text:
    Constant Q. Ring v. New Auditorium Pier Company et al.
    [Decided September 9th, 1910.]
    1. While eestuis que irustent are what are termed “necessary” parties to suits to foreclose a tx'ust deed, failure to make them parties does not invalidate the foreclosure deci'ee, so that the holder of corporate bonds was not entitled to have a decree foreclosing a trust deed on corporate property set aside because he was not a party to the proceedings, especially where it was not shown that any property subject to the lien was omitted from the foreclosure, or that his interest was not fully protected; the utmost which he could claim being that the foreclosure did not affect his rights.
    2. A party defendant to a mortgage foreclosure is not, as a matter of law, entitled to notice of the time and place of the sale; he being required to use diligence to ascertain such facts.
    3. Even if a holder of corporate bonds was entitled to have a decree foreclosing a trust deed on corporate property set aside, because he was not a party to the proceedings, he was not entitled to such relief, where it appeared that he was advised before the sale by the trustee that the latter had been requested to foreclose, thus notifying him that a foreclosure was probable, and was afterwards notified that the sale had taken place, the amount realized, and his part thereof, but did not attempt for many months thereafter to have the foreclosure decree set aside, during which interval it had become impossible to restore the status existing before the sale because of the leasehold interest, upon which the mortgage was, having expired shortly after the sale, and new leases to other parties having been made, and various stocks and bonds having been issued and new corporations formed to purchase the mortgaged property, and to guarantee the new bonds.
    4. A bondholder of a corporation was entitled to be made a party defendant to a suit to foreclose mortgages on corporate property.
    5. Where, though a corporate bondholder was given an opportunity to enter into an arrangement with the other bondholders, for the purpose of selling mortgaged corporate property under foreclosure, buying it in, and accepting proportionate shares in a new mortgage of the same^property, knowledge of the pendency of the suit was concealed from him by the trustee and other parties interested, and he was not notified thereof until after the sale, such bondholder was entitled to share in the new security created under such arrangement to the same extent as the other bondholders who were notified of the foreclosure proceeding and made defendants therein, upon paying his proportionate share of the expense of the scheme to substitute the securities.
    6. The fact that such bondholder did not institute suit for such relief for many months after the foreclosure sale will not bar his right to relief, where no one has in the meantime changed his position, and no rights of others have been affected by his delay.
    7. The chancery court has complete jurisdiction with respect to trusts.
    8. The chancery court has complete jurisdiction to relieve from fraud in proper cases.
    9. If other corporate bondholders and the trustee under corporate mortgages fraudulently conspired together to defraud another bondholder of his rights under the mortgage, by having it foreclosed without notice to to him, and without making him a party to the foreclosure proceedings under a scheme to buy in the property at the foreclosure sale, and to create a new security and issue new bonds, such bondholder will be entitled to equitable relief to protect his right in the new securities created.
    HparcT on bill, answers, replications and proofs in open court.
    This is a bill filed by Constant Q. Eing against the New Auditorium Pier Company, the Pier Corporation of New Jersey, the Pier Company of New York, William H. Brearley, who was trustee under certain mortgages, Everett P. Hervey and George C. Tilyou.
    Constant Q. Eing was a bondholder of the New Auditorium Pier Company, Brearley being trustee of the mortgage. The mortgage was foreclosed and Eing was not made a party to the suit. The property was bought in at the foreclosure sale (of which Eing had no notice) by the Pier Corporation of New York, a corporation whose whole capital stocli is owned by the Pier Corporation of New Jersey. This last-named corporation was formed by or on behalf of all the other bondholders of the New Auditorium Pier Company, the agreement among them being that they should get bonds of the Pier Corporation of New Jersey, guaranteed by a New York corporation called the Steeplechase Company, in exchange for their holdings in the New Auditorium Pier Company.
    The object of the bill is either to have the sale in the foreclosure suit set aside and the complainant herein admitted a party therein, and to have a resale, or to have the complainant decreed to be entitled to equities with respect to the bonds issued by the Pier Corporation of New Jersey.
    The answers of the various defendants set up the facts which each defendant alleges bar the complainant from obtaining any relief.
    The facts as found will appear in the opinion.

      Messrs. McDermoil & Enright, for the complainant.

      Messrs. 'Northrop & Griffiths, for the Pier Corporation of New York, Pier Company of New Jersey, Everett P. Hervey and George C. Tilyou.

      Mr. Charles I). Thompson, for William H. Brearley, trustee.
   Garrison, V. C.

(after statement of facts).

Bing was the owner of $5,000 of the bonds of the New Auditorium Pier Company, a corporation which had an outstanding mortgage of $75,000, of which William H. Brearley was trustee.

The corporation owned a lease upon a- pier in the city of Atlantic City, New Jersey, and erected buildings which, in 1908, were appraised at $40,000, and had some personal property of the value of $1,000 or more, and was engaged in an amusement enterprise on this pier. The enterprise was not successful financially, and the interest due in January of 1907 was defaulted upon.

Tilyou, one of the defendants, is a man who runs Steeplechase Park at Coney Island, and who has been interested in amusement enterprises all over the country, and was one of the original, if not the original creator and promoter of this ÍSTew Auditorium Pier Company; and' Mr. Hervey, a New York lawyer, another defendant, had been interested very shortly after the incorporation of the New Auditorium Pier Company in tlie enterprise, and had placed among his friends some twenty-five thousand dollars, at least, of the bonds of the Yew Auditorium Pier Company.

After the failure to pay interest in January of 1907, Mr. Hervey conceived the idea of getting Mr. Tilyou to have a solvent company of his (the Steeplechase Company), owning a large amusement enterprise at Coney Island, guarantee the holders of the bonds of the Yew Auditorium Pier Company, but not to have him guarantee the particular bonds which were then outstanding and were in default, but to form a'new company and have a new issue of bonds by the new company, which new company should own the same property as the Yew Auditorium Pier Company, and then exchange its bonds, which would be guaranteed by the Steeplechase Company, for the bonds of the Yew Auditorium Pier Company.

Mr. Hervey visited the various bondholders of the Yew Auditorium Pier Company and secured the assent and co-operation of $67,000 out of $75,000 thereof. Shortly after the 21st of March, 1907, he visited Mr. Ring, who is a claim agent for a railroad and who liad an office in the South Station, Boston. There is some dispute between the witnesses as to what took place at this interview. There is no dispute that Mr. Hervey opened this question of the exchange to Mr. Ring and suggested the desirability of his making it, and that Mr. Ring was not ready at that time to say either “yes” or “no.” There is a dispute as to whether Mr. Hervey told Mr. Ring that if he did not come in the property would have to be sold in foreclosure proceedings; Mr. Ring testifies that he told him that if such was the case he (Hervey) would give him (Ring) thirty days’ notice prior to any such sale. While this latter language is not denied verbatim by Mr. Hervey, I think it is denied by implication, because he testifies that at that interview they did not talk at all about having a sale.

Mr. Hervey came back to Yew York and wrote a letter under date of April 24th, 1907, to Mr’. Ring, which, he says, practically repeated (perhaps more at length and with greater specification) the. things which he had said to him in the interview to which I have just alluded.

Mr. Ring made no response to this letter.

The general purport of this letter was that a new corporation was to be formed whose bonds were to be guaranteed by the Steeplechase Company; that they were to be identical with the bonds of the New Auditorium Pier Company which Ring now holds- — that is, they were to cover the same property, and be for the same amount, and bear the same rate of interest, and payable at the same time; the idea being, as expressed in the letter, that the bondholders would then have an identical bond upon the identical properly plus the guarantee of the Steeplechase Company.

It was intended that the new issue, instead of being $75,000, should be $110,000, and that the balance of the bonds might be sold for improvements.

As before stated, Ring did not respond to this letter, and, in the meantime, Hervey and Tilyou had caused to be incorporated a company in New Jersey called the Pier Corporation of New Jersey, all the stock of which was issued to the Steeplechase Company, which latter company was controlled absolutely by Tilyou. The Pier Corporation of New Jersey executed what is called a debenture agreement or debenture trust agreement, with William H. Brearley as trustee. I cannot see, from reading-this agreement, that it vests anything in the trustee at all. It may, but I am not able to see that it did. It provided that these debentures, which are evidently the same things which Mr. Hervey had been writing and talking about and calls “bonds,” might be issued up to the amount of $110,000, and that they were to be guaranteed by the Steeplechase Company.

On the 10th of July, 1907, Mr. Brearley wrote a letter to Mr. Ring, informing him that holders of sixty-seven out of seventy-five bonds of the New Auditorium Pier Company had requested him, Brearley, as trustee, to commence a foreclosure.

Some time in the summer of 1907 — probably in August — this foreclosure was begun by Brearley, the trustee, under the direction and control of Mr. Hervey.

On the 25th of October, 1907, Ring came to New York, and visited both Hervey and Brearley. According to Ring’s testimony that is the first time that he saw and had any conversation with Mr. Hervey since the conversation in April of 1907. Hervey does not dispute this, but says that he visited Mr. Eing at Bing’s office in Boston some time in April after the interview that they did have, and sought another interview with him; that Eing must have known he was there, because, in Hervey’s sight, a messenger went from Hervey to Eing, but Eing declined to see him. Eing absolutely denies this.

At the interview of the 25th of October just referred to there is again a dispute as between Hervey and Eing concerning the matter of a promise to give notice — Eing stating that Hervey told him that he did not know anybody that would take his bonds, and that the only thing he could do was to exchange them, and referred him to Brearley, trustee, saying that Brearley was Eing’s trustee and would look out for him, but denying that he told Eing that he would give him notice of any foreclosure sale.

Eing went to see Brearley after seeing Hervey, and Brearley testifies that he told Eing that he had no news, that he could do nothing for him, but did not mention the foreclosure in any way.

