text:
    The Laurel Springs Land Company et al., appellants, v. Rene J. Fougeray, respondent.
    [Filed November 14th, 1898.]
    1. The treasurer of a company, who, with the company’s consent, deposits its funds in bank to his credit as treasurer, is entitled to allowance for so much of the deposit as was lost by the failure of the bank, in accounting with the company.

      2. The treasurer of a company is not chargeable with interest on the funds of the company in his hands, unless it be shown that he used them for his own purposes, or that he used them or ought to have used them in such a way as to earn interest.
    3. When, on appeal respecting an account, a charge complained of by the appellant is struck out, credits which are so connected with the charge as to require adjustment with it must likewise be considered, although they are not made the subject of direct appeal.
    On appeal from a decree on an accounting in Fougeray v. Cord et al.

      Mr. John F. Mamed and Mr. David J. Pancoast, for the appellants.

      Mr. Fougeray, pro se, and Mr. C. V. D. Joline, for the respondent.
   The opinion of the court was delivered by

Dixon, J.

The general features of this cause may be found in 5 Dick. Ch. Rep. 185, 756; it is now before this court on appeal from parts of the decree settling the account there directed.

The first ground of appeal is that the court of chancery refused to allow the appellant Korb, in his account with the Laurel Springs Land Company, as its treasurer, the sum of $423.96, which was lost April 30th, 1890, by the failure of a bank in which, with the consent of the company, it was deposited to the credit of “ Charles Korb, Treasurer.” The reason given for this refusal is that the company then had not that sum or any sum of money on hand, and therefore the credit must have represented the funds of some other owner. The same reason is now suggested in support of the decree.

The testimony shows that this reason is not true in fact. Korb swears that the balance so on deposit belonged to the company; the expert accountant employed by the complainant testifies that, according to the company’s books, there was then in the company’s treasury a cash balance of $576.13; the account prepared by the master to whom the court had referred the accounting shows that up to June 30th, 1890, the company had received in cash $2,088.96 more than it had paid out. Against these circumstances we find no evidence supporting the assertion that the credit in the bank could not have belonged to the company.

This item should be credited to the appellant.

The next ground of appeal is because Eorb, the treasurer, is charged with interest on the balances of corporate funds in his hands on June 14th, 1891, and annually thereafter, from the date of the balance to June 14th, 1897, when the decree below was made.

The bill in this case was filed September 23d, 1890, against the company, its president, Cord, and its treasurer, Eorb, and at once by a restraining order and thereafter by an injunction the defendants were enjoined from disposing of the money or other assets of the company. This restraint continued until January, 1894, when, on appeal, the injunction was dissolved. The decree made January 19th, 1894, required the defendants, within thirty days thereafter, to state an account of receipts and disbursements, according to the prayer of the bill, up to the date of the decree, and directed that immediately on the confirmation of the account by the court the company should declare a dividend of all the net earnings of the company not needed for the legitimate purposes of the company’s business. This account was promptly presented by the defendants, and the decree now under review is that by which it was settled and confirmed.

It thus appears that from June, 1891, when under the decree interest begins to run, until January, 1894, the treasurer, Eorb, as well as the other defendants, was forbidden by injunction to dispose of the company’s funds, and, of course, had no right to invest them, and that from January, 1894, until the making of the decree, in June, 1897, it was their duty to keep them ready to meet such dividend as might be declared pursuant to the decree of January, 1894. During the whole period Eorb held the money as a mere depositary of the company whose treasurer he was, and had no other duty with respect thereto than that of a custodian. It is not claimed that he actually made use of the funds or that in any way they were a source of profit to him.

Under these circumstances we perceive no ground for charging him with interest, and this charge should be struck out.

The third ground of appeal is that the salaries allowed to Cord, as president, and Korb, as secretary and treasurer of the company, are insufficient. We think that the sums mentioned in the decree are adequate.

In a statement appended to and approved by the decree, these officers are credited with interest upon their salaries as if annually payable. While the company was allowed interest upon the yearly balances in the hands of the treasurer, this might have been equitable. But as we eliminate the charge for interest, we should also disallow the corresponding credit. These officers were the active managers of the company, and they have known during all this litigation that there was money enough lying idle in the treasury to pay them whatever compensation they had earned. They were also parties in the cause, and! therefore able to apply to the court at any time to fix and pay the compensation due. Equitably it was not payable until it was thus fixed, and that it was not fixed sooner is wholly the fault of the officers themselves. We think their acquiescence in thus leaving it in the treasury, where they knew it was profitless to the company, precludes them from claiming that it was earning interest for them.

Although this credit of interest has not been expressly appealed from, yet it seems to be so interwoven with the matters which are the direct subjects of appeal as to require adjustment jointly with them. If, therefore, the appellants accept our judgment regarding the charges of interest, they must likewise accept it as to the credits of interest.

Let the decree below be modified in accordance with these views. •

For reversal and modification — The Chief-Justice, Collins, Depue, Dixon, Garrison, Lippincott, Ludlow, Van Syckel, Adams, Bogert, Hendrickson, Nixon — 12.

For affirmance — None.


source: Caselaw Access Project

author: Gummere, J.

license: Public Domain

text:
    Mary E. Magowan, appellant, v. Frank A. Magowan, respondent.
    [Filed February 1st, 1899.]
    Where the plaintiff in a suit for divorce'is required by statute to have been a bona fide resident of the state in which his suit is brought for a fixed period of time, in order to enable him to maintain his suit, the ascertainment by the court of the fact of such residence necessarily precedes a consideration of the merits of the case, and the determination of that question by the court is final, not only in the courts of that state but in every other jurisdiction where the validity of the judgment comes in question, unless such determination has been procured by fraud. When, however, the adjudication has been procured by fraud it is without extra-territorial effect, and the judgment will be treated as void in the courts of a sister state.
    On appeal from a. decree advised by Vice-Chancellor Reed, whose opinion is reported in Magowan v. Magowan, 12 Dick. Ch. Rep. 195.

      Mr. Francis C. Lowthorp and Mr. Linton Satterthwait, for the appellant.

      Mr. Edwin Robert Walker, for the respondent.
   The opinion of the court was delivered by

Gummere, J.

This is a bill for maintenance filed by the appellant against her husband. As an antecedent to the primary relief prayed for she seeks to have declared void a decree of' divorce rendered by the district court of the Territory ’ of Oklahoma, in a suit brought by her husband against her. Whether this decree can be disregarded and treated as a nullity by this court is the only question presented here for decision, for it is not denied that the conduct of the respondent has been such as to entitle the wife to a decree of maintenance' unless it is justified by the Oklahoma judgment.

The ground upon which we are asked to disregard that judgment and declare it void is that the Oklahoma court had no jurisdiction over the subject-matter of the suit in which its decree was rendered.

By the statute of Oklahoma its courts have jurisdiction in actions for divorce only in those cases in which the plaintiff has been an actual resident of the territory in good faith for ninety days next preceding the commencement of the action.

That the respondent not only was not a bona fide resident of that territory for ninety days next preceding his institution of the action for divorce, but that he never at any time resided there, is proved beyond the shadow of a doubt, and it is apparent, therefore, that the Oklahoma court was in fact without jurisdiction to render the judgment which the appellant now seeks to avoid. We are told, however’, that it appears by the recitals contained in the decree that the question whether the respondent was a bona fide resident of Oklahoma for the statutory period was considered and decided by the Oklahoma court in determining whether it had jurisdiction, and that a recital in a decree of divorce made by the court of another state, that the petitioner was a resident of that state for the statutory period, is conclusive in this state of the fact so recited. This, it is said by counsel, is the declaration of this court in Fairchild v. Fairchild, 8 Dick. Ch. Rep. 678.

An examination of the opinion in the case referred to will disclose that the rule there laid down is hardly so broad as is claimed. What. we said in that case was that “ where the plaintiff in a cause is required by statute .to have been a bona fide resident of the state in which his action is brought for a fixed period of time,.in order, to enable him to maintain his action, the ascertainment by the court of the fact of .such- residence necessarily precedes a consideration of the merits of the case, and the determination of that question by the court is final not only in the courts of that state, but in every other jurisdiction where the validity of the judgment comes in question, unless such determination has been procured by fraud.”

Accepting this as the true rule, it will be seen that whether or not we are bound by the adjudication of the Oklahoma court on the question of the respondent’s domicile must depend upon whether or not such adjudication was procured by fraud. If it was rendered after all the facts bearing on that question had been fully and fairly submitted to the court, we must accept it as conclusive; but if it was procured by fraud we are not precluded by it from inquiring whether the respondent was not in fact a resident of this state at the time when he instituted his suit for divorce in the Oklahoma court, as is charged in the bill of complaint in this case.

