text:
    Arthur L. Andrews v. The Guayaquil and Quito Railroad Company et al.
    [Decided September 16th, 1907.]
    Upon the question whether certain moneys lent to a corporation called the Ecuador Company by P., one of its stockholders, and not paid to it by him on account of his stock subscription, as already found by this court, were secured to be repaid to him by the pledge of certain shares of the preferred stock of a railroad company called the Guayaquil and Quito Railroad Company, which were subject to the exercise of the power contained in a trust instrument executed to trustees by the Ecuadorian Association, Ltd., to which preferred stock the complainant claims title under an assignment from P., evidence examined, and held (1) .that the pledge was incomplete and that whatever right P. or his assignee, the complainant, may have to such preferred stock, rests on a promise to transfer and not on an actual transfer of such stock, and that such promise being for a by-gone consideration and not for a present or future consideration, will not be enforced in equity, inasmuch as equity only compels the performance of contracts based on valuable consideration, and the rule is that a by-gone consideration cannot be made a good consideration for a promise; and further held ,(%) that if such preferred stock were pledged to P., such pledge 'was not authorized by the power contained in said trust instrument.
    On final hearing on pleadings and proofs.

      Messrs. McCarter & English and Mr. Charles A. Collin (of New York), for the complainant.

      Mr. Charles L. Corbin, for the receiver, Black.

      Mr. Van Buslcirh, for the trustees.
   Stevens, V. C.

The circumstances under which money was obtained for the building of the Guayaquil and Quito railroad in the later stages of its construction were fully stated in my opinion in the case of Ecuadorian Association v. Ecuador Company, reported in 70 N. J. Eq. (4 Robb.) 277, and on appeal in 71 N. J. Eq. (1 Buch.) 757. I shall not repeat here what I said there.

The question then considered was whether Robert C. Pruyn had become a stockholder of the Ecuador Company and was liable to • assessment as such. My conclusion was that although he had formally agreed to take stock, his agreement was to take it, not for money, but in exchange for stock of another company called the Ecuadorian Association, and that the receiver was therefore put to his election either to perform the agreement according to its terms or to repudiate it, in toto, on the ground that the Ecuadorian stock was not a fair equivalent. I used the term “binding contract” as applicable to the transaction between Pruyn and the Ecuador Company. The use of the word “binding” was unhappy and was properly criticised by the court of errors and appeals. It did not, in fact, express my meaning, which was merely “contract complete in point of form.”

The question that I now have to consider is whether the sum of $65,750.69 lent, as I found, by Mr. Pruyn to the Ecuador Company between February 1st, 1903; and June 13th, 1903, and not as the receiver contended paid on account of his stock subscription is secured by preferred stock of the Guayaquil and Quito Railroad Company to the nominal amount of $650,000. 'Pruyn’s contention is that this stock was pledged, and the receiver’s contention, as well as the contention of the trustees under the deed of January 31st, 1902, is, first, that the pledge, if any, was incomplete, and that equity would not lend its aid to complete and enforce it, because not founded on a valuable consideration, and second, that it was not warranted by the trust instrument. Another contention of the receiver which I regard as untenable is that the stock belonged to the Ecuador Company, a fact not proved, and that the pledge was made under its direction, at a time .when that company was insolvent and unable to give a preference.

