text:
    Frederick Russel v. Myers Excursion and Transfer Company.
    [Filed October 14th, 1907.]
    1. g Gen. 8tat. p 1961 is valid in so far as it creates a lien on a vessel for supplies and repairs, but is invalid so far as it attempts to provide for the enforcement of the lien by proceedings in the nature of proceedings in rem in admiralty, as .the lien is maritime, and under the constitution and laws of the United States the jurisdiction of the federal admiralty court of sucli proceedings is exclusive.
    2. The recognition by the court of chancery of this state of a lien for coal furnished a vessel on ■ a fund in the hands of receivers arising from a sale of the vessel, and the ordering of that fund paid over to the lien-holder, is not an exercise by that court of the jurisdiction to enforce liens by proceedings in rem, which, is vested exclusively in the courts of admiralty.
    3. A lien claimed for coal furnished for the use of a steam tug is within 2 Gen. 8tat. p. 1961, giving a lien for supplies, provisions and stores furnished for the use of a ship or vessel.
    In insolvency. On appeal of the Consolidation Coal Company from adjudication of receivers.

      Messrs. Gollins ■& Corbin, Mr. Herbert Barry and Mr. Morton G. Bogue, for the appellant.

      Mr. Charles E. Hendrickson, Jr., and Mr. John Griffin, for the receivers.
   Stevenson, V. C.

By stipulation the appeal from the adjudication of the receivers denying a preference to the claim of the appellant has been submitted to this court “upon the petition of appeal with copy of proof of claim thereto annexed, the answer of the receivers and the affidavit submitted by the petitioner (appellant) and the original invoices submitted by the receivers.” The appellant’s claim is for coal furnished for the use of the steam tug “Neptune” of the insolvent corporation prior to the insolvency, amounting to $462, with interest from September 7th, 1905. It appears from the answer to the petition of appeal and the briefs of the parties which have been submitted and which in some respects add to the facts upon which the case has been argued and is to be decided, that the “Neptune” was sold under process issuing out of the United States district court for the southern district of New York in a proceeding in rem in admiralty, and that after paying the claims of the libellants a surplus, was paid over to the receivers appointed in this cause amounting to $36-1.05. The appellant claims to have a lien upon this entire smn under the provisions of our New Jersey statute enacted in 1857 and entitled “An act for the collection of demands against ships, steamboats and other vessels.” 2 Gen. Siat. p. 1961. The receivers, while allowing the appellant’s claim of $462 and interest as a general unsecured claim, and as such entitled to a dividend, have adjudicated adversely to the preferential lien claimed as aforesaid and from such adjudication this appeal is taken.

My conclusion is that the action of the receivers in refusing to recognize the lien claimed was erroneous and that the appellant is entitled to the fund.

1. Any extensive discussion of the law of this case is rendered unnecessary by the elaborate opinion of Mr. Justice Gray in the case of “The Glide,” 167 U. S. 606, 42 Law Ed. 296 (1896), to which there was no dissent. It is established beyond question that the above-cited statute is as stated by Mr. Justice Gum-mere in the case of Hankins v. Cox & Sons’ Co., 63 N. J. Law (34 Vr.) 512, “invalid to the extent that it attempts to provide for the enforcement of the lien given by it for making repairs to a vessel in its home port by proceedings in revi instituted in a state tribunal, and that such proceedings when'so instituted are void.” In the same opinion, however, the act is declared to be unobjectionable “in some of its provisions.” These statements are takén from a unanimous decision of our supreme court, and they accord with the federal decisions which now are recognized as precedents.

In this case the appellant has a lien under our statute, but that lien can be enforced by proceedings in rem, which are the equivalent of proceedings in rem in admiralty only by the federal admiralty court. It is useless to discuss the anomalous situations which have been created or evolved through the series of conflicting federal decisions set forth and discussed in the opinion of Mr. Justice Gray above referred to. It seems to be true to-day that it is competent for a state legislature to create that form of property which is called a lien upon a vessel for ’’supplies and repairs furnished in its home port, but it is not competent for that legislature to provide for the enforcement of that lien by a proceeding strictly in rem. The right of the appellant, however, being “maritime in its nature,” is cognizable by a federal admiralty court, and thereupon that court may enforce the lien created by .the local statute.

2. The only question in this case is whether the recognition of this lien by this court upon the application of the appellant is or is not the exercise by this court of a jurisdiction which, under the constitution and laws of the United States, is vested exclusively in the federal admiralty court. I am unable to see that when this court is asked to recognize the appellant’s lien on this fund and order the fund paid over to the appellant on account thereof, that it is asked to do anything in the slightest degree akin to exercising jurisdiction in admiralty:

The fallacy which I think vitiates the argument of the respondent consists in the assumption that the appellant never had a valid lien on this vessel which this court coujd take cognizance of or in any way enforce. The statute, so far as it gives the lien, is expressly held to be constitutional and valid both by the decisions of the supreme court of the United States and .of the supreme court of New Jersey cited above. This court must at all times recognize these liens under the statute. The only disability resting upon the court and the legislature of the state consists of the interdiction under the federal constitution of the creation or prosecution of any course of procedure for the enforcement of the lien which in effect is the- same thing as a proceeding in rem in admiralty. The procedure prescribed by our statute has been adjudicated to be of the character above stated, and therefore the attempt of our legislature to provide such a procedure was wholly void. When, however, the existence of this lien comes up in any court in New Jersey it must be recognized, although such court cannot enforce it in what amounts to a proceeding in rem in admiralty.

The situation, therefore, seems to be this, that this court must adjudicate that the appellant had a valid lien on this vessel. This lien was in one way enforceable only through the federal admiralty court, but it was a property right which all courts, both federal and state, must recognize, and which the state courts must enforce in all ways excepting the one which, under the constitution and laws of the United States, they are not allowed to follow.

When the vessel was sold under the libels filed in the federal admiralty court in New York upon a well-settled equitable principle, the appellant’s lien was transferred to the fund. The fund then was paid, out of the admiralty court into the hands of the receivers of the insolvent corporation, which was the original owner of the vessel. The money was not merged in the general assets of the insolvent corporation by such payment. The lien of the appellant followed the fund and is now attached to it. This court is not asked to exercise any of the powers which are exercised by an admiralty court in seizing a vessel upon process in rem and affecting sale thereof. In recognizing this lien and ordering the payment of this fund to the appellant no action is taken affecting navigation or commercial transactions upon navi gable waters. The lien being valid, and this court being obliged to recognize it, all that follows is a mere administrative order which affects a sum of money now within the control of this court. The making of such an order does not involve the exercise of any of the powers which are vested exclusively in the federal admiralty courts. In fact the proceeding in this court resulting in such order is not a proceeding strictly in rem; it is a proceeding in personam analogous to a foreclosure suit in which the parties have appeared and have litigated their respective claims in respect of a res within the custody of the court, or subject to its control. The order which the court makes is binding upon the parties litigant in this court and elsewhere. It compels the receivers personally to pay a sum of money which is in their possession.

3. Counsel for the respondents argues that the lien claimed in this case is not within our statute and is not enforceable in the federal admiralty court, but I am unable to accept these views. On the contrary, it seems clear to me that the appellant’s claim is expressly made a lien on the vessel by our statute; that such lien is enforceable by the federal admiralty court through its own exclusive procedure strictly in rem, and that such lien is also enforceable in this court in all other ways in which a court of equity can act in regard to such matters. No question of procedure where the legislature has not effectually prescribed any mode of procedure arises in this case. Where there is a valid lien on a fund within the control of a court of equity, such court will have no difficulty in respect of the method of enforcing the lien.


source: Caselaw Access Project

author: Bergen, Y. C.

license: Public Domain

text:
    Sitley & Son, incorporated, v. James A. Morris et al.
    [Submitted June 18th, 1907.
    Decided June 18th, 1907.]
    1. A junior judgment creditor, who by superior diligence procures an execution and places it in the hands of the sheriff prior to such a proceeding by a senior judgment creditor, acquires a lien superior to the lien of the senior creditor.
    2. A junior judgment creditor, who files a bill to set aside a conveyance made by the debtor as fraudulent and to subject the land to his judgment, and who obtains a decree in his favor, acquires a lien superior to the lien of a senior judgment creditor, who by virtue of an execution under his judgment previously sold the land, though the legal title thereto was not in the debtor.
    3. Where the proceeds of a sale of the land of a debtor under an order directing that the proceeds shall be paid into court for distribution between judgment creditors are in court, and the parties in interest are before it, an order for distribution will be made without the giving of notice of a hearing thereon.
    On creditor’s bill, &c.

      Messrs. Berry & Iiiggins, for the complainant.

      Mr. Wilfred B. Wolcoit, for the defendant, the Mutual Benefit Building and Loan Association.

      Messrs. Bird <& Blackman, for the defendants, James A. Morris et al.
   Bergen, Y. C.

