text:
    Harry J. Vincent v. Amelia Vincent et al.
    [Decided January 16th, 1906.]
    1. Since the orphans court has exclusive jurisdiction of the probate of a will, and has the power generally to revise proceedings for probate tainted with mistake, fraud or illegality, a court of equity will not entertain jurisdiction to set aside a will or the probate thereof.
    2. The orphans court is a superior court of general jurisdiction, and has the same authority over its decrees by inquiring into the authority of its attorneys to appear as may be exercised by any court of general jurisdiction.
    On demurrer to bill.

      Messrs. Howe & Davis, for the demurrants.

      Mr. Jerome D. Gedney, for the complainant.
   Emery, V. C.

The bill demurred to discloses this case: Thomas Vincent died on February 18th, 1904, seized and possessed of considerable real and personal estate, leaving a widow, and, as heirs-at-law and next of kin, four sons, three daughters and two infant children of a deceased' son. After his death a paper writing, purporting to be his will, was offered for probate to the surrogate of Essex county. No caveat appears to have been filed, but on account of the appearance of the paper itself (its informality, interlineations, changes and erasures, and its lack of an attestation clause), the surrogate declined to admit the writing to probate, and on March 2d, 1904, issued citations to the widow and all of the next of kin to appear before the orphans court on March 12th, 1904, in the matter of the probate. The statute, Orphans Court act (Rev. 1898, P. L. p. 718 § 18), directs that

“in case doubts arise on the face of the will, * * * the surrogate shall not act in the premises, but shall issue citations to all persons concerned to appear in the orphans court of the same county, which court shall hear and determine the matters in controversy.”

Complainant signed a paper authorizing by name a proctor of the court to acknowledge service of the citation on his behalf, and due service was acknowledged by the proctor on March 4th, 1904, by endorsement in writing upon the citation. The authority to acknowledge service was filed in the surrogate’s office. The paper offered as decedent’s will was admitted to probate by the orphans court on March 15th, 1904, three days subsequent to the return day of the'citation, and letters testamentary were issued to the widow and two of the brothers of complainant, the executors named in the will. They have taken possession of the estate, filed an inventory (alleged in the bill to be below the value of the propertjr), and are proceeding under the will to sell and dispose oi the personal estate and the real estate not specially bequeathed. The bill alleges that this paper authorizing the proctor to acknowledge service of the citation was signed at the request of one Teed, and under false representations by him that it was a paper of a different character and for an entirely different purpose, viz., an application to have the widow appointed guardian of one of the daughters, who was non compos mentis, and that if not signed by complainant the court would appoint a stranger as guardian; that complainant, being willing to do this, and being unacquainted with business or legal matters, signed the paper, supposing it was for this purpose, relying on Teed’s representations, and without consultation or advice. Complainant himself never' employed or retained the proctor. He alleges that by reason of these false representations the proctor’s acknowledgment of service was unauthorized; that he was never served .with the citation, did not appear at the return thereof, and knew nothing of the proceedings for probate, and has been deprived of his day in court in reference to the probate. He prays that the probate may therefore be set aside as to him. ‘ .

The bill further alleges that Teed had been a bookkeeper emplo]red by the deceased, and that at the time of procuring complainant’s signature he was in the employment of the sons of decedent, who had been connected with- their father in the business, and were still continuing- it, but beyond this does not disclose any connection between Teed arid the executors, who arc the widow and two sons, Charles and Edward, nor charge that they are in any way parties to Teed’s misrepresentation, nor does it charge that, the proctor had any knowledge or inf or t mation of the misrepresentation. Neither does it allege that the paper was not the will of deceased, nor that on the proofs submitted the will should not have been submitted to probate. The whole case stated by the bill, and the relief asked, extends only to controlling the effect of the probate itself. -

The probate of a will, so far as the personal estate is concerned, is a proceeding in ram, in the strict sense of that term, and within the exclusive jurisdiction of the orphans court. Quidorl’s Administrator v. Pergeaux, 18 N. J. Eq. (3 C. E. Gr.) 472, 477 (Chancellor Zabriskie, 1867). For this reason, and the further reason that courts invested with jurisdiction for probate have generally power to check and revise proceedings for probate tainted with mistake, fraud or illegality, a court of equity will not entertain jurisdiction to set aside a will or the probate thereof. Broderick’s Will, 21 Wall. 503 (Justice Bradley, 1874) (at pp. 509, 512). This court can neither review the proceedings of the orphans court, nor revoke the probate, nor decree intestacy. For fraud in the proceedings for probate which the probate court has no power to reach, it was held, in a case before Lord Hardwieke, that this court may afford a remedy under its general jurisdiction for fraud, but this remedy is only by a decree which will compel the parties who have fraudulently procured the probate to consent that proper proceedings may be taken in the probate court upon another application for probate, and this remedy was given only because the fraud in the probate proceedings was of such a .character that the ecclesiastical court could not give relief. • Barnesley v. Powel, 1 Ves. Sr. 284 (1749). This decision was based on a supposed lack of power in the ecclesiastical court in England to set aside a deed consenting to the probate, and was, as Mr. Justice Bradley says, altogether exceptional. It is not authority for an exercise of the jurisdiction where the fraud alleged relates to the action of an officer of the court in the course of the proceedings. Where the fraud in the probate proceedings is such that a probate court itself has power to give relief, this court should not undertake to control the decree for probate by directing consent to another probate. It is settled under our decisions that the orphans court is a superior court of general jurisdiction in pro'batc and other special cases, not an inferior court of limited or special jurisdiction. Hess v. Cole, 23 N. J. Law (3 Zab.) 116 (Supreme Court, 1851); Plume v. Howard Savings Institution, 46 N. J. Law (17 Vr.) 211, 228 (Supreme Court, 1884) ; Clark v. Costello, 59 N. J. Law (30 Vr.) 234, 237 (Court of Errors and Appeals, 1896). Where a decree is entered in this court against a defendant on an unauthorized appearance of a solicitor, the decree will be set aside as against the defendant on motion—Mutual Life Insurance Co. v. Pinner, 43 N. J. Eq. (16 Stew.) 52 (Vice-Chancellor Van Fleet, 1887)—and the same control over its judgments or decrees by inquiring into the authority of its attorneys to appear may be exercised by every court of general jurisdiction. In the case In re Myers’ Estate, 67 N. J. Eq. 560 (Magie, Ordinary, 1904), jthe probate of a will was set aside by the orphans court, on an application by petition made nearly six years after the probate, one of the grounds being fraud in procuring the abandonment of contest of probate by caveators. The ordinary, on appeal, considered and determined the question of alleged fraud in the proceedings, reaching a conclusion in favor of the probate, and also denying the application because of laches.- But the right of the orphans court and of the ordinary, on appeal, to pass upon the question of vacating the probate because of fraud in the proceedings, was acted on without question, and this was in line with the view expressed by Justice Green, in Ryno’s Executor v. Ryno’s Administrator, 27 N. J. Eq. (12 C. E. Gr.) 522, 525 (Court of Errors and Appeals, 1875), that if the probate of a will,is irregular or avoidable for any cause, the remedy is by appeal to the ordinary or by proceedings for the revocation of the letters. In Clements’ Appeal, 25 N. J. Eq. (10 C. E. Gr.) 508 (Runyon, Ordinary, 1874), an order of the orphans court revoldng letters of guardianship obtained through false representations was sustained on appeal, and the power of the court to guard against frauds perpetrated on the court itself was held to be sustained by the authorities.