In discussing the two first contentions, it is important to get at the real situation, which is no doubt a complicated one. - I shall state it as briefly as I can. The Ecuadorian Association, a Scotch company, had agreed 'to • construct -the Guayaquil and Quito railroad; It had,- for the purpose of getting the necessary working capital, issued certificates entitling the certificate holders to debentures.- The ready money obtained in this way proved inadequate. The association was receiving in payment for the work of construction bonds and stocks of the railway company. These when received from time to time as the work' progressed were selling at a heavy discount,- and did not realize enough for the -association’s purposes. To provide further funds a deed was executed by it to three trustees, Mr. Garduyne, .Mr. De Friese, of England, and Mr. Lockwood, of New York, by the terms of which those entitled to debentures of the association were to receive in lieu thereof bonds of the railway. They were to receive besides a new certificate, valuable only on a certain contingency. In consideration of this, the debenture holders were to give up all their right to the remaining bonds, received or to be received, and to all the stock of the railway company, preferred and unpreferred. ' The association was then itself to issue stock, and the bonds and stock of the railway company thus released were to enure'to the benefit of the association stockholders. The trustees were vested with large discretionary powers, and, among others, the power to raise money by the sale or pledge of the free bonds and stock transferred or to be transferred to them.

The clause in the trust deed on which the present controversy turns, so far as it is pertinent, is as follows:

“The trustees shall, in the first place, from time to time and at any time or times, dispose of or otherwise deal with the mortgaged premises (i. e., the securities transferred), or any part or parts thereof * * * in any way or ways which may be required by the association and approved by the trustees for the purpose of raising money in order to enable the association to perform its obligations under the construction contract and without prejudice to the generality of the preceding provisions of this sub-clause, the trustees may, for sueh purpose as last aforesaid, approve of any pledges, mortgages, sales or.public or private issues of the mortgaged premises, or any of them, upon and subject to any terms and conditions whatever. The trustees shall have power, in their absolute and uncontrollable discretion, to settle and finally decide with the consent of the association what operations are authorized by this sub^clause and. which of the mortgaged premises shall, from time to time, be applied for the purpose of such operation.”

I shall consider, first, whether the preferred stock was- validly pledged to Mr. Pruyn; ■second, whether; if pledged, the pledge was authorized by the power. ■ •

First. Was it pledged? It is not denied that Mr. Pruyn lent' $65,750.69 to the Ecuador -Company and that- he • afterwards negotiated for the security in question. While it is conceded that he took some-steps toward getting-it, it is denied that the pledge was perfected. What was done was this: Mr. Pruyn had lent most of the above sum by March 30th, 1903.' On that day the directors of the Ecuador Company passed a resolution directing and empowering its officers to communicate with the' trustees in London and to take whatever steps were' '

“necessary to empower and direct the said trustees to deliver to Robert C. Pruyn as collateral in lieu of the thirty-two railway bonds aforesaid, Guayaquil and Quito preferred stock to an amount equal to ten times the amount so advanced in cash by said Pruyn,” &c.

On April 3d Mr. Adams, the president of' the company, sent to the trustees in London a copy of this resolution. Mr. Lockwood, a director, also cabled in reference to the transfer. On April 29th Mr. Garduyne, one of the trustees,- replied to Mr. Adams, as follows:

“In compliance with your request and Mr. Lockwood’s cable advices we have this day instructed Messrs. Glyn, Mills, Currie & Company to hold $650,000 of the preferred stock of the Guayaquil and Quito railway to the order of Mr. Robert C. Pruyn.”

The fact was, however, that Glyn, Mills, Currie & Company, the bankers of the trustees, were nothing but the bare custodians of a single certificate of stock for a much larger amount than $650,000. This certificate stood in the name of the trustees and was never surrendered for division and reissue. No legal assignment was ever made to either Pruyn himself or to anyone for him. And no manual transfer of the larger certificate was ever made to Pruyn or to anyone who represented him.

It is true that the trustees did instruct Glyn, Mills, Currie & Company to hold'$650,000 of stock for Pruyn, and it would seem that in consequence of this instruction these bankers did make some sort of a note upon their books, but the complainant has not put this note in evidence and we do not know what it was. It does not appear that the bankers even went so far as to notify Pruyn of their instructions or of what they had done in consequence. No relationship whatever was created by writing or otherwise, as far' as appears between Pruyn and the bankers, and I take it that the bankers were at the beginning and continued to be the agents of the trustees only.