The present application concerns the distribution of the proceeds of the sale of the real estate of the defendants. The property was sold by virtue of two executions issued out of this court, one at the instance of the complainant and the other at the suit of S. Walter Morris. The sale was permitted under an order directing that the proceeds of the sale should be paid into court, for the purpose of its proper distribution, after the claimants thereto should be heard.. The sale has been made, the money is now in the hands of the court subject to distribution. There are two claimants to the fund, first S. Walter Morris, who recovered a judgment at law, and by virtue of an execution issued thereon sold the real estate in question as the property of the defendant, although the title to it had then been transferred to another, leaving no legal title in the defendants to be levied upon or sold. That sale this court held, under proceedings instituted for that purpose, was not effective, for the reason that at -the time the judgment was recovered the defendants had no legal title to the property sold. Whereupon the complainant, having subsequently recovered a judgment at law, filed its bill in this court, praying that the transfer made by the defendants should be set aside as one made in fraud of creditors, and that the lands should be subjected to the payment of its judgment. That cause was contested and resulted in a decree in favor of the complainant, making its debt a lien upon the land, in satisfaction of which it was entitled to have the property sold. From this decree an appeal .was taken, which was subsequently dismissed by consent of counsel, but not until S. Walter Morris had filed, in this court, his bill of complaint for the purpose of subjecting the same property embraced in complainant’s decree to the payment of his judgment; and during the time the complainant was, by the appeal, prevented from proceeding to execution and levy, Morris procured the issuing of an execution upon his decree, thereby securing a prior levy upon the land, by virtue of which he now claims he-is entitled to priority in payment out of the fund in court. Whether the filing of a bill of complaint for the purpose of subjecting an equitable estate to the payment of a debt, or an actual levy upon the land, gives the party priority is the single question here presented.

I have no doubt that as between the parties to this controversy the filing of the bill establishes the lien. The bill which the complainant filed rested upon our statute, and the suit was instituted by a creditor in his own behalf, and not in behalf of any other creditor, which resulted in a self-serving decree, and entitles the complainant, as was said by Chief-Justice Beasley in the Fayerweather Case, to the benefit of the well-known rule that an advantage obtained by the prior exhibition of his bill of complaint will not be disturbed to aid creditors less diligent.

The ease cited by counsel for S. Walter Morris, and upon which they relied, relates entirely to judgments at law. The principle is well settled in this state that if a junior judgment creditor, by superior diligence, has an execution issued in proper form and placed in the hands of the sheriff prior to such a proceeding on behalf of another judgment creditor, his lien on the real estate of the debtor antedates that of an execution upon an earlier judgment, but that rule does not apply in a case of this character, where the complainant obtained a judgment and diligently pursued its remedy by filing a bill of complaint in this court, having for its object the attaching of the lien of its judgment upon the equitable interest of the defendants in lands as to which, it was alleged, and afterwards determined to be, that the legal title to the land was held by another as trustee of the defendants for the purpose of hindering and delaying creditors in the collection of their debts. The complainant, having filed its bill, its lien attached from that time, and the priority thus obtained is not disturbed by any subsequent proceeding of like character, and therefore the complainant is entitled to be first paid out of the money realized from the sale of defendants’ lands.

This application was made by counsel for S. Walter Morris upon notice to complainant. That application I refuse, but as the parties are all here it would seem to me to be unnecessary to put the complainant to a similar notice of hearing for the purpose of determining the proper distribution of this money. The money is in the hands of the court, all the parties interested are present, and I will make an order that the clerk pay to the complainant, out of the fund in hand, the amount due upon its judgment and decree, and if the amount be not sufficient to satisfy such claim in full, that the clerk pay to complainant whatever may have been deposited to be applied to the satisfaction of complainant’s debt so far as it will extend.


author: Bergen, V. C.

text:
    Harriet McCloskey, administratrix, v. Jonas J. Thorpe, administrator, et al.
    [Submitted June 6th, 1907.
    Decided June 19th, 1907.]
    1. A testator being the owner oí a one-third interest in a saw-mill property, by his will ordered it sold, “and the money paid over to my wife. Charity, for her use, and I also will her all my personal property that I am possessed of,.and if there should be anything left after her death then I want that divided also with the money from the house and lot.”
    2. Upon the question whether the wife took an absolute estate, or only a life estate, in the proceeds of the saw-mill and the personal property— Iteld, that she took only an estate for life.
    On bill for accounting.

      Mr. Osiris D. McConnell, for tire complainant.

      Messrs. Smith .& Brady, for Thorpe, administrator, defendant.

      Mr. J. I. Blair Reiley, for E. Mundy et al., defendants.
   Bergen, V. C.

The right of complainant to a decree depends upon the interpretation of the third clause of the last will of John Rooks. The testator being the owner of a one-third interest in a saw-mill property, ordered it sold "and the money paid over to my wife, Charity, for her use, and I also will her all my personal property that I am possessed of, and if there should be anything left after her death then I want that divided also with the money from the house and lot.”

By a previous section of the will the house and lot referred to was given to testator’s wife for life,

“for her own benefit, and after her death to be sold and divide the money between Harriet Eicke and John Zellers (both children that I have raised) when they come of age, Harriet two-thirds and John one-third.”

The saw-mill property was sold for $5,000 and the money paid over to the wife who held it during her life. Did the wife take the proceeds of the sale of the mill property and the personal estate absolutely, or for life only, is the question presented. The personal property which came into the possession of the wife was inventoried at $941.50, making a total of $5,941.50, which the administratrix of the estate of John Rooks, deceased, insists should be paid to her by the administrator of Charity Rooks, the wife, for distribution according to the will, while the representative of Charity claims that she took an absolute estate and therefore the complainant is not entitled to the accounting which is prayed for in the bill of complaint. The determination of this controversy depends upon the interpretation to be given to the words of the third clause above recited.

I have reached the conclusion that the wife took only an estate for life. The gift to her as qualified by the words “for her use” does not either expressly'or by necessary implication, confer the power of distribution or of absolute dominion.

It is a well-settled rule that a will must be construed, if possible, so as to give effect to every part of it, and it was certainly in the mind of this testator that it was within his power to make a gift over of this part of his estate after his wife had had the use of it during her life. Nor is it unimportant to consider that the gift over is made to the same persons to whom is given the remainder, after the life estate of the wife, of the house and lot disposed of by the preceding section of this will, the expression used being “then I want that divided also with the money from the house and lot.” I am convinced that the testator intended by the words “for her use” to give to the wife the income or profit from this fund during life. The complainant, however, insists that the words “and if there should be anything left after her death” imply the power of consumption and disposition which, if it exists, creates an estate in fee-simple in the first taker, thereby making void the gift over.

The testimony disclosed that nearly all of the personal estate inventoried at $941.50 consisted of goods and chattels which necessarily would depreciate in value from use, and which it is not improper to infer might be wholly exhausted during the life of the widow, and in order to give effect to what seems to me to have been the plain intention of this testator it is not unreasonable to consider that he had in mind the exhaustion of that part of his personal estate which, from its nature, was subject to such a contingency, and that the words “if there should be anything left” relate to this class of property.

In my opinion this case must be controlled by the principles laid down by our court of errors and appeals in Wilson v. Wilson, 46 N. J. Eq. (1 Dick.) 321. In that case the gift was to testator’s daughter “to her heirs forever,” subject to the provision that if the daughter should die without leaving heirs, then the. residue of testator’s estate “whatever it may be at the decease of my said daughter” was given to another. On the argument of that ease it was insisted that the expression “whatever it may be at the decease of my said daughter” implied a power of disposition. In passing upon this question Chancellor McGill, speaking for the court of errors and appeals, said: “In order to realize an income from the personal estate the daughter must invest and reinvest the money that shall come to her hands and thereby, perhaps, change the character of the residue. By the use of the words 'whatever it may be at the decease of my said daughter,’ the testator, then, may have had in mind changes wrought by investment, for it is as likely that he contemplated a change in the character or nature of the residue as he did a change in its amount. If he contemplated change in amount, the change may have been increase as. well as decrease, and if decrease, the apprehended cause of decrease may have been that which would possibly be brought about by accident. * * * Nothing unequivocally points to a power of disposition, and I am therefore not justified in saying that it exists.”

In Tooker v. Tooker, 71 N. J. Eq. (1 Buch.) 513, recently decided by Vice-Chancellor Pitney, it was held that where there was a gift to one “and at his death what remains to his children,” the phrase “what remains” did not confer an unlimited power of disposition.

The conclusion I have reached is that the complainant is entitled to the relief asked for. Another question was raised regarding the qualification of one of the legatees named in the will of John Rooks, but that issue is not properly here, as it relates to the distribution of the estate, and it is in no way pertinent to the accounting sought by the will. The ascertainment of who are the legatees entitled under the will of John Rooks must be settled in some other way than in a proceeding by the executor to recover the estate for distribution.


text:
    Trenton Street Railway Company v. William T. Lawlor.
    [Submitted and decided June 26th, 1907.]
    The complainant is entitled to a decree for the specific performance of a contract made between the counsel for the respective parties to a lawsuit for the settlement or compromise of the claim involved therein, notwithstanding no tender of payment of the agreed sum by the defendant was made where it appeared that the plaintiff had changed his mind and was unwilling to carry out the bargain.and had already said he would not accept such sum.
    On bill for specific performance.

      Mr. George W. Macpherson and Mr. W. Holt Apgar, for the complainant.

      Mr. Thomas F. Noonan, for the defendant.
   Bergen, V. C.

The purpose of this bill is the enforcement of the specific performance of a contract made between counsel of the respective parties for the settlement or compromise of a lawsuit.

It appears by the evidence that the complainant here, the defendant in the damage suit, made an offer to pay $1,800 in settlement of the plaintiff’s claim in the suit at law. Counsel for the plaintiff have testified that the offer was submitted to their client; that he at first resisted and declined to accept; that they discussed the matter with him for a considerable length of time, and finally two of his friends, one of whom was a witness here, were called into the conference, and the result of that consultation was that this defendant authorized his attorney to make the settlement for $1,850.