The decree for probate as a proceeding in rem binds all the world and must either stand or be revoked in toto, and any decree in this suit (brought only to revoke the probate) that the authorization of the proctor was procured by fraud on defendant, would be of no practical effect, except as incidental to a proceeding to revoke the probate and for a re-probate of the will before the orphans court or the ordinary. If complainant has any relief in equity against the alleged fraud, it can only be for the reason that the orphans court has no power to revoke the probate, and it is essential that complainant should show this lack of power, either by an application to that court in this case and its denial of its power or by decisions in other cases establishing this lack of power.

No application appears to have been made to the orphans court to revoke the probate and for a re-probate, nor does it appear that any such application is proposed. Nor has any decision been referred to showing the lack of power in the orphans court. Until this does appear, this court should not exercise, a jurisdiction over the decree, which can only be ancillary in its character, and which is, or at least may be, altogether unnecessary.

I should sajr, further, that if the jurisdiction of the court is to be exercised to relieve against alleged frauds of this character in the probate proceedings, this bill fails to disclose a case which entitles complainant to a personal decree against any of the defendants, based on any inequitable or unconseientious conduct. It fails to allege any facts showing on the part of any of the defendants any connection with or responsibility for the. misrepresentations of Teed, or any knowledge thereof by them or their solicitor at the time of the probate, and is therefore defective. Kinney v. Emery, 38 N. J. Eq. (11 Stew.) 101 (Chancellor Runyon, 1884). But the question of exercising the jurisdiction has been raised, and without passing on this aspect of the case I will advise a decree sustaining the demurrer and dismissing the bill without prejudice.


source: Caselaw Access Project

author: Stevens, V. 0.

license: Public Domain

text:
    The Ecuadorian Association v. The Ecuador Company.
    [Decided July 25th, 1905.]
    P., never having formally subscribed to defendant’s stock, agreed with H. to exchange stock of the E. association for full-paid non-assessable stock of defendant company on a specified basis, and under another agreement giving him the right to £65,000 of the E. association’s stock, he authorized its deposit with certain London bankers for the purpose of having it exchanged for stock in question. Such certificate, however, was not delivered to any officer of defendant company, and the certificate of defendant’s stock, intended to be issued in exchange, though made out, was never received or accepted by P.—Meld, that defendant’s receiver was not entitled to recover against P., as a stockholder in defendant company, an assessment on the stock intended to be delivered to Mm.
    . Mr. Charles L. Corbin, Mr. De Witt Van Buskirlc and Mr. Hiram B. Steele (of the New York bar), for the petitioner.

      Mr. Edwin B. Williamson and Mr. Arthur L. Andrews (of the New York bar), for Robert C. Prnyn.
   Stevens, V. 0.

This is an application for leave to levy an assessment upon Robert C. Prnyn for the full amount of the stock of the Ecuador Company, an insolvent corporation, alleged to have been subscribed by him ($325,000), and on which, it is said, he has paid $64,703.74.

The petition alleges that there is no other unpaid subscription for shares. The answer denies that Pruyn ever became a stockholder, or that he ever paid anything on account of stock, or that he is in any manner indebted to the company or to its receiver.

The transactions disclosed by the testimony are considerably complicated. Eor the purposes of this decision I shall only refer to those which appear to bear upon tire point at issue.

On June 14th, 1897, the government of the republic of Ecuador entered into a contract with Archer Harmon and his associates for the construction and equipment of a railway extending from the port of Guayaquil to Quito, a distance of two hundred and ninety miles. Many engineering difficulties stood in the way, for the road had to climb the Andes, and the cost of construction was therefore great. To build and equip the road the Ecuador government authorized an issue of bonds by the railway company to the amount of $12,282,000. These bonds were to be guaranteed by the government. It also authorized an issue of preferred stock to the amount of $5,250,000 and of common stock to the amount of $7,032,000.

The associates organized, under the laws of New Jersey, the Guayaquil and Quito Railway Company, and in connection therewith the South American Railway Construction Company. The latter company contracted, for the bonds and stocks above mentioned, or some of them, to build and equip the road. The construction company soon assigned its contract to the Ecuador Development Company, another New Jersey company, and this in turn assigned to the Ecuadorian Association, a Scotch company. By December, 1902, the most difficult part of the work had been done, and the road had been nearly completed to the top of the plateau. Before this there had been considerable difficulty in procuring money, the bonds selling at times below one-half of their face value. As the work had progressed portions of the bonds had been handed over by the Ecuador government, and these were either sold or pledged to raise funds. The Ecuadorian Association itself issued debentures, secured by an assignment of its property and rights to trustees. Money being still needed, the gentlemen connected with the Ecuadorian Association sought assistance from the Hnited States, and obtained it from a firm of bankers, Messrs. Dick & Lisman, who agreed to give it, however, only on the terms that the books of the construction company should be sent to New York and its affairs conducted in that city. Eor their further protection, they insistecl that a voting trust should be formed, by means of which they might control the construction company’s policy.

Such was, in brief, the situation in December, 1902, when Mr. Pruyn, an Albany capitalist, was induced to connect himself with the enterprise. The evidence shows very clearly that at that time it had become evident that the success of the road was assured. It had been built completely, and was in operation, almost to the summit of the mountain plateau. The rest of the construction was easy. Archer Harmon, the president of the railway, and his brother, Major Harmon, seem to have been, because of their great pecuniary interests, more interested or bound up in the enterprise than the other gentlemen connected with it. Archer Harmon says that he approached Mr. Pruyn for two reasons: First, that he might obtain from him the funds with which to go on, and second, and principally, that he might eliminate Messrs. Dick & Lisman. It is evident, however, that he was greatly in need of money for construction.

On December 10th, 1902, Mr. Harmon submitted to Mi. Pruyn a detailed statement of the situation. The letter (Exhibit G 8) is found on page 130 of the printed case. It gives a history of the construction and a statement of the assets, and liabilities of the Ecuadorian Association. It tells to what extent and how the securities were pledged, and then refers to certain collateral undertakings to be prosecuted in connection with the principal one. Of these, the more important were the development of the Colombe coal mines and of the Duran property, the latter a tract of ten thousand acres on the river front, opposite the city of Guayaquil, which, it was thought, could be utilized for terminal purposes, and would soon become very valuable. This latter property the Ecuadorian Association had an option to purchase.. The proposition first made to Mr. Pruyn is contained in another letter, also dated December 10th (at page 13 of printed case). The proposition, in brief, was that Mr. Pruyn should purchase the capital stock remaining in the treasury of the Ecuadorian Association to the amount of £65,000, its total capital stock being £500,000. This would enable the association to acquire the Duran property at a cost of $90,000, to construct coal clocks 'thereon at a cost of $30,000, and to proceed with the development of the coal mines at a cost of $30,000, and it would enable Harmon (Mr. Pruyn co-operating) to outvote the voting trust. If Mr. Pruyn would do this Mr. Harmon engaged to secure for him an option oar a further £40,000 of Ecuadorian stock at fifty cents on the dollar, and make the managemeart of the railway and construction companies entirely satisfactory to him. Pruyn and Harmon met at lunch about five days later. A counter proposition was then made by Pruyn. It contemplated the organization of a new American company with a capital stock of $5,000,000, just double that of the Ecuadorian Association. Of this stock the Ecuadorian shareholders were to have one-half and Pruyn and his associates the other half. The Ecuadorian. Association was, speaking generalty, to assign its assets and contract rights to the aaew company, and Pruyn aaad his associates were to provide cash to the amount of $435,000, of which $90,000 was to go to the purchase of the Duran terminal property, $30,000 to docks, $30,000 to coal mines, $35,000 to laaads at the base of the mountains, and the balance, $250,000, to a working capital. No final agreement was reached at that time. On December 31st both Pruyn and Harmon sailed for England. Pruyn was accompanied by his wife, and appears to have gone abroad mainly for pleasure and only incidentally on this business. In London he met several of the Ecuadorian directors and others connected with the enterprise. It seems to have i an pressed him very favorably, but no definite agreement covering the entire matter wa's made until he reached Paris, late iai January, 1903. Prior to that date, however, Mr. Pruyn had directed that the Duran Terminal Company should be organized, aaad this had been done by his agents in New York. The Paris interview appears to have resulted in a definite arrangement. Mr. Harmon says (at page 27 of printed case), and his evidence is uncontradicted, that they agreed to organize the Ecuador Company and certain other companies, in addition to the Duran company; that the Ecuador Company, when orgaoiized with a capital stock of $5,000,000, was to issue to the shareholders of the Ecuadorian Association stock to the amount of $2,500,000 on the basis of $5 of stock for each £1 share. The other half of the stock was to be exchanged for the stock of the various land companies formed or to be formed. As I understand Mr. Harmon’s testimony, the money to be contributed was specified in the so-called midday memorandum (at page 130) made by Mr. Pruyn prior to his leaving Hew York, and such is the statement contained in Harmon’s letter to Pruyn under date of February 12th (at page 167 of case). Various other details were mentioned in the Paris conference, to which I need not refer.