It is true that in a letter written for the bankers by one Harvey to the complainant, Andrews, to whom Pruyn afterwards made a formal assignment and who had demanded its transfer to himself, it is said “the preferred stock of the Guayaquil and Quito Railway Company in question stands in the name of Mr. R. C. Pruyn, and we can act upon his orders only with reference to it,” but this was a manifest mistake on Iiarvejr’s part and was corrected in the subsequent correspondence.

The transaction then remained in fien. Enough appears to justify the inference of a promise to transfer the stock, but it cannot be denied that the stock was not transferred. The certificate for a much larger number of shares stood, and still stands, in the name of the trustees and in the custody of their agent. Whatever right Pruyn or his assignee, Andrews (who stands in Pruyn’s shoes) may have must rest on promise and not on performance.

The question, then, is, was this promise based on valuable consideration P The cash book of the Ecuador Company shows that the first advance by Pruyn was made on February 1st, 1903, and the last, but one, on April. 28th, 1903. Garduyne's letter was written from London on April 29th, and, of course, did not reach New York for several days. I leave out of view the insignificant sum of $145, which appears to have been advanced by Pruyn to the Ecuador Company on June 13th, and to have been at once paid the “R. & R. certificate books,” whatever that entry may mean. There is nothing to show that it went to any object connected with the trust, and even if it had been- advanced on the strength of the -promise, as to which there is -no evidence, it would not in anywise affect the -question whether the stock was to stand as security for the money advanced prior to April 29th. It appears, therefore, that the consideration for the promise was a by-gone consideration, and not a present or future consideration. Can such a promise be enforced in-equity? Equity only, compels the performance of contracts based on valuable consideration. Is a by-gone consideration a ■ valuable consideration? ■ The rule is (1 Add. Coni. 7), that a by-gone consideration 'cannot be made a good- consideration for a promise. That this is the rule in this- state is shown by the decision of the court of errors and . appeals in Trust Company v. Trustees of William M. Fisher Co., 67 N. J. Eq. (1 Robb.)604 Justice Dixon there, said: “The general rule is that one who acquires property (outside of commercial paper) as mere security for antecedent debts is'not a holder for value,” (and see Pom. Fq. Jur. § 1^05). In the leading case of Ellison v. Ellison, 6 Ves. 656, Lord Eldon put the very case now in controversy.- He says: “I take the distinction to be that if you want the assistance of the court to constitute you a certain cestui que trust, and the instrument is voluntary, -you shall not have that assistance for the purpose of constituting you a cestui que: trustj as upon a covenant to transfer stock, if it rests in covenant and is purely voluntar}', the court will'not execute that voluntary covenant; but if the party has completely transferred the stock, though it is voluntary, yet the legal conveyance being effectually made, the equitable interest will be enforced in this court.”

It is quite plain, then, that the letter written by Garduyne to- Adams-on April 29th does not give the complainant a right to relief, and if I may judge from the printed argument furnished me, it is this letter, taken in connection with the correspondence referred to, that the complainant now principally relies upon. - - - -

In his bill, however, he based his case upon a written agreement, dated May 6th, 1903, and ratified and approved by the London trustees on June 29th, 1903. I think this agreement cannot be enforced for two reasons.-

First. Pruyn has not performed the agreement on his 'part. Andrews, his assignee, does not even, either in his bill or in,any other w.ay, offer to perform it- On the contrary, he charges that Pruyn dich perforin by paying the money. But the evidence does not. support the allegation. Pruyn himself does not testify. The cash book of the Ecuador Company does not. show any advance by Pruyn to it after April 28th, except the item of June 13th, $14-5, to which I have already referred. In the bill of particulars appended to Andrews’ suit in the supreme court of this state — a suit against the Ecuador Company only— which that company allowed to go by default, there is mention of-a note, dated May 1st,-1903, for $544.50. But the item does not appear'in the cash account of the Ecuador Company, and Pruyn in his letter of May 22d, 1903, says it represents interest-on prior loans.