It appears at this time that there was an interlocutory, if not a final, decree in the foreclosure suit, and of course they must have expected to have a sale. It seems almost incredible that no one mentioned the fact to him that there would be a sale and he would have to look out for himself; but both Hervey and Brearley testify that they did not tell him any such thing.

On the 13th of March, 1908, the mortgaged property was sold at Atlantic City by Pierre P. Cook, the special master. Previous to that time Mr. Hervey had caused to be incorporated in the State of New York a corporation called the Pier Corporation of New York, all of the stock of which was issued to the Pier Corporation of New Jersejr, all of whose stock, it will be recalled, had been issued to the corporation (the 'Steeplechase Company) controlled by Tilyou, who was working in conjunction with Hervey and the trustee, Brearley. Por purposes which do not affect the issues in this case in any way the New York corporation was formed, and it is admitted by the defendants that whatever it did it was as if done by the Pier Corporation of New Jersey.

The New York corporation constituted Mr. Thompson its attorney in fact, and authorized him to bid at the sale.

The foreclosure bill which was filed, as I have stated, some time in the summer of 1908, was filed by solicitors of the name of McCarthy & McMahon. Some time in the late summer or early fall Mr. Charles D. Thompson was consulted by Mr. Hervey, as the result of which Mr. Thompson was substituted as solicitor for the complainant, Brearley, the trustee, and he and Mr. Hervey (Hervey having been all the time acting in the matter as legal adviser of Mr. Brearley) managed the case from then on.

The final decree which had then been entered was opened at Mr. Thompson’s request, and amendments were made to the bill, and on the 7th of December, 1908, a new final decree was obtained by Mr. Thompson in which the amount due upon the mortgage was determined to be $81,250.

At the sheriff’s sale the trustee does not appear to have made any arrangements to take care of the property at all, excepting such as Mr. Hervey and Mr. Thompson, acting for him, had made by the incorporation of the New York company, and the authorizing of Mr. Thompson to go and bid. Mr. Thompson did bid, in the name of the New York corporation, the sum of $10,000, and the property was knocked down to him, and Mr. Hervey supplied the money to pay this.

On the 7th of April, 1908, after the sale was confirmed, Mr. Brearley wrote to Mr. Ring stating that there had been a foreclosure and a sale, and the amount that was received at the sale, and that his, Ring’s, portion of it was $128 per bond, or $640 fo„r his $5,000 of bonds. There is no dispute by anybody that this is the first knowledge that ever was conveyed to Ring of a sale. No one pretends that he was notified in advance that there was to be a sale, or, in fact, that a foreclosure had been begun.

About ten days after the receipt of this letter, and about the 18th of April, 1908, Mr. Ring came to New York and visited both Mr. Hervey and Mr. Brearley. He brought with him the letter of April 24th, 1907 (the year previous), in which Hervey had offered the exchange of the bonds, and took this to Hervey and asked for his bonds. Hervey told him he was too late, that he must go see Brearley, his trustee. He did so, and saw Mr. Brearle}', and Brearley told him he had no bonds to give him in exchange, that all he had was the cash to pay him $640 for the $5,000 of bonds he held.

Eing learned then, or shortly afterwards, that a Mr. Van Eaalte (who was, I assume, similarly placed to him, or somewhat similarly placed) had begun a suit against the parties interested to set aside this sale, and, apparently, he rested, satisfied with whatever efforts Van Eaalte was making to this end down until he learned that the Van Eaalte suit had been settled. I think from the testimonj'- that it was compromised. It appears that from the beginning Eing was acting under the , advice of a New York lawyer named Maginnis; that he consulted Mr. Maginnis very shortly, if not immediately, after his interview of April 18th, 1908, with Brearley and Hervey, and that Maginnis continued to be his counsel down to the time that Mr. Enright, or Mc-Dermott & Enright, his New Jersey counsel, were employed; and it does appear that they were employed in the month of August, 1909, that there was a personal interview with them in the month of September of the same year, and that they filed the bill in this suit on the 27th day of October of the same year.

The purpose of the bill is in the alternative — either to have the foreclosure proceedings opened, the complainant herein made a defendant therein and the sale set aside, and a resale; or to have the defendants decreed to deliver to the complainant $5,000 of the bonds of a certain character and kind set forth in the bill.

Taking up the first of the two alternatives, my conclusion is that this complainant is not in a position to have that relief. It is true that it is a principle of equity that cestuis que trust are what are termed “necessary” parties to suits to foreclose the security in which they are interested, and which is held for their benefit; and the court will always, when appealed to, before decree, require that they be máde parties. The reasons for this, broadly speaking, are twofold — first, that those beneficially interested may see to it that their rights are secured and protected, and second, that the defendant may, when bound by this decree, have the protection of having all the parties in interest before the court.

There are exceptions to the rule which requires that the cestui que trustent shall all be parties, and the limits of such exceptions

have never been, and probably never can be, precisely defined. Willink v. Morris Canal, &c., Co. (Chancellor Haines, 1843), 4 N. J. Eq. (3 Gr. Ch.) 377; Williamson and Upton v. New Jersey Southern Railroad Co. (Chancellor Runyon, 1874), 25 N. J. Eq. (10 C. E. Gr.) 13; Stevens v. Bosch (Vice-Chancellor Pitney, 1895), 54 N. J. Eq. (9 Dick.) 59; Camden Safe Deposit and Trust Co. v. Dialogue (Court of Errors and Appeals, 1909), 75 N. J. Eq. (5 Buch.) 600.

Whatever may be meant or intended by speaking of them as “necessary parties” upon applications to the court before decree calling attention to their absence, it surely cannot be maintained that they are “necessary parties” in the sense that they are indispensable and that their absence invalidates the decree.

In a case in which the bonds were no more numerous, or very little more numerous than they are in this case, the court of appeals held that the trustee would have been justified in foreclosing without making any of the bondholders defendants. Hackensack Water Co. v. De Kay (1883), 36 N. J. Eq. (9 Stew.) 552. And see the language of Chief-Justice Green in New Jersey Franklinite Co. v. Ames (Court of Errors and Appeals, 1859), 12 N. J. Eq. (1 Beas.) 507 (at p. 509). Counsel have not been able to find a case, nor have I, in which the omission of bondholders, one or more, has led the court to find the decree invalid. So recently as Bushey v. National State Bank of Camden, 72 N. J. Eq. (2 Buch.) 466, we have a case in which a trustee foreclosed a mortgage in which there was only a single cestui que trust and he was not made a party. The chancellor (Magie) on page 468, in disposing of the suggestion that this rendered the proceedings invalid, seems to intimate that the defendants were the ones who might have objected thereto, or the purchaser at the sale (if he claimed that he was not getting the title he was entitled to because of- lack of parties); but he does not anywhere suggest that the proceedings were invalid because of the omission of the cestui que trust, the strong intimation being to the contrary.

Here, again, I do not propose to decide what the effect of omitting the cestui que trust is, except to the extent of deciding that it does not render the proceedings invalid against those who were parties.

In this suit, therefore, we have Eing, the complainant herein, a bondholder, whose trustee foreclosed the mortgage in the other suit and did not make Eing a party. The utmost that Eing can claim, under such circumstances, is that his rights have not been foreclosed; and if they have not, he may, apparently, 'either ■file a bill to redeem, or perhaps take foreclosure proceedings himself. It may be that he will have to take them through the trustee, or compel the trustee to take them for him, if the mortgage forbids hip. to take them; but, in my present view, his utmost right would be to claim that the other suit did not affect him or his rights, and that he is, therefore, free to proceed as if there had been no other suit; or may redeem.

I do not say that these are his rights. I say that these are the utmost rights that hé can claim. In 2 Jones Mort. (6th ed.) § 1395, the right is said to be limited to redemption.

He cannot claim, in my view, the right to have the foreclosure decree in the other suit opened and the sale set aside merely because he was a bondholder and was not made a party, unless he appeals directly in that suit, and shows good reason why he should now be admitted therein. By this I mean that if, in the course of that suit, injustice were done Eing, if, by adjudication therein, less was found to be due to the trustee for Eing than Eing could legitimately claim to be owing, or perhaps if less property were claimed to be under the lien than Eing thought should be claimed, it is possible that, being a beneficiary and being a party who had a right to be included in that suit, he could, even after decree, have the decree opened and come in; and, if there had been a sale and the complainant were the purchaser, and he were not in laches, he might be let in for that purpose.

But in the case in hand the only possible- complaint that Eing makes with respect to the foreclosure proceedings, in which he was not a party, has nothing whatever to do with that suit, down to the time of decree, at least. He does not even suggest that the full amount, with interest, due him- was not found to be due; and he does not claim that any property properly subject to the lien was omitted, and does not show that if he had been made a party and had litigated, any other result could possibly be reached than was effected by the decree which was entered therein. His complaint is that he did not have notice of the sale; and he suggests (without, I think, directly alleging or testifying) that if he had had notice he would have attended and protected himself.

In passing, it should be observed that even if he were a party he would not be any better off in this respect, since there is no provision under our law that the parties are to be notified of the time and place of sale. They must ascertain these facts by diligence.

Here, again, if Ring (whose real complaint is with respect to the sale) had applied to this court promptly after the sale, and at a time when it would have been entirely possible to have held matters and restored them to the status quo before the sale, there would be ground for discussion, at least, with respect to his alleged right. But, under the circumstances of this case, I find that the complainant has placed himself entirely outside the pale entitling him to this relief. He was advised by the' trustee that the trustee had been requested to foreclose. This surely put him upon notice that a foreclosure suit was likely. Very shortly after the sale he was notified that the sale had taken place, and of what was realized, and of what was coming to him out of it. He does not move for many months, and does not do so until it is absolutely impossible to restore things to the status quo ante.

I shall not elaborate upon either the facts or the law in this respect, but they lead me to the conclusion that Mr. Ring is not in a position where he is entitled to have the aid of equity to undo this sale and have a resale — even assuming that it is proper to grant such relief in this suit and not in the foreclosure suit, and that he had tendered himself willing to bid what the law would find it necessary for him to bid under the circumstances, which he does not do.

The mortgage, wholly or in part, was upon a leasehold interest which expired some short time after the sale. New leases to new parties have been.made. There ’is no contradiction that various corporations were formed, and various stocks and bonds were issued; and it sufficiently appears that it would be absplutely impossible to restore the status quo ante the sale.

This leaves for consideration the other alternative relief prayed for.

Broadly speaking, this is founded upon this theory — that the other parties to the suit, dealing with a subject-matter in which the complainant had a definite, specific interest, by bringing a foreclosure without making him a party, and by having a sale without making him a party or giving him any notice, and by purchasing the property themselves and forming new corpora-' tions, &c., have, with respect to a property in which he had an equal interest with them proportionately to his holdings, so dealt with the property and with him that he must now be held to have his proportionate right in the proceeds, whether they be stocks or bonds of the new corporations, or what not.

He was a bondholder to the extent of $5,000 under a mortgage recited to be for the equal benefit of all bondholders; all of the other bondholders (excepting himself and one other) entered into an arrangement for the purpose of selling the property under the old mortgage, buying it in, creating a new mortgage, and sharing in the same proportions in the new security that they 'did in the old.

There can be no doubt that, having given him an opportunity \ to come into this arrangement, if they had kept him advised of the foreclosure suit and the sale, so that he must strictly attend to his own interests and could look out for his own rights, no equity would obtain in his favor as against them.

But this admittedly is not the case. There is no evidence that he ever had any notice that a foreclosure suit had been begun until after it was over, and after the sale. He was clearly entitled to be made a party; and if they omitted him as a party, and omitted to give him notice, and did not give him notice until after the sale, I, as above stated, am of the opinion that he certainly has an equity. He claims that he is entitled to $5,000 par value of bonds which shall be a lien upon the identical property covered by the mortgage securing his old bonds, and that such new bonds must be identical in terms, &c., with the old bonds. This, he says, is the representation made to him by Hervey concerning the new bonds. I do not think, under the circumstances, this complainant can now insist upon anything ■, of that sort, even if he otherwise could. I find that his utmost fright is to demand that he shall be permitted to share in the • Inewly-created situation in the same way that the others similarly 'situated shared therein.

‘ The jurisdiction of this court, with respect to trusts and concerning frauds, is complete. The jurisdiction for the relief to be afforded this complainant and the principles applied are ' elementary and require no citation of authorities. All of the bondholders of the New Auditorium Pier Company were in an .¡identical position. The mortgage to their trustee, Brearley, ■'was for the equal proportionate security of each bond.\(When ! the others, at Hervey’s instigation, acting as he was with Tilyou, got together with Tilyou, Hervey and the trustee, and agreed to change the existing situation by causing the transfer of the . mortgaged property to a new company and to have it issue bonds ; to the same amount, to the old bondholders, and to have Tilyou’s J New York corporation guarantee such bonds, this could only I legally and equitably be done by treating all of the cesiui que 1 Irusient alike. Undoubtedly, any bondholder of the old com-j pany (the New Auditorium Pier Company) who, being.fully f advised of the situation, chose to take his chances of protecting f himself at a foreclosure sale, could properly be omitted from an arrangement which otherwise required the parties in interest to treat and protect all alike. Therefore, as I have heretofore said, I think that Ring would be entirely remediless if his trustee, or any one of the defendants (for they were all acting absolutely as a unit), had notified him of the fact that a foreclosure was in process, and that he must either exchange his bonds or take care of himself. But, in default of any such intimation to him, and in face of the suppression by all of the defendants (his trustee included) of any information which would put him upon notice that his rights were to be affected, I am clearly of opinion that the defendants must all be held to have been acting for all the bondholders represented by Brearley, the trustee, and that all such bondholders must, in equity, be held to be entitled to identically proportionate rights in the new securities.

It appears too completely from the proofs to require or permit of argument, that Hervey, Tilyou, Brearley, the trustee, and the various corporations that were formed to carry out their designs, were engaged simply in changing existing securities from one form to another,/ The property subject to the old mortgage was to be vested in a new company, and bonds of the new company were to take the place of those of the old company. It was not a case of foreclosure to obtain what the mortgaged properly would bring for the benefit of the bondholders, although, incidentally, a foreclosure suit was part of their plan, , because that was the best if not the only way that a satisfactory title could be obtained by the new company, but, in the plan as \ conceived and carried out, the foreclosure was a mere formality / so far as the interests of the bondholders were concerned. In- ' cidentally, also, such a foreclosure could properly have been utilizable to cut off the interests of any of the bondholders of the ) old company who, being fully advised of the proposed reorgani- j zation, chose to trust to the results of a sale in foreclosure rather ' than to join in the reorganization scheme. But to serve this last-mentioned purpose, I am clearly of the opinion that such bondholders, before they can be considered as having been cut off, must have been fully notified of all relevant facts. In default of such notification, and in face, as in this case at bar, of the suppres-/ sion of such facts, the bondholders thus kept in ignorance have undoubtedly a right to claim identical treatment with all others in said scheme proportionate to the holdings of each.

All the parties to be affected are before the court; the property in question has not passed into the hands of anyone innocent of knowledge and participation. Mr. Hervey, Mr. Tilyou, the Pier Corporation of Yew York, the Pier Corporation of Yew Jersey, and Mr. Brearley, the trustee (that is, all of the defendants), were all combined and working to a common end. Except, if it be proved, that they were so combined and working to defraud Eing, their purpose was a perfectly legal, proper and legitimate one; but to make it such, they must be found to be equally — that is, proportionately — working for and responsible to all the cestui que trustent.

I so find.

The other alternative, if adopted, would lead to exactly a similar result; for surely Ring would be entitled to the aid of equity if it be found that his fellow-eesím que trustent, his trustee, and Messrs. Hervey and Tilyou, using the new corporations as their agents, had conspired and combined together to defraud Ring of his rights.

Whichever view is taken of the facts, the result is that Ring is entitled to identically proportionate interests with his fellowcestui que irustent, and I so decide.

The proofs, as before stated, show that the company which, under the scheme, issued the new bonds, issued $110,000 thereof, $75,000 to take up the old bonds, and $35,000 to be sold for improvements. The old bondholders, as I,read the proofs, received par for par in the new bonds. Ring should receive the same. If the proofs disclose that the old bondholders received more, Ring should receive his proportionate share identically with them.

It may be that the old bondholders were put to expense in carrying out the plan, and if so, Ring should pay his proportionate share thereof. This and the other details will be settled at the time of formulating the final decree, which will be done upon notice.

I do not think that there is any force in the claim of laches put forward by the defendants so far as it affects the right of the complainant as I have found it to exist. The doctrine is given full effect to so much of the bill as prays with respect to the interference with the foreclosure sale; but with respect to the complainant’s right to equal treatment at the hands of the defendants, there is, in my view, no room or occasion for its application. No one has changed his position, or lost or forfeited any rights, or given up or secured any rights, no evidence has been lost or become unavailable; and no harm to any defendant is shown to have been occasioned by reason of the delay of the complainant in bringing Ms suit. I therefore find that the right heretofore found in favor of the complainant will not be denied because of the objection of laches.


source: Caselaw Access Project

author: Garrison, V. C.

license: Public Domain

text:
    W. S. Huselton & Co., a corporation, v. John Durie et al.
    [Decided September 9th, 1910.]
    1. A judgment creditor, who seeks to reach an equitable estate of the judgment debtor in land, must plead and prove that he has exhausted his remedies at law against the debtor, and that he cannot collect his judgment at law.
    2. A judgment creditor, seeking to reach an equitable estate of the judgment debtor, does not show that he has exhausted his remedies at law by merely showing that the debtor is insolvent.
    3. A demurrer to a bill in equity does not admit facts pleaded on information and belief.
    4. A judgment creditor, entitled to reach real estate to which the judgment creditor was entitled under a will, and which he has caused the executorTwho had the power to convey, to convey to him and his wife, is entitled to an equitable lien on the property of the debtor standing in the name of the wife, and to have that lien foreclosed for his benefit.
    Upon demurrers by Annette Durie to cross-bills of Bisig, Schwarz, and Bieh & Co.

      Mr. Adolf L. Engellce, for the demurrant.

      Mr. William M. Suefferl, for the cross-complainants.
   Garrison, V. C.

The separate cross-bills are practically, and for the purposes of this decision actually, identical, and will be dealt with as if one.

They aim to reach real estate which- — or the proceeds of the sale of which — John Durie was entitled to under his mother’s will, and which real estate he caused the executors of his mother’s will, who had the title and the power to convey it, to convey to him and his wife.

The cross-complainants contend that as to them the wife holds as a trustee. They plead judgments against the husband, but do not allege the date of the deed, or that executions were issued and returned unsatisfied upon their judgments. What they are trying to reach is the equitable estate of Durie in the lands; to have the title, so far as conveyed to Mrs. Durie, held to be in trust for their debtor, and hence recoverable by them. To do this they must plead and prove that they have exhausted their remedies at law against their debtor. I do not think they have done so. The only attempt to do so is by alleging what the complainant had done upon his judgment, and by an allegation, upon information and belief, that John Durie is insolvent. I do not think that the latter allegation is sufficient — first, because a defendant may be insolvent — that is, may not have enough assets to pay all his debts — and yet a vigilant creditor may secure property of the insolvent sufficient to satisfy his debt; and secondly, upon the demurrer the defendant is not bound by allegations upon information and belief. Schuler v. Southern Iron and Steel Co. (Vice-Chancellor Garrison, 1910), ante p. 60.

