author: Griffin, V. C.

text:
    Ernest Behr v. Jacob Hurwitz et ux. et al.
    [Decided October 22d, 1918.]
    1. The market value of the premises at the time of execution of a lease.with option to purchase is the measure of the fairness of the contract as respects the optionee’s right to specific performance.
    2. Under a lease containing an option to purchase, where the lessee exercised his option by notice in writing served on the owners, the contract to purchase was complete, vesting the equitable title in the lessee, and afterwards the owners could not, by breach of the covenant to convey, compel the continuance of the relation of landlord and tenant for the purpose of creating a breach of the covenant to pay rent, so as to enable them to declare the option forfeited.
    3. The complainant in a suit for specific performance of the purchase option in a lease is not precluded from prevailing because he failed, after exercising the option, to tender rent to mortgagees who held an assignment of rents, where debts to them could be fully protected upon passing of title.
    4. Where a lease of certain lands contained an option to purchase those and other adjoining lands, a sublease thereof, whether considered as an assignment of the lease or not, is not an assignment of the option to purchase.
    5. The evidence in this case shows that neither the lessee nor the sub-lessee intended that the option contract in the lease should pass to the sublessee.
    O. Where improvements to the property were ordered by the tenement-house commission to be made, which improvements increased the value of the property, it would be inequitable not to charge them to the purchaser.
    7. Where an option to purchase is silent as to the character of the title to be given, in the absence of proof to the contrary, the rebuttable implication arises that the title is to be free from encumbrances, but such implication may be overcome by parol evidence.
    S. Whore the option was “to purchase for a certain sum’ this indicates that the parties intended that title should pass in the ordinary manner, viz., that the deed and the purchase-money should be delivered and the encumbrances discharged simultaneously, and therefore to enforce specific performance the purchaser need not tender the money with his notice of the exercise of his option.

      On bill, &e.

      Mr. Warne Smyth and Mr. James A. Gordon, for the complainant.

      2Iessrs. McDermott & Enright (Mr. Frank P. McDermott and Mr. Meyer Eichmann), for the defendants.
   Griffin, V. C.

The bill in this cause is filed by the complainant for specific performance of an option or privilege to purchase the lands of Hurwitz and wife contained in a lease from them to the complainant. There are several parties defendants who are mortgagees, and a sublessee for the residue of the term, who have no concern in the controversy beyond the payment of their several mortgage debts, and the peaceable enjoyment of the premises during the term of the sublease. Throughout this opinion Hurwitz and wife will be termed the “defendants.” The other defendants will be referred to by name, when dealing with their rights.

The lease in question bears date the 24th of February, 1905, and was made by the defendants to the complainant for a part only of the premises covered by the option. The term granted was for thirteen years, from the 1st of March, 1905. The option clause is as follows:

“xVnd it is herein further expressly agreed by and between the respective parties hereto in consideration of the letting aforesaid, that the party of the second part shall and may have the privilege of purchasing the lands conveyed to the party of the first part (and of which the demised premises form a part) by Charles Wittreich and wife, by deed bearing date February 6th, nineteen hundred and five, at any time during the continuance of this lease, by the payment of the sum of forty thousand dollars in cash, and in the event of the purchase of said lands by the said party of the second part, the party of the first part agree to pay Hill Haber a commission thereon of two and one-half per cent, on said purchase price.”

A few months prior to the date of the lease the complainant had an option to purchase the property for $27,000, but was unable to take advantage of it for lack of funds. Thereafter another person took an option, or contract to buy, for $28,000, and assigned the same to' the defendants for $1,000 in excess. The evidence clearly indicates that the market value of the premises, about the period when the lease was signed, was about $29,000, which is the time that the fairness of the contract is measured. Willard v. Tayloe, 8 Wall. 557; 21 Myers Fed. Dec. 817; 6 Pom. Eq. § 798.

The defendants on acquiring title placed two mortgages on the premises, the first for $15,000, and the second for $12,500. This latter mortgage was made with the understanding that the defendants should expend about $1,000 on the premises for improvements and repairs. Behr was informed that these repairs were to be made, and the option was given with the understanding that complainant should have the benefit of them.

On April 4th, 1917, a notice signed by the complainant was served upon the defendants exercising the privilege to purchase, and requesting that the defendants execute and deliver a proper deed conveying a good title, free and clear of encumbrance, and asking, in substance, when and where the deed would be ready for delivery, the encumbrances discharged and the purchase price paid.

The complainant, it will be perceived, exercised the option, according to his notice, about eleven months before the end of the term. The defendants, immediately upon being served with the notice, consulted counsel, who, without binding themselves in any manner, communicated by telephone and letter with complainant’s counsel to the effect that they would take the matter up' and confer with him later. This they never did. Some time after the middle of May complainant’s counsel discovered that (forty days after the notice declaring the option had been served) there was placed on record a mortgage made by the defendants to. Klipper & Schoenberg (who are defendants in this suit), dated May 14th, 1917, and recorded May 15th, 1917, for $2,000, with an agreement assigning the rentals to secure the loan. Thereupon the complainant, on May 24th, 1917, filed his bill.

The complainant performed every condition and term of the lease up to June 1st. Thereafter, acting on the advice of counsel, he did not pay the rent for the month of June. On July 12th, 1917, the defendants began an action of ejectment in the supreme court against the complainant and one Christ Clrimbilas, his lessee, which caused the complainant to file a supplemental bill seeking restraint against the prosecution of the suit at law.

The premises in question, since the making of the lease, had almost doubled in value, by reason of which fact it is perfectly clear that the defendants did not intend to comply with the complainant’s request to convey. This is evidenced by the statements of Mrs. Hurwitz when the notice declaring the option was served, that “He [Behr] .will have to wait until I get ready; he has got lots of time,” and of Mr. Hurwitz:

“Where is Behr going to get $40,000 from? X will do nothing at present; X am not ready yet; Mr. Behr has got lots of time. I will not commit myself at present until I read the lease carefully over again,”

and by the failure of the defendants’ counsel to confer with complainant’s counsel as promised, and the placing of the mortgage on the premises and assigning the rents without notice to the complainant.

The complainant was toady and willing to take a deed and paj the purchase price, and had secured the funds for the purpose. The contract j,s certain in all its parts and founded on fair consideration. These facts appearing, the complainant is entitled to a. decree unless he is in default, or something has arisen subsequent to the making of the contract which either destroys his right or renders it inequitable to grant him relief. Page v. Martin, 46 N. J. Eq. 585; McCormack v. Stephany, 61 N. J. Eq. 208; Connelly v. Haggarty, 65 N. J. Eq. 596; Lounsberry v. Locander, 24 N. J. Eq. 417; affirmed, 25 N. J. Eq. 554; Charles J. Smith Co. v. Anderson, 84 N. J. Eq. 681; Willard v. Tayloe, supra.

The defendants allege several things have arisen since the making of the contract which destroy complainant’s right' to relief.

Tlie first point urged is that the defendant failed to pay the rent for the month of June, 1917, which fell due on June 1st, and thus breaking his contract, he lost the option.

The position thus assumed is untenable. When the complainant declared his option by his notice in writing served on the defendants, a mutual contract was created binding upon the one to buy and the other to sell, thereby vesting the equitable title in the complainant; and thereafter it was beyond the power of the defendants bj wrongfully refusing for a period of almost two months (thereby being guilty of a breach of their covenant to convey) to compel the continuance of the relation of landlord and tenant, even after the bill was fifed, for the purpose of creating a breach of the covenant to pay rent, thus enabling them to declare the option right forfeited. Connelly v. Haggarty, supra; Lorillard v. Keyport Brick and Tile Co., 48 N. J. Eq. 295.

Second. The defendants also say that the complainant should not prevail because a tender should have been made to Klipper & Schoenberg, who were mortgagees with an assignment of the rents.

I can see no force in this point. Their mortgages and the assignments of rents were given to secure debts, which may be fully protected on the passing of the title.

Third. The defendants earnestly insist that the instrument in the nature of a sublease made by the complainant to one Grimbilas for the whole term, which reserved the right of reentry at the end of the term, or for condition broken, and a rent largely in excess of that payable under the lease to the complainant, constitutes an assignment passing not only the term to the sublessee but also the option contained therein.

Both leases cover the same identical premises. The option, however, covers not only the premises leased but other premises, all being contiguous, forming a single plot.

The authorities on the question thus presented, in so far as the lease is concerned, without touching the passing of the option, are in conflict. At common law, a leasing bj a lessee for the entire term, even at a different rent, reserving a reversion with right of re-entry for condition broken, would, as between the landlord and the sublessee, be regarded as an assignment of the term, creating a privity of estate which would enable the landlord to distrain. In Massachusetts the rule is different. Dunlap v. Bullard, 131 Mass. 161. In New York, down to the decision in the case of Stewart v. Long Island Railroad Co., 102 N. Y. 601; 8 N. E. Rep. 200, the rule was substantially the same as that in Massachusetts. The effect of this latter decision is to cast doubt upon if it does not destroy the rule announced in the earlier decisions of the same court in Collins v. Hasbrouck, 56 N. Y. 157, and Ganson v. Tift, 71 N. Y. 48. (For other cases on this subject, see 16 R. C. L. tit. “Landlord and Tenant ” § 319 et seq., and notes.)

There has not been called to my attention, nor have I found a case in this state dealing strictly with the question whether, when a lessee sublets for the balance of his term at a larger rent, reserving the rights of re-entry for condition broken and reversion, the instrument is an assignment in law, even though the parties intend it to operate as a sublease. In the case of Firth v. Roe, 53 N. J. Eq. 520, AHce-Chancellor Pitney based his decision that the sublease was, in effect, an assignment of lease on the fact that “It was given for the precise unexpired term of the lease and reserved precisely the same amount of rent a° did the original lease.”

The view I take of this case renders it unnecessary to determine whether the instrument operates as an assignment or sublease. The original lease is regular in form, but contains a clause giving the lessee an option to purchase, the consideration for which is the taking of the lease and tire agreement to pay rout. It is in the nature of an independent agreement to convey, separable from the lease as such'. The lessee may demise the premises to one for the -whole balance of the term, which may amount to an assignment, and reserve or not transfer the option, and, notwithstanding that, the sublease may, as between the original lessor and sublessee, constitute an assignment in law; ypf, as between the lessee and sublessee, the relation of landlord and tenant may subsist if they so intend. Mausert v. Feigenspan, 68 N. J. Eq. 671; Stewart v. Long Island Railroad Co., supra; Sexton v. Chicago Storage Co., 129 Ill. 318; 21 N. E. Rep. 920; 16 R. C. L. tit. “Landlord and Tenant’’ § 320.

The complainant never entered into the physical occupancy of the demised premises; he rented them for profit. Grimbilas does not. assert that the option passed by his lease. In his answer he asks that he be permitted to enjoy the term granted. It is perfectly plain that neither party to the sublease intended that the option should pass thereby.

The defendants contend that, conceding all this, the assignment of the option passed by operation of law, regardless of the intent of the parties or form of the instrument.' It is impossible to conceive that such is the rule. If it were so, Grimbilas could, the day after taking the sublease, declare his option, take a deed of the fee, and, as this would result in a merger of the estates for years in the fee, subsequent to the letting, complainant could not successfully maintain a suit at law against the sub-lessee to recover the rent reserved in- the sublease, as his term would then be at an end. Den, ex dem. Howell, v. Ashmore, 22 N. J. Law 261; Shields v. Lozear, 34 N. J. Law 496; Johnson v. Riddle, 240 U. S. 467; 36 Sup. Ct. Rep. 995.

Having reached the conclusion that the complainant is entitled to a decree, the terms upon which he is entitled to such rehoE will next be considered. Within a very short time after the lease was made the defendants were ordered by the Tenement House Commission to make certain changes, alterations and improvements on the premises in question, which were not in the contemplation of the parties when the lease was given. These improvements were involuntarily made by compulsion of law at an expense of $4,000 to the defendants; and the evidence shows that the value of the premises at the time the option was exercised was enhanced thereby in value equal at least to their cost. The complainant insists that no allowance should be made to the defendants for the repairs and improvements made under the direction of the Tenement House Commission, on the ground that the Tenement House act was in existence long prior to the signing of the lease, and a mere inspection by the defendants would have disclosed the necessity of these improvements to comply with the law. The defendants never consulted the complainant regarding the improvements. The complainant saw them being made and never investigated. To concede the claim of the complainant, where the value of the premises has been enhanced by the cost of the improvements, would clearly be in-, equitable; and, in such case, a court of equity should not extend him relief unless it be on the terms that he pay, in addition to the agreed purchase price, the sum of $4,000. Willard v. Tayloe, supra; King v. Raab, 23 Iowa 633; Mentlikowski v. Wisniewski, 173 Mich. 642.

Fourth. The defendants also.insist that, because nothing is said about the character of the title in the option, all they are bound to do is to deliver a deed and receive the $40,000, without discharging the mortgages on the premises.

It is settled in this state that when an option of this character is given, or a contract is entered into in similar terms, and the agreement is silent as to the character of the title to be given, in the absence of proof to the contrary, the implication arises that the title to be conveyed is to be a good one and therefore free from encumbrances. That implication may be rebutted. Notice is sufficient to rebut the mere implication, and parol proof is on this ground admissible. Newark Sav. Inst. v. Jones, 37 N. J. Eq. 449; affirmed, 38 N. J. Eq. 299. See also Locander v. Lounsberry, 25 N. J. Eq. 554; Hawralty v. Warren, 18 N. J. Eq. 124; Nw Barbadoes Toll Bridge Co. v. Vreeland, 4 N. J. Eq. 157.

The complainant had no notice of the existence of the mortgages — at least of their amounts — at the time of taking the lease. Even if he had, I would.be disinclined to find that the' intention was that the purchase price contemplated was $40,000 subject to mortgages aggregating $27,500, in view of the evidence not only that the parties considered $40,000 a large sum to be paid under the option, but, in their discussions leading-up to the signing of the lease, not only was the subject of conveying subject to or free of encumbrances not discussed, but the general trend of their conversations indicate that the minds of the parties met on the sum of $40,000 as the whole consideration to be paid for a deed in fee free from encumbrances.

Fifth. Defendants also say that the complainant should have tendered the $-10,000 as a condition precedent to the delivery of the deed; and they cite some cases which they say support this theory. Dpon an examination of them, however, it will appear that the payment at tire time of the declaring of the option was a condition precedent to the delivery of the deed. Here the option was given to purchase the property for $10,000. The complainant had upwards of $10,000 in bank and had secured a loan to pay the balance. The words “to purchase for a certain sum” plainly indicates that the parties intended that the title should be passed in the ordinary manner, namely, that the deed and the purchase money should be delivered and the encumbrances discharged simultaneously.

If the complainant elects to pay $10,000 together with the $1,000 for improvements, the decree will be in his favor; otherwise, the bill will be dismissed.

A question may arise as to the adjustment of rents of the whole premises, interest and taxes which have been collected or accrued since the filing of the bill, which may be presented on notice; if the parties so desire.


source: Caselaw Access Project

license: Public Domain

text:
    John S. Bruce, executor of the last will and testament of George Alexander Bruce, deceased, v. George H. Bruce et al.
    [Submitted April 18th, 1918.
    Decided June 11th, 1918.]
    1. Where it is apparent that there exists a patent ambiguity, in that no beneficiary is named in the residuary clause in a will, parol evidence is inadmissible to supply the omission.
    2. A will must be considered in its entiret\f to determine if possible who was intended as beneficiary in a residuary clause in which no beneficiary was named.

      3. In construing' a will, the court may not indulge in mere speculation as to who was intended as the beneficiary in a residuary- clause.
    4. Where a residuary clause in a will failed to name a beneficiary, and it can neither be construed with other parts of the will nor determined from the construction of the whole will who was intended to be such beneficiary, such paragraph or clause must be held void.
    On bill, &c.

      Mr. William G. Ilüle and Mr. J. Emil Walscheicl, for the complainant.

      Mr. John T7. Warnhe and Mr. Gilbert Collins, for the defendants.
   Griffin, V. C.

The hill in this cause is filed for the construction of the will of George Alexander Brace, deceased. The paragraphs requiring construction are the sixteenth and seventeenth, which are as follows:

“Sixteenth: I give devise and bequeath to my son John S. Bruce the laud and real estate situate corner of Whitford Avenue and Brookfield Avenue in Nutley Park known as 25B Whitford Avenue Nutley, New Jersey, consisting of a plot of land one hundred and five feet on Whit-ford Avenue and one hundred and fifty feet on Brookfield Avenue with the building thereon.
“Seventeenth: All of the rest residue and remainder of my estate real and personal whatsoever and wheresoever balance of money in bank after paying the several amounts that I have devised and bequeathed to other members of the family, all mortgages held be me, real estate, seven shares of the Trust' company of New Jersey, my diamond stud, diamond finger ring and mounted tiger claws also any debt due me to have and to hold the same to him his heirs executors, administrators and assigns.”

In the course of trial evidence was offered of the declarations of the testator and of his relations, environment and estate, to aid in ascertaining his intentions. While I seriously doubted the legality of such testimony, it was admitted in evidence over objection with a view that it could be passed upon later. Binding that the seventeenth paragraph is independent of the sixteenth, it is apparent that there exists a patent ambiguity, in that no beneficiary is named. In such cases parol evidence is inadmissible to supply the omission. Griscom v. Evens, 40 N. J. Law 402; affirmed, 42 N. J. Law 579; Hand v. Hoffman, 8 N. J. Law 71; Nevius v. Martin, 30 N. J. Law 465; Den, ex dem. Cubberly, v. Cubberly, 12 N. J. Law 308; Cleveland v. Havens, 13 N. J. Eq. 101; Hunt v. Hort, 8 Bro. C. C. 312; 29 Eng. Reprint 554; Lomax v. Lomax, 218 Ill. 629; 75 N. E. Rep. 1076 (and see valuable note to (his case in 6 L. R. A. (N. S.) 942); Karsten v. Karsten, 354 Ill. 480; 98 N. E. Rep. 947.

The evidence objected to must therefore be rejected, and the will construed in its entirety as written.

In reaching this conclusion I have not overlooked cases of the type of Van Nostrand v. Reformed Church of America, 59 N. J. Eq. 19, where the ambiguity did .not appear on the face of tlie will but arose on testimony indicating that there were several answering the description of the named beneficiar}, thus creating a latent ambiguity, to clear which parol evidence was admitted to discover which one the testator intended.

. The frame of the will indicates a general plan of the testator to deal first with the real estate, and later with the personalty, and with his children according to their age. Thus, in paragraphs 2 to 6 he devises lands to his older son George and children, and in the seventh paragraph he devises to his son John. In paragraphs 8 to 15 he disposes of Ins personalty and makes provision for the care of his cemetery lot. By paragraph 16Í he departs from his original plan, and devises lands to his son John S. Bruce. Whether this results from mistake in not inserting the devise after the seventh clause, or his having overlooked his ownership of the lands devised, is matter of mere speculation which T am not permitted to indulge in; however, the fact that after making the earlier devises on the general plan above outlined, he then, by the sixteenth paragraph devised lands to John, and in the seventeenth or residuary clause named no beneficiary, furnishes the ground upon which John now says that the sixteenth and seventeenth paragraphs should be read together — claiming that if so read there is no ambiguity, but a clear devise and bequest to John of the property in the seventeenth paragraph. The question therefore arises, should both paragraphs be regarded as one?

An examination of the will shows that in ever}' paragraph prior to the seventeenth, containing a devise or bequest, a beneficiary is named, and where there is a bequest over in the event of the death of the first-named legatee he divides what is properly a single paragraph into two parts, as in paragraphs 9 and 10, making the gift to the wife of George H. Bruce the ninth and the gift over in the event of her death to the daughter, the tenth paragraph — which latter paragraph begins with a small letter.

These paragraphs 9 and 10 suggest two ideas — one, that the testator intended that each devise or bequest should be contained in a numbered paragraph, and be independent of every other, unless reference was made thereto and that he numbered the paragraphs after he had completed the writing.

Coming to a consideration of paragraphs 16 and 17, paragraph 16 does not differ in language from previous paragraphs. Unlike paragraph 9, however, it terminates in the middle of a line; and paragraph 17 commences at the beginning of the next line, the first letter of the first word being a capital. The whole clause, if it named a beneficiary, would be in approved form for disposing of the residuary estate. There is nothing in the frame or context of the will which shows an intent on the part of the testator that the beneficiary named in the sixteenth paragraph should take under the seventeenth.

I have not overlooked the point made by counsel as to the bequest of the Shriner’s emblem, hut this cannot he considered sufficient to supply the missing name of the intended beneficiary. If the ambiguity were latent it might be considered like.parol evidence to aid in establishing the identity of a named beneficiary. But even if considered, its greatest possible evidential efficacy would not demonstrate that paragraphs 16 and 17 were intended as one, when it is considered that John had a Shriner’s emblem, and other of the devisees, while not Shriners, were Masons; and testator might readily suppose that they might become Shriners w'ith authority to wear the emblem.

A decree will be advised that the seventeenth paragraph is void, and that testator died intestate as to the residue..


text:
    John William Coyle et al. v. Elizabeth C. Donaldson and Julia A. Sutherland, executrices under the will of James Coyle, deceased, et al.
    [Decided December 6th, 1918.]
    1. Where by a codicil the testator increased the amount of the gift to his son, which was hedged around with conditions, the increased gift must be construed in the same manner as if it had been included in the original will.
    2. The terms of the will in this case creates a spendthrift trust in favor of the son.
    3. A testator may lawfully make a bequest of money directly to a legatee without the intervention of trustees, postponing the time of payment, or giving direction to Ms executors to make partial payments thereof at such times as they might deem proper.
    4. The testator, in creating a spendthrift trust, need not specify in the will the particular weakness of the legatee.
    5. A bequest of “my coal business” does not include coal on hand or a bank account kept in connection with the business, but does include the leasehold, wagons, horses and other equipment. The word “business” cannot be restricted to the trade and good-will.
    On bill, &c.

      Mr. Alexander J. 'Higgins and Mr. John F. Gough, for the complainants.

      Mr. John J. Fallon, for John W. Goyle, Jr., defendant.

      Mr. James A. Gordon, for Elizabeth C. Donaldson and Julia A. Sutherland, executrices, and Elizabeth C. Donaldson, individually.
   Griffin, V. C.

The bill in this case is filed by John W. Coyle and wife against the executrices of the last will and testament of James Coyle, deceased, Ms heirs-at-law, and certain legatees, among other things, for a construction of clause 0 of the twelfth paragraph as modified by the fourth codicil to said will, increasing the provision in section C for his son, John W. Coyle, Sr.; and also for the construction of the fourteenth clause of said jvill.

Said clauses are as follows:

“Twelfth (Clause C) : To John W. Coyle, Sr., my son, I give and bequeath the sum of four thousand dollars, said money, however, to be paid to said John AY. Coyle at such times and in such amounts as my executors may determine to be proper, and whatever may remain of said bequest at the death of my said son, John AA. Coyle, Sr., I desire to go to his son, Reginald Coyle, to have and to hold the same to him, his heirs and assigns forever.”
“Fourteenth: I give and bequeath unto my grandson, John AY. Coyle, Jr., and my daughter, Elizabeth C. Donaldson, the coal business now owned by me, to have and to hold the same to them, their heirs and assigns forever.”

The clause of the codicil affecting said paragraph 12 (clause C) is as follows:

“Fourth: I increase tlie provision for my son John AV. Coyle, Sr., in section C of the twelfth paragraph of said will from four thousand to eight thousand dollars, subject to the same conditions mentioned in said section C of said twelfth paragraph.”

The complainants contend that—

First. No spendthrift trust is created by this will.

Second. No parol evidence may be introduced to show a spendthrift trust.

Third. The bequest to the complainant is absolute.

Fourth. •'The pajunents must be made within a reasonable timo after the executors receive the money.

Fifth. The gift of the coal business carried only the good will, equipment, and leasehold rights.

The first four points may be considered together.

Dealing with clause 0, as amended by the codicil, my view is that it simply increased the provision for John W. Coyle, Sr., from $4,000 to $8,000, and must be construed in the same manner as if the original will had mentioned the sum of $8,000 instead of $4,000.

The complainant, John William Coyle, by his bill, asserts that he is entitled to the payment of the sum of $8,000 absolutely ont of the proceeds of sale of the real estate described in the twelfth paragraph of the will, which real estate has been sold. -, Complainant, in his argument, claims that the discretion given to the executrices “to pay at such times and in such amounts as they may determine to be proper” was referable simply to the sale of the real estate, upon the sale of which all discretion ceased, and it became the duty of the executors to pay the whole legacy forthwith.

Construing the will from its four corners, to ascertain the intention of the testator, it is quite plain he intended to place this legacy on a footing different from the others. By the twelfth paragraph of the will he gives certain lands to his executors “to sell at public or private sale in their discretion, and to distribute the proceeds from the sale of said lands as follows,” &c. He thereafter makes thirteen separate and independent bequests of sums of money, in subdivisions from A to M, both inclusive. In every such bequest, excepting subdivisions B and 0, the gifts arc absolute, without any restraint or condition annexed. In subdivision B the gift is “to Adele Coyle and Harold Coyle, children of my son James T. Cojde, deceased, I give and bequeath the sum of $1,000 each, the said money to lie used for the education and maintenance during minority of said children,” with a provision over, in case of the death of either or both of said children, of any residue there might be. Hi will thus be perceived, in subdivisions B and C, that while the gifts were direct to the legatees, there were annexed active trusts, in the one case-to use the funds for edueationand maintenance, and, in the other, to pay the $8,000 at such time and in such amounts as the executors might determine to be proper. As between the legatee and the executors, what the testator plainly intended was that the executors should pay such sums of money from time to time as they might deem proper until the legacy of $8,000 would be exhausted. What effect the language used may have upon passing the unpaid portion of the legacy, if any, on the death of the legatee, or upon the rights of the remainderman and creditors of the legatee is unnecessary to consider, as the issue framed does not call for such determination.

But the complainant contends that testator attempted to create a spendthrift trust which is void, because the money is given directly to the beneficiary, and not to trustees for his benefit.

The views thus expressed by complainant are unsound. A testator has the right to dispose of his property by will in any manner, according to his desire, so long as it does not contravene the law. It is within the power of a testator to make a bequest of moneys to a legatee directly, without the intervention of trustees, postponing the time of payment, or giving a discretion to his executors to pay the legacy in partial payments at such times as they might deem proper. Read v. Patterson, 44 N. J. Eq. 211 (219); Pedrick v. Pedrick, 48 N. J. Eq. 313; 50 N. J. Eq. 479. And it is unnecessary to specify in the will the particular weakness of the legatee which moved the testator to lodge the discretion in the executor or trustee. In Lippincott v. Pancoast, 47 N. J. Eq. 21, and in Hardenbergh v. Blair, 30 N. J. Eq. 645, and Read v. Patterson, supra, the testators stated no reasons why they left the time and amounts of payments to the discretion of the trustees.

Clause C, as amended by the codicil, is therefore valid, giving to the executors, in the nature of a trust, a discretion to pay to the complainant, John AY. Coyle, the sum of $8,000 at such times and in such amounts as they may determine to be proper.

Ao evidence was offered by the complainant to the effect that the executors, in making payments, acted in liad faith or in an arbitrary manner, and no relief is sought on those grounds; therefore the testimony offered by the defendants as to the habits of the complainant John has not been considered.

The last point made by the complainants is that the fourteenth paragraph passed “only the good will, equipment and leasehold rights.” This construction is combatted by the defendants, Mrs. Donaldson and John TV. Coyle, Jr., who claim that it also includes the coal on hand, bills receivable and the bank account used in connection with the business.

The testator had other bank accounts in which he deposited moneys derived from sources other than the sale of coal; out of which he drew moneys for his living and other expenses. Ho checks were drawn on the coal account for any of these purposes, excepting for taxes and to replenish his special account. Some moneys, however, were drawn therefrom for investment.

Moneys deposited in his business bank book which were derived from the sale of coal (and on some occasions from other sources) were deposited in the name of “James Coyle.” The checks used for drafts on this account had, on the side, the words “James Coyle, Coal.” On the date of the will he had $61.91 on deposit in an account marked “James Coyle, Special,” $8,027.83 in a savings account, and in the coal account, $19,463.41; he also had on hand moneys derived from the business amounting to $3,231.87. When ho made the codicil he had $116.06 in the special account; $1,007.80 in the savings account; $1,978.12 in the coal account, and $775.34 cash on hand. When the will was made he had bills payable in connection with the business amounting to $22,945.27, and accounts receivable, $28,234.69. At the time of his death the bills payable were $20,369.60, and accounts receivable $26,243.33. On the date of the will he had coal on hand valued at about $5,448.00, and when he died this item (including feed of the value of about $100) amounted to $7,154.38.

The defendant, John W. Coyle, Jr., was continuously in the employ of testator in the business for many years before testator’s death. The business was conducted on leasehold premises, terminable on not less than thirty days’ notice.

The defendants, Mrs. Donaldson and John W. Coyle, Jr., on the foregoing state of facts, contend that it was the purpose of the testator, when he used the words “the coal business now owned by me,” to give to them not only the leasehold, horse-, wagons and equipment, but also the coal on hand and the moneys in bank.

The word “business” was defined by Vice-Chancellor Bird in the ease of Braeutigam v. Edwards, 38 N. J. Eq. 542 (545) . He ‘•ays “‘Business’ does not mean stock, or machinery, or capital, and the like. While business cannot be done without these, in commercial language it is as distant from them as labor and capital. * * * In other words, business does not mean dry-goods, nor cash, nor iron rails or coaches. Business is not these lifeless and dead things, but the activities in which they are employed.” These expressions were used in a bill for specific performance where, after an agreement was entered into, a difference arose between the parties as to whether a sum of money which was to be paid by the purchasing partner out of the proceeds of the business should be charged against him. There it clearly appeared what the parties meant by using the word “business.”

In the well-considered case of Delaney v. Delaney, 15 L. R. Jr. 55, the vice-chancellor was called upon to construe the following language in a will:

“I direct my executors to assign and transfer to my sons Andrew and Henry m,v business and good-will therein, with the' premises in which the same shall be carried on, when Henry attains the age of twenty-one years.’

The claim was that this carried the stock in trade, sacks, horses and drays used by the testator in carrying on the business. The court said “Henry’s claim depends on the meaning to bo given to the words buy said business/ * * * Ordinarily speaking, 'business’ is synonymous w’itli trade, and it means, in my opinion, the process of buying, selling or manufacturing and the like, without comprehending the capital employed or the stock in trade, whether of material or manufactured goods.” The conclusion he reached was that the stock in trade did not pass; but that the sacks, horses and drays, being used solely for the purpose of the business, and forming, as it were, a part of ihe implements of trade, might be said to pass as part of the business; and he so declared.

In Johnson, Administrator, v. Goss. 128 Mass. 433, the testator, being the owner of seven hundred and twenty-seven shares in a corporation in Chicago for the manufacture of sash and blinds, and the corporation being indebted to him in a large amount, made his will, in which he used the following language: “T devise and bequeath to my son, P. W. Goss, one-half of my interest in the lands and machinery and effects in sash and blind factory in Chicago, State of Illinois,” and made a like disposition of the other half to his son-in-law, Phillips. The court held that the legatees were each entitled to one-lialf of the seven hundred and twenty-seven shares, but that the debt did not pass to them by the request.

In Torrey v. Torrey, 70 N. J. Law 672, the testator, by his will, said:

“1 give and bequeath to my dear wife, Martha Torrey, all of this world’s goods of which I may be possessed at the time of my death, confident that she will care for our dear children with the same love and devotion which she has ever shown them.”

It was contended that the words “goods” could not include realty. Prom an examination of the circumstances surrounding the testator it appeared that besides his real estate he had only a few shares of stock in a building association and 1ns household effects, not enough to pay his creditors when lie. died. The court found that the words indicated very strongly the testator’s purpose to enable his wife, so far as lay in his power, to care for their dear children as her proven love and devotion towards them would prompt her to do, and that such a purpose was futile if he placed in her hands only his little personal property which, at his death, would ho wholly absorbed by complying with his preceding direction that his debts and funeral expenses should be at once paid. The conclusion reached bv the majority of the court'was that the real estate passed under this clause.

Construing this clause in the light of the foregoing decisions, I am inclined to the view that the monejs in bank and the coal' on hand and the accounts and bills payable did not pass to the legatees. Touching the horses, wagons, leasehold and the equipment used in carrying on the business, a different question is presented. If the word “business” used in the will is given the narrow meaning ascribed to it by Vice-Chancellor Bird, and by the Vice-Chancellor in Delaney v. Delaney, then, practically nothing passed. Yet it is quite plain, in the light of the circumstances surrounding the testator, that he meant to give to Ills grandson and daughter something of substantial value. For years he had been carrying on a business on the leased premises; his grandson had grown up in the business; and to give them the right to cany on his coal business -without also giving to them the horses, wagons and other equipment owned by him and used in canyirig on the business, would be to give them practically nothing, as they would have a right to cany on business apart from his will.

The conclusion I have reached is that the lease, horses, wagons and other equipment which were used by the testator in carrying on his business passed by this clause.

While the views above expressed are in accordance with the admissions of the complainants, an examination and decision of the question involved, apart from the admissions of the complainants, is rendered necessary because there are infants in the case who are interested, in the result, and whose rights should be protected.

A decree will he advised in accordance with the foregoing-conclusions.


author: Foster, V. C.

text:
    Clement E. Eckrode v. Endurance Tire and Rubber Corporation of New York et al.
    [Submitted February 4th, 1919.
    Decided February 15th, 1919.]
    1. This court cannot regulate the internal affairs of foreign corporations. AVbat are such internal affairs defined?
    2. The mere fact that the complainant is a resident of this state and that the property to which corporate action relates is situate therein, are not in themselves sufficient to justify this court in assuming jurisdiction to regulate the affairs of the corporation.

      On motion to dismiss bill, &c.

      Mr. August C. Slreilwolf, lor the complainant.

      3Iessrs. Collins £ Corbin and Mr. Robert J. Bain, for the defendants.
   Foster, V. C.

This bill alleges that complainant is a resident of this state and the owner of five hundred shares of the common stock of the defendant,, the Endurance Tire and Rubber Corporation of New York (a New York corporation authorized to do business in this state), transacting such business in the city of New Brunswick.

Complainant files his bill lor the benefit of himself and all other stockholders of this corporation, and seeks to have a deed and bill of sale for the corporation’s real and personal property in this state, made on December 5th, 1918, by this corporation to the defendant, the ITardman Rubber Corporation (a corporation of the State of Delaware, also authorized to do business in this state), declared illegal and void; and also seeks to have declared illegal and void a certain mortgage of like date, covering the property so transferred and conveyed, made by the Hard-man Rubber Corporation to Arthur W. Rinke, as trustee, to secure an issue of bonds amounting to $210,000, claimed to have been given in exchange, or as a consideration for the deed and bill of sale. And the bill also asks for the appointment of a receiver for the Endurance Tire and Rubber Corporation on the allegation that it was unable to meet its obligations and was insolvent at the time of the conveyance and transfer of its property.

The attack upon the sale and transfer of the property rests upon the claim that the action of the Endurance Tire and Rubber Corporation in making the same was ultra, vires, and this contention is based upon the allegations, (1) that such sale and transfer was not sanctioned by the consent of ninety-five per cent, of the capital stock of the Endurance Tire and Rubber Corporation, as required by section 16 of the Stock Corporation law of thej State of New York (Con. L. of 1909, ch. 61), as complainant, who is the owner of more than five per cent, of snc-h capital stock, did not consent to such sale; (2) that notice of the meeting of the stockholders at which the resolution authorizing the sale was adopted ivas not given as required by sections 16 and 25 of the Stock Corporation law of New York, and (3) that the corporation being unable to meet its obligations could not, under section 66 of this law, transfer any of its property to any of its officers, directors or stockholders * * * except for the full value of the property paid in cash; but there is no allegation that the Hardman Rubber Corporation comes within this prohibition.

The bill further alleges that the conveyance and transfer includes all the real estate and tangible personal property owned by the Endurance corporation, and that both this real and personal property are located in this state.

Complainant invokes this court’s jurisdiction on the ground that he is a resident of the state and that the property in question is located therein; and defendants contend that the court is without jurisdiction as the controversy is between a stockholder and the corporation and its directors, and relates to the internal affairs of a foreign corporation.

Chancellor Runyon, in Gregory v. Railroad Co., 40 N. J. Eq. 38, remarked that it is obvious that this court cannot regulate the internal affairs of foreign corporations; and in the later case of Jackson v. Hooper et al., 76 N. J. Eq. 592, the court of errors and appeals hold to the same effect, and adopt the definition of the phrase “internal affairs of a corporation” given in the case of North State, &c., Mining Co. v. Field, 64 Md. 151, where it was held that—

“When the act complained of affects the complainant solely in his capacitj' as a member of the corporation, whether it be as stockholder, director, president or other officer, and is the act of the corporation, whether acting in stockholders’ meeting or through its agents, the board of directors, then such action is the management' of the internal affairs of the corporation, and in case of a foreign corporation our courts will not take jurisdiction.”

The bill does not charge the officers or directors of either of the corporations with any fraudulent conduct; and it appears that the corporate acts complained of affect complainant solely in his capacity as a member-stockholder of one of the corporations, and that individually he has no relation to either of them independent of his relationship as a stockholder in the Endurance Tire and Rubber Company. Applying to this situation the definition of the phrase “internal affairs of a corporation,” approved in Jackson v. Hooper, supra, and the tests quoted from 12 Rul. Cas. L. §§ 20, &c., by Vice-Chancellor Lane in Atwater v. Baskerville, 89 N. J. Eq. 121, it is clear that the, mere fact that complainant is a resident of this state, and that the property to which the corporate action relates is situate therein, are not in themselves sufficient to justify this court in assuming jurisdiction.

The allegation of the insolvency of the Endurance Tire and Rubber Company is too general to warrant the appointment of a receiver, assuming this court has the authority to appoint a receiver for a foreign corporation (Atwater v. Baskerville, supra); and as there are no other facts in the case that will justify the court in assuming jurisdiction, I will advise that the bill be dismissed.


text:
    G. P. Farmer Coal and Supply Company et al. v. Mayme H. Albright et al.
    [Submitted March 3d, 1919.
    Decided March 24th, 1919.]
    1. Under policies of life insurance, payable to insured’s wife, containing options or privileges of assignment, surrender for cash value, or substitution for another form of policy, or change of beneficiary, none of which options were exercised by the insured during his life, the proceeds of the policies, after the death of the insured, are payable to the beneficiary named in the policies, and not to a judgment creditor of the deceased, except as to premiums paid thereon 'by the insured after his insolvency.

      2. Section 38 and section 39 of the Insurance act (3 Comp. Stat. p. 2850) are not unconstitutional as violating the provision that laws shall have but one object and that object shall be expressed in the title.
    3. That policies of insurance are by their terms payable in another state is immaterial in a suit by a creditor who seeks in this court to subject the proceeds of the policies to the lien of his debt.
    On bill, &c.
    Messrs. Kellogg & Chance, for tlic complainants.

      Messrs. Durand, Ivins & Carton, for the defendants.
   Foster, V. C.

This is a creditors’ bill by which it is sought to effectuate the lien obtained in an attachment suit,' and to subject certain property attached therein to the claims of the creditors of A. Ered Albright. The property in question consists of a small sum of money in bank, two shares of bank stock and the proceeds of two policies of life insurance on the life of A. Ered Albright, the deceased debtor. These proceeds have been paid into court by the defendant insurance companies and are claimed by the defendant Mayme H. Albright as the widow of A. Ered Albright and the beneficiary named in both policies.

Under date of Eovember 11th, 1906, the Provident Life and Trust Company of Philadelphia issued its policy insuring Mr. Albright’s life for $3,000, and the same was made payable on his death to his wife, Mayme H. Albright, if living.

On October 28th,'1910, the Eew York Life Insurance Company issued its policy on the life of Mr. Albright for $2,500, payable on his death to his wife, Mayme H. Albright.

Under the provisions of the Provident life policy the insured was given the options or privileges of assigning it, of surrendering it for its cash value, and to substitute for it an endowment form of policy.

Under the Eew York life policy the options and privileges were reserved to the insured to change- the beneficiary, to surrender the policy for its cash value, to assign it and to substitute an endowment policy for it.

Mi. Albright became Indebted to the complainant 6. P. Farmer Coal and Supply Company (the other complainant is the auditor in the attachment case and is not referred to hereafter) on August 20th, 1915; and on March 31st, 1917, the writ of attachment was issued. On April 12th, 1917, Mr. Albright, died without having exercised any of the options or privileges reserved to him by the terms of either policy.

On August 8th, 1917, judgment was entered in the attachment proceedings in favor of the complainant for $6,268, and it is not disputed that the debtor’s estate, independent of the proceeds of these policies, is not sufficient- to satisfy the amount due on this judgment.

CompJainant’s first contention is that the proceeds of tire policies are part of Mr*. Albright’s estate, and not tire property of the beneficiary named therein, because of the control reseiwed to him by the options and privileges mentioned; and that our statute exempting certain life insurance policies from the claims of creditors does not exempt these policies -because of the control over them which was reserved to the insured by their terms. This claim is based on the theory that where such control or option or privilege is reserved to the insured, a complete and valid gift has not been made of the policies, or their proceeds, to the beneficiary,' or a valid trust created therein for her benefit; in other words, that so long as the insured retained any control over the policies and had the right to change the beneficiary therein, or to surrender them for their cash value, or to substitute endowment policies in their place, he had not so completely parted with his dominion'- over them as to vest them in the beneficiary as completed gifts, and that with the retention of such control the insured thereby retained his ownership of the policies and their proceeds, and as they were his property, they should be applied to the payment of his debts.

And it is claimed that the present case by this reservation of control and dominion is easily distinguished from Sullivan v. Maroney, 76 N. J. Eq. 104; affirmed, 77 N. J. Eq. 565, and Lanning v. Parker, 84 N. J. Eq. 429; 94 Atl. Rep. 64, in which the effect of such reservation was not considered or decided; but I do not find this distinction to be as apparent as claimed. The control, reserved to the insured by the terms, of the policies, was required by the policies to be exercised in a prescribed manner, and, until it -was so exercised, the rights of the insured and of the beneficiary were not changed or altered in the slightest degree, or as Vice-Chancellor Garrison stated the rule in Sullivan v. Maroney, supra (at p. 110) :

“I think it entirely -clear from the authorities that where a contract of insurance is made payable to certain beneficiaries, their interest therein can only be divested in favor of other beneficiaries by changing the contract in the manner in which the contract points out that it must be changed to effect that result.”

It is contended, however, that this rule only applies to a change in beneficiary and does not apply to or affect the rights of the ins ared himself, and this contention makes it necessary to inquire what rights had the insured in the policies under the options and privileges reserved to him.

As I view them, they were not property rights; they were not vested rights.; they were not rights that were of the slightest monetary value in themselves, and could not become such until the insured had exercised them in the prescribed manner, which he never did ; at the most they were merely potentialities -which the insured never converted into actualities; and until he liad effected this conversion the rights of the beneficiary in the policies and their proceeds were not limited or affected to the slightest extent. All of the rights reserved to the insured were personal in their application; some of them were conditioned upon the state of his health, others upon his age, and all of them upon his personal action. Vice-Chancellor JBaekes, in the recent case of Anderson v. Broad Street National Bank of Trenton et al., 90 N. J. Eq. 78, held—

“That whether the interest (of the beneficiary) be regarded as vested or defeasible, contingent, a mere expectancy, or whatever the characterization may be, if the policy stipulates the course by which the beneficiary’s interest is to be nullified, he cannot bo deprived of his right unless the prescribed mode for its destruction is followed.”

The mere reservation to the insured of the right to nullify or destroy the interest of the beneficiary cannot be extended or enlarged to such an extent that the reservation is to be regarded as operating automatically from the time it was made, and which would have the effect on these policies of canceling the interest of the beneficiary therein at the same instant she was named therein as beneficiary. To hold thus would not only be an absurdity, but would be violative of the policy adopted by the legislature in the enactment of sections 38 and 39 of our Insurance act. Comp. Stat. p. 2850. Section 39 provides that—

“Every policy of life insurance made payable to or for the benefit of a married woman * * * whether procured by herself, her husband or any other person * * * shall inure to her separate use and benefit * * * according to the provisions of the policy, * * * subject to the above provisions (in section 38) relating to premiums paid in fraud of creditors.”

It is insisted, however, that these provisions of our Insurance law have no application to the present situation, because they relate to irrevocable policies of insurance on the husband’s life in favor of his wife, and not to policies like those under consideration that were revocable at the whim or option of the insured.

I am unable to find any provision in the statute limiting its application to irrevocable policies, and I am unwilling to adopt this narrow view of the purpose and policy of the legislature in its enactment. As Vice-Chancellor Backes pointed out in Lanning v. Parker, supra, this legislation was enacted to correct the unsettled condition of the law regarding the rights of creditors, and family beneficiaries, to which Vice-Chancellor Pitney directed attention in his opinion in Merchants’ and Miners’ Transportation Co. v. Borland, 53 N. J. Eq. 282; and the language of the statute clearly indicates that the legislative purpose was to declare that the provision which a man by his life insurance had made for the support of his wife and children after his death, should not be wholly subordinate to the claims of his creditors, without distinguishing whether such provision was made by a policy revocable or irrevocable in form. .This does no injustice to Ms creditors, because their rights in the insured’s estate have only been affected, to the extent that he has used his funds in the payment of premiums; and to that extent, subj ect to the statute' of limitations, their rights are fully protected by the statute. Nothing else has been taken from his creditors by an insurance upon his life for the benefit of his wife and children.

It is further insisted that sections 38 and 39 of the Insurance act cannot bar complainants’ right to relief because the act is unconstitutional, in that it violates the constitutional requirement, that every law shall embrace but one "object and that shall be expressed in the title, and by this act it is claimed the attempt was made (1) to operate on the assets of insolvent debtors, (2) to abrogate in part the common law rule against the validity of gifts from husband to wife, and (3) to allow exemptions in favor of the wives of debtors.

The title of the act is, “An act to provide for the regulation of insurance companies and to regulate the transactions of insurance business in this state.”

In Bumsted v. Govern, 47 N. J. Law 368, Mr. Justice Dixon speaking for the supreme court said—

“It is not necessary to review the numerous decisions involving the application" of this and similar clauses. It is on all hands agreed that its purpose is to require the title of a bill to be such as will inform the public and the members of the legislature of the object of the enactment and that this purpose is accomplished, when the title fairly indicates the general object although it does not indicate the method of attaining the object.” Without further citations on this point, I consider the title in question meets the test in the case quoted and in the numerous cases in which this provision of the constitution has been passed upon.

The remaining features of complainants’ contentions are that although it appears that the policies were delivered to the insured, and the first premiums were paid thereon in this state, the laws of Pennsylvania and New York, and not the law of New Jersey, govern this case, because the policies were issued by corporations of those states and are by their terms payable at the home office of the respective companies in Philadelphia and. New York.

This fact might have some weight, if it were not for the purpose for which this action is brought and the parties to it, and I adopt the- language of Vice-Chancellor Backes in Lanning v. Parker, supra, as particularly appropriate on this point, where he said—

“If this litigation were between the beneficiary and the company upon the policies, the argument advanced, assuming the premises to be true, would- be pertinent. But, -here the effort is to subject property, created by a debtor of this state in fraud of creditors, to the payment of his debts, which property the fraudulent grantee is permitted to hold by virtue of an enabling statute of this state, only upon condition that if called upon, shé discharge the obligation imposed by that statute. Regarding the act as one operating upon the assets of an insolvent debtor, it becomes an immaterial issue where and under what laws the property was acquired.”

. My conclusion is that complainant’s relief must be limited to what the statute expressly gives it, i. e., the premiums paid on the policies in fraud of creditors, and that will include all premiums paid after the indebtedness due complainant was incurred on August 20th, 1915, and which amount to $181.26. Such payments are regarded as voluntary gifts, and therefore conclusively fraudulent as to creditors. Haston v. Castner, 31 N. J. Eq. 697; Merchants’ and Miners’ Transportation Co. v. Borland, supra; Lanning v. Parker, supra.

A decree will be advised for complainant for the amount of premiums paid as státed, and for the cash in bank, and also for the two shares of bank stock to which Mrs. Albright made no claim at the hearing.


author: Lane, V. C.

text:
    John L. Stewart et al. v. Fairchild-Baldwin Company et al.
    [Decided March 4th, 1919.]
    1. In an ordinary case, a receiver appointed of mortgaged premises may not collect rents accrued but unpaid at the time of his appointment, his power being limited to rents accruing after his appointment.
    2. The mortgagor, and those holding under him, although they may not have assumed the payment of the mortgage debt, are bound to pay taxes and other municipal liens and interest on prior encumbrances, as against a mortgagee.
    3. Where the grantor holding under a conveyance made subject to a mortgage, though it contains no assumption thereof, has permitted taxes 'and municipal liens to accrue and remain unpaid as well as interest upon prior encumbrances, a receiver appointed at the instance of a second mortgagee will be directed to collect the rents accrued prior to his appointment but unpaid, so far as necessary to pay all municipal taxes and liens and interest on prior encumbrances. .
    On bill, &C.
    On application for instruction to receiver.

      Messrs. McCarter & English, for die complainants.

      Messrs.-Pitney, Hardin & Sltinner, for Chester Bealty Company, petitioner for receiver.

      Mr. Samuel F. Leber, for the American Eeal Estate Company, owner of the fee.
   Lane, V. C.

The question for determination is whether a receiver appointed in a foreclosure case is entitled to the rents accrued, but unpaid, at the time of his appointment. The mortgagee rests his position upon the text in Beach Rec. (Alderson’s ed.) 194; High Rec. (4th ed.) §§ 643, 644, p. 796; 3 Jones Mort. (7th ed.) § 1536 and the eases cited to support the text.

I will first consider the cases cited to support the text. First National Bank v. Illinois Steel Co. (Sup. Ct. of Ill.), 51 N. E. Rep. 200, is not at all in point. Conover v. Grover, 31 N. J. Eq. 539, as will hereafter be pointed out, is an authority contrary to the statement of the text. In Gaynor v. Blewett (Supreme Court of Wisconsin), 52 N. W. Rep. 313, the court in a case in which, after an action to foreclose had been instituted and a Us pendens filed, the mortgagor made a lease to a tenant for a term of years and received rent in advance, held that the receiver was entitled to recover from the tenant for the use of the premises after the date of the appointment. The court, Pinney, Judge, obiter, says: “The appointment of a receiver is equivalent to a sequestration of the rents and profits accruing after the date of the order, and as to all which have previously accrued, and which remain unpaid,” citing, among others, New York cases which will be hereafter noted. The cases of Ortengren v. Rice, 104 Ill. App. 428, and Stephen v. Reibling, 45 Ill. App. 40, are not in point. In the latter case the court said: “The rents are for no period of time anterior to his appointment as receiver.” The rule in New York referred to by the Wisconsin court in Gaynor v. Blewett seems to be in some confusion. The assistant vice-chancellor in Lofsky v. Maujer (1845), 3 Sand. Ch. 71, said that it was well settled that a court of chancery would appoint ' a receiver of the lands mortgaged, and would restrain the mortgagor or his grantee from collecting the accrued rents, unpaid l),v the tenant, as well as the future rents and that this was clearly the effect of what the chancellor had held in the case of Howell v. Ripley, 10 Paige 43. A reference to Howell v. Bipley will disclose that the question was not- argued before -the chancellor although he had observed tha-t “all the right that the complainant in such suit (a foreclosure suit on a first mortgage) could have claimed, in behalf of such receiver (a receiver appointed in such suit) would have been that the receiver in the former suit (a suit to foreclose a second mortgage) should deliver up to him the possession of the premises immediately; so as to enable him to receive and collect the rents then due from .the tenants or which should thereafter become due.” The court of appeals of New York, in Argall v. Pitts, 78 N. Y. 239, in 1879, opinion by Earle, said: “The mortgagee can only be entitled to the rents of the mortgaged premises by commencing suit for the foreclosure of his mortgage and procuring the appointment of a' receiver, and then he will be confined to the rents and profits accruing during the pendency of the suit. The mortgagee has a mere lien upon the land mortgaged, as security.” In Rider v. Bagley, 84 N. Y. 465, the court, again speaking-through Judge Earle, said: “By the appointment of the receiver the plaintiff obtained an equitable lien upon the unpaid rents, and upon them only.” He cited as authority Lofsky v. Maujer, Howell v. Ripley and his own case of Argall v. Pitts. His own opinion in Argall v. Pitts with respect to the right of a mortgagee to rents was precise, and the language used in Rider v. Bagley cannot be reconciled unless it be considered that, when he referred to unpaid rent in the latter case, he meant rent not accrued at the time of the appointment of the receiver. In Wyckoff v. Scofield (1885), the courts of appeals of New York, 98 N. Y. 477, after speaking of Argall v. Pitts, stated that in a proper case upon foreclosure the mortgagee may have a receiver of the rents who may be authorized to collect rents as liave theretofore accrued but have not yet come to the hands of the owner of the equity of redemption, citing Hollenbeck v. Donnell, 94 N. Y. 342. I can find nothing in Hollenbeck v. Donnell to justify its citation as authority for the statement made in Wyckoff v. Scofield. The question in that case was whether or not code provisions had taken away from the court of equity the power to appoint a receiver. The court said: “But when default has been made in the condition of the mortgage, the mortgagee at once becomes entitled to a foreclosure of the mortgage and a sale of the mortgaged premises. This process requires time, and on general principles of equity, the court may make the decree, when obtained, relate back to the tima of the commencement of the action, and where necessary for the security of the mortgage debt, may appoint a receiver of the rents and profits accruing in the meantime, thus anticipating the decree and sale.” In 1887 the New York supreme court, first department, Patterson, Judge, at special term, in Mutual Life Ins. Co. v. Belknap, 19 Abb. N. Cas. 345, said: “It is extremely doubtful whether a receiver of the rents and profits in a foreclosure case can reach rents accrued! prior to the com-mcncement of the suit in which he was appointed.” And referring to Argall v. Pitts, stated: “Although the precise question involved here was not directly before the court, the strong statement of the rule there made indicates the view of the court of last resort to be against the practice of extending receiverships of the rents and profits to rents accruing before suit.” Only one New York ease that I can find can be considered as direct authority and that is the case of Lofsky v. Maujer, opinion by the assistant vice-chancellor. In this state the rule is settled that a mortgage does not create an immediate legal estate in the mortgagee as at common law. The mortgage is a lien only and gives the mortgagee the right of entry only upon broach of the condition mentioned in the instrument. Blue v. Everett; 56 N. J. Eq. 455, court of errors and appeals. The court said: “Until such entry the mortgagor continues to be the legal owner for all purposes.” It is the general rule that until entry by the mortgagee or sale under foreclosure, or the appointment of a receiver, the mortgagor is entitled to the possession of the property and the rents, issues and profits thereof. In Hotel Company v. Kountze (1882), 107 U. S. 378; 27 L. Ed. 609 (at p. 615), the supreme court of the United States said: “But in the case of a mortgage, the land is in the nature of a pledge; and it is only the land itself, the specific thing, which is pledged.” And at page 616 the court stated that it was always within the power of a court of equity to appoint a receiver and preserve not only the corpus but the rents, issues and profits. In Teal v. Walker, 111 U. S. 242; 28 L. Ed. 415, the same'court stated the American view to be that the mortgagee is not entitled to the rents and profits until he gets possession under a decree of foreclosure. In Freedman's Savings and Trust Co. v. Shepherd (1887), 127 U. S. 494; 32 L. Ed. 163, the court stated the rule to be that the mortgagee is not entitled to the rents and profits of the mortgaged premises until he takes actual possession or until possession is taken in his behalf by a receiver. The- court held that a pledge of rents accrued', but not paid, prior to the appointment of a receiver or of a sale under foreclosure, was valid. To the same effect is Willis v. Eastern Trust and Banking Co. (1897), 169 U. S. 295; 42 L. Ed. 752; Woodworth v. North Western Mutual Life Ins. Co. (1901), 185 U. S. 354; 46 L. Ed. 945 (at p. 949); Noyes, Receiver, v. Rich, 52 Me. 115. And see 1 Am. & Eng. Encycl. L. (1st ed.) tit. "Mortgages” 812; 19 Rul. Cas. L. tit. “Mortgages” § 96.

In view of the unquestioned rule that a mortgagor, until default and proceedings taken thereunder by the mortgagee, is entitled to the rents, issues and profits, in the absence of express stipulation, it is hard to- conceive of a. theory upon which can be based the right of a receiver to collect rents accrued but unpaid, at the tiine of his appointment or at the most, at the time of the filing of the bill, for -some cases have held the right of the mortgagee may relate back to the filing of the bill. The only theory that I can think of may be that' the rents, although accrued, yet so long as they remain unpaid, are a part of the real estate. That ibis is not true, however, is indicated by the holding that a purchaser at judicial sale, under foreclosure or otherwise, obtains s .no right to rents which have accrued prior at least to the date of sale. 16 Rul. Cas. L. tit. “Judicial Sales ” § 106. Cropper v. Broun. 76 N. J. Eq. 406, in which case Vice-Chancellor Garrison said (at p. 419) : “The legal title.does not vest in the purchaser until the delivery of the deed, but in the meantime it is held in trust for him. Since he has stipulated that he is not to receive possession until a future date, namely, the time when the deed is to l)o delivered to him, he is not entitled to the fruits of possession, which are the current avails of the land.”

The precise question before me has been referred to in several eases in this state. Vice-Chancellor Van Fleet, in Northrup v. Roe (1887), 10 N. J. L. J. 334, held, in a case where the land was occupied By a tenant who in lieu of a money rent, was to deliver a share of the produce of the land, that the receiver would not be permitted to take all of the mortgagor’s share of the produce but that the value of the produce which the rnort■gagor was to receive would be.considered as a fair rental of the premises for the year and the receiver would be permitted to take that portion of the produce as represented a fair rental value subsequent to the date of his appointment. In Leeds v. Gifford,, 41 N. J. Eq. 464, the same vice-chancellor had said: “'According to the rule now in force, a prior encumbrancer has an unquestionable right, as against the mortgagor and subsequent encumbrancers, in case his security is uncertain or precarious, to have the rents of the mortgaged premises, accruing subsequent to the appointment of a receiver, sequestered for his benefit.” In 1879, the chancellor (Runyon), said in Conover v. Grover, 31 N. J. Eq. 539: “The mortgagees are entitled to the rents and profits which have accrued since the appointment of the receiver, if necessary, for the satisfaction of their mortgages.” Although the remarks of the court in the two latter cases may be considered cHcla.f the statement of Vice-Qhancellor Van Fleet in Northrup v. Roe appears to be be-a direct authority.

I conclude, therefore, that in an ordinary case a receiver of mortgaged premises cannot be directed to collect rents which have accrued prior to his appointment although unpaid. The rule in England seems to- have been the converse. Codrington v. Johnstone (1838), 48 Eng. Rep. 1042, Lord Langdale, master of the rolls.

It is urged on behalf of the second mortgagee, at whose instance the receiver was appointed, that the mortgagor or those holding under .him have permitted taxes and other municipal liens, and interest on the first mortgage, to accrue and remain unpaid, with the resrilt that liens have been created paramount to the lien of the second mortgage, and that in equity the receiver ought to Ido permitted to collect rents accrued, which have not been paid to the mortgagor or those holding under him, to be applied to the reduction of these paramount liens. I can find no’ case in which this precise question has been considered^ The seeqnd mortgage contains a covenant obligating the mortgagor to pay taxes, assessinonts and other municipal liens. It was a purchase-money mortgage. Subsequent to its execution, and in 1914, the premises were conveyed by the mortgagor to the present owner. The convev’ance was made subject to two mortgages then liens upon the premises, a first mortgage now under foreclosure in this suit, and a second mortgage held by the applicant for the receiver herein. In the deed there is no assumption of the mortgages. It is the duty of a mortgagor to pay taxes and municipal liens and to keep down prior encumbrances. Am. & Eng. Encycl. L. (1st ed.) tit. “Mortgages” 814; 27 Cyc. tit. “Mortgages” 1253; 19 Rul. Cas. L. tit. “Mortgages” 180. The mortgagor cannot acquire, and hold adversely, a tax title against the mortgagee, nor can his grantees, although all that the grantees purchased is the equity of redemption and there is no assumption of the mortgage debt. 19 Rul. Cas. L. tit. “Mortgages” § 172. Note to Cones v. Gibson, 16 L. R. A. (N. S.) 121 (at p. 124); Zuege v. Nebraska Mortgage Co., 52 L. R. A. (N. S.) 877 (at p. 878); State Mutual Building and Loan Association v. Millville Improvement Co., 74 N. J. Eq. 721 (at p. 728), &c.; affirmed on the opinion of the chancellor (then vice-chancellor). 76 N. J. Eq. 336; Farmer v. Ward, 75 N. J. Eq. 33. It is recognized that with respect to taxes there is a fiduciary relation between the mortgagor and those holding under Imp and the mortgagee, and that they are bound in equity and eon-science .to do no act, and 'to suffer none to be done, which will destroy the mortgagee’s title, or impair his security. In jurisdictions in. which it is recognized that a. mortgage does not convey the legal title and does not give the mortgagee the right to immediate possession, courts of equity, after default, but prior to sale, have sanctioned the practice of appointing receivers to sequester the rents and profits, although not expressly pledged in the mortgage, where the mortgagor is insolvent and the security inadequate, upon the ground that the mortgagee acquires an equitable lien upon the rents, which holding must have been based upon the theory that unless a receiver is appointed the rents are liable to bo collected by the mortgagor and diverted from their legitimate course, which must be assumed to be a keeping down of encumbrances upon the property. 27 Cyc. tit. “Mortgages” 1251; Am. & Eng. Encycl. L. (2d ed.) 980. The ^ tendency is toward extending the power of appointing a receiver. Land Title and Trust Co. v. Kellogg, 73 N. J. Eq. 524; Broad and Market National Bank v. Larsen, 88 N. J. Eq. 245; P. L. 1915 p. 506.

The duty of a mortgagor to keep down encumbrances was recognized by the chancellor (Runyon) in Mahon v. Crothers, 28 N. J. Eq. 567. He there said that a mortgagee who has no personal security is entitled to a. receiver where it appeared that the mortgagor’s premises was an insufficient security; that the mortgagor who is in receipt of the rents and profits not only has not kept down the' interest, but has not paid the annual taxes, whereby a lien on the premises therefor, paramount to that of the mortgagee and bearing a' high rate of interest, has been created and still exists — a lien which, unless the property be redeemed therefrom, will extinguish the mortgage. This statement was clearly based upon the idea of a breach of duty on the part of the mortgagor to properly apply the rents. .The duty of a mortgagor to apply rents and profits and to keep' down encumbrances was also recognized in Corlleyou v. Hathaway, 11 N. J. Eq. 39. The chancellor (Williamson), after stating that the • rule in New York with respect to the appointment of a receiver of mortgaged premises had not been recognized in this state, and that the court had acted upon the ground that where a man takes a mortgage security for his debt and permits the mortgagee to remain in possession, if there is a default in payment, the mortgagee must appropriate the property in the usual way for the payment of his debt, said: “Where there is any act on the part of the mortgagor or such tenant which shows fraud on his part, or makes him chargeable with bad faith in misappropriating [italics mine] the rents and profits for other purposes than that of keeping down the interest on the encumbrances, in such cases the court may voiy properly appoint a receiver.” This is a clear recognition of a duty on the part of the mortgagor to apply rents to keeping down of encumbrances. The chancellor also «vid that where the receiver was appointed at the instance of a .second mortgagee he would be directed to keep down interest on prior mortgages.

It may be well argued that a mortgagee taking land as security for his debt does it with his eyes open, but he also docs it with the understanding that liens prior to his shall remain at the amount they wore at the time lie took his mortgage, and that no other paramount liens will be created, such as taxes or other municipal liens. He assumes, as he has a right to assume, that the mortgagor, or those holding under him, will perform their duty of liquidating the interest accruing upon prior liens existing at the time he took his mortgage, and will pay taxes and municipal liens as they accrue. I± seems to me that-income accruing from property 'should, in equity, be first applied, as against a holder of a lien upon the property, toward the liquidation of taxes and other municipal liens and interest accruing on prior liens. To permit, a mortgagor after default to collect rents iaecr.ued but not yet paid, and neglect to apply them toward the payment of taxes and municipal liens and interest on prior existing liens would, I think, be to permit the perpetration of a fraud upon the holder of the mortgage. It would permit a mortgagor to grant his property to an irresponsible third party, that third party to collect the rents, issues and profits of the property and apply them to his own use, permitting taxes and municipal liens to accrue, without the knowledge of the mortgagee, and then, when foreclosure is started, withdraw with his profits, leaving the mortgagee to face prior encumbrances not conteiftplated by the mortgagee. So far as the rents, issues and profits may have been actually collected by the owner of the fee the court, under the authorities, is helpless, but I can see no good reason why rents accrued, but not yet paid, at the time of the appointment of the receiver, should not bo intercepted by the receiver and applied by him as equity and good conscience require them to be applied, toward the payment of taxes and municipal liens and interest upon prior encumbrances accrued prior to the time of the appointment of the receiver, and I think that this may be done upon the same theory as induced courts of ■equity originally to appoint a receiver and sequester rents, although not expressly pledged because, otherwise, they might be ■diverted from their legitimate course.

The receiver will be directed to collect the rents accrued but unpaid at the time of his appointment and apply them as herein indicated.

No costs to either party.