author: Leaking, V. C.

text:
    David Potter, substituted trustee, v. Mary Alice Nixon, substituted administrator, et al.
    [Submitted January 13th, 1913.
    Determined March 13th, 1913.]
    1. Where a testamentary bequest is a present one, though payable at a future time, it vests in interest when the object of the bounty comes into being, In the absence of anything in the will indicating a contrary intent, and the vested interest passes to the representative of the legatee in case of his death before the legacy becomes payable.
    2. When a will discloses an intent to defer- the time of payment of a legacy for the convenience of the estate, as in case of the postponement to let in an intermediate interest, the gift will be regarded as an immediate one, the vesting of which will not be postponed until it becomes payable.
    3. Testator bequeathed $10,000 to his executors in trust to pay the annual income to liis daughter M., and, in case she should die without issue, to pay the trust fund to such of her brothers and her sister as should survive her, share and share alike, and, if all her brothers and her sister should be dead at her death, then to be equally divided between all the children of such deceased brothers and sister. M. died without issue, as did also four of her brothers, but the fifth had five children, four of whom survived M., and one of whom predeceased her, but survived all M.’s brothers and her sister. The sister had two children, both of whom died before M„ one dying before and the other after the decease of all M.’s brothers and sister. — Held, that the bequest in remainder was an immediate gift with a postponement of enjoyment only, and hence the trust fund should be divided among all the children of the brothers and sister; the representatives of deceased children taking equal shares with the living children, irrespective of whether they died before or after the decease of all M.’s brothers and sister.
    4. Under the provisions of the will, the children entitled to take in remainder did not take as joint tenants so as to include in the. class only survivors at the time of distribution; the language of the will, “shall be equally divided between all tlie children of such deceased brothers and sister,” being words of severance denoting a plurality of interests among the objects of the gift.
    The bill is filed for the construction of the will of James B. Potter, deceased. By this will testator gave to his executors a specified sum of money in trust. The trust was defined by testator as follows:
    “* * * in trust to place the same at interest on good security, the annual income thereof or so much as my said daughter (Margaret Elmer Potter) shall desire to be paid to her semi-annually from the time of my decease, the excess of interest over her wants, if any, to be invested for her benefit from year to year. In case my said daughter Margaret shall marry, then I do order and direct my executors'or the survivor of them to pay her five thousand dollars of the ten thousand dollars if she shall desire it and take her receipt for the same, the interest of the remainder to be paid to her as before directed during her life. It is my will that if my said daughter should die leaving a child or children, the said trust fund remaining unpaid shall be paid to such child or children surviving her, share and share alike. It is my will should my said daughter die without leaving any issue, then the said trust fund shall be paid to such of her brothers and sister as shall survive her, share and share alike; and if all her brothers and sister should be dead at the time of her decease, then to be equally divided between all of the children of such deceased brothers and sister.”
    At the decease of testator there survived him five sons and iwo daughters, one of the daughters being Margaret Elmer Potter, the life beneficiary above named.
    Margaret Elmer Potter, the life beneficiary, never married and died June 21st, 1910, having survived all of her brothers and her sister. The present suit is to determine to whom the corpus of the trust fund is to be now paid.
    The language of the bequest is that it shall, in such event, “be equally divided between all the children of such deceased brothers and sister.” The question presented is whether the trust fund vested in interest in the several children of the brothers and sister of the life beneficiary as they severally came into being, or whether the legacy to them was contingent upon their surviving the life beneficiary.
    Pour of the brothers of the life beneficiary had no children; the fifth brother had five children, four of-whom survived the life beneficiary, and one of whom died before the life beneficiary, but after all the brothers and the sister of the life beneficiary were deceased. The sister of the life beneficiary had two children, both of whom died before the life beneficiary; one of .these died before and the other after the decease of all the brothers’ and sister of the life beneficiary.

      Messrs. Hampton £ Fithian, for the substituted trustee.

      Mr. Walter H. Bacon, for the substituted administrator.

      Mr. James Boyd Potter, pro se.

   Leaking, V. C.

■ It will be observed that the trust 'was to finally terminate at the death of Margaret Elmer Potter. In the event of her marriage during the continuance of the trust the trustees were authorized to pay-to her one-half of the corpus of the trust fund. At her death so much of the corpus of the trust fund as then existed was to be distributed. The manner of distribution of the part remaining at the decease of the life beneficiary was made dependent upon three contingencies, as follows: First. If the life beneficiary left a child ox children the fund then existing was to be paid to such child or children as survived her. This contingency did not occur, as she died without issue. Second. If the life beneficiary should die without issue then payment was to be made to such of her brothers and sister as should survive her, share and share alike. This contingency did not occur, as she died without issue and left no brother or sister her surviving. Third. If the life beneficiary should die without issue and leave surviving her no brother or sister, then the fund then existing was to be equally divided between all of the children of the deceased brothers and sister. It is this third contingency which has arisen. As the life beneficiary did not marry no part of the corpus of the fund was paid to .her during her lifetime, and the entire fund is now for distribution. The primary question for present solution is whether at the decease of the life beneficiary the corpus of the fund became wholly payable to the children of a deceased brother who were alive at that time, or whether the personal representatives of all or any of the deceased grandchildren of .testator who predeceased the life beneficiary share in the distribution.

Two inquiries uniformly arise in cases of this nature. First. Whether, from the whole will, the gift to the children of the. brothers and sister of the life beneficiary is to be regarded as a present gift payable at a future time. If such a gift is ascertained to be a present gift payable at a future time, then, in the absence of something indicating a contrary intent, the gift vests in interest when the object of the bounty comes into being, and, in consequence, the vested interest passes to the representative of the legatee in the event of the death of such legatee before the time when the legacy becomes payable. Second. Whether there are conditions or contingencies relating to the payment of a present gift which are operative to prevent or defeat its vesting.

Touching the first inquiry it will be observed that in the bequest here in question no direct words of gift are used by testator. He directs that in the event of the death of the life beneficiary leaving a child or children the trust fund shall be paid to such child or children surviving her, share and share alike. In the event of her leaving no issue he directs that the fund shall be paid to such of her brothers and sister as ■ shall survive her, share and share alike, and if all of her brothers and sister be then dead he directs the fund to be equally divided between all the children of such deceased brothers and sister. Standing alone a mere direction to divide a fund among given legatees at a future time is not regarded as a present gift; but in this state the rule is. well settled that when the provisions of a will disclose an intent to defer the time of payment of legacies for the convenience of the estate, as where the postponement of time of payment is to let in an intermediate interest, the gift will be regarded as an immediate gift. The gift here in question to the children of the brothers and sister of the life beneficiary is clearly of that nature; its postponement of payment is obviously to let in the intermediate interests, and it must be regarded as a present gift payable at a future time under the contingencies stated in the bequest. Post v. Herbert's Executors, 27 N. J. Eq. (12 C. E. Gr.) 540, is conclusive to that ■effect. See also 2 Wms. Ex. (6th Am. ed.) 1344. It is urged that the provision for the share of a deceased brother or sister dying in the lifetime of the life beneficiary to go to the surviving brothers and sister, and not to the children of such deceased brother or sister, is inconsistent with and operative to repel the idea of an immediate gift to the children of the brothers and sister of the life beneficiar}'. I am unable to adopt that view. That provision is merely one of the three contingencies anticipated by testator. touching payment at the death of the life beneficiary. Each of the three contingencies named by testator is complete in itself in defining a condition which may exist at the date of the death of the life beneficiary, and has no relation to the other two contingencies; together.the three contingencies form a general plan for postponement of payment to let in an intermediate enjoyment by the life beneficiary.

Touching the contingencies under which the legacy in question is payable it is urged that the provision for the payment to the issue of the life beneficiary, in the event of the life beneficiary leaving issue, is operative to prevent the legacy vesting in the children of her brothers and sister because the death of the .life beneficiary without issue is an uncertain event. This contention overlooks the fact that uncertainty of future enjoyment of a present gift will not prevent vesting. ISTo conditions or contingencies are named by testator which qualify the capacity of-the children of the brothers and sister of the life beneficiary to take; they are not required to attain a given age or to marry or perform any act. The provision is that if the life beneficiary has no issue and survives her brothers and sister payment shall be made to their children at the death of the life beneficiary. Provisions of that nature touching the intermediate estate may be operative to defeat future enjoyment in possession on the part of the legatees to whom the legacy is presently given and is ultimately payable, for issue of the life beneficiary would take to their exclusion; but such uncertainty of enjoyment will •not prevent the legacies presently vesting in interest in them. This is clearly pointed out i,u Van Dyke’s Administrator v. Vanderpool's Administrator, 14 N. J. Eq. (1 McCart.) 198. In that case the will directed that interest on a fund should be paid to A for life; if she died leaving children the principal sum was to be paid to her children; if she died leaving no child but leaving grandchildren the principal sum was to be paid to her grandchildren; but if she died leaving no child or grandchild, then the executors were directed to pay the principal sum to B, C and D share and share alike. B and C died before A, the life beneficiary, and she died without a child or grandchild. The question for determination was whether B and C enjoyed vested interests. In determining that B and C took vested interests Chancellor Green said: “The fact, that in the disposition of that portion of the fund now in controversy there is an immediate gift of the fund upon a contingency between the life estate to Maria Van Dyke Gough and the final disposition of the fund, does not affect the interest of the last taker or prevent the vesting of the legacy. If such be the apparent intent of the testator, the gift in such cases vests, subject to be divested upon the happening of the contingency. The fact that the enjoyment is uncertain never interferes with the vesting of an estate. Where the contingency is not in the person, but-in the event or in the time of the enjoyment, the interest is vested.

