author: The Chancellor.

text:
    Margaret A. Helme, George A. Helme and John W. Herbert, Jr., executors of the will of George W. Helme, deceased, v. Adeline H. Strater et al.
    1. Where a testator so clevises and bequeaths .the residue of his estate between his widow and children, as to evince an intention that they shall share equally therein, and the taking of dower by the widow in that residue will destroy the equality intended, the implication is that the portion given to the widow is given in lieu of her dower in all lands which constitute any part of the shares of the residue given to the children, and she will be put to her election between that provision of the will in her behalf and her dower right in lands entering into the shares of the residue given to the children.
    2. "While from the express direction in a will that the provisions for the testator’s widow are to be taken in lieu of her dower in lands mentioned in specified paragraphs of the will, implies that dower is to be taken in lands disposed of by other paragraphs than those enumerated, yet if it clearly appears that there is a mistake in enumerating the paragraphs intended, that implication will not prevail over the implication against dower which grows out of equality in disposition as already stated.
    3. In cases where the language used by parties to a contract is indefinite or ambiguous and hence of doubtful construction, the practical interpretation put upon the instrument by the parties themselves will frequently control the meaning which the court will accord to the agreement.
    4. "Where a testator bequeaths the residue of his property without specific description, or, in other words, indicating an intention that it shall be enjoyed in specie, first to a tenant for life and then to a remainderman, and thus manifests that the same fund shall be successively enjoyed by both, the necessary inference and established rule in equity are that it must be invested as a permanent fund so that the successive takers shall enjoy it in an equally productive capacity. But where it consists in whole or in part of property which is in its nature perishable, which for some reason cannot be converted into money or cannot be so converted without great sacrifice of both principal and interest, the tenant for life will not be entitled to the annual product which the property thus perishing is actually making, but to interest from the testator’s death on the value thereof estimated as of that time.
    5. Where the perishing property consists of fluctuating, and, perhaps, irregular dividends, payable for an uncertain period of time upon shares of stock which are diminishing in number at an irregular rate, its value to the testator’s estate at the time of his death, determined in advance of the time when it shall have perished, is to be had by ascertaining as each" dividend is received, a sum which, if received at the testator’s death, would, with interest and making annual rests, amount to that dividend at the time of its receipt. That sum will be principal to be invested. The difference between it and the dividend will be income. As the successive dividends come in, such differences, with the interest from the several sums similarly ascertained and invested, will go to the life tenants. The principal sums will go to the remainderman.
    On bill to construe will &c., answer and proofs.
    George W. Helme died on the 13th day of June, 1893, leaving him surviving his widow, Margaret A. Helme, and three children — Adeline H., the wife of Charles G. Strater; Olivia A., the wife of John "W. Herbert, Jr., and George A, Helme. Each of. these children has issue, who, with their parents, are parties to this suit.
    During his life, George W. Helme erected at Helmetta, in this state, a large plant as a manufactory of the products of tobacco, and therewith created and established an extensive and lucrative business. The plant became the property of a corporation named “The George W. Helme Company,” the capital of which was originally $300,000, but in 1889 was increased to $500,000, consisting of five thousand shares, which were owned by members of his family and employes of the company.
    Mr. Helme moved his residence to Helmetta, and induced his son and son-in-law, John W. Herbert, Jr., also to move there and assist him in the conduct of the business.
    On the 1st of October, 1889, he entered into an agreement with his son and Mr. Herbert, which is as follows:
    “This agreement, entered into this 1st day of October, a. d. 1889, between George W. Helme, of the first part, and George A. Helme, of the second part, and John ~W. Herbert, Jr., of the third part, all of the borough of Helmetta, jST. J.'
    “ Witnesseth, that the party of the first part is now the owner and holder of forty-seven hundred and fifty shares of the capital stock of the George “W. Helme Company, and hereby agrees to sell to George A. Helme, of the second part, the one-third thereof, and to John W. Herbert, Jr., the one-tliird part thereof, on the following terms:
    “On the 1st of January in each year, or at the making up of the annual statement of the earnings of the company, George A. Helme and said John W. Herbert, Jr., shall he entitled each to the one-third of the net earnings of the said company, less'the dividends on the stock held by other parties, which is to be first paid before any division of the net earnings is made.
    “ IVitnesseth, further, that whereas the said parties have entered into this mutual agreement and understanding, which shall be binding upon the heirs and executors of the party of the first part, in case of the demise of the said party before the said George A. Helme and John W. Herbert, Jr., shall each have acquired their respective one-tliird of the stock now held by the party of the first part.
    “ George A. Helme and John W. Herbert, Jr., shall each receive an annual salary of §4,000, to be charged to expense account on the books of the company as salaries for their respective undivided attention to the business of the company during the period required to acquire the said one-third interest as. hereinafter stated, said salaries to be drawn in monthly installments for their current family expenses. And on the 1st day of January in each year, or at the date of the annual ascertainment of the net earnings of the company, and. after tlie payment of the dividends on the current year’s business, one-third each shall be credited'to the accounts of the said George A. Helme and John W. Herbert; Jr., respectively, until they each have acquired the one-third of the stock now held by the party of the first part as aforesaid.
    “ The one share of the stock purchased and transferred to John W. Herbert, Jr., on the 20th day of September, 1889, shall constitute a portion of his third of the share he is entitled to acquire.
    “ Now, it is hereby mutually agreed and understood that George W. Helme, party of the first part, will, on the 1st day of January in each year, or at the date of ascertainment of the yearly net earnings of the company, after the payment of the current j’ear’s dividends of his stock, transfer to the said George A. Helme and John W. Herbert, Jr., as many shares of the capital stock of the George W. Helme Company as they each can pay for at $300 per share out of their annual earnings, which shall be appropriated to this purpose and to no other, until they each have acquired the one-third of the stock of said George W. Helme as aforesaid.
    “ George W. Helme is to continue as president, George A. Helme as vice-president, and John W. Herbert, Jr., as treasurer of the company.
    “ George A. Helme and John W. Herbert, Jr., will have an equal voice in the active management of the business of the company, but all important matters shall be referred to the president, who shall retain and have full control and general direction of the business interests of the company.
    “ It is hereby agreed and understood that neither party hereto shall dispose of any stock they may so acquire to any party other than to some member of the family, without first giving to an immediate member of the family an option to purchase said stock at the price per share offered for it by said outside party.
    “It is also understood that each party hereto shall build and occupy a dwelling at Helmetta, to suit his taste.
    “In witness whereof, we have hereunto set our hands and seals, the day and year first above written.
    “Gbobge W. Helme, [l. s.]
    “Geobge A. Helme, [l. s.]
    “ John W. Hebbebt, Je. [l. s.]
    “In presence of Isaac S. Davison.”
    Subsequently, on the 5th day of September, 1892, he made his last will, by which, among others, he made the following dispositions: By the fourth paragraph, he gave his wife a policy of insurance on his life, for $10,000. By the fifth paragraph, he divided between his three children the proceeds of two poli-, cies of life insurance aggregating in amount $20,000. By the ■sixth paragraph, he gave one hundred shares of the stock of the 'George W. Helme Company to the trustees under his will, in trust for his grandchildren. By the seventh paragraph, he gave five hundred and eighty-two and one-half shares of the same .stock to his wife for her life, providing that, at her death, it should be counted as part of the residue of his estate. By the eighth paragraph, lie devised to his wife, in fee, his homestead at Helmetta, with its furniture, carriages, horses &c. By the ninth paragraph, he gave four hundred shares of the same stock to his daughter Adeline for her life, with the remainder to her issue, and, in default of issue, to her nephews and nieces in the manner pointed out in the paragraph. By the tenth paragraph, he devised certain real estate to his daughter Olivia for her life, with the remainder over, as in case of the bequest of stock to his •daughter Adeline. By the eleventh paragraph, he gave five hundred shares of the stock of the George W. Helme Company to his son George for his life, with the remainder over as in case •of the bequest and devise, by the ninth and tenth paragraphs, to his daughters. By the twelfth paragraph, he gave and devised one-fourth of the rest, residue and remainder of his estate in fee to his wife. By the thirteenth paragraph, he disposed of the remaining three-fourths of the residue of his estate in this language:

      “Thirteenth. I give, devise and bequeath all the rest, residue and remainder •of my estate, both real and personal, of every name and description, and wherever situated, of which I may die seized, possessed of or in any manner -entitled to at the time of my decease, including all properties, securities or moneys hereinbefore given and devised, which may lapse, revert or fall into my residuary estate, to my trustees hereinafter named and -the survivors and •survivor of them, and their heirs, successors and assigns forever, upon trust nevertheless and for the uses and purposes and upon the trusts following, viz.: To receive the rents, issues and profits, dividends, interest and income of the said trust estate, and after deducting- all necessary and proper charges and ■ expenses, to apply the net income as the same shall from time to time accrue, but not by way of anticipation, as follows : To the use of my daughter, Adeline H. Strater, for life, one-third part thereof; to the use of my daughter, •Olivia A. Herbert, for life, one-third part thereof, and to the use of my son, •George A. Helme, for life, one-third part thereof; and upon the death of each •of my daughters, or of my son, leaving a child or children, or the issue of a deceased child or children, her or him surviving, to convey and pay over one-■third part of the said trust property and estate to such child or children of the ¡issue of a deceased child or children, or to such of them and in such estates, shares and proportions as my daughter or son so dying- shall by last will and testament direct, limit and appoint, and, in default of such appointment, then to such child or children and the issue of a deceased child or children equally per stirpes, and in case of the death of either of my daughters or son without leaving issue her or him surviving, then to convey and pay over the said one-third part to her or his nephews and nieces, and the issue of such of them as may be dead, in such shares, estate and properties as my daughter or son so dying shall by last will and testament direct, limit and appoint, and in default of such limitation and appointment, then to such nephews and nieces', and the issue of such as may be dead, equally per stirpes.

      “ In case either of my daughters or son shall die before me, leaving issue me surviving, the share herein devised in trust for the use of such daughter or, son, I give and devise to such issue, and if any of the children of such daughters or son shall be under age at the time of mj^decease, the share coming to each of such children shall be payable upon his or her arriving at that, age, and in case of his or her death under that age', his or her share shall go to his- or her issue, if any, and, if none, to his or her surviving brothers and sisters- and the issue of such as may be dead per stirpes, and in the meantime" my said trustees shall retain an.d continue to hold the shares of my daughter or son so-dying, or so much thereof as shall belong to children under age, and keep the same invested and accumulate the income for the benefit of such child or children, until they shall severally arrive at the age of twenty-one years or sooner die.
    “And in case either of my daughters or son shall die before me without leaving issue me surviving, the share herein devised in trust for her or him, shall remain in the trust estate for the benefit of my surviving children and-their issue, to be held in trust for them as aforesaid, and their shares shall be-increased and this will shall be read and construed accordingly.”
    The fourteenth paragraph is in this language:

      “Fourteenth. The provisions contained in this will, for the benefit of my wife, are intended to he in lieu and in bar of her right and claim of dower in the real estate mentioned and referred to in the ninth, tenth, eleventh and twelfth clauses of this will.”
    By the fifteenth paragraph, he appointed his wife, Margaret A. Helme, his son, George A. Helme, and his son-in-law, John W. Herbert, Jr., the trustees under the will, giving them powers and directions, and, among other things, instructed them in this language:

      “ much of my stock in ‘ The George W. Helme Company ’ as shall be required for the purpose, is to he held subject to the terms of the agreement in regard to the sale thereof by me to the said George A. Helme and John W. Herbert, Jr., dated the first day of October, 1889, and to be applied to the performance of that agreement.”
    He also empowered them to sell and lease his real estate and to retain his investments for such length of time as they may •deem proper. And by a later paragraph, he appointed the same three persons executors of his will, with the express proviso that the appointment of his son and son-in-law executors should not in any manner “ discharge, impair or affect ” their indebtedness to him or any. contract between him and them. By the twentieth paragraph, all former wills are revoked.
    It is disclosed by the proofs that in February, 1893, George ~W. Helme caused a statement of the net earnings of the George W. Helme Company to be prepared by the secretary thereof, from the 1st day of October, 1889, to the end of the year 1892, from which he subtracted the dividends which had been paid upon all shares of stock that did not' stand in his own name at the time the dividends were respectively declared, including in such amount dividends on shares which he had transferred to his son and Mr. Herbert, on account of the agreement of October 1st, 1889. Then he divided the remainder by three, in order to determine how much should be credited to his son and Mr. Herbert respectively, to ascertain the* basis for the transfer of stock under the agreement referred to, and then debited them with a sum ascertained by multiplying by $300 a number of shares of stock (made up of the shares he then transferred to them and theretofore had transferred to them on account) equal to the credit save in fractional differences, which were made up with cash. His son and Mr. Herbert agi’eed to this adjustment, and in accordance with it accepted the stock tendered to them.

      Mr. Charles L. Corbin, for the complainants.

      Mr. Charles TJ. Thompson, for Adeline H. Strater et ah

      Mr. William IT. Vredenburgh,' for John O. Herbert et ah, infant grandchildren of the testator.
   The Chancellor.

The complainants ask instruction upon these questions:

First. Whether Margaret A. Helme, the widow of George W. Helme, is entitled to dower in any part or parts of his estate,, and, if so, in what part or parts.

Second. Whether the agreement of October 1st, 1889, between-George W. Helme, George A. Helme and John W. Herbert,. Jr., shall be carried out by them, and, if so, by what calculation-the amount of net earnings, which is to furnish the basis for the distribution of stock, shall be ascertained.

'Third. Whether the dividends.upon that part of the stock of the George W. Helme Company which will remain in the hands' of the executors, subject to the operation of the agreement of October 1st, 1889, are to be wholly paid to the life tenants of the residue of the testator’s estate or some part of them accumulated for those who shall take in remainder.

I will deal with the questions in the order in which they have-been stated.

As to the first question. It is observed that, by the eighth paragraph of the will, the testator devised to his wife his homestead at Helmetta. If the will had made no reference to the-dower right of.the widow, it is clear that the statute {Rev. p. 822 § 16), in absence of dissent in the manner contemplated by it,, would bar the widow of her dower in the testator’s entire real estate.

But considered without regard to this statute, what is the legal status ? The scheme-of the will is to first make specific provision for the wife and three children of the testator. They are each to participate in his life insurance, and, except his daughter Olivia, in his stock in the George W. Helme Company. The daughter Olivia and the wife are to take independent gifts of real estate. Then the whole residue of the estate is to be disposed of. The wife is to take one-fourth of it in fee, and the three children the remaining three-fourths through a trust established for the benefit of them and their issue. There are-four principal objects of the testator’s bounty — his wife and his-three children — and it is conspicuous that, in the disposition of the residue of his estate, it was his intention that they should participate equally, at least in the usufruct of that residue. One-fourth was to go to the widow and one-third of the three remaining fourths to each child. It is inconsistent with and repugnant to that intention that the widow shall, in addition to her fourth, take dower also in the real estate which composes part of the remaining three-fourths. If she should take such dower the equality of the intended distribution would be destroyed. The law requires that, under such a will, the widow shall elect between its provisions for her and her dower right, the implication being that the provisions for her were intended to be made in lieu of dower. Griggs v. Veghte, 2 Dick. Ch. Rep. 179; Chambers v. Storil, 2 Ves. & B. 224; Dickson v. Robinson, 1 Jac. 503; Roberts v. Smith, 1 Sm. & S. 513; Goodfellow v. Goodfellow, 18 Beav. 356; Reynolds v. Torin, 1 Russ. 129; Adsit v. Adsit, 2 Johns. Ch. 448; Stark v. Hunton, Sax. 216; 4 Kent Com. 56; White v. White, 1 Harr. 202; Smith v. Kniskern, 4 Johns. Ch. 9; Sanford v. Jackson, 10 Paige 266; Colgate v. Colgate, 8 C. E. Gr. 372; Stewart v. Stewart, 4 Stew. Eq. 398; Endicott v. Endicott, 14 Stew. Eq. 93; Brokaw v. Brokaw, 14 Stew. Eq. 308.