I think it appears, beyond all question, that Pruyn did not pay the $3,100, and so did not perform the agreement on his part. The agreement to pay this money constituted the sole consideration for the promise to give the security. The complainant is not in a position to ask performance by the trustees.

It is contended, on behalf of the trustees, that Lockwood was induced to enter into the agreement by the fraudulent misrepresentation made to him by Pruyn, that Pruyn had neither signed nor authorized the agreement of February 24th, 1903. Lockwood’s evidence is not contradicted by Pruyn, but, notwithstanding, it is apparent that if Lockwood was deceived, as he says he was, the London trustees were not. They knew the fact, and by the terms of the instrument their signatures alone were sufficient to bind the trust from the time they signed, if their agreement was warranted.

Was the agreement warranted? Was it authorized by the terms of the trust deed ? Pruyn, of course, knew of this instrument. It is referred to- in the agreement itself. By the clause already quoted the trustees are authorized to dispose of or otherwise deal with the securities in their hands

“in any way or ways which may be required by the (Ecuadorian) Association and approved by- the trustees for the purpose of raising money in order to enable the association to perform its obligations under the construction contract.”

The question, then, is, whether an agreement to pledge shares to secure prior advances to the Ecuador Company in consideration of a small further advance of money to it, and not to the Ecuadorian Association, whose- trustees they were, was within their powers. To answer this question understandingly it will be necessary to take a general view of the then situation.

The trustees were the trustees of the Ecuadorian Association. The trust deed antedated the formation of the Ecuador Company by a year. But the end for which that deed was intended, viz., the raising of sufficient money to complete the railway, had not been completely attained. More capital was needed, and this was to be secured by an arrangement which, speaking generally, was to make Prujm and his associates half owners of the future profits of construction on his undertaking, to contribute a very large sum of money. The plan was to form the Ecuador Company and to issue half of its stock to the certificate holders of the Ecuadorian Association, and half to Pruyn. This plan was embodied in the agreements referred to in my former opinion. It was consented to by the certificate holders of the Ecuadorian Association, as well as by the association itself and its trustees. It contemplated a complete transfer of all the assets and of all the shares of the association to the Ecuador Company, which was to issue to the Ecuadorian shareholders its own stock. The trustees were justified in assenting, for the reason that they had the consent of their cestui que trust. But in point ■ of fact the enterprise came to a sudden halt when, in April, 1903, Pruyn returned to this country. He seems to have been advised that his unconditional acceptance of the plan in its entirety, as it had been formulated in London, was dangerous. And after May 1st. he did nothing to carry it into effect. The evidence certainly suggests, if it does not prove, that the agreement of May 6th, on which Andrews now sues, was a device for giving to him better security for his advances to the Ecuador Company than he possessed. At all events, it is certain that, although he had agreed to the scheme, he did nothing to carry it into execution after the date named and the Ecuador Company, which was little more than Pruyn’s alter ego, was in consequence stranded. While the agreement by which he was to get security is dated May 6th, it did not receive the assent of the London trustees until June 29th. Then only did it acquire vitality, if it has any. But on May 22d, 1903, we find Pruyn -writing to G-arduyne and notifying him that under the terms of the agreement- of May 6th, he had demanded payment of the notes of the Ecuador Company to the amount of $65,101.19, and he followed up this demand by bringing suit in the supreme court on the 9th of July following.