Immediately upon Mr.. Harmon’s return from Paris to London arrangements were made in' London to carry this undertaking into effect. The Ecuador Company was' organized in Hew Jersey by Pruyn’s Hew York agents, and a very elaborate assignment from the Ecuadorian Association to that company was drafted and submitted, through.the mail, to Mr. Pruyn for his approval. A meeting of the shareholders of the Ecuadorian Association was called and their assent procured, and .on February 17th, apparently with the consent of everybody interested —certainly without any active opposition—the assignment (at page 173 of case) was executed by the Ecuadorian Association on the one hand and by Mr. Green, Pruyn’s London representative, and the agent of the Ecuador Company, authorized for that purpose, on the other. All the companies to be organized under the agreement (the Ecuador Company, the Duran company, the Villamil company, the Coiombe Coal Company) had been organized prior to February 11th, as appears from Mr. Lockwood’s letter of that date (at page 161). Hpwards of $60,000 were advanced by Pruyn to the Ecuador Company between February and June for the purpose of carrying the agreement into effect.

I do not understand that there is any dispute whatever in reference to any of the foregoing matters, but a recital of them is essential to an understanding of the question in controversy. That question is whether, as a result of the whole arrangement, Pruyn became a subscriber, either expressly or as a necessary consequence of what was done, for three thousand two hundred and fifty shares of the Ecuador Company.

1 have stated that Harmon’s first proposition to Pruyn was that he, Pruyn, should subscribe for £65,000 of the shares of the Ecuadorian Company lying in the treasury unissued. The case shows that from beginning to end Harmon was extremely anxious to have this stock held by one of his friends, so that he could, with their assistance, outvote tire voting trust controlled b3r Messrs. Dick & Lisman, the New York bankers. As Pruyn was unwilling to buy in this way, Harmon sought to secure the end in view by other means. If Pruyn was unwilling to pay so much money for the shares, he was not unwilling, as a part of the whole scheme, to take them in exchange for the stock of the Duran Terminal Company. The first proposition, having this object in yiew, is thus stated in the brief of Pruyn’s counsel:

“As summed up'by Mr. Harmon in his letter to Mr. Pruyn of December 20th, 1902, it was definitely but still tentatively arranged that an optional agreement should be entered into between the Ecuadorian Association and Mr. Pruyn, whereby the Ecuadorian Association should agree to deposit sixty-five thousand shares (of £1 each) of its capital stock in escrow with Glyn, .Mills, Currie & Company (London bankers), and Mr. Pruyn should agree to procure the incorporation of the Duran Terminal Company, and to cause all of its capital stock to be likewise deposited, and if within six months from this date the purchase and transfer of the Luque estate (i. e., the terminal lands) to the Duran Terminal Company is effected and title made satisfactory to the attorneys of the Ecuadorian Association, and you (Pruyn) shall have deposited in the treasury of the Duran Terminal Company the sum of $30,000, and said Duran Terminal Company shall be free from debt, the Union Trust Company of Albany, or Glyn, Mills, Currie & Company, shall deliver to you the £05,000 of the fully-paid capital stock of the Ecuadorian Association, Limited, and deliver to us the entire capital stock of the Duran Terminal Company; otherwise you shall at once restore the John Haviland option, upon the Ecuadorian Association reimbursing you for your actual outlay on the Duran Terminal Company.”

Before sailing for Europe, Adams, Pruyu’s representative in New York, had been instructed to pay $5,000 to secure the extension of the option, and the money had been actually paid. On Eebmary 13th Mr. Adams wrote 3VIr. Lockwood, the counsel of the parties in New York, asking that he forward a copy of the escrow agreement relating to the Duran terminal, which he, Adams, had signed on Tuesday (at page 169). What the terms of the agreement were we can only conjecture from what appears in the passage I have quoted. Mr. Pruyn has not seen fit to put the paper in evidence, although, as it seems to me, on the theory of subsequent misrepresentation now advanced by his counsel, it was quite important for him to have done so. This escrow agreement was, on February 24th, superseded by an agreement signed in Rome, where Pruyn then was, which provides as follows:

“1. The (Ecuadorian) Association agrees to acquire, and does hereby , acquire from said Pruyn the entire capital stock ($500,000), less five shares, to qualify directors of the Duran Terminal Company, and hereby agrees to issue sixty-five thousand of its shares, to be issued as fully paid, in consideration therefor, and the association undertakes to file, at the Somerset House, the necessary contract covering the issue of its shares fully paid.
“2. Said Pruyn undertakes and agrees to deliver to the Association, or to Ecuador Company of New Jersey, for its account, the entire capital stock, less five shares to qualify directors of the Duran Terminal Company, and undertakes that on or before July 1st, 1903, the Duran Terminal Company shall own the said properties known as the Luque estate, opposite the city of Guayaquil, embracing about ten thousand acres, more or less, free and clear of all encumbrance.”

It is contended by counsel that this second agreement was obtained from Pruyn lw misrepresentation. Mr. Pruyn was not sworn, and I do not find in the case any evidence whatever to support this charge. Mr. Pruyn appears to have been, from the beginning, most careful. The agreement was accompanied by a letter from Mr. DeFriese, a London barrister, representing Harmon and the association. In his letter of February 19th, Mr. DeFriese says:

“X thought it wiser, if possible, to do away with the escrow provided for and issue the sixty-five thousand Ecuadorian shares to 'you in exchange for the Duran Terminal shares, the latter to be handed over to the Ecuador Company in New Jersey for account of the association.”

