author: Pitney, Y. C.

text:
    Robert J. Trimble v. The American Sugar Refining Company.
    [Submitted February 25th, 1901.
    Decided April 11th, 1901.
    Filed June 4th, 1901.]
    1. Where a stockholder owning á small portion of the stock of a corporation brings suit in equity for an alleged misconduct in the management of the corporation business, he must show a clear cause by distinct affirmative allegations, even if they include allegations of a negative character.
    2. A bill by a stockholder owning a small portion of the stock of a corporation, complaining of the policy thereof, should allege that neither himself nor his predecessor in interest ever acquiesced in such policy, since he would be bound by such acquiescence.
    3. A stockholder’s bill which alleges that the authorized business of the corporation is the buying, refining and selling of sugar, but that the management is diverting its funds to the purchase, roasting and sale of coffee, is not sufficient to show that such act is ultra vires, but the portion of the articles of incorporation specifying the business of the company should be pleaded, since the allegation is but the pleader’s conclusion as to the effect of such articles.
    4. Where the allegations of a bill in equity are based on information and belief, a demurrer thereto is not an admission of the facts so pleaded.
    5. A stockholder’s bill asking for a discovery of the financial condition of the corporation, but which fails to allege that plaintiff has been refused such information, or an inspection of the corporation books, and which does not plead any portion of the articles of incorporation which relates to the stockholder’s right of inspection, is not sufficient to authorize the granting of a discovery by a court of equity.
    6. Where a stockholder wishes a discovery of the financial condition of the corporation, his remedy is not by bill in equity for discovery, but by mandamus to compel an inspection of the books, aided, if necessary, by a petition under the statute to compel the corporation to bring the books into the state for such purpose.
    7. P. L. of 1896 p. 293 requires directors of corporations to declare regular dividends of their accumulated profits, if any exist after reserving, over and above its capital, such sum as a working capital as may be fixed by the stockholders. A stockholder’s bill alleged the payment of a large dividend, but that the corporation also had a large accumulation of profits which should be distributed as dividends, but it was not stated that such sum was larger than the stockholders had fixed as a reserve.-—Held, that the bill was not sufficient to show that such accumulated profits should be distributed among the stockholders, since it would be presumed that such sum was reserved by the stockholders as a working capital.
    8. The mere fact that a corporation has a large amount of surplus does not entitle a single stockholder to compel its distribution by a bill in equity.
    9. Where a corporation is engaged in competition with a rival corporation, and there is nothing to show bad faith or palpably bad judgment on the part of its directors, a court of equity, at the suit of a stockholder, will not enjoin it from selling its products for less than the cost thereof, since it is a question for the corporation, and not for the courts.
    10. A stockholder cannot enjoin a corporation, which is engaged in refining and selling sugar, from selling its product below cost, on the ground that it is doing so for the purpose of forcing a rival concern into an unlawful combination, since neither of the corporations has a natural monopoly, and the public cannot object to their acting in combination.
    On demurrer to bill.
    The bill is filed by complainant, who alleges himself to be the owner of one hundred out of seventy-four thousand shares of the capital stock of defendant company, and seeks relief in this court against what he alleges to he the improper conduct of the company in the management of its business, by which his interests as a shareholder have been, or will be, prejudiced.
    The allegations of the bill, so far as they are pertinent and relevant to the relief prayed for, may be briefly stated to be as follows:
    That the company was organized January 15th, 1891, under the law of Few Jersey.
    “The objects for which the company was formed were the buying, refining and selling of sugar.”
    That the legitimate business of the company is extremely profitable, so that for a number of years prior to January 1st, 1900, the company has paid twelve per cent, on its common stock.
    It owns sugar refineries in different states, and also owns all, or substantially all, the capital stock of various sugar refining companies, and absolutely owns and controls the assets, policy and business of the companies then owned (naming several of them), but because the defendant company has never made a full exhibit to its stockholders, complainant cannot state with exactness the refining companies owned by defendant. Said company has never made any financial exhibit of its property and assets to its stockholders.
    And further, “upon information and belief,” that prior to January 1st, 1900, defendant had accumulated, and now has, many millions of undivided profits, so that, at the close of the fiscal year of the company, and after payment of full dividends on the preferred stock, and the reservation of a reasonable and proper working capital, there remains a surplus of undivided profits of many millions of dollars, which, of right, belongs to the common stockholders, and should be forthwith divided among them.
    The existence of this surplus has been concealed by the company from its stockholders and from complainant, but that a discovery and inspection of the books of account of the defendant company and of the subsidiary corporations owned and controlled by it will disclose the existence of such surplus, the actual amount of which is at all times known to the company, officers and directors.
    Heretofore the firm of Arbuekle Brothers has been engaged in the sale of coffee and sugar, and others of the public are engaged in the business of refining and selling sugar.
    The present board of directors has formed the plan of bringing this company into a combination in restraint of trade and of competition, and to be a monopoly of the business of refining sugar in the United States.
    Prior to January 1st, 1900, the directors of the company determined not to divide the aforesaid surplus-among its stockholders, but to employ a large portion of the same in the business of buying and roasting and sale of coffee, so as to force Arbuclcle Brothers into said combination, and to employ the surplus not, in fact, as working capital, but depreciating the price of refined sugar and selling the same at a loss, so as tos discourage competition and bring about a combination in restraint of trade.
    In its ordinary and lawful course of business defendant is able to make an. adequate profit and to increase its surplus, but the methods of the company are not now taken with a view to* profit, but in an attempt to force an unlawful trust and combination, and complainant fears that, unless restrained, the* defendant will either accomplish an illegal combination and! monopoly, by which its franchises may be forfeited, or wilt altogether dissipate its surplus, and such use of it tends to the-sacrifice and deprivation.of the rights of the stockholders.
    Prayer: That defendant may answer fully all the interrogations therein set forth:
    1. What amount of the capital stock of the company is invested in refineries and real estate directly owned by said company ?
    2. What amount is invested in the stocks of other companies ?,