Now, the legal situation of the parties in June, 1903, was this: The Ecuadorian Association and its shareholders and their trustees had, as I have said, assented to an agreement of transfer of both the property of the association and of the shares representing that property to the New Jersey Company, theretofore organized and financed by Pruyn, in accordance with the plan formulated and reduced to writing in London. Pruyn had repudiated the plan and had, by formal demand, preparatory to suit, required payment of-a sum which he knew the company could not pay. The accomplishment of this plan thus became a practicable impossibility. The trastees, had it been completely carried out, would have become the trustees of the Ecuador Company and its stockholders in just the same way that they were the trustees of the Ecuadorian Association and its shareholders; but the plan being repudiated, although the Ecuadorian Association had made a formal transfer of whatever it possessed, yet the shareholders, not having' transferred their certificates and being under no legal compulsion to do so in view of Pruyn’s attitude, I think it is very clear that the trustees' remained in the consideration of a court of equity, trustees for the Ecuadorian shareholders. This being so, it was their duty to conserve their interests and not those. of Pruyn. It seems to me that they could not, on June 29th, have properly agreed to transfer any of the property of the Ecuadorian Association to secure a by-gone indebtedness, an indebtedness which they were neither in law nor (considering Pruyn’s attitude) in foro conscienti bound to secure.' The transfer, if made, would not have had for its purpose-the raising .of money in order to enable the Ecuadorian Association to perform its obligation under the construction contract. This being so, it seems to me that the complainant is not in a position to ask that a court of equity compel the trustees to make an assignment of the stock. For this reason, also, relief should be denied.


source: Caselaw Access Project

author: Stevenson, V. C.

license: Public Domain

text:
    David B. Ogden et al., substituted trustee under the will of James Gore King, deceased, v. James L. McLane et al.
    [Decided August 10th, 1907.]
    1. A testator gave real and personal estate to trustees in trust to apply the income to a daughter for life and on her death to transfer the corpus to persons named under conditions set forth. — Held, that the trustees acquired the legal title to the estate, requiring them at the proper time to pay over the personalty to the final takers and to convey the real estate to them.
    2. The court of chancery will not instruct testamentary trustees as to their duties as to the trust estate in their hands until the time for payment and transfer of the same has arrived, when the parties to be affected by the action of the trustees are entitled to be heard.
    S. A testator gave real and personal estate in trust to apply the income to a daughter for life and on her death to transfer the corpus to persons named, subject to the exercise by the daughter of the power to appoint the entire corpus among a class of relatives designated in the will, or to appoint the entire corpus to her surviving husband, or to appoint a life estate either in the whole income or any part thereof to the surviving husband. — Held, that the powers vested in the daughter were independent of each other, and she might exercise the power of providing for the. sup-, port of her husband out of the income of the trust estate, without undertaking by the exercise of any other power to interfere with the final disposition of the corpus which the testator made, or she might appoint the corpus absolutely to the relatives mentioned in the will, without mentioning her husband’s name, or giving him any interest in either income or principal, or she might appoint the income to her husband and the corpus to the relatives of the class named.

      4. A power vested in a beneficiary of the income of a testamentary trust estate for life to appoint either tlie corpus of the estate to her surviving husband absolutely, or to create by appointment a life estate in him in the income of the estate, does not violate the rule against perpetuities, though the surviving husband may have been born after the death of the testator.
    5. Where the power vested in a beneficiary of the income of a testamentary trust estate for life to appoint a life estate in the income thereof to her surviving husband is valid when taken by itself, the power is not rendered invalid by any invalidity in the attempted exercise of the power to appoint the disposition of the corpus of the estate after the husband’s death.
    6. A testator gave real and personal estate to trustees to apply the income to a daughter for life and on her death to transfer the corpus to persons named, subject to the exercise by the daughter of the power to appoint the corpus among a class of relatives, or the power to appoint the entire corpus to her surviving husband, or the power to appoint “a life estate either in the whole income or any part thereof” to the surviving husband.' — Held, that the daughter had no power to appoint the corpus of the estate for the life of her surviving husband, but could appoint to her husband an absolute estate in the corpus, so that on her death the trustees would be obliged forthwith to transfer to the surviving husband the corpus of the trust estate.
    7. The daughter executed a will “intending thereby to execute the power” in the will of the testator, and gave to her husband her estate for life, with the remainder over to her children. — -Held, that the daughter gave to her husband only the income of the trust estate for his life, and the trustees under the will of the testator could retain the estate in their hands, and collect the income thereof, and pay it over to the husband for life.
    On bill and answers.

