consider the questions raised by the counsel of defendants, and will state roughly and briefly my views.

The counsel for the defendants complain that the restraining order is very broad and sweeping in its language. I so perceived when I read it before advising it, and yet, notwithstanding, advised it. In fact, so far as the court is concerned, it was intentionally broad and sweeping. There may be one or •two words used which reach a little farther than I thought they did at the time; and if, upon further consideration, I should so conclude, I will give the counsel for the defendants the benefit of such conclusion, on the hearing of the motion to adjudge their clients guilty of contempt; but at present I will content myself with giving my views of the rule which should govern in a case of this kind.

Now, in the first place, the defendants rely upon the act of February 14th, 1883 (P. L. of 1888 p. 86), which is in these words:

“That it shall not be unlawful for any two or more persons to unite, combine or bind themselves by oath, covenant, agreement, alliance or otherwise to persuade, advise or encourage, by peaceable means, any person or persons to enter into any combination for or against leaving or entering into the employment of any other person, persons or corporation.”

And they point to an opinion of Vice-Chancellor Green, in Mayer v. Journeymen Stone Cutters’ Association, 2 Dick. Ch. Rep. 519, where (at p. 581) that learned judge treats that act as having changed the common law of the land.

It is perceived at once that the only thing legalized by that act is the combination to “persuade, advise or encourage.” Strictly speaking, it does not reach far enough to legalize the persuading, advising or encouraging, but only the combination to do these things. But, granting that it does intend to legalize the persuading, advising or encouraging by peaceable means, it still fails to legalize the acts which are complained of by the affidavits upon which are based the motion for an adjudication of contempt.

Again, I conceive that whatever was said by Vice-Chancellor Green about that statute in that case was a mere dictum, and not necessary for the decision of the cause. But, further, it seems to me that the learned vice-chancellor’s attention was not called to what I conceive' to be the true principle to be applied in the construction of that act; and whatever may have been in his mind at the time, I must look at his later expression and opinion, as found in the case of Barr v. Essex Trades Council, 8 Dick. Ch. Rep. 101.

In my judgment the true construction of the act of 1883 is simply that it renders innocent, as against the public, an act which, previous to its passage, was a misdemeanor and punishable by indictment. It does not take away, or in anywise affect, any private rights which may arise out of acts which are legalized by that legislation.

It is palpable that the legislature was dealing with a criminal act, and the language of the statute must be construed accordingly. It cannot be construed as rendering an act lawful, as against an individual, which otherwise would be unlawful. For instance, if the legislature should, by a proper act, declare it lawful for one person to commit an assault and battery on another, that legislation would, according to first principles, be construed as simply preventing the person from being punished by indictment for the assault and battery, but would not be construed as taking away the right of the individual who had been injuriously assaulted to his action to recover damages for the injury.

That is one illustration; there' are many others.

There is, or was, on the statute-book a law making it a misdemeanor for one man to knowingly cut and carry, away timber' from his neighbor’s land. The legislature-might repeal that act, and leave it not a criminal act for one man to cut and carry away timber from his neighbor’s land, but it would not deprive the owner of the land of his right to recover damages from his neighbor for the cutting and taking away of the timber. In other words, an act may have, and many acts do have, a double aspect; it may be a crime against society,-and it may inflict an actionable injury upon an individual. The declaration by the legislature that such an act shall no longer be a crime punishable by indictment will not be construed so as to take away the right of the individual to the remedy for his-private injury.

Moreover, if the legislature should declare lawful an act which in itself is an invasion of private rights and inflicts upon an individual an actionable injury, such legislation would be unconstitutional. The legislature of New Jersey, whatever may be the power of the English parliament, has no power to declare that one man may, with impunity, inflict a pecuniary injury upon another, or otherwise invade his personal rights.

So much for the act of 1883, and what has been decided about it in New Jersey.

Now I come to the matter in hand. Some things are thoroughly settled and conceded, and among them is this, that every free person, not subject to criminal restraint, has the right in New Jersey to work, or not to work, as he or she shall see fit; and he or she has the right to exercise that choice without hindrance or molestation. No person has a right to compel a man or woman to work if he or she does not elect so to do; and no person has a right to prevent another from working if he or she desires to work. In my judgment any conduct on the part of any person which tends to hinder or prevent another from working, if he or she chooses to work, is an unlawful infringement of the personal rights of that individual.