    3. What are the names and locations of the companies and the amount of capital stock of each company in which the defendant company owns stock, and what is the amount of stock owned in each case ?
    4. What were the balance sheets of the defendant company at the close of each year’s business from its incorporation to the present time ?
    5. What were the balance sheets of each of the companies owned or controlled hy ownership of such, including all companies in which the defendant company owns a stock interest,, giving such balance sheets from the close of the fiscal year of each in 1898 and 1899 ?
    And the balances of said different companies at the close of the last fiscal year of the defendant company.
    An injunction directed to the defendant company, its officers, servants and agents, enjoining them from continuing in the sale of sugar without profit or at a.loss.
    That the company may divide among its common stockholders the accumulated profits to them justly belonging, and may be required to desist and refrain from engaging in other business than that of buying, refining and selling sugar, in accordance with its franchises, and not for the purpose of destroying competition in restraint of trade, and for other relief.
    To this bill defendant has interposed a demurrer for general want of equity, which also, according to the rule, sets forth the special causes or grounds of demurrer, which are fully disclosed by the demurrer itself: -
    1. Generally, want of equity.
    2. The discovery prayed for can be had by proceedings to inspect books.
    3. The allegations of the bill as to defendant’s attempt to form a trust or combination in restraint of trade are mere statements of legal conclusions, with no statement of facts to justify such conclusions.
    4. Complainant does not aver that the acts complained of took place while he was a stockholder, or that he has ever complained of or remonstrated against them, or that such acts have caused any loss to complainant, or any impairment of the value of his stock.
    5. Bill is contradictory and inconsistent, and seeks to enjoin complaints against the company with ■ complainfs against the directors.
    6. Bill is wanting in certainty of statement, but consists of vague allegations of generalities without facts.

      Mr. Thomas N. McCarter, Sr., for the demurrant.

      Mr. J. B. Cleason (of the Few York bar), in support of the bill.

      Mr. Robert II. McCarter, in reply.
   Pitney, Y. C.

The cause of action attempted to be shown in the complainant’s bill may be divided as follows: First, that the acts of the defendant in going into the coffee trade are ultra vires, in that they are not warranted by the objects of the corporation as set forth in the articles of association or certificate of incorporation; second, that the defendant has a large surplus in funds not necessary for use in its legitimate business, which it ought to divide and refuses to divide; third, that it has concealed its time situation from its stockholders, and fourth, that it is carrying on the sugar trade and coffee trade in competition with a corporation known as Arbuekle Brothers, for the purpose of driving that corporation to unite and consolidate with the complainant; and that such action is contrary to public policy, and may result in the destruction of the defendant’s corporate rights.

It is to be observed that the complainant is the holder of one seven-hundred and fortieth part of the capital stock of the company, a trifle less than one-seventh of one per cent, of the whole issue; and it does not appear that any other stockholder is dissatisfied with the conduct of the business of the company in respect to the matters complained of by the bill.

Admitting that the holder of so small a part of the stock is entitled to be heard in this court for the correction of any real grievance he may suffer by the misconduct of the majority, yet I think it is the duty of the court to require that he should show a clear case by distinct affirmative allegations, even if they should necessarily include some of a negative character. In short, he must anticipate and exclude all reasonably probable conditions which may bar his relief.

With this preliminary observation, I further remark that the bill does not state at what time complainant acquired the one hundred shares of stock which he holds, and it is common knowledge that the stock of this company, and many others of the same class, is daily dealt in on the Exchange. For aught that appears, he may have acquired it a very short time before the filing of the bill, from a holder who had acquiesced in everything that the company had done up to that time and in the policy the carrying out of which the complainant seeks to enjoin. That such acquiescence would bar the original holders of the shares now held by the complainant, if he knew of it, is perfectly well settled. It is necessary, on this point, only to refer to the case of Rabe & Cross v. Dunlap, 6 Dick. Ch. Rep. 40. And it seems to me that where a person holding so small a fraction of the capital stock as the complainant represents here asks to interfere with a particular phase of the management of the corporation, which is presumably satisfactory to all the other stockholders, he ought to show affirmatively that neither he nor his predecessor in title has acquiesced in the policy of which he now complains, for I think he would he hound by the acquiescence of his predecessor in title.

But taking up the matters complained of—first, with regard to the action (dealing in coffee) complained of being ultra vires. The only allegation in the hill is in these words: “That the objects for which the company was formed were the buying, refining and selling of sugar.” Whether those be the sole objects of the corporation depends entirely upon the language of the articles of association, and it is for the court to determine, from reading those articles, what, upon a fair construction of . the language, are the legitimate objects of the company. It seems to me that a mere allegation of that sort is insufficient, for the reason that the language is not exclusive. The allegation may be entirely true, and yet there may be other objects which the company may properly pursue without being charged with going beyond the power given to it by the articles of association. In other words, the allegation is not exclusive of the J company having the power to engage in other cognate pursuits. It is a matter of common knowledge that the articles of association, or, as they be otherwise called, the certificate of incorporation, oftentimes do contain provisions conferring the right to engage in pursuits other than those which may be deemed the principal object of the company. The allegation, at least, amounts to no more than an allegation in general-terms of the construction put by complainant on the defendant’s articles of association, without setting them out in full.

Another allegation, necessarily admitted by the demurrer, is that the business of the company is extremely profitable; that it has been earning and paying twelve per cent, dividend for its common stock; that it owns a great many sugar refineries, and the capital stock of other sugar refineries; and it alleges that the defendant has never made any financial exhibition of its property and assets to its stockholders.

All hut one of the other allegations of the bill are based upon information and belief, and the defendant argues that an admission of the complainant’s information and belief on that subject is not an admission of the fact so stated. In this I think it is substantially sustained by authority. I refer to Story Eq. Pl. §§ 241, 256, and cases cited in a note to section 241; Egremont v. Cowell, 5 Beav. 620 (at ¶. 623); S. C., (reported sub nom., Vickers v. Cowell), 7 Jur. 51. There the allegation was that the “defendant Greenwood alleged, and the plaintiff believed, the fact to be true.” Of this, Lord Langdale remarked: “It is not a sufficient allegation to say that one defendant alleges, and the plaintiff believes, his statement to be true. The defendant may allege that which is quite false, and the plaintiff may believe it to be true, but this is not- an allegation of the fact.”

Among the American cases cited in a note to section 241 of Story Eq. Pl. are Cameron v. Abbott, 30 Ala. 416; Lucas v. Oliver, 34 Ala. 626; and see Uxbridge v. Staveland, 1 Ves. Sr. 56, cited in note to section 256.

But waiving that defect, let us consider their effect. The first of these allegations on information and belief is that the company has on hand a large accumulation of profits, amounting to many millions of dollars, which,' it is alleged, should be immediately divided among the stockholders; that the existence and amount of this surplus is concealed from the stockholders; and upon this allegation discovery of the financial condition of the company and the amount of its surplus is asked. There is no allegation that complainant has asked for, and been refused, the information he asks by his bill to be discovered, or that he has been refused inspection of the books of the company. .

Here, again, it is to be observed that the bill is silent as to any provision in the articles of association or by-laws on this subject. It is common knowledge that it might be injurious to the interests of the company if every stockholder, however small, had the privilege of unlimited inquiry at all times into the details of a business such as that carried on by the defendant; and that such companies frequently provide, by their articles of association, for protection against such inspection. The danger is that rival traders may use the privilege of a stockholder to pry into and learn the secrets of the company’s business.

These considerations lead to the conclusion that the bill shows no reason for the interference of this court in the respect now under consideration; and further, that the complainant’s remedy is by mandamus in a court of law to compel defendant to permit an inspection of the books by the complainant, aided, if necessary, by a petition, under the statute, to this court or any other court, to compel defendant to bring the books into this state for inspection. Stettauer v. Scranton Co., 15 Stew. Eq. 46; Rosenfeld v. Einstein, 17 Vr. 479; Huylar v. Cragin Cattle Co., 13 Stew. Eq. 392; S. C., 15 Stew. Eq. 139. These cases tend to show that the utmost relief to which complainant is entitled is access to the books of the company for purposes of inspection.

Further, if the complainant may ask for and obtain an elaborate statement of the affairs of the defendant, every other stockholder may do so, and the result would be exceedingly burdensome to the company and tend to display to the public the condition of its affairs to an extent that would be prejudicial to its interests.

The next matter for consideration is the right of the complainant to a dividend. The statute on that subject is section 47 of the act of 1896 (p. 89S), which provides as follows:

“The directors of every corporation created under this act shall, in January in each year, unless some specific day or days for that purpose be fixed in its charter or by-laws, and in that case then on the days so fixed, after reserving over and above its capital stock paid in, as a working capital for said corporation, such sum, if any, as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on demand; provided, that the corporation may in its certificate of incorporation or in its by-laws give the directors power to fix the amount to be reserved as a working capital.”

There is uo allegation in the bill that the defendant corporation has not declared regular dividends, but the contrary appears; nor is there any allegation that the accumulated profits now on hand, as alleged in the bill, are greater than what is reserved and fixed by the stockholders as a working capital. The presumption must be that the action of the company in that respect is satisfactory to the majority of the stockholders, and the mere fact, if it be true, that it has a large amount of surplus, is not sufficient, of itself, to give a single stockholder a right to come into court and compel a dividend of that surplus. The cases relied on tty the complainant are clearly distinguishable. Fougeray v. Laurel Springs Land Co., 5 Dick. Ch. Rep. 185; S. C. on appeal, 5 Dick. Ch. Rep. 756, was a case of three stockholders in a real estate speculation, each holding an equal amount of stock; two fraudulently combined against the third to prevent him from getting any share of the profits, and the court made a decree that there should be a dividend. That case has no application here.

There remains to be dealt with the allegation that the defendant is selling sugar below market rates, and therefore, in a mercantile sense, below cost and at a loss, for the purpose of breaking down a rival concern, Arbuckle Brothers, and compelling the latter to combine with defendant in unlawful restraint of trade; and the particular prayer is that it may be restrained from selling sugar at a loss.

Now it is to be observed that the purpose of defendant’s organization is to make money; that, by the allegation of the bill, it has been well managed for that purpose. There can be no presumption that, in the judgment of its directors, the course complained of is not calculated, in the end, to make money. The fair inference is that Arbuckle Brothers must have commenced the mercantile fight by underselling the defendant, and then that the defendant retaliated. This is, by common knowledge, the natural and usual result. And it may be here observed that one cannot but suspect, at least, that the bill is promoted by Arbuckle Brothers. How far this destructive competition may be properly carried on without injury to the corporate interests is a concrete question to be decided by the parties in interest in each particular case.

It is supposed that such competition inures to the benefit of the public. Be that as it may, no case has been cited in support of the proposition that a court of chancery ought to restrain such competition in a case like this, unless it appears that the directors are not acting in good faith for the best interests of the corporation, or, possibly, that they are plainly mistaken in their judgment—so plainly as to render the mistake palpable to the court. The allegations of the bill do not show any such lack of good faith or clear mistake of judgment.

But, says the complainant, the result of a consolidation of the two companies will be an illegal combination in restraint of trade. On this topic I refer to what was said by me, and which, presumably, had the approval of the court of errors and appeals, in the case of Meredith v. Zinc Company, 10 Dick. Ch. Rep. 211 (at p. 221, bottom, and p. 222). The defendant is engaged in a business that does not include the exercise of any public franchise, and it may do what any individual may do. Such was declared to be the law in the case of Attorney-General v. American Tobacco Co., 10 Dick. Ch. Rep. 352 (at pp. 363, 364.).

Neither of the companies mentioned here has any monopoly of either sugar or coffee. The world’s product of each is immense. Any person can go into the market and buy either of them in unlimited quantities. Either of the companies mentioned in the complainant’s bill may stop manufacturing at any time they choose, and the public-has no right to complain. Either of them may sell their goods at such price as they choose to put on them, and the public has no right to complain. There can be, in my judgment, no foundation, either in morals or law, for interfering with the liberty of the citizen who owns a factory' to operate it or not as he may choose, and to sell his goods or not as he may choose, at such price as he may choose. In other words, as I remarked in Meredith v. Zinc Company: “By the law of the land” the defendant and Arbuckle Brothers “have the right to exercise their own judgment as to when, if ever, and how they will spend their money in preparing their property for market and rendering it fit for use by mankind. I am unable to find any foundation, either in law or in morals, for the notion that the public has the right to have these private owners of this sort of property continue to do business in competition with each other. No doubt the public has resonable ground to entertain the hope and expectation that its individual members will generally, in their several struggles to acquire" the means of comfortable existence, compete with each other. But such expectation is based entirely upon the exercise of the free will and choice of the individual, and not upon any legal or moral duty to compete, and can never, from the nature of things, become a matter of right on the part of the public against the individual.” In short, I can see no more reason in law and morals why these two corporations may not consolidate and combine than that two individuals competing for the market may not consolidate their business and form a partnership. This disposes of all the matters set up in the bill and insisted upon at the argument, and I find in them no ground for equitable relief, and will advise an order that the demurrer be sustained 'and the bill be dismissed, upon the usual terms.


source: Caselaw Access Project

license: Public Domain

text:
    Albert Ammon v. Julie Wiebold.
    [Submitted April 15th, 190.1.
    Decided April 19th, 1901.
    Filed June 4th, 1901.]
    1. Complainant having, with knowledge that defendant was a lunatic, obtained an assignment of a mortgage given by her, and having filed a bill to foreclose the same, and having obtained a decree pro oonfesso without having a guardian appointed for her, and without the knowledge of her relatives, except one with whom he had colluded, the decree will be opened, and complainant be compelled to assign the mortgage to a person obtained by defendant on payment of the sum paid by complainant, with interest, complainant paying the costs.
    2. Where complainant files a bill against a person known by him to be a lunatic without guardian or committee, it is his duty to make known the lunacy to the court and ask for the appointment of a guardian ad litem, as any proceedings in such a case taken without informing the court will' be liable to be set aside or treated as a nullity as the justice of the case may require.
    In foreclosure. Petition to set aside sale of mortgaged premises and to open decree.

      Mr. Maximilian T. Rosenberg, for the petitioner.

      Mr. Merwyn Armstrong, Jr., for the complainant.
   Pitney, Y. C.

The facts which clearly appear by the petition and affidavits are as follows: The defendant and petitioner, Julie Wiebold, is about seventy-three years old, and has been suffering for. some time past with senile dementia, and at the time that process was served upon her in this cause was entirely incapable of understanding the nature of the business, or even recognizing her children. Fo inquisition in lunacy had ever been held upon her, and, of course, she had no guardian.

By the will of her husband, who died in 1895, she became the owner of a house and lot, twenty-five feet by one hundred, situate in Jersey City, subject to a mortgage for $1,000, held by a Mrs. Schaefer, which is the foundation of the suit. She had three children—daughters—a Mrs. Hansen, a Mrs. Bracken (formerly Mrs. Bunge) and a Mrs. Baack, the latter of whom lived with her mother in the premises in question.

The mortgaged premises cost the husband of the defendant $3,300 in 1885, and at the time of the transaction now in question were worth at least $2,000. Mrs. Schaefer was entirely satisfied with her investment, and had no desire to change it, provided the interest was paid with reasonable promptness.

Mrs. Baack and the complainant, Ammon, were near neighbors and intimate friends. He was a butcher by trade, and lived quite near the premises in question, and was well acquainted with Mrs. Wiebold and the fact that she had lost her mind. On August 31st, 19.00, at the request of Mrs. Baack, he paid $1,000 to Mrs. Schaefer and took an assignment of the mortgage from her. There was some interest in arrears. What arrangement was made about that does not appear. The petition alleges that this was done by an arrangement between complainant and Mrs. Baack, by which the mortgage was to be immediately enforced and the defendant’s equity of redemption transferred to Mrs. Baack or for her benefit. The affidavits of the complainant and Mrs. Baack on this point are peculiar. Ammon swears as follows:

“That the assignment of the indenture of mortgage referred to was entered into by deponent in order to aid the defendant Julie Wiebold from the proceeding that was about to be taken by Emma Schaefer, the mortgagee mentioned in said petition, and also as an investment for himself. * * * That he did not enter into any arrangement with Emma Baack concerning the assignment of the said indenture of mortgage mentioned.”

And yet, as we shall see, he almost immediately commenced proceedings.

Mrs. Baack swears as follows, after stating that she lived with her mother:

“And this deponent further says that during such residence the defendant [Julie Wiebold] above named was served by a sheriff’s officer or deputy with a subpcena in foreclosure proceedings at the suit of Albert Ammon assignee of Emma Schaefer [the words “Albert Ammon assignee of” are interlined], who held a mortgage on the premises above named; that at the time of such service this deponent explained fully and in detail the purpose and purport of such subpcena served as aforesaid, as said defendant is not sufficiently familiar with the English language. That at the time of such service this deponent having the welfare of the said defendant in view, called upon one Albert Ammon, the complainant in this case, and requested him to take an assignment of the within mentioned mortgage, thereby saving to the defendant her home from the foreclosure proceedings then about to be commenced.”

The inconsistency and untruthfulness of this statement are apparent. Besides, as we have seen, no foreclosure proceedings were threatened at all by Mrs. Schaefer.

It further appears by an affidavit produced by the complainant that he paid a third party $25 “for services rendered in-making the assignment”—whatever .that may mean-—-and to his solicitor, as a “retaining fee,” $25.

On October 16th, 1900, six weeks after the assignment was taken by the complainant, he commenced his suit to foreclose. His bill is in the ordinary form, and makes no mention of the defendant’s mental incapacity. He did not notify either Mrs. Hansen or Mrs. Bracken, the other daughters of the. defendant, Mrs. Wiebold, though both lived in Jersey City; nor did he take any proceedings to have a guardian ad liiem appointed for Mrs. Wiebold.

After the time limited for-answering had expired the complainant’s solicitor presented the bond and mortgage and assignment to a master, and obtained the ordinary report, without reference. Einal decree was entered, execution issued, the premises advertised for sale by the sheriff of Hudson county, and actually sold, before either Mrs. Hansén or Mrs. Bracken had notice thereof. The property was purchased by the complainant for $500, the sale confirmed, and a deed made to him.

Mrs. Hansen then applied to the court, by. petition, reciting that her mother, the defendant, Mrs. Wiebold, was incapable of managing herself or her estate, and offering to become next friend for the purpose of presenting to the court a petition on her behalf. Such order was made, and then Mrs. Hansen filed her petition, with affidavits annexed; an order to show cause why the sale should not be .set aside was made; and, on the return of that order, affidavits on behalf of the complainant, and affidavits in reply thereto, were presented, with the result above stated. Upon this showing, I announced that the sale should be opened.

After it had been decided that the sale should be opened, the question arose whether there should be a re-sale, or whether the defendant should' have the opportunity to procure some friend to take an assignment of the mortgage. A bona fide bid of $1,700 for the premises was made, and further satisfactory proof was offered to the court that a person was willing to take an assignment of the mortgage, with all arrears of interest, and hold the same for the benefit of Mrs. Wiebold. The matter then stood over for a hearing and consideration of the question upon what terms the sale should be opened, and upon what terms the complainant should be compelled to assign the mortgage to an assignee, .if the defendant should choose that remedy.

Hearing on this last matter, by counsel on both sides, was had on April 15th.

• The insistment of the petitioner is that the taking of ihe assignment of the mortgage by the complainant and the prompt foreclosure thereof was the result of an arrangement between the complainant and Mrs. Baack to divest the title from her mother and vest it in Mr. Ammon for his benefit and that of Mrs. Baack. This, is technically denied by both Ammon and Mrs. Baack; but notwithstanding that denial, it seems to me quite palpable that such must have been the object. That such a proceeding was inequitable and an abuse of the machinery of the court seems to me too plain for argument.

But independent of and over and above that consideration, the counsel of petitioner takes the ground that as the complainant knew that Mrs. Wiebold was non compos mentis, he could not, according to the practice of the court, take a decree pro confesso against her, or any further proceeding, without making that fact known to the court and applying for an order appointing a guardian. And he insists, further, that it was the duty of the complainant, under the peculiar circumstances of this case, to have made known to Mrs. Wiebold’s other children the fact that he held the mortgage and. was proceeding to foreclose it.

I have given the proper practice in this case some study, and, in giving its result, must say that it is rather remarkable that, while our practice with regard to proceedings against infant defendants is perfectly well settled and regulated by written rules, there seems to be no written rule of the court and no published opinions of the judges as to the proper proceeding in equity against a lunatic who has never had a commission appointed for him. Norcom v. Rogers, 1 C. E. Gr. 484, and Dorsheimer v. Roorback, 3 C. E. Gr. 438, show what is necessary to enable a lunatic to sue in this court; and Search v. Search, 11 C. E. Gr. 110, deals with the case of a lunatic defendant who has a guardian, and declares that it is the duty of the complainant to make such guardian a party defendant. I find no other cases.

But it is quite clear to my mind that the practice in cases of infants and lunatic defendants must be the same. The basis of the final proceeding, in the absence of an answer, is a decree pro confesso, that is, that the bill be taken as confessed against the defendant. Now, in this respect, what difference is there between an infant and a lunatic? How can a bill be declared to be taken as confessed against a lunatic any more than it can be against an infant? A lunatic cannot admit anything, and cannot confess anything. Hence, the service of process upon him is a mere formality, without any efficacy, except that it may serve to give notice to his friends that such a suit is proceeding. For this reason it seems to me that it is the duty of a complainant in this court, who knows that the defendant against whom he seeks relief is incapable, by reason of mental defect, of attending to his own business, to make that known to the court, and have a guardian appointed for him.

This seems to be the result of an examination of the English cases. They must be read in the light of what the old practice there was, namely, that complainant, in every ease, was obliged to obtain from the defendant a formal appearance to his bill before he could proceed. The practice is set forth in Mitf. Eq. Pl. *103, *104, and notes to the American edition, and in 2 Sm. Ch. Pr. *260. At p. 261, Mr: Smiths says:

•‘The application may be made on behalf of the person of unsound mind or on behalf of the plaintiff. On a motion by plaintiff, an order was made to appoint a guardian for the defendant to put in his answer, he being a lunatic, and the fact being verified by affidavit,”

referring to Howlett v. Wilbraham, 5 Madd. 423. And see Shelf. Lun. 558 et seq., where it appears ■ that, under the old English practice, it was usual, on the application of the complainant, to appoint one of the six clerks guardian. At p. 560■, Mr. Shelford tells us that Lord Eldon compared the practice with respect to lunatics with that in respect to infants; said that such practice, and that of paying the expenses out of the property of such persons, could be justified only by the necessity of taking care of them, referring to Sherwood v. Sanderson, 19 Ves. 283, 289.

In the case of Estcourt v. Ewinglon, 9 Sim. 252, motion was made on behalf of a plaintiff in equity that a wife should answer separately upon proof that her husband was insane, and therefore incapable of answering, and the court looked into the practice and ordered one of the clerks to be appointed guardian for the husband. Some half a dozen cases, taken from the registry by one of the clerks, are there collected.

In Copous v. Kauffman, 3 Ed. Ch. 370, Vice-Chancellor McCoun, on the application of the plaintiff against an imbecile defendant, appointed a guardian. And see other cases cited in the notes to that case; and see Barb. Ch. Pr. 84, 154, and 1 Dan. Ch. Pr. *176.

Without citing further cases, the result of my investigation is that the proceedings in this case were wholly irregular. Complainant had no right to take a decree pro confesso, or any other decree, against the defendant without the appointment of a guardian ad litem.

If, in this case, the complainant had merely made an innocent-mistake in practice, or had been ignorant of the mental condition of the defendant, and the pendency of the proceedings had actually been brought to the attention of the friends of the defendant in time to enable them to protect the interests of their relative, little harm would have resulted from the irregularity, for the defendant has no defence to the mortgage.But this is not the case. I am satisfied that the complainant and Mrs. Baack colluded together to take advantage of che disability of the defendant, for the purpose of procuring her equity in the premises by legal proceedings. This, as above remarked, was an inequitable and unjust use of the process of the court, and must be dealt with accordingly.

I think the ends of justice require that the complainant shall be required to assign the mortgage to the party produced by the petitioner, upon paying to him the amount of money—$1,000— which it appears he paid Mrs. Schaefer, with interest thereon from the date of payment, together with such arrears of interest due Mrs. Schaefer as he came under distinct obligation to pay Mrs. Schaefer; or the same may be paid to her, instead of to the complainant, in relief of the complainant’s obligation to her. And further, I think that the complainant must pay the petitioner her costs of this proceeding. The true situation as to the arrears of interest, if any, due Mrs. Schaefer may be ascertained by further affidavits, if the parties cannot agree thereon.

The decree must be opened and sale set aside, and the complainant must release the mortgaged premises to the defendant, subject to the mortgage. If any difficulty arises in carrying out the order it may be done in the presence of a master of the court.


author: Pitney, V. C.

text:
    Hugh S. Kinmonth v. Andrew J. White et al. Honorine Handley v. Andrew J. White et al. Asbury Park and Ocean Grove Bank v. Andrew J. White et al. William Pittenger v. Andrew J. White et al. Navesink National Bank of Red Bank Andrew J. White et al.
    [Submitted April 19th, 1901.
    Decided April 20th, 1901.
    Filed June 4th, 1901.]
    1. Where creditors obtain judgments and make levies, and then bring suits to set aside fraudulent conveyances, which are void as to them all, their priorities in the property conveyed are in the order of their levies, without regard 'to the order in which they filed bills to set aside the conveyances; the assets being legal assets.

      2. The priorities of creditors .who obtain judgments on which executions are issued and levies made on land, conveyances of which they then sue to set aside as fraudulent, are not affected by the fact that in certain cases the executions were returned, with the levies annexed, to the effect that they were unsatisfied.
    3. In order to sustain a bill to set aside as fraudulent a conveyance of land by a debtor made before judgment recovered, and which has been levied upon by execution upon such judgment, it is not necessary to have the execution returned unsatisfied.
    4. The retention of a writ of execution, after its return day, by the sheriff is not necessary in order to enable him to make sale by virtue of it after the return day, and such retention is improper and unwarranted.
    On motion to settle order of priorities between judgment creditors.

      Mr. Samuel A. Patterson, for the creditors who filed the first bills.

      Mr. Frank Durand, for the other creditors.
   Pitney, V. C.

These were five separate bills filed to set aside certain conveyances made by a judgment defendant for the purpose, as alleged,, of defrauding the judgment creditors. No order of consolidation was made, but the causes were, by consent, tried together, and an opinion rendered which declared one conveyance fraudulent in toto, and the others fraudulent in part, as reported in 47 Atl. Rep. 1.

The order of priority of the judgments was as follows:

1. Pittenger’s judgment, recovered April 8th, 1898.

2. The Asbury Park and Ocean Grove Bank’s judgment, recovered April 11th, 1898; and another judgment, in favor of the same party, recovered April 26th, 1898.

3. Kinmonth’s judgment, recovered April 30th, 1898.

4. Handley’s judgment, recovered June'8th, 1898..

5. The Navesink National Bank’s judgment, recovered June 15th, 1898.

Executions were issued on these judgments and levies made at once, so that the order of the levies is precisely the same as that of the judgments.

The several bills were not filed in the order in which the judgments were recovered. The first bill was filed by Kinmonth, whose judgment was third, on May 9th, 1898; the second bill was filed by Handley, whose judgment is fourth, on June 22d; the' third bill was filed by Pittenger, who had the first levy; the fourth bill was by the Asbury Park and Ocean Grove Bank, whose levy is second, and the Navesink National Bank, whose judgment is the fifth, filed the fifth bill.

Two grounds are taken by counsel for one or another of the creditors for disturbing the order of priorities as established, under our statute, by the date of the levies.

In the first place, it is argued that the party who first files his bill is entitled to be first paid; that he thereby shows his diligence and acquires the first lien on the assets sought to be reached by the aid of the court.

I am unable to adopt that view. The rule invoked applies only to bills filed to reach equitable assets, by which is meant assets not subject to levy. In this case the title, shortly before the judgments were recovered, was in the judgment debtor, and he, as has been found by the court, conveyed the premises for the purpose of defrauding his creditors. There was no room for distinguishing between the creditors and holding the conveyances good as against one and not good as to another. They were void, both at law and in equity, as to all the creditors, and left the land subject to levy. It was at the option of the judgment creditors either to proceed at law and sell the land and test the validity of the conveyances by -an action of ejectment, or to first file their bills in this court to procure a declaration that the conveyances were void, and then to sell the lands for the payment of the debts. The latter is the usual course in Now Jersey, and much the more convenient and equitable, because it insures that the result of the sale will be a title which will not be subject to litigation. It was found in practice that in such cases sales by the sheriff under a judgment and execution, before any declaration had been made by a competent court as to the character of the previous conveyance by the judgment debtor, produced only a nominal sum; and then, if the. purchaser procured his title to be validated by a judgment in ejectment, he still held his judgment unsatisfied against the judgment debtor, although he may have obtained value enough in the land to have paid it. And if, in such case,, after purchasing at sheriff’s sale, without resorting to ejectment, he came into this court, as he might do, to have the title derived under the sheriff’s deed declared valid, this court granted relief only upon condition that he should give credit on his judgment for the fair value of the land.

But the fact that the judgment creditor comes into this court to have the conveyance by the debtor declared void before proceeding to sell under his common law judgment, does not alter his status or the priority of his lien under his execution. The proceeding is strictly in aid of the judgment at law, and the asset is not what is known as an equitable asset. It is a legal asset, because subject to levy by execution upon a common law judgment. The case of a debtor paying the consideration-money for land and procuring the title to be vested in a third person for his benefit stands on a different basis. In such ease the land is not subject to levy by execution against the real owner, and the interest of the judgment debtor can only be reached by a suit in equity, and is, strictly speaking, an equitable asset.

I hold, therefore, that the point just taken is not good, and that the filing of a bill in this court by a judgment creditor, with a levy subsequent to another who subsequently files his bill, does not alter the statutory prioritj, and the judgment creditors are entitled to hold their levies according to the priorities at law.

These positions are so well settled in New Jersey that I do not deem it necessary to cite authorities in their support. I have examined the authorities cited by counsel in this and New York State. They were all cases of bills filed to reach equitable assets not subject to levy. Such was M’Dermutt v. Strong, decided by Chancellor Kent, reported in Johns. Ch. 687. There goods and chattels had been conveyed and delivered to an assignee or trustee in trust to sell the same, and out of the proceeds to pay certain debts, and the remainder to pay back to the assignor. Judgment was recovered against the assignor after the assignment and delivery, and it was held that the goods of their proceeds in the hands of the assignee conld not be reached by an execution at law, and that the proper remedy was by bill in equity, and that the creditor who filed the first bill had the first lien. .That was clearly a case of equitable assets. So in Beck v. Burdett, 1 Paige 305; Eameston v. Lyde, 1 Paige 637. There were in those cases no lands or goods subject to levy. So with regard to the decision of Chancellor Walworth, 'when circuit judge, in the case of Weed v. Pierce, reported in 9 Cow. (at ¶. 722); also, Corning v. White, 2 Paige 567; and such was the case of Warden v. Browning, 12 Hun 497.

The only case that appears to be in conflict with the rule T have above .stated is Miller v. Sherry, 2 Wall. 237. There a debtor had conveyed away his real estate, situate in Illinois, under such circumstances as to render the conveyance fraudulent and void as against his creditors. Two different creditors obtained judgments, and brought a suit in equity to set aside the conveyance. Neither of them had any levy oaf the land, or any lien by virtue of their judgments. Why this should have been the ease does not clearly appear, but it may be inferred • that something in the statutes or in the practice of the courts of Illinois differentiated it from the law and practice in this state. The judgment creditor ’ who was second in order of priority on his judgment obtained the first order for sale and conveyance of the lands. The other one obtained the same sort of an order of later date than the other; and it was held that the title obtained under the proceedings of the second judgment creditor was the better title. The ease is not a precedent here.

The next point made is that certain of the complainants procured the sheriff to make a return on their executions, with the levies annexed, to the effect that the execution was unsatisfied. I have not before fine the precise language of the sheriff’s return, but I understand the fact to be that the levies were actually returned'with the writs.

The notion of the counsel of the plaintiffs who took that course was, I infer, that they could not proceed by bill in this court without having the execution returned unsatisfied. This was a clear mistake. No such return was necessary in the absence of a levy on chattels. Nor are the other contesting complainants holpen by the fact that they allowed their executions to remain in the sheriff’s hands with the levies annexed. Just here there seems to be another mistaken notion, somewhat prevalent. It seems to be thought that a sheriff cannot execute a common law writ after he has returned it to the clerk’s office as commanded by its terms. This is a mistake. It is not necessary for a sheriff, in order to execute a common law writ of execution, to have the writ in his hands at the time he makes sale under it. He has, in fact, no right to retain the writ after the -return day mentioned in it. He must make his levy before that time, and it is his duty to return the writ with the levy annexed on the return day named, and proceed to execute it as the plaintiff’s attorney shall direct. The writ is a record and file of the court, and it, as well as the judgment behind it, is his authority for proceeding as much after its return as it would be had he not returned it. The non-return of such writs according to their command has led to much inconvenience.

I do not see how a return of a writ with levy annexed, with a declaration by the sheriff that the same is unsatisfied, can be considered as an abandonment of the levy.

The levy itself is not a satisfaction of the writ, as I understand the law, except to the extent of the value of the personal property levied upon; and it was usual years ago—whatever it may be now-—for the sheriff to annex to his levy the words “value one dollar,” or “six cents,” or some other nominal sum, so as not to be held responsible beyond that value for the goods in his hands. So it seems to me that a return of a writ, with levy annexed, before sale, is .necessarily a return of the writ, in one sense at least, unsatisfied.

. This is peculiarly true as to a levy upon land alone, which is the case in hand. The general rule that a levy upon a sufficient amount in value of chattels may, or should be, treated as a satisfaction- of the judgment (Johnson v. Tuttle, 1 Stock. 365; Banta v. McClennan, 1 McCart. 120) rests upon the notion that, in such a case, the sheriff takes actual manual possession of the chattels and becomes invested with the title to the same. But even in such a case the presumption of satisfaction may be rebutted, as between the parties, by showing that the plaintiff in execution never really had any benefit from the goods, but, on the contrary, that the defendant in execution had the benefit. Be that as it may, no such presumption of payment results, under our statute, from a mere levy upon land. The levy vests no title in the plaintiffs or the sheriff in the land levied upon, but merely establishes the lien of the judgment as against other judgments, and serves as a warrant to the sheriff to sell the same. Such seems to be the weight of authority. Freem. Exec. § 282; Freem. Judg. § 474.

The result is that the proceeds of the sale in this case must be divided among the judgment creditors according to the order of their levies, which is in accordance with tire dates of their judgments.