text:
    Four Corners Building and Loan Association of Newark v. Frank Schwarzwaelder.
    [Decided July 10th, 1917.]
    1. Apart from any willful act, the negligence for which a person can be held responsible consists either in the performance of án act which under all the circumstances he is bound not to perform or the non-performance of- an act which under all the circumstances he is bound to perform.
    2. A director of a building and loan association is guilty of gross negligence in permitting the secretary to call up members of the board of directors and getting their permission to record them as present when they were in fact absent.
    3. The duties and responsibilities of directors of building and loan associations considered and defined.
    4. If a director was' present at a meeting when the minutes of the preceding meeting were approved, he is bound by the knowledge, of whatever appeared in the minutes.
    5. Where a director permitted an association to make a loan on mortgage on property on which he, as executor, held a prior mortgage, he is guilty of such negligence as renders him responsible to the association for loss by reason thereof.

      O. AVhere a director was present at a meeting when a report was made showing a disbursement on account of a particular mortgage which, had he made inquiries, would have disclosed that the disbursement was on property on which he, as executor, held a mortgage, he is guilty of such negligence as would make him responsible for subsequent loss.
    7. Directors of a building and loan association have no right to shift their responsibility on their counsel.
    S. That other directors are also responsible is no objection to relief against a defendant director.

      Messrs. Raymond, Mountain, Van Blarcom & Marsh, for the complainant.

      Mr. Francis Child and Mr. Thomas S. Henry, for the defendant.
   Lane, V. C.

This is a proceeding to compel defendant to reimburse complainant for losses alleged to have been sustained by complainant on account of two loans, one of $5,000 on property in South Orange, and one of $4,000 on property in East Orange.

The complainant is a building and loan association, and the defendant was. one of its directors at the time the respective loans were made. The defendant was also at the same time one of the executors of the estate of Loehnberg, which estate, it subsequently transpired, held mortgages, prior to those of the building and loan association, upon the properties in question, with the result that, upon a foreclosure, of a mortgage prior to that .held by the Loehnberg estate on the South Orange property, the equity of the building and loan association was wiped out, and upon the foreclosure of the mortgage held by the Loehnberg estate on the East Orange property the building and loan association, in order to protect its rights, was obliged to buy in the property, which it still holds. The charge is that the defendant, as a director of the building and loan association, has been guilty of such negligence as makes him responsible for the losses accruing to the building and loan association. In French v. Armstrong, 79 N. J. Eq. 283, Vice-Chancellor Stevens, in dealing with the responsibilities of directors of building and loan associations, said: “In Williams v. McKay, 40 N. J. Eq. 189, the case of a receiver of a savings hank against its managers, it was held by the court of errors and appeals that the receiver represents not only the corporation but its depositors and creditors, and that the managers stand to such depositors and creditors in the character of trustees; that the trust was direct, and' that as such it was exempt from the operation of the statute of limitations. It appears to me that building and loan associations stand on very much the same footing as savings banks. They are ^wasi-public institutions, dealt with as such by the legislature and having very similar objects. They are both designed to conserve the scant]'' savings of wage earners and other people of small means. If the managers of savings banks are trustees of creditors and depositors, I see no reason why the directors of building and loan associations do not stand in precisely the same relation to their creditors and so-called stockholders.” And the court of errors and appeals in Gerhard, v. Welsh, 80 N. J. Eq. 203, dealing with the responsibilities of directors of a building and loan association was apparently of, although not directly so stating, the same opinion. Citing the opinion of the chancellor on final hearing in Williams v. McCay, 46 N. J. Eq. 25.

In Williams v. McCay, 40 N. J. Eq. 189 (at p. 195), the court of errors and appeals said: “The duty belonging to such a situation is a plain one — to care for the moneys intrusted to them .in the manner provided in the charter, and to exercise ordinary care and prudence in so doing. It is true that the defendants were, unpaid servants, but the duty of bringing to their office ordinary'skill and vigilance was none the less on that account, for to this extent there is no distinction known to the law between a volunteer and a salaried agent. These defendaiRs held themselves out to the public as the managers of this bank, and by so doing they severally engaged to carry it on in the same way that men of common prudence and skill conduct a similar business for themselves. This is the measure of the. responsibility of officers of this kind.” And on final hearing the chancellor — 46 N. J. Eq. (at p. 56) — said: “Trustees of the character of the defendants are not merely required to be honest, but they must also bring to the. discharge of the duties that they undertake ordinary competency, together with reasonable vigilance and care. They cannot excuse imprudence or indifference by showing honesty of intention coupled with gross ignorance and inexperience, or coupled with an absorption of their time and attention in their private affairs. The rule in this respect is admirably stated by Judge Earl, of the court of appeals of New York, in Hun v. Cary, 82 N. Y. 74, in this language: ‘One who voluntarily takes the position of director and invites confidence in that relation, undertakes, like a mandatory, with those whom he represents or for whom he acts, that he possesses at least' ordinary knowledge and skill, and that he will bring them to bear in the discharge of his duties. Such is the rule applicable to public officers, to professional men, and to mechanics, and such is the rule which must be applicable to every person who undertakes to act for another in a situation or employment requiring skill and knowledge gratuitously. These defendants ordinarily took the position of trustees of the bank. They invited depositors to confide to them their savings and to entrust the safe-keeping and management of them to their skill and prudence. They undertook not only that they would discharge their duties with proper care, but that they would exercise the ordinary skill and judgment requisite for the discharge of their delicate trust” And see Campbell, Receiver, v. Watson, 62 N. J. Eq. 396, and Barrett v. Bloomfield Savings Institution, 64 N. J. Eq. 425.

In Briggs v. Spaulding, 141 U. S. 132, the supreme court of the United States in dealing with the'liability of directors said with respect to what is negligence: “If very little care is due from him, and he fails to bestow that little, it is called gross negligence. If very great care is due, and he fails to come up to the mark required, it is called slight negligence. And if ordinary care is due, such as a prudent man would exorcise in his own affairs, failure to bestow that amount of care is called ordinary negligence. In each case the negligence, whatever epithet we give it, is failure to bestow the care and skill which the situation demands; and hence it is more strictly accurate, perhaps, to call it simply ‘negligence/ * * * In any view the degree of care to which these defendants were bound is that which ordinarily prudent and diligent men would exercise under similar circumstances, and in determining that the restrictions of the statute and the usages of business should be. taken into account. What may be negligence in one case may not be want of ordinary • care in another, and the question of negligence is therefore ultimately a question of fact to be determined under all the circumstances.”

It seems to me that leaving gut of consideration any willful act the negligence for which a person can be held responsible consists either in the performance of an act which under all the circumstances he is bound not to perform, or the non-performance of an act which under all the circumstances he is bound to perform.

In Citizens Building and Loan Association v. Coriell, 34 N. J. Eq. (at p. 392), the court-said, referring to and approving an opinion by the Pennsjdvania court: “It is there said that, while directors are personally responsible to the stockholders for any losses resulting from fraud, embezzlement or willful misconduct, or breach of trust, for their own benefit, and not for the benefit of the stockholders, for gross inattention and negligence, by which such fraud or misconduct has been perpetrated, by'agents, officers or co-directors, yet they are not liable for mistakes of judgment, even though they may be so gross as to appear absurd and ridiculous, provided they are honest and are fairly within the scope of the powers and discretion confided to the managing body.” Query, whether the last remark is quite consistent with the duty of a person becoming a director in an institution such as a building and loan- association to bring to his office ordinary competency? In this ease there is no charge, or at least no proof, of fraud, embezzlement or willful misconduct, or breach of trust for the benefit of the defendant, nor is there any question of a mistake of judgment. The sole question is whether the defendant was guilty of gross inattention and negligence (which means simply the failure to give such attention and to perform such acts as the circumstances required) as to make possible the fraud and misconduct which was undoubtedly perpetrated by an officer of the complainant.

First. The' facts are as follows with respect to the- South Orange loan. Roland D. Crocker was the solicitor for the association. ■ In 1909 he conveyed the property to Mabel Daly, who immediately made a mortgage to the executors of the estate of Loehnberg, of whom defendant was one. The property was then immediately reconveyed by the Dalys to Crocker, who held, title until April 1st, 1913, when he conveyed it to -Arthur M. Sims, who by instrument dated on the same day mortgaged it to the complainant. Crocker caused an application to be made to the complainant for a loan on the property as early as October, 1912, in the name of Louis Wagner, for $7,000.. The defendant was appointed one of the inspection committee. At a meeting of the directors held on the 25th of October, 1912, at which the defendant was present, a report of the defendant, the only one of the committee reporting, was presented, recommending a loan of $5,000. The property is clearly described in the minutes. On the 28th of Februarjq 1913, at a meeting of the directors at which the defendant was present, it was recommended that the officers be empowered to grant such amount of the loan as should be unanimously recommended by the committee, which included the defendant. The minutes of a. meeting of'the directors held on March 28th, 1913, the defendant not being present, state that all the members of committee recommended that 'a loan of $5,000 be granted to Louis Wagner on the property in question. The next reference to the matter is in the minutes of a meeting held on April 25th, 1913, at-which the defendant was not present. The minutes state:

“Referring to application for loan by Louis Wagner, Brooklyn, N. Y., to whom a loan of $5,000 was granted on property 60-62 south side of Second street, South Orange, Mr. Wagner having sold the property to Arthur Sims, and all of the committee, Mr. Frank Shulz and Mr: Thomas F. Peer and Mr. Frank Schwarzwaelder reporting in favor of loan of $5,000 to Arthur Sims on property 60-62 south side Second street, South Orange, N. J., it was, on motion of Mr. Merlinger, seconded by Mr. Stone, ordered, that- the committee recommendation be received and granted.”