Whereupon the attorney went before the court, then in session, having been adjourned to that day to try the case, and announced that a settlement of the suit had been made, and the jury were discharged and the court adjourned. I take it that if we believe that,statement of facts to be true, that the complainant has made out a case here, which entitles it to have that contract specifically performed.

Of course, when counsel contracts to make a settlement of his client’s case, it can only be enforced upon proof that counsel was authorized by his client to make the settlement; it must be a special authorization, and that question has been the one most prominently before us on the present hearing. I am well satisfied that the defendant here did authorize Mr. Budd to make the settlement; he perhaps did it reluctantly, but, nevertheless, he authorized Mr. Budd to accept the offer made by this complainant, the defendant in the other suit, and the contract thereby established the complainants are entitled to have carried out. As to the tender of payment, there was nothing in the agreement made by the parties which fixed the time of payment. Mr. Budd, defendant’s counsel, who made the settlement, testified that the sum was to be paid within a reasonable time; he was representing one of the parties who had made the settlement, and being in Trenton every Tuesday, attending to official business, he agreed to call upon counsel for complainant and get a release for his client to execute; he did so, but his client refused to sign it, because he had changed his mind, and was unwilling to carry out the bargain, which he had authorized his counsel to make. Under such circumstances a tender of the money would accomplish nothing, because the.defendant had already said that he would not accept the money.

Under the proofs, I am of opinion that the complainant is entitled to the relief prayed for in the bill of complaint, and that is the specific performance of the contract, and that the defendant in this suit should be enjoined from*further prosecuting the suit at law.

The offer, as I understand it, was $1,800, but counsel for complainant bound themselves to see that another $50 was paid, making a total payment to Mr. Lawlor of $1,850. If you will draw a decree in accordance with the views expressed, I will advise it.


text:
    George P. Buttler v. Commonwealth Tobacco Company.
    [Decided July 2d, 1907.]
    1. Where the assets of an insolvent corporation are not sufficient to satisfy its debts, a creditor holding collateral insufficient to pay his entire claim is entitled to treat the same as security for the entire claim and to receive dividends out of the assets on the entire amount due at the time the corporation was declared insolvent, and not only on the balance remaining after deducting the value of the collateral.
    2. Corporation act, section 80 (P. L. 1896 p. 804), providing that creditors of an insolvent corporation shall be paid proportionately to the amount of their respective debts, excepting mortgage and judgment creditors, when the judgment has not been by confession or for the purpose of preferring creditors, does not require the surrender of collateral by a secured creditor as a condition to his right to dividends on the whole amount of his claim.

      On appeal from determination of the receiver.

      Mr. Maximilian T. Rosenberg and Mr. Ryall Victor (of the New York bar), for the appellant.

      Mr. Robert II. McCarter, attorney-general, for the receiver.
   Bergen, Y. C.

The defendant corporation was adjudged insolvent and Jerome Taylor appointed its receiver, October 17th, 1904, on which date the company owed the Consolidated National Bank of New York $53,440.18, to secure the payment of which it held as collateral security, pledged to it by 'the debtor, warehouse receipts for tobacco in storage.

An order made in the cause required all creditors to make proof of their respective claims before the receiver not later than March 9th, 1905, and the appellant, on March 5th, 1905, presented its claim for the frill amount of the indebtedness as it stood on the day the defendant corporation was decreed to be insolvent, and a receiver appointed. The claim disclosed that after insolvency, and before the claim was presented, $21,020.24 has been realized from a portion of the collateral. Three dividends have been declared by the receiver, one of seven per cent., April 11th, 1905, another of three per cent., June 6th, .1905, calculated upon the balance due this appellant after deducting the amount realized from the collateral. Between the date of the second dividend and the declaration of the third, August 9th, 1906, the appellant had realized from the collateral the further sum of $16,416.53, the aggregate of receipts from the collateral being $37,436.77, leaving a deficit of $16,003.41, upon which latter sum the receiver based his calculation in ascertaining the amount to be clue to the appellant on account of the third dividend. The appellant protests against this method of distribution, insisting that its dividend should be based upon the total amount of its debt on the day insolvency was decreed, claiming that the collateral was given to secure, not a portion, but the whole of the debt, and that it is entitled to withhold the application of its collateral until the general assets of the corporation have been exhausted. The question thus presented is whether a creditor of an insolvent corporation, holding a collateral for the payment of its debt, is required to exhaust its collateral and accept a dividend from the assets of its insolvent debtor, based upon the balance due at the time the dividend is declared, or entitled to a dividend upon its whole claim as it existed at the date of insolvency, without deduction for the amount it may receive by a voluntary, or enforced liquidation of the collateral, subject to the right of the receiver to be subrogated to such collateral as may remain after full satisfaction of the debt.

This question has been carefully considered and passed upon by the federal courts of this country, and the rule has been established there, that a creditor, proving its debt against an insolvent estate, is entitled to dividends thereon without being subject to any deduction for the proceeds of any collateral held as security therefor, received after the date of adjudicated insolvency.

In the well-considered case of Chemical National Bank v. Armstrong, 59 Fed. Rep. 372, Judge Taft carefully reviews the whole subject, holding that the rule in bankruptcy which required a creditor, if he would prove his claim in full, to surrender his collateral, was not the rule in equity, because it ignored the rights belonging to secured creditors before bankruptcy, and modified and reduced the advantage over unsecured creditors which, by the original contract of pledge, the debtor had intended to secure to him, and that it was well settled that the holding of collateral does not prevent a creditor from enforcing his claim, before insolvency, in the ordinary way by judgment and execution, without any deduction for the collateral, while after insolvency the right to satisfy his judgment by execution is gone, and for it substituted a fixed and definite interest in the assets, as a security for the payment of his debt, and that there was no reason why this did not apply as well to creditors who hold collateral as to those who are unsecured, and that the rule in equity requiring a creditor, with two funds as security, one of which he shares with others, to exhaust his sole security first, has no application when its operation would prevent the creditor from paying his whole claim.

This case was cited with approval in Merrill v. National Bank, 173 U. S. 131. Chief-Justice Fuller, reading the opinion of the court, said: “We concur with that court in the proposition that the assets of an insolvent debtor are held under insolvency proceedings in trust for the benefit of all his creditors, and that a creditor, on proof of his claim, acquires a vested interest in the trust fund.” And in another part of the opinion: “The fourth rule is that ordinarily laid down by the chancery courts, to the effect that, as the trust created by the transfer of the assets by operation of law or otherwise, is a trust for all creditors, no creditor can equitably be compelled to surrender any other vested right he has in the assets of his debtor in order to obtain his vested right under the trust. It is true that, in equity, a creditor having a lien upon two funds may be inquired to exhaust one of them in aid of creditors, who can only resort to the other; but this will not be done when it trenches on the rights, or operates to the prejudice of the paity entitled to the double fund. And it is well established that in marshaling assets, as respects creditors, no part of his security can be ■ taken from a secured creditor, until he is completely satisfied.”

In People v. Remington, 121 N. Y. 328, Judge Gray, speaking for the court of appeals, concludes a very interesting opinion on this question, as follows: “In this country, we find that rule more generally prevailing which allows the creditor holding securities to prove and receive his dividend on the whole debt.”

A careful examination of the decision in England and the United States cannot fail to convince that the rule is almost universally established, that in the administration of an insolvent estate, by a court of equity, a creditor may prove, and is entitled to a dividend on, his whole debt, notwithstanding he may be holding collateral as an additional security therefor. One of the cases often cited in support of a contrary rule is Amory v. Francis, 16 Mass. 308, but the ruling in this case was largely rested upon the authority of Greenwood v. Taylor. 1 Russ. & M. 185, a case long since overruled by the English courts, and not now considered as authority there. Eeferring to the Massachusetts case, Chief-Justice Fuller, in Merrill v. National Bank, supra, said: “We cannot concur in the view expressed by Chief-Justice Parker in Amory v. Francis, supra, that The property pledged is, in fact, security for no more of the debt than its value will amount to, and for all the rest the creditor relies upon the personal credit of his debtor, in the same manner he would for the whole if no security were taken.5 We think the collateral is security for the whole’ debt, and every part of it, and is as applicable to any balance that remains after payment from other sources as to the original amount due, and that the assumption is unreasonable that the creditor does not rely on the responsibility of his debtor according to his promise.55

Therefore, unless the principle approved by the English, and generally by the federal and other courts of the United States, is in conflict with the determination of the precise question by the court of last resort in New Jersey, or affected by statutory enactment, we should, in the interest of a consistent administration of the law, endeavor to follow them, for it would be unseemly to have the administration of the assets of one of our corporations administered by the federal court in the district of New Jersey, upon one principle, and by the courts of New Jersey upon another.