Upon looking ,at the evidence it appears, from the story told by the respondent himself, that he and his wife were residents of the city of Trenton, in this state, from the year 1879 until the latter part of July in the year 1895, and that the latter still resides in that city; that he then went to Oklahoma but that he returned to Trenton on the 5th of August of the same year; that he went back to Oklahoma about the 2d of January, 1896, and remained there about two weeks, during which time he began his divorce proceedings, and then returned again to Trenton; that he went a third time to Oklahoma during the latter part of February, 1896, and remained there a week or ten days and then again returned to Trenton, having on that occasion obtained his divorce. He says that his purpose in going to Oklahoma in July, 1895, was to become a resident, but it is very clear that if such was his purpose he failed to accomplish it. To effect a change of domicile not only must the residence at the place chosen for the new domicile be actual, but to the factum of residence there must be added the animus manendi. Harral v. Harral, 12 Stew. Eq. 285. A reading of the evidence cannot fail to produce the conviction that when the respondent went to Oklahoma he had not the slightest intention of remaining there and making it his home, but that on the contrary his sole object was to obtain an apparent residence there for the purpose of enabling him to institute divorce proceedings against his wife, and that during the whole period covered by those proceedings he was in fact a bona fide resident not of Oklahoma but of New Jersey. This being so it is manifest that he must have procured the adjudication of the Oklahoma court on the question of his domicile either by intentionally withholding from that court the real facts or by the submission of false testimony. Either course was equally fraudulent and absolutely destroys the validity of the decree.

With the Oklahoma decree out of the way it is not disputed that the appellant is entitled to a decree of maintenance.

The proofs, however, fail to disclose with any certainty the financial condition of the respondent. The decree appealed from will therefore be reversed and the record remitted to the court of chancery, with instructions to ascertain the faculties of the respondent and determine the amount which he shall pay for the support and maintenance of the appellant and her children in accordance with the rules and practice of that court.

For reversal — Collins, Depue, Dixon, Gummere, Lippincott, Ludlow, Van Syckel, Adams, Hendrickson, Nixon, VREDENBURGH — 11.

For affirmance — None.


author: Collins, J.

text:
    Henry Lang et al., infants, by guardian ad litem, appellants, v. Henry Lang’s Executor et al., respondents.
    [Filed November 18th, 1898.]
    1. A dividend on corporate stock declared after the right to the income has been severed from the ultimate ownership of the stock belongs to the person entitled to the income so far, and only so far, as it is derived from the earnings of the stock after such severance.

      2. The presumption is that the earnings of a corporation have been made at a uniform rate day by day since the last dividend, and a dividend out of earnings should be distributed between the capital and income of a trust upon that basis, but this presumption is subject to be rebutted by proof that the earnings were really made differently.
    3. In the absence of a contrary notice, from the parties in interest or by circumstances, a trustee holding corporate stock may safely act on such presumption and also on the presumption that any dividend paid him is out of earnings.
    On appeal from a decree advised by Vice-Chancellor Emery, whose opinion is reported in Lang’s Executor v. Lang, 11 Dick. Ch. Rep. 603.

    Henry Lang died February 18th, 1896. By his will he gave to the executors therein named all his residuary estate in trust, with directions to sell and dispose of his personal property to the best advantage and to keep the proceeds and all ■ moneys of the estate invested in bonds s.ecured by mortgages on real estate. Except for certain small annuities, the trusts of the will were to pay the entire income of the estate to the testator’s son, William F. Lang, and at his death to convey and assign the corpus to the son’s children. The will was proved March 12th, 1896, but letters testamentary were not issued thereon to the surviving executor until September 26th, 1896. Among the assets that came to the, hands of the executor were six hundred and thirty shares, of the par value of $100 each, held by the testator at the time of his death, of the capital stock of the Henry Lang Company, a manufacturing corporation of this state. The executor having received from that company $25,200, being a cash dividend of forty per cent, declared on July 1st, 1896, exhibited in chancery a bill for instructions as to its distribution between the capital and the income of the trust. The following facts were established by evidence taken in the cause: The corporation was organized in 1892, Henry Lang being a ‘large stockholder. The company’s fiscal year was from July 1st to June 30th. On July 1st, 1893, a dividend of ten per cent, was declared and paid. On July 1st, 1894, a dividend of twenty per cent, was declared and paid. At the close of the fiscal year ending June 30th, 1895, the surplus and accumulated profits of the company were ascertained to be $185,376.13, out of which was declared and paid a dividend of fifty per cent., viz., $50,500. On January 9th, 1896, a stock dividend of $49,000 was declared, making the full authorized issue of $150,000, and of this Mr. Lang received his proportion, thereby making his total holding the six hundred and thirty shares that came to the hands of his executor. At the same time that this stock dividend was declared certain sums were charged off from the assets, leaving as the accumulated surplus from the last fiscal year the sum of $69,595.55. At the close of the fiscal year ending June' 30th, 1896, it was ascertained that the net profits of the year were $123,520.48. A cash dividend was then declared of $60,000, being forty per cent..on the entire stock of the company, and it was that dividend upon the stock of Henry Lang that his executor received.
    The decree directed such dividend to be paid as income to William F. Lang, and from it his children, by their guardian ad litem, have appealed.

      Mr. Sherrerd Depue, for the appellants.

      Mr. Charles A. Reed, for the respondents.
   The opinion of the court was delivered by

Collins, J.

The underlying principle applicable in this case is that no corporate, dividend declared after the right to the income has become severed from the ultimate ownership of the stock upon which such dividend is declared belongs in equity to the person entitled to' income except so far as it is derived from the earnings of the stock after such severance. The general trend of judicial opinion in this country is towards the adoption.of that principle, and we adopt.it without qualification.

The court of chancery, while acknowledging the principle, has applied it too favorably towards the person entitled to income. The learned vice-chancellor, in the present case, constrained by the controlling precedents cited by him, awards to the income of the trust fund the whole of the dividend in controversy, because to do so will not trench on the accumulated surplus appearing on the books of the corporation at the time of the death of the testator. This cannot be a just rule. The undivided earnings, if any, gave value to the stock, although not yet carried to the surplus account, and formed part of the capital of the testator’s estate just as much as if the stock had been converted into money on the day of his death. The reasoning of Chief-Justice Lewis, in Earp’s Appeal, 28 Pa. St. 368, is unanswerable and conclusive on this point. The dividend must in some way be apportioned in accordance with the declared principle.

A distinction has indeed been made between extraordinary dividends and ordinary or current dividends by enforcing apportionment of those of the first class and not of the others. Cook Corp. ch. 33. Even in the leading case of Earp’s Appeal, ubi supra, which first declared the general doctrine, it is said obiter that “ in ordinary dividends periodically declared the intervals ■ between the times of payment are so brief and the sums divided are so small that no great injustice can be done in following the rule of judicial convenience that forbids apportionment, in respect of time, in cases of periodical payments becoming due at fixed intervals, while on the other hand the necessity for it is usually very strong, arising from the difficulty of ascertaining the exact amount of profits made during fractions of the period.” This so-called rule of convenience always yields to equity, and the difficulty of apportionment is no greater in one case than in another. I cannot assent to the idea that some dividends should stand on a different footing from others. To hold that where a life estate begins one day before a dividend is declared the entire dividend shall go to the life tenant may be convenient, but certainly is unjust.

It can hardly be said, however, that as to the Henry Lang Company there were any ordinary dividends in the common acceptation of the term. Dividends were declared annually, but there was no fixed rate; and assuredly the dividend of July 1st, 1896, of forty per cent, on the stock did not fall within the exception allowed by Chief-Justice Lewis to his general rule. In any aspect of the case this dividend comes within the principle herein adopted. How shall this principle be applied ?

We think that when a dividend is declared out of earnings the reasonable presumption is that those earnings have been made uniformly, day by day, since the last similar dividend was declared, leaving parties in interest at liberty to show that the earnings were really made differently. This will afford a practical rule for trustees who receive such a dividend, and if they act on the presumption without notice to the contrary either, from the parties or by the circumstances they will be protected. So, also, they should be allowed to presume that dividends are out of earnings unless like notice shall charge them to the contrary.

In this case we have all needed facts to make just distribution of the dividend between capital and income, except as to the rate of the earnings made respectively during the time beforé and the time after Mr. Lang’s death. There can be no doubt that the dividend was from the earnings of the last fiscal year, although not so declared in terms. As no account of stock was taken except at-the end of each fiscal year, we must resort to the presumption of a uniform rate of earnings. No evidence produced has overcome that presumption, and as the earnings for the year are definitely known the calculation is a simple one. Those earnings were $123,520.48. At a uniform rate there was earned before Mr. Lang’s death, on February 18th, 1896, the sum of $78,634.62,'and after that date the sum of $44,885.86. The dividend of $25,200 should be distributed between the capital and the income of the trust in those proportions. The result will be $16,042.62 for capital and $9,157.38 for income. The information imparted to the trustee in these proceedings will be notice that there are still undivided earnings of the fiscal year in which the testator’s death occurred, and he will be guided accordingly in the future.

The contention of the appellants that the dividend should be applied on the earliest earnings has no force. The same presumption that makes the earnings uniform should be applied to the dividend upon those earnings. The opposite contention, viz., that as long as the dividend does not exceed the earnings made since the right to income accrued it should go to the income, leaving the capital invested in the stock, has more to be said in its favor, but is nevertheless inequitable, for on that basis such capital is compulsorily left at the hazard of the business.

With regard to the suggestion that under the will in this case the stock should have been sold within a year from the testator’s death, and that, therefore, no more of the earnings of the stock should go to the income account than an equivalent of interest on the value of the stock, we entirely agree with the learned vice-chancellor for the reasons stated by him.

The decree will be reversed and modified in accordance with this opinion.

For reversal — Collins, Depue, Lippincott, Ludlow, Yan Syckel, Bogert, Hendrickson, Nixon, Yredenburgh — 9.