“It'is the present capacity of taking effect in possession, if the possession should ever become vacant, not the certainty that it ever will become vacant while the remainder continues, which distinguishes a vested from a contingent remainder. In the former, the enjoyment only is uncertain, in the latter, the right to the enjoyment. Williamson v. Field, 2 Sandf. Ch. 553.”

See also, as to real estate, Havens v. Sea Shore Land Co., 47 N. J. Eq. (2 Dick.) 365. The rule, as stated in Rop. Leg. *597, is as follows:

“It is a rule of construction in regard to contingent executory bequests that the interests of the first and subsequent takers, quodam modo, vest uno instanti; 'so that if the substituted legatee die before the contingency happens, upon which he is to succeed to the legacy, his representative will notwithstanding be entitled to it so soon as the event shall take place. Suppose then a bequest be made to A, but if A died under twenty-one, or without leaving children or issue, to B, although B happened to die before A, B’s personal representatives would be entitled to receive the legacy upon the happening of the contingency, on the ground of its being vested in right in B previously to his decease.”

In a class gift of the nature of the one here in question the children of the brothers and sister of the life beneficiary take vested interests in their shares subject to diminution of those shares, pro 'tanto, as the number of objects is augmented by • future births. Miller v. Worrall, 59 N. J. Eq. (14 Dick.) 134. But the fact that the legatees to whom the corpus of the fund is to be ultimately paid form a class will not, under the provisions of the will here in question, be operative to create interests in the nature of joint tenancies in which only survivors at the time of distribution take. The language of the will is that the fund “shall be equally divided between all the children of such deceased brothers and sister.” As is held in Post v. Herbert, 27 N. J. Eq. (12 C. E. Gr.) 540, 547, these are clear words of severance, denoting plurality of interests among the objects of the gift.

I will advise a decree to the effect that the fund in question is to be equally divided among all the children of William E. Potter and Sarah Boyd Nixon, the representatives of deceased children taking equal shares with the living children irrespective of whether the deceased children died before or after the decease of all the brothers and the sister of Margaret Elmer Potter.


source: Caselaw Access Project

author: Leaking, Y. C.

license: Public Domain

text:
    Albert E. Purchase et al. v. Atlantic Safe Deposit and Trust Company et al.
    [Submitted February 2d, 1913.
    Determined March 17th, 1913.]
    1. Under the trust which was assumed'by defendant corporation it became its duty to find an advantageous purchaser of the property of its cestui que trust. As that corporation could only act through its board, that duty necessarily belonged to the board and to each member of the board. In finding a purchaser for the trust property a member of the board did no more than perform his plain duty as a director — a duty which he owed alike to the corporation and to the cestui que trust of the corporation which he was representing.
    2. The right of the corporation to compensation for the services performed by it in effecting the sale as a part of its duty in administering its trust is not questioned; but its right to pay to a member of its board of directors, out of the funds of its cestui que trust, compensation for disclosing a purchaser for the trust property, cannot be sustained.

      3. The defendant corporation paid to its director, out of the funds of the cestui que trust, a compensation for disclosing a purchaser for the trust property, it being then believed by all the members of the board, except the director to whom the payment was made, that the purchaser of the property was a stranger, whereas it is now ascertained that the purchase was in behalf of the director who received the compensation. — ■ Held, both the director and the corporation are liable to the cestui que trust for the compensation so paid; but for the other items for which the account is to be taken only the director is liable, as the sale of the property w»as made by the corporation in good faith without knowledge of the fact that the director was the purchaser.
    4. The corporation having received no benefit from the payment, and the director having received the sole benefit, the liability for the return of the money should, in equity, be primarily cast upon the director and secondarily on the corporation.
    On bill for accounting.

      Messrs. Wilson & Carr, for the complainants.

      Mesa's. Thompson cf; Smalhers, for the defendants.
   Leaking, Y. C.

I am unable to doubt the accuracy of the conclusion stated by me tentatively at the final hearing as follows: “My present view is that a company holding a property in trust for purposes of sale would have no right, power or authority to pay commissions to a member of its board for finding a purchaser.”

It is now urged, in support of the right, that the contract for the payment oE commissions was made by a majority of the board of directors with one of its members, and that any open and fair contract so made may be enforced against the corporation. In support of this contention, the text of 10 Cyc. (at pp. 781, 794) are cited. The text cited (at p. 791T) is as follows:

“Directors are not disabled from entering into contracts with the corporation, provided there are enough directors on the other side of the contract to make a quorum, and provided the contract is open, fair, and honest.”

The text at page 781 is to the same effect.

The text above quoted is not a correct statement of the law of this state.

Three views are entertained touching a contract between a director of a corporation and the corporation he. represents. In some jurisdictions the view is that stated in the text above quoted.- A second view, which is entertained in other jurisdictions, is that the trust relation between a director and his corporation 'renders such contracts void as against public policy. The theory upon which this view is supported is that the law will not allow a trustee for his own private advantage, to do that which may place him in a position in which his interest is antagonistic to that of the beneficiaries of Ms trust. The third view is that such contracts are not absolutely void, but voidable at the option of the corporation or its representative, provided the option is exercised within a reasonable time under all the circumstances of the case. This third view is the one which obtains in this jurisdiction. It was adopted by our court of last resort in Stewart v. Lehigh Valley Railroad Co., 38 N. J. Law (9 Vr.) 505, and has since been uniformly maintained. Except for the power of ratification which this rule reserves to the stockholders of a corporation (United States Steel Corporation v. Hodge, 64 N. J. Eq. (19 Dick.) 807), it may be said to be essentially the same as the rule which holds such contracts absolutely void, for, as against the will of the corporation, exercised within a reasonable time, such engagements are given no contractual force, however open, fair and honest they may be.

The relation of a trustee to his cestui que trust touching trust property is essentially the same. As against the will of the cestui que trust the trustee cannot contract with himself touching the trust property. Staats v. Bergen, 17 N. J. Eq. (2 C. E. Gr.) 554.

Under the trust which was assumed by defendant corporation it became the duty of that corporation to find an advantageous purchaser of the property of its cestui que trust. As that corporation could only act through its board, that duty necessarily belonged to the board and to each member of the board. In finding a purchaser for the trust property a member of the board did no more than perform his plain duty as a director — a duty which. he owed alike to the corporation and to the cestui que trust of the corporation which he was representing. The corporation and the cestui que trust were alike entitled to the service which was performed by the director, and were alike entitled to the free exercise of the judgment of the director touching the desirability of the sale, uninfluenced by hope of personal gain; for the relation of the board to the cestui que trust was clearly in the nature of a trust relation, notwithstanding the fact that the corporation which the board primarily represented was the legal trustee. The right of the corporation to compensation for -the services performed by it in effecting the sale as a part of its duty in administering its trust is not questioned; but its right to pay to a member of its board of directors, out of the funds of its cestui que ■ trust; compensation for disclosing a purchaser for the trust property, cannot, in my judgment, be sustained. The right of the corporation to compensation for services performed as trustee is entirely distinct from its right to an allowance for an expenditure of this nature.

Another question arises from the peculiar circumstances connected with the transactions already referred to. The defendant corporation paid to its director, out of the funds of the cestui que trust, a compensation for disclosing a purchaser for the trust property. At that time it was believed by all the members of the board, except the director to whom the payment was made, that the purchaser of the property was a stranger. It has since been ascertained that the real purchaser was the director to whom the compensation was paid. That director is a party defendant and has been already ordered to account to the cestui que trust for all profits flowing to him from the purchase. The item here under consideration may be appropriately classed as one of the items of profits made by the director through his purchase of the property. For this item both the director and the corporation are liable to the cestui que trust; for the other items for -which the account is to be taken only the director is liable, as the sale of the property was made by the corporation in good faith without knowledge of the fact that the director was the purchaser. Under these circumstances, the joint liability of the director and the corporation for the money paid to the director for disclosing a purchaser falls within the rule defined in McCartin v. Traphagen, 43 N. J. Eq. (16 Stew.) 323, 334, for the corporation received no benefit from the paj'ment and the director received the sole benefit; the liability for the return of the money should, in equity, lie primarily cast upon the director, and secondarily, on the corporation.