      Mr. James B. Vredeniurgh, for tire complainants.

      Mr. Frank G. Turner, for the defendants.
   Stevenson, V. C.

This is a friendly suit brought by the complainants as trustees of real and personal property, alleging that doubts have arisen as to their duty, and praying for the instruction of this court in the premises.

My conclusions are as follows:

1. The complainants, as trustees at the present time, plainly hold legal title to the estate in their hands. The will of James Gore King, deceased, which created the trust, makes a gift consisting of both a devise of real estate and a bequest of personal estate to the trustees to whose title the complainants have succeeded. The trustees are to apply the income of the entire trust estate to the beneficiary, a daughter of the testator, Fanny King McLane (now deceased), during her lifetime.

Upon the death of this beneficiary the trustees are charged with the duty of paying over and transferring the corpus of the estate in their hands to certain persons named or described in the will, under certain conditions therein set forth or provided for. So far as the trust estate consists of personal property the duty of the trustees either is now or at some future time will be to pay over the same to the final takers. A corresponding duty now rests or will rest upon the trustees to make a conveyance of the real estate vested in them in trust to these takers.

The only questions now before this court upon this bill, which the court can answer, are—

First. Whether the trustees are now under the duty of paying over and transferring the trust estate, or are to continue to hold the same.

Second. If the trustees are to continue to hold the trust estate which involves the collection of the income thereof, to whom is such income payable ?

Third. If the time to pay over and transfer has been reached, who are the persons to whom such transfer and payment should be made ? •

If the first question is answered in favor of the continuance of the trust, then it follows that the third question will not be considered. This court will not instruct trustees in regard to their duty with respect to the payment -or transfer of the trust estate in their hands until the time for such payment and transfer has arrived. When the time to act arrives the parties who then will be affected by the action of the trustees are entitled to be heard; they are the parties who argue the question, the determination of which directly affects their interest. Griggs v. Veghte, 47 N. J. Eq. (2 Dick.) 180; Traphagen v. Levey, 45 N. J. Eq. (18 Stew.) 448, 453; Tuttle v. Woolworth, 62 N. J. Eq. (17 Dick.) 532; Norris v. Beardsley, 62 Atl. Rep. 425; Conant v. Bassett, 52 N. J. Eq. (7 Dick.) 12.

2. I think it is clear that the will vests three distinct powers of appointment in the testator’s daughter, Eanny King McLane, and that these powers are absolutely independent of each other, so that the invalidity of one could not affect anyone of the others.

These different powers of .appointment appear to be ag follows:

(1) The power to appoint the entire corpus of the estate among a class of relatives named in the will, or a sub-class of such relatives to be selected by the donee of the power, Mrs. McLane.

■(2) The power to appoint the entire corpus of the estate to any surviving husband of the donee- of the power absolutely. ■

It is manifest that these two powers are alternatives; that one onfy of them could be exercised. They are, however, plainly independent of each other although the exercise of one excludes the exercise of the other.

(3) The power to appoint “a life estate either in the whole income or any part thereof” to a surviving husband. This power and the one last enumerated are also alternatives, not only because of their essential nature, but because of the express language of the will. The donee of the power is authorized to give to her surviving husband either a life estate in the income or the whole of the capital.

This last-mentioned power — the power to make an appointment of income for the benefit of a surviving husband — may be subdivided into two distinct alternative powers, viz., (a) the power to appoint a life estate in the whole income, and (5) the power to appoint a life estate in any part of the income. The exercise of this power in either form or to either extent imposes a modification of the first power of appointment above mentioned, and in like manner imposes a modification upon the express gift of the remainder contained in the testator’s will.