But we find, in the fourteenth paragraph of the present will, the testator’s express declaration that his provisions for his wife are intended to be in lieu and bar of dower in certain real estate, to wit, that which is mentioned in the ninth, tenth, eleventh and twelfth paragraphs of the will, and, under the maxim expressio unius est exclusio alterius, it is insisted that the implication is that she is to take dower in real estate disposed of by all other paragraphs. When those paragraphs are examined, it is perceived that the ninth refers exclusively to stock of the George W. Helme Company bequeathed to the testator’s daughter Adeline, the tenth to real estate devised to his daughter Olivia, the eleventh to stock in the George W. Helme Company given to his son, and the twelfth to the fourth of the residue of his estate which is given and devised to his widow. In two of the paragraphs, no real estate is mentioned, and in one of the remaining paragraphs the fee in the real estate is given to the widow. Obviously there is a mistake in this enumeration of paragraphs. The only paragraphs of the will which dispose of real estate are the eighth, tenth, twelfth and thirteenth, and two of those — the eighth and twelfth — devise to the widow in fee. How the mistake arose, whether by transcription from a former will or otherwise, is not apparent. A provision for the revocation of former wills exhibits that such documents existed, and thus, to that extent, lends credence to the conjecture that the error was one of transcription.

Concluding that-there is an error in the fourteenth paragraph, so far as the designation of the real estate in which the widow is not to take dower is concerned, we are left, by that paragraph,' in this condition : we know that the widow was to be excluded from some of her dower, but, by implication, not from all of it, and we know nothing more. In this situation we turn to the testator’s scheme of equality, between his widow and children, in the disposition of the residue of his estate and to the implication which arises therefrom, that the widow shall not have dower in the real estate which, under that disposition, is to go to the children — that is, the real estate disposed of by the thirteenth paragraph of the will. That implication remains in full force, and is not overridden by the indefinite and uncertain implication which arises from the erroneous fourteenth paragraph. It induces the conclusion, upon the whole will, that the testator’s intention was that his widow shall not take dower in the lands disposed of by the thirteenth paragraph.

It is not necessary, in the instructions of the complainants, that I shall consider or determine more than that the widow does not take dower in the lands disposed of by the thirteenth paragraph. They have no duties to perform which concern any other lands than those contemplated in that section, and their right to ask instruction is limited by their necessity in the performance of their trust. Dill v. Wissner, 88 N. Y. 153, 160.

As to the second question. By its fifteenth paragraph, the will requires that the complainants shall hold the testator’s stock in the George W. Helme Company to enable them to perform the agreement of October 1st, 1889, between the testator and his son and Mr. Herbert, and apply it in that performance. "Whether or not the agreement was legally obligatory upon the testator, is not the question. This provision is of his bounty, if the agreement be not legally binding upon him.

The agreement was evidently the outgrowth of a desire of the testator to interest and engage his son and son-in-law in the business he had built up, so that that business might be maintained in his family as a source of perpetual profit. He had put the business in control of a corporation. He held nineteen-twentieths of the capital stock of that corporation and the remaining twentieth was owned by his family and employes. -He looked upon the company as his creature and his property. He conceived the plan that ultimately he, his son and Mr. Herbert should each own one-third of his nineteen-twentieths of the stock, and that they should all actively participate in the management of the business of the company. It was not his purpose that the young men should at once acquire the interest he intended to give them, because in that event they would not appreciate its value so fully as they would if the acquisition should be gradual and in a manner which would induce them, for a considerable time, to earnestly and vigorously exert themselves for the success of the business. He trusted that during a prolonged exertion they would acquire interest, habits and capacity that would guarantee the perpetuation of the business for the benefit of himself in his old age and his estate after his death. With this apparent purpose in view, he agreed with them that they should give their undivided attention to the business of the company until they should each acquire a one-third interest in his four thousand seven hundred and fifty shares of stock. During that time they were each to receive from the company a salary of $4,000 a year, one as vice-president and the other as treasurer. He and they were each to build and occupy a dwelling at Helmetta, where the factory was and where their attention would not be distracted from the business. At the making up of each annual statement of the earnings of the company, one-third of the net earnings, less the dividends on the stock held by other parties,” was to be credited to each of the young men in an account created between the parties to the agreement for the purposes of their contract, and then, after the current year’s dividends on the testator’s stock should be paid, the testator was to transfer to them respectively as many shares of stock as the earnings credited to them respectively would absorb at $300 per share. Each party was to have an equal voice in the management of the business, but all important matters were to be referred to the father, who was “ to retain full control and general direction of the business interests of the company.”

The agreement is crude and inaccurate in its expressions, yet,. except in a single obscurity, it may be readily understood. That obscurity is as to the credit which is to be the basis for the transfers of stock. That credit is to be ascertained by taking the net earnings and deducting therefrom the dividends on the “ stock held by other parties.” This expression, “stock held by other parties,” occurs in the first recital of the agreement, which is intended to define how the credit is to be made up. The recital is, that George W. Helme owns four thousand seven hundred and fifty shares of stock, two-thirds of which he agrees to sell to his son and son-in-law, on the terms that they shall be entitled to one-third of the net earnings of the company, “ less the dividends on the stock held by other parties,” which shall go to purchase the two-thirds of the stock at the rate of $300 per share. What does the testator mean by “other parties?” Other parties than whom ? Other than the parties to the agreement ? Other than the son and son-in-law ? Other than George W. Helme ? The recital speaks for George W. Helme. It lays down his rule for the ascertainment of the earnings in which he is interesting the younger men. Those earnings are the earnings of his stock. His four thousand seven hundred and fifty shares do not constitute the whole stock of the' company, and its earnings or profits must be less than the profits of the whole capital stock by the proportion which the shares held by others than he bear to the whole capital stock. He assumes that the dividends will consume the earnings, .and, to ascertain the profits of his stock, he deducts from the whole net earnings of the company the dividends upon that part of the stock which he does not own. Thus, the credit he designed appears to be only the earnings of his own stock, and it follows that, as he transfers his stock to the young men, that which is transferred is to be thereafter considered as belonging to “ other parties ” and the dividends declared upon it deducted from the credit. And I understand the further'intent to be that' those dividends, at least so far as this ascertainment credit is concerned, shall be based upon the entire net earnings of the company.

This is hardly the grammatical construction of the sentence in which the enigmatical words occur, but it is not only what I conceive to be the underlying intent, but is also the practical construction which the parties to the agreement put upon it in. their settlement in February, 1893. In Chicago v. Sheldon, 9 Wall. 50, Mr. Justice Nelson stated, as a rule of construction of a contract, that “ in cases where the language used by the parties to the contract is indefinite or ambiguous, and hence of doubtful construction, the practical interpretation by the parties themselves is entitled to great, if not controlling, influence. The interest of each generally leads him to a construction most favorable to himself, and when the difference has become serious and beyond amicable adjustment, it can be settled only by the arbitrament of law. But in an executory contract and where its execution necessarily involves a practical construction, if the minds of both parties concur there can be no great danger in the adoption of it by the court as the true one.” See, also, Topliff v. Topliff, 122 U. S. 121; District of Columbia v. Gallaher, 124 U. S. 505; Nearpass v. Newman, 106 N. Y. 47, 55; 1 Greenl. Ev. 293.

This rule has been frequently applied in this state where the description in grants of land are ambiguous or uncertain. Jackson v. Perrine, 6 Vr. 137; Den v. Van Houten, 2 Zab. 61; Opdyke v. Stephens, 4 Dutch. Southmayd v. McLaughlin, 9 C. E. Gr. 181; Baldwin v. Shannon, 14 Vr. 597; Camden and Atlantic Land Co. v. Lippincott, 16 Vr. 405.

Another consideration which should incline the court to act upon this practical construction, is the fact that the agreement is really the promise of a bounty from Mr. Helme crudely expressed, which should have the interpretation he put upon it and in which his son and son-in-law justly acquiesced.

The complainants will be instructed that the annual credit to George A. Helme and John W. Herbert, Jr., shall be ascertained by deducting from the net earnings of the company the dividends paid upon all stock not standing in the name of George W. Helme, or in the names of the executors of his will, or in the names of the legatees of the one-third of the stock which he bequeathed, their executors, administrators or assigns. Taking such credit as a basis for the distribution of the stock each year, they will transfer to George A. Helme and John W. Herbert, Jr., as many shares as the credit represents at $300 a sharé, first collecting the dividend of the stock transferred; provided, however, Messrs. George A. Helme and Herbert shall have devoted their whole attention to the business of the company during the year. This annual 'distribution shall continue until two-thirds of the four thousand seven hundred and fifty shares shall have been so transferred.

As to the third question. It is claimed, in behalf of the infant grandchildren of George W. Helme, that provision should be made to secure them benefit from the stock which is ultimately to be transferred under the agreement of October 1st, 1889. That stock, as has been seen, is to be held by the executors and applied to the performance of the agreement. Until the agreement is performed it remains the property of the testator and constitutes part of his residuary estate, three-fourths of which is ultimately to go to the grandchildren. It will gradually vanish from the residue as the agreement is being executed. The children of Mr. Helme are entitled to the income of three-fourths of the residue during their lives. Their lives may continue during the entire execution of the agreement and until the shares • in question shall be fully transferred and the income to the residue therefrom shall cease. In behalf of the infants, it is insisted that it is inequitable and unfair, in view of the fact that the testator evinces an intention that the whole of the residue of his estate shall be successively enjoyed by life tenants and remainderman, that the whole income of this vanishing asset shall go to the tenants for life.

Where a testator bequeaths the residue of his property without specific description, or, in other words, indicating an intention that it shall be enjoyed in specie, first to a tenant for life and then to a remainderman, and thus manifests that the same fund shall be successively enjoyed by both,' the necessary inference and established rule in equity are, that it must be invested as a permanent fund so that the successive takers shall enjoy it. in an equally productive capacity. But where it consists in whole or in part of property which is in its nature perishable, which for some reason cannot be converted into money or cannot be so -converted without great sacrifice of both principal and interest, the tenant for life will not be entitled to the annual product which the property thus perishing is actually making, but to interest from the testator’s death on the value thereof estimated as of that time. Howe v. Earl of Dartmouth, 7 Ves. 137; Gibson v. Bott, 7 Ves. 89; Fearns v. Young, 9 Ves. 549;. Meyer v. Simonsen, 5 De G. & S. 723; 21 L. J. Ch. 678; Brown v. Gellatly, L. R. 2 Ch. App. 751; Kinmonth v. Brigham, 5 Allen 270; Minot v. Thompson, 106 Mass. 583; Westcott v. Nickerson, 120 Mass. 410; Spear v. Tinkham, 2 Barb. Ch. 211; Healey v. Toppan, 45 N H. 243; 2 Wms. Ex. 1393; 2 White & T. Lead. Cas. 676 et seq. See, also, Howard v. Executors of Howard, 1 C. E. Gr. 486; Hull v. Eddy, 2 Gr. 169, 176; Ackerman’s Administrator v. Vreeland’s Executor, 1 McCart. 23, 27. The reason of this rule is the just consideration that the testator has the interest of the successive takers equally in view and intends that there shall be equality in their respective enjoyments.

I think that the rule is applicable to this case. The stock in question cannot be sold, for the testator expressly directs that it shall be held to answer a designated purpose, which, in all probability, will consume it within a few years. While it remains in the residue it will yield large dividends. It is, therefore, a valuable and at the same time a perishable' asset. The testator does not manifest an intention that it shall be enjoyed, in specie. It is not to be held for that purpose. It is swept into the residue by this general language, “the residue and remainder of my estate, both real and personal, of every name and description,” and no specific reference is made to its enjoyment while it is in the residue. The trustees are to collect the “ rents, issues, profits, dividends, interest and income of said trust fund ” and apply it to the life tenants’ use. Here words are used which are applicable to income from investments of every character which may enter into the aggregate mass with which the testator deals — that is, “ said trust fund.” They are not meant to prescribe the holding of the securities as the executors find them — in specie. They are to be taken together, as intended to give authority broad enough to enable the trustees to collect all income. That holding in specie for the benefit of the successive takers was not intended is manifested in the power given to the executors to hold or change the investments at discretion. As I have already said, the stock in question is not to be held for enjoyment in specie, but for another purpose. It is true that the wearing out of the value of the stock is contingent upon performance of the agreement by the son and son-in-law, but that contingency should not interfere with the application •of the rule. If the contingency should happen that they do not perform, any accumulation of surplus dividends in the hands -of the trustees will constitute a fund to enable the court to afford the life tenants their legal and equitable rights.

The value of the testator’s interest in the stock in question is not $300 for each share. ' His agreement with his son and son-in-law does not contemplate that he will receive that sum. That price is merely used as a factor in a mathematical calculation which is to control the distribution of the stock in question if the son and son-in-law perform the contract upon their part.

The value of the testator’s interest must be ascertained by reference to the probable value of the dividends in future upon the several shares of stock in question, until they shall be transferred.

It is, I think, impossible to define a rule which will accurately •determine the value of the stock in question to the testator’s estate at his death. It is uncertain what dividends will be paid upon it iu the future and how long any part of the stock will remain in the estate. Both these uncertainties are created by the fluctuations of the business of the company. Among the cases I have examined I have not found one presenting precisely this situation. Those which I have cited, which in other particulars are similar to this, were presented to the courts after the entire profits of the wearing-out asset had been realized by the trustees. In those cases the direction was to ascertain a sum which, 'if received at the testator’s death, would, with interest and’ making annual rests, amount to the sum actually received at the time it was received. That sum was to be invested as principal and the remainder of the sum actually received was distributed as income. In the present c&se but a single year’s profit has been received. What will be received in the future is unknown. It is out of the question to predicate the receipts of future years upon the receipts of the past year. They may be more or may be less. It will not do to wait until the entire profit shall have been realized, for such a delay would be a hardship to the life tenants. I therefore think it is proper that the rule stated should be applied to each dividend as it is received. The sum going to principal will be invested and the income from such” investment will go annually, together with the distributions from the several dividends, calculated according ■ to the rule, to the life tenants.


source: Caselaw Access Project

license: Public Domain

text:
    In the matter of George Mather’s Sons’ Company.
    1. Where a receiver has been appointed for an insolvent corporation and has taken possession of its assets and exercises its franchises, he is a necessary party to a petition by the state for an injunction to restrain the further exercise of any franchise or transaction,'of any business of the company by him, because of the corporation’s non-payment of the state franchise tax.
    2. Where an insolvent corporation is of a public character, its property and work being dependent upon the franchise and the public being interested in the continuance of its work, its receiver must pay the state’s franchise' tax until the franchise of the corporation shall be sold.

      3. Where an insolvent corporation is of a mere private character and it is not the duty of the receiver to preserve the franchise, and he does not, in fact, exercise the franchise, he will not be obliged to pay any other franchise tax than that which was due at the time of his appointment, unless he shall realize from the assets of the company more than sufficient to pay its debts and the expenses of the receivership, and then, before distributing to stockholders, he will pay any franchise tax that may have been assessed subsequent to his appointment.
    4. If a receiver of a private insolvent corporation shall continue its business, using its franchise, he shall pay the franchise .tax assessed while he continues the business, using the franchise.
    On petitions by receiver and attorney-general.
    On the 4th of April, 1894, the George Mather’s Sons’ Company was decreed to be insolvent and a receiver wag appointed, under the seventy-second section of the Corporation act, to take its assets, sell the same, pay into this court the moneys arising from such sales or otherwise had, in order that the same might from time to time be disposed of among the creditors of the company after the payment of the expenses of the receivership and .the costs of the suit in which he was appointed. Upon such appointment the insolvent company was enjoined from collecting or disposing of its assets and from exercising its franchises. Subsequently, it being made to appear to the chancellor that the business of the company might be continued by the receiver with profit to his trust, enhancement of the value of the assets which had come to his hands and probable advantage to the insolvent corporation, he was authorized to continue it.
    The attorney-general has given notice to' the receiver that he will apply for an injunction to restrain the insolvent corporation from all further exercise of any franchise and transaction of any business in this state, because of its non-payment of the state franchise tax of one-tenth of one per cent, imposed for the year 1893, in virtue of the act of Aprjl 18th, 1884, and its supplements. Rev. Sup. 1017; P. L. of 1891 p. 150; 1892 p. 186.