I will sign a decree in accordance with the views stated by me at the conclusion of the hearing.


author: Leaming, Y. C.

text:
    Ella E. Smith v. Nur J. Collins et al.
    [Submitted March 22d, 1913.
    Determined March 29th, 1913.]
    1. In this state it has been repeatedly and uniformly held that in the absence of fraud, gross injustice, irremediable injury' or other ground of equitable jurisdiction, a court of chancery will not restrain a threatened sale under execution upon a judgment at law against one person of property claimed by another person.
    2. The principle upon which these decisions are based clearly applies with equal force to a case in which the complainant is the judgment debtor and the ground of the relief sought from this court is that complainant’s sole estate in the property which is threatened to be sold is an estate which cannot be reached by process of law.
    3. The judgment creditor is entitled to assert the existence of a legal estate in his judgment debtor and- to have his claim of legal title tried by a legal tribunal.
    On bill for injunction to restrain sheriff’s sale. Heard at return of order to show cause.

      Mr. S Cameron Miníele, for the complainant.

      Mr. William M. Clevenger, for the defendants.
   Leaming, Y. C.

Complainant is a judgment debtor and seeks to enjoin a sale under an execution issued upon the judgment. The execution lias been levied on the interest of complainant in certain real estate.

It is averred in the bill that the interest of complainant in the real estate levied on arises under the will of her husband. By that will complainant is given the income of the estate, including the income of the land in question, during her life. A.t her decease the corpus of the estate is given to children of testator. The provisions of the will in favor of complainant are as follows:

“I order and direct that my estate be kept intact as nearly as possible in order that the income derived therefrom may be enjoyed by my wife, Ella Smith, during the term of her natural life, and I devise and bequeath to her all the income from my estate for that period.”

'Yo trustee is named in the will.

It is contended in behalf of complainant that under the provisions of the will of her husband her estate in the land which has been levied on is a purely equitable estate and cannot, in consequence, be levied on and sold by process of'execution issued from a court of law. This court is on that ground asked to enjoin the sale and thus prevent the sale from creating a cloud upon the title of complainant. Succinctly stated the claim of complainant is, that the will of her husband bestows upon her only the right to receive the income of her husband’s estate during her lifetime and that such an estate is an equitable life estate and, as such, cannot be sold under legal process without the aid of this court. Defendant claims the complainant has a legal estate in the lands which is subject to levy and sale under his execution.

In this jurisdiction it has been repeatedly and uniformly held that in the absence of fraud, gross injustice, irremediable injuiy or other ground of equitable jurisdiction, a court of chancery will not restrain a threatened sale under execution against one person of property claimed by another person." These decisions are collected in West Jersey and Seashore Railway Co. v. Smith, 69 N. J. Eq. (3 Robb.) 429. It will be observed that the cases there cited have uniformly arisen in instances in which the processes against which restraints have been sought have been against a former owner as judgment debtor. But the principle upon which these decisions are based clearly apjolies with equal force to a case in which the complainant is the judgment debtor, and the ground of the relief sought from this court is that complainant’s sole estate in the property which is threatened to be sold is an estate which cannot be reached by process of law. The principle to which I refer is that the judgment creditor is entitled to assert the existence of a legal estate in his judgment debtor and to have his claim of legal title tried by a legal tribunal. This right is forcefully stated in the earliest of the line of decisions referred to. Freeman v. Elmendorf, 7 N. J. Eq. (3 Halsl.) 475; S C., 7 N. J. Eq. (3 Halsl.) 655. Ix is undoubtedly true that if complainant herein, the judgment debtor’, has no interest in the land against which the judgment is being enforced other than an equitable estate no title will pass at the threatened sale, for it is well settled that a judgment at common law is not a lien upon a mere equitable estate or interest, nor is such interest the subject of a levy and sale by virtue of an execution at law unaided by a decree of a court of equity. Vancleve v. Groves, 4 N. J. Eq. (3 Gr. Ch.) 330; Halsted v. Davison, 10 N. J. Eq. (2 Stock.) 290; Williams v. Baker, 62 N. J. Eq. (17 Dick.) 563. But the relief here sought by complainant necessarily involves a determination by this court that complainant has no legal estate in the lands in controversy and denies to defendant the judgment of a legal tribunal upon that aspect of his claim. I think it clear that the authorities collected in West Jersey and Seashore Railway Co. v. Smith, supra, must be considered as conclusive against the right of this-court to interfere with the execution of the legal process here in question.

I will advise an order dismissing the order to show cause.


author: Teaming, Y. C.

text:
    The Atlantic City and Suburban Gas and Fuel Company v. Harry H. Johnson.
    [Decided May 29th, 1912.]
    Where the defendant was employed by the complainant corporation as its manager, and also as the manager of another corporation (whose stock was all owned by the complainant) for the period of one year upon the terms that he should be repaid for expenses incurred in behalf of the two companies, but should serve without salary or wages for work done and services rendered by him to the two companies — Held, in a suit for an accounting, that the defendant is entitled to the money appropriated to himself in respect of such expenses incurred on behalf of the two corporations, but not for the amount claimed from them in respect of salary.
    On final hearing on pleadings and proofs.

      Messrs. Thompson & Smathers, for the complainant.

      Messrs. Bolle <€■ Sooy, for the defendant.
   Teaming, Y. C.

I will not take this ease under advisement, because I am convinced I can dispose of it at this time, with the testimony fresh in my memory, to better advantage than by giving it further consideration. The legal points involved are, to my mind, sufficiently free from doubt to justify a decision upon the views which I now entertain, without giving further examination to the legal questions presented.

There are two classes of items here involved. The first class consists of charges made by the manager of the gas company and of the electric company for expenses which he claims he has incurred in behalf of the two companies, respectively, covering a period of a year; the expenses charged against the gas company being $220.10 and the expenses charged against the electric company being $221.18.

The testimony of all of the witnesses who have testified upon this subject has been to the effect that a resolution was passed at the gas company’s directors’ meeting of January 8th, 1908, touching the amount that the manager should be privileged to charge for the ensuing year for personal' expenses incurred by him in the performance of his duties as manager, and that his agreement was that he would charge nothing for his services as manager during that period; but the testimony is in conflict as to what maximum amount the resolution which was passed at that time authorized him to charge by way of personal expenses. The minutes of the company are entirely silent and do not even show that any action at all was taken upon the subject. All who have testified agree that the resolution which was passed authorized a charge upon the part of the manager for personal expenses as manager of the gas company not to exceed $25 per month, or $300 per year. There is no objection, therefore, to the bill for the expenses incurred in behalf of the gas company, providing, of course, such expenses were' actually incurred. The manager claims, however, and his testimony has some support, that the amount allowed by the resolution, as passed, was $25 per month for each company — that is, $300 a year for the electric company and $300 a year for the gas company; the understanding having been, as he states it, that he would charge nothing for his services and would not incur personal expenses exceeding that amount, namely, $600.

The situation at that time was that the gas company w7as an operating concern with its own board of directors and officers, and the gas company owned all of the stock of the electric company and operated the electric company. The electric company had no board of directors of its own, ánd no officers of its own, and the gas company, by reason of owning the stock of the electric company, assumed the right to manage its affairs, and for reasons of its own, kept the accounts of the electric company separate from the accounts of the gas company. It seems to me entirely manifest as a legal proposition that what the stockholders and board of directors of the gas company thus assumed to do was clearly illegal. The electric corporation, as a corporation, was entitled to its own board of directors and i+s own officers to manage and conduct its affairs, no matter by whom the stock was held, and no legal or.binding resolution could be passed by the board of directors of the gas company fixing the relations between the electric company and its manager. The charge against the electric company therefore finds no legal support in the resolution passed by the gas company. That, I think, is a proposition of law that cannot well admit of doubt.