It may well be, as argued by complainants, that they are not required to allege and prove that they have issued executions and had them returned unsatisfied. I do not decide this because I do not have to do -so. But at least they must allege and prove that they cannot collect their judgments at law before thejr can appeal to this court to obtain equitable assets or liens upon equities of the debtor. The distinction between those cases in which the object is to set aside a conveyance made by a debtor of property to which he had title and those in which the debtor has never had title, but in which he caused property to which he was entitled or had paid for to be conveyed to another in fraud of his creditors, is pointed out and illustrated in the following cases: Haggerty v. Nixon (Chancellor Runyon, 1875), 26 N. J. Eq. (11 C. E. Gr.) 42; Belford v. Crane (Chancellor Green, 1863), 16 N. J. Eq. (1 C. E. Gr.) 265; Holdrege v. Gwynne (Chancellor Zabriskie, 1866), 18 N. J. Eq. (3 C. E. Gr.) 31; Kinmouth v. White (Vice-Chancellor Pitney, 1901), 61 N. J. Eq. (16 Dick.) 358; and in these cases it is held that where the creditor is seeking the equitable estate or interests of the debtor he must show that he cannot obtain payment by further proceeding at law. Furthermore, I do not think the appropriate relief is prayed for; I do not think that the prayer should be to set aside the deed which the executors had made to John Durie and his wife. This would not advantage the cross-complainants in the least, but would disadvantage them, and is not, in any event, the relief to which they are entitled. What they have the right to — if they allege and prove the proper facts — is to have the title' now vested in Mrs. Durie held to be in trust for John Durie so far as they are concerned, and to have it decreed either that the said John Durie shall pay the cross-complainants their dues, or that the property be sold and the proceeds used for that purpose —in other words, wliat they are entitled to is to have an equitable lien upon the property of John Durie standing in the name of Annette Durie, and to have that lien foreclosed for their benefit..

The demurrers are therefore sustained, with costs, and the cross-complainants will be given opportunity to reframe their pleadings.


text:
    Amelia E. Collerd v. John J. Tully et al.
    [Decided September 12th, 1910.]
    1. Where, before giving a second chattel mortgage, the mortgagor paid the mortgagee’s transferee $25 monthly, as previously agreed, and the second mortgage given to the transferee provided for like payments, monthly payments of $50 were properly applied equally to the two mortgages.
    2. A chattel mortgage covering all the goods and chattels mentioned in an annexed schedule “and now” in a certain stable, the schedule specifying horses, &c., and providing that all horses, &c., bought by the mortgagor during the life of the mortgage should become subject to the lien, covered after-acquired property.
    3. A chattel mortgage need not be in any particular form.

      4. A chattel mortgage description is sufficient if it designates the property clearly enough to enable one to determine what property is meant, and this results if the language puts one on inquiry in such way as to necessarily lead to knowledge of the property intended to be mortgaged.
    5. A chattel mortgage will be construed to cover after-acquired property if the court under the terms of the mortgage would have decreed specific performance of a contract to sell or. pledge it.
    6. Property to which one may acquire title in the future can be validly mortgaged.
    7. Evidence held insufficient to show that horses were sold under reservation of title as affecting a chattel mortgage covering after-acquired property.
    8. Under 2 Gen. Btat. 1895 p. 2113 § 52, making a chattel mortgage void as against the mortgagor’s creditors unless it has annexed an affidavit stating the consideration of the mortgage, the affidavit must show how the debt arose on which the mortgage is founded, how the debt came into existence, and how the relation of debtor and creditor as between the mortgagor and the mortgagee was created.
    9. An affidavit reciting that the consideration for a chattel mortgage was “a balance of $700 due upon a judgment recovered by E. against J. and assigned to deponent” is sufficient under 2 Gen. Btat. 1895 p. 2113 § 52, which makes a chattel mortgage void as against the mortgagor’s creditors, unless it has annexed an affidavit stating the consideration.
    10. Under 2 Gen. Btat. 1895 p. 2113 § 52, which makes a chattel mortgage void as against the mortgagor’s creditors unless it has annexed an affidavit stating the consideration, where a mortgage is based on a judgment, the affidavit need not recite how the antecedent obligation merged into the judgment arose.
    11. A mere judgment against one is not sufficient consideration to support a chattel mortgage; it being necessary that disadvantage result to the mortgagee or advantage to the mortgagor.
    12. Under -2 Gen. Stat. 1895 p. 2113 § 52, which makes a chattel mortgage void as against the mortgagor’s creditors unless it has annexed an affidavit stating the consideration, a statement that the consideration was “also $700” which the mortgagor owed, which debt was assigned to the mortgagee, is insufficient.
    13. Under 2 Gen. Stat. 1895 p. 2113 § 52, which makes a chattel mortgage void as against the mortgagor’s creditors unless it has annexed an affidavit stating the consideration, a mortgage is void where the consideration is insufficiently stated in part, though partly sufficient.
    14. Where a second chattel mortgage is void as against a creditor, and the mortgagee also holds the first mortgage, the creditor can require the mortgagee to apply to the first mortgage the proceeds of property covered by such mortgage on which the creditor has no lien.
    15. Where a prior lienor has more funds or property subject to his lien than a subsequent lienor has, the former, if required, must, as respects the latter, first exhaust his rights against that fond or property on which tiie latter has no lien.

      16. In computing overdue interest and crediting part payments, the excess of payment over matured interest should be used in discharging principal, and subsequent interest should be computed on the principal thus reduced; but, if the payment be less than the interest, the surplus of unpaid interest must not be taken to augment the principal, but interest continues on the former principal until the period when the payments, taken together, exceed the interest due, and then any surplus is to be applied toward discharging that principal, and interest is to be computed on the principal thus reduced.
    17. A judgment creditor of a chattel mortgagor with a levy on specific property is entitled to attack a chattel mortgage which is void for noncompliance with statutory requirements.
    Heard on bill, answers, replications and proofs in open court.
    The bill in this case is filed to foreclose two chattel mortgages, each made by the defendant John J. Tully, and eách now owned by the complainant. Each mortgage covered horses, wagons and harness. One of these mortgages was for $2,000, and was dated December 21st, 1896, and contains a clause respecting after-acqnired property. It was originally given to Mrs. Effie C. Wynants and by her assigned to her daughter, and by her daughter assigned to the complainant herein. At the time of the assignment to the complainant $1,000 was due upon this mortgage.
    The other mortgage was dated December 19th, 1905, and was made to Amelia Collerd, the complainant, and was for $1,400.
    The contest in the case is between the complainant and William H. Brown. Brown is the holder of two judgments against the defendant John J. Tully, upon each of which he claims to have made a levy upon the goods and chattels of Tully claimed by the complainant to be covered by the chattel mortgages held by her. One of the judgments in question was entered on the 11th of October, 1907, in the Hudson county circuit court, for $544.86; and the other, on June 25th, 1909, in the supreme court of New Jersey for $1,959.50.
    Pending the suit a receiver was appointed, who took -into possession and sold all the property in controversy.

      Mr. James A. Gordon, for the complainant.

      Mr. James P. Pyle, for the defendant Brown.
   Garrison, V. C.

(after statement of facts).

The various questions raised by the defendant Brown are as follows:

First. As to the amount due upon the respective mortgages held by the complainant.

Second. As to whether the first mortgage covered after-acquired property.

Third. Whether either of the mortgages covered the horses sold by Brown to Tully — Brown claiming that the sales were conditional, and that the title had not passed.

Fourth. As' to whether the second mortgage was not ineffective as to Brown because of a defective affidavit.

Fifth. If the second mortgage was invalid as to Brown, whether the proceeds of the sale of certain horses, on which horses Brown had no levy, should not, as respects Brown, be credited by the complainant on her first mortgage.

The complainant sought to show that Brown had not made a levy so as to entitle him to raise the questions he sought to raise.

First. As to the amounts due upon the mortgages for principal. The complainant admitted payments on the first mortgage to the amount of $525 in addition to the $1,000 paid before she acquired title thereto; and also admitted the payment of $100 on the second mortgage. Brown contended that the $100 credited by the complainant on the second mortgage should have been credited upon the first. The controversy arises out of four payments of $50 each made by Tully to the complainant. At the time the first mortgage was assigned to the complainant the defendant Tully signed a paper which has been admitted in evidence and marked Exhibit O 8, dated April 1st, 1903, as follows: “I John J. Tully do agree to pay Amelia Collerd twenty-five dollars a month on account of one mortgage to Effie C. Wynant.” * * *

The second mortgage, by its terms, provides that Tully. was to pay the amount in installments of $25 per month. Prior to the giving of the second mortgage (in January of 1905) Tully had been paying $25 a month to Collerd, which she credited on the mortgage she then held (the first mortgage); beginning with the month of January, 1905, Tully paid four sums of $50 per month, which Mrs. Collercl then credited $35 on the first, and $35 on the second mortgage. I find that she properly credited the sums received, and that there has been paid $535 on the first mortgage in addition to the $1,000 paid before she acquired title, leaving $475 principal due thereon; and $100 on the second mortgage, leaving $1,300 principal due thereon.

Second. As to whether the first mortgage covered after-acquired property. The terms of the mortgage are:

“all the goods and chattels mentioned in the schedule hereunto annexed and now in the stable and premises No. 71 Oakland Avenue in the City of Jersey City aforesaid

and the schedule, after a specific description of various property (horses, trucks, harness, &c.), concludes:

“That all horses, trucks, wagons, carts and harness, purchased by the mortgagor during the life of this mortgage shall become immediately subject to the lien of this mortgage.”

It will be observed that in the body of the mortgage there is no reference to any other property than that contained in the stable premises designated; and that only in the schedule (to which the body of the instrument refers the inquirer for additional information) is the after-acquired property referred to.