The minutes of a meeting of May 23d, 1913, at which according to the minutes, defendant was present, state: “On motion duly made and seconded, minutes of last meeting and special meeting were approved.” And at the same meeting the treasurer’s report was received, the first item of disbursement being the sum of $4,813.50 for Arthur Sims’ mortgage. Again at a meeting of the directors July 2d, 1913, at which the defendant, according to the minutes, was present, the minutes of May 23d, 1913, were read and approved. It is insisted for the defendant that the fact that the minutes of May 23d and July 2d, 1913, indicate that he was present does not prove that fact, because it was a custom of the secretary to, if there was a lack of quorum, call up various members of the board and get their permission to note them as present. The defendant swears that ne never knew of any loan to a man named Sims, and that therefore it must be that the secretary pursued the course heretofore adverted to with respect to these two meetings. If this be true then the defendant is unquestionably guilty of gross negligence in permitting such a practice to be pursued, and he must be held bound for such knowledge as he would have acquired if he were in fact present. In considering this phase of the case I have dealt with it as if he were in fact present at the two meetings in question, and I find as a fact that there is not sufficient evidence to indicate that the minutes are incorrect. Crocker caused to be filed a forged satisfaction of the mortgage held by the Loehnberg estate, and also caused to be filed a forged satisfaction of a first mortgage held by one Bercaw upon the property. The Bercaw mortgage was foreclosed and the property sold for less than a sufficient amount to pay anything on the subsequent encumbrances. The testimony is to the effect that the defendant examined the premises in question as executor of the Loehnberg estate upon various occasions; that he was familiar with the loan and that he received interest regularly from Crocker until he disappeared in September, 1914: It is inconceivable to me that, when he acted as an inspector upon the application of Louis Wagner, and examined, as he says, the property, he did not realize that an application was being-made to the building and loan association for a loan upon property upon which he already held a mortgage. He advised the loan.. He made no inquiry as to how his mortgage was going to be taken care. The officers were empowered to grant a loan at a meeting at which he was present, and lie still, took no steps either to inquire as to how his loan was going to be taken care of or to. advise the association that the-pstate which he represented held a mortgage. Although he was not present at the meeting held March 28th, 1913, at which the minutes state a report was made by the committee of which he was a member, recommending that a loan of $5,000 should be granted, or at the meeting of April 25th, 1913, at which time the loan was transferred from Wagner to Sims, yet he was present at the meeting of May 23d, 1913, at which the minutes of the meeting of April 25th, 1913, were approved, and he is there-J fore bound by knowledge of whatever appears in these minutes, the minutes of April. 25th, 1913, distinctly, refer to the transfer from Wagner to Sims, and describe the propertjq and refer to the fact that all the members of the committee, including himself, had reported in favor of the loan. At the meeting of May 23d, 1913, he made no inquiry as to how the money due on the mortgage held by the estate that he represented would be paid, nor did he notify his fellow directors of the existence of such a mortgage. At the same meeting the treasurer reported that he had disbursed the sum of $4,813.50 for the Arthur Sims .mortgage. Apparently, if the defendant’s story is to be believed, he sat quiet when this report was presented and made no inquiry whatever to ascertain the authority of the treasurer for the disbursement of this large sum of money. He knéw that he had recommended a loan of $5,000 on property already encumbered by a mortgage under his control and from October to May made no inquiry as to what had become of the matter. The check was not paid until July 10th, 1913, so that if he had protested on May 23d, 1913, the payment of the check might have been stopped. On July 2d, 1913, at a meeting at which the defendant was present, and before the" payment of the check, the minutes of May 23d, 1913, were approved, and the Sims mortgage at least constructively called to his attention.

It seems to me that all of the circumstances indicate that with respect to this loan the defendant is guilty of such negligence as renders him responsible for the loss which was occasioned to the association by reason of his failure to act. '

The duties of the directors of the association are defined in section 2, article 9, of the constitution.

“Section 2. The board of directors shall meet regularly at four P. M. 9n the third Thursday of each and every month, at such place as they or a majority shall appoint for the purpose of receiving from the stockholders their monthly dues, interest and fines, and pay the same into the treasury ; to loan out the funds and see to their safe investment, and to attend to the financial concerns of the association generally.”

Article 2, section 3, provides: “Eo money shall be loaned on any property already encumbered.”

Under the authorities to which I have referred it is no excuse to say that the defendant was ignorant and incompetent or so engrossed ■ in his own affairs as not to be able to give proper attention to the affairs of the building and loan association. He was bound to apply to his duties as director of the building and loan association that degree of care which an ordinarily prudent man would exercise with respect to his own affairs.

The question is the amount of damages for which he may be held. . If it appears that the first mortgage was foreclosed and that the property did not realize sufficient to pay the first mortgage, then, if in fact the defendant had brought to the attention of the building and loan association the ■ existence of his mortgage, it is of course conceivable that his mortgage might have been paid off out of the proceeds of the loan, and the loan still made, and still would have resulted in the loss. It is, on the other hand, conceivable that if the existence of this second mortgage held by the Loehnberg estate had been disclosed, then an investigation would have been made which might have disclosed the existence of the prior mortgage and the rascality of Crocker- and would have saved the association from any loss. Hpon this point I desire to hear counsel.

Second. With respect to the East Orange loan. There is nothing in the minutes of the board of directors authorizing the granting of the loan to Aschenbaeh on the property in East Orange. The files merely show an application signed by Aschenbach, without date, asking for a loan of $4,000. It bears the name William B. Howell, Eobert L. Hopkins, as the committee recommending it. It contains no description of the property except “Map of Ampere section of property of East Orange Ampere Loan Company.” In December, 1909, William H. Daly and wife had executed a mortgage to the Loehnberg estate of which defendant was executor, for $4,000. In September, 1910, Albert B. Aschenbach and wife executed a mortgage to the complainant association for $4,000 upon the same property. The only reference to this loan is contained in the minutes of a meeting of the board of directors held on September 22d, 1910, at which the defendant was present, at which the treasurer reported a disbursement on September 4th of $3,919 on account of Aschenbach mortgage. The defendant made no inquiries with respect to this payment. If he had he would have immediately discovered that the money had been advanced upon property upon which the estate represented by him already held a mortgage. He would also have discovered that the loan had never been authorized and the disbursement therefore illegal. Unless reports of officers are to be received and approved pro forma and members of a board of directors excused from any investigation whatever, it seems to me that the act of the defendant was gross inattention and such negligence ás make him responsible for the consequences of his inattention. I cannot conceive that he has performed his duty as a member of the board of directors, entrusted with the savings of poor investors whose duties are defined to be “to loan out the funds and see to their safe investment.” Here again the question arises as to the measure of damages. The Loehnberg mortgage was foreclosed, the property bought in by the association, which still holds it. _ I will hear counsel upon this point.

In defence of this director it is said that he properly relied upon counsel of the association, Crocker, who up to the time he absconded in September, 1914, bore an excellent reputation. The duty of counsel is to act as legal adviser to the board, to examine the title to every security, and report thereon to the-directors, to prepare obligations and contracts, and to transact the legal business of the society. The directors have no right to shift to counsel the duty imposed upon them to loan out the funds and see to their safe investment. There is no proof before me that counsel ever reported to defendant or to the board that the title to either of the premises in question was clear. If counsel of the association had reported it would immediately have occurred to the defendant that the report was false, because a mere examination of the papers would have demonstrated that the two mortgages held by the Loehnberg estate had not been satisfied, and that the titles were not clear.

The statute of limitations is pleaded but not seriously argued. The point seems to be disposed of by*the following cases: Dailey v. Kiernan, 75 N. J. Law 275; Crane v. Ketcham, 83 N. J. Law 327; Fryer v. Mount Holly Water Co., 87 N. J. Law 57; Williams v. McKay, 40 N. J. Eq. 189; French v. Armstrong, 79 N. J. Eq. 283. The fact that other directors may be also responsible for any loss which occurred by reason of the East Orange loan appears to present no objection to relief. Stockton, Receiver, v. Anderson, 40 N. J. Eq. 486; Williams v. McKay, 46 N. J. Eq. (at p. 39).


source: Caselaw Access Project

author: Lane, V. C.

license: Public Domain

text:
    Robert H. Ingersoll & Brother v. Hahne & Company.
    [Decided August 14th, 1917.]
    1. Decisions of the supreme court of the United States as to the validity of contracts which may destroy competition are not binding on the state court unless the contract involves an article of interstate commerce.
    2. The act of March 16th, 1916 (P. L. 1916 p. 835), is not in violation of the state or federal constitutions, nor invalickas casting any burden on interstate commerce.

      3. Contracts designed to prevent price cutting of standard articles, well known to the public, not the subject of monopoly and not necessaries of life, are not opposed to public policy.
    4. On demurrer, the averments of a bill are to be treated as true.
    On bill. On motion for preliminary injunction. On motion to strike out the bill.

      Mr. George L. Record, for the complainant.

      Messrs. Stallman<tJ Hoover .& Peck {Mr. Stallman and Mr. Hoover), for the defendant.
   Lane, V. C.