But another element is to be considered in this connection.' This bill against the electric company is not a bill for salary. It is a bill for expenses — that is, money paid for the use of the electric company; and it is not necessary that an express contract should exist between the electric corporation and the person who worked for it or spent money for it in order to enable such person to recover either for services or expenses, unless there should be a contract, express or implied, that the expenses or the services were to be a gratuity; so the situation here presented is that of a manager of an electric company who has operated the affairs of that company under a stipulation made by him that he would not charge for his services, but who claims the right to compensation for moneys actually expended by him in behalf of the company. If there were no authorization by either the electric company or by the gas company for him to charge his actual personal expenses reasonably incurred in conducting the affairs of the electric company, there is no legal obstacle to his recovering those expenses, in the absence of evidence that the expenses so incurred were contributed by him as a gratuity. It is a claim for money had and received by the electric company, and if that money was actually expended by the manager from his own funds and properly expended, he was entitled to have it back without a contract if, as I have already stated, there was no engagement upon his part to expend that money gratuitously; so, while the legal obstacle which I first suggested would prevent a recovery of the expenses incurred in behalf of the electric company under or by virtue of the resolution which is claimed, it is not here an insurmountable obstacle, because if the expenses were honestly and fairly incurred, the manager was entitled to have them repaid -by the electric company without any resolution for that purpose from any company. The evidence touching the resolution already referred to is clearly inadequate to establish the fact that the manager was to contribute his expenses incurred in behalf of the electric company to that company.

The only question then touching this expense account that can possibly bo operative, to my mind, to defeat the right of the manager to receive the money claimed by him for expenses is the fact, if a fact, that he did not actually expend the money. His testimony is that every item of expense that was charged against either of the companies during that year was actually incurred, and that this applies not only to the gas company but to the electric company. He says that vouchers were made out by him for ever;/ expenditure he made, and that those vouchers were filed when checks were drawn to his order’ for the amounts, and that those vouchers should now'be in the hands of the one or the other of these companies. The only testimony we have to disprove that is scarcely more than an inference or suspicion. The charges for expenses during the last two months,' that is during the period subsequent to the time the gas company had discovered or thought it had discovered a purchaser for the entire properties, were very much heavier than they had been prior to that time. This is put forward as a suspicious circumstance, and there has been no very adequate explanation of why the expenses during those months were so much in excess of the expenses for the prior months, but, in the absence of some evidence to justify the conclusion that these expenses have not actually been incurred and paid by the manager from his own funds, I cannot feel justified in reaching the conclusion that the account is an inflated one. I feel, under the evidence, that I must conclude that tírese moneys, which the manager swears he expended, were by him expended from his own funds in the affairs of these two companies; and it cannot be said, in view of his testimony, that he expended any portion of it gratuitously, and, under those circumstances, it seems to me he is, in any aspect of the case, entitled to recover, or rather to retain, as against this claim by this suit, these items of expenses incurred.

The other class of items which are in dispute are of wholly a different nature and stand upon an entirely different condition of the law. These items are two in number; one is a charge of $300 for services to the gas company and the other for $300 for services to the electric company. It is admitted by the defendant, the manager already referred to, that his stipulation was that he would not charge for his services as manager. He conceived, however, at the last moment of his connection with the affairs of the companies that he was justly entitled to some compensation for In's services as an active participant in the negotiations for the sale of the assets of the gas company, and presented these two bills for services at the last meeting of the gas company. How, in order to appreciate the legal status of the situation at that time existing, it must be borne in mind that prior to that time the gas company had found a purchaser of .its plant and for its stock in the electric company. I refer to the new company as a purchaser, but in fact the transaction was that of a ninety-nine years lease, but in effect a purchase, because it was a purchaser or lessee who proposed to take over the' entiré assets of the two companies and become the sole proprietor of the two companies with all of their assets and assume the burdens of their liabilities. It was entirely proper for the gas company alone to act upon a proposition of that nature, because the gas company was the owner of all the stock in the electric company, so the gas company could appropriately agree to such disposition of the gas company and the stock of the electric company as it chose. Accordingly, at a stockholders’ meeting of the gas company, a proposition of purchase, or lease, which had been made by the new company, was approved. It then became necessary to have the board of directors of the gas company pass upon this transaction or proposed transfer of the assets, and accordingly a meeting of the board of directors was called for that purpose. In the meantime a contract of sale or lease had been agreed upon in all of its terms. It had, I think, in fact been signed, at least tentatively, prior to this meeting of the board of directors, so that all that remained to be done to effect a complete transfer of the entire assets of the gas company and the entire stock of the electric company to the new company was a ratification by the board of directors of the gas company of the action which had already been taken by its stockholders; in other words, an adoption of the contract which the stockholders had approved and which had already apparently been executed, or at least signed by some of the parties and agreed upon by both sides, subject to the approval by the directors at this approaching meeting of the gas company. That meeting was held on the afternoon of December 28th, 1908, and a vote was taken approving of the transfer and sale, and immediately thereafter, it appears, immediately after the adjournment of that meeting, the physical assets of the gas and electric company were turned over to the new proprietors, and they assumed charge of the affairs, and the two old companies were ended so far as activities under the old management were concerned. Kow, the situation thus presented — a situation in which the gas company had agreed to transfer its entire assets to the new company and was awaiting only a ratification by the board of the contract so agreed upon — was a situation of trust and confidence. The situation that then existed was one in which the old companies were, as against the purchasing company, denied the right to dispose of assets without consideration. Without any express contract to that effect the new company not only did trust but had a right to trust the old company that it would not do anything to improperly deplete the assets then on hand and which were to be turned over to the purchasing company. It is true that the purchasing company did not have any definite knowledge of the intricate details of the affairs of the old companies. The utmost they knew was’information which they had acquired from an audit made a month or so before showing the entire condition of the affairs of the gas company and of the electric company, but they knew that in the interim between their audit and the date the contract was to be consummated the affairs of the electric and gas-company would be conducted in their ordinary course, and they had a right to depend upon that being done, and they had a right to require, and they had a right to believe and trust that that requirement would be complied with, that the old companies would not deplete their assets. Kow, let it be understood distinctly what is here referred to as a depletion of assets. If either of the old companies in the last hour of the board meeting, which terminated their old management, owed a debt, it was privileged to pay it. Uo objection could exist upon the part of the new company, the purchasing company, to the payment of any just debts owed by the gas company or owed by the electric company, but the new company did have a right to object to the payment of a bill that was not a legal obligation. It may be that the amount of this bill of Mr. Johnson’s of $600 has been well earned. It may be that this work was of a nature and was so beneficial' that $600 will inadequately pay for it, but that is not the question. The situation presented is that Mr. J ohnson did whatever he did under an express engagement that there would be no charge for service, and it was not his right, nor was it the company’s right, at the last moment, to conclude that they would compensate him for services which were not to be compensated for. That transaction was, in effect, exactly the same as'though a gift had been made by the old companies to a stranger of $600 in amount. I see no rvay that I can reach a conclusion, no matter what resolution was actually passed in that board meeting, to support the payment to Mr. Johnson of either $300 or $600 in compensation of services rendered by him, because of the fact that the relations which at that time existed between the seller and the purchaser were such that the seller had no right, as against the purchaser, to divert the funds in that manner. I have repeatedly used the expression as between the old companies and the purchaser. This suit is brought by the gas company in behalf of it and the electric company, but, while the suit is in that form, it is really a suit-for and must enure to the benefit of the present lessee of these companies. So, if the transaction of the board in allowing this .payment .of $600, or these two pajanents of $300 each to Mr. J ohnson, was' invalid and unjust as against the purchasing company, there must be a recovery in this suit for that amount.

Another element, I think, ought to be referred to- in this case. The minutes of this meeting show that the resolution which was adopted was that Mr. Johnson was to be paid $300 and not $600. The testimony of some of the witnesses is to the effect that there were two bills of $300 each, one against the electric company and one against the gas company. The testimony of other witnesses is to the effect that one bill only was presented and that no bill was passed, and the testimony is in irreconcilable conflict as to what transpired at that meeting except in one respect; all the witnesses agree that an amendment to the motion that Mr. Johnson'be paid was offered by Mr. Kiddle and adopted. That amendment has been expressed in various forms by different witnesses, but by all of them has been in general effect that the allowance of this bill, or these bills, if there were two, should not in any way be operative to defeat the then pending contract. Now what, gentlemen, was the spirit of that amendment? The spirit of that amendment — and- all agree- that it was adopted, if anything was adopted, it went with the resolution according to the testimony of everybody — the spirit of that amendment .was that this bill of Mr. Johnson’s should not interfere with this lease. It may have been worded that it should not be operative to defeat the lease — that is, the sale should not fall through by reason of the allowance of these bills, but.if that was the narrow spirit of the resolution, it was manifestly unlawful, for it was, in effect, an attempt to get rid of money without the purchasing company knowing it; but I am inclined to think the real spirit of that resolution, and the spirit in which it received such favor as it might have received- at the time, was that this money should not be paid to Mr. Johnson over any objection of the new company. The new company did not object, and could not object, because it was not allowed to know that Mr. Johnson had taken this money from the treasury. As soon as it did find it out it objected, therefore I say, from an equitable standpoint, even the resolution as amended, conceding it to have been passed, should not be deemed operative as against the purchasing company.

• It might also be suggested that too much doubt exists as to whether any resolution authorizing payment to Mr. Johnson was in fact adopted, to warrant-a payment which could find support alone from a resolution of that nature; but I do not base my decision on that ground. My broader view is that the allowance by that last meeting- of the gas company of any compensation to a manager for services which he had agreed to perform without compensation was, as against the purchasing company, in effect, a gift and void, and therefore Mr. Johnson cannot be allowed to retain this money and should now be compelled to restore it.

My conclusion will be that Mr. Johnson will be entitled to the money which he has appropriated to himself of $220.10 and $221.18, making a total of $441.28, but cannot retain the $600, and that a decree should be entered against him for that amount.

SUPPLEMENTAL.

Since pronouncing the above decision counsel for defendant has directed my attention to a claim of laches made in the answer.

I am convinced that the evidence discloses no unreasonable delay in bringing this suit after the fact had been ascertained that $600 had been received by defendant for services at the termination of the meeting which immediately preceded the physical transfer of the assets to the new proprietors.

A further consideration of the case in all of its aspects confirms the views expressed by me at the conclusion of the hearing.


author: Leamiiig, V. C.

text:
    The Institute Building and Loan Association v. Addie T. Edwards et al.
    [Submitted March 5th, 1913.
    Determined March 26th, 1913.]
    1. Where a mortgagee held a mortgage on real estate which was, admittedly, a lien prior to that of the two judgments held by the defendants, and subsequently took a new mortgage on the same land from the same mortgagor for the same debt, the judgments in question having in the meantime been entered against the mortgagor, such mortgagee is entitled to be restored to its original position, it appearing that no injury or prejudice had resulted to the judgment creditors from the cancellation, and the mortgagee’s negligence in failing to ascertain the existence of the intermediate judgments alone not being suflicient to deny such equitable relief.
    2. The mortgagee’s mistake in such case was not a mistake of law, but was a mistake of fact, in that it was not known that the judgments had intervened.
    Pinal hearing on bill to be substituted to lien of canceled mortgage and to foreclose.
    The present controversy is to determine whether the lien o£ complainant, as mortgagee of certain real estate, is superior to the lien of two certain judgments against the mortgagor. The controversy arises from the fact that complainant held a mortgage on the real estate in question which was, admittedly, a prior lien to that of the two judgments how held by defendants, and subsequently took a new mortgage on the same land from the same mortgagor for the same debt and canceled its former mortgage, without ascertaining that the judgments in question had in the meantime been entered against the mortgagor.
    Complainant is a building and loan association. The original jnortgage was made to complainant by one Addie T. Edwards, October 25th, 1906, to secure the payment of $2,500, and was conditioned for the payment of dues and interest until the stock accompanying the mortgage should mature and discharge the loan. In November, 1910, the mortgagor had fallen behind in her monthly payments, until it became apparent that it was impossible for her to keep up the required monthly payments, and also pay the clues and interest then overdue. Accordingly, it was arranged between her and the association that she should execute a new mortgage on the same property for the amount then found to be due from her by giving her credit for the payments she had made. It being found that she was thus entitled to a credit on the mortgage of $138.50, a new mortgage was made by her to the association October 25th, 1906, on the same property for $100 less than the amount of the old mortgage, and the excess of $38.51 was credited, to her. The new mortgage was conditioned the same 'as the old. The new mortgage was then recorded and the old mortgage was canceled of record. The real purpose of thus substituting the new mortgage for the old one was to relieve the mortgagor from her arrearages and thus render it possible for her to meet her monthly, payments. Complainant now seeks to be restored to the lien of its canceled mortgage as against the two judgment creditors.
    The new mortgage was substituted for the older one without knowledge on the part of the association 'of the existence of the judgments.

      Mr. Louis N. Miller, for the complainant.

      Mr. Henry O. Burl, for the defendant Kates.

      Mr. Martin W. Lane, for the defendant Wallace.
   Leamiiig, V. C.

I am unable to doubt the right of complainant to be restored to its original position, unless its negligence in failing to ascertain the existence of the intermediate judgment liens is to be regarded as sufficient to deny equitable relief of the nature here sought.

The transaction took the form-* of a new loan and a new mortgage security; but it was by all the parties intended and understood to be merely an extension of the old loan and security. Had knowledge of the judgments existed the old mortgage would not have been canceled. The inherent quality of the transaction, measured by the convention of the parties — the convention for a continuing lien being found in their mutual purpose — was to extend the time and manner of payment of the old mortgage in a manner to meet the bookkeepeing requirements of the association and the convenience of the mortgagor.

There was no thought or purpose to impair the security already existing or to in any waj^ release or waive the lien then enjoyed; it was clearly intended and understood that the continuity of the lien should be operative as its preservation. The mistake was not a mistake of law; it was a mistake of fact, in that it was not known that the judgments had intervened. A search for-intervening liens was in fact made, but was inaclequatety made. The plainest principles of equity suggest that the benefit of the lien of the canceled mortgage should be made available to complainant unless some additional circumstance is to be found in the transaction which may be deemed operative to deny to complainant the relief thus sought.

The equitable right of a mortgagee .to be restored to the benefits of the lien of a mortgage which has been thus canceled of record simultaneously with the execution and recording of a new mortgage between the same parties on the same land to secure the same or a part of the same debt, as against the liens of intervening mortgages or judgments which have arisen after the first mortgage has been recorded and before it has been canceled of record, is not without support in adjudicated cases. In Campbell v. Trotter, 100 Ill. 281, this precise question is joresented. Trotter held a mortgage against Wright securing the payment of several notes. Subsequently, some of the notes having been paid and others being overdue and accrued interest being unpaid, the parties determined to extend the loan by the execution of a new mortgage on the same land and new notes for- tire amount remaining unpaid, the new notes to be secured by the new mortgage. This was done and the new mortgage was recorded and the old mortgage was canceled of record and the old unpaid notes were surrendered. Intermediate the making and recording of the two mortgages, Wright, the mortgagor, executed a mortgage to one Campbell on the same land to secure a loan then made by Campbell to Wright. The bill was to reinstate the lien of the old canceled mortgage as against Campbell. The opinion of the court proceeds as follows: “Campbell took his mortgage with knowledge of Trotter’s first mortgage of March 19th, 1869, and as a second mortgage subordinate to Trotter’s, and it should be held subordinate to that mortgage. There has nothing occurred since which, in equity, should displace its priority. The taking the new mortgage of August 30th, 1877, and entering satisfaction of the first mortgage, was as designed by the parties, but in continuation of the lien of the first mortgage. The whole purpose was only an extension of the time of payment. The transaction was entirely irrespective of Campbell. Eo consideration moved from him. It was with no reference to his benefit, and should not be made to redound thereto by the advancement of his mortgage to a priority over the lien of Trotter for the unpaid portion of the purchase-money for this land he sold to Wright. The entry of satisfaction of the first mortgage and surrender of the first notes was but a formality, as regarding any essential right of the parties; but it gives to Campbell’s mortgage an inequitable advantage which it ought not to enjoy. It was through ignorance, in fact, of the existence of Campbell’s mortgage that Trotter entered satisfaction of the first mortgage and surrendered the notes, and which he would not have done had he known of Campbell’s mortgage. This Trotter testifies to, and the nature of the transaction itself, would satisfy one that such must have been the case.” McKenzie v. McKenzie, 52 Vt. 271, is to the same effect. In that case the clerk who prepared the new mortgage to take the place of the old one informed the mortgagee that it was operative to extend the lien of the old mortgage. The court held this to be a mistake of fact which could be relieved against, and denied to an intermediate mortgagee the privilege “to speculate in another’s blunders.” Young v. Shaner, 73 Iowa 555, is almost identical with the present case; there, as here, the intermediate lien was a judgment. The court held that “the new mortgage to the amount of the old may be regarded as a mere renewal, and the amount thereof a superior lien to the lien of the judgment.” The same view is adopted in Title Guarantee Co. v. Wrenn, 35 Oreg. 62. In Hutchinson v. Swartsweller, 31 N. J. Eq. (4 Stew.) 205, Vice-Chancellor Van Fleet, in delivering an opinion for this court, said; “Where a first mortgagee accepts a new mortgage and surrenders a prior one for cancellation, in ignorance of the existence of an intervening lien, equity, in the absence of laches, or other disqualifying fact, will restore him to his original position.”

It remains to be considered whether any special circumstances exists in the present case to deny to complainant the relief which it now seeks.