The first query that presented itself to me was whether the absence of any reference in the body of the instrument to after-acquired property rendered the presence of the reference thereto in the schedule ineffective. After consideration I reached the conclusion that such was not the law, and that this clause in the schedule should be given the same effect as if it had been in the body of the'instrument. It was clearly the intention of the parties to pledge all the enumerated property and all of the designated kind that the mortgagor should afterward acquire. It appears from- the authorities that a chattel mortgage does not have to be in any particular form; that a description of the property mortgaged is sufficient if it indicates such property clearly euougli to enable one to determine what property is meant, and that this result is accomplished if the language used puts one on inquiry in such a way as to necessarily lead to knowledge of the property intended to be mortgaged; and as to after-acquired property the rule is that the mortgage will be held to extend to such property, if the court, under the terms of the mortgage, would have decreed a specific performance of a contract to sell or’to pledge it.

After-acquired property clauses have been held sufficient where they covered “all property purchased in replenishment of stock,” “all property purchased in addition to the present stock,” and other like descriptions.

In each of these cases it will, of course, he observed that testimony de hors the instrument was required to identify the property.

The principles involved and applications thereof will be found in the following eases: Smithurst v. Edmunds (Chancellor Green, 1862), 14 N. J. Eq. (1 McCart.) 408; Shaw v. Glen (Chancellor Runyon, 1883), 37 N. J. Eq. (10 Stew.) 32; Howell v. Francis (Vice-Chancellor Bird, 1887), 10 Atl. Rep. 436; Dunn v. Hastings (Vice-Chancellor Pitney, 1896), 54 N. J. Eq. (9 Dick.) 503; Cumberland Bank v. Baker (Vice-Chancellor Grey, 1898), 57 N. J. Eq. (12 Dick.) 231 (at p. 237); Fidelity Trust Co. v. Staten Island Clay Co. (Vice-Chancellor Bergen, 1905), 70 N. J. Eq. (4 Robb.) 550 (at p. 553); Stoll v. Sibson (Vice-Chancellor Reed, 1905), 65 N. J. Eq. (20 Dick.) 552; Cunningham v. Alryan Woolen Mills (Vice-Chancellor Bergen, 1905), 69 N. J. Eq. (3 Robb.) 710 (at p. 712).

The next matter for consideration is whether the language used in this instrument is sufficient to make the mortgage effectual as to the after-acquired property — bearing in mind that the .test is the same as would he applicable in a case of specific performance.

If there is any doubt, in a case of specific performance, as to .what property the parties had in mind, or as to what property the language used is intended to describe, the court will not decree the performance, because the court will not attempt to make a contract for the parties. But if a man agrees to sell or to pledge all of any kind of property that he may acquire title to, there can be no uncertainty about that.

Proof that he lias acquired title is proof of the thing intended to be transferred. This clause, therefore, will not fail because of uncertainty. If it be held bad it must be because the court finds that one cannot legally agree to pledge to another all of certain kinds of property to which he may in the future acquire title. I know of no such principle, and, in fact, many of the decided cases (cited above) show that there is no such principle. Among the cases above cited will be found instances, as before mentioned, where the after-acquired property clause related to stock to be bought in addition to that then on hand, and stock to be bought in replenishment thereof, and other similar phrases. In every one of such cases the mortgagor, by the after-acquired property clause, was held to have pledged all the property of certain kinds to which he might in the future (during the life of the mortgage) acquire title. In principle such cases are indistinguishable from the one at bar. I therefore conclude that the after-acquired property clause in this mortgage is effective to cover the horses, wagons, harness, &c., to which Tully subsequently acquired title.

Third. Whether either of the mortgages covered the horses sold by Brown to Tully- — Brown claiming that the sales were, conditional and that the title had not passed.

All of the sales by Brown to Tully were after the date of the first mortgage, so that none of such horses were specifically described in it, and the lien thereof is extended to such horses by reason of the after-acquired property clause aforesaid.

In the second mortgage certain of the horses sold by Brown to Tully are specifically described.

The proper solution of the question depends upon a finding as to whether Tully acquired title to the horses he bought of Brown, or whether the sales wure conditional sales and title had not passed.

Brown contends that Tully did not acquire title, and that the sales were conditional. I cannot find from the testimony that he has sustained this contention. All the sales by Brown to Tully were made through an agent of Brown’s named Wilson, and were all alike in character. The horse or horses which were the subject of each sale were delivered to Tully and his note was taken for the price. These notes were discounted by Brown. Money Avas loaned by Brown to Tully, and notes taken lor the amount of such loans, and these notes Avere also discounted by BroAvn. ' No attempt to keep separate accounts of the separate sales and loan transactions was made.

When Tully paid money it Avas credited on the existing indebtedness indiscriminately, and the original transactions lost all identity by the merging of smaller note or notes into larger ones and combining indebtedness upon which something had been paid into neAV indebtedness, and representing it all by a new note.

Some of the horses died after they were delivered to Tully, but this fact was ignored by Brown in his accounts. He did not, by reason thereof, lessen his claim against Tully, as he undoubtedly would have and must have done if the sales were conditional and the horses were his and not Tally’s.

Neither Brown nor his bookkeepers and agents were able to separate any one transaction from the mingled accounts. They could not trace any one sale and tell what had been paid thereon, or howr much was due on any separate transaction. They Avere only able to state a general account — so many horses sold, amounting in the aggregate to so much, plus money loaned, so much, less what Tully had paid — leaving a net balance due by Tully of a stated sum.

Against this conclusive and convincing evidence of the nature of these sales, which demonstrated that they Avere ordinary sales on credit and that tire title unquestionably passed to Tully, the only testimony produced is that of Wilson. He testified that Tully agreed, upon the occasion of the first sale of the- Brown horses to him, that the title should not pass until the price was paid, and that a similar understanding was had, or implied, with respect to each subsequent sale. There was no writing expressive of this most important and distinguishing' feature of these sales; although it was shown that in previous transactions between Wilson and Tully, where the intention was undoubtedly to make the sale conditional, Wilson caused a Avriting of the character required by the statute to be made and signed. by Tully.

Apart from the denial of Tully of any such agreement, I am unable, in the face of the other evidence in the case, to give any credit to the testimony of Wilson in this respect; and I therefore find that title to the horses in question passed to Tully.

Fourth. Whether the second mortgage was not ineffective as to Brown because of a defective affidavit.

The statute (Gen. Stai. p. 2118 § 52) provides'that a chattel mortgage shall be absolutely void as against the creditors of the mortgagor unless the mortgage have annexed thereto an affidavit stating the consideration of the mortgage; and our eases all hold that this affidavit must show how the debt arose on which the mortgage is founded; how the debt came into existence, and how the relation of debtor and creditor as between the mortgagor and the mortgagee was created. Ehler v. Turner (Vice-Chancellor Van Fleet, 1882), 35 N. J. Eq. (8 Stew.) 68; Receiver Graham Button Co. v. Spielman (Vice-Chancellor Van Fleet, 1892), 50 N. J. Eq. (5 Dick.) 120; Dunham v. Cramer (Vice-Chancellor Grey, 1902), 68 N. J. Eq. (18 Dick.) 151; Miller v. Gourley (Vice-Chancellor Grey, 1903), 65 N. J. Eq. (20 Dick.) 237; Black v. Pidgeon (Court of Errors and Appeals, 1904), 70 N. J. Law (41 Vr.) 802.

The affidavit attached to this mortgage recites that the consideration

“is a balance of $700 due upon a judgment recovered by llffie C. Wynants against John J. Tully and assigned to deponent, and also $700 which John J. Tully owed Abraham Collerd and which indebtedness Abraham Collerd assigned to me” (the deponent).

I cannot agree with the defendant’s argument that the recital of the indebtedness due upon the judgment is insufficient. A judgment is a debt of record, and I do not think it is necessary to recite how the antecedent debt, obligation, or legal duty which is merged into the judgment, arose. The fact that it has been crystallized into a judgment is sufficient. When, therefore, a chattel mortgagee swears that she is the owner of a debt of record against the mortgagor and that the chattel mortgage •is given in consideration thereof, there is a sufficient statement of the consideration of the mortgage to satisfy the statute.

The remaining question in this respect is whether it is shown in this case that the chattel mortgage was given upon this consideration — that is, whether it appears from the proofs that the chattel mortgagee canceled the judgment, or bound herself not to proceed thereon for a period, or bound or obligated herself in any way concerning the judgment so as to make it a consideration for the mortgage?

The mere fact that she held the judgment would not be a consideration for the mortgage, unless she agreed that upon receiving the mortgage she would be bound in some way with respect to the judgment. Otherwise, it would be a nudem pactem. It is argued that the mortgage was given as collateral security for the payment of the judgment, but even so, there must be a consideration for the mortgage, and unless the mortgagee was disadvantaged or the mortgagor was advantaged by reason of the giving of the chattel mortgage, there was no consideration. There is no proof of disadvantage to the mortgagee or of advantage to the mortgagor as a consideration of the mortgage, and no proof of any agreement of any kind by the mortgagee respecting the judgment. I do not find it necessary to pursue this inquiry farther, and announce a conclusion thereon, because of my findings with respect to this affidavit, and the eifect which such finding has upon the affidavit as a whole.

It will be recalled that the remaining portion of the affidavit reads: “$700 which John J. Tully owed Abraham Collerd, and which indebtedness Abraham Collerd assigned” to the deponent. This clearly is not a statement of consideration which satisfies the statute as interpreted by our cases. It does not show or attempt to show how the indebtedness arose between the mortgagor and the mortgagee. Affidavits have been held insufficient which recited that the consideration was an existing indebtedness by the mortgagor to the mortgagee — a fortiori, is one defective which contents itself by reciting that there was an indebtedness by the mortgagor to a third person which was transferred by such third person to the mortgagee.

The result is that I find that this affidavit is defective and does not satisfy the statute, and consequently the mortgage is invalid as to Brown, the creditor of the mortgagor.

The statute, as interpreted, requires the affidavit to state the consideration. I have found that it does not do so. Even if that portion of it which relates to the judgment be held sufficient, the result is unchanged — it must still stand or fall as a whole, and since it cannot, by reason of the remaining portion of it being defective, stand as a whole, it must fall. Miller v. Gourley (Vice-Chancellor Grey, 1903), 65 N. J. Eq. (20 Dick.) 237.