The bill discloses the following facts: The complainant is a manufacturer of watches, sold under the Ingersoll name, in conjunction with certain trade names, such as “Yankee Watch,” the “Dollar Watch,” the “Eclipse Watch” and “Junior Watch;” the “Yankee Watch” is advertised throughout the country to be sold to the consumer at $1.35; the only way the watches can be sold for this low price is to manufacture them in immense quantities, and the only way to produce customers upon a large scale is by extensive advertising; the name of Ingersoll, and tire reputation of the firm for fair dealing .and reliable products, are nation wide, and it is absolutely necessary as a part of the advertising and building up' of the business that a definite fixed price should form a part of the advertising for each of the products; all the Ingersoll watches are sold subject to a notice, a copy of which is as follows:

“NOTICE.
“The use of our name, trade-mark, guarantee, reputation, good will and selling helps is licensed to the dealer for the sole purpose of selling or offering, advertising or displaying for sale this watch, provided this watch is not sold, offered, advertised or displayed for sale wFh or as any donation, discount, rebate, premium or bonus, or to any wholesale or retail dealer at rates different from those specified in our schedules, or at any other retail price than $1.35 without first removing this notice and our name, trade-mark and guarantee, and returning to us our selling helps and refraining from the use of our name, trade-mark, guarantee, reputation, good will and selling helps, and provided the dealer shall, upon our written request (unless he shall have previously sold it), resell to us this watch, if then merchantable, at the rate specified in our schedules for the quantity in which he purchased, or, if then damaged, at such rate as shall then, be agreed upon.
“Any violation of any of the above conditions depreciates our name, trade-mark, reputation and good will, and will act as a revocation of this license. Any use of our name, trade-mark, guarantee, reputation, good will or selling helps aids the dealer in selling this watch and will act as an acceptance of the above conditions. The dealer may sell or otherKvise dispose of this watch as he pleases after first removing this notice and our name, trade-mark and guarantee, and returning to us our selling helps, and refraining from the use of our name, trade-mark, guarantee, reputation, good will and selling helps, but he has no right to use any of them in violation of the above conditions or to do anything to depreciate their value. Any dealer who violates any of the above conditions will-be liable to suit for damages and an injunction.
“Upon written request of any dealer observing the above conditions, we agree (1) to repurchase from him this watch, if then merchantable, at the rate specified in our schedules for the quantity in which he purchased, or, if then damaged, at such 'rate as shall then be agreed upon; or (2) to leave him free, after first removing this notice and our name, trade-mark and guarantee, to sell or otherwise dispose of this watch without regard to the above conditions.
“Robt. H. Ingersoll & Bro.”

'The defendant inserted in the “Newark News,” a newspaper published in Newark, an advertisement in the following form:

$1.35 Ingersoll Watches $1.00 Nickel only ; every one new with the usual Ingersoll guaranty.

This advertisement appeared on April 20th, 1917, and the defendant sold Ingersoll watches for the sum of one dollar; such sales were made in the regular Ingersoll boxes, which carried the notice heretofore mentioned; defendant advertised and declared its intention to again resort to such practice; it is only possible for complainant to manufacture and sell the large output it does by'widespread advertisement, and in such advertisements the fact that the watches are for sale at the low and fixed price of .$1.35 and the word “Ingersoll” are essential features; there is no profit in the sale by retailers of the watches at a dollar; the direct effect- of the acts of defendant 'is that other dealers in the neighborhood cannot market, at the rate -of $1.35, the watches which are manufactured by the complainant; the public is induced- to believe that the watches are not worth $1.35, inasmuch as they are being sold by defendant for a dollar; the other dealers in the locality will discontinue the sale of -the Ingersoll watches; the business of the complainant will,be -disorganized, and, eventually, ruined; the defendant has no idea of marketing'any considerable number of watohes at the price of a dollar, but uses this cut rate and the Ingersoll name as bait, at irregular .intervals, to get people into its store depending upon those attracted by the low rate of the Ingersoll watch'making purchases of other goods sold by defendant; for its own purposes the defendant makes use not only of the article manufactured by the complainant, but also of its trade name and reputation and guarantee for its, the defendant’s, ulterior purposes to the injury of the complainant.

The complainant relies upon the provisions of the statute (chapter 107 of the laws of 1916), which provides as follows-:

“It shall he unlawful for any merchant, firm or corporation to‘appropriate for his or their own use a name, brand, trade-mark, reputation .or good will of any maker in whose'product said merchant, firm or corporation deals, or to discriminate against the same by depreciating the value of such products in the public mind, or by misrepresentation as to value or quality, or by price inducement, or by unfair discrimination between buyers, or in any other manner whatsoever, except in case where said goods do not carry any notice prohibiting such practice, and excepting in case of a receiver’s sale, or a sale by a concern going out of business.”

And also complainant further relies upon its right to -relief at common law.

There is no question but that the notice prescribed by the statute was affixed to the goods in question. The defendant moves to strike out the bill upon several grounds, raising several questions, only two of which I deem it necessary to consider.

'First. Whether the statute is in any respect contrary to the constitutional provisions of the state or of the United States.

Second. Whether the watches sold are the subject of interstate commerce to such an extent as that the statute cannot be' held to apply. ...

On the argument-there was,-and in counsels’'brief there is, a long discussion as to whether the contract against price cutting, evidenced by the notice, is contrary to- public policy, and defendant relies upon cases in the supreme court of the United States as follows: Dr. Miles Medical Co. v. John D. Parks & Sons Co., 220 U. S. 373; Bauer v. O’Donnell; 229 U. S. 1; Straus v. Victor Talking Machine Co., decided April 9th, 1917; Motion Picture Patents Co. v. Universal Film Co., decided April 9th, 1917; Bobbs Merrill Co., v. Straus, 210 U. S. 339; 52 L. Ed. 1086.

I am now considering the public policy of the State of New Jersey as distinguished from any public policy of the United States. Unless the article is the subject of interstate commerce, I am not bound by the opinions of the supreme court of the United States. They are entitled to great weight and careful consideration, but it must not be overlooked that the effect of the case of Motion Picture Patents Co. v. Universal Film Co., decided April 9th, 1917, is a complete reversal of Henry v. Dick, 224. U. S. 1. To consider in detail the reasoning of the court in the very numerous cases which have been decided bearing upon this question would unduly extend this opinion. Suffice it to say, that after careful consideration, I have come to the conclusion that upon the general proposition, I agree with the dissenting opinion of Mr. Justice Holmes in Dr. Miles Medical Co. v. John D. Parks & Sons Co., 220 U. S. (at p. 411). He said; “I think that, at least, it is safe to say that the most enlightened judicial policy'is to let people manage their own business in their own way, unless the ground for interference is very clear. * * * I think we greatly exaggerate the value and importance to the public of competition in the production or distribution' of an article (here it is only distribution), as fixing a fair price. * * * There may be necessaries that sooner or later must be dealt with like short rations in a shipwreck, but they are not Ur. Miles’ medicines. * * * We must assume its retail price to be reasonable, for it is so alleged and the case is here on demurrer; so I see nothing to warrant my assuming that the' public will not be served best by the company being allowed to carry out its plan. I cannot believe that in the long run the public will profit by this court permitting knaves to cut reasonable prices for some ulterior purpose of their own and thus to impair, if not to destroy, the production and sale of articles which it is assumed to be desirable that the public should be able to get.”

T agree also with the remarks of the supreme court of Washington in Fisher Flouring Mills Co. v. C. A. Swanson, 76 Wash. 649; 137 Pac. Rep. 144. There the court saj^s: “Finally, it seems to us an economic fallacy to assume that the competition, which in the absence of monopoly benefits the public, is competition between rival retailers. The true competition is between rival articles, a competition in excellence, which can never be maintained if, through perfidy of the retailer who cuts prices for his own ulterior purposes, the manufacturer is forced to compete in prices with goods of his own production, while the retailer recoups his losses on the cut price by the sale, of other articles at, or above,’their reasonable price. It is a fallacy to assume that the price-cutter pockets the loss. The public makes it up on other purchases. The manufacturer alone is injured, except as the public is also injured through the manufacturer’s inability, in the face .of cut prices, to maintain the excellence of his product. Fixing the price on all brands of high-grade flour is a -very, different thing from fixing the price on one brand of high-grade flour. The one means destruction of all competition and of all incentive to increased excellence. The other means heightened competition and. intensified incentive to increased excellence. It will not do to say that the manufacturer has not interests to protect by contract in the goods after he has sold them. They are personally identified and morally guaranteed by his mark and. his advertisement.”

I could not use words which would better fit the situation in the case at bar than these.. Complainant has no monopoly. Its goods are not manufactured under patents. It is. constantly, in competition with manufacturers of cheap watches. Not only is it morally bound as a result of its advertising to guaranty its product, but it, in fact, guarantees it in writing. The defendant makes use of the name, reputation and .guaranty of complainant for its own ulterior purpose and appropriates to itself the effect -of the extensive advertising upon which the complainant depends, for defendant’s own profit' in violation of the contract expressed in the notice, and with no desire to benefit the public. A retailer does not sell a standard article at a loss for eleemosynary purposes.

It is a legislative function to establish public policy, and the public policy of this state has been, I think, with respect to the matter in question, settled by the statute hereinbefore. referred to. I do not find that statute repugnant to the constitution either of the United States or of this state. There was no obligation upon Hahne & Company to purchase the watches in question, nor was there any obligation upon the complainant to manufacture and sell them. If Hahne & Company chose to purchase the watches with the notice attached, of which I must presume it had notice at the time of-purchase, there is'no injury done the defendant by compelling it to observe the provisions of the notice. As Mr. Justice Holmes said in the Dr. Miles Medical Co. Case: “I think that, at least, it is safe to say that the most enlightened judicial policy is to let people manage their own business in their own way, unless the ground for interference is very clear.”

The case is before me as if upon demurrer, and I must assume that the statements of the bill that the effect of the acts of the defendant will be the destruction of complainant’s business arc true. • The contract authorized by the statute is admitted; its breach is admitted; the effect of its breach must be considered as above. Can it be that there is no remedy ? I do not find that any public benefit will be subserved by refusing to enforce the provisions of the statute.

The remaining question to determine is whether or not the restriction upon the sale of the watches is such an interference with interstate commerce as to prevent its enforcement. The watches were manufactured in New York; were sold to a jobber in New York, and by the jobber sold to a retailer in New Jersey for ultimate distribution to the public. The statute is. designed to promote good morals in business. It is an exercise of the police power of the state. That its purpose is within the legislative province, I think admits of no question. It does not operate to interfere with the trade or exchange of articles between this and other states, but rather touches upon the duties of citizens of this state to citizens of this and other states. I think that the effect of ignoring the restriction would tend to restrain interstate commerce by reducing its volume, and that the effect of enforcement of the restriction will tend to increase the volume of interstate commerce. If the Oleomargarine and Liquor laws can be maintained, and they have been (Waterbury v. Newton, 50 N. J. Law 535), I think there is no objection to an act of the nature under discussion. The result is that the motion to dismiss the bill will be denied and the restraint continued until final hearing.


text:
    Leslie N. Simson and George W. Hunter v. Ernest C. Klipstein.
    [Decided September 28th, 1917.]
    1. Where a contract for sale of lands was not under seal, the real parties in interest may be shown.
    2. In view of the powers given complainants in this case, they represent the beneficiaries and certificate holders, who are not necessary parties to this cause.
    On bill. On motion'to strike out bill.

      Mr. Harry Wright (Mr. Martin Conboy, of the New York bar), for the motion.

      Mr. Frederick Seymour, contra.

   Lane, V. C.

The bill in this case was filed to compel specific performance of a contract of sale. The contract is not under seal. It purports to be between the Midvale Chemical Works, an association, as party of the first part, and Ernest C. Klipstein, as party of the second part. It is signed for the party of the first part, Mid-vale Chemical Works, by George W. Hunter and Leslie N. Simson' trustees. • The suit is brought by Leslie N. Simson and George W. Hunter, and while in the opening paragraph of the bill they are not termed “trustees,” yet by a perusal of the whole bill it is perfectly clear in just what capacity they bring their suit. The contract involves a large amount of property. The consideration is in excess of $200,000. It is dated the 29th day of May,, 1.917. On the 31st day of May, 1917, Klipstein went into possession of all the real estate and personal property embraced in the agreement and continued the active operation of the plant. On the 22d day of June, 1917, an adjournment of the closing of the title was had. On the 3d day of July, 1917, deed was tendered. Performance was declined, but Klipstein continued in possession of the property. Annexed to the bill of complaint, and made a part thereof, is.an agreement setting forth precisely what the term “Midvale Chemical Works” imports. Leslie N. Simson and George W. Hunter, under the terms of this instrument, “associate ourselves together as trustees and hereby form an association to be known as ‘Midvale Chemical Works.” Article 2 provides:

“Tlie Trustees shall have the power to contract and carry on in the name of and for the Association, any business which could be lawfully conducted or carried on by an individual, and in the conduct of such business, may use and invest any funds of the Association, and shall have full general power and authority to buy, sell, pledge, mortgage, grant, convey and exchange property of every description, real, personal or mixed,” etc.

Article 4:

“The Trustees shall be deemed the absolute owners of all the property of the Association, and tooth the legal and equitable title to all such property shall be vested absolutely in them, their successors and the survivor or survivors of them, or to their successors, subject only to all applicable terms and conditions of this instrument.”

Then follows the provisions with respect to the issuance by the trustees of certain classes of stock, A and B. These certificates give all holders right to participate in the profits of the association', and in case of distribution .to an interest in the-assets. The form of the- certificate contains the following:

“Tlie interest represented by this certificate is personal property, irrespective of the nature of the estate of the Trustee.”
“No certificate holder, or his assigns, heirs or legal representatives, shall at any time have or claim any legal or equitable interest in the property, whether real, personal, or mixed, of the Association, and noth-; ing contained herein shall be considered as creating or giving ■ to any certificate holder any interest in or to such property, but such certificate holder shall have an interest only in the net proceeds ■ or profits which may be derived from such property, or in the proceeds of the' said property on liquidation or distribution, and only when and as such proceeds may become distributable under the terms of the aforesaid Articles of Association.”

Article 13:

“No certificate holder shall, as such, be a necessary or proper party complainant or defendant in any' suit or other judicial proceeding relative to or affecting the property or assets of the Association.”

Article 14:

“In every written contract that the Trustee shall enter into, relating to the business of the Association or estate or any part thereof, reference shall be made to these Articles and the person, firm or corporation contracting with said Trustees - shall look to the funds and property, legal and equitable, of the estate for the payment under said contract of any debt, damage, judgment or decree, or any money that may become due and payable in an.y way by reason thereof,” etc.

Article 15:

“No person dealing with the Trustees shall be-charged with the duty of making any inquiry as to their authority to deal with the property of the Association, nor with the application of the purchase money for any property of the Association which they may purchase from the Trustees,” etc.

There are other provisions of the trust agreement which I -do not think it necessary, in view of what I have already quoted, to refer to.

To the bill of complaint, an answer in lieu of plea was filed. This answer sets up merely that on the 29th day of May, 1917, and ever since that date certain persons, seven in number, were holders of certificates in the form of class A, and that, therefore, they are proper, necessary and indispensable parties to the action. There is no allegation that these certificate holders are aE of those holding certificates.

A large portion of the voluminous brief of counsel for the defendant is taken up in the discussion of matters which, in my view, are aside from the mark on this particular application. The sole question before me is whether, assuming that the bill of complaint correctly relates the facts, and that the parties bringing the suit have power to bring it,, there is a'fatal defect in parties complainant. It will be observed that although the Midvale Chemical Works is named as the first party in the bill of complaint, the contract is signed “Midvale Chemical Works, by George W. Hunter and Leslie 'N. Simson* Trustees.” By reference to the articles of association it appears that it .is distinctly provided that the trustees shall have full power to contract and buy and sell; that they shall be deemed the absolute owners of all the property of the association, and the legal and equitable title to all such property shall be vested absolutely in them; that the certificate holders shall have no interest, legal or equitable, in the property, whether real, personal or mixed; that they shall not be necessary or proper parties complainant or defendant in any suit.

The contract of sale not being under seal the real parties in interest may be shown. Babcock v. Stobbe, not reported. But the question which is before me is not whether the parties bringing this suit have the right to bring it, or in what capacity it should be brought. It is whether, assuming that they have the right to bring the suit, the parties referred to in the answer in lieu of plea are necessary parties. For the purpose of demonstrating this, the defendant must go to the articles of association, and upon going there, we find that it is expressly provided that they shall not be either necessary or proper parties.

The principle of law that cestui que irusienis are, in some instances, necessary parties in suits dealing with the trust property, is for the benefit of the cestui que trusient. It seems to me, upon the whole, that this ease is well within the remarks of Mr. Justice Dixon, delivering the opinion of the court of errors and appeals, in Smith v. Gaines, 39 N. J. Eq. (at p. 549), and Vice-Chancellor Pitney in Stevens v. Bosch, 54 N. J. Eq. (at p. 63). In the latter case the vice-chancellor said: “This is not a suit to administer a trust, or in which the construction of it or the rights between trustees and cestuis que trust are at all involved. The trustee here represents his cestuis que trust, and the case is clearly within one of the exceptions mentioned by Mr. Justice Dixon in his opinion in Smith v. Gaines, 39 N. J. Eq. 545 (at pp. 549, 550)."

Now, with respect to the form of the order or decree. In view of the allegations of the bill, not now denied, that the defendant has been since the 31st day of May in possession of this large amount of property, .and that the complainants have completely performed, on their part, and of my inability to conceive how the defendant can be substantially injured whether the suit be brought in the name of the Midvale Chemical Works, by the present complainants as trustees, or by the present complainants, individually, acting under the articles of association, or by the fact that the contract happens to be signed in the manner in which it is rather than in a different manner, I am not disposed to advise an order or decree in this case which will permit, unless thé complainants desire it, a double appeal to the court of errors 'and appeals. My recollection of the law is that upon the overruling of a plea — that is, under certain circumstances, unless the court otherwise directs, a final decree may be made in favor of the complainant. Whether this has been changed by the sixty-eighth rule which provides:

• •‘If a defense be stated, whieh heretofore would have been the proper subject of a plea, the answer need not answer the allegations of the bill of complaint further than is necessary to support such defense,”

I do not now determine. I draw attention of counsel, however, to the fact that it is further stated:

“In such case, should the answer be found insufficient or untrue, the court may, in its discretion and on terms, permit the defendant to answer the bill fully, or may make such other order or decree as may be just.”

Rule 67 provides:

. “On a hearing o£ a motion, to strike out a pleading, the court may, in its discretion, order the application to stand over.until the hearing, and if the objection is to the bill or counterclaim may require the same to be answered on such terms and conditions as may be ordered.”

If I have the power, and if complainants so move, I will direct tli,e ■ hearing on the application to strike out this plea to stand over until the final hearing, in the meantime directing the defendant to answer upon the merits. No possible harm can come to the defendant from this course, for h.e has the same right to set up in his ansiver the defect that he now sets up as he had by the present answer in lieu of plea. If, upon final hearing, it appears to the court necessary to bring in the parties, which it is alleged should be brought in, there will be no difficulty in doing so, or at least a sufficient number of them to answer the purposes of the rule invoked.

Let an order or decree, approved by both sides, be presented, or let it be settled upon one day’s notice.

SUPPLEMENTAL MEMORANDUM.

. That portion of the opinion of Vice-Chancellor Stevenson, in Babcock v. Stobbe, to which I refer, reads as follows:

“The proof is ample that when the agreement, which is the basis of the complainant’s claim, this agreement of May 27th, 1909, was executed by Moore, both the complainant Babcock, or his agents, Shack and Vennilya, and the defendant Stobbe, and also Mobre, understood that the subject-matter of the agreement of sale was the Stobbe farm — the farm owned by Stobbe — and that Moore was executing the contract in question, not for himself, but as agent for Stobbe in pursuance of the power of attorney which the complainant’s attorney had drawn and which that attorney and the agent Shack knew well was the whole basis of Moore’s authority to execute the contract so as .to bind Stobbe.

“It would, it seems to me, be an amazing result of the application of antiquated technicalities if either the complainant Babcock or the defendant Stobbe could in a court of equity maintain the proposition that by this contract they were not both bound.

“I have examined with care "tire numerous and conflicting decisions which counsel have cited bearing upon the technical questions pertaining to the status of these -agreements- as contracts inter partes under seal, and as contracts in writing under the operation of the statute of frauds and under the force of the rule excluding parol evidence offered to alter the contracts in-writing. Without undertaking to- discusshhese technical legal questions, which could only be done at great length, and with the minute examination of many cases, I shall merely state my conclusion that this agreement stands.not as a contract under seal but as a written agreement executed by one .party personally, and by the other party through an authorized agent who was not authorized to execute the same under seal. In such a case the seal is a superfluity and may be disregarded, and the instrument has the status of á written contract of tire principal not under seal. Long v. Hartwell, 34 N. J. Law 118; Calhoon v. Buhre, 75 N. J. Law 439, 441.

“It must be noted that one of the duplicate originals was not in fact executed by Moore under seal, notwithstanding the erroneous recitation in tire attestation clause.which merely shows that it was the expectation of the draftsman of the instrument that it would be executed under seal.

“With the aid of certain authorities which have been cited, an argument can be made in favor of the proposition that if this instrument in fact must be deemed a deed inter partes under seal, it can be taken in a court of equity as the deed of Stobbe. In my judgment, a -court of equity would be astute to discover any theory of this transaction consistent with our modern law according to which the absurdity and injustice could be avoided of finding that the complainant paid his $750 upon the execution of this contract without receiving any obligation from Stobbe, tire owner, to convey the land, but only the obligation of the agent Moore to convey the land which .all the parties to the transaction well knew Moore did not own.

“While I cannot in this memorandum undertake t.o discuss.the numerous cases which have been cited, or which I have examined, in which there is considerable conflict, it may be well to add that in man}*' cases the great principle which is now firmly established, that a contract is to be construed in the light of the* circumstances which surrounded the parties when they made it, has been overlooked. Our modern law in dealing with statutes, wills and contracts permits tire court, in endeavoring to interpret these writings, to stand in the place of the legislature, of the testator, of the contracting parties, so as to see the things which they saw and know the things which they knew to which the written words are to be applied.

“That distinguished equity lawyer, Vice-Chancellor Van Fleet, in deciding the case of Schenck v. Spring Lake Beach Improvement Co., 47 N. J. Eq. 44 (from which case I'may say in passing the one at bar is plainly distinguishable), says (a.t p. IS) : ‘That a written contract, whether within tire statute of frauds or not, and whether under seal or not, which is free from ambiguity and perfect in itself, and not the product of fraud, or the result of mistake, and which has not been changed by a subsequent contract, cannot be changed, varied or contradicted by oral evidence, but must be accepted as the only evidence by which the rights and liabilities of the contracting parties shall be measured and determined/ This may be accepted as an accurate statement of the law where the contract in question is ‘perfect in itself/ and where the effort is made by parol evidence to have it ‘changed, varied or contradicted/ The vast majority of contracts are not ‘perfect in themselves/ but relate to things which have to be described and defined — things which the contracting parties knew and had before their eyes., but which the court cannot know unless parol testimony in regard to them is admitted. A contract is not ‘changed, varied or contradicted by oral evidence’ when it is interpreted by the court after the court has been placed .in the position in which the contracting parties stood when they expressed themselves in the language of the contract.

“The correct exposition in our modern law of the rule excluding parol evidence ‘to change, vary or contradict’ a written instrument, may be ascertained upon reference to the following authorities: 1 Greenlf. Ev. §§ 277, 286, 287; 1 Wigm. Ev. § 2470; 21 Am. & Eng. Encyl. (2d ed.) 1108, 1109; 17 Cyc. 673, where a very large number of American' and English decisions are cited. 2 Tayl. Ev. § 108; Mumford v. Gething, 7 C. B. (N. S.) 305; 141 Eng. Reprint 834; Krell v. Henry (1903), 2 K. B. 753; Sullivan v. Visconti, 68 N. J. Law 543, 547.”

It must not be overlooked that the complete performance of the contract by the complainant takes it out of the statute of frauds.


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    General Investment Company and Continental Securities Company v. Bethlehem Steel Corporation et al.
    [Decided September 28th, 1917.]
    1. Wliere a corporation is engaged on work for the government and is in urgent need of money, an injunction will not be issued, on application of a professional privateer who purchased a small amount of stock with notice of the plan to issue new stock, but will be denied without passing on the many and difficult questions raised as to the corporation’s right to issue the stock.
    2. By unanimous consent of the stockholders, a corporation may.issue stock to be placed ahead of existing preferred stock.
    3. If the act done is ultra vires, but acquiesced in by all interests of the corporation, the sole person who may attack it is the attorney-general on behalf of the state.
    4. Where application is made by a professional agitator, who bought in for the purpose of fomenting litigation, for preliminary injunctive relief against proposed corporate action, the court may weigh conveniences.
    5. Although it is a general rule on application for preliminary injunction that to doubt is to deny, this rule does not apply with its full force where to deny relief would permit the destruction of' the subject-matter of the litigation. In such cases it may generally be said that to doubt is to grant.

      On bill, &C.

      Messrs. McCarter & English (Mr. Robert H. McCarter and Mr. Arthur F. Egner), for the complainants.

      Messrs. Lindabury, Depue & Faulks (Mr. Richard V. Lindabury) Messrs. Pitney, Hardin & Skinner (Mr. John R. Hardin), and. Mr. Paul D. Cravath (of the New York bar), for the defendants.
   Lane, V. C.

(orally).

This is an application for a preliminary injunction restraining tire Bethlehem Steel Corporation from increasing its capital by the issuance of thirty million of stock termed “Eight Per Cent. Cumulative Convertible Preferred.” A meeting is to be held to-morrow at eleven o’clock. The court of errors and appeals, I understand, is in session and application for any ad interim relief on appeal may be made to that court to-morrow morning. That is the reason why I have changed my mind and have concluded to decide the case at this time.

The application is made by General Investment Company and Continental Securities Companjq other names for one Vernier. They are holders respectively of one hundred shares of the present common and one hundred shares of preferred stock, and the application is made on behalf of both interests. Venner (and I shall use his name in place of the names of his corporations) bought -his common stock in January .of this year, as I find, for the sole purpose of harassing in any way’that, he could the stockholders and directors of this corporation. At the time the specific purpose that he had in mind was to pi-event a scheme of financing which was then under discussion. He bought his preferred stock after- notice of the present plan and for the specific purpose of preventing its success. He is entitled from a court of equity' to only such consideration as that court is absolutely bound under the rules of law to accord him. The company at the present time has a,preferred stock issue of $15,000,000, and a common stock issue of $60,000,000. The common stock is divided-into two classes, fifteen million termed “Common” and forty-five million termed “Common Class B.” The voting power is possessed only by the preferred fifteen million and the common fifteen million. It is now proposed to issue a new stock to the amount of $30,000,000 at a dividend rate of eight per cent., which will be preferred, as to dividends, to the present preferred and common and will share in distribution with the present preferred pari passu. This stock is to be redeemable at the option of the corporation after three years at one hundred and fifteen. It'is to be convertible into common class B at the option of the holder at any time.

The objections raised I will consider, I think, in the order of their importance. It is insisted by the complainant that the proposed scheme violates his contract rights evidenced by the certificate of incorporation, or the amended certificate of incorporation. That certificate provides in terms that' the -present preferred-stock shall be preferred as to dividends over all other stocks of the corporation. It further provides that the common stock shall be entitled to all the surplus earnings as dividends after pajment of dividends upon the present preferred. It is argued that the effect of this certificate' is practically an agreement on the part of the corporation and its stockholders that at all times present preferred shall be entitled to these dividends in preference to dividends on any other stocks, and that the common is entitled to all surplus earnings. That in effect it is an agreement that no other stock will be created which will change the rights of the preferred and common as stated in the certificate. The case of Pronick v. Spirits Distributing Co., 158 N. J. Eq. 97, opinion by Vice-Chancellor Emery, is cited as authority. He held that, notwithstanding the broad power of amendment which was at that time included in tiie statute, the rate of dividends fixed by the certificate of incorporation could not, Without the assent of all the stockholders, be reduced. The hearing before the vice-chancellor was on an application for a preliminary injunction. The case never went to the court of errors and appeals: The vice-chancellor also held (hat the stockholder had no adequate remedy at law. By tne- express terms of the statute, all its teams are read into every certificate of incorporation, and it is insisted for defendant that under the provisions of section 27 the corporation may, by amendment, create one or more classes of preferred stock, with the consent of two-thirds of the existing stock. When the stockholder bought into the concern he bought into it, of course, charged with the knowledge not only of what was in the certificate of incorporation but what Aas in the statute, and it is insisted that one of the risks that he took was that, if two-thirds of his associates deemed it wise to issue a preferred stock, the effect of which would be to alter the rights of the then existing stockholders, he must acquiesce therein. There is no decision that has been brought to my attention which is directly in point. The determination of the (question is of the utmost importance not only in •the present, case, but because a precedent will, be created one way or the other.

The next objection is that there is found nowhere in the statute a right to create a preferred stock convertible into common. There is no express provision in’the statute which warrants this. There is an express provision permitting a conversion of preferred into bonds, and it is argued that the fact that tlie legislature has provided specifically for such conversion is an indication of -the legislative intent not to permit the issuance of preferred which may be converted into any other class of, security than that specifically provided by the statute. Un the other hand, the company unquestionably may issue preferred stock and may retire that preferred stock by buying it with the acquiescence of its holders and may issue common which may be purchased with the proceeds of preferred. It may, I have no doubt, issue a preferred stock with preferences for a limited length of time, say ten years, and thereafter only to have the rights of common. What is now sought to be done i's to issue a preferred with limited preferences, the time when the preferences will cease being at the 'option of the holder of the stock. I had some doubt as to whether, if this plan were carried out, it might not, in some eases, result in the issuance of a common stock for less than joar, for, at the time the common stock might be issued, the preferred might be worth less than par. The -answer is that the common and preferred, although divided into two classes, are really issued as one; it is really the issuance of one stock, and at the time the stock is issued, the corporation gets its par.

The next objection is .that there is no legal warrant for the redemption of preferred stock at more than par. This argument is based on the provisions of section 29 which provides for retirement. The section specifically provides for retirement and only retirement and limits the company to payment of par. In section 18, the legislature has provided that preferred stock may be made redeemable at not less than par. It is argued that the two sections must be read together. It seems to me that the legislature clearly had in mind two things, and although it may be that the effect of redeeming stock is to retire it, and is really a purchase for retirement, still it would seem that had the legislature intended that the stock might not be made redeemable for more than par,, it would not have in express terms provided that it might be made redeemable at not less than par.

It is next objected that the present preferred stock is not given the right to subscribe to the new preferred. Generally speaking, I think the law is well settled that unless there is something in the certificate of incorporation to the contrary the rights of preferred and common stockholders are equal. Whether a particular right is enjoyed equally by both, however, must depend upon the reason for the existence of the right; at least, a very strong argument may be made to that effect. It will be observed that the present preferred has no right in the assets except to the extent of par and accrued dividends. The reason for the existence of the pre-emptive right of subscription is that the relative rights of the existing stockholders both in.the assets of the company and in its control may not be altered. The relative interest of the present, preferred stock in the assets of the company is not affected by the presént scheme. The proposed preferred stock has no voting power so that the relative interest in the control is not affected. It is argued with force that to permit the present preferred to subscribe for the proposed preferred would b.e to permit a change in the relative rights of the present preferred and common and would be illegal. ■ Of course, if the reason for the rule fails, the rule is not to be applied.

Now, I am asked upon this preliminary application to determine these very important questions, none of which have ever been determined by the courts of this state so far as I know, by a man who bought into the situation in the manner I have described, who has a long history of similar efforts, a professional privateer. I recognize the rule, of course, that,-whatever his motive, the legal rights of the complainant must be protected, that is, such legal rights as cannot be protected in a court of law. I also recognize that notwithstanding the rule that to doubt is to deny, to doubt is to grant, where the subject-matter of the litigation will be destroyed if the relief prayed for is not granted. It seems to me that in a situation of this kind where the utmost that can possibly be urged by complainant is that the questions may be arguable, a court is entitled to weigh conveniences. There is no question but that this company, I think the second largest steel corporation in this country, is desperately, urgently in need of this $30,000,(TOO, at this time, not a year from now. There is no charge of fraud or bad faith. The controlling interests have endeavored to raise funds by every other means and finally have concluded that there is no way by which the money can.be obtained other than in the manner proposed, or at least no way which would be fairer to the present stockholders. It is engaged at the present time in work for the government. It needs money for prosecuting this work. If I should prevent the scheme going through, the result might be disastrous to the vast majority of the present stockholders. I am assuming, of course, that when the plan is put before the stockholders at the meeting, the plan will be approved by an overwhelming majority. Of course, if it is not, much that I have said will have to be withdrawn. Assuming that'this'plan is approved by practically unanimous consent, is the court obliged at the suit of this single stockholder-to protect his strictly legal right, t© act in such a manner as would cause great harm to every other interest in the concern, and perhaps the general public, merely because the questions presented by him may be arguable; to cause mischief which, if on final hearing, it decides that it erred or if the court of -errors and appeals finds it erred, it cannot undo ? I think not. I reiterate what I said in the case of General Investment Company against the Bethlehem Steel Company, reported in 100 Atl. Rep. (at p. 349) (87 N. J. Eq. 234), under the fifth point. There is nothing proposed in the present plan which the company and all of its stockholders may not do, or at least may not estop themselves by acquiescence from questioning. There is no doubt but that by unanimous consent the proposed new preferred can be placed ahead of the present preferred. There is no doubt but that the stockholders of the company may estop themselves from questioning the legality of the issuance of preferred redeemable at one hundred and fifteen or preferred convertible into common. Nor is there any doubt but that the. stockholders may waive their pre-emptive right of subscription. If any of the acts charged can be said to be ultra vires if the stockholders acquiesce, the sole person who may attack is the attorney-general on behalf of the state./ I 'decline to- consider Tenner as a proper representative of the attorney-general, and I decline to consider him as a proper representative of a class. The doctrine which I referred to in the prior Bethlehem Steel Case is approved by the court of errors and appeals in Simmons v. Paterson, 60 N. J. Eq. (at p. 393).

Without deciding, therefore, any of the .questions raised, solely upon balancing -the conveniences I will discharge the order to show cause.

If when this case gets to the court of errors and .appeals on application for a stay, if one is made, that court thinks that this court' should have gone further and actually decided the questions raised, it will be for that court to say whether the case should come back here for such determination. •

Lest this opinion may be misunderstood, I desire to add that as presently advised I am not at' all in doubt as to how I should decide this case upon the merits. Fundamentally important questions of this kind involving the construction of so many sections of the Corporation act ought not to be determined, however, no matter how clear the court may feel, without careful consideration. That consideration cannot in the nature of things be given without time. If I should hold this case for a sufficient length of time to properly consider the merits incalculable harm may be done. If I should decide now without that consideration that .the plan as proposed is perfectly legal and no appeal is taken, a precedent would be created which ought not to be created without careful consideration. If, on the other hand, I should enjoin the consummation of the proposed plan, and the court of errors and appeals should differ with me, the injury would have been done. The utmost extent to which I go is that the questions are arguable. The eminent counsel who argued the case do not waste a full day in arguing non-arguable questions, nor would I listen for a full day to counsel, however eminent, on a lion-arguable question. I prefer in this case to place my decision squarely upon the ground that a court of equity may, where application is made to it for preliminary injunctive relief by a professional agitator, weigh conveniences.

While it is true that Vice-Chancellor Emery in the Pronick Case held, that the stockholder had no adequate remedy at law, I presume upon the ground that there was no exact method of ascertaining his damages, yet he has a remedy at law. If the acts of this corporation are illegal he may sue at law and recover compensation for such damage as may be found. Although compensation may be difficult to estimate, yet it can be done, at least with approximate justice to -both parties concerned so that it cannot be argued that I am leaving him with no remedy whatever. If counsel for the complainant desire, I will compel the corporation to give a bond conditioned as the bond was conditioned in the case of the United Shoe Machinery Company. In that case, the court of errors and appeals upon the application to stay a merger required the defendant company to give a bond, I think of $250,000, conditioned to pay such damages as might be assessed by the chancellor. It would seem that counsel in that case and the court conceived that there was some method of arriving at just compensation. It will be no more difficult to assess the damages of the present complainant, than it will be to assess the damages of the complainant in the Shoe Machinery Case.


text:
    Broad and Market National Bank of Newark v. Hjalmar R. Larsen et al.
    [Decided October 16th, 1917.]
    1. The evidence in this case shows the security for the mortgage to be uncertain and precarious.
    2. Where the security is uncertain and precarious the court has power to appoint a receiver regardless of insolvency.
    3. When it appears that the equitable rights of the parties can be fully protected by the appointment of a receiver, and that considerable loss or damage might otherwise result, the court should act, notwithstanding lack of proof of insolvency of mortgagor.
    On bill, &c. On application for tbe appointment of a receiver of mortgaged premises.

      Messrs. Lambert & Stewart, for the complainant.

      Mr. Hugo Woerner, for the defendant Frederick J. Collins.
   Lane, V. C.