The equitable right of complainant to the reinstatement of the lien of the canceled mortgage to the end that complainant may enjoy the benefit of the lien of that mortgage as of its date to the extent of the amount secured by the new mortgage, is necessarily based on the existence of a mistake on the part of parties and the power of a co,urt of equity to relieve against the consequence of the mistake. The mistake which must afford the ground of relief in this case arises from the fact that the parties intended to merely extend the lien of the old mortgage for the lesser amount of the new mortgage and believed that the new mortgage accomplished that result. It is not claimed that, this belief arose from ignorance of the board of directors of complainant or any member of that board or of the conveyancer who superintended the transaction that intervening judgments against the mortgagor, if any existed, would not be advanced in lien by such a transaction. The mistake was in the belief that no intervening judgments or other liens existed, and it is that mistake which must afford the basis of any relief that can be awarded by this court. The equitable relief sought is therefore dependent upon the existence of a mistake of fact, and the discretion of this court in awarding relief against the legal consequence of the mistake must be controlled by the accepted rules which surround the exercise of that branch of its jurisdiction, however just the relief which is sought may appear to be.

In this view it is urged in behalf of the judgment creditors that complainant must be denied relief because the mistake was the result of its own negligence in failing to cause searches for judgments to be made in the supreme court, in which court the judgments in question were entered. The principle which de- ' fehdants seek to invoke is sometimes expressed in the phrase that a party will not be given relief against a mistake arising from his own negligence. Í6 Gyc. 69; 1 Story Eq. Jur. § 14&- This principle has undoubtedly been given general recognition and beneficial application in a great number and variety of cases. In this jurisdiction it was applied in Deare v. Carr, 3 N. J. Eq. (2 Gr. Ch.) 513; Voorhis v. Murphy, 26 N. J. Eq. (11 C. E. Gr.) 434; Haggerty v. McCanna, 25 N. J. Eq. (10 C. E. Gr.) 48; Hayes v. Stiger, 29 N. J. Eq. (2 Stew.) 196; Parkhurst v. Cory, 11 N. J. Ep. (3 Stock.) 233; Campbell v. Gardner, 11 N. J. Eq. (3 Stock.) 423; Smith v. Duncan, 16 N. J. Eq. (1 C. E. Gr.) 240; Cook v. Bodine, 30 N. J. Eq. (3 Stew.) 470; Pennsylvnia Railroad Co. v. Trimmer, 31 Atl. Rep. 310; Dillet v. Kimble, 25 N. J. Eq. (10 C. E. Gr.) 67. But it is pointed out in 2 Pom. Eq. Jur. § 856 and notes, and in Collingnon v. Collingnon, 52 N. J. Eq. (7 Dick.) 516, that this principle is not to be accepted as of universal application, and that even a clearly established neg'lig'ence mat'' not of itself be a sufficient ground for refusing relief, if it appears that the other party has not been prejudiced thereby. In that view relief was granted in Seeley v. Bacon, 34 Atl. Rep. 139. In that case Vice-Chancellor Eeed, in considering whether complainant’s negligence in not procuring proper searches for encumbrances should be operative as a bar to the reinstatement of the lien of the canceled mortgage, said: "As a rule, equity will refuse to rectify a mistake which occurred through the unexcusable negligence of the party who asks to be relieved from thie effect of the mistake. Haggerty v. McCanna, 25 N. J. Eq. (10 C. E. Gr.) 48; Dillett v. Kemble, 25 N. J. Eq. (10 C. E. Gr.) 66; Voorhis v. Murphy, 26 N. J. Eq. (10 C. E. Gr.) 434 But what degree of -vigilance is to be exercised must depend upon the facts of each case. Where the act dene by mistake is one calculated to induce others to take a line of conduct which will put them to loss if the mistake is corrected, it ought to be clear that the party asking for relief has been led into the mistake in spite of the employment of the highest degree of vigilance. Where, however, no one is injured by the. mistake but. the party himself, and no one has changed his position by reason of the act executed through the influence of the alleged mistake, I see no reason why the mistake should not be corrected, although the highest degree of vigilance has not been exercised. Eor instance, if the mortgage held by Mr. Bacon had been taken for money advanced by him at the time, and had been taken after the cancellation of the old mortgages, and before the record showed the existence of the new mortgage, a case would have been presented requiring the strongest evidence of unpreventable mistake to justify the reinstatement of these mortgages. But, as has already been observed, the facts in respect to the mortgage held by Mr. Bacon are entirely different. He advanced nothing at the time his mortgage was accepted, and the old mortgages were still a subsisting lien at that time. So it is perceived that the security of his mortgage, after the restoration of the two old mortgages, is exactly the same as it was before the cancellation. No valuable consideration was advanced by Bacon at the time of the execution of the mortgage to him on the faith of the supposed non-existence of the two old mortgages, arising from their cancellation of record. By the decree asked for, the parties will be placed in statu quo. In this respect the case differs from that of Frazee v. Inslee, 2 N. J. Eq. (1 Gr. Ch.) 239, where the inference is that Erazee took his mortgage for valuable consideration. It differs also in respect to the fact that in that case there was evidence that Campbell, the defendant, owner of the canceled mortgage, was informed of the existence of Erazee’s mortgage before its cancellation. The case of McKenzie v. McKenzie, 52 Vt. 271, was in this respect exactly like this,.and in other features quite similar.” In Seeley v. Bacon some inquiries touching encumbrances had been made in the office where the subsequent mortgage was of record, but the extent and nature of the inquiries were in dispute. The conclusions above quoted clearly proceed upon the tentative assumption that no proper searches or inquiries touching encumbrances had been made by complainant. Essentially, the same situation is here presented as in Seeley v. Bacon. No injury or prejudice resulted to the judgment creditors, defendants herein, from the cancellation of the record of the mortgage in question; that mortgage was a valid first lien at the time the judgments were entered; the judgment creditors have done nothing because of or in reliance upon the cancellation of complainant’s mortgage. The relief sought is the re-establishment of the former relation of the parties, which relation has not been intentionally abandoned by complainants. It is clear, therefore, that if the relief here sought be refused, it must be upon the abstract theoiy that relief cannot be granted to one who has been negligent, even though the negligence has been harmless and has been wholly inoperative to injure anyone. The application of that doctrine to the present case would be operative to visit a penalty on complainant for its harmless negligence to the amount of the judgments and to award the amount of that penalty to the judgment creditors who are clearly no more entitled to it than any stranger, except from the circumstance that they now occupy an artificial position in which they may avail themselves of it, for their judgments were entered by them as a lien on the equity of redemption of the mortgagor only. Unless negligence, when considered by a court of equity as a bar to equitable relief, is to be measured in the ascertainment of its inherent quality and force by its effect upon the interests of others, there would seem to be in this branch of equity jurisprudence a radical departure from the rules which have heretofore controlled both courts of law and equity in the administration of remedial justice. Decrees for the reformation of contracts which contain mutual mistakes of the parties are usually if not uniformly based upon the right to relief against mistakes which have arisen through some form or degree of negligence of the complaining party. It is indeed difficult to conceive of any form of equitable relief from mistakes where some degree of negligence of the party seeking relief is not involved. Even the bar of laches is founded upon the idea that the adversary may by the delay have suffered in his ability to defend. Lutjen v. Lutjen, 64 N. J. Eq. (19 Dick.) 773. The law courts permit a recovery in an action of assumpsit for money paid by reason of a mistake which involves negligence upon the part of the plaintiff. In Kelly v. Solari. 9 Mees. & W. 54, in an action for the recovery of money paid through a mistake of 'fact the court said: “If it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party may have been in omitting to use due diligence to inquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it.” It is impossible to believe that a court of equity is restricted by a more stringent rule. And it may, I think, be appropriately added that the chief aim and purpose of our recording statutes is the protection from loss of innocent purchasers and encumbrancers who have changed their position to their detriment without notice, actual or constructive, of prior liens or conveyances. I am convinced that in a ease of this nature where no one has been injured by the mistake but the party complainant and no one has changed his position by reason of the act which has been performed in consequence of the mistake, relief cannot be properly denied upon the theory that a high degree of vigilance has not been exercised by complainant. The negligence of complainant in failing to procure proper searches should, £ think, be thus considered with reference to its effects' on the rights of others, and so considered cannot be properly regardecl as that type of culpable negligence which appropriately affords a bar to equitable relief. In addition to the cases already cited, the following cases, all essentially the same as the present case, do not regard the neglect of complainant to procure searches as operative to bar the relief of restoration of the canceled lien as against an intermediate encumbrancer. Pearce v. Buell, 22 Oreg. 29, 33; Wooster v. Cavendar, 54 Ark. 153; Piper v. Headlee, 39 Ill. App. 93; Sledge v. Obenchain, 58 Miss. 670, 675; Geib v. Reynolds, 35 Minn. 331; Walters v. Walters, 73 Ind. 425; Cansler v. Saills, 54 Miss. 446.

It is urged in behalf of the judgment creditors that it was the custom oi complainant association to neglect the procurement of searches'from the office of the clerk of the supreme court. The evidence at the hearing disclosed that fact. Searches were made by the eonvejnncer who superintended the transaction in the office of the eouidy clerk, but not elsewhere. It was explained that the reason for this arose from the fact that the community was a small one and the affairs of borrowers were, as a rule, well known, and searches in the supreme court were often dispensed with for that reason. In this ease the conveyancer believed that his knowledge of the affairs of the mortgagor justified his conclusion 'that no judgments in the supreme court existed. I find nothing in this aspect of the case to modify the views already expressed. It was the belief that no intermediate liens in fact existed that induced the whole transaction. Some of the cases above cited from other jurisdictions are identical with this case in that respect.

Some testimony was introduced at the hearing to the effect that one of the directors of the association was informed of the existence of one of the judgments here in question. He denied that claim. I do not think the evidence justifies a- finding that the director was made acquainted with that fact. He knew of the debt, and I am unable to doubt his statement to the effect that he understood the statements to him to refer to the debt and not to a judgment. This dispenses with any ■ consideration of how far his knowledge would have been binding upon the association.

I will advise a decree in accordance with the prayer of the bill.


text:
    Philip Marvel v. William E. Jonah.
    [Heard March 7th, 1913.
    Determined April 10th, 1913.]
    A covenant in copartnership articles of agreement between physicians Hor the general practice of medicine at Atlantic City, whereby the covenantor agrees-that if he “shall fail faithfully to perform the covenants of this agreement” the covenantee may terminate the partnership, and in such event, the covenantor will not pursue his profession in said city during three years from the termination of the partnership, will not be enforced by injunction, it appearing that the moving and fundamental cause for such relief is the covenantor’s failure to render his accounts to the bookkeeper of the firm in the manner specified in the agreement, and that this fault was unaccompanied by pecuniary loss or improper motives and arose chiefly by reason of absorbing devotion to another and more important department of the covenantor’s partnership duties, and that the granting of such relief is oppressive and contrary to the real justice of the case.
    Einal hearing on hill for accounting, dissolution of partnership and injunction.
    The present controversy is between two physicians who are partners in business. Complainant seeks an accounting, a dissolution of the partnership and an injunction restraining defendant from practicing his profession in Atlantic City for a period of three years from the date of the decree of dissolution of the partnership.
    Defendant has in his answer fully accounted up to the date of the preparation of the answer, and the accuracy of the accounts is unquestioned.’ Defendant in his answer declares that by reason of the strained relations now existing between him and the complainant the partnership should .he dissolved; but de>nies responsibility for these strained relations and denies the right of complainant to 'an injunction.

      The present partnership was formed under a written agreement bearing date January 10th, 1910. By that agreement complainant, defendant and another physician became copartners in the general practice of medicine at Atlantic City for a period of eight years. The agreement is of great length and will not be here quoted in full.
    By the agreement complainant, as senior partner, is given the major part of the net income of the business, and the junior partners are subjected to a great number and variety of detailed restrictions relating to their conduct and the business methods to be pursued. Among the provisions reláting to business methods are the following:
    "It is further agreed that each party to this agreement shall render to the bookkeeper, or the person employed for that purpose, a daily account of the work done or visits made that day by him, together with all moneys pajd to him on account of said work done or visits made; and, it is also understood that, in order that the bookkeeper may keep an accurate and intelligent account, this provision for a daily statement must be more or less strictly adhered to.”
    “Any misappropriation of the receipts, or refusal to account for the work done or .moneys received daily, shall be considered a violation of this agreement.
    “All professional cards, letter heads, bill heads and other stationery relating to the practice generally, shall be furnished by the said Dr'. Philip Marvel, and shall be used exclusively by the parties to this agreement.”
    At the end of the agreement the following provision is embodied touching the consequences of a violation by the junior partners of any of the covenants of the agreement :
    “If at any time during the term of this agreement either the said Dr. Jonah or the said Dr. Durand, parties of the second part, shall fail to faithfully perform the covenants of this agreement, or shall fail to do their work conscientiously and diligently, or shall fail at any time to protect the interests of the parties to this agreement, and the interest and reputation of the said Dr. Philip Marvel, then, and in that event, the said Dr. Philip' Marvel shall have the right to cancel and annul this agreement and oust the said party or parties so offending, from this association.
    “As a further consideration, moving to Dr. Philip Marvel, and as part of the consideration causing him to enter into this agreement, and in consideration of the apportionment and division of the net income hereinbefore mentioned, it is further understood and agreed that if at anytime during the term of this agreement, either the said Dr. Jonah or the said Dr. Durand, or both, may desire to withdraw from this association, for any reason whatsoever, and shall actually withdraw therefrom, or if at any time during the term of this agreement either the said Dr. Jonah or the said Dr. Durand, or both, may commit a breach or violate any of the covenants of this agreement in such manner as to justify the said Dr. Philip Marvel in requesting the party or parties so offending to withdraw from this association, or to cause the said Dr. Philip Marvel to cancel and annul this agreement, so far as the party or parties so offending are concerned, then in either event such party or parties so voluntarily withdrawing from this association, or ousted from this association, for breach or violation of its covenants, shall not be permitted to practice medicine in the city of Atlantic City, aforesaid,' for a period of three years next ensuing such voluntary withdrawal or ouster. And the said Dr. Jonah and the said Dr. Durand doth hereby covenant, promise and agree that in ease of either or both of them' withdrawing for any reason whatsoever, from this association, during the term of this agreement, or- in the event of either or both of them being requested by the said Dr. Philip Marvel to withdraw from this association or being ousted therefrom, on account of a breach of any of the covenants of this agreement, that they, the said Dr. Jonah and the said Dr. Durand will not, either individually or jointly, or as an associate with any other physician, practice medicine or surgery in the City of Atlantic City aforesaid for a period of three years next ensuing such withdrawal or dissolution of this association or ouster of either or both of the parties of the second part.”
    Complainant now claims that defendant has failed to render accounts to the bookkeeper of the partnership in accordance with the requirements of two of the provisions above quoted and has also violated the covenant third above quoted in using stationery not furnished by complainant. ' Por these alleged violations of the partnership agreement by defendant, complainant by his bill asserts his option named in the penalty clause of the agreement, above quoted, and seeks a decree ousting defendant from the partnership and prohibiting him from pursuing his profession in Atlantic City for the three years period specified in the agreement.

      Messrs. Bourgeois & Coulomb, for the complainant.

      Mr. Allen B. Bndicott and Mr. Robert If.. McCarter, for the defendant.
   Leaming, Y. C.

Defendant concedes that he has not rendered to the bookkeeper reports of his work in accordance with the requirements of the provisions of the partnership agreement. It is not claimed that he did not fully comply with these requirements of the agreement, and also with the office rules prescribed by complainant, so far as what is known as “office practice” is concerned. In prescribing for patients during office hours defendant appears to have promptly supplied to the bookkeeper all necessary data of his work thus performed. But for what is ■ called “outside work” defendant during three prolonged periods failed to promptly supply the bookkeeper with a record of his work. No dishonesty or even dishonest purpose upon the part of defendant is claimed or suggested and no loss of money appears to have been occasioned by defendant’s negligence in reporting the details of his work during the periods referred to. But his business methods during the three periods referred to were clearly contrary to the terms of the partnership agreement. Defendant’s excuse for his delinquency in the respect referred to is to the effect that he would become so engrossed in his professional work that he would not find time to make up his accounts fox the bookkeeper, and once falling behind the task became greater and would not be finally performed until the necessity of settlement required it. The evidence .disclosed that defendant made regular reports of his work to the bookkeeper' until September 27th, 1910; from that date until the end of that year lie failed to make reports of his outside work. At the end of the year he rendered his accounts and a partnership settlement was made and defendant began the new year with a determination to make prompt reports; he succeeded in his efforts until May 6th, 1911, when he again fell behind in his reports until October 31st, 1911, at which time, after a settlement, he ■ went to Europe to restore his health. Erom January 7th, 1912, until March 16th, 1912, defendant promptly reported his work; from the latter date until the bill was filed (September 7th, 1912) he failed to make reports. His accounts during that period are fully set forth in his answer. Complainant has repeatedly, urged defendant to make prompt reports and defendant has promised to do so, -and has, I am convinced, tried to do so. His failure to do so has arisen from the cause already stated, supplemented by the fact that he is temperamentally unable to comprehend the value or necessity of strict business methods or to pursue them.

Erom the foregoing it will be observed that defendant has clearly violated a covenant of the partnership agreement and that the penalty clause of that agreement in terms bestows upon complainant the right to oust defendant for a failure “to faithfully perform the covenants of this agreement,” and also provides that in such case defendant shall not pursue the practice of his profession in Atlantic City for a period of three years.

As the prayer for an accounting and dissolution of the partnership is not resisted, the single qiiestion now presented is whether this court should in this case exercise its prohibitory power in behalf of complainant to the end that the covenant of defendant to refrain from the pursuit of his profession in Atlantic City for the period stated may be, in effect, specifically enforced against him.

It is contended in behalf of the defendant that the covenant to refrain from practice is not supported by an adequate consideration. All authorities appear to agree that a valuable consideration must be established to support a covenant of this nature, even though the covenant be under seal; but the weight of authority is clearly to the effect that if a valuable consideration is found to exist the adequacy of that consideration will not be inquired into. The authorities to that effect are collected by Mr. Ereeman in his note to Angier v. Weber, 92 Am. Dec. 754. The adjudicated cases involving covenants of this nature have almost uniformly arisen in connection with the sale of a business, and it has been found impracticable to inquire as to the extent to which the purchase price entered into the covenant of the vendor not to engage in an opposition business. In the present case no sale occurred. The evidence discloses that when the partnership agreement here in question was made defendant was already a partner of complainant. The present agreement continued their partnership relation under new terms and also admitted to the partnership an additional partner. So far as the evidence discloses it is indeed difficult tp discern wherein the new partnership agreement can be said to have been beneficial to defendant, but considered as an engagement involving the partnership relation of the three partners for a future period of time it is, I think, impossible to here determine that the benefits and disadvantages flowing from its mutual covenants were inadequate to support the engagement of defendant to refrain from practice at the place and during the time specified at the termination of "the partnership.

What appears to be a more powerful objection to the present enforcement of this covenant of defendant arises from, the views expressed by Vice-Chancellor Van Fleet in Mandeville v. Harman, 42, N. J. Eq. (15 Stew.) 185. It is there pointed out that covenants in restraint of trade are presumptively void, and that it is only by showing that the restraint is good that the presumption will be overcome; to overcome the presumption of invalidity the restraint must be shown to be reasonable, and the test of. reasonableness is that it imposes no, shackle upon one party that i's not beneficial to the other ; restraint unlimited as to time can find no justification in reasonableness except upon the theory that it is necessáry to protect the good will of a business; there is no good will in the business of a physician, and hence no interest reasonably calling for protection beyond the period during which the physician covenantee .pursues his business. His conclusion is that the absence of .the-element of good will in the business of a physician renders it unreasonable and improper.for a physician to exact from an employe a covenant against practice for a period longer than the time the covenantee shall pursue his profession. While the relief sought in that case was a preliminary injunction and was denied because of the uncertainty of the right, the views above briefly summarized are clearly defined as the views of that learned jurist. The test of reasonableness stated in Mandeville v. Harman, that is, that the restraint imposed upon one party must not be larger than is reasonably necessary for the protection of the other, is a test which has been definitely adopted by our court of last resort, and is not open to question. Brewer v. Marshall, 19 N. J. Eq. (4 C. E. Gr.) 537, 547; Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. (13 Dick.) 507.

The covenant here sought to he enforced is between physicians and fixes three years as an arbitrary period of restraint, irrespective of whether the covenantee lives or abandons his practice during that period. If the views stated in Mandeville v. Harman to the effect that no good will exists in connection with the business of a physician and that a restraint can be regarded as reasonable only when limited to the needs of the covenantee, the covenant here under consideration would seem to rest upon an improper basis. I should, however, have great hesitancy in determining that a covenant between physicians could be properly classed as void for unreasonableness as to time when limited in time to three years. But I think it here unnecessary to so determine, for I find it impossible to escape the conclusion, under all the circumstances here present, that the remedy which this court is now asked to enforce against defendant is oppressive and contrary to the real justice of this case.

In granting relief by injunction and especially in a case of this nature where the relief sought is in effect the specific performance of a contract, the rules laid down in Sternberg v. O'Brien, 48 N. J. Eq. (3 Dick.) 370, 375, cannot be too carefully adhered to:

“Ro matter when the writ'is applied for, to warrant its issue, in a case like the one now under consideration, three things must be clearly shown — fb'st, that a valid contract has been violated in a material point; second, that such violation has resulted, or will result, in a serious injury, and third, that the remedy at law is plainly inadequate to do full and complete justice. A court of equity, in exercising its prohibitory power, must always proceed with the utmost caution and see to it that its power is not so exercised as to do more harm than good. The power exists to prevent irreparable wrong, and should not, therefore, be used, in any case, when its use will produce the very result it was designed to prevent. The rule is fundamental that an injunction should never be granted when it will operate oppressively-or contrary to the real justice of the case, or where it is not the fit and appropriate method of redress under all the circumstances of the case, or when the benefit it will do the complainant is slight in comparison with the injury it' will do the defendant. The great office of the writ is to protect and preserve, not to destroy.”

The covenant of defendant is that if he “shall fail to faithfully perform the covenants of this agreement” complainant maj'’ terminate the partnership and in such event defendant will not pursue his profession in Atlantic City during the specified period. As already stated, the failure of defendant to render to the bookkeeper of the partnership prompt accounts of his work ■ was not by reason of dishonest purposes or acts, but was due to the pressure of his professional work. and his failure to appreciate the importance of the strict business methods defined by the partnership agreement. Defendant was, unquestionably, wholly unconscious of the fact that his delinquencies in accounting might be made the basis of a dissolution and the consequences here urged. From the viewpoint of complainant, with his devotion to strict business methods, defendant’s failures to account were indeed annoying; but no pecuniary loss resulted. Defendant was, from time to time, urged by complainant to render to'the bookkeeper regular reports of his work, and after the personal relations between complainant and defendant had become severely strained a letter from complainant to defendant was not lacking in emqohasis, but no specific warning was given that the consequences here sought to be visited on defendant might result from his conduct. If defendant ever understood the terms of his contract — and this is indeed doubtful — I 'am fully convinced that until the bill was filed he was in- ignorance of the provisions here sought to be enforced; his former defaults of the same nature had been overlooked by complainant. It is urged by complainant that the remedy now sought flows by contract from the right of dissolution. That is undoubtedly the language of the contract; but in administering this form of relief a court of equity is required to give consideration to a broader view than the-naked terms of the agreement, and it thus becomes impossible to ignore the circumstance that the moving and fundamental cause for the relief here sought is the failure of defendant to render his accounts to the bookkeeper in the manner specified in the agreement, and that this fault, unaccompanied by pecuniary loss or improper motives and arising chiefly by reason of absorbing devotion to another and more important department of defendant’s partnership duties, cannot justly be made the basis of a form of relief in a court of equity which will be fraught with consequences so serious to both defendant and the public as the remedy here urged. In considering this remedy as unjust and unnecessarily oppressive imder the circumstances of this case, it must be borne in mind that it is more than doubtful whether the pursuit by defendant of his profession during the period named will result in serious loss to complainant. That patients will probably be treated by defendant who might otherwise seek the services of complainant may be conceded;, but complainant’s practice is, in magnitude, far beyond his ability to cope with it without the employment of the services of others, while the consequences which will flow from denying to defendant the privilege to pursue his practice in the only field of his acquaintance are of the utmost seriousness. The force of this situation in a case of this nature is stated in Sternberg v. O’Brien, supra (at p. 376), as follows:

“When, therefore, a. court is asked either to deprive a person of this right, or to abridge it, it is its duty, before it acts, to consider with the utmost care whether, if it does what it is asked to-do, it will not, on a careful comparison of consequences, do more injustice than justice.”

It is not to be inferred from what is here said that relief of the nature here sought is not within the field of equity jurisdiction in cases of this general nature; on the contrary such relief is not infrequently granted. Nor is it to be here assumed that such damages as complainant may suffer by defendant’s breach of contract are not recoverable in an action at law- The denial of relief by' injunction herein is wholly based upon the fact that under all the circumstances of this case the relief sought is unjust and unnecessarily oppressive.

A claim is also made by complainant that defendant has violated that part of the partnership agreement which requires the exclusive use of the stationery furnished by complainant. That claim is based upon the fact that defendant has not uniformly used prescription blanks so supplied, but has, at times, used blank paper and at other times prescription blanks supplied by druggists on which is printed only the name of defendant. I have not been able to regard this alleged breach of the agreement as material.

1 will advise a decree of dissolution of the partnership, and direct an accounting for such work as has been performed pending the litigation, and deny the prayer for an injunction.