Vice-Chancellor Pitney, in Bonnel v. Hope Manufacturing Co., 51 N. J. Eq. (6 Dick.) 162, attempted to split up the consideration as sworn to and find part good and part bad, and hold the mortgage valid as to so much of the consideration as he found had been .correctly stated in the affidavit; but this case was reversed in the court of appeals (28 Atl. Rep. 601) because the court found that the whole consideration was properly and legally set forth in the affidavit. The result is that the later decision by Yice-Chancellor Gre3>-, which is directly in point, controls, and I follow it.

Fifth. The second mortgage being invalid as to Brown, should the proceeds of the sale (by the receiver) of certain horses on which Brown had no le^y be credited (as respects Brown) by the complainant on her first mortgage?

The facts necessary to be known for a complete understanding of the situation are these: The first mortgage covers all the horses, the second mortgage only certain enumerated ones. Both mortgages are now held by the complainant. Two horses sold by Brown to Tully were among those specificahy enumerated in the second mortgage. Before Brown obtained his levy Tully had sold these horses to the Steel Laundry Compaq, consequently Brown never obtained any levy upon them. The complainant made the Steel Laundry Compaq a defendant, and claimed priority over its rights, and a decree pro confesso went against the company; and the receiver obtained possession of the two horses and sold them for $600.

If the complainant is required as against Brown to credit this amount on her first mortgage, Brown gets the benefit of the sale of these horses; if the complainant is not so required, then Brown gets no benefit whatever concerning them. Although the second mortgage is invalid as to Brown, lie obtained no levy on these horses, which, at the time he made his levy, were in the possession of the Steel Laundry Company, consequently if the complainant does not have to credit the proceeds of their sale upon her first mortgage Brown gets no benefit, because he had no lien upon these horses.

The complainant contends that, as between her and Brown, she does not have to credit this $600 (the amount brought by these two so-called “Steel horses”) upon her first mortgage, because she urges that where there are two mortgages upon property, all of which is covered by the first and only a portion by the second, it is the right of the second mortgagee to require the prior mortgagee to first apply to the payment of his mortgage the proceeds of the sale of the property not covered by the second moi tgage; and that since there are two mortgages here, and the horses in question are covered by both, and there is property covered by the first which is not covered by the second, it is the right of the second mortgagee to compel the first mortgagee to apply the proceeds of the other horses to the payment of the first mortgage before resorting to the proceeds of the sale of the Steel horses.

The result of this would be that the complainant’s first mortgage would thus be paid out of the proceeds of the sale of the other horses — horses on which Brown had a lien, but as to which the lien of the first mortgage was superior to his — and although the second mortgage is invalid as to Brown, the complainant would obtain the $600 as against Brown because he had no lien upon the “Steel horses.” Brown, however, contends that since both mortgages are owned by the complainant, and the second mortgage is invalid as to him, he has a right to require the complainant to apply to her first (and, as to him, only existing) mortgage the proceeds of the sale of any property covered by such mortgage upon which he, Brown, had no lien.

Although at first inclined to an opposite conclusion, I find this contention to be sound.

The principle to be applied is practically agreed upon and requires no citation of authorities. The only difficulty is the application of it to the existing facts. Wherever - a prior lienor has more funds or property subject to his lien than a subsequent lienor has, the former (if required) must, as respects the latter, first exhaust his rights against' that fund or property upon which the latter has no lien. The complainant here has only one valid instrument, creating a lien, as against Brown — that is, the first mortgage. Under that she has a lien upon property upon which Brown has no lien, i. e., the “Steel horses,” as well as a lien upon property upon which Brown has also a lien. As against him she must first resort to the proceeds of that property upon which he has no lien before resorting to property upon which both of them have liens. The result is that the $600 realized by the sale of the “Steel horses” must be credited, as respects Brown, upon the first mortgage.

A question arose as to the matter of calculating the overdue interest and the proper crediting of part payments. I have not the figures before me, and can .therefore only state the principle which should be applied.

The calculation should be made as of each interest period as provided in the mortgage; if the payment made exceeds the interest then due the surplus goes toward discharging the principal, and the subsequent interest is to be computed upon the principal thus reduced. If the payment be less than the interest the surplus of unpaid interest must not be taken to augment the principal, but interest continues upon the former principal until the period when the payments, taken together, exceed the interest due; and then the surplus, if any, is to be applied toward discharging that principal, and interest is to be computed upon the principal thus reduced. Meredith v. Banks (Supreme Court, 1797), 6 N. J. Law (1 Halst.) 408; Baker v. Baker (Supreme Court, 1859), 28 N. J. Law (4 Dutch.) 13.

The final matter to be disposed of is the contention by the complainant that Brown is not in a position to attack the complainant’s rights.

Chattel mortgages which do not comply with the statutory requirements are, by the terms of the statute, void, and therefore, of course, attackable by creditors of the mortgagor.

The courts have interpreted this to mean not creditors at large, but creditors who have acquired rights with respect to the particular property covered by the alleged chattel mortgage.

A judgment and levy upon the sjDecific property by a creditor of the mortgagor has always been held to be sufficient to entitle such a creditor to the benefit of the statute, and to arm such a creditor with the right to attack chattel mortgages covering-the property 'levied on by him under his judgment. Brown is such a creditor. He has judgments and levies. With respect to one such levy the complainant-seeks to show that it was abandoned; and with respect to the other, that it was made after the receiver herein was appointed.

I am entirely satisfied that, under the reasoning of those cases which settle the principle, Brown has sufficiently qualified himself to get the benefit of the statute. Until a creditor is in a position to assert his oto rights 'with respect to the debtor’s property he has no right to question the claims of others therein. When he is in a position to benefit by wiping out alleged or apparent liens prior to his so that he will be advantaged by having them cleared out of his way, then he is in a position to make the attack.

In the case at bar Brown has done everything he could (particularly and unquestionably under the second levy) to fix his status at law. He has obtained judgment and had the proper officer make as complete a levy as possible under the existing circumstances. The fact that such officer could not take the goods into his possession because they were in the possession of the receiver of this court in this suit does not injuriously affect Brown’s position. All that is required is that the creditor shall have such a lien upon the controverted propertjr that he could take it thereunder if the apparent prior lien of the mortgage is released. Brown is in that position. I find, therefore, that Brown is entitled to raise the issues as against the complainant, and that they should be disposed of as hereinbefore indicated.


author: Leaming, V. C.

text:
    John J. Kearns, executor, v. Mary E. Kearns, executrix, et al.
    [Submitted June 6th, 1910.
    Determined June 16th, 1910.]
    1. Where the thing bequeathed is by the terms of the will individuated so that it is distinguished from all others of the same kind, it is a “specific legacy,” and hence a bequest of all “my household goods, cash on hand or in bank, life insurance and all other personal property of every description” was a “specific legacy” so far as the household goods, cash, and insurance were concerned, though a “general legacy” as to any other property passing by the bequest.
    2. A.bequest of “my stock, right, title and interest” in a certain company was a “specific legacy.”
    3. Where personal property other than that included in specific legacies is insufficient to pay debts to the estate, the specific legacies must abate proportionately.
    On bill for instructions to executors and cross-bill.

      Mr. Ernest Walls and Mr. Echará P. Budd, for the complainant.

      Mr. Reginald Branch and Mr. Joseph II. Gashill, for the defendants.
   Leaming, V. C.

It seems entirely clear that by the second paragraph of his will testator bequeathed to his wife all of his personal property except his stock in. Stuart & Peterson Company; and by the third paragraph of his will bequeathed, in trust, his stock in that company.

The bequest of “my household goods, cash on hand or in bank, life insurance and all other personal property of ever]1, description,” is a specific legacy so far as the household goods, cash and insurance are concerned; a general legacy so far as any other property passing by the bequest is concerned. The bequest of “'my stock, right, title and interest in Stuart & Peterson Company,” in trust, is also a specific legacy. In Norris v. Executors of Thompson, 16 N. J. Eq. (1 C. E. Gr.) 218, 222, the essential elements of a specific legacy are clearly defined. If the thing bequeathed is, by the terms of the will, individuated so that it is distinguished from all others of the same kind, it is a specific legacy. “All my household goods,” “all my cash on hand or in bank,” and “all my stock” are alike specific legacies. As to money in bank, see Prendergast v. Walsh, 58 N. J. Eq. (13 Dick.) 149. The rule as defined by Norris v. Executors of Thompson, supra, has since been repeatedly approved in both this court and the court of errors and appeals.

I do not think that this court should assume to adjudicate the title to the bonds, in the absence of some special reason therefor. The controversy as to whether these bonds formed a part of the estate of testator at the time of his death in no way enters into the construction of the will and is a matter which should be determined by the orphans court, unless some circumstance arises by reason of which that court is embarrassed in disposing of the question.

The property which must first be utilized by-the executors in the payment of debts, is the personal property other than that already referred to as included in the specific legacies. If such property be found insufficient then the specific legacies will abate proportionately. Harris v. White, 5 N. J. Law (2 South.) 422; Executor of Shreve v. Shreve, 10 N. J. Eq. (2 Stock.) 386; S. C., 17 N. J. Eq. (2 C. E. Gr.) 487.

I think the cross-bill should be dismissed, without costs; and also without prejudice to a new bill, should it be found necessary for defendant to hereafter assert in this court rights touching the bonds in controversy.

I will advise a decree in conformity to the views herein expressed.