The mortgage was made June 1st, 1916, to secure the sum of $27,000, payable in one year. The premises mortgaged consist of three tracts; upon one of the tracts there is a prior mortgage of $5,000. On August 1st, 1917, the property was conveyed by the then owner to Frederick J. Collins, a real estate broker in the city of Newark. There is erected on the land three six-family apartment-houses. The gross rent amounts to $4,692 a year. To protect itself the complainant must take care of encumbrances aggregating $32,000. A bill to foreclose was filed September 27th, 1917. A technical objection is made, that there was not served upon the defendant Collins a copy of the bill of complaint. The order to show cause does not require that a copy of the bill and affidavits be served, although h^id 1 noticed the omission at the time of signing the order I would have required that such copy be served upon the principal defendants. The omission to serve a copy of the bill and affidavits has occasioned no injury to the defendant Collins. His counsel procured a copy of the bill in some manner and came fully prepared with affidavits. Moreover, no application was made for an adjournment in order to permit him to procure any other testimony. I have considered the affidavits and I find that the security is uncertain and precarious. The affidavits of complainant disclose that the property is not worth the fair value of $28,000, and that at an ordinary sale would not bring more than $25,000. The interest of the complainant, as above stated, is $32,000. It is true that one of'-the affiants produced by defendant' says that the property is worth the sum of $41,000. The original mortgagor swears that he purchased the property for $32,000 on June 1st, 1916, and made various improvements upon it. He says, on August 30th, 1916, he conveyed the property to one Alice B. Welshman for $41,500, and that he thinks the property is worth $39,000. Alice B. Welshman says that she purchased the property for $41,500. But there is a significant failure to disclose the purchase price paid by Frederick J. Collins. It is not disclosed whether the present owner purchased merely subject to the mortgage of complainant or whether he assumed to pay it off so that I do not know whether there is any personal liability on his part or not. 1 think it is apparent that the property has been held for speculative purposes. Indeed, the only harm that might come to defendant by the appointment, of a receiver suggested by his counsel is that it might interfere with an immediate sale. There is no evidence that the original mortgagor is insolvent. He swears that he is worth $15,000 over and above his just debts and liabilities. While it is true that this court exhibited great reluctance in its earlier practice to appoint a receiver, yet it appears tliat there has been a modification of that earlier practice and that tire court will in each case coming before it apply equitable principles. Land Title and Trust Co. v. Kellogg, 73 N. J. Eq. 524. It is now the established rule that where the security is uncertain or precarious, and the mortgagor cannot be made to respond" to any deficiency which may arise at the foreclosure sale, the court has power to appoint a receiver: I do not think that the mere absence of proof of insolvency of the mortgagor is an insurmountable legal barrier to the appointment of a receiver. Each case must rest upon its own facts, and the question is whether it appears to the court that the equitable rights of the parties can be protected only by action by the court. At law, upon default, the first mortgagee is entitled to possession-and has a legal right to the rents and profits., Cortelyeu v. Hathaway, 11 N. J. Eq. 39. That right may be enforced by ejectment. It is solely because of equitable principles, now fortified by legislation, that upon default the mortgagee is not entitled to the legal title to the property. Where it appears to the court that the equitable rights of the parties can be fully protected by the appointment of a receiver, and considerable loss or damage may be occasioned to the mortgagee, as I find is the fact in this case, unless the court interferes, and no loss or damage can be occasioned to the defendant by the intervention of the court,' I think that a situation is presented where the court should act.

I have concluded to appoint as receiver the present owner, Frederick J. Collins, under a bond of $5,000. By such an appointment every right of the mortgagee and the owner will be protected. The objection that the appointment of a receiver may interfere with a sale is removed and counsel is unable to suggest any other way in which he could be injured.

I understand that an appeal is to be taken from the order appointing a receiver. If there is any question in counsel’s mind as to whether such an appeal will prevent the immediate operation of the order, I will hear an application under the. doctrine of Ashby v. Yetter, 78 N. J. Eq. 173, for an order to put it in force, notwithstanding the appeal.


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    James Flockhart, doing business under the name and style of Maher & Flockhart, v. Local No. 40, International Moulders' Union of North America, et al.
    [Heard October 11th, 1917.
    Decided November 2d, 1917.]
    1. A court of equity must act in the matter of contempt of its orders in such a manner as to make it understood that its orders cannot be ignored and the offender escape punishment.
    2. Tinder the proofs in this case a sentence of imprisonment is necessary to vindicate the dignity of the court.
    On proceedings to punish for contempt.

      Mr. Arthur F. Egner, for the complainant.

      Mr. Henry Carless, for the defendants.
   Lane, V. C.

(orally).

I adjudge Stevenson guilty of contempt. I believe the testimony of the several witnesses who have been produced on the part of complainants; they impressed me as being truthful, as endeavoring to tell everything they knew, and only what they knew. Their stories do not exactly agree. This indicates that there is not here what is commonly called a “frame-up.” I would have had some doubts if all had testified to exactly the same state of facts.

Stevenson’s story is supported by only one witness. The story itself bears inherent evidence of falsity. I do not think that there can be any question but that violence was committed during the month of August, much greater violence than has been testified to here. I think Stevenson was cognizant of all that took place. His attitude of mind is disclosed by the resolution that he offered in Bochester, New York, at a meeting of the International Moulders’ Hnion, on September 19th, congratulating one of the members of the police board of the city of Newark (drawing particular attention to the fact that this gentleman was an official of another union) because he had used his influence to secure withdrawal of police protection to the plant. The explanation given by Stevenson that this resolution was introduced by him because, as a citizen of the city of Newark, he thought that the expense ought not to be incurred is ridiculous. The International Moulders’ Hnion has nothing to do with expenses incurred by the city of Newark. There could have been but one object, and that was to express pleasure that police' protection had been withdrawn so that the strikers might continue to act as they saw fit. There could have been no other reason for it. I cannot conceive how law abiding citizens can object to the presence of sworn officers of the law who are present to preserve peace. There is no charge made that the police were unfair to the strikers.

I will withhold consideration of the cases of McLaughlin and Burns and the union itself. Harry Stevenson will be adjudged guilty of contempt, and the only question now is what punishment I should impose upon him and Schum already adjudged guilty.

I am sitting in a court of equity the province of which -is to determine rights between parties, not to punish crimes or put anyone in jail; however, the law in this state is that this court must- act where adequate relief cannot be obtained from other civil authorities and must protect the rights both of the owners of property and of the strikers equally. There is no doubt but that the order of this court has been most contemptuously violated; there is no doubt but that Stevenson is the head and front not only of the strike but’ of the events constituting the violation of the order. He assumed that he could in some way of another avoid punishment’ for anything that he did which he thought was necessary to be done in order that this strike should be successful, including persistent violence, violence which possibly did not go to actual injury to life. or limb, but insulting remarks, attempts by intimidation, to prevent workers from exercising their inalienable right to work where they please and when they please. The union may have a perfect right to endeavor- to persuade men by peaceful means to leave their employment. It has a right peacefully to attempt to persuade them to become members of the union. It may have a right in a lawful way to picket. No court would attempt to prevent it from exercising any single legal right it has. The law, however, is that this court will prevent it or its members from committing unlawful acts. Now it seems to me that I would be shirking my duty if I did not not only adjudge these men guilty of contempt but actually punish them. They must be made to understand, every citizen must be made to understand that the order of the Court cannot be ignored and the offender hope by pleas for mercy to escape punishment. If I should yield to the request of counsel for the respondents the result would be — well, we might as well shut the doors of the court. ■ .

I have concluded that no adequate punishment could be meted oirt to these men other than terms of imprisonment. They must understand that they cannot disobey the law or disobey the orders of this court and escape with fines which may be paid either by them or by someone else. The-punishment must be personal. The judgment of this court is that the respondent Stevenson be confined in the jail of the county of Essex for a period of forty daj's and thence unfil costs of this proceeding are paid; that the respondent Schum be confined in the Essex county jail for a period of twenty days. 'And I want to say now for the benefit of everybody who may be in this court room -that the fact that I have imposed only forty days in one instance and twenty days in another is no indication of the punishment which may in future cases be meted out if the contempt is willfully contemptuous.


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    Magdalena Yung et al. v. Roll Stickley & Sons et al.
    [Decided November 7th, 1917.]
    1. An injunction against proceeding on a judgment of a court of,law will be granted where the defendant was prevented by an accident from appearing in the court of law and interposing a meritorious defense, especially if the judgment is founded upon a palpable forgery, and the court of law is helpless to give relief.
    2. Dgaudulent suppression of a summons served on defendant by leaving at her residence with a member of her family, by the person upon whom served, who is not the agent of defendant, is an accident against the result of which equity will relieve.
    3. While ordinarily the relief granted by courts of equity in suits affecting the validity of judgments obtained at law as" the result of fraud, mistake, accident, &c., is a perpetual stay of proceeding, .the court may direct the judgment creditor to cancel the judgment or consent to its vacation.
    On bill, &e.

      Messrs. Lum, Tumblyn & Colyer, for the complainants.

      Mr. Frank F. Brainer, for the defendants.
   Lane, V. C.