It is urged that one person has a right to persuade another to work or not to work. That may be if the other person is willing to listen and be persuaded; but no person has a right to impose upon another his arguments or persuasions against the willingness of that other person to listen. No person -has the right to invade my private residence,' or to accost me as I am walking along the street, to urge or persuade me to a certain course of conduct, if I do not choose to stop and listen to him. And if it shall be asked, How shall he know that it is against my will ? my answer is that the law of common civility is the law of the land, and that law is that no person has a right, strictly speaking, to accost another, or speak to him, without either the express or implied consent of that other person. Hence we all know that if a polite stranger accosts another and wishes to occupy never so little of his time, he says, “May I have a moment of your time, sir • [or madam]If it be said that the strict application of this rule would prevent all intercourse between mankind, my answer is that, in practice, there is no such difficulty. Most of our inter-communications are made by implied consent; and where there is no previous implied consent, it is usually obtained by special permission. But, further than that, there is no difficulty, in practice, in any person knowing whether his proposed persuasions are consented to or not; and certainly, whatever may be said of the proposition just stated, no person has a right to speak to another after he knows that his endeavor is unwelcome.

Applying these principles to the case in hand, the parties defendant are charged by these affidavits with accosting, annoying and molesting, in various ways certain female operatives of the complainants while on .their way to and from their work, and also in their homes.

Now,.these female operatives, in my judgment, have the right to walk the streets entirely unmolested, without being jostled beyond what is necessary for the ordinary purposes of travel; without having faces made at them; without having epithets cast at them, or, in fact, anything done to make it disagreeable for them to go to and from their work. They have the right to walk the streets to and from their work precisely as if there were no strike at Frank & Dugan’s mill, and precisely as any ordinary respectable female would have the right to do.

Now, the various acts which are charged and which are restrained are all within the.line which I have attempted to indicate.

The next question is, What standing does that give the complainants, Frank & Dugan, in this court? What right have Frank & Dugan to come here with their bill of complaint seeking to protect these females in the exercise of their undoubted right to walk the streets of Paterson unmolested? The answer to that question is that they are the servants of Frank & Dugan. The relation of master and servant exists between them; and to make out the existence of that relation I desire to say that I do not conceive it at all necessary that there should be a contract in writing, or even verbal, between them to work for any particular length of time. The relation of master and servant, in my judgment, clearly exists when the one person is willing, from day to day, to work for another, and that other person desires the labor and makes his business arrangements accordingly.

Now, we all know that these large manufacturing establishments are carried on in reliance upon the daily attendance of numerous operatives, and that the non-attendance of those operatives brings the whole machinery to a stop at once. Their nonattendance has the same effect npon the carrying on of the whole plant as would the disabling of a part of the steam engine driving the machinery of the plant. The work of these operatives is part of the whole operation, and the proprietors of these establishments rely upon it, and experience has shoftai that they may rely upon it without any written contract with their operatives.

Now, I say that the relation of master and servant exists between Frank & Dugan and these operatives. I do not use the word “servant” in any menial sense. Any person who works for another for a salary is a servant in the eye of the law. In the law the relation of master and servant does not necessarily include anything menial or degrading.

Now, the relation of master and servant being shown to exist, the law is quite clear that no person has a right to entice away another’s servant, or to prevent him from performing his duties as servant. The right of a master to have his servant continue in his employ without molestation or enticement by any third party is a property right, so recognized by the law, and well within the rule laid down by Yice-Chancellor Green in Barr v. Essex Trades Council, where he shows that the right of a man to carry on his business is a property right.

The law in New Jersey on that subject is found in the case of Noice v. Brown, 10 Vr. 569, which I happen to think of at this moment.

It is manifest that the object of the defendants, in doing- the acts which have been testified to here in the depositions, was to induce and prevent the operatives of the complainants from working for them. There can be no doubt about that. Counsel for defendants did not have the assurance to go so far as to say that their clients did not, by their actions so complained of, intend to prevent these operatives from working for the complainants. The whole object of the strike was to stop the works of the complainants and prevent anybody from working there unless they did it upon certain terms. The point made by the counsel for the defendants is that the means that they are employing to attain that object are lawful. And that is the only point I have to consider. Is it lawful at all for the defendants to use any means to prevent these girls from working for the complainants beyond mere persuasion to which the operatives may be willing to listen? And it is urged that the language found in the restraining order goes so far as to prevent them from getting the'ear of these operatives at all and using mere persuasion.' My answer to that is that if they have the right to do it at all, it must be with the consent of the operatives; it must not be forced upon them in an offensive manner, either at their homes or as they pass along the streets.

The operatives have the right, which their employers cannot complain of, to consider the question whether they desire to work for them any longer; and for that purpose they have, the right to listen to arguments on that subject. And if the defendants wish to use those arguments, with the consent of the operatives, or if they wish to induce the operatives to listen to their arguments, they must hire an auditorium, as other persons would who desire to influence public sentiment—publish their notices, and invite these young ladies to come and hear them. To that, I think, the complainants would have no right to object. 'I do not mean, however, to express the definite opinion that the defendants have the right to entice the employes of the complainants to quit their work. All I mean to say is this: Conceding that there be such a right, it cannot be exercised in such a manner as to infringe upon the private rights of the operatives, and thereby prevent them, against their real wishes, froni continuing to work for'the complainants.

Now, then, I think it is quite clear from what I have said that these defendants had no right to use the means which are forbidden by the restraining order now brought in question to prevent these operatives from continuing to work for the complainants, and that, in doing so, they are inflicting an injury upon the complainants, in respect to their private rights, precisely the same as they would if they broke, interfered with or clogged the engine that drove their machinery, and that for such injury the complainants are entitled to a legal remedy by action.

Now, this being so, the next question is, What right have the complainants here in this court asking for the restraining power of the court? Why, the answer to that is twofold. First, it is quite plain that the relief in damages to be recovered in an action at law is entirely inadequate. It is quite absurd to say that they can sue each of these persons and recover damages against them in separate suits for every little act which, in the aggregate, tends to result in injury. And, in the second place, the injury is continuing and irreparable, and not capable of admeasurement according to legal principles. So that, at law, the remedy is entirely inadequate. It is therefore a clear case for the interposition of a court of equity to exercise its preventive remedy; and that is the particular sphere, at this- day, of a court of equity, as contradistinguished from a court of law. It prevents injury. It does not give damages for injuries already sustained, but it prevents an injury from being inflicted.

Now, the application o'f the remedy in this case, I am quite aware, will be disagreeable, and it may be inefficient. Any judge would prefer to avoid dealing with a case of this kind—would naturally shrink from it; but that is no excuse for his refusing to administer the remedy; and no judge has a right, under his oath of office, to refuse to administer the law because its administration will be disagreeable to him.

Some of these persons charged with improper conduct, with breach of the restraining order, are females, and, above all things, I should like to avoid enforcing the compulsory process of the court against females; and I see here before me now a number of women that I suppose are here in answer to this order to show cause why they should not be adjudged guilty of contempt of the order of this court. I have explained what I think to be their rights, and the rights of the other females whom they are charged with disturbing and molesting on the streets; and I will be very glad to have them come to the conclusion that what I have said is the law of the land agrees with their own sense of justice, and will refrain from that kind of behavior from this time on.

For these reasons I refuse the motion to either vary or discharge the restraining order, and will deal with the case of actual breach of the restraining order upon the lines I have indicated.

Afterwards the vice-chancellor considered the affidavits and counter affidavits tending to show a breach of the restraining order, and also heard oral evidence, and found, as a matter of fact, that several of the defendants had been guilty of a breach of the restraining order, and adjudged them guilty of contempt therefor, fined several and sentenced two to imprisonment. From the decree so advised an appeal was taken to the court of errors and appeals, and dismissed by that court at the November Term, 1901; and afterwards a reargument was refused, as reported in 51 Ail. Rep. 771/..