The earliest case in this state where this question has been considered is that of State Bank v. Receiver of Bank of New Brunswick, 3 N. J. Eq. (2 Gr. Ch.) 266. In that case the New Brunswick bank was declared insolvent prior to which the State bank received, in the regular course of business, and then held, bank bills of the defaulting corporation for $3,097, and as collateral security for the payment of them, two drafts of $1,000 each, which matured and were paid about two months after the insolvency. The State bank presented claims to the receiver for the full amount of $3,097, claiming a right to a dividend on that sum, which the receiver refused to admit. It appeared that one of the drafts had been- specifically pledged for $900 of the bills, being all that was in the hands of the State bank when the pledge was made. This, it was determined, could only be applied to the redemption of the particular debt for which it was pledged; that position was not contested, but it was insisted that $100, the difference between the amount of the draft and the debt for which it was pledged, should be set off against the balance of the debt, and in passing upon this question, the chancellor inclined to the opinion that it should be allowed— first, because, in his opinion, the act partook largely of the character of a bankrupt law, and that if the act be so considered, the claim to a set-off would be admissible; and second, that the act to prevent frauds_ by incorporated companies did not confine itself to legal set-offs, but referred to just sehoffs, and “expressly directs the receivers to allow them when they ought to be allowed according to law not only, but equity also.” The, next question the chancellor stated as follows: “It remains to inquire whether the petitioners are entitled to prove their debt for the whole amount, after deducting the $900, and the set-off of $100, and obtain a dividend on the whole, reserving the second draft of $1,000 to make up the deficiency; or whether they shall appropriate the draft to the payment of so much of the debt first, and prove for the balance.” He held that the creditor could only prove for the balance, that this would be the course under the bankrupt laws, because the principle running through that sj^stem was “that equality is equity,” but it is quite apparent that the learned chancellor did not rest his conclusion upon the practice under the bankrupt laws, for he then proceeds to demonstrate that “the same principle has been applied to cases of insolvenc}», where the funds are under the control of a court of equity for the benefit of all creditors,” and after quoting from Greenwood v. Taylor, supra, as follows: “The rule in bankruptcy must be applied here, and the mortgagee cannot be permitted to prove for the full amount of his debt, but only for so much as the mortgaged estate will not extend to pay. This rule is not founded upon the peculiar jurisdiction in bankruptcy,, but rests upon the general principles of a court of equity in the administration of assets. The mortgagee who has two funds, as against the other specialty creditors, who have but one fund, must resort, first, to the mortgage security, and can claim against the common fund only what the mortgaged estate is deficient to pay,” he then proceeds to say: “If this principle be correctly appliéd to the administration of insolvent estates in equity, there is an end of the question. The security must first be applied to the payment of the claim, and then the common fund be resorted to for the balance. The justice of the rule has been so strongly felt that it has been recognized and adopted even in a court of law, as in the ease of Amory v. Francis, 16 Mass. 308.” Thus it appears that the chancellor rested his determination, first, upon Greenwood v. Taylor, supra, which has since been overruled in England, and upon the Massachusetts Case cited, which is not recognized an authority for the rule applied, and certainly the dictum, “for the property pledged is in fact security for no more of the debt than its value will amount to,” is no longer esteemed to be a correct statement of the law, for the security is a pledge for the whole debt, and not only to the extent of its value, for it is well settled that in order to take up a pledge, the whole debt for which it is given must be tendered, and not only the value of the security. In the present condition of the law, I am of the opinion that this case, based as it was upon discredited cases, ought not to be considered a controlling authority.

In Vander Veer v. Conover et al., 16 N. J. Law (1 Harr.) 487, Chief-Justice Hornblower, speaking of the situation of a judgment creditor, who had proved his claim under general assignment proceedings, said: “If, therefore, the plaintiff in this case, apprehending that the property actually bound by his judgment or execution, might not be sufficient to satisfy him, thought proper to come in under the assignment, he had a right to do so. By doing so, he did not waive his priority as a judgment creditor, so far as respected the property bound by the judgment or execution, but he became entitled to a dividend, upon any balance that might remain due to him, after exhausting that property; and consequently by the very terms of the statute, barred himself from ever proceeding by suit at law, or, in equity against the defendant, for such balance of his. debt.” But whatever may have been intended by the learned .chief-justice, when he said that the judgment creditor was entitled to a dividend upon any balance remaining, it is quite clear that the expression was obiter, because it wa-s not necessary to the determination of that case, for the judgment creditor, with several other execution creditors, had consented to the'sale of the debtors’ property, real and personal, and the applying of the proceeds to the satisfaction of the several judgments in their order of priority, and the surplus pro rata, among the creditors who should come in under the assignment. The particular creditor, whose claim was under consideration by the chief-justice, had presented his claim to the assignees for the balance remaining due, and not for his whole debt, therefore, this case is not an authority supporting the principle upon which the receiver acted in the matter now under consideration.

Moses v. Thomas, 26 N. J. Law (2 Dutch.) 124, a case sometimes cited, in support of the claim that a debtor may only have dividends after exhausting his collateral, is not the point, for there the claim filed with the assignee was for the balance due only, and the question was not presented for determination.

The case most often cited on this subject is that of Bell v. Fleming’s Executors, 12 N. J. Eq. (1 Beas.) 13, but in that case the issue to be determined was the effect upon the rights of a creditor, proving his mortgage debt under an assignment for the equal benefit of creditors. . The question whether the secured creditor was entitled to a dividend upon his whole debt, or only upon that part which remained unpaid after his security was exhausted, was not seriously argued, for the chancellor, in his opinion, states “that it was conceded by counsel on both sides, that the creditor was entitled to a dividend upon any balance/’ and then proceeds: “This, certainly, is the most unfavorable position in which the mortgagee can be placed. It cannot be contended that because a creditor has a mortgage, or other security, for his debt, he is thereby deprived of all benefit under the assignment, or that he must abandon his security, and throw it into hotch poich. The only question that has ever been raised, as to the rights of the mortgagee in reference to his interest in the assigned property, has been whether he could obtain a dividend upon his whole debt and look to his security for the balance, or whether the security must be first appropriated, and the creditor be entitled to a dividend only upon any deficiency.” He then refers to the case of Greenwood v. Taylor, of which he says: “Yet it is perfectly manifest that so far from the principle being illustrated by this case, that the case was decided in violation of the rule, for the rights of the mortgagee were trenched upon, and he was prejudiced by its application.” A careful reading of this case discloses that the real question raised in the present proceeding was not at issue, and everything which the case contains relating to the amount upon which a creditor with collateral is entitled to a dividend, was merely incidental, and the only question necessarily determined on this branch of the case was whether the creditor, having proved his debt for which he held a mortgage as security, thereby lost the benefit of the security, and the difficulty suggested by the chancellor, at the close of his opinion with regard to adjusting the claim- of a mortgage creditor, is a mere suggestion of possible methods to be pursued, but not the announcement of any equitable principle.

The case last referred to came before our court of errors and appeals, and is reported in 12 N. J. Eq. (1 Beas.) 490, and Chief-Justice Green, in delivering the opinion of that court, said: “But admitting the provisions to bear a different construction, has the creditor demanded a dividend upon its mortgage debt so as to subject him to the loss of his security? The statute expressly provides for the priority of mortgage debts (section 1). It authorizes the assignee to redeem all mortgages and conditional contracts. The assignment does not impair the mortgage security. It is well settled at this day that the mortgage.creditor is entitled to have the mortgage debt first satisfied out of the proceeds of the sale of the mortgaged premises, and if that prove insufficient, he is entitled to come in .as a general creditor for a dividend upon the balance. But, unfortunately, the statute has provided no mode in which that object shall be accomplished, unless the assignees see fit to redeem the mortgage. The creditor is required to present his security within a' limited time — too soon to allow him .to foreclose the mortgage and ascertain the value of the security. He may not sell the security, as may be done under the English Bankrupt law. He cannot safely deduct the amount of the mortgage debts from his claim, for the value of his security may be doubtful and may prove worthless. The best and safest, if not the only course, so far as I am aware, that the creditor can adopt, is the very one pursued by the creditor in the present instance, to present his entire claim to the assignees, specifying the extent and -nature of his security. The claim is thus placed in the-hands of the assignees, to have the right settled agreeably to law.' Whether he is entitled to a dividend upon his whole debt, and to have the mortgage applied t<5 the satisfaction of the deficiency, or whether he can only claim a dividend on the balance after exhausting the security, he virtually asks that his rights be protected.”

It seems to me quite clear that the court of errors and appeals, in determining the question before it, as it is said in Bish. Insolv. Dr. (3d ad.) 533, “Left the question open.” It was not necessary to determine the amount upon which the dividend of a creditor holding a collateral should be based, the matter under consideration being whether a creditor holding a mortgage as collateral to his debt released it because he came in and exhibited his claim for a dividend out of the assets of his debtor who had made an assignment thereof for the general benefit of his creditors, and all that was said by the court regarding the question now under consideration was not necessary to the determination of the question then presented, the judgment of the court being “the mortgage security is neither discharged by the mode in which the claim was presented, nor by the will of the testator.” I find nothing in this case establishing a principle regarding the right of a secured creditor of an insolvent debtor to a dividend, without crediting a collateral, differing from that which appeals to- the judgment and reason of the great majority of the judges of courts, entitled to the most respéctful consideration, and whose- opinions establish that judicial authority upon which we may safely rest.

In the case of Whittaker v. Amwell National Bank, 52 N. J. Eq. (7 Dick.) 400, Vice-Chancellor Bird expressed the opinion; that while creditors with collateral might prové their debts for the' whole amount due without releasing their collateral, they were "only entitled, as against general creditors, to a'dividend upon the balance remaining due after having received the value of the collateral, citing in support thereof the cases I have above referred to, and which, in my judgment, afford no support for the doctrine announced, which the vice-chancellor said proceeded, "upon the old and long-established principle that where one creditor has two securities and others only one, the former must exhaust his claim to that which is entirely his own before he can resort to that which they hold in common,” but in applying the principle which he thus invokes he did not observe that the doctrine of marshaling assets will never be applied, as was said by Chancellor Williamson in Bell v. Fleming's Executors, supra, when it will trench upon the rights or operate to the prejudice of the party entitled to the double fund. The collateral is for the purpose of protecting the whole debt, not a part only, and to deprive the creditor of the full advantage of his collateral, trenches on his rights.