The bill seeks to enjoin the defendant, Roll Stickley & Sons, from proceeding upon a judgment obtained by it in the second district court of the city of Newark against Frederick P. Yung, George Yung and Magdalena- Yung. Tlie judgment was upon a note purporting to be signed by the complainant, Magdalena Yung, and Frederick P. Yung and George Yung, her sons. The proofs demonstrate that the signature of Magdalena Yung to the note is a forgery. No attempt even was made to simulate the signature of complainant. ■ There is merely a combination of letters arranged in the same sequence as are the letters in complainant’s name. The complainant is an old lady of very little intelligence. I had her write her signature in open court. She is too ignorant to have attempted to disguise her signature. A cursory comparison of the signature written in 'open court and the signature upon the note indicates beyond question the writing purporting to be her signature on the note is a forgery. The forgery was perpetrated by the son, Frederick P. Yung. The summons in the district court action was served at what had been the residence of the complainant upon Frederick P. Yung. He not only concealed from his mother the fact of the service of process, but .subsequently appeared in the district court and testified to the genuineness of her signature, and upon his testimony the judgment was rendered. The complainant knew nothing either of the service of process or of the rendition of judgment until after the expiration of thirty days after the judgment was rendered. She then made timely application to the district court for relief. That court denied relief upon the ground that under the statute it had no power to set aside the judgment after the expiration of. thirty days. It did not deal with the merits of the application. Relief was then sought in this court.

I have considered the following cases: Mechanics National Bank v. Burnet Manufacturing Co., 33 N. J. Eq. 486; Herbert v. Herbert, 47 N. J. Eq. 11; Herbert v. Herbert, 49 N. J. E. 70; affirmed, 49 N. J. E. 565; Schweitzer v. Bonn, 55 N. J. Eq. 107; Hayes v. U. S. Phonograph Co., 65 N. J. Eq. 5; Wilson v. Anthony, 72 N. J. Eq. 836; Mierke v. Sebecke, 74 Atl. Rep. 977, and have come to the conclusion that the complainant is entitled to relief.

The general rule as expressed by the chancellor (McGill) in Herbert v. Herbert, 47 N. J. Eq. (at p. 15), is as follows: “In such a case, upon an application, free from laches and intervening equities, relief will be granted where it appears that the complainant, pending the suit at. law, was ignorant of the fact upon which he-relied for relief, or where, being a matter of equitable cognizance, the defense would not be received in the suit at law; or where the complainant was prevented from availing himself of the defence by fraud or accident or by the act of the opposite parties umnixed with negligence' or fraud on his part.”

In Herbert v. Herbet, supra, Vice-Chancellor Van Fleet (at p. 81), adopted the definition contained in Pomeroy as to what is an accident: “Accident is an unforeseen and unexpected event, occurring external to the party affected by it, and of which his own agency is not the proximate cause, wherebjq contrary to his own intention and wish, he loses some legal right, or becomes subject to some legal liability and another person acquires a corresponding legal right, which it would be a violation of good conscience for the latter person, under the. circumstances to retain.”

There can be no doubt but that if the complainant had been residing in the premises at which the process had been served, and had actually been served with process without being informed of its contents, and then had placed the papers upon a table preparatory to examining them, and a sudden gust of wind had taken them out of the window and they were lost so that the complainant actually received no knowledge of their contents, this court would relieve upon’the ground of accident if judgment were entered in a law court without the knowledge of complainant. In this case, the papers were served upon her son and were by him fraudulently concealed. It cannot be that equity will relieve in the first instance and not in the second. -

I have found, as a fact, that the complainant did not reside in the premises at which the process was served, and that her son was not her agent. Although she may have been prevented by the fraud of her son, a third party, from making her defence, so far as she is concerned, her failure to make a defence was also occasioned by - accident within the definition adopted by Vice-Chancellor Van Fleet. There was no negligence on her part or on the part of her agent. The judgment is one which it would be against conscience to permit defendant to hold. Subsequent to the rendition of the judgment a certain payment was made by the complainant to defendant and it is insisted that this payment was on account of the judgment. I do not find this to be the fact. She made the payment voluntarily on an old indebtedness of her husband, then deceased, without knowledge that any note had been given or judgment recovered.

The complainant is entitled to relief, and I think the proper form would be to perpetually stay the proceedings upon the judgment unless defendants will consent to open the judgment in the district court and proceed to a new trial if that be possible under the practice in the district court. If this course be not possible or practical, then the defendant should be perpetually stayed from proceeding upon the present judgment, or should have leave to institute a new suit at law, and the complainant should be restrained from setting up the former recovery-. If it is desired that the record be cleared defendant-may be compelled to cancel the judgment or consent to its vacation.

Settle decree on one day’s notice.


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    James D. Bailey v. Galvine Gabriel Glormine.
    [Decided November 8th, 1917.]
    1. A receiver’s compensation should be commensurate with the work done and the results accomplished.
    2. The practice of asking larger allowances than are justifiable in the expectation of action by the court reducing them, discouraged.
    3. The court expects a lawyer appointed as receiver to act as his own counsel except under extraordinary circumstances.
    On application for confirmation of receiver’s report and allowance.

      Mr. Jacob L. Newman, receiver, pro se.

      Messrs. Fairlie .& Vanderbilt, for the complainant.

      Mr. Selich J. Mindes, for the defendant.
   Lane, V. C.

The only question is as to the amount of the allowances to be made to the receiver and counsel for the complainant. The receiver asks $750. Complainant’s solicitors ask $75. The receiver acted as his own counsel. As has been' often stated, this court expects a lawyer appointed as receiver to act as his own counsel except under extraordinary circumstances. The receiver was appointed on the 7th day of September, 1917, and completely performed his duties by the 16th day of October, 1917. There passed through his hands approximately $13,000. I have examined with care the record, including the report o£ the receiver, and 1 have come to the conclusion that the receiver has performed his duties with most painstaking care and with great efficiency. He is to-be commended for the speedy-winding up of the affairs of the partnership and the result that has been achieved. The defendant bitterly opp'oses the allowance of the .fee asked and insists that $300 would be sufficient. The complainant consents to $500. I am of the opinion that the receiver has not asked for'more than the services which he rendered are reasonably worth_ under all of the circumstances of this case. There has been a tendency sometimes for officers of the court to ask for more than the services may be said to be reasonably worth upon the assumption that the court will, in any event, upon objection, cut- down the' allowances. This tendency should be discouraged. The court ought to be able to rely implicitly upon the representation of its officers, that in the view of those officers the amounts that were, asked for are proper. The court’s view may be different from that of the applicant. Mr. Newman has asked only for such amount as he conscientiously thought he was entitled to.

Hpon a consideration of tbe whole case, I come to the conclusion that he is entitled to the amount asked, and there will be allowed him $750. To counsel for complainant will be allowed the sum of $50. I have advised an order as above indicated.


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    Harry John Munn Doremus, petitioner, v. Grace Carol Foster Doremus.
    [Tried October 18th, 1917.
    Decided November 9th, 1917.]
    1. An attorney-at-law should not act as a private detective.
    2. It is the privilege of the court to rely upon statements of members of the ’bar, and where the court must weigh such statements against contradictory evidence, such a condition is scandalous.
    On petition for divorce.

      Mr. William E. Sandmeyer, for the petitioner.

      Messrs. Clancy & Long, for the defendant.
   Lane, V. C.

This case was fully tried before me on October 18th, 1917. The suit is brought for divorce by a husband against a wife. The charge was that on a certain date she committed adultery with a certain man. The petitioner has now applied for leave to dismiss his petition and has consented tó a decree dismissing it. I had already reached the conclusion that the petition should be dismissed. Notwithstanding the fact that the case seems to be disposed of, it would seem that there are certain features that attention should be called to. The principal witness produced by the petitioner is a member of the bar of this state, an attorney and eounselor-at-law. Prior to the date hereinafter referred to* he represented the husband. Although, nominally, he does not now; actually, he does. He testified that on-the 18th day of Juty, 1917, having been retained some time prior by the husband, he was asked to go to the house of the wife by a friend of the husband who had been delegated to watch the wife, or, rather, I should say, information was brought to him by this friend of tlie lmsband that there was a man other than the husband in the apartment of the wife, and with this friend he went to tiie home of the wife and looked through an aperture in the door and saw the wife and the other man sitting together, nothing compromising; this about, I think, eleven-thirty in the evening; • and that he and the friend of the husband, and I think two other friends of. the husband, waited for an hour or so and ihen that all of the lights were extinguished, and he and the others went'up to the wife’s apartment, knocked on the door; that within two minutes after demanding entrance they received it;- the wife was in dishabille; that prior to their entering they had heard a creaking of a lied,, muffled voices, which indicated to their minds that an act of sexual intercourse Was being committed. The wife denies that the man referred to was in her apartment, she denies the story told by this attorney, and either she or the attorney has been committing perjury.

1 had the opportunity of seeing the wife on the stand; apparently she wa's telling a frank story. Before the application was made, to dismiss the petition I was convinced that she was not guilty. The court condemns the conduct of this attorney in acting as a private detective. It is the duty of the bar*, and every member of it, to maintain the ethical standard of the bar. Tt is the privilege of the court to rely upon statements of members of the bar. When members of the bar descend to a course of conduct which requires that they become witnesses in a case like this requiring the court to weigh their testimony, against the testimony of others, a condition has been created which is simply scandalous. It is, of course, the duty of a member of the bar who has knowledge of facts of which no other has knowledge to testify as every other citizen must testify, but it is not the duty nor the privilege of a. member of the bar to deliberately seek to acquire information in the manner in which information was sought to'be acquired in this case and then appear in court and testify as a witness at the same time having a pecuniary interest in the outcome of the litigation.

On this subject generally, see Garrett v. Garrett, 86 N. J. Eq. 293.