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    Annie E. Van Alstyne et al. v. W. Ann Brown et al.
    [Submitted June 4th, 1910.
    Determined June 21st, 1910.]
    1. Evidence relied on to support a claim of laches on the part of the complainant examined and adjudged 'insufficient.
    2. When an executrix, who is trustee under a will and whose primary duty is to prevent, if possible, a foreclosure of a mortgage affecting a part of the trust estate, induces a foreclosure thereof in her own behalf, and indirectly becomes the purchaser of the mortgaged property at the foreclosure sale, such transaction is voidable at the instance of the beneficiaries under the will, and in equity she will be regarded as occupying the same position as though she had merely purchased the mortgage and will be liable to account to the beneficiaries.
    3. Independently of the question of the extent to which such executrix and trustee may have induced the foreclosure in her own behalf, she occupied a position which rendered it impossible for her to become a pm'ehaser of the property at the sale, and thereby hold the title adversely to the devisees named in the will.
    4. Even though it may be found that such transaction has been without thought of wrong and beneficial to the beneficiary under the trust, public policy requires that the transaction be held to be voidable at the instance of the cestui que trust; for the defined policy of the law arises from the necessity of removing temptations for self-gain from all persons having trust duties to perform.
    5. In accepting the bequest under the will and assuming to discharge the duties imposed by the will such executrix and trustee took burdens with benefits and renounced all conflicting rights.
    On bill io charge estate of W. Ann Brown. Hearing on bill, answer, replication and proofs.

      Mr. IJ.enry 8. Alvord, for the complainants.

      Mr. Lovis 77. Miller, for the defendants.
   Leaming, V. C.

The will of Henry Brown, who died in March, 1889, directed that his debts be paid out of the rents, issues, profits and income of his estate as soon as could reasonably and practically be done; and that after the debts should he so paid, Mrs. Brown, Lostator’s wife, should become entitled to the income, after the payment of taxes and necessary expenses, during her life; this bequest to her was in lieu of her dower. The will further provided that at the decease of the widow the real estate should be sold by a surviving executor and the proceeds divided among certain persons therein named.- The will makes no disposition of personal property other than the direction for the payment of debts and the provision for the widow to receive the net income of both real and personal property during her life. Mrs. Brown, at the decease of testator, became sole executrix under the will and took possession of the real estate and collected the revenues therefrom until her death on December 29th, 1907.

Among the debts of testator was a mortgage of $3,500, and another mortgage of $1,000.

In December, 1900, a bill was filed by complainant and others (who under the will became entitled to one-half of the real estate at the decease of Mrs. Brown) against Mrs. Brown and the persons who were entitled to the other half of the real estate at the decease of Mrs. Brown, in which bill it was alleged that Mrs. Brown had neglected to apply the income of the estate to the payment of the mortgage debts and had caused the mortgage for $3,500 to be foreclosed in her own interest, and had purchased the property at -the foreclosure sale, and prayed for a decree to the effect that the property so purchased by Mrs. Brown should be decreed to be a part of testator’s estate, free from encumbrances, and that Mrs. Brown account for the income received by her and be required to pay the mortgage of $1,000. Mrs. Brown and other defendants answered; and in November, 1901, pursuant to a stipulation., a reference was made to James R. Hoagland, as special master, for an accounting by Mrs. Brown before him. In October, 1907, an order was made directing that Mrs. Brown proceed before said special master with said accounting and complete the same on or before the 15tli clay oí December, 1907. Mrs. Brown cliecl, as already stated, on the 29th day of December, 1907. On September 13th, 1909, a petition was filed by William L. Edson setting forth that lie had been appointed substituted administrator, with the will annexed, of said Henry Brown, and that certain of the interests theretofore owned by certain of the complainants had been assigned since the bill had been filed, and that Mrs. Brown had died testate seized of a large estate, and that her executor and devisees and legatees claimed said estate in derogation of the claim of liability of Mrs. Brown, asserted by the original bill, and prayed leave to file a supplemental bill bringing all parties in interest before the court to the end that the relief claimed in the original bill could bo granted. Pursuant to an order then made, the present supplemental bill was filed.

Under these circumstances, I think it impossible to deny relief to complainant on the ground of laches. The original suit was brought at a time when Mrs. Brown and all other persons acquainted with material facts of the case were alive, and no loss or inconvenience is suggested as having arisen by reason of any delay in bringing the suit. It is manifest that great delay has occurred in the progress of the suit; but whether that delay is to be attributed to one side more than the other, is far from certain. It is therefore necessary to examine the merits of complainant’s claim.

The primary charge is that Mrs. Brown wrongfully permitted the mortgage for $3,500 to be foreclosed, and acquired title for her own use through that foreclosure. The evidence is entirely convincing to the effect that the purchase of the real estate at the foreclosure sale by Newcomb was in behalf of Mrs. Brown, and that the deed from Newcomb to Tuller was also in behalf of Mrs. Brown., and was paid for with her money, and that Tuller merely held the title for her, and that the deed from Tuller to Mrs. Brown was merely the restoration to her of the legal title. These several conveyances must therefore be treated the same as though the sheriff’s deed had been made to Mrs. Brown, as a purchaser at that sale, for the amount due on the mortgage wdth the costs of foreclosure added.

Independently of the question of the extent to which Mrs. Brown may have induced the foreclosure in her own behalf, I think it clear that she occupied a position which rendered it impossible for her to become a purchaser of the property at the sale, and thereby hold the title adversely to the devisees named in the will of her husband. She had accepted the provisions of the will which directed that the income of the estate be applied to the payment of debts and that no part of the real estate should be sold, and which gave to her the income, after the debts should be paid, in lieu of her dower, and she was in possession of the real estate under and pursuant to these testamentary directions. It was her primary duty to prevent a foreclosure, if possible.' If a mortgagee desired payment of the mortgage in question and the income was presently insufficient for that purpose, it became her duty to search for an assignee of the mortgage who would not require immediate payment, or to devise some other means, if possible, to defer the demand for immediate pajunent; for the property covered by the mortgage was worth much in excess of the encumbrances against it, and its revenues were far in excess of the amount necessary to pay interest and maintenance charges. In the event of its becoming impossible for her to defer a foreclosure, it became her primary duty to see that at a foreclosure sale the full value of the property was realized, if possible. In accepting duties of this nature under her trust she denied to herself the privilege of becoming a purchaser of the property; for, as a prospective purchaser, her interests would necessarily be to induce a sale and to purchase at the smallest possible price. When such private interests and trust duties conflict in a single person it is the defined policy of the law to set aside, in behalf of the beneficiaries of the trust, all transactions whereby the trustee has acquired title to a property over which the trust duty extended. Even though it may be found that the transaction has been without thought of wrong and beneficial to the beneficiary under the trust, public policy requires that the transaction be held to be voidable at the instance of the cestui que trust; for the defined policy of the law arises from the necessity of removing temptations for self-gain from all persons having trust duties to perform. Stewart v. Lehigh Valley Railroad Co., 38 N. J. Law (9 Vr.) 505.

But the evidence also leads me to believe that Mrs. Brown gave encouragement to the foreclosure for the purpose of paying the mortgage debt out of the corpus of the estate and procuring for herself the value of the property to the extent that the value exceeded the amount of the mortgage. She caused the mortgage to be assigned from a mortgagee who did not desire the mortgage paid to one who foreclosed the mortgage within a few months thereafter. It may be that her husband had, before his death, contemplated that very assignment of the mortgage; but it is far from certain that the purpose of Mrs. Brown in procuring the assignment was the same as the purpose which may have been theretofore entertained by her husband. But whatever her original purpose in inducing the assignment may have been, it is manifest that the result of the assignment was to bring about a foreclosure which would not otherwise have occurred. At the foreclosure sale she purchased the property for the amount of the mortgage and costs, an amount far less than the value of the property. Had her primary purpose been to preserve the property for the estate, it would have been quite as easy for her to have purchased the mortgage as to have purchased the property for the amount of the mortgage. That the assignee of the mortgage would have been willing to have sold the mortgage is manifest from the fact that he was willing to accept the amount of his mortgage and costs; he manifested no desire to procure the property for himself.

Under these circumstances, I think it clear that in equity Mrs. Brown must be regarded as occupying the same position as though she had merely purchased the mortgage. The devisees of the real estate thus became entitled to have the income of the estate applied in reduction of the mortgage debts. The net income of the estate which has been received by Mrs. Brown appears to have been far more than sufficient to have discharged both mortgages and all other debts of the estate. In such case the property which was sold at foreclosure sale and which now stands in the name of Mrs. Brown must be decreed to belong to the estate of Mr. Brown and to be freed from encumbrance and subject to be disposed of pursuant to the terms of his will; and the mortgage of $1,000 must he made an obligation of and be discharged from the estate of Mrs. Brown.

In stating that the net income received by.Mrs. Brown far exceeded the amount of the two mortgages, I assume that the net income received by her was at least $1,000 per year. She will, of course, be credited with the money expended by her in acquiring the legal title to the property at foreclosure, and interest on that amount. In other words, any accounting would proceed upon the theory that her purchase at the sale was a mere purchase of the mortgage. But with these credits allowed to her, it appears that •both mortgages would have been fully discharged had she applied the income as directed by the will. In accepting the bequest under the will and assuming to discharge the duties imposed by the will, she took burdens with benefits and renounced all inconsistent rights.

Should defendants desire a reference to a master to have it more definitely ascertained whether the revenues received by Mrs. Brown have been sufficient to discharge the two mortgages and such other debts as may have existed, I will make such a reference; otherwise, I will advise a decree in conformity to the views herein expressed.


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    Isabella Morris, by her next friend Eliza Grinnage, v. Benjamin F. Dorsey et al.
    [Submitted June 3d, 1910.
    Decided June 23d, 1910.]
    1. A judgment against a residuary devisee, as such, for a debt of testator, establishes the debt as a just one of the testator.
    2. The orphans court, authorized by statute to order a sale of lands of a decedent for the payment of his debts when the personalty is insufficient for that purpose, may not order a sale of the real estate of a testator to pay the debts and funeral expenses of his wife, notwithstanding his will, devising his estate to his wife for life, and at her death after the payment of the wife’s debts and funeral expenses, to a daughter; the word “debts” in the statute referring to the debts of decedent alone.
    3. Where no power of sale of real estate is vested in the executor by the will of testator, he can only acquire that power from the orphans court in a case where the statute authorizes the court to confer the power.
    On bill, &c., for injunction.
    The will of James H. Morris, deceased, provides:

      “Second. I give devise and bequeath to Martha Morris, my beloved wife, during her natural life, all the income from my real estate and personal property after all the taxes and necessary repairs shall have been paid, and after her death then my daughter Martha E. Morris is to become the owner of all that may be remaining of said real. estate or personal property after my wife’s funeral expenses and just debts are paid during her natural life then after her death the said property is to revert to my daughter nearest surviving heirs.”
    In Deaton v. Dorsey (Neiu Jersey Supreme Court), 78 N. J. Law (49 Vr.) 229, this paragraph of this will was construed as giving a life estate to the daughter in so much of testator’s property as remained at the decease of the widow, with a provision that the property to be received by the daughter should be diminished by the payment of the widow’s funeral expenses and just debts. After the death of the widow, Martha Morris, an action was brought by one Deaton against the executor of James II. Morris for the recovery of a debt which was due from the widow to Deaton at the time of her death; but in the case above referred to it was held that the action could not be maintained for the reason that the persons primarily authorized by law to exercise the power of determining what claims against the widow should be regarded as just claims were the executors or administrators of the widow. As a rule to bar creditors had been entered in the settlement of the estate of the widow, Martha Morris, before the decision above referred to had been filed by the supreme court, an action at law was brought by Deaton, as a creditor of the widow, against Mary L. Williams, as a devisee of real estate under the will of the widow, and judgment was recovered. A similar -action was in like manner brought by James M. Johnson against the same devisee for funeral expenses of the widow and judgment was recovered. These two judgments were then presented to Benjamin E. Dorsey, as the substituted administrator with the will annexed of J ames H. Morris, and payment by him out of the estate of James H. Morris was demanded by the two judgment creditors and also by the judgment debtor. Dorsey, for want of sufficient personal property belonging to the estate of James H. Morris to pay these claims, then instituted proceedings before the orphans court for the sale of real estate of his testator, James H. Morris, for the payment of debts, and in due course an order for the sale of real estate was made by that court for the purpose named. The principal debts for which the sale was ordered to be made were the two judgments already referred to.
    The present bill is filed in behalf of Isabella Morris, the daughter and sole heir-at-law of Martha E. Morris, who is now deceased. An injunction is sought against the sale which has been ordered by the orphans court. Hearing has been had on bill and affidavits at the return of an order to show cause.

      Mr. John J. Crandall, for the complainant

      Mr. Ralph W. E. Bongos and Mr. Francis B. Werner, for the defendants.
   Leaming, V. C.

First. Hpon the present record it is impossible to award preliminary relief upon the ground of fraud and collusion asserted by the bill. The affidavits filed in behalf of defendants necessitate the present conclusion that they have proceeded in good faith.

Second. In a bona fide action at law against a residuary devisee, as such, for a debt of the testator, a recovery of judgment necessarily establishes the debt as a just debt of the testator. Objection is now made in behalf of complainant that the present record nowhere discloses that Mary L. Williams, against whom the two judgments were recovered, was in fact a residuary devisee of Martha Morris, or received assets as such, or that either of the judgments against her was recovered against her as such residuary devisee for a debt of her testator. I incline to the view that the evidence afforded by the transcripts of the proceedings before the law court, when considered in connection with the amendments to the pleadings as recorded in the minutes of the law court, sufficiently disclose the facts stated; but I think the present determination of that question is unnecessary for the reasons hereinafter considered.

Third. Assuming that the several recoveries by Deaton and Johnson against Mary L. Williams were recoveries against her as devisee of Martha Morris, and that one was for a just debt of Martha Morris and the other for her funeral expenses, and that the judgment debtor has, as such devisee, received assets to the combined amount of the two judgments; and that the two claims were, by such judgments, sufficiently established to warrant or even require the present administrator of James H. Morris to recognize the judgments as claims payable under the terms of the will of James H. Morris, has the orphans court jurisdiction to order the sale of the lands in question under the provisions of the statute for the sale of lands for the payment of debts ? I think not. The proceedings which have been taken to procure the order of sale have been under and pursuant to the provisions of the statute which authorizes the orphans court to order land sold for the payment of debts of a testator or intestate. The claims for which the present sale is about to be made are not debts of James H. Morris. The will of James H. Morris contemplates that these claims shall be paid out of his estate; but they are not his debts. The direction in his will to the effect that if his widow should die leaving debts of her own, such debts should be paid out of his estate, is, as stated by the supreme court in the case already referred to, in the nature of a legacy; and the same may be said as to the provision for the payment of the funeral expenses of his widow. I know of no legislation which clothes the orphans court with power to order the sale of real estate to thus enable an executor to comply with the directions of a will. If no power of sale of real estate is vested in an executor by the terms of a will he can only acquire that power from the orphans court in such cases as the statute has authorizecl that court to confer the power. The legislature has empowered the orphans court to authorize the sale of lands of a. testator or intestate for the pajunent of 'the debts of the testator or intestate when the personal property is insufficient for that purpose; but the statute goes no further. Certain words of this statute have been held to indicate a legislative intent to embrace in that statute expenses and allowances in the settlement of the estate (Personette v. Johnson, 40 N. J. Eq. (13 Stew.) 173), but the “debts” referred to throughout the act are debts of decedent.

I will advise a preliminary writ pursuant to the prayer of the bill.


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    Board of Health of Ventnor City v. North American Home et al. Lydia Patton et al. v. North American Home et al.
    [Heard July 5th, 1910.
    Determined July 7th, 1910.]
    1. Upon application for an injunction pendente Ute under a bill seeking to prevent the defendant from conducting in one of the municipalities of this state a sanatorium for the treatment of tuberculosis, it appearing from the affidavits filed on behalf of the defendant that such an institution is not for the treatment of persons afflicted with pulmonary tuberculosis, but exclusively for the treatment" of children afflicted with bone tuberculosis, the application was denied, upon the ground that the work to be conducted was a lawful work, and is not a source of danger and is to be conducted in a proper manner and will not occasion real injury to others.

      2. Whether any of the provisions of the statute concerning tuberculosis (P. L. 1910 v- 279) are intended to include bone tuberculosis it is unnecessary now to consider.

      On bills, &c., for injunction.

      Messrs. Thompson & Cole and Mr. John S. Westcott, for the complainants.

      Mr. George A. Bourgeois, for the defendants.
   Leaming, V. C.

Two bills have been filed, in each of which the object sought is to prevent defendant from conducting in Yentnor City a sanatorium for the treatment of tuberculosis. One bill was filed by the board of health of that city and the other by individual residents and property holders. A preliminary hearing has been had to determine whether an injunction pendente lite should be issued. By stipulation the two suits have been heard together.

The affidavits filed in behalf of defendant disclose that the institution of which complaint is now made is not an institution for the treatment of pulmonary tuberculosis, but is a sanatorium which is to be devoted exclusively to the treatment of children who are afflicted with bone tuberculosis.

The sanatorium is for the free treatment of poor children who are afflicted with the disease last named, and is not maintained for profit.' The provisions of P. L. 1907 p. 411, requiring a municipal license in certain cases, have no application to an institution which is not conducted for profit.

Notwithstanding the great public good which will necessarily result from the work of an institution of this nature, it is manifest that if the health of the residents of Yentnor City is jeopardized by its maintenance, a court of equity may grant such relief as will afford adequate protection to the residents of that city from the threatened danger; but if no real danger of that nature exists the mere fact the uninformed people who are unacquainted with the true conditions may, or probably will, assume such a danger to exist, cannot be made the basis of equitable relief.

The answer which has been filed in behalf of defendant is accompanied by affidavits of a great number of physicians and surgeons of eminence in their profession, and who have given special study to the various forms of tuberculosis. These physicians have testified that while pulmonary tuberculosis is undoubtedly contagious, bone tuberculosis is neither contagious nor infectious, and cannot be transferred from one to another; and that cases of bone tuberculosis are freely admitted to all the hospitals and treated in the same wards as other surgical cases. If this be true it is manifest that no danger to the health of the inhabitants of Ventnor City is threatened by the maintenance of the sanatorium in question, and the grievance asserted by complainants is based upon an assumed danger which does not in fact exist.

It is urged in behalf of complainants that the legislature of this state had declared bone tuberculosis to be a communicable disease. An act concerning tuberculosis, approved April 9th, 1910 (P. L. 1910 p. 279), contains this sentence: “Tuberculosis is hereby declared to be an infectious and communicable disease, dangerous to the public health.”

An examination of the several provisions of that act, as well as the similar act of 1909, which it repeals, especially when considered in connection with the testimony touching the difference between pulmonary and bone tuberculosis, renders it at least doubtful whether the portion of the act above quoted was intended by the legislature to include bone tuberculosis. Throughout the act the word “tuberculosis” is used without qualification, and some of its provisions are clearly inapplicable to bone tuberculosis. By the fifth section of the act it is made a misdemeanor for “any person having tuberculosis” to dispose of his sputum in a manner contrary to the directions of the act. If any truth is to be found in the affidavits of the physicians who have testified touching the nature of bone tuberculosis, it is entirely manifest that the legislature has not, by the section last referred to, intended to control the disposition of the sputum of persons afflicted only by bone tuberculosis. Whether any of the provisions of that act are intended to include bone tuberculosis it is here unnecessary to consider. But I am convinced that the legislation referred to cannot properly be deemed operative to render the institution conducted by defendant a nuisance per se.

As the present record discloses that the work to be conducted by defendant is a lawful work, and is not a source of danger, and is to be conducted in a proper manner and will not occasion real injury to others, I will advise an order denying a preliminary injunction. Costs may abide the event on final hearing.