The rule, as I understand it to be, is that if the assets of the debtor are not sufficient to satisfy all of his debts, a creditor having a right to resort to a fund open to himself alone will not be prevented from claiming, from the assets of his debtor, a dividend on the full amount of his debt, and while the total received cannot exceed the sum due, he is not limited to' a dividend on the balance remaining after deducting the value of the collateral, and that marshaling will not be enforced against him if any part of' his debt remains unsatisfied. The security is for his whole debt and not for a part of it, and he cannot be required to surrender it until the whole debt is liquidated. If, after receiving his dividend, the proceeds of his collateral exceed the amount due, the general creditors are entitled, by subrogation, to the unapplied collateral.

The only other question to be considered is whether section 86 of our Corporation act (P. L. '1896 p. 801/.) is in the nature of bankruptcy proceedings subjecting creditors to the rules applied in that court. My conclusion is that it is not, for the dissolution of a corporation and the distribution of its assets are, by the act, committed to the jurisdiction of the court of chancery, whose powers are equitable, and we must assume that the legislature intended the distribution of the assets of an insolvent corporation, according to equitable rules as distinguished from proceedings in a bankrupt court, where the powers conferred and the methods to be pursued are the-creation of a special statute for that purpose. Our act requires that “the creditors shall be paid proportionately to the amount of their respective debts, excepting mortgage and judgment creditors, when the judgment has not been by confession or for the purpose of preferring creditors,” and it does not prevent the holding of collateral, nor require its surrender, but places all creditors on the same level as to the amount of their respective debts, and there is nothing in the legislative language which in any way interferes with the right of the creditor to be paid a dividend upon the amount of his debt as it existed when the insolvency was adjudged.

Admitting that the course of judicial action in the past, in tliis state, may not have been so clear and distinct upon the question presented as to leave our minds entirely free from doubt, it nevertheless appears to me that the rule now generally adopted and followed by other jurisdictions, that the creditor of an insolvent corporation may prove and receive a dividend upon his whole debt, as it existed when the insolvency was declared, without regard to the amount and value of the collateral held by him, has not been so decidedly repudiated by our courts as to prevent us from following it, if harmonious judicial action be wise and desirable, and that it is so I have no doubt. Many corporations have come into existence under the laws of this state, and the distribution of their assets among creditors is administered by the federal courts of this district as well as by the court of chancery, and it appears to me that to have two courts with concurrent jurisdiction sitting in the same city, administering the assets of our insolvent corporations, according to different principles, is unwise, and to be avoided if possible. If by adopting the rule laid down by the supreme court of the United States, which is necessarily to be followed by all inferior federal courts, we are required to abandon, to some degree, a doubtful procedure in the interest of a uniform administration of justice, we should not hesitate to do so in a case like the present.

The conclusion I have reached is that as the dividends on the whole amount due the creditor, together with the full par value of the collateral, will not sufficiently extend to satisfy the whole of the creditor’s debt, it is entitled to dividends on the whole amount of its debt as it stood on the date of insolvency, without deduction, either for the amount of the collateral in hand or the proceeds received therefrom since the insolvency, and therefore the appeal should be sustained.


text:
    Charles H. Olden v. Charles H. Mather.
    [Decided July 30th, 1907.]
    1. Before complainant, claiming the proceeds of his tenant’s chattels sold under execution on defendant’s prior levy, may have the benefit of the statute requiring an officer to pay rent before removing a tenant’s goods under execution, it must appear the premises were held at a rent certain, for which the plaintiff might by law distrain.
    2. An owner of a farm and milk route let it to one on condition that he furnish horses, &c., and divide the proceeds as follows: Eggs, daily; crops, when sold; milk, monthly. — Held, that the contract did not create the relation of landlord and tenant and is not a lease, and hence did not create the relation necessary to allow the application of the law relating to the right of distress for rent.
    3. The statute relating to distraints and that requiring an officer to pay rent before moving a tenant’s goods under execution are contemporaneous, and to be construed as relating to each other.
    On bill for'relief. On petition by landlord to bave proceeds of tenant’s chattels, sold under execution, applied to payment of rent.

      Messrs. Bird & Blackman, for the petitioner.

      Mr. Edwin B. Walker, for the judgment creditor.
   Bergen, Y. C.

The complainant having a money decree, and the defendant a judgment against one Sassman, they respectively caused executions to be issued thereon, and Sassman’s chattels levied upon and advertised for sale; whereupon the complainant filed his bill in this cause charging that, although the defendant’s levy antedated that of complainant, defendant’s judgment was fraudulently obtained as to creditors and therefore complainant is entitled to priority in payment.

Upon filing the bill an order was allowed requiring defendant to show cause why the threatened sale should not be restrained, which order was disposed of by allowing the sale to proceed with a direction to the sheriff to pay the proceeds into court to await the determination of the questions raised by the pleadings in this cause.

The proceeds of the sale having been paid to the clerk of this court, the present proceeding was instituted by the complainant whose petition alleges that Sassman was his tenant and indebted to him for rent, in a sum much greater than the net result of the sale, wherefore he claims he is entitled to the money, because, as he insists, the sheriff is bound by law to pay the rent before selling and removing the goods, notice to that end having been given him.

That the complainant may have the benefit of the statute, “it must appear that the premises were holden at a rent certain for which the plaintiff might by law distrain.” Central Bank v. Peterson, 24 N. J. Law (4 Zab.) 668.

The facts agreed upon show that the complainant, being the owner of a farm and milk route, let it to Sassman upon condition that he furnished horses, farming implements, dairy fixtures, milk wagons “and all other articles or. things needed for the proper working of the said farm and proper running of the said milk route,” and divided the proceeds as follows: “All eggs are to be divided daily, all other crops to be divided when sold, except the milk, which is to be settled for on the tenth day of the month following the sale thereof.” It also appears that the amount claimed to be due for rent was only established after an accounting, compelled by litigation, and the balance included, not only the proceeds of the crops from the land, but also the profits from the milk business.

This contract does not create the relation of landlord and tenant; it is an agreement to do the work and furnish the materials necessary for farming the land and the carrying on of a milk business in consideration of a division of the proceeds. Such a contract does not constitute a lease, nor does it create the relation necessary to allow the application of the law relating to the right of distress for rent. Gray v. Reynolds, 67 N. J. Law (38 Vr.) 169, and cases there cited.

The rule is settled in this state that the statute relating to distraints and that which requires an officer to pay rent before removing a tenant’s goods under execution, are contemporaneous, and to be construed as relating to each other. Ryerson v. Quackenbush, 26 N. J. Law (2 Dutch.) 236; Van Horn v. Goken, 41 N. J. Law (12 Vr.) 499.

To adopt the course insisted upon by this petitioner will require us to establish the rule that whatever may be found due, by an accounting between the parties, for the use and occupation of land, is rent, subject to which an officer executing a writ of fieri facias must take the goods and chattels of a cropper or occupant of land, which is being worked for a share of the proceeds, and that the relation of landlord and tenant is not a necessary element to the preference here sought. I am of opinion that the act, the provisions of which complainant now invokes, requiring the payment of rent before an officer may remove the tenant’s goods levied upon by virtue of an execution, only applies to cases where the landowner’s claim is of such a nature as will support a distress, and as that condition is not present in this ease, the application must be denied - and the petition dismissed, with costs.


text:
    Jane Josephine Kyte v. George D. Kyte et al.
    [Decided September 7th, 1907.]
    A will devising unto testator’s wife “for herself and all her children” all testator’s real estate, the wife does not take all the property with power to sell and convey free of any interest of her children, but she and they take as tenants in common.
    On bill for specific performance.

      Mr. Charles M. Dolttver and Messrs. Reed & Coddington, for the complainant.

      Messrs. Codington & Swachhamer, for the defendants.
   Bergen, Y. C.

George Kyte died seized of real estate, leaving a last will and testament in which he devised his land as follows: “Second. I give and devise unto my wife, Jane Josephine Kyte, for herself and her children any and all real estate that I may die seized of.”

The wife and the defendant James -F. Devine entered into a written agreement for the conveyance and purchase of a portion of the testator’s real estate, which contract the defendant Devine refuses to fulfill, offering as an excuse that the wife was not, under the clause of her husband’s will above set out, empowered to convey a marketable title according to the terms of her contract. The bill filed in this cause seeks the specific performance of the contract for sale and purchase, and in order to ascertain whether the complainant is entitled to the decree she seeks, it becomes necessary to construe the testator’s will, of which the clause above recited is the only pertinent part.

The claim of the complainant is that by the terms of the devise referred to she takes an estate in fee-simple, with the power to sell and convey the land free and discharged of any interest of her children therein. It appears that at the time the will was executed, and at the death of the testator, the wife had children living, and if the gift had been to her and her children it would have fallen directly within the ruling laid down in Gordon v. Jackson, 58 N. J. Eq. (13 Dick.) 166, 169, but it is sought to distinguish the present case from that because the gift in the first instance is to the wife, "for herself and her children,” indicating, as it was urged, no gift to the children. The argument does not appeal to me with any force. The clear intention of the testator was to give to his widow and children, for their joint benefit, all of the real estate of which he died seized, and to accept the view urged by the complainant would necessarily deprive her children of all beneficial interest, a situation manifestly not within the contemplation of the testator. The plain effect of the words used is to vest a concurrent interest in the wife and her children without the slightest indication appearing in the will of an intent, on the part of the testator, to overthrow the reasonable presumption arising from the language used.