In view of this explicit language and of the clear language of the agreement, it is idle to argue that Mr. Pruyn—a very intelligent business man—did not know that the optional feature of the agreement had not undergone a change. And it was a change, too, that appears to have been almost necessitated by the provisions of the deed of transfer of the Ecuadorian Association to the Ecuador Company, a draft of which had been submitted to, and without doubt approved by, Mr. Pruyn before its execution. -In this deed there is the following recital:

“And whereas, the Duran Terminal Company, a corporation duly organized, * * * has acquired a certain freehold estate known as the Luque property, situate in the republic of Ecuador, and containing about five thousand acres, including the site of the town of Duran and the river front of the Guyas river; * * * and whereas Robert C. Pruyn, as the beneficial owner of all the stock of the Duran Company, has sold the same to the association in consideration of the allotment or'transfer to him of sixty-five thousand full-paid shares, of £1 each, in the capital of the association.”

In view of this provision, which would have amounted to a fraudulent representation of a material fact if the Duran property had not been transferred to the Duran company incorporated for the very purpose of taking it, I am not surprised that Mr. DeFriese, in his letter of February 19th, should have said to Mr. Pruyn that he “thought it wiser, if possible, to do away with the escrow.”

Now, it may be asked, what necessary connection is there between Pruyn’s agreement of February 24th, which did away with the escrow, and his subscription to the capital stock of the Ecuador Company ? It appears to have been this: In order to interest Mr. Pruyn and his American associates in an enterprise that had been attended with many financial embarrassments it was necessary to offer inducements. These inducements could not very well be expressed or embodied in the'signed documents. The scheme finally agreed upon at the Paris conference was, in substance,, this: The Ecuadorian Association needed money, and Mr. Harmon and his Scotch and English associates had become tired of their connection- witli the Dick-Lisman syndicate. To procure funds and to outvote the syndicate were matters of prime importance. Both of these objects would be' attained by the incorporation of the'Ecuador Company, with its capital of $5,000,000, one-half of which would. represent the property and rights of the Ecuadorian Association to be transferred and the other half of which would go to Pruyn and his associates upon their contributing $435,000 in cash (at page 167). Of course, it would not do" to put the matter in this way on the face of the papers, because then Pruyn would be liable to assessment for the difference between $2,500,000 and $435,000. And so the scheme of incorporating the various subordinate companies was agreed upon for this and doubtless for other reasons, and it was arranged that the stock of these companies should be exchanged for the stock of the Ecuador Company to the extent mentioned. To get rid of the inconvenience of the voting trust it was necessary to issue the £65,000 of shares in the treasury of the Ecuadorian company. Mr. Pruyn had, from the outset, declined to pay cash for these shares, and English law, like New Jersey law, required that for their issue there must be an equivalent in cash or property, and so this scheme was devised. The shares of the Ecuadorian Association were to be issued in exchange for the Duran shares, without, of course, stating that the Duran shares represented or would represent a total cash outlay of $126,000, while the Ecuadorian shares should have represented cash or propert}' to the amount of £65,000, or $325,000. Mr. DeFriese, in his letter of February l”9th, writes to Mr. Pruyn, “I did not wish in the contract a recital of the purchase price of the terminal properties/’ the reason intimated being that the contract would have to be filed at Somerset House. This contract, standing alone, gave the Ecuadorian shares to Mr. Pruyn and the Duran shares to the Ecuadorian Association. But that was not the ultimate intention. The transfer of February 17th provided that the Diiran company’s stock should go to the Ecuador Company, and the effect of the two documents was to give to Pruyn the Ecuadorian stock and to give to the Ecuador Company the Duran stock. But the scheme was to vest at least a majority of the shares of the Ecuadorian Association, held by persons favorable to the Hannon interest, in the Ecuador Company, a large majority of whose stock would thus be controlled by that interest, and so the final step was to provide that Pruyn should transfer the £65,000 of Ecuadorian stock to the Ecuador Company and that the Ecuador Company should issue to Pruyn in exchange $325,000 of its stock as fully paid.

There is another matter which I must now refer to, because it bears directly upon the question in this case. If the deed of transfer from the Ecuadorian to the Ecuador Company had been made and the transaction had rested there, the stockholders of the Ecuadorian company would have been stripped of their property without having acquired any interest in the new compiany. But the plan was to substitute the stock of the Ecuador Company for the shares of the Ecuadorian Association. Three circulars were accordingly prepared and sent out, which bear date on the date of the execution of the deed. One of these circulars, addressed to the shareholders of the association, informs them that “in order to avoid the abandonment by the association of the construction contract,” the directors had concluded to accept the offer pf the Ecuador Company to take over its obligations and liabilities, “with certain other assets,” and to undertake to complete the line. Another circular, signed by several ■of the larger shareholders of the Ecuadorian Association, including Mr. Adams as attorney for Mr. Pruyn, advises the shareholders to exchange their shares for shares or stock in the Ecuadorian company. As Mr. Pruyn did not then own any other shares in the association, Mr. Adams’ signature is necessarily attributable to the £65,000 of shares which Pruyn had agreed to acquire. The circular was a representation that he was a holder of shares. A third circular was signed by Mr. Green for the Ecuador Company of New Jersey. It states that, at the request of certain shareholders of the Ecuadorian Association, .

•“we have agreed to issue to them a fully-paid share of $100 each of $100 stock in our company in exchange for every twenty shares of £1 each held by them in the Ecuadorian Association'.”'

This circular -notifies the Ecuadorian shareholders of the willingness of the Ecuador Company to issue the stock,

•“provided you agree to accept this offer on or before the 2d day of March, 1903; sign and forward to Messrs. Glyn, Mills, Currie & Company, v * * bankers, * * * the enclosed form of acceptance, and that you subsequently, but not later than the 10th of March, 1903, lodge with the said bankers the certificate for your shares, together with a blank transfer executed by you in exchange for a receipt by the bankers.”

On March 4th (at pages 79, 219) Mr. DeEriese wrote to Mr. Pruyn at Haples, suggesting that the £65,000 he issued to him in one certificate, and that he transfer the certificate and attach it to the letter of the Ecuador Company agreeing to exchange for the shares in that company. Tie encloses a transfer, which .he asks him to sign, and concludes by requesting that “he return them all to me and I will have the certificate issued and file them all with Messrs. Glyn, Mills, Currie & Company.” The reply to this letter is not in evidence, but that Pruyn did as requested there can he no doubt. He was at that time, as his letters show, in hearty accord with what was being done, and on March 10th Harmon writes Pruyn as follows:

“I find that there has been deposited with Messrs. Glyn, Mills, Currie •iSi Company £173,000 shares of the Ecuador Association, and I have had deposited to-day £65,000 of the shares issued to you, making a total of £238,000. And there has been deposited with the United States Trust Company about £38;000. This gives us a clear majority of the shares •of the Ecuadorian Association, and I feel perfectly safe, as there are only outstanding, excluding the stock deposited under the pooling agreement with Dick, Lisznan & Harmon, about forty-five thousand shares.”

In the certificate book of the Ecuador Company appears the 'following entry: “Ho. 291. 3250 shares issued to Robert Clarence Pruyn April second, 1903.” Like certificates were issued to Ecuadorian shareholders and were sent to London, but they •do not appear to have been actually exchanged. The reason, so far as the case shows, seems to have been this: When Mr. Pruyn returned to this country he was informed by his secretary, Mr. Adams, that he, Adams, had received a letter from Mr. Lockwood, the Hew York counsel, strongly condemning the change from the optional Duran agreement to the obligatory one. It appears that duplicates of this latter agreement had been signed, •one by Green in London for Pruyn on February 23d, and the other by Pruyn himself in Rome on February 24th. When Pruyn heard that Lockwood had condemned it, forgetting that Re had himself signed a duplicate, he repudiated Green’s act and sought to have' a new agreement made which would, as at first, leave it optional with him whether he would or would not purchase the terminal property. The Eew York Ecuadorian directors were, on his representation that Green’s act was unauthorized, at first inclined to accede to his request, but when they heard from Hannon that he, Pruyn, had himself signed a duplicate they refused to release him. From this time on Pruyn assumed a hostile attitude, and the Ecuador Company, so far as the evidence shows, ceased to concern itself with the construction of the railway. Pruyn did not take the certificate of Ecuador stock prepared for him.