For affirmance — None.


text:
    The New Jersey Lumber Company, appellant, v. Charles L. Ryan et al., respondents.
    [Filed November 18th, 1898.]
    1. A judgment creditor exhibiting a bill under the statute (Gen. Stat.p. 889 ji 88 et seq.) for discovery in chancery of property and rights in action of the judgment debtor, and the application thereof towards satisfaction of his judgment, may make defendant anyone to whom he alleges that the judgment debtor has made a voluntary or fraudulent transfer, or who holds property or things in action in trust for such debtor, and, on appropriate prayer, may obtain relief against such defendant under that bill.

      2. That statute, however, does not authorize the chancellor, on a preliminary examination of the judgment debtor and witnesses, to adjudge that any particular property or thing in action held by such defendant under claim of ownership belongs to or is held in trust for the judgment debtor and to compel its transfer and delivery to a receiver appointed upon such examination.
    On appeal from orders made in chancery.
    The respondents, as judgment creditors of Edward K. Meigs and James F. Stewart, exhibited a bill for discovery under the provisions of the Chancery act that authorize proceedings with respect to unsatisfied judgments at law. Gen. Stat. p. 389 § 88 et seq. They therein alleged a fraudulent transfer by Meigs of all his property and assets to the New Jersey Lumber Company, of which he was president. The company was made a defendant and the bill prayed for injunction and for a receiver under the statute and for general relief.
    Upon this bill an order for discovery was made, and Meigs and Stewart and one Manning were examined, and thereafter, on reading their depositions, an order was made on October 15th, 1897, requiring the lumber company to show cause why it should not be enjoined from disposing of the property and effects transferred to it by Meigs and from collecting any of the moneys due on book accounts assigned .to it by him, and why a receiver of the property transferred should not be appointed, and in the meantime prohibiting such disposition and collection. On October 26th, 1897, the order of October 15th was made absolute and James F. Gannon was appointed receiver in the cause of all property and things in action belonging to or held in trust for Meigs and Stewart, or either of them, including property and book accounts or other choses in action which were transferred by Meigs to the lumber company and remained undisposed of; and it was ordered that the defendants should deliver to the receiver all such property and choses in action and should execute such conveyances and transfers thereof to the receiver, at his expense, as might be necessary to vest him with the title thereto and the custody and possession thereof. The receiver was directed to give bond for the faithful performance of his duties.
    The Lumber company has appealed from both orders.

      Mr. Warren Dixon, for the appellant.

      Mr. James E. Howell, for the respondents.
   The opinion of the court was delivered by

Collins, J.

There can be no dispute that to the statutory discovery and relief authorized in chancery in behalf of a judgment creditor may be joined, under one bill, relief against persons to whom the judgment debtor may have made voluntary or fraudulent transfers or who hold property or things in action in trust for him. The general powers of a court of equity extend to such a jurisdiction, and it is an every-day practice to exercise it. Examples of such exercise are to be found in the reported cases of Whitney v. Robbins, 2 C. E. Gr. 360, and Bates v. Norton, 10 Dick. Ch. Rep. 251. Such persons may be made parties defendant, and the bill will not be multifarious because of inquiring into separate transactions. After the preliminary examination authorized by the statute a receiver pendente lite of the property and things in action belonging to or held in trust for the judgment debtor may be appointed, with authority to possess, receive and, in his own name as such receiver, sue for such property or things in action, but the court of chancery cannot, on such examination as against one claiming lawful ownership, prejudge that any particular property or thing in action belongs to or is held in trust for the judgment debtor, and by its order compel transfer and delivery to the receiver before answer and final hearing. Of course a court of equity, where an alleged fraudulent transfer is attacked, has discretionary power to resort to a receivership as an auxiliary measure of protection and to compel delivery of property to the receiver, but such power is only exercised where there is a strong case made for the complainant on affidavits, which the transferee is afforded opportunity to meet and where there is danger that the property may not be forthcoming to answer to the decree. High Rec. §§ 9, 11; Flagler v. Blunt, 5 Stew. Eq. 518, 523; Sobernheimer v. Wheeler, 18 Stew. Eq. 614, 631. The ease before us does not present that aspect. The orders were based entirely on the statute, and the only authority there given beyond that for the mere appointment of a general receiver is for an order that the judgment debtor convey and deliver to such receiver all his property and rights in action and the evidence thereof. The depositions taken on the preliminary examination were properly used against the lumber company as ex parte affidavits on the application for injunction, and as they disclose sufficient reason for preserving the status quo, I think that the order of October 15th and so much of the order of October 26th as provides for that end may stand. So, too, the appointment of a receiver of all property and things in action belonging or due to or held in trust for Meigs and Stewart, or either of them, and the requirement of a bond from the receiver, are within the statute and may stand, but any adjudication as to the property and book accounts or other choses in action which were transferred by Meigs to the lumber company and remain undisposed of, was premature and to that extent, and as to the direction to the lumber company to deliver such property and choses in action to the receiver and to execute any conveyance or transfer thereof to him, the order of October 26th must be reversed.

For reversal — Collins, Depue, Dixon, Garrison, Ludlow, Yan Syckel, Bogert, Hendrickson, Nixon — 9.

Far affirmance — None.


author:
Collins, J.
      Magie, C. J.

text:
    Amzi T. Dodd, appellant, v. Adele Lindsley, respondent.
    [Filed November 18th, 1898.]
    Complainant was sole beneficiary of one-third of a bequest of $3,000 secured by a mortgage to executors, who were nominally trustees for that third interest only, but who really held it for all in interest, Partial payments were made on the mortgage, and it was subsequently canceled, and another for $1,500 was given to said executors. — Held, in an action to recover the amount of the latter mortgage for failure to record it, that it would not be presumed that the complainant was entitled to more than a third thereof, although the other legatees, after being notified of the action, asserted no claim.
    On appeal from a decree advised by Vice-Chancellor Pitney, whose opinion is reported in Lindsley v. Dodd, 8 Dick. Ch. Rep. 69. The decree there advised was reversed because of a defect of parties (Dodd v. Lindsley, 8 Dick. Ch. Rep. 562), but the defect having been remedied the parties stipulated that the evidence in the cause should stand, and, without further hearing, a new decree in accordance with said opinion was advised and signed. The present appeal is from that decree.

      Mr. Alfred F. Skinner, for the appellant.

      Mr. James E. Howell, for the respondent.
   The opinion of the court was delivered by

Collins, J.

We agree with the learned vice-chancellor that the appellant is liable to the respondent, but not to the extent decreed. The reasons given for declaring such liability are satisfactory and we adopt them as expressing the views of this court. This opinion will be confined to a statement of the reasons for our modification of the decree, on the facts recited by the vice-chancellor and such further facts as will be hereinafter stated. The vice-chancellor directs payment to the respondent, as sole surviving legatee of Stephen H. Dodd, deceased, of all of the'principal of the mortgage of November 28th, 1873, for $1,500, given by "Isaac L. Van Orden and wife to Stephen H. Dodd’s executors. The ground assigned, for this judicial action is that the mortgage, prima fade, represented assets of Stephen H. Dodd’s estate and no counter-proof was offered. We think that it was clearly shown by necessary implication that this mortgage was a substitution for the mortgage for $3,000 given by Van Orden to Stephen H. Dodd’s executors for the benefit of Samuel T. Dodd’s widow and heirs-at-law on March 23d, 1858, and canceled on the day the new mortgage was delivered. Stephen H. Dodd left no estate except that derived from Samuel T. Dodd. Van Orden, two days before he gave the new mortgage, gave to Eliza Dodd, Samuel’s widow, in consideration of her release of her dower in the property conveyed to him by Samuel’s and Stephen’s executors, his personal bond to furnish her with support and maintenance should the interest she was entitled to receive from “said executors” prove insufficient. We entertain no doubt that the $1,500 secured represented the half of Samuel’s bequest of $3,000 to his heirs-at-law that was to be withheld from division during the widowhood of his wife, and that all of the bequest except $1,500 had been paid. The vice-chancellor concedes this, but thinks that in some unexplained way the beneficial interest in such residue of the bequest may have become vested wholly in the estate of Stephen, although the bequest was to all of Samuel’s heirs. These heirs were seven children, of whom Stephen was one. One son died intestate in Stephen’s lifetime and another conveyed his interest to Stephen, "who thus became entitled to a third of the bequest. No reason appears why his estate should become entitled to a half. The original mortgage as well as the new one was, taken in the name of Stephen’s executors. ' That the substituted one for the sum remaining due was drawn for a fixed term instead of during the widowhood of Eliza Dodd is a circumstance of little evidential value. It may have been thought desirable to compel prompt payment from "Van Orden. The personal bond he gave to Eliza indicates that she was to get the interest from the investment, and the vice-chancellor himself assumes such to be the case, for he assigns that fact as an excuse for Stephen’s beneficiaries not pressing their claims during her lifetime. We see nothing in the evidence to indicate that Stephen ever became entitled to more than a third of the $3,000. He did not avail himself of his right to a conveyance of Samuel’s residuary real estate, and his advances for debts seem to have been paid to his executors by Van Orden when he took a conveyance of the unsold lands and assumed the $3,000 bequest. It is incredible that an accounting would bring due to Stephen’s estate the exact sum reserved for the use of Samuel’s widow. There is no reason for assuming that the other beneficiaries of the $3,000 mortgage had absorbed Van Orden’s payments to the exclusion of Stephen’s estate. Their release was only evidence of their willingness to perfect title and proves no more than the release from Stephen’s devisees recorded with it. The consideration stated in the document proves nothing and is a sum less than their share. If they did release their share of the bequest that would not increase the share of Stephen’s estate. Their release bears date in 1858 (although not recorded till 1873), and there is evidence of equal dividends on all the shares as late as 1861, with others in anticipation. The circumstances so plainly show that the mortgage in question represented $1,500 due the heirs of Samuel after his widow’s interest therein should cease, that we cannot conjecture that in some obscure way Stephen’s estate has become entitled to it all. Nor can we even give respondent Stephen’s share of the original $3,000, for the proof shows some payments on account. The only safe presumption is that the mortgage stood for the benefit of all the beneficiaries under the $3,000 mortgage, and on that presumption we award the share due Stephen’s estate to his surviving legatee.

Let the decree be reversed and modified so as to direct payment to the respondent by the appellant of $500 and interest, from October 10th, 1892, the date of the death of Stephen’s widow, who was entitled to the interest during her life.

Magie, C. J.

(dissenting).

Appellant’s ancestor, Calvin Dodd, was executor of Stephen H. Dodd, deceased, and neglected to record a mortgage made to him to secure the payment of money which was or might become assets of Stephen’s estate. By that neglect the money was lost. Despondent is a beneficiary under Stephen’s will.

Calvin Dodd’s estate, which has come to appellant by will, was .not increased in amount or enhanced in value by reason of Calvin’s misconduct. There is no ground to claim that equity should require appellant to surrender property received by him from his ancestor because his ancestor acquired it by fraud.

It is the ordinary case of waste committed by an executor. For such waste an action against the executors and administrators of the defaulting executor was expressly given by section 3 of the “Act concerning executors and the administration and distribution of intestates’ estates,” passed March 2d, 1795. Rev. L. p. 174. The provisions of that section have continued in our legislation to this day and are now contained in section 6 of the act of like title. 2 Gen. Stat. p. 1426.

By the same legislation an action was expressly given against executors or administrators for the torts of the testator or intestate.

Since 1797 heirs and devisees have been, by statute, made liable to actions by creditors of the testator or the intestate ancestor.

But no legislation has ever imposed upon heirs or devisees or legatees a liability to actions for waste or torts committed by the ancestor or testator. No such liability existed at common law, and I cannot concur in the notion that it can be imposed by a court in the absence of legislation.

Whether, when a judgment has been .recovered at law in an action against a personal representative for the waste or tort of the testator or intestate, and there is a deficiency of personal assets, lands descended or devised may be resorted to to satisfy the judgment, otherwise than by an order for sale obtained in the orphans court, need not be considered. The doctrine of Houston v. Levy, 17 Stew. Eq. 6, is novel, and I think the case stands alone, but, if sound, it is inapplicable here because no judgment was ever recovered at law.

Nor is there any ground to claim that a trust relation was created, for if Calvin had collected the money on the mortgage jt would have been merely assets in his hands for the payment of debts and for distribution.

For this reason I am constrained to vote to reverse.

For reversal and modification — Collins, Depue, Dixon, Lippincott, Van Syokel, Adams, Bogert, Hendrickson, Nixon, Vredenburgii — 10.

For reversal — The Chief-Justice, Garrison, Ludlow — 3.

For affirmance — None.


author: Per Curiam.

text:
    Margaret Manning et al., appellants, v. Columbian Lodge, No. 117, I. O. O. F., respondent.
    [Filed October 17th, 1897.]
    The defence that the consideration of a note and mortgage was illegal, in that the mortgagee promised not to prosecute another for embezzlement, when no prosecution was pending, was not sustained where defendant did not plead and prove that an embezzlement had been committed.
    On appeal from a decree advised by Vice-Chancellor Emery in Columbian Lodge, No. 117, I. O. O. F., v. Manning et al., who delivered the following opinion:
    The bill in this case is filed to foreclose a mortgage given by one John Manning, now deceased, to the complainant, to. secure the sum of $3,800, with interest, in one .year from its date, March 30th, 1882. The bond accompanying the mortgage, and which is referred to therein, is conditioned for the payment by John Manning or Peter M. Melick of this sum of $3,800, “ the same having come into the hands of the said Peter M. Melick, as treasurer of said lodge.” John Manning died in 1889, and the defence set up by his executrix and widow and the infant children by the answer is that the bond and mortgage were given for an illegal consideration and are illegal and void under the following circumstances, viz., that Peter Melick was the treasurer of the complainant and had collected $3,800, money belonging to it, and had embezzled the same and appropriated it to his own use; that the complainant was about to institute criminal proceedings against Melick on account of the embezzlement, and that Manning, in order to prevent such criminal proceedings, executed and delivered the mortgage in question to secure the sum which Melick had embezzled, and that, in consideration of the execution of this mortgage, the complainant agreed not to institute criminal proceedings against Melick on account of his embezzlement; and that the consideration of the bond and mortgage was to protect Melick from criminal prosecution, and the mortgage is therefore void.
    ' The execution of the bond and mortgage having been proved, the burden of establishing its illegality was upon the defendants, and the main question which arose at the hearing was whether the defendants, in order to establish the illegality of the bond, were not obliged to show by satisfactory evidence that the crime of embezzlement had been in fact committed. There was sufficient proof that the complainant, through its directors or agents, charged or asserted that the crime had been committed and that the bond and mortgage in question were given upon the agreement of complainant that no criminal prosecution would be made, and were delivered upon such understanding with Manning on behalf of Melick, who had fled, probably to escape arrest. But at the time of giving the bond and mortgage no criminal prosecution had been actually commenced, nor had any indictment been found, and defendants failed to offer evidence sufficient either to convict Melick of the crime of embezzlement or to show that, at the time of giving the bond and mortgage, a crime had been in fact committed for which Melick could have been prosecuted. If a criminal prosecution had been in fact pending at the time, either by the finding of an indictment or otherwise, then the public interest in the prosecution of the actual pending charge was of such a nature as to avoid any security for a debt given upon an agreement for the stifling of the pending prosecution, even though the debt thus secured was due. But the question here is whether, in the absence of pending criminal proceedings or of an indictment, sufficient proof must be made in the case that in fact the crime had been committed or whether the mere intention of the parties to compound what is charged or supposed to be a crime is sufficient to avoid a security given for a debt which is honestly due. Defendants’ counsel claim that the security is avoided simply by the illegal or criminal intention of the parties to compound a crime, and that the agreement not to prosecute, founded on this intention, is sufficient to invalidate the security. The authorities, however, are against this view and hold that where criminal proceedings are not pending the actual commission of the crime alleged to have been compounded must be alleged and proved. The cases are collected in 3 Am. & Eng. Encycl. L. 404, the leading case being Steuben County Bank v. Mathewson, 5 Hill 249 (1843). This was an action on a bond, and a plea in bar alleged that the bond was given under an agreement to discharge a person, one Washburn, arrested by plaintiffs under civil process founded on a charge of obtaining money on a forged note, and to surrender the note, discharge the person arrested and forbear to prosecute him for forgery. The plea failed to aver that the crime of forgery had been in fact committed, and in the absence of any pending criminal proceedings the plea was held no answer to the action, the court saying that it was not possible to sustain the plea if it came short of averring the actual commission of the crime. The doctrine settled by this case is that where no criminal proceedings are actually pending the actual commission of the crime alleged to have been compounded is one of the facts at issue in the cause and necessary to be alleged and satisfactorily proved in order to make out the defence of illegality. The same doctrine is held by the later cases. Plant v. Gunn, 2 Woods 372; 19 Fed. Cas. 800, 803 ( U. S. Cir. Ct., 1874), Catlin v. Henton, 9 Wis. 476 (1859).

    "Whether the proof in the civil cause of the commission of the crime alleged to be compounded must be such as would be sufficient to convict on a criminal charge, or whether a preponderance of proof is sufficient for the purposes of the civil suit, may be an open question on the authorities, some of them holding that a preponderance of evidence is sufficient. This latter doctrine would seem to be in line with the decision of our own courts in an analogous case. Kane v. Hibernia Insurance Co., 10 Vr. 697 (Errors and Appeals, 1877). .But this question as to the character of proof is not involved here, as the proof in this cause is not sufficient, under either rule, to show that a crime was in fact committed. Defendants’ counsel insists that the case of Fishell v. Gray, 31 Vr. 5 (N. J. Sup. Ct., 1897), establishes or recognizes the rule that where one element of the consideration of a contract is illegal or immoral (as distinguished from being merely unenforceable) it will avoid the whole contract. But this rule is not decisive of the present case, for the question here is whether the agreement in question is illegal if in fact the crime has not been committed.
    The above cases, as I construe them, hold that it is not, the plain reason being, as it seems to me, that if no criminal charge is actually pending for trial or prosecution the public interest is not that there should be a charge in any event but only in case there has been an actual crime committed, and proof, therefore, that the crime had been committed lies at the basis of the charge of illegality. The complainant is entitled to a decree.

      Mr. Howard W. Hayes, for the appellants.

      Mr. Adrian Biker, for the respondent.
   Per Curiam.

Decree affirmed, for the reasons given in- the court of chancery.

For affirmance — Collins, Depue, Dixon, Garrison; Lippincott, Van Syckel, Adams, Bogert, Hendrickson, Nikon, Vredenburgh — 11. • ■ -

For reversal — None.


text:
    Edward B. Sudbury, appellant, v. The Merchantville Building and Loan Association, respondent.
    [Filed October 11th, 1897.]
    1. The holder of twenty-five shares of stock of a building and loan association mortgaged certain premises thereto and pledged the stock as collateral. The condition of the bond required the loan to be paid through monthly payments of interest, dues and premiums, according to the by-laws, for such period as would be required to mature the twenty-five shares. Subsequently the borrower mortgaged the same premises to a third person. Afterwards the association allowed the borrower to withdraw the twenty-five shares theretofore pledged and substitute twenty-five shares of the current series, which were then of little value, and paid him the withdrawal value of the shares first pledged. — Held, that the substitution of the shares did not work a performance of the condition of the bond or a satisfaction of the association’s mortgage.
    2. The association was not required to reduce its demand by the amount of the withdrawal value of the shares, unless it had notice of the Second mortgage and the common security proved insufficient to pay both debts.
    3. The mere fact that the borrower was a director of the association did not charge it with knowledge of the second mortgage, since in the transaction he was acting independently of the board and for himself individually.
    On appeal from a decree advised by Vice-Chancellor Reed in Merchantville Building and Loan Association v. Zane, who delivered the following opinion:

      The insistence made upon the part of Mr. Sudbury, the second mortgagee, is that the mortgage of the association is paid, and therefore his mortgages have precedence.
    The way in which the mortgage of the association was paid, as it is insisted by the counsel of Mr. Sudbury, is this: The condition of the bond (to secure which the mortgage was given) was that the mortgagor should pay the principal, the interest and the premium at such times, in such places, as provided for by the constitution and by-laws of the association. The bylaws provide (section 7) that every member, for each share of stock held, shall be entitled to the loan of $200, and in section 6 that the premium paid for the prior right to a loan of $200, or the multiple thereof, shall be at a rate per share and shall be payable monthly by the stockholder borrowing.
    Now, the point made is that, inasmuch as this loan of $5,000 was made originally to Zane by virtue of his holding the original twenty-five shares thereof, therefore the condition of the bond in respect to the payment of premiums, <fcc., refers to the premiums tó be paid upon those shares. In connection with this insistence, it is also pointed out that the substitution of shares in the two instances mentioned, viz., on June 5th, 1894, and August 28th, 1895, were made upon applications for a loan, as if the loan of $5,000 was regarded as a new transaction, occurring at those dates and as made to Zane, as the holder of the new series of stock held by him at the times of the respective applications.
    Inasmuch as the original shares have ceased to exist, and with their extinguishment has ceased the duty to pay the dues and premiums upon them, it is argued that the condition of the bond has not been broken, or rather has been performed and the mortgage satisfied.
    I am unable to assent to this proposition. A part of the scheme provided by the by-laws of this association, like that of all such organizations, was to enable the shareholder to receive in anticipation the matured value of his shares. The loan so received it was expected would be paid by the application to it of the value of the shares, when the value of each should amount to $200. The language of the condition in the bond was employed in view of this well-understood purpose. The $5,000 was to be paid through the monthly payments of interest, dues and premiums for such period as would be required to mature twenty-five shares of stock. The substantial feature of the condition was that the mortgagor should have the right to pay by the application of the matured shares. The shares upon which the payments were to be made were originally the ten shares of the seventh series and fifteen shares of the eighth series. When, however, on June 5th, 1893, the association consented to release the original shares and accept others in their stead, thereafter the condition in the bond, by the very quality of the transaction, required the payment of the interest, premiums and dues upon the new shares until they matured. The same consequence followed the second substitution. The condition thereafter required the payment of the interest and dues upon the shares in the fourteenth series until they became worth $200 each. There never was a performance of the condition of the bond nor a satisfaction of the mortgage.
    But there is another question involved in the cause. This question is whether, as between the second mortgagee and the association, the former is entitled to have the withdrawal values of the shares released deducted from the amount due to the association. This query is not propounded upon the notion that the value of the shares was to be applied as pro tanto payment of the mortgage, for it is entirely settled that payment of dues upon the stock is not a payment upon the mortgage debt, and does not, ipso facto, work an extinguishment pro tanto of the mortgage. 2 Encycl. L. 639; Mechanics’ Building and Loan Association v. Conover et al., 1 McCart. 219; 2 C. E. Gr. 497; Hoboken Building and Loan Association v. Martin, 2 Beas. 428; Somerset County Building and Loan Association v. Vandervere, 3 Stock. 382; State, Washington Building and Loan Association, pros., v. Hornbacker, 13 Vr. 635.

    The question is one involving the doctrine of marshaling. The position of the parties at the time of the release of the shares was this: The association held the first mortgage, with the subsequently-released shares as collateral security, the defendant holding a second mortgage. Here, then, was the association, the older creditor, holding two securities, viz., the mortgaged premises and the shares of stock, and a second mortgagee, the junior creditor, with a lien upon the mortgaged premises alone. The right of the latter to demand of the former that he should apply the security peculiar to himself was clear, and the rule seems equally clear that if the older creditor, having knowledge of the junior encumbrance, released his peculiar security, he ran the risk of having its value charged against him, if the common security is insufficient to pay both debts. Reilly v. Mayer, 1 Beas. 55; Washington Building and Loan Association v. Beaghen et al., 12 C. E. Gr. 99.

    But the junior encumbrancer can successfully complain only when it appears that the security was released after the older creditor had notice of the existence of the junior encumbrance. There is nothing to prove that the association was chargeable, at the time of the substitution of the shares, with knowledge of the existence of the mortgages to Sudbury. Zane himself was a director, and he of course had notice as the maker of the subsequent mortgages, but he took no part, as a director, in the transaction of which the substitutions were a part. In these transactions he was acting independently of the board — he was acting for himself, and the other directors were acting for the association. He was asking of the association that they should pay him the value of the shares which he individually held Knowledge of his private transactions cannot under these circumstances be imputed to the association. First National Bank of Hightstown v. Christopher, 11 Vr. 435.

    I will advise a decree for the complainant.

      Mr. Thomas E. French,, for the appellant.

      Mr. Martin V. Bergen, for the respondent.
   Per Curiam.

Decree affirmed, for the reasons given in the court of chancery.

For affirmance — The Chief-Justice, Depue, Lippincott, Ludlow, Van Syqkel, Adams, Hendrickson, Vredenburgh — '8.

For reversal — Collins, Dixon, Bogert, Nixon — 4.


text:
    Charles Gerli et al., appellants, v. Arthur Macfarlane, respondent.
    On appeal from a decree advised by Vice-Chancellor Emery, whose opinion is reported in Macfarlane v. Richardson, 11 Dick. Ch. Rep. 191.

      Mr. Charles L. Garrick, for the appellants.

      Mr. Allan Benny, for.the respondent.
   Per Curiam.

Decree affirmed, for'the reasons given in the court of chancery.

For affirmance — Collins, Depue, Dixon, Lippincott, Ludlow, Van Syckel, Adams, Bogert, Hendrickson, Nixon, Vredenburgh — 11.

Far reversal — None.


text:
    Helen Ames, appellant, v. The Trenton Brewing Company et al., respondents.
    On appeal from a decree advised by. Vice-Chancellor Grey, whose opinion is reported in Ames v. Trenton Brewing Co., 11 Dick. Ch. Rep. 309.

      Mr. Clarence T. Atkinson, for the. appellant.

      Mr. John T. Van Cleef, for the respondents.
   Per Curiam.

Decree affirmed, for the reasons given in the court of chancery.

For affirmance — Collins, Depue, Dixon, Lippincott, Ludlow, Van Syckel, Adams, Bogert, Hendrickson, Nixon, Vredenburgh — 11.

For reversal — None.


text:
    New York and Greenwood Lake Railway Company, appellant, v. Eugene F. Daly, respondent.
    On appeal from a decree advised by Vice-Chancellor Pitney, whose opinion is reported in Daly v. New York and Greenwood Lake Railway Co., 10 Dick. Ch. Rep. 595.

      Mr. Gortlandt Parker, Jr., for the appellant.

      Mr. Joseph Anderson, for the respondent.
   Per Curiam.

Decree affirmed, for the reasons given in the court of chancery.

For affirmance — Collins, Depue, Lippincott, Ludlow, Van Syckel, Adams, Hendrickson, Nixon, Vredenburgh — 9.

For reversal — Dixon—1.


author: The Chancellor.

text:
    Alexander T. McGill, Chancellor.
    Henry C. Pitney, John R. Emery, Alfred Reed, Frederic W. Stevens and Martin P. Grey, Vice-Chancellors.
    Alexander B. Simonds v. The Essex Passenger Railway Company.
    [Filed November 9th, 1898.]
    1. Where, pending delivery of deeds under land contracts providing for payment on delivery but-silent as to possession, the purchaser, consenting to the vendor’s delay in executing the deeds, takes possession and erects buildings, equity will charge.him interest on the unpaid price.

      2. Where a purchaser took possession under a land contract that did not provide for possession or for interest on deferred payments, and a creditor of the vendor acquired title to the land subject to the contract, under a judgment sale, the latter could enforce an equitable claim for interest only from the date of his purchase, since the vendor’s equitable right to the value of the use of the deferred payment did not pass under the judgment sale.
    3. A purchaser took possession and erected buildings under land contracts which provided for payment on delivery of deeds and that he should pay taxes, but contained nothing regarding possession or interest on a deferred payment. A dispute arose as to interest, and to facilitate the transfer and prevent further delay it was agreed that the deferred payment should be made and the deeds delivered, but that “ the question whether [the vendor] is entitled to interest on said sum, and his right thereto, shall not be in any way affected by said conveyance and payment.” — Held, that the vendor might after-wards have interest in a suit for specific performance.
    On demurrer to bill.

      Mr. Edward Q. Keasbey, for the demurrant.

      Mr. B. Wayne Parker, for the complainant.
   The Chancellor.

The bill alleges that on the 17th of April, 1884, the East Newark Land Company agreed in writing with Sylvester S. Battin to sell to him eight lots of land in East Newark for $3,400, $400 of which was to be paid upon the delivery of the contract and $3,000 upon the delivery of the deed. The deed was to convey the property in fee, free from all encumbrances, and was to be delivered upon thirty days’ notice to Battin and on or before the 17th day of April, 1885. Battin was to pay all taxes and assessments levied upon the land after the date of the contract. He contracted in behalf of the Newark, Harrison and Kearney Horse Car Railroad Company. Upon the execution of the contract the last-named company took possession of the land and used it for stables which it erected thereon.

On the 29th day of April, 1886, the East Newark Land Company made another contract in writing with the Essex Passenger Railway Company to sell eight other lots for other $3,400, $400 of which was paid upon the delivery of the contract and $3,000 was to be paid upon the delivery of the deed. The deed was to convey the property in fee, free from encumbrances, and was to be delivered on or before the 29th day of April, 1887. The Essex Passenger .Railway Company was to pay all taxes and assessments levied upon the land after the date'of the contract. In this contract there was no provision that notice of the delivery of the deed should be given. Upon the execution of the contract, the Essex Passenger Railway Company took possession of. the land and used it for stables.

On April 6th, 1887, the Newark, Harrison and Kearney Horse Car Company transferred its entire property to the Essex Passenger Railway Company and at the same time Mr. Battin assigned to the last-named company his contract with the East Newark Land Company and his interests in the lands described therein. In November, 1887, before the deeds for the sixteen lots were delivered, a judgment was recovered against the East Newark Land Company under which, in December, 1887, all the lots in question, with other lands, were sold to the complainant. The judgment and sale were claimed by the Essex Passenger Railway Company to be subject to the contracts of sale.

At the times the contracts for the sale of the sixteen lots were respectively made the parties to them knew that the lots were encumbered by two mortgages from which the land company was to secure releases before the delivery of the deeds. Pending negotiations for such releases the fulfillment of the contracts was delayed from time to time by the consent of all parties and neither tender of the remainder of the moneys to be paid nor demand for the deeds was made, and during all the' delay the railway companies remained in possession of the lots, enjoying the beneficial use of them.

In November, 1888, an arrangement was made to free the lots from the mortgages then in process of foreclosure, and it became desirable, in order to carry out the arrangement, to use the $6,000 that the Essex Passenger Railway Company was to pay upon delivery of the deeds to it, but the question arose whether the complainant should be paid interest upon the $6,000. It was not deemed wise to delay settlement with the mortgagee until that question could be determined, and hence the following agreement was entered into between the complainant and defendant:

“ Whereas, the Essex Passenger Railway Company are in occupation, under contracts for sale heretofore made with the East Newark Land Company, of sixteen lots, Nos. 349 to 364 inclusive, on the map of lands of said company, and it is desired not to embarrass the settlement of pending foreclosure litigation as to the land of said company by the question whether interest is payable on said contracts. It is therefore agreed by said railway company and Alexander B. Simonds that if said Simonds cause said lots to be conveyed to said railway company, free from the mortgages now existing on the same and of all encumbrances but taxes and assessments provided by said contracts to be paid by the purchasers, then the said railway company will pay to said Simonds the sum of six thousand dollars, and the question whether said Simonds is entitled to interest on said sum and his right thereto shall not be in any way affected by said conveyance and payment.”

Afterwards, on December 18fch, 1888, the mortgage liens were removed from the lots, the lots were duly conveyed by the complainant to the defendant, and the defendant paid the complainant $6,000, whereupon, at the foot of the agreement last mentioned, the following receipt was endorsed :

“Received six thousand dollars on delivering the deed of Alex. B. Simonds and release of Brinkerhoff, ex’r, in pursuance of above agreement, said deed and release accepted in like pursuance of said agreement.”

The complainant now insists that, in virtue of the agreement of November, 1888, he is entitled to have the question whether he was entitled to interest on the $6,000 determined in this suit, as if he were asking that the railway company be compelled to specifically perform the contracts for the sale of the lots, and he prays that the defendant company may be decreed to account for and pay the interest upon the $6,000, and that he be decreed to have a lien upon the lots for the amount found to be due for that interest.

The bill is demurred to by the Essex Passenger Railway Company upon the ground that it does not present a case for equitable relief.

It is observed that although both the contracts provide that the vendees shall pay the taxes and assessments levied after the date of the contracts, they are silent both as to the possession of the land and as to interest upon the purchase-money.

No recovery of interest upon the $6,00.0 can be had at law, because the vendor’s right to the $6,000 could not mature before the vendee should be put in default by due tender of deeds. Fludyer v. Cocker, 12 Ves. 25; Stevenson v. Maxwell, 2 N. Y. 408, 414. But when asked to enforce an agreement like those in question equity proceeds with reference not only to the rights of the parties under the agreement, but also with reference to the position the parties assume to each other after making the agreement and the equities that grow out thereof. Where, pending the execution of an agreement for the sale of land which does not provide for possession of the land, the vendee takes possession of the land, a court of equity, ordinarily, will charge him interest upon the unpaid purchase-money. He proceeds,” said Sir William Grant, master of the rolls, in Fludyer v. Cooker, supra, “ upon the supposition that the contract will be executed, and therefore agrees that from that day he will treat it as if it was executed. The act of taking possession is an implied agreement to pay interest, for so absurd an agreement as that the purchaser is to receive the rents and profits, to which he has no legal title, and the vendor is not to have interest, as he has no legal title to the money, can never be implied.” Binks v. Rokeby, 2 Swanst. 222; Attorney-General v. Christ Church, Oxford, 13 Sim. 214; Birch v. Joy, 3 H. L. Cas. 565; Stevenson v. Maxwell, supra; Ashmore v. Evans, 3 Stock. 152; Lang v. Moole, 4 Stew. Eq. 413. And it is held that this rule will be applied even though there be delay in the execution of the contract of sale by the vendor. Ballard v. Shutt, 15 Ch. Div. 122; Stevenson v. Maxwell, supra.

It has seemed to me to be difficult to reconcile the latter holding in this state with the case of Ware v. Lippincott, 18 Stew. Eq. 220. In that case Ware bought a lot of land from Evans for $158, and paying $100 of the purchase-money entered into possession and cut off and sold all the timber on the land-When the $100 was paid Evans gave Ware a receipt in writing, which embodied the contract as follows: “ The deed to be hereafter made to him and when delivered he is to give his note for fifty-eight dollars, additional.”

After several years, during which there was neither tender nor demand of either deed or note, Ware sent his note for $58 to the heirs of Evans and demanded a deed, but they refused to accept the note and give the deed, and commenced a suit in ejectment to recover possession of the land, and thereupon Ware commenced a suit in equity for the specific performance of his contract with Evans, in which the prosecution of the ejectment suit was restrained by injunction. Upon the hearing of the case question arose whether Ware should pay interest upon the $58 during his occupancy of the land, and it was held in the court of chancery that he should. Upon appeal, however, the court of errors and appeals reached the opposite conclusion, but without any discussion of the equitable rule invoked- in the present case. Its disposition of the case was this: “Had the defendants a right to demand from Ware, before they would deliver to him his deed, anything more than his note for $58 ? They certainly could not require of him more than Evans could have done if alive. Evans, at any period prior to his death, would have been compelled to make a deed upon Ware’s tender to him of his note for $58. Evans could not have required interest on that sum. Interest was an incident not of the contract of sale but of the note. The note had no existence in fact because it had not been obtained, and none in equity because it had not been demanded. Evans, in his lifetime, had it in his power to fix a period when interest should begin to run, either by obtaining or demanding the note from Ware.” The decision rests upon the failure to demand the note, the thing bargained for, the written promise to pay money from which, when had, interest would proceed. It was deemed that without demand for it the note would not have equitable life, an essential to the recovery of interest. It was evidently intended that the decision of that case should be controlled by the neglect of JEvans and his heirs. That puts the case at variance with the decisions which hold that the delay of the vendor will not prevent the application of the general equitable rule, but I do not understand that it disapproves of the rule itself. The principle that underlies the allowance of interest in cases of the nature ■considered is that .specific performance, being a discretionary ■equitable remedy, should be meted out upon equitable principles, and in its administration exact that which should be done in fairness and good conscience. It is inequitable that one party to a contract, in absence of agreement to that effect, shall have both rents and profits of the lands and the value of the purchase-money. If he is brought into a court of equity, with respect to the enforcement of the contract, he must do that which conscience requires — keep the profits of the land he wants and surrender the value of the money withheld. In the case I now •consider the vendees took possession of the lands and built upon them, so that they became as productive as was intended when the contracts for sale were executed. For the time being they did no*t actually need the legal title. They consented to the delays occasioned by the difficulties of the vendors and when it ¡became possible, to secure the.legal title free from encumbrances the defendant railway, then holding the rights of the vendees, paid the $6,000 to be paid upon the delivery of the deeds, and upon suggestion of the question whether it should not pay the ■complainant interest, agreed that that question should remain unaffected by the payment and delivery and acceptance of the •deeds.

It is observed that in this case that which was withheld was money and not a note or a mere proriiise to pay money. The -delay was agreed to so that fault did not attach to either party because thereof. The case thus differs from Ware v. Lippincott. It appears to be within the plain rule that the vendee shall not ¡have both the profits of the land and the value of the money.

At this point it is remembered that the contracts were made •with the East Newark Land Company, and that that company ■did not assign its rights under them to the present complainant'. The complainant, in December, 1887, became the owner of the lands subject to the contracts in a proceeding in invitum — a sale under a judgment. Prior to that sale the land company was the party deprived of both the profits of the land and the value of the money. Its equitable right to the value of the money, so long as it owned the land, did not pass with the land, by the judgment sale, to the complainant. Hence, I think that the complainant’s equity to have interest is limited to the time during which he was deprived of the use of the money — that is, from December, 1887, to the date of the payment of the money, in December, 1888.

Under the circumstances of this case I think that the present action will lie. At the time the $6,000 was paid and the deeds were delivered dispute with reference to the interest had arisen. The complainant could then have commenced suit for specific performance, and, in that suit, could have claimed interest. This situation was realized by both the parties, and hence they stipulated to the effect that payment of the money and delivery and receipt of the deed should not affect any question as to right to interest. The stipulation contemplated not only legal right but the right that could be enforced in a suit in equity for the specific enforcement of the contracts. Because of this stipulation I think that this action lies as a suit for specific performance to complete the performance to the extent the court would have required if a suit for that purpose had been begun when it was avoided by the stipulation. What the exact sum to be paid will be and whether that sum will be charged on the lands, are questions to be determined at final hearing.

The demurrer will be overruled, with costs.


text:
    Charles T. D. Crews v. The United States Car Company.
    [Filed January 24th, 1899.]
    The assets of. an insolvent corporation in the hands of receivers appointed under the provisions of the Corporation act, constitute a trust fund primarily for creditors existent at the time of adjudication of insolvency and are not liable to the payment of the state franchise tax or imposition assessed after the adjudication of insolvency against the corporate entity, unless the trust fund is more than sufficient to pay the creditors aforesaid, or the franchises be used by the receivers for the benefit of the trust fund or in performance of a duty with reference to the franchise.
    On appeal to the chancellor from the rejection of a claim of the State of New Jersey for franchise tax presented to the receivers of an insolvent corporation.

      Mr. Samuel JEC. Grey, attorney-general, for the State of New Jersey.

      Mr. Flavel McGee, with whom was Mr. Carl A. De Gersdorff (of New York), for the receivers.
   The Chancellor.

The United States Car Company, a corporation of this state engaged in the manufacture of freight cars in plants erected by it in the States of Illinois, Ohio and Alabama, on the 1st of September, 1897, was adjudged by this court to be insolvent, and two receivers were appointed for it — William C. Lane and Flavel McGee. Subsequently the same gentlemen were appointed ancillary receivers in the State of Ohio, and Mr. Lane alone became ancillary receiver in New York — where the company had an office, and there was some office furniture — and in Alabama and Illinois. During the month of September, 1897, under authority from this court, they operated the several plants. On the 1st of October, 1897, they leased the plants to a new company organized under the laws of this state, in pursuance of a plan of adjustment of the investments in the United States Car Company, which new company was called the Illinois Car Equipment Company, at a stipulated monthly rental pending the conclusion of foreclosure suits upon a mortgage of the several plants.

On the 1st day of February, 1898, the plants were sold to the Illinois Car and Equipment Company at the foreclosure sales, and the leases of them by the receivers then terminated. After the termination of the lease of the realty some personal property was sold by the receivers in New York and Illinois. In July, 1898, the receivers, who had not been made parties to the foreclosure suits, conveyed to the Illinois Car and Equipment Company their right, title and interest in the plants sold to it in the foreclosure suits.

For the purpose of retaining the good will of the customers of the old corporation for the benefit of the reorganized or new corporation, the trade debts of the insolvent corporation were purchased by the reorganization committee at their face value and were assigned to that committee, and the committee now presents its claim for a dividend upon them. In addition to that claim the only creditors of the insolvent corporation are bondholders who claim on account of large deficiencies in the proceeds of the foreclosure sales' to satisfy their bonds. The moneys in the hands of the receivers will pay a small dividend on the claims presented.

The reorganized or new company, having acquired, substantially, all the property of the old company and having succeeded to its business, has paid to the State of New Jersey its franchise tax for the year 1898.

Upon the hearing of this appeal the position taken in behalf of the state was that the corporate entity of the insolvent corporation yet exists, subject to the state’s imposition of an annual license fee or franchise tax; that such tax has been imposed for the year 1898 and .that the same is payable out of the undistributed moneys in the receivers’ hands and is entitled to preference in payment in virtue of the statute. Gen. Stat p. 3335 § 6. The appellants do not dispute the continuing entity of the United States Car Company or that such continuing entity, although stripped of all assets and present power, may be taxed by the state for its corporate franchises. They acquiesce that the tax is not a property tax, but is a license fee for the right to exercise the franchise given to it by the state (Standard Underground Cable Co. v. Attorney-General, 1 Dick. Ch. Rep. 270, 273); that is, in this ease, for “being a corporation.” Honduras Co. v. Board of Assessors, 25 Vr. 278. Their insistence is that they are trustees of the assets of the insolvent corporation, now reduced to cash by them for those who were its creditors at the time it was adjudged to be insolvent and their assigns, and that they have not made use of the franchise, and that the tax in question is indebtedness of the corporation that has arisen subsequent to the adjudication mentioned and is not administrative indebtedness of the receivers and is not entitled to share in the distribution of the trust moneys in their hands.

The proposition that the receivers take the assets of the-insolvent corporation in trust subject to the direction and control of the court, primarily for the benefit of creditors, cannot now, I think, be questioned. They are to restore them to the corporation if the creditors be paid and the court shall so direct, or are to reduce them to cash and first pay creditors, and if there be a surplus after paying creditors then to distribute that surplus among stockholders.

In the case of Mather’s Sons Co., 7 Dick. Ch. Rep. 607, in speaking of the receivers’ relation to the franchise of an insolvent corporation, I, in substance, said that a receiver does not necessarily deal in every case with the corporate entity or special privilege or franchise given to the corporation. His duty may be limited to the mere management and disposition of corporeal assets. Our Corporation act contemplates two classes of corporations that may become insolvent and be dealt with by a receiver — -first, those of a public character, such as a canal, railroad or turnpike corporation, the value of whose property and work is dependent upon the franchise, and in whose continuance the public is interested — I refer to such corporations as are dealt with in the eighty-second section of the Corporation act — and second, those mere private enterprises incorporated to secure a franchise merely to enable the prosecution of a lawful private business in a corporate name, and relieve those who are interested in it from individual liability beyond the capital subscribed for, and serve convenience in, from time to time, adjusting the ownership of the capital. In the first class the franchise is to be used by the receiver in the performance of corporate duties and may be sold. In the latter class the franchise is usually a thing without value after the adjudication of insolvency, although eases may arise where the debts of the corporation can be paid and the entity is worth preserving either for convenience or because the name of the corporation has a value through its establishment in trade. But this value is almost wholly for the stockholders, for the receiver cannot sell the franchise of such a corporation. It is only a possible thing for the receiver, as in the case of Mather’s Sons Co., to derive some pecuniary value from the use of the corporate name. I expressed the opinion in that case that upon the adjudication of insolvency and appointment of a receiver, the then existing assets were severed from the corporation and appropriated to the payment of the debts of the existing creditors, and were not held to answer the obligations that might thereafter be incurred by the continuing entity from which they were severed unless, after the payment of those creditors, there should remain a surplus for distribution, and that then such surplus should be applied to the satisfaction of all obligations of the corporation before it is free to be returned to the stockholders.

There will be no surplus assets in this case after the payment of creditors. The moneys realized by the receivers will suffice for only a small dividend to creditors and leave a large portion of their claims unsatisfied. The only continuance of the business of this corporation was during the year 1897, for which year the franchise tax has been paid, hence question as to use of the franchise by the receivers is not here presented. After 1897 the receivers merely conserved assets and converted them into money. Before 1898 it became clear that the entity, named the United States Car Company, would be abandoned by the stockholders. Another company was organized in 1897, under the laws of this state, in behalf of those who had been pecuniarily interested in the United States Car Company, with the purpose to buy the assets and continue the business of the United States Car Company. Prior to the year 1898 that new company hired the use of the plants of the old company pending their inevitable sale under foreclosure and commenced its business. It purchased at the foreclosure sale, and, continuing its business as successor to the United States Car Company, paid its franchise tax to this state for the year 1898.

The question to be determined now, I understand, is whether the receivers must pay the franchise tax. of 1898, imposed upon the worthless and abandoned entity, out of the proceeds of sale of the assets held by them for distribution to creditors. The tax was imposed in June, 1898 (P. L. of 1892 p. 140, Franchise Tax Act § 5), eight months after the adjudication of insolvency and passage of the assets of -the insolvent company to the receivers in trust, as has been indicated. I do not think that it is an indebtedness entitled to share in the receivers’ distribution. The creditors who share in the distribution are those who were existent at the adjudication of insolvency.

The Corporation act, in its eighty-sixth section, provides that debts not due, making rebate of interest, when they do' not bear interest, may share in distribution and, in its seventy-fifth section, authorizes the court of chancery to limit the time within which creditors shall present their claims to the receivers and prove them. By the seventy-fourth section the receivers are required to make an inventory which shall contain an account of all the debts of the insolvent corporation. By the eighty-third section a lien for labor and services performed is given, limited to services rendered within two months preceding the date at which the proceedings in insolvency shall have been actually instituted. These provisions all contemplate creditors existent at the date of the adjudication of insolvency or prior thereto. No provision is made , for creditors who shall thereafter come into existence. The authority for limitation in the presentation of claims does not contemplate debts to arise in the future. The receiver’s inventory cannot contain future debts. The protection of workmen is brought down to the commencement of proceedings in insolvency. I do not find anywhere in the statute any recognition of the right of a debt which comes into existence after the insolvency is adjudged to share in the distribution of the assets taken by the receiver. Nor do I find nor am I referred to any adjudication upon this subject. There is a suggestion of this question by the present chief-justice, in Linn v. Dixon Crucible Co., 30 Vr. 33, but the question is not discussed.

Prior to the Corporation act [Rev. of 1896) our courts differed as to the amount of title a receiver took in the assets of an insolvent corporation. One line of cases, led by Willink v. Morris Canal and Banking Co., 3 Gr. Ch. 377, 400 (1843), held that the property of the corporation did not vest in the receiver but that he was substituted in the management of the corporation for the purpose of settling up and closing its affairs, with power, among other things, to take charge of the property and sell it. In this line I find also New Jersey Southern Railroad Co. v. Railroad Commissioners, 12 Vr. 249 (1879); Receiver of State Bank v. First National Bank of Plainfield, 7 Stew. Eq. 450, 455 (1881); Kirkpatrick v. Corning, 10 Stew. Eq. 54, 59 (1883). Another line of authorities held that the title of the corporation was divested by the adjudication and appointment of the receiver. Corrigan v. Trenton Delaware Falls Co., 3 Hal. Ch. 489, 496 (1849); Freeholders of Middlesex County v. State Bank, 2 Stew. Eq. 268, 273 (1878); Minchin v. Second National Bank, 9 Stew. Eq. 436, 442 (1883). See, also, Harrison v. Maxwell, 15 Vr. 319, for a similar reasoning.

I think that the exact status of the title to the property of an insolvent corporation prior to 1896 was stated by the late Chief-Justice Beasley, in the supreme court, in Wilkinson v. Rutherford, 20 Vr. 241 (1887). Wilkinson was appointed receiver of the insolvent Newark Savings Institution, under statutes relating to savings banks, and brought suit in his own name as receiver upon a bond to the savings institution. Question arose as .to whether he could do so. The statutes pointed out his duties but were silent as to his title in the assets. The chief-justice said: “ I cannot agree to the doctrine that a receiver is a mere custodian of the property of the person whom, in certain respects, he is made to supplant, for it would seem that he is an assignee of the assets within the scope of his office. There seems to be no reason why his power should not be held to be eo-extensive with his functions, and it is clear that he cannot conveniently perform those functions unless upon the theory that some interest in the property akin to that of assignee passes to him. The receiver is to discharge the executory duty of collecting the debts and taking into his possession, even against antagonistic claims, the tangible property, and after his appointment a sale of such property by the insolvent would, it is presumed, be absolutely void; and yet if the interest in the property thus transferred was not vested in the receiver it would be difficult to find ground on which to invalidate the transaction. * . * * These embarrassments, as well as many others of a like kind, are obviated by the adoption of the doctrine that, virtute officii, a receiver becomes a provisional assignee of the property committed to him.” Later, in Merchants’ National Bank v. Pennsylvania Steel Co., 28 Vr. 336 (1894), the doctrine thus stated was again held by the supreme court.

The present Corporation act (Rev. of 1896), by its sixty-eighth section, gives the legal title to the assets of an insolvent company to its receiver. Still, the beneficial ownership is in his cestuis que trustent, ascertained by other parts of the statutes and the orders of the court. So far as the question under consideration is concerned, the statute’s express gift of the legal title to- the receiver does not change the status of the cestuis que trustent. Before he was expressly given the legal title, as has been seen, he took enough title to enable him to protect the assets for the purposes of his trust.

But the same section of the Revision of 1896 gives him, also, all the franchises,' rights, privileges and effects ” of the insolvent corporation and divests the corporation of the title thereto. Does this casting of the title to the franchises upon him charge all assets in his hands with the duty of maintaining the franchise by paying the franchise taxes imposed after the insolvency? Is the franchise tax in question payable from the assets as an expense of the receiver ?

It is apparent that the receiver of an insolvent corporation is trustee for two classes of cestuis que trustent-creditors and stockholders. He takes the property of the corporation, charged primarily with the existent debts of the corporation. His first duty is to so manage that property that it will, if possible, yield enough to pay those debts. If there be a surplus, that surplus only is to go to the stockholders. The franchises are given to him to equip him to manage his trust — to use, if necessary, in the disposition of the property or to return to the corporation represented by the stockholders. Holding them, it is perhaps his duty to pay the tax upon them, not, however, as part of the general expense of his trust, out of whatever assets he may have, but from the surplus after the payment of creditors, unless they shall be used for the benefit of the creditors. Where he is to use them and sell them with the property, or where he does use them for the benefit of creditors, it is but equitable that the creditors shall pay for their preservation, but where they are utterly worthless to creditors I fail to see why the assets held in trust for the payment of creditors should be mulcted and perhaps exhausted in their maintenance. In such a case they are held for the stockholders representing the corporation from whose funds, if any there be, the cost of their preservation should come.

In this case the creditors have not had and could not have had any use or value of the corporate franchise, and they should not be compelled to pay the franchise tax in question.

My conclusion is that the claim was properly rejected as one entitled to payment from the funds in the receivers’ hands, those funds being insufficient to pay the creditors.


author: Pitney, V. C.

text:
    The Joseph M. Smith Company and Bruen & Morris v. Jeremiah O’Brien and Edward L. Boisaubin.
    [Decided October 12th, 1898.
    Filed June 10th, 1899.]
    A debtor, in order to defeat judgment creditors, transferred land to one who had knowledge of the facts. A portion of the price was paid on a mortgage on the land, and another portion paid on a bona fide debt of the grantor. The balance was secured by a promissory note made payable to a member of the grantor’s family to satisfy an alleged debt which was not proven to exist. — ■ Held, that the deed would be decreed a mortgage to secure the two payments made and set aside as to the balance.
    On final hearing on bill, answers and proofs.

      Mr. Charles A. Rathbun, for the complainants.

      Mr. John E. Fennell and Mr. Willard W. Cutter, for the defendants.
   Pitney, V. C.

The bill is filed by two several judgment creditors of the defendant Boisaubin, to set aside a conveyance of land by him to the defendant O’Brien, on the ground that it was made for the purpose of defrauding the complainants.

The complainants each recovered two judgments against the defendant Boisaubin, two of which were recovered in a justice’s court on the 26th of March, 1898; the others were recovered later in the circuit court of the county.

The conveyance was made on the 25th of March, 1898. The consideration was $4,000, which included a mortgage for $2,000, with arrears of interest thereon, and two small judgments, amounting to about $300, besides the taxes, so that the balance of consideration money coming to Boisaubin was about $1,475.

The facts and circumstances show clearly that the- intention of Boisaubin was to prevent the complainants from realizing anything on their judgments, and to devote a portion of the purchase-money to the payment of a favored but bona fide and honest creditor named Bardon, to the extent of between $600 and $700, and the balance to the payment of an alleged debt due by Boisaubin. to a female member of his family, of the existence of which debt no' sufficient proof was given, and the circumstances indicated very strongly that the due-bill given by O’Brien to this female, and endorsed over by her, was really in the possession and under the control of Boisaubin.

These circumstances were all known to Mr. O’Brien, and I am satisfied that he was fully aware of the intentions of Mr. Boisaubin. A payment to the' extent of $632 was actually made to Mr. Bardon, and $240' paid to the holder of the mortgage. To that extent the consideration money expressed in the deed was honestly applied to the payment of the honest debt of Boisaubin.

" Under these circumstances I think that the' conveyance to O’Brien must be decreed to be a mortgage in his favor to secure him for the payment of the sum of $240 paid on the mortgage, and the sum of $632 paid to Mr. Bardon, and declared to be fraudulent and void as to the balance of the consideration money.

I will advise a decree accordingly.