The conclusion which I have reached is that the wife and' her children take, under this will, all of the real estate of the testator as tenants in common, and that the title tendered by the complainant, which she seeks to compel the defendant to accept, is not the title which she contracted to convey, and therefore the bill of complaint must be dismissed, with costs.


author: Bergen, Y. O.

text:
    Annie E. Logan v. William H. Flattau.
    [Decided October 4th, 1907.]
    1. Injunction to restrain an action at law will lie where the subject-matter thereof has been considered by the chancery court, and the same issues determined against defendant.
    2. Defendant’s bill for specific performance of a contract to sell land, upon which he had made a payment, was dismissed because it exhibited the vendor’s inability to perform, and the vendee not presenting a case justifying award of damages for the breach of the contract. — Held, that the decree does not estop him from rescinding the contract and recovering the payment, since the court in the first suit was without jurisdiction to pass upon such matter, and injunction will not lie to restrain a suit to recover the same.
    3. A prayer for general relief in a specific performance suit does not authorize a decree for the repayment of money paid when the contract was signed, because there is an adequate remedy at law to recover the payment.
    On bill for injunction to restrain an action at law.

      Mr. J. Fithian Tatem, for the complainant.

      Mr. John W. Slocum, for the defendant.
   Bergen, Y. O.

This application for a preliminary injunction restraining a suit at law is based upon the claim that the subject-matter of the action at law has been under the consideration of this court, and the same issues determined against the defendant. If this be true the complainant is entitled to the relief sought. Putnam v. Clark, 34. N. J. Eq. (7 Stew.) 532.

The facts are as follows: Complainant agreed to sell, and defendant to buy, certain real estate; at the time a written contract expressing the agreement was executed defendant paid complainant $1,500 on account of the purchase price; on the day fixed for completing the contract the parties met, and complainant stated that she was unable to convey the title she had contracted for, because there were encumbrances on her land which she could not remove.

Without seeking to rescind the contract and recover the payment made on account thereof, defendant filed his bill of complaint in this court for the specific performance of the agreement, stating facts which disclosed that the vendor could not perform her contract. The bill contained a prayer for specific performance and for general relief, but as it exhibited the inability of the vendor to perform and the consequent futility of a decree for specific performance, it was, after demurrer, dismissed.

The complainant now insists that the court had the power under the prayer for general relief, to award compensation by way of damages, and it must be assumed that that question was passed upon; that as the defendant elected to waive the rescission of the contract and stand upon his right to performance, in default of which, as now urged, he was entitled, under the pleadings, to damages, he has had his day in court and is estopped, by the decree of dismissal, from now rescinding the contract and recovering his deposit.

The difficulty which confronts the complainant is, that in the original cause the court was without jurisdiction to pass upon the subject-matter of the present action at law, for as soon as the bill of complaint was exhibited it appeared that prior to the filing thereof the complainant therein knew that specific performance was impossible, and the bill could not have been filed with an honest expectation that specific performance could .be awarded. If, when the bill for specific performance was filed, complainant had no knowledge of the infirmity in the vendor’s title, equity could give the complainant relief in the form of compensation provided he had instituted the proceeding with an honest hope and expectation of obtaining a specific performance. Borden v. Curtis, 48 N. J. Eq. (3 Dick.) 120. But when the bill was filed in the cause for specific performance complainant knew that specific performance was impossible, and that he could not present a ease justifying a court of equity in making compensation for the partial breach of the contract to convey, and a condition was disclosed in which equity would not assume jurisdiction, therefore when the bill was dismissed the question of the waiver of the right either of rescission or damages for the breach of the contract was not an issue adjudicated. Nor is there any force in the argument that, under the prayer for general relief, the court could have decreed the repayment of the money paid when the contract was signed, because the party seeking such recovery has an adequate remedy at law. Welsh v. Bayaud, 21 N. J. Eq. (6. C E. Gr.) 186.

The order to show cause will be dismissed, with costs.


author: Garrison, V. C.

text:
    Mabel C. Tucker v. Alexander P. Baldwin et al.
    [Decided May 28th, 1907.]
    Under a will giving testator’s wife the income for life, and showing intention that on her death the estate pass to his children, the discretionary power given the executor to sell and- reinvest in real estate sufficiently productive to pay income is limited to the life .of the widow.
    Heard on bill and answer.

      Messrs: Gondicl, Gondicl & Boardman, for the complainant.

      Messrs. Pilch & Pilch, for the defendant Alex. P. Baldwin.
   Garrison, V. C.

The object of this bill is to obtain a partition of certain' real estate in the city of Newark, in this state, of which Joseph Baldwin, died seized.

The parties are the heirs-at-law of said Joseph Baldwin, and also claim that, under the will of the said Joseph Baldwin, deceased, they are the devisees of the real estate in question.

Joseph Baldwin died on the 22d of September, 1874, leaving a will, dated April 1st, 1870, and probated on. the 5th of October, 1874. Among other things, the will contained the following provisions:

“I do make Aaron Ward, Junior, David Martin and Alexander P. Baldwin my executors of this my last will and testament, their joint signatures being necesary to make all transactions legal growing into and out of this will.
“I bequeath to my affectionate wife Margaret * * * aliso for the time she shal reman my widdow all rents, intrests and profeets into and out of my estate * * *.
“All other property in which I may die ceased if at the discretion of my executors is shal be of more advantage to sell it the proceds shal be invested in unencumbered real estate it being suficent productive to pay intest & Co. aeruing to my said wife during her natural life as above provided and limited * * *.
“At the death of my said wife 'the intest so aeruing shal be paid equally to my living chinden or their heirs share alike, the ehilden receiving the share coming to my ehilden.”

The three executors above named took out letters testamentary. Aaron Ward, Jr., one of them, died on the 29th of December, 1894; David Martin, another one, died in the year 1904. Margaret Baldwin, the widow of the testator, died on the 21st day of August, 1897, having remained unmarried after the testator’s death. The complainant is a granddaughter of the testator.

The executors, during the lifetime of the widow of the testator, did not sell or dispose of the real estate of which the testator died seized, described in the bill of complaint.

The hill and the answer each' construe this will as vesting title in fee in the children, or the children of deceased children, of the testator, after the death of the widow of the testator.

This bill was under consideration in this court and in the court of appeals in the case of Baldwin v. Tucker, 61 N. J. Eq. (16 Dick.) 412 (Vice-Chancellor Emery, 1901), affirmed on opinion below, 64 N. J. Eq. (19 Dick.) 333. Under the issues raised in that suit this court decided that, under this-will, the corpus of the personal estate passed at the death of the testator’s widow to the testator’s children. It expressly refused to decide, because it was not then before it, whether this will should be so construed as to devise a fee to the said children, holding that the executors had no estate or interest in the lands, but only a power of sale.

It is the existence of this alleged power of sale which is pleaded by the defendant as a bar to the right of partition. The parties in this suit agree that the will properly construed contains a devise of the real estate to the living children or the children of any deceased child. I do not find it necessary now to decide whether this will should be so construed, because the parties either take as devisees under the will or as heirs-at-law, if the testator died intestate with respect to his real estate, and, therefore, since they are all before the court and would have the right to partition in either event, if the power of sale does not bar the right, there is no occasion now to take the time to determine in which right they hold.

The defendant insists that, under the terms of this will, the executors were given a power of sale, and that such power is exercisable by the surviving executor, and, therefore, there may not be a partition.

The complainant insists, first, that this power is a naked power, and that in the case of a naked power to executors to sell, such power does not survive the death of one of the named executors. Moores v. Moores, 41 N. J. Law (12 Vr.) 440 (Supreme Court, 1879); Corlies v. Little, 14 N. J. Law (2 Gr.) 383 (Supreme Court, 1834); Coykendall v. Rutherford, 2 N. J. Eq. (1 Gr. Ch.) 360 (Chancellor Pennington, 1840). She recognizes that this rule of the common law has been changed by statute (2 Gen. Stat. 1428 § 17), but she insists that in that act the power is held to survive “unless it shall be or is otherwise expressed in said will,” and she argues that this will does express the intention of the testator that tha power shall not survive, because he provides that “their joint signature, being-necessary to make all transactions legal, growing into and out of this will.”

I am inclined to the opinion that if the power of sale in this will is construed to be such an one as was exercisable by the executors after the death of the widow, this statute probably is broad enough in its terms to cause the power to survive to the remaining executor. I do not, however, consider it necessary to decide this question, because, in my view, it is clear that the power of sale conferred by this will upon the executors was solely to be exercised during the lifetime of the widow and for the purpose solely of enabling them to make investments of the proceeds of sale at a greater rate of interest or income than that procurable from the real estate of the testator.

Translating the badly-constructed 'and badly-spelled clause (above quoted verbatim), I find that this testator provided that all other property of which he died seized might, at the discretion of the executors, be sold if they found that it was of more advantage to the interests of the widow to sell it so that the proceeds might be invested in unencumbered real estate sufficiently productive to pay income, which income was to go to his widow during her natural life.

After the death of his widow he clearly intended that the estate should go’to his children, or the living children of any of his deceased children, whether he legally expressed such intention or not.

I am of the opinion, therefore, that the naked power of sale vested in these executors by this will was limited during the lifetime of the widow and terminated at her death.

The general principle will be found stated and supported by numerous authorities in 22 Am. & Eng. Encycl. L. (2d ed.) 1132,

“Where a power is given to be exercised for a particular purpose, and such purpose has failed or has been accomplished without the exercise of the power, the power is exhausted.”

I therefore conclude that the only matter set up by the answering defendant in this suit is not sufficient to defeat the equity of the complainant, and that there should be a reference in the ordinary form to determine the interests of the parties and the question of whether the property should be sold or partitioned.


author: Garrison, Y. C.

text:
    Roland D. Armstrong v. Agnes Fisher et al.
    [Decided May 24th, 1907.]
    Under P. L. 1906 p. S69, providing that a purchaser of real estate at foreclosure sale, &c., shall be relieved from his bid if before delivery of the deed he satisfy the court of the existence of any substantial defect in or cloud on the title which would render the title unmarketable, or of the existence of any lien or encumbrance thereon, unless a reasonable description of the estate or interest to be sold and of the defects in the title and liens or encumbrances thereon, with the approximate amount thereof, be inserted in the notices, and advertisements of sale and in the conditions of sale, expenses incurred in procuring searches showing .the state of a title since the date of a mortgage were necessary for the proper foreclosure thereof, and taxable under rule 113a in favor of the party foreclosing the mortgage, though expenses incurred in searching the title anterior to the date of the mortgage were not taxable.
    Heard on bill, answer, replication and proofs.

      Messrs. Gondict, Gondict & Boardman, for the complainant.

      Messrs. Tennant & Haight, for the defendants.
   Garrison, Y. C.

It is not necessary to advert to the issues raised and decided in this suit. The only question- to be determined is one of costs.

The suit is one to foreclose a mortgage held by the complainant, and the solicitor of the complainant caused not only the customary searches to be made from the date of the mortgage, but also searched the title anterior to the date of the mortgage for the purpose of disclosing any defects in or liens or encumbrances thereon.

His purpose in doing this was so that he could insert in the notice of sale and in the conditions thereof a reasonable description of the defects in the title and the liens or encumbrances thereon, so that the purchaser at the sale could not be relieved of his bid on account of the existence of such defects, liens or encumbrances.

The insertion in the notice of sale and in the conditions thereof, of the existence of the defects in the title and of the liens and encumbrances thereon has the effect of preventing the purchaser from obtaining relief from his bid by force of the statute. P. L. 1906 p. 369.

The solicitor of the complainant requested me to certify, in pursuance of rule 113a, that in my opinion the certificates of search presented by him were necessary for the proper foreclosure of his mortgage, upon which certificate he could obtain the taxation of the same in his costs.

I will certify that the expense incurred in procuring searches showing the state of the title since the date of the mortgage were necessary for the proper foreclosure thereof, and therefore, under rule 113a and the statute (P. L. 1902 p. 61fi), are properly taxable in favor of the complainant.

I cannot certify that the expenses incurred for searching the title anterior to the date of the mortgage are taxable.

The complainant contends that these search fees should be included because they were rendered necessary by the statute above referred to. P. L. 1906 p. 369.

I do not concur in this view. In my view, that statute does not cast any duty upon the complainant, or upon any of the parties in the suit, but does extend to each of them a privilege. Before the enactment of this suit a purchaser at a judicial sale in New Jersey took such title as the proceedings showed, and could not claim to be relieved because of the existence of prior encumbrances or of defects in the title.

The effect'of this statute is to prevent the bidder or purchaser from being relieved if the defects in the title and the liens and encumbrances thereon are brought to his notice before the sale.

In my view, therefore, anyone who desires to bring these things to the notice of the intending purchasers may do so, but it is not the duty of anyone to do so. A mortgage may be foreclosed, and the equity of redemption disposed of, and the title which a sale under the mortgage is capable of conveying be conveyed without necessarily searching back of the date of the mortgage.

If it be to the interest of the complainant to have the sale under such conditions that the purchaser cannot be relieved of his bid because of defects, &c., then the complainant may serve his own interest by searching for defects, liens and encumbrances, and may cause notice of the same to be given. In like manner, in my view, any of the other parties may avail themselves of the privilege extended by this statute.

I conclude, therefore, that costs for such searching may not be taxed in favor of any party without legislative sanction, and I do not find any present legislation sanctioning the same.


text:
    George J. Bergen, receiver, &c., v. John I. Rogers.
    [Decided June 6th, 1907.]
    1. Where it was understood between a corporation and defendant that, subject to a first mortgage, he should have a lien for money advanced, not to be enforced before October 1st, 1905, unless some other creditor either sued or threatened suit, -and June 2d, 1905, the directors authorized such a bond, and defendant drew one payable. October 1st, 1905, believing it could be entered any time, upon ascertaining that it could not be entered until that date, tbe officers coulfl execute a new bond expressive of the understanding without further authorization from the directors.
    2. Evidence held insufficient to show a bond was given by a corporation while insolvent or in contemplation of insolvency, within Corporation act (P. L..1898 p. 298 eh. 185 § 6J/), making conveyance under such circumstances void, or that there was an intent to cheat, defraud or give undue preference.
    Heard on bill, answer, replication and proofs.

      Messrs. Wilson, Carr •& Stackhouse, for tbe complainant.

      Mr. Thomas P. Curley and Mr. John I. Rogers (of tbe Philadelphia bar), pro se, for the defendant.
   Garrison, Y. C.

(orally).

A man named Hughes, located at Philadelphia, was the promoter of an enterprise which had for its general object the building of a trolley line from Philadelphia to Atlantic City. It was to run from Sixty-third and Market streets, Philadelphia, to a point on the Delaware river opposite a tract of land in Gloucester county, in this state, called “Lincoln park;” the purpose was to transport passengers to this point on the Pennsylvania shore, the point being called “Dupont’s farm,” thence across or under the Delaware river to Lincoln park, and along an almost straight line projected to Atlantic City, New Jersey. At the Atlantic City end it was intended to purchase a trolley which runs from Atlantic City to Pleasantville and to use its line and terminal for the ending of the route of this projected railroad scheme. The whole scheme was a vast one, involving millions of dollars. As links in the chain, there was to be purchased the Dupont farm, at about $7,500; a tract of land of some thirty or thirty-live acres, which was a disused amusement park on the river front known as “Lincoln Parkthe rights of way between the last-named place and the Pleasantville terminal of the trolley companj- above mentioned, and then that trolley line up Florida avenue to the boardwalk in Atlantic City.

Mr. Hughes interested John I. Eogers, of Philadelphia, in this undertaking, and Eogers was to put in $25,000 to go toward purchasing the trolley line at Atlantic City.

Some negotiations in New York led to the information that at Florida avenue in Atlantic City, at the terminus of this trolley line, the Lincoln Trust Company of New York had purchased a piece of property and contemplated erecting a pier for amusements, and that it was also prepared to purchase the trolley company in connection therewith; whereupon the Lincoln Trust Company became interested in this larger scheme, and it no longer became necessary for Hughes and his associates to expend their ready cash for this Atlantic City Trolley Company. Thereupon Hughes disclosed to Eogers that he, Hughes, had rented the Lincoln park property from the Equitable Trust Company and had an option to purchase it.

This park had been .run for several years profitably, and then became unprofitable; the mortgage thereon,'some $110,000, was foreclosed by the trustee, the Equitable Trust Company just mentioned, and had been bought in to protect the bondholders. It had been held for several years by the trustee, and finally, this lease was made to Hughes for a nominal rent, some $1,800 a year, with the privilege to purchase for $60,000, of which $10,000 was to be cash and $50,000 was to be mortgage.

Part of the general railroad scheme had been to turn in the Lincoln park property to the railroad syndicate at $150,000, making a profilt, as between those who turned it in and the railroad company, of $90,000, they having to pay $60,000 for it and getting $150,000 for it.

Eogers, although up to that time believing or understanding that the Hughes corporation, the Lincoln Park Transportation Company, already owned Lincoln park, was, for the first time, advised that this was not so. However, he consented to use the money, which he had intended to use for the purchase of the Atlantic City right, for the new purpose, namely, the purchase of the Dupont farm and the purchase price, in cash, of the Lincoln park property, plus some $5,000 additional which Hughes told him would cover all that had been incurred by way of expense at the park up to that time, making in all $15,000 at that time required, exclusive of the purchase price of the Dupont farm.

In an agreement dated the. 24th of April, 1905, this matter is contained, and it was there agreed that Eogers was to advance $15,000, was to take a note at four months therefor, and was to have one thousand seven hundred of the one thousand eight hundred shares paid by the company to Yeale as consideration money, and was to hold these one thousand seven hundred-shares fox himself and Hughes.

The general purpose of all the parties at .that time was to hold matters in statu quo until the railroad company was incorporated, and then turn in the park property and the Dupont property and get their profit.

The railroad scheme was delayed, and Hughes determined to open the park, and prior to opening the park he had made some improvements, repaired the pier and had done some other work, and had, he said, incurred some $3,000 of expense in so doing. He thereupon went to Eogers and explained that it was not necessary to expend any money at present in the purchase of the Dupont farm, because they had that secured through an option, and that they need not now exercise the option and put up any cash, but that he did need $3,000, which was all, however, that he would need to clear up the situation at Lincoln Park; and he suggested that Colonel Eogers should advance the additional $3,000. This was done, making $18,000 of cash that Colonel Eogers had put into the enterprise, and, on the 2d of June, various contracts were drawn and resolutions were passed by the stockholders and directors of the Lincoln Park Transportation Company which disclosed that the general scheme was as is about to be stated, Eogers not, however, acting' as a stockholder, the stock which was to have been transferred to him still standing in the name of the original subscriber, Yeale. Yeale was the person who had purchased the property and turned it over to the Lincoln Park Transportation Company'.

The understanding referred to was that Eogers was to have a lien for the money that he advanced immediately after the first mortgage of $50,000. He was not to enforce his lien until the first of the succeeding October, unless some other creditor either threatened suit or actually brough suit, in which event he was to exercise his right to collect his money.

The proper officers were duly authorized to execute a bond, with a warrant to confess judgment, in furtherance of the understanding just mentioned. The bond was drawn by Colonel Rogers. He is a Pennsylvania lawyer, and it is the law of Pennsylvania that a bond may be entered at any time, but execution thereon may not issue until after the bond is, by its terms, due. It remains in the meantime, however, as a lien against real estate from the time of entry.

Colonel Rogers, assuming that the law of New Jersey was the same as the law of Pennsylvania, drew a bond for the $18,000, with interest, to the 1st of October, payable on or before October 1st, 19.05, and this bond was duly executed by the officers and delivered.

At that time there was not the slightest belief in anybody’s mind, excepting Mr. Hughes’, that the park was to be operated as a separate entity. It had been theretofore wholly considered as a part of the general scheme. Afterwards Mr. Hughes determined to operate the park. He was the president of the Lincoln Park Transportation Compaq, and he constituted a man named Morgan general manager, and began operations at the park. The general nature of these operations was to have various amusement devices at the park and to transport people there for a consideration, and make what additional money could be made from them by their patronage of these devices and the restaurant and other things furnished for their entertainment and accommodation.

When first opened the park was not very successful, owing to bad weather, and, perhaps, bad management, excessive outlays for balloon ascensions and bands of music, but subsequently, by cutting out these expensive items, more money came in than went out for operation.

In the latter part of July propositions to lease the park to outside parties were made, and two such offers were considered by Hughes and all the parties interested. Hpon these propositions being disclosed to Rogers, he suggested that no lease should be made which was not made in the face of knowledge of his bond— in other words, that he should enter up his bond and thereby advise the lessee of his encumbrance, and that the rent, instead of being paid to the company, should be paid to Eogers, under an agreement to be drawn, showing the trust relation of Eogers in the matter, his idea being that the rent should go first to pay the mortgage interest, the taxes, the interest on his loan and other like fixed charges, before any should go to the company for its general purposes.

At or about this time, and perhaps in connection with this matter, the bond, for the first time, was exhibited to New Jersey counsel, who immediately advised Colonel Eogers that it could not be entered up, under the laws of New Jersey, before October 1st; Colonel Eogers thereupon, on the 26th of July, advised Mr. Hughes of this, and it was immediately agreed by all parties that this was not expressive of the agreement of June 2d that it was the clear understanding that Mr. Eogers was to have a bond which could be entered up at any time, execution thereon not to be issued, however, unless suit was threatened or brought by somebody else; that he was to be secured by having a lien next to the mortgage, and that the company and its present officers would, of course, execute a bond in reformation of the bond of June 2d.

Colonel Eogers suggested the necessity or desirability, at least, of having an authorization by the board of directors of this new bond. He was told by Hughes that this was not necessary, but he persisted and Hughes consented. Two out of three members of the board (three being a quorum) attended on the morning that the bond was to be executed, July 28th, 1905, but the third member did not appear, and no meeting was ever held of the board, and no actual authorization by the board of any new bond was ever had at a meeting. The minutes of a meeting evidencing authorization were drawn by Colonel Eogers in the office of the company on the morning of the 28th of July, and, undoubtedly, the two members who were there assented; but it cannot be held, in view of our decisions, that the board of directors, as such, ever authorized this bond of July 28th. Whether or not the company ratified it by subsequent action I do not propose to consider, because I hold that the .officers were authorized to execute this bond by the resolution of the board passed on the 2d of June, 1905, that they only did on the 28th of July what they had been previously authorized to do; that they only did that which a court of conscience would have required them to have done, and that what they then did was done as of the 2d day of June, and that there was no fraud, no intention to cheat or defraud anybody, and no intention at that time to give any undue preference as of that time.

There is no doubt in my mind that Mr. Hughes is mistaken in his testimony that Colonel Rogers at that time had any knowledge of the general indebtedness of the company. The only knowledge that he is shown to have had was of the unpaid interest money due the Equitable Trust Company shortly before this time, or about this time, and, perhaps, some taxes. I do not think that there is any proof that Rogers had any knowledge of any other indebtedness of the company. He undoubtedly as-sinned that in the course of operation there were, at times, unpaid sums of money, but he believed, and I think was justified in believing, that these were the slight items which occur in any business enterprise, and had no reason to believe that they were large. He had every reason to believe, from what he had been told, that his money had paid all the large items for improvements, &c.

It is a fact that at that time the company had no ready money excepting such as was coming in from day to day from the operation of the park, and it is also proved that, by reason of Hughes’ management, he was not able readily to obtain boats. But it is not at all clear, in view of the decisions in this state, that the company was insolvent within the meaning of the sixty-fourth section of the Corporation act. (P. L. 1896 p. 298 oh. 186.) Certainly there was no contemplation of insolvency, because the testimony of every witness is that they did not contemplate insolvency at that time. They were planning to run boats away into October, had numerous engagements for picnics and excursions, which were profitable to them, through the months of August and'September, and had every prospect, so far as exceeding the operating expenses by the income was concerned, of a good season in that regard. Whether or not the net result would have been sufficient to have paid off the floating debt which subsequently was shown to have existed at that time must be left to conjecture.

On the afternoon of the same day that this bond was given to Colonel Rogers, July 28th, he was brought in contact with one Thompson. Thompson was one of the parties heretofore spoken of who was seeking to lease the property. The other parties were referred to as “The Allentown people.” In Hughes’ view it was better to deal with Thompson than with the Allentown people, because the Allentown people merely wanted to rent for five years at a set rental, whereas he hoped that with Thompson he could effectuate a sale and thereby get rid of the park and pay all of the debts and make the profit which they intended to make out of the park property, not by its operation but by its sale, because all. that they wanted of the park in their original undertaking was to use part of it as a terminal for the railroad, and in all of their talk of leasing or- selling it was definitely understood that an easement should be reserved by the company permitting the erection of terminals and the laying of tracks, &c., through the property.

This meeting with Thompson took place on the 28th of July, and another meeting took place on the 1st of August. At this last meeting it was, for the first time, disclosed by Mr. Hughes to Mr. Rogers-that there existed a large amount of floating indebtedness — I call it “floating indebtedness” — I mean indebtedness contracted by him in' the management of the park property from about the 1st of July when the park was opened.

The bond dated July 28th was sent by Colonel Rogers to his New Jersey attorney with instructions to enter the same, but not to issue execution without further instructions. The attorney, on the 31st of July, entered judgment on the bond, and, being informed on the next day by the clerk of Gloucester county, where the bond was entered, that a suit had been begun by one Horner for some two hundred odd dollars against the company, conceived that this was a situation in which he must protect the interests of his client, and, without consultation with Rogers, he instructed execution to be issued, and then left town for a vacation. ■ ■

This execution was issued on the 1st of August, or, perhaps, the 2d. The next day, when Colonel Rogers learned of it, as he did by a letter from his attorney, he immediately, upon ascertaining that the attorney was away on a vacation, instructed the sheriff to hold the execution' and not to make a lev]1, and no levy was actually made for several weeks.

In the meantime the various schemes to léase fell through and the attempts to borrow further moneys also fell through — I mean attempts to borrow by increasing the amount of mortgage — and the boat which they had been using was no longer obtainable by them without ready money, and the company, on a bill filed on the 16th day of October, 1905, at the suit of H. W. Johns Mandeville Company, complainant, was adjudged insolvent and an injunction was issued and a receiver appointed-.

The bill in this suit to set aside the judgment of Colonel Rogers was filed on October 30th, 1905.

Finding, as I do, that the debt is an honest one, that the intention of the parties on the 2d of June was to give a bond which might be entered at any time but no execution to issue until suit was threatened or begun, that the action of July 28th was authorized by the company and related back to June 2d in effect, I find there was no fraud and no contravention of the provisions of section 64 of the statute; and, furthermore, I do not find that the complainant has borne the burden of showing that this corporation was insolvent, or that the bond was given in contemplation of insolvency on the 28th of July, within the definition and meaning attributed to this language by our courts in dealing with it. Cogan v. Conover Manufacturing Co., 69 N. J. Eq. (3 Robb.) 815 (Court of Errors and Appeals, 1905).

T, of course, do not, in this case, deal' with any questions arising out of the fact that Rogers is 'a stockholder of the company. If that stock was not paid for in full, or if, as a stockholder, he is under any liability because he holds stock which is still assessable for Creditors, those rights must be worked out in the insolvency case. Before he can obtain any benefit of this judgment as against the receiver, or the assets in the receiver’s hands (the property having been sold and' the lien transferred to the assets), he must, of course, petition in that proceeding. When he does so petition any rights that the receiver has on-behalf of creditors to assess Rogers on the stock, or to hold him liable in any way because of the fact that he is a stockholder, may. be dealt with, and the rights of the receiver protected.

I merely hold in this action that the receiver has not shown that this bond was unauthorized, or that it was given in contemplation of insolvency, or that the company was insolvent within the meaning of the sixty-fourth section of the statute, and has not, therefore, shown that the judgment should be set aside.

I will advise a decree dismissing the bill.