    The receiver denies that such an injunction, if granted, will affect him in the conduct of the business of the company, and at the same time urges that, as this court has already enjoined the corporation from exercising its franchises and transacting its business, and as such injunction is obeyed by the said insolvent corporation, the additional injunction, which the attorney-general now seeks, will be useless, and therefore, by his petition, he asks that it be denied. He does not ask to intervene as a party to the proceeding in which the injunction is desired, fearing that upon such intervention he may be bound by the injunction if issued. The attorney-general does not ask to make the receiver a party to his petition, but presses his application for the injunction against the insolvent company.

      Mr. Chawneey O. Parker, for the receiver.

      Mr. William Y. Johnson, for the state.
   The Chancellor.

The receiver should be made a party to the state’s petition for injunction. The entire assets of the company are in his hands, and he alone is continuing the business of the company. He acts as the representative of the creditors and stockholders of the company, for the purpose of securing to them respectively their debts and the repayment of their capital out of the assets. His position is independent of the corporate entity, so that he cannot, in any sense, be regarded as its agent, and, as such, be bound, in his proceedings, by an injunction issued against the company alone. In order to stay his prosecution of the business, the proper practice is to make him a party to the state’s petition for injunction, first obtaining permission for that purpose from the court whose officer he is. Vanderbilt v. Central Railroad Co., 16 Stew. Eq. 669.

A receiver does not necessarily in every case deal with the corporate entity or its franchise. His duty may be confined entirely to the administration of assets which exist at the time of his appointment. Our Corporation act contemplates two classes of insolvent’ corporations — (1) those of a public character, such as a canal, railroad or turnpike corporation, whose property and work are dependent upon the franchise and in whose continuance the public is interested, and (2) those which are mere private. enterprises, incorporated merely to seeure the franchise which enables the prosecution of a lawful business, and at the same time protects against individual liability and serves convenience in adjusting changes in the ownership of the capital invested. In the former class, the franchise is taken by the receiver, kept alive by performance of corporate duties and ultimately sold. In the latter class, it may be, and, after insolvency, generally is, valueless, and no duty necessarily devolves upon the receiver to care for it. In the latter case, the receiver simply takes the assets of the corporation into his possession, protects them, discreetly reduces them to money and distributes that money as the court directs, first to the creditors, until their claims are satisfied, and then to the stockholders. Vanderbilt v. Central Railroad Co., 16 Stew. Eq. 669, 682.

It follows, as to the first of these classes, from the receiver’s duty to preserve the franchise, that he must pay the franchise tax from year to year until the franchise passes from him. But in the second class, he will pay only that franchise tax which becomes a debt of the corporation prior to his appointment (Rev. Sup. p. 1017 § 6), unless he shall, for any purpose in pursuance of the execution of his trust, exercise the franchise of the company, and then he will pay as long as he shall use the franchise. He cannot sell that franchise, nor will he in any way terminate the entity of the corporation. That entity remains after he takes the assets, until terminated by other power than the receiver, as does the bankrupt man after his property is taken by his assignee, to build up for itself, if that be possible, other assets. At the insolvency the then existing assets are severed from it and appropriated for the payment of the debts of existing creditors fastened upon it (Graham Button Co. v. Spielman, 6 Dick. Ch. Rep. 124), and are not held to answer obligations that may thereafter be incurred by the continuing entity from which they have been severed. I should add, however, that if, after the creditors of such an insolvent corporation have been paid in full, there remains some money to distribute to stockholders, the receiver should pay all franchise taxes assessed after his appointment, before he makes any distribution to stockholders, because it is the capital of the corporation that he then holds, which is pledged to satisfy all obligations of the corporation before it is free to be returned to the shareholders.

What is to be considered an exercise of the franchise of an insolvent corporation by a receiver may vary with the circumstances in each case. Where the ordinary and usual business of the corporation is continued, as in the present instance, at a profit, in the name of the company, by the receiver, in the hope that the financial difficulties may be adjusted and the assets may be restored to the company, there can be little hesitation in concluding that it is the duty of the receiver to pay the tax while he continues the business.

The tax now considered is for the year 1893, and was due when the receiver took possession of the assets. By law it is •entitled to preference in payment. Rev. Sup. p. 1017 § 6. The receiver is abundantly able to pay that tax at once, and he will be directed to do so. He will also pay the costs of the attorney-general’s petition. If necessity therefor should arise, the court will permit the petition to be amended by making the receiver a party to it.


text:
    Truman M. Dodson and Charles M. Dodson, surviving partners of Weston Dodson & Company, v. James Sevars and George Price, surviving executors of the will of James Taylor, deceased; John Sevars, individually and as administrator of the estate of Ella F. Davis; Mary E. Sevars, Sarah M. Price, William F. T. Lawton, Mary A. T. Lawton, Ella F. T. Lawton and Thomas T. Lawton, legatees under the will of James Taylor, deceased.
    1. A creditor of a decedent whose claim was not in due time presented to ~the executors, and who is bound by a decree of the orphans court, in pursuance of the statute (Rev. p. 764 § 6S), may nevertheless maintain an action against the executors for payment of a ratable portion of his debt from any legacy or legacies which shall not have been paid over by the executors or have been attached in their hands.
    2. Such a creditor may go into equity for discovery of such assets in the hands of the executors, and, when there, will be permitted to establish the validity of his claim and have it satisfied so far as the assets discovered may lawfully be resorted to.
    3. When an executor delivers a specific legacy, bequeathed to one for life and to another absolutely after the life estate, to the life tenant, taking a proper receipt or inventory for the taker in remainder, he is discharged from any further duty or liability with reference to the legacy.
    4. Where there is an absolute gift of property for an indefinite time, with unlimited power of alienation, a gift over of that which remains undisposed of at the death of the person to whom the property is given, is void.
    On demurrers to bill.
    The bill alleges that the estate of James Taylor is indebted to the complainants in the sum of $12,749.56, the indebtedness arising from eight promissory notes made by one Isaac Davis to the order of James Taylor, and endorsed by Taylor and transferred to the complainants for value prior to the maturity of the-notes; that James Taylor died at,Trenton on August 17th, 1887, before any of the notes became due; that when the notes became due they were protested for non-payment, and notice of the protest of each was sent to “James Taylor” at his late residence, although he was dead and six of the notes became due and were protested after his will was proved and letters testamentary had issued to Isaac Davis, James Sevars and George Price, the executors thereof; that by such will Mr. Taylor bequeathed his personal property contained in his residence, except money and vouchers and securities for money, together with the income from his interest in the Trenton Flint and Spar Company, to his wife, Mary A. Taylor, for life, and after her death to Ella F. Davis. The residue of his personal estate he gave to his widow absolutely, providing that if she should leave any of it undisposed of at her death his executors were to sell such remnant, together with specified real estate, situate on the corner of Taylor and Mercer streets, in Trenton, and divide the proceeds equally between Ella F. Davis, Sarah M. Price, Mary E•Sevars and the children of Joseph Lawton, to wit, 'William F. Lawton, Mary A. T. Lawton, Ella F. T. Lawton and Thomas T. Lawton; that said will was admitted to probate October 31st, 1887; and on the same date an order to limit the time within which creditors were to present their claims to the executors was made ; that on the 13th of August, 1888, the orphans court of Mercer county made its decree barring creditors who had not presented their claims; that on the 30th of July, 1888, an inventory of the estate was filed, exhibiting its value to be $63,681.50; that on the 28th of September, 1888, the executors filed an account, final so far as the indebtedness of the estate presented to them was concerned, in which they charged themselves $64,544, and asked allowance for $3,144.40 disbursements, exhibiting a balance of $61,391.60 in their hands; that such account was allowed by decree of the orphans court on October 22d, 1888; that Isaac Davis, one of the executors, died on the 27th of August, 1891; that Ella F. Davis died intestate, without husband or children — her father, John Sevars, being her next of kin — on the 25th of April, 1892; that Mary A. Taylor died on the 2d of May, 1892; that the executors paid to Mary A. Taylor “ the property or some part thereof” which was bequeathed to her for life, and. also “ the personal property or some part thereof” which was bequeathed to her absolutely, and failed to take from her a refunding bond; that Mary A. Taylor, at her death, left a large amount of that part of the estate which was left to her absolutely undisposed of; that on the 18th of May, 1892, nearly four years after the decree barring creditors, the ■complainants presented their claim to James Sevars and George Price, the surviving executors; that on the 7th day of May, 1892, John Sevars, the father of Ella F. Davis, was duly granted letters of administration of the estate of Ella F. Davis; that the •executors of the will of James Taylor have not taken possession of that part of Mr. Taylor’s estate which was left to his wife ■ absolutely and was undisposed of by her during her life, and such part of the estate is being wasted; that the property left to Mary A. Taylor for life consisted of the household furniture of James Taylor; that John Sevars has taken possession of'it as administrator of the estate of Ella F. Davis and is using it; that the executors of James Taylor’s will, intending to cheat and defraud the complainants and to neglect and violate their duty, permit John Sevars to take and use that property; that James. Sevars, George Price and John Sevars are pecuniarily irresponsible ; that the complainants fear that John Sevars will sell the furniture or destroy or damage it, and that the executors of James Taylor will lose or waste the estate; that no legacies except that to Mary A. Taylor have been paid and no refunding bonds have been taken.
    Upon these allegations of fact the complainants pray:

      First. That James Sevars and George Price, surviving executors, may be restrained by injunction, (1) from disposing of assets of the estate of James Taylor, and (2) from exercising the duties of their office.

      Second. That John Sevars may be restrained from using in his household and from selling or disposing of the property mentioned as being in his hands and belonging to the estate of James Taylor.

      Third. That John Sevars may account for the value of said property in his hands which belongs to the estate of James Taylor, and the depreciation in value of it by his use.

      Fourth. That he may be decreed to deliver it up.

      Fifth. That an account of the transactions and dealings of the executors with respect to the assets of the estate may be taken, in which the executors shall be charged, because of their neglect to take a refunding bond, with the value of the property given to Mary A. Taylor absolutely and for life.

      Sixth. That the land on the corner of Taylor and Mercer streets, in the city of Trenton, be sold under the direction of this court, and that the proceeds of sale be applied to pay the-complainants’ claim.

      Seventh. That the surviving executors may be removed from, office.

      Fhghth. That a receiver may be appointed to take possession, of the assets of the estate of James Taylor, deceased.

      Ninth. That the complainants’ claim may be declared to be a charge on the assets of that estate.

      Tenth. That the complainants may be paid from those assets.

      Eleventh. That the defendants, or some of them, may be compelled to pay the complainants’ debt.

      Twelfth. That the complainants may have further relief if equitable.
    The surviving executors, John Sevars, individually and as administrator of Ella E. Davis, Mary E. Sevars, Sarah M. Price, William E. T. Lawton, Mary A. T. Lawton, Ella E. T. Lawton 'and Thomas T. Lawton, legatees, aré made the defendants.
    To the bill, John Sevars, in his own right and as administrator of Ella F. Davis, by his demurrer, and James Sevars and George Price, surviving executors of the will of James Taylor, deceased, by their joint demurrer, and Mary E. Sevars, Sarah M. Price and William F. T. Lawton, legatees, by their joint demurrer, demur upon two general grounds — -first,- want of equity, and second, because the bill is multifarious.
    For the remaining defendants, who are infants, the clerk of the court, as their guardian • ad litem, has filed a formal answer.

      Mr. William M. Tanning, for John Sevars, demurrant.

      Mr. G. E. W. Vroom, for James Sevars and George Price, surviving executors &c., Mary E. Sevars, Sarah M. Price and William F. T. Lawton, legatees, demurrants.

      Mr. John H. Baches, for the complainants.
   The Chancellor.

The object of the complainants’ bill is to secure payment of their claim by charging it, as far as may be, upon the assets of the estate of James Taylor which remain in the hands of the executors or are within their reach.

The executors have obtained a decree from the orphans court which bars the demands of creditors against them, and are protected by that decree from the complainants’ recovery in this action, except as to legacies in their hands which have not been paid over. Rev. p'p. 76Jh 765 §§ 6%, 66. Their failure to filer refunding bonds is presumptive evidence that the assets have not been paid by them to legatees. Rev. p. 765 § 68.

The bill alleges that no refunding bond has been filed, and the ■complainants rely upon the presumption which arises from that fact to charge the executors with having the entire estate yet in hand.

On the part of the executor’s it is urged that the bill admits, to some extent, that, the' estate has been paid over to legatees. But the difficulty in this contention is that it does not appear what that partial extent is. The admission of payment over is indefinite. -The allegations are that the property which was bequeathed to Mrs. Taylor for life, or some part of it,” and also that which was bequeathed to her absolutely, “ or some part thereof,” was paid over to her, and further, that she left a large amount of the property which was bequeathed to her absolutely undisposed of at her death, the exact amount being unknown to the complainants, which the executors of James Taylor have negligently failed to collect and take into their custody, and also that the property which was bequeathed to Mrs. Taylor for life, with remainder over to Ella F. Davis, consisted of the household furniture in her husband’s residence which she used during her life, and that the executors have neglected to take that property into their custody, but, on the contrary, have suffered- John Sevars, the father of Ella F. Davis and administrator of her estate, to take it into his possession. Thus the bill impliedly admits the paying over, the implication being that all the estate went to Mrs. Taylor except possibly some portion of that which was bequeathed to her- absolutely and the real estate on the corner of Taylor and Mercer streets, which, at her death, was to be sold by the executors. But the allegation from which the admission is had is indirect, uncertain and inquisitive in character, and until the discovery of particulars be had through the defendants’ answers, it should not be allowed to defeat or injuriously affect the complainants’ suit, and besides it does not go to a complete payment over, and therefore that which is not admitted to have been paid over is subject to the presumption stated.

A more serious defect, I think, is in the bill’s assumption that the executors of James Taylor are bound in duty to recover possession of the property bequeathed both for life and absolutely to Mrs. Taylor and paid over to her, for the purpose of distributing it to the estate of Ella F. Davis and Sarah M. Price and others, referred to in the will,’ respectively, or for any other purpose.

Having delivered over the life legacy, in due course, taking a proper receipt or inventory to the remainderman, as must be presumed, no suggestion being made to the contrary, the executors were discharged from any further duty or liability with reference to it. Thereafter it became the care of the person who was to take in remainder to see that the corpus thus delivered was not consumed or wasted. 1 Rop. Leg. 316; Lynde v. Estabrook, 7 Allen 68, 72; Hunter v. Green, 22 Ala. 329; Weeks v. Jewett, 45 N. H. 540; Executors of Howe v. White, 1 C. E. Gr. 411, 416. They might have required security for the benefit of the remainderman, but were not required to do so. Rev. p. 582 § 8; In re Ryerson, 11 C. E. Gr. 43.

The bill stated that the remaining personalty was bequeathed absolutely to Mrs. Taylor, with -the proviso added that if she should die intestate, leaving any part of it undisposed of, then the executors were to convert it into money and distribute it.

This statement of the will shows an absolute gift, for an indefinite time, with unlimited power of alienation. Such a gift is construed to carry to its recipient absolute ownership, and a gift of that which remains undisposed of, over, is held to be void. McClellan v. Larchar, 18 Stew. Eq. 17; Rodenfels v. Schuman, 18 Stew. Eq. 383; Wilson v. Wilson, 1 Dick. Ch. Rep. 324.

Thus, a large portion of the estate appears, by the bill, to be without the possession or reach of the executors.

Yet the bill shows that some part of the estate has not been delivered to Mrs. Taylor, and it seeks the discovery of and accounting for that part as well as for the other. It also seeks to subject real estate, which the will orders now to be converted into money by the executors and distributed to legatees, to the payment of its proper proportion of the complainants’ claim. It alleges that the executors of James Taylor are insolvent and intent on preventing recovery by the complainants, and it consequently seeks to restrain their disposition of the estate, and to have it reduced to moneys through the instrumentality of this court and applied to the payment of the complainants’ claim. I regard it to be fully established that such a suit is within the jurisdiction of this court, even though the complainants’ claim may not be established at law. 1 Story Eq. Jur. § 546; Frey v. Demarest, 1 C. E. Gr. 236, 239; Kennedy v. Cresswell, 101 U. S. 641; 2 Wms. Ex. 1718, 1719; Thompson v. Brown, 4, Johns. Ch. 619, 631.

It is observed that the defendants are the surviving executors of James Taylor — John Sevars individually and as administrator of the estate of Ella F. Davis, Sarah M. Price, Mary E. Sevars and the children of Joseph Lawton.

The surviving executors of James Taylor are made parties so that an account may be had of their dealings with the assets oi their testator’s estate, the assets with which they are chargeable may be had from them, they may be restrained from further acting as executors and may be removed from office. Sarah M. Price, Mary E. Sevars, the children of Joseph Lawtony and John Sevars, as administrator of the estate of Ella F. Davis, are made parties because they are each entitled to some share in the proceeds of the real estate, to be converted into cash, which is sought to be charged with a proportional payment of the complainants’ claim, and are concerned that the executors shall be fully charged for assets which came to their hands, or should have been collected and shall not be unduly credited, for, as the balance which was available for legacies may be increased,’ the proportional charge in this suit against the legacies that have not been paid over will be decreased. John Sevars, individually and also as administrator, is further made a party because he is alleged to have in his possession part of the assets which were paid over to Mrs.. Taylor. It is thus perceived that all the defendants, except John Sevars individually, are interested in the proposed accounting of the executors and the proposed disposition by this court of the assets not paid, in the place of the executors, and it follows that they are also interested in the incidental restraint of action by the executors, the removal of the executors from office, if that be possible by this court (Leddel’s Executor v. Starr, 4 C. E. Gr. 159), and the appointment of a receiver of the assets. All the defendants are interested in the prayer that they or some of them may be compelled to pay the complainants’ claim. But John Sevars individually is not interested or concerned either in the proposed accounting of the surviving executors, or in the court’s assumption of their duties and the incidental restraint of their action, or in the removal of the executors, or in the appointment of a receiver of the assets of the estate. He is interested only in the accounting which is sought to be had from him for the property which he had from Mrs. Taylor, which, as has been seen, was paid over to her and either belonged to her absolutely or was to go from her directly to the taker in remainder, concerning which the executors have no duty to perform and which is not within their reach, and in the prayer that the defendants, or some of them, may be decreed to pay the complainants’ claim. As the complainants can only recover from him assets which are held by him for the executors or which the-executors may recover from him, and it does not appear that he has assets of that character, the complainants do not show any equity against him for the recovery of any portion of their claim. Hence, the bill fails to show any equity against him individually. The remaining defendants, including John Sevars as administrator, are proper, if not necessary, parties to the suit.

Upon the question whether the bill is multifarious, the statement already made of the interests of the several parties shows that, with the exception of John Sevars in his individual capacity, they are all interested in all material parts of the relief sought. The determination already reached, that the bill fails to make a case against John Sevars individually, precludes the necessity of considering whether the bill is multifarious as to him. As to the others, it is not multifarious.

The demurrers will be overruled, except so far as John Sevars individually is concerned, and as to him, in that capacity, his demurrer will be allowed.


author: Yak Eeeet, Y. C.

text:
    Thomas A. Edison and George E. Gouraud v. The Edison United Phonograph Company et al.
    1. Nothing short of present actual insolvency will warrant the appointment of a receiver to wind up a corporation. Expected insolvency at some time in the future is not sufficient.
    2. A court of equity, in the exercise of its general jurisdiction, may appoint a receiver of a corporation, either because it has no properly-constituted governing body, or because there are such dissensions in its governing body as to make it impossible for the corporation to carry on its business with advantage to its stockholders, but this power is always exercised with great éaution and only for such time and to such an extent as may be necessary to preserve the property of the corporation and to protect the rights of its stockholders.
    3. So long as the directors of a corporation keep within the scope of their powers and act in good faith and with honest motives, their acts are not subject to judicial control or revision.
    4. If the stockholders of a corporation disapprove of the company’s management, conducted without fraud or gross abuse of trust or consider their speculation to be a had one, their remedy is to elect new officers or sell their stock and withdraw.
    5. Where the question is one of mere discretion in the management of corporate business by directors, remedy cannot be had by application to a court of equity.
    6. Where the majority keep within the scope of the powers of the corporation, no court has power to substitute the judgment of a minority of the directors for that of the majority.
    On application for the appointment of a receiver, heard on bill and affidavits on the part of the complainants and affidavits on the part of the defendants.

      Mr. P. Wayne Parker and Mr. Cortlandt Parker, for the complainants.

      Mr. Anthony Q. Keasbey and Mr. Charles A. Beman (of New York City), for the defendants.
   Yak Eeeet, Y. C.

The complainants are stockholders of the Edison United Phonograph Company and have filed the bill in this case for the purpose of having the directors of the corporation displaced and this court take control of the corporation, and, through a receiver, manage and direct its business. The special relief that the complainants ask at this time is that the court will find and declare that the corporation has not administered the trust imposed upon it according to law; that a receiver be appointed 'to carry on its business and to investigate the condition of its affairs and make report, to the end that its business may be continued .or wound up according to the condition in which its affairs shall be found. On the argument three grounds were put forward as the basis of the relief asked — -first, that the corporation is insolvent or will soon become so if its directors do not abandon their present method of conducting its business and adopt the method which the complainants insist should be adopted; second, that the directors, by the course of business they are now pursuing, are violating a trust which was imposed upon the corporation when the complainants assigned their inventions to it; and third, that dissensions exist among the directors, as to the most successful mode of carrying on the business of the corporation, of such a character and to such an extent as to make it impossible for the corporation to prosecute its business with advantage to the stockholders.

The Edison United Phonograph Company was organized under a general law of this state, in February, 1890, for the purpose, among other things, of manufacturing, buying and selling phonographs, and also of selling and assigning, and of licensing others to sell and use, patents, patent rights and inventions relating to the manufacture, use and operation of phono■graphs. Within less than a month after its organization, it became the owner, by purchase and assignment, of all of Mr. Edison’s inventions relating to speaking machines, whether secured by letters-patent' or not, in every country of the -world except the United States and Canada. The assignment also passed to the corporation all extensions of any letters-patent for such inventions which should thereafter be granted. Within about the same time the International Graphophone Company, a New York corporation, owning the patents for a speaking machine called the graphophone, assigned its patents to the defendant corporation. The object which the promoters of the defendant corporation had in view in its formation is apparent. They wanted to vest in a single person, endowed with corporate life for a long number of years, all known inventions for the -construction of speaking machines, and thus avoid disputes respecting priority of invention or infringement, and so render the introduction and use of such machines throughout the world less difficult and more profitable than if independent attempts were made to exploit each invention. The corporation was organized with a capital of $1,000,000, divided into ten thousand shares of $100 each. Five thousand shares, representing $500,000, were issued- to Mr. Edison in payment for the inventions and other rights transferred by him to the corporation, and ■a like number of shares were issued, for a like purpose, to the International Graphophone Company. The corporation still holds all the inventions and other property transferred to it by Mr. Edison and the International Graphophone Company, except the right to sell and use speaking machines in the Kingdom of Great Britain and Ireland. That right it sold, in December, 1892, to a corporation organized under the laws of Great Britain for £20,000 in cash and four thousand shares of the stock of the vendee corporation of the par value of £5 each, the cash and ■stock representing a value in our currency of about $200,000.

The case is destitute of the least proof tending to show insolvency. That, in cases of this kind, is the jurisdictional fact. The court can do nothing — neither issue an injunction nor appoint a receiver — until insolvency is first established. Until that fact is satisfactorily proved, the court, has no jurisdiction. Atlantiac Trust Co. v. Consolidated Electric Co., 4 Dick. Ch. Rep. 402, 405. The complainants do not claim that the present indebtedness of the defendant corporation exceeds $107,000, nor that. its principal assets, consisting of inventions, patents and patent privileges, are not worth all that the corporation paid for them, or that they would not bring, if sold in any market where their value is known, a sum largely in excess of the amount required to pay all the debts of the corporation. The complainants have not attempted, either by their own oaths or the oaths of others, to show the value of these assets. They say, however, that they have the fullest belief in their value, provided their method of utilizing them is adopted. The fact is that both parties to this litigation believe that these assets possess an immense value. They do not disagree as to their value, but the sole point in difference between them is as to how they can best be utilized. Their difference is one of judgment respecting the most expedient course of business and not in respect to a fact. The complainants say that if the. present business policy of the corporation is not abandoned and their policy adopted, their assets will soon become worthless, and then insolvency must ensue; while the defendants, on the other hand, assert with equal confidence, as the result of their best judgment, that to make the business of the corporation a great financial success the corporation must adhere to its present business policy. This is the real point in controversy. Hence it is manifest that the complainants are not asking for the appointment of a receiver because the corporation is now actually insolvent, but because of a fear, resting entirely on conjecture, that it will become so at some time in the future. It is too plain to require demonstration that this court has no power to appoint a receiver to wind up a corporation because it is feared or even expected that it will become insolvent at some time in the future. Nothing short of present actual insolvency will warrant the appointment of a receiver for such a purpose.

The affairs of the defendant corporation are subject to the control of a board of nine directors. Two of the nine believe that' the most successful mode of carrying on the business of the corporation, and the best way to subserve and promote the interests of its stockholders, is by the establishment of agencies in different parts of the world for the sale and hire of speaking machines and adopting that as the leading feature of its business. The other seven do not concur in this belief. On the contrary, they believe that the business of the corporation can be made most successful and profitable by the sale of territorial rights and making that the principal part of its business. Each faction appears to be thoroughly persuaded that its method is the true one, and that the method of the other is injudicious, and that its judgment is wise and that the judgment of the other is fallacious. Neither denies or impugns the good faith and honesty of the other. This suit had its origin in this difference of belief. The complainants, to show that they have a right to have their method adopted, allege that when Mr. Edison assigned his inventions it was understood by all parties that the corporation should sell and hire instruments and not sell territorial rights, and they contend that, in consequence of such understanding, a trust arose in their favor by which they became entitled to have their method adopted by the corporation as the .principal mode of conducting its business. If such an understanding had been fully proved, the proof of that fact would not, in my judgment, have given this court the least authority to displace the managers selected by the stockholders of this corporation and appoint a receiver to seize its property and manage its affairs. On a bill filed for that purpose, this court might, on being convinced by proof that such an understanding had existed, and that it formed a material part of the contract between the parties, engraft the understanding on the contract and require the managers of the corporation to respect it, but that is the utmost the court could do, at least until the managers should manifest a settled purpose to wantonly violate the contract as reformed. 'But the fact alleged has not been proved. Mr. Edison assigned his inventions by a writing, under seal, which defines with precision'his rights and duties and the rights and duties of his vendee. An examination of that writing shows quite conclusively that the understanding alleged has no foundation in fact. It shows, as does also the certificate of incorporation of the defendant corporation, that all parties understood and desired that one of the means which should be used in attempting to utilize the inventions was by the sale of territorial rights. The corporation was organized, it will be remembered, for the purpose of selling and assigning, and of licensing others to sell and use, patents, patent rights and inventions relating to the manufacture, use and operation of phonographs.' The powers thus defined show quite clearly, as I think, that all the promoters of the corporation understood and desired that one of the principal means to be used in attempting to dispose of the inventions should be by the sale of territorial rights. This is made even more certain by the writing by which Mr. Edison assigned his inventions to the corporation. It contains several provisions regulating the sale of territorial rights. Eor example, it provides that if a sale of a territorial right be made to a corporation the name of the corporation shall include the word “ Edison,” and it also provides that the consideration received for the sale-of a territorial right, whether the right sold embraces an entire country or only a part, shall be immediately divided among the stockholders of the defendant corporation, unless the directors shall, by a vote of two-thirds, otherwise decide. This writing contains other provisions, indicating with equal clearness the-meaning and understanding of the parties on the point in dispute. So that it would seem to be quite undeniable that while-this writing remains in its present form, and until the understanding alleged has been made a part of it by judicial decree,, the complainants will not be in a position where they will have-the least pretence of right to ask for any relief whatever based on the trust or contract they allege.

The power of this court to appoint a receiver of a corporation, either because it has no propqrly-eonstituted governing body or because there are such dissensions in its governing body as to make it impossible for the corporation to carry on its business with advantage to its stockholders, I think must be regarded as settled, but I think it is equally well settled that this power is subject to certain limitations, namely, it must always be exercised with great caution and only for such time and to such an extent as may be necessary to preserve -the property of the corporation and protect the rights and interests of its stockholders. As soon as a lawfully-constituted and competent governing body comes into existence, whether it is brought into existence by an adjustment of the dissensions or by the election of a new body, and such body is ready to take possession of the property of the corporation and proceed in the proper discharge of its duties, the court must lift its hand and retire. This is the doctrine, as I understand it, which was laid down by Vice-Chan.cellor Malins in Featherstone, Cooke and Trade Auxiliary Co. v. Vickers, 16 Eq. Cas. 298, 303, and which was approved by Chancellor Runyon in Einstein v. Rosenfeld, 11 Stew. Eq. 309, and by Chancellor McGill in Archer v. American Water Works Co., 5 Dick. Ch. Rep. 33.

But neither of the grounds, which this doctrine recognizes as sufficient to warrant the appointment of a receiver, exists in this . case. The defendant corporation has a lawfully-constituted governing body, which is in peaceable possession of all its property, ■controlling and directing its business regularly and peacefully, in conformity to the judgment of seven of its nine directors. Two of the nine differ in judgment from the other seven. The two believe that the adoption of a different course of business from that which is now pursued would result in larger gains. Both methods , are clearly within the purposes and powers of the corporation. Which method shall be pursued, or whether one ,or both, is a question which the law commits absolutely and iunconditionally to the judgment of a majority of the directors. 'Though somewhat disguised, the real purpose of the bill in this ..case appears, when critically examined, to be to induce judicial action which shall substitute the judgment of a minority of the .directors of this corporation for that of the majority. That cannot be done. It is beyond judicial power. No rule of law is better settled than that which declares that, so long as the directors of a corporation keep within the scope of their powers and act in good faith and with honest motives, their acts are not subject to judicial control or revision. Perhaps no better statement of this principle can be found than that which Vice-Chancellor Green made in Ellerman v. Chicago Junction Co., 4 Dick. Ch. Rep. 217, 232, when he said: “ Stockholders cannot question, in judicial proceedings, corporate acts of directors, if the same are within the powers of the corporation, and, in furtherance of its purposes, are not unlawful or against good morals, and are done in good faith and in the exercise of an honest judgment. Questions of policy of management,- of expediency of contracts or action, of adequacy of consideration not grossly disproportionate, of lawful appropriation of corporate interests, are left solely to the honest decision of the directors if their powers are without limitation and free from restraint. To hold otherwise would be to substitute the judgment and discretion of others in the place of those determined on by the scheme of incorporation.” The same principle was restated by the same Vice-Chancellor in Sewell v. East Cape May Beach Co., 5 Dick. Ch. Rep. 717, 723. And Chancellor McGill, in Benedict v. Columbus Construction Co., 4 Dick. Ch. Rep. 23, 36, expressed it in these words: If stockholders in a corporation disapprove of the company’s management, which is conducted without fraud, or by action not ultra vires, or not in gross abuse of trust, or shall consider their speculation a bad one, their remedy is to elect new officers or sell their shares and withdraw. Where the question is one of mere discretion, in the management of corporate business, or of doubtful event in the undertaking in which the corporation had embarked, remedy cannot be had by application to a court of equity.”

These utterances leave nothing more to be said. The complainants’ application must be denied, with costs.