On this state of facts, the question is whether Pruyn is now assessable as a stockholder of the Ecuador Compan}', holding three thousand two hundred and fifty of its shares.

He never made a forma] subscription to its stock. He never, in person, agreed with the company to take its stock. He did agree with Harmon that he would exchange stock of the Ecuador Association for stock of the Ecuador Company on the basis of twenty one-pound .shares of the association for each $100 share of Ecuador stock. If this were all, I think it would be quite impossible to assert that his agreement with Harmon made him an assessable stockholder. If A agrees with B that he, A, will subscribe for shares in a company and fails to do so, he may be liable to B for breach of his contract, but the agreement does not make him a subscriber. “The doctrine of the court of chancery,” said Justice Depue, in Crowell v. Hospital of St. Barnabas, 27 N. J. Eq. (12 C. E. Gr.) 654. (and a fortiori of the courts of law where a suit to recover the amount of the assessment would be brought), “is that, as a general rule, as to strangers to the contract who are also strangers to the consideration, the parties may, at their pleasure, abandon it and mutually release each other from its jDerformance, and upon such rescission and abandonment the contract is completely at an end, and thereafter cannot be enforced.”

But the case goes a little further. Pruyn, under the evidence, became bound to perform the agreement respecting the Duran terminal property. This agreement gave him the right to the £65,000 of Ecuadorian stock, which was in fact issued to him. And he authorized its deposit with the bankers, Glyn, Mills, Currie & Company, for the purpose-of having it exchanged for stock of the Ecuador Company. The Ecuador Company, in the circular letter to which I have already alluded, offered to give-its stock in exchange for such Ecuadorian stock as should have ■ been deposited with those bankers by a certain time. Pruyn’s Ecuadorian stock, by his authority, was so deposited, and hence, as it seems to me, there are present in the transaction all .the elements of a contract between the Ecuador Company andPruyn—an offer and an acceptance of that offer by an unequivocal act. There was, therefore, a binding contract to take stock and to pay for it in a particular way;, but I do not find in the evidence that this contract was executed. The' Ecuadorian certificate was not delivered to any officer of the Ecuador Company, and the Ecuador certificate, though made out,- was not received and accepted by Pruyn. The question then comes to this: Can Pruyn be compelled to become a stockholder on any other terms • than had been agreed upon ? The agreement was that"he should receive a certificate of full-paid, and consequently of non-assessdble, stock in exchange for his Ecuadorian stock. If his stock is now assessable it must be so because of some legal rule that overrides and contravenes the agreement. I know of no such rule. The Ecuador Company might, while the matter was in fieri, have refused to deliver its stock certificate if the Ecuadorian stock were not in fact a fair equivalent. Such was the ruling of the court of errors and appeals in Donald v. American Smelting Co., 62 N. J. Eq. (17 Dick.) 729, But it was said in that case that after stock had been actually issued as full-paid stock, and the consideration received for it' in property, the judgment of the directors as to the value of the property was, in the absence of actual fraud, conclusive, and that such stock was not liable to any further call.

In Bickley v. Schlag, 46 N. J. Eq. (1 Dick.) 533, certain steamboats and other property had been conveyed to a steamboat-company for stock, issued as full-paid. The vice-chancellor who heard the case below had found as a, fact that the amount of the stock, at its face value, exceeded the value of the property, and gave judgment for the difference. On appeal, Chief-Justice Beasley, quoting from an opinion of Judge Field in the supreme court of the United States, said: “Where the charter authorizes capital stock to be paid in property, and the shareholders honestly and in good faith put in property instead of money in payment of their subscriptions, third parties have no ground of complaint. The case is very different from that in which subscriptions to stock are payable in cash and where only a part of the installments has been paid. In that case there is still a debt due to the corporation, which, if it become insolvent, may be sequestered in equity by the creditors as a trust fund liable to the payment of their debts. But where full-paid stock is issued for property received there must be actual fraud in the transaction to enable creditors of the corporation to call the stockholders to account.”

These citations are decisive of the matter. There was an agreement between Prujm and the Ecuador Company, but it had not been consummated by the delivery of the stock- on either side. It was an agreement that remained to be performed. Had Pruyn sought to enforce it, the receiver would have considered, first, whether it was a fraud upon the company. If it was, he would have repudiated it on that ground. Second, if not fraudulent in fact, whether he was getting a fair equivalent for the Ecuador stock at its face value. If he was not, he would have refused to perform it on the principle laid down in the Smelting Case. Third, if he was getting a fair equivalent, he must have performed it according to its terms. If thus performed, he could not have revalued the property taken and then sought to assess the stock as partly unpaid.

It would seem to he clear, therefore, that if the agreement is binding, or if the receiver elects so to treat' it, he must accept and enforce it as made. If he disaffirms or repudiates it, Pruyn’s relation to the company as a stockholder, actual or potential, ipso facto, ceases.

I think the receiver’s application to assess should be denied.


author: Stevens, Y. C.

text:
    Robert H. McCarter, attorney-general, v. Firemen's Insurance Company et al.
    [Decided August 25th, 1905.]
    1. The common law does not treat agreements in restraint of trade as being illegal in the ordinary sense of the word, but merely as being unenforceable.
    2. In the absence of statute authorizing it, the attorney-general may not maintain a suit to enjoin insurers against carrying out an agreement regulating rates, though against public policy, as in restraint of trade, and the fact that the insurers are corporations makes no difference.
    On information.

      Mr. Malcolm Mac.Lear, for the informant.

      Mr. Richard V. Lindabury, for the defendant
   Stevens, Y. C.

This is an injunction bill. The defendants are fife insurance companies-—corporations of this and other states. They have, by their agents, formed a voluntary association, called the Newark Fire Insurance Exchange, one of whose principal objects is the establishment of “adequate and just rates of premium,” uniform and obligatory upon all of them. The attorney-general seeks to restrain them from regulating and maintaining these rates. There is no relator, and, consequently, no private right involved. The information seeks to enjoin an agreement, intro vires and enforceable, unless contrary to public policy. It appears to be without support in common law precedent. In some of the western and southern states statutes have been passed condemning combinations among certain kinds of companies, and,- among others, insurance companies. These statutes give to the representative of the state the right to apply for an injunction. Congress, too, has passed an act to protect interstate trade and commerce against unlawful restraints and monopolies, and' has given to the attorney-general of the United States a like right. Many informations have been filed under these acts, but they are not precedents for this proceeding because this state has not legislated on the subject.

May agreements, then, because in restraint of trade and commerce, be, in the absence of statutory authority, enjoined in' equity, at the suit of the attorney-general? I do not attach any weight to the suggestion that under the case of Paul v. Virginia, 8 Wall. 168, and the cases which have followed it, the business of insurance is not trade or commerce, for while the distinction is important in its relation to the commerce clause of the federal constitution, it is unimportant where the question arises in the state courts. The principle that condemns such agreements is applied not only to transactions of trade and commerce, strictly so called, but to many other transactions; for instance, to agreements between physicians (Mandeville v. Harman, 42 N. J. Eq. (15 Stew.) 185), between attorneys and their articled clerks (Nicholls v. Stretton, 10 Q. B. *346), between manufacturers relative to the wages of their workmen (Hilton v. Eckersley, 6 El. & Bl. 47), between stenographers (More v. Bennett, 140 Ill. 69).

The point upon which,, as it seems to me, the attorney-general must fail, is this: The common law does not treat agreements in restraint of trade as being illegal in the ordinary sens© of the word, but merely as being unenforceable. As far back as Mitchell v. Reynolds, 10 Mod. *134 (1711), Chief-Justice Parker said: “It is not a reason against them that they are agaJkist law—I mean in a proper sense, for in an improper sense they are.” Mogul Steamship Co. v. McGregor, A. C. 39 (1892), was a suit by a shipowner, injured by the acts of an association of shipowners, formed for the purpose of destroying, by competitive methods, his trade at a Chinese port, and so securing for itself a monopoly of the trade of that port. It was, as o.ne of the judges described it, a scheme, by means of competition in the near future, to prevent competition in the remoter future. In the house of lords, Lord Halsbury said: “There are some contracts to which the law will not give effect, and therefore, although the parties may enter into what but for the elements which the law condemns would be perfect contracts, the law will not allow them to operate as contracts, notwithstanding that in point of form the parties have agreed. Some such contracts may be void on the ground of immorality; some on the ground that they are contrary to public.policy—as, for example, in restraint of trade —and contracts so tainted the law will not lend its aid to enforce. It treats them as if they had not been made at all. But the more accurate rise of the word ‘unlawful,’ which would bring the contract within the qualification I have quoted from the judgment of the exchequer chamber, namely, as contrary to law [the italics are the chancellor’s], is not’ applicable to such contracts. It has never been held that a contract in restraint of trade is contrary to the law in the sense that I have indicated.” It was accordingly held that the action would not lie.

In the case of United States v. Addyston Pipe and Steel Co., 85 Fed. Rep. 271; 29 C. C. A. 147, Judge Taft, in an exhaustive and illuminating opinion on the subject of contracts in restraint of trade, says: “Contracts that were in unreasonable restraint of trade at common law were not unlawful in the sense of being criminal or giving rise to a civil action for damages in favor of one prejudicially affected therebj’, but were simply void and were not enforced by the courts. The effect of the act of 1890 (the act of congress to protect trade and commerce against unlawful restraints and monopolies) is to render such contracts unlawful in an affirmative or positive sense, and punishable as a misdemeanor, and to create a right of civil action for damages in favor of those injured thereby, and a civil remedy by injunction in favor of both private persons and the public against the execution of such contracts and the maintenance of such trade restraints.”

The same idea is contained in the following passage taken from the opinion of Ellicott v. Chamberlin, in the court of errors and appeals, 38 N. J. Eq. (11 Stew.) 604: “If a contract be illegal as against public policy, its invalidity will be a defence w’hiie it remains unexecuted. If the illegal contract be in part performed, and money has been paid in pursuance of it, no action will lie to recover the money back. The law will not assist either party to an illegal contract, and the parties being in pari delicto, it will leave them where it finds them. If the contract be still executory, it will not enforce it, and if already executed it will not -restore the price paid nor the property' delivered.”

These citations show that in this class of cases the common law gave no affirmative relief. When suit was brought upon the agreement the courts refused to enforce it, and that was all. In the Mogul Steamship Case, the judges admitted that the agreement would not have been enforceable among the members of the association, but they said that if did not follow that a stranger might therefore sue because of its damaging effect upon him. If one alleging himself to be specially injured could not sue, it is difficult to see on what ground the attormyr-general can. I have been referred to no common law precedent for such a suit, and I do not think any can be found. This, in itself, is an argument against the jurisdiction. The combination is not indictable, and there is therefore no public wrong inflicted, at least of a punishable kind. The agreement, Lord Halsbury says, is not in any positive sense contrary to law. If not contrary to law in a • positive sense, what ground is there for the state’s action ? The only ground suggested is public policy, but if that is ground for equitable interference in the present instance, then, on the same ground, the attornejr-general may apply for an injunction to restrain employers, on the one hand, and workmen, on the other, from combining to regulate wages; to restrain plrysicians and other professional men from limiting competition with themselves where their agreement goes beyond what may be necessary to afford a fair protection; to restrain people from concluding or enforcing usurious bargains—in a word, to restrain them from making any illegal contract, for I suppose all contracts denounced by the law as illegal are, or are considered to be, contrary to public policy. This would, indeed, be giving to equity a jurisdiction which has not hitherto been attributed to it.

But it .is said the association is composed of the representatives of corporations. ‘If these corporations were public or quasi-public bodies, and if the attorney-general were here asked to .enjoin them from doing ultra vires acts, to the public injury, as in Attorney-General v. Central Railroad Co., 50 N. J. Eq. (5 Dick.) 52, the case would be different. “It may,” says Vice-Chancellor Reed, in Attorney-General v. American Tobacco Co., 55 N. J. Eq. (10 Dick.) 352, 366, “be regarded as settled that whore a gwm-public corporation exceeds its corporate powers and its acts involve a nuisance or otherwise tend to a public injury, a bill may be exhibited against such corporation in the court of chancery.” But these companies are not public or giiim-public bodies, and it is not pretended that they have exceeded their corporate power. All that can be said is that in the exercise of their power of fixing rates they have made an unenforceable agreement. • The business of insurance is one that may be carried on, and often has been carried on, by individuals. This being so, I am unable to understand why these companies should be held to an accountability different from that which natural persons, doing the same acts, would be held to. The more fact that a private corporation is a party to a suit involving contract rights has never, in the slightest degree, tended to give equity a jurisdiction which it would not otherwise possess, and if the court would not have it where natural persons are suitors, neither will it have it where private companies are.

Without, then, deciding whether the articles of association are illegal in the sense that I have mentioned—a question to be determined bjr courts of law—I think the information should, for the reason stated, be dismissed.


author: Stevens, Y.'C.

text:
    Henry W. Doremus et al. v. The Mayor and Aldermen of the City of Paterson et al.
    [Decided October 30th, 1905.]
    1. A cross-bill is one brought by the defendant against the complainant (and other parties, if necessary) in another suit touching the same matter, either to obtain discovery of facts in aid of the defence to the original bill, or to obtain full relief to all parties touching the matter of the original bill.
    2. Only such new facts are properly pleaded in a cross-bill as are necessary for the court to have before it in deciding the question raised in the original suit, and to enable the court to do complete justice to all the parties in respect to the cause of action pleaded in the bill.
    3. Where an original bill was filed against a city to restrain a nuisance consisting of the pollution of a river, a cross-bill filed by the city, in which it admitted the nuisance, but averred that a certain water company had unlawfully diverted for the benefit of another city water which would otherwise have flowed past defendant city and helped to dilute its sewage, and that another water company had constructed a dam across the river below defendant city, which prevented the passage of sewage down the stream, is fatally defective, as pleading matters not germane to the original bill.
    4. Such cross-bill, seeking to make the water companies parties defendant, is demurrable for multifariousness.
    5. The cross-bill is also demurrable for misjoinder of parties.
    C. In a suit to restrain a city from polluting a water course, it is no defence that the acts of certain others contributed to cause the nuisance complained of, there being no contribution between independent wrongdoers.
    • 7. Where, in a suit to restrain the further pollution of a water course by a city, complainants stated their damages calculated on the basis of the injuries being permanent, and defendant admitted the nuisance, its answer failed to state whether the taking of complainants’ property rights is to be perpetual or only temporary, and, if the latter, for what time the taking is to continue, is fatally defective.

      Mr. Sherrerd Depue, for the complainant.

      Mr. George 8. Hilion, for the defendant.
   Stevens, Y.'C.

This is an application to strike out a cross-bill under rule 213.

A cross-bill is a bill brought by the defendant against the plaintiff (and, if necessary, other parties) in another suit touching the same matter. Dan. Ch. Pr. (6th Am. ed.) 1548. It is brought either (1) to obtain a discovery of facts in aid of the defence to the original bill, or (2) “to obtain full relief to all parties touching the matters of the omginal bill.” Story Eq. Pl. § 389. “It should not introduce new and distinct matters not embraced in the original bill, as they cannot be properly examined in that suit, but constitute the subject-matter of an original independent suit. The cross-bill is auxiliary to the proceeding in the original suit and a dependency upon it. * * * If its purpose be different from this, it is not a cross-bill, though it may have, a connection with the said general subject.” Stonemetz Printers Co. v. Brown & Co., 46 Fed. Rep. 851.

“The new facts which it is proper for a defendant to introduce into a pending litigation by means of a cross-bill are such, and such only, as it is necessary for the court to have before it in deciding the questions raised in the original suit, to enable it to do full and complete justice to all the parties before it in respect to the cause of action on which complainant rests his right to aid or relief. If a defendant, in filing a cross-bill, attempts to go beyond this, and to introduce new and distinct matter not essential to the proper determination of the matter put in litigation by the original bill, although he may show a perfect case against either the complainant or one or more of his co-defendants, his pleading will not be a cross-bill, but an original bill.” Krueger v. Ferry, 41 N. J. Eq. (14 Stew.) 436; 43 N. J. Eq. (16 Stew.) 295.

Judged by these rules, the cross-bill filed in the present case cannot be sustained. The original bill is, in the language of the court of errors and appeals (Doremus v. Paterson, 69 N. J. Eq. 775), “a bill to restrain the further pollution of the river,” but “it tenders to the city the opportunity of avoiding the issuance of the writ by making compensation to the complainant for the injury which will accrue to their property by the continued dis- charge of sewage into the stream.” It is, in other words, an injunction hiJl to restrain a nuisance. The cross-bill admits the nuisance, but it avers (1) that the East Jersey Water Company has unlawfully diverted, for the benefit of the city of Newark, water which would otherwise have flowed past Paterson and helped to dilute its sewage; (2) that the Dundee Water Company has constructed a dam across the Passaic river below Paterson, and has hv so doing formed the Dundee lake, with the effect of rendering its current more sluggish and so retarding or preventing the passage of the sewage down the stream. It seeks, on the authority of Green v. Stone, 54 N. J. Eq. (9 Dick.) 387, to make the East Jersey Water Company, the city of Newark and the Dundee company parties. The attempt is based upon a misconception of the rule in that case. Its effect would be to involve the complainants in three distinct controversies with which they have absolutely no concern: First. Whether, as against Paterson, the East Jersey Water Company may take the upper waters of the Passaic for the purpose of supplying the inhabitants of Essex and Hudson counties with pure water. Second. Whether, as against Paterson, Newark is illegally appropriating the waters of the Pequannock. Third. Whether, as against Paterson, the Dundee dam is an illegal structure. Not only would the cross-bill, if sustained, compel the complainant to litigate these distinct questions in one suit, but it would involve the city of Newark in a controversy over the Dundee dam—a question with which it has no concern, and it would involve the Dundee company in a controversy respecting the use by Newark of the waters of the Pequannock—a question utterly distinct from the question whether the dam is a lawful structure. If Paterson had filed an original bill against these parties, it would have been demurrable on the ground of multifariousness and misjoinder. This cross-bill, original certainly as to the new parties brought in, is equally so. It would, if permitted to stand, subject complainants to an interminable litigation over questions with which they have no concern, and would amount to a practical denial of justice. If proved, it would be no answer to the charge of nuisance. The defence, if such it can be called, would seem also to be obnoxious to the well-settled rule that as between independent wrongdoers there is no contribution.

I think that the bill should be stricken out.

The city of Paterson has, with its cross-bill, filed an answer, and the complainants apply to strike out portions of it for insufficiency. I understand that the first objection, viz., that the defendant does not elect whether it will submit to an injunction or make compensation, is admitted to be well taken, and that the answer will be amended in that particular.

The second objection is that the answer does not declare whether the taking of the defendants’ property rights is to be perpetual or only temporary, and the third objection is that if the anstver is to be construed as declaring that the taking is to be temporary, then it does not declare for what period of time the taking is to continue.

I think these objections are valid. The complainants, in their bill, state their damages, “'calculated upon the basis of said injuries being permanent.” This statement necessitates a counter-statement by Paterson of whether it intends for an indefinite time in the future to pollute the waters of the Passaic, or whether it intends- to stop polluting them within a definite period. If it intends to stop, it should so aver, and it should designate a time beyond which the pollution will cease. Thus only can the complainants’ damages be definitely ascertained, if the injury is to be computed on this basis. It is self-evident that if the nuisance is to come to an end in five or ten years, the damages given will be less than they would be if the nuisance is to last for fifty or a hundred years. Only by naming a definite time is it possible to compute them on any other theory than that of a permanent injury, and it is only fair to complainants that they should be informed before trial what Paterson’s position is on this very important question.

The last objection is too indefinite to merit attention. Leslie v. Leslie, 50 N. J. Eq. (5 Dick.) 155; Doane & Jones Lumber Co. v. Essex Building and Land Co., 59 N. J. Eq. (14 Dick.) 142.


text:
    A. Larison Holcombe v. Anthony G. Fetter et al.
    [Decided October 30th, 1905.]
    1. A surety may file a bill to compel payment by the principal debtor, as soon as the debt becomes payable.
    2. The jurisdiction, does not rest upon apprehended insolvency, but upon the fact that there is a debt due which it is the duty of the principal debtor, in exoneration of his sureties, to pay forthwith.
    On demurrer to bill.

      Mr. Carroll Robbins, for the demurrants.

      Mr. John 8. Van Dike, for the complainant.
   Stevens, Y. C.

This is a suit by one of several sureties to compel a principal debtor to pay his debt to his creditor. It is said by Chancellor Green, in Trick v. Black, that as soon as the debt has become payable, a surety may fíle a bill to compel payment by the principal, in order that the surety may be relieved from responsibility. That this rule is well settled appears from the following citations: Pom. Eq. Jur. & 1417; Dering v. Winchelsea, 1 Lead. Cas. Eq. (Am. note) *100; Irick v. Black, 17 N. J. Eq. (2 C. E. Gr.) 189; Delaware, Lackawanna and Western Railroad Co. v. Oxford Iron Co., 38 N. J. Eq. (11 Stew.) 153; Philadelphia and Reading Railroad Co. v. Little, 41 N. J. Eq. (14 Stew.) 519, 529; Herron v. Mullen, 56 N. J. Eq. (11 Dick.) 839. It is argued that the rule is not applicable to the case at bar because it does not appear that the principal debtor is insolvent or in danger of becoming so. But the jurisdiction does not rest upon this distinction. It is further argued that if the defendant Labaw sleep upon his rights as creditor, and by reason of his laches fail to recover from the principal debtor, such laches will be a defence to an action for contribution. But what delay amounts to laches is often a matter of doubt. The original creditor is not barred by laches alone. Pintard v. Davis, 21 N. J. Law (1 Zab.) 632; Newark v. Stout, 52 N. J. Law (23 Vr.) 47. Whether a co-surety who has paid the entire debt, and thus, at least to some extent, succeeded to the creditor’s rights, stands as to laches in a less favorable position than the original creditor need not be considered, for the jurisdiction in this class of cases rests upon the fact that there is a debt due which it is the duty of the principal debtor, in exoneration of Ms sureties, to pay forthwith. The bill is one quia timet. ' So far as the complainant is concerned, his liability and therefore his right to exoneration is the same as it ever was.


author: Stevens, V. C.

text:
    Rufus F. Harrison et al. v. Isaac Fleischman et al.
    [Decided November 1st, 1905.]
    1. Where an executrix, chargeable with $2,850, invested the same in building and loan stock certificates, the association, issuing one certificate to her as executrix and another certificate to her individually, was charged with notice that the money paid for the first certificate was trust funds.
    2. Where a building association was charged with notice that money paid for certain of its stock was trust funds of the estate of a decedent, such association was constructively guilty of a breach of trust in appropriating the money to its own use, entitling the estate to share' in the association’s assets as a creditor, and not as a stockholder.
    3. Where an executrix invested money" belonging to the estate in stock of a building association, which the latter, with notice of the, trust, appropriated to its own use, but ou its insolvency the money so paid was not traced or identified, and it did not appear that it was still in its hands when it was adjudged insolvent, the estate is not a preferred creditor.
    4. Where a stock certificate in a building association- certified in the ordinary form that the holder was a stockholder, and contained a provision that the holder was entitled to interest on the amount paid at six per cent, per annum, and that the certificate might be surrendered at any time after three years on giving due notice, when he should receive the full amount paid, with interest, &c., the holder, prior to notice of surrender, was a stockholder, and not a creditor. v
    On bill, &o.

      Mr. Egbert J. Tamblyn, for tire complainant.
    . Mr. Isaac Fleiscliman, pro se.

      Mr. James S. Erwin, for John J. Erwin.

      Mr. Frederick F. Guild, for the receiver.
   Stevens, V. C.

This is a bill filed by sureties on a bond given by Sarah Parton, conditioned for the due administration of her first husband’s estate. Its purpose is to compel the proper disposition of certain assets of that'-estate. .These assets are alleged to be two certificates of stock of the Commercial Building and Loan Association, an insolvent corporation of which Mr.,- Frederick F. Guild is receiver. One of these certificates certifies that Sarah Parton, executrix, is constituted a stockholder of the association, and holds fourteen and one-quarter shares of the maturity value of $200 each. The other certifies that Sarah Parton is constituted a stockholder thereof, and holds three-quarters of a share of such value. The evidence is that Mrs. Parton paid in cash (by check of her attorney) $2,850 for the first certificate and $150 for the second. It appears from the final account, filed by her as executrix, and from the provisions of the will, that she was responsible as such to the amount of $2,908.24. She is, under the terms of the will, chargeable with no interest thereon. The evidence is that she invested trust funds to that amount in the stock of the company. Consequently the first certificate represents nothing but trust funds, and the second certificate trust funds to the amount of $58.34. Under the decision in Jeffray v. Towar, 63 N. J. Eq. (18 Dick.) 530, it is clear that in issuing one certificate of stock to Mrs. Parton in her character of executrix, and another to her individually, the company was affected with notice of the fact that the money paid for the first certificate was trust money.. Duncan v. Jaudon, 15 Wall. 165; Shaw v. Spencer, 100 Mass. 389. , The company was constructively guilty of a breach of trust in appropriating such money to its own purposes, and the Gore estate has a claim which entitles it to share in the assets as a creditor. But the money paid in has not been traced or identified, and there is no reason to believe that it was still in the company’s hands when it became or was adjudged to be insolvent. Besides, the trustee of the fund was not the company, but Mrs. Parton. Under these circumstances the Gore estate is not a preferred creditor. Hunt v. Smith, 58 N. J. Eq. (13 Dick.) 25, is inapplicable, and the ease is ruled by Collins v. Lewis, 60 N. J. Eq. (15 Dick.) 488; Matter of Cavin v. Gleason, 105 N. Y. 256; O’Callaghan’s Case, 64. N. J. Eq. (19 Dick.) 287.

With respect to the claim for $58.34, the situation is different. The evidence is insufficient to show that the company had notice that Mrs. Parton was investing trust moneys in the stock for which she obtained the certificate for three-quarters of a share. It is claimed, however, that this certificate is a money obligation of the company and not a stock certificate, properly so called. It certifies in the ordinary form'that Mrs. Parton is a stockholder, and contains the following clause, stamped or printed in red ink upon its face:

“The holder of this certificate is entitled to interest upon the amount paid at the rate of six per cent, per annum, payable semi-annually. This certificate may be surrendered by the holder or called in. by’ the association. at any time after three years from the date hereof by giving due notice, when the holder hereof shall receive the full amount paid, together with interest due and unpaid to the date of said notice of surrender, under article XX. of the constitution and by-laws.”

As the certificate was issued on June 7th, 1901, and the company went into the hands of a receiver in November, 1902, it is obvious that the notice of surrender could not have been given. If the certificate is to be regarded as a money obligation, it must be only because of the agreement to pay interest. In the case of a somewhat similar certificate, issued by the National Building, Loan and Provident Association, I held, in an unreported ease, that such an agreement to pay interest did not, of itself, show that the relation of debtor and creditor existed as to the corpus of the fund. But each case must depend upon the language of the instrument sued on, and the question is whether, under the wording of this particular paper, Sarah Gore-became, as to the principal sum paid , by her, a stockholder oma creditor. The paper itself declares that she became a stockholder. The question then is, did the stipulation 'that the company would pay interest malee her a creditor ? The argument is that the agreement to pay interest is so inconsistent with the status of a stockholder that it cannot be supposed that it was the intention to constitute her a stockholder. But this supposition is made in the teeth of the express declaration that she was a stockholder. Looking at the whole paper, I think that the reasonable infer-. ence is that it was intended primarily to constitute her a stockholder, and secondarily to give her six per cent, interest on the amount paid in. From the fact that such an agreement might he regarded as unusual and anomalous, it does not follow that we are at liberty to-remodel it and make another agreement out of it. The very language of the clause providing for notice is the strongest possible indication that the parties intended that the relationship of stockholder should subsist until that of creditor arose under the notice. Whether the agreement to pay six per cent, should be construed to mean six per cent, out of earnings I do not consider. Agreements stipulating for withdrawal are not unusual in the case of corporations of this kind (End. Build. Asso. (2d ed.) § 109), but the stockholder is not converted into a creditor until he complies with the conditions. The following cases illustrate tíre views here expressed: Towle v. Association, 75 Fed. Rep. 938; Coltrane v. Blake, 113 Fed. Rep. 785; Solomons v. American Building and Loan Association, 116 Fed. Rep. 676; Gibson v. Safety, &c., Association, 170 Ill. 44; 48 N. E. Rep. 580. In Guild v. Baker, 68 N. J. Eg. 61, the lender of the money expressly refused to become a stock- . holder and took the assignment' pf the mortgage on the supposition that she was to be a creditor. It would have been highly inequitable to have deprived her of her security. I think, therefore, that, as to the second certificate, the present holders of it stand in the relation of stockholders.

I think that the receiver should pay what is due the Gore estate directly to the administrators of that estate.