The slightest examination of the various powers vested in Mrs. McLane will, I think, make it evident that each of these powers as above enumerated is entirely independent of the others. The testator disposes of the entire remainder after the death of bis daughter, Mrs. McLane, but subjects such disposition to the possible exercise of either of these three distinct powers, and to the possible exercise of two of these powers. Whether one of these powers, or two of them above mentioned, or none of them, shall be exercised, is left absolutely within Mrs. McLane’s discretion. She may exercise the power of providing for the support of her surviving husband out of the income of the trust estate without undertaking by the exercise of another power to interfere with the final disposition of the corpus of the estate which the testator has clearly made. On the other hand, she may appoint the corpus of the estate absolutely to her children and other relatives mentioned in the will, without mentioning her husband’s name or giving him any interest in either income or principal. ■She may also appoint income to her husband and corpus to the relatives of the class named. Finally, she may make no appointment either in respect of income or corpus and thus leave the ■entire trust estate to vest upon her death in the remaindermen named in her father’s will.

3. The power vested in Mrs. McLane, the beneficiary of the income for her life, to appoint either the corpus of the estate to her husband absolutely or create by appointment a life •estate in him in the income of the trust estate, is not invalid-on .account of the rule against perpetuities. Loring v. Blake, 98 Mass. 258; Lawrence Estate (appeal of Appleton), 136 Pa. St. 354; 1 Jarm. Wills (R. & T. ed.) 547, 551. The authorities seem to establish the proposition beyond dispute that the mere fact that the surviving husband may have been born after the ■decease of the testator does not affect the validity of the testamentary disposition. The reason is that, upon the death of the life tenant or beneficiary for life, by her appointment the entire estate becomes vested, and there remains no possible uncertainty as to who are the takers. There are parties in esse who are capable of making absolute transfers. In this case Mrs. McLane, the daughter of the testator, survived him over fifty years. It is possible that she might have married a young man a few weeks before her death and then have appointed to him a life estate which might endure for half a century longer. Nevertheless in such case,, upon Mrs. McLane’s death, the whole estate in tire hands of the trustees, which is the subject of disposition, would immediately vest in definite persons. The principle seems to be that the carving up of the estate in a case like this into tenancies for life and for years, &c., does not render the disposition obnoxious to the perpetuity rule, provided there is no uncertainty as to the vesting of any part of the estate so that definite persons in esse can alienate their respective ascertained definite shares of the estate and unite in alienating the whole.

4. The power to appoint a life estate in the income to the surviving husband being valid, taken by itself, is not rendered invalid by any invalidity or defect which may be found to characterize the attempted exercise of the power to appoint the disposition of the corpus of the estate after the husband’s death. This result follows from the absolute independence of the power to appoint the entire corpus of the estate among the possible takers described in the will on the one hand, and the power to impose by appointment of the corpus of the .estate or the income thereof or part of the income thereof for the benefit of the surviving husband on the other. If the attempted appointment of the corpus of the estate which Mrs. McLane made in her will is invalid, it follows that the corpus will go under the express provision of the testator’s will precisely as if Mrs. McLane had not attempted to make any appointment of the corpus. But such result cannot aifect the appointment of income.

5. It may be noted in passing that the powers of appointment vested in Mrs. McLane are described in the will as the power “to give the said capital or funds so held in trust * * * by will or testamentary appointment” to the class of persons described or any of them, and the power “to give” to her husband, manifestly by will or testamentary appointment, either a life estate in the income or the corpus absolutely. The donee of this power, Mrs.. McLane, undertook to exercise the same by testamentary provisions which apply without discrimination to her own estate and the estate of the testator which she had power to dispose of by appointment. The opening paragraph of Mrs. McLane’s will is as follows:

“I, Fanny King McLane, of Baltimore City; State of 'Maryland, do make this my last will and testament in manner following,, intending hereby to execute the power given to .me in the last will of my father, the late James Gore King, to dispose of the share of his estate now held in' trust for me under his will, as well as to dispose of all my other property and estate.”

The will contains, no further reference to this trust estate, but proceeds to make a disposition of property as if the same were vested in the testatrix absolutely. After providing for the payment of debts and funeral expenses and a few small pecuniary legacies, the will provides as follows:

“All the rest, residue and remainder of my property, real, personal or mixed, I give, devise and bequeath to my husband, 'James L. McLane, for the term of his natural life, and from and after- the death of my said husband I direct that all my said property be divided into four equal parts or shares, and I give, devise and bequeath to each of my three children, Allan, Fanny King and Fredericka Gore, one of said part or shares, the child ior'children of any of my said children dying before me to receive the part or share to which its or their parent would have been entitled if living at the time of my death; and the remaining fourth part or share I give, devise and bequeath to my son, Allan McLane, and to my daughter, Fanny King McLane, and to the survivor of them, in trust and confidence nevertheless, to hold, invest and manage the same for the use and benefit of my two grandchildren, Ethel McLane Lee and Katharine Lawrence Lee, children of my deceased daughter, Katharine Milligan McLane, until they shall respectively reach the age of twenty-one years, paying out and expending meanwhile the net income arising therefrom for their support and education, as in the judgment of my said trustees may seem proper; and in the event of the death of either of my said two grandchildren before reaching the age of twenty-one years, I direct my said trustees to hold and invest the whole of said fourth part or share of my estate and to manage the same for the use and benefit of the survivor of said two grandchildren upon the same trusts as above set forth, and in the event of both my said grandchildren dying before reaching the age of twenty-one years, then said trust shall cease, and I give, devise and bequeath said fourth part of my estate to my three children, Allan, Fanny King and Fredericka Gore, and their descendants then living, share and share alike, per stirpes and not per capita.”

Mrs. McLane undertook to -make an appointive distribution of the trust estate, and a testamentary disposition of her own estate practically as a unit, and by the employment of phraseology applicable at the same time to these two very different subject-matters. Such a method of making a will of one’s own estate and appointing a disposition of someone else’s estate en bloc may be dangerous and lead to difficulties, but it is, nevertheless, permissible. Inglis v. McCook, 68 N. J. Eq. (2 Robb.) 37, 38. The language of Mrs. McLane’s will must be construed distributiveiy, having in view the two radically different ways in which many of the provisions of the will must necessarily operate. Mrs. McLane evidently did not intend that her surviving husband should receive any portion of her own estate, or any portion of the trust estate absolutely. She had power to give her husband the whole or a portion of her own estate, absolutely, if she saw fit to do so. She also had the power, under the will of her father, to- appoint to her .husband the whole of the trust estate if she saw fit to do so. What she desired to do and intended to do was to give her surviving husband the beneficial enjoyment, for his lifetime, of all the property which she controlled, whether such property was her own estate or consisted of this trust estate which was subjected to her power of appointment. In carrying out this intention she naturally, employed language which would be sufficient to vest in her surviving husband a legal life estate in all her own real and personal property. She had no power by appointment to vest in her surviving husband a life estate in the corpus of the trust estate. In other words, she could not appoint to her husband a legal life estate in the estate, real or personal, which the trustees held. She did have the power to appoint to her husband an absolute estate in the corpus so that immediately upon her decease the trustees, in execution of their trust under the will of dames Gore King, deceased, would be obliged forthwith to pay over and transfer to the surviving husband the entire trust estate. But I think it is plain that Mrs. McLane had no power to appoint the corpus of the estate for life. If she did not see fit to dispose of the corpus by appointment to her surviving husband, her only power to appoint for his benefit was the power to appoint “a life estate in the whole income or any part thereof.” As we shall see later,- there is great significance in the ¡provision for an appointment of a life estate for the husband’s benefit in part of the income.

In order to construe the phrase “life estate in the income,” it is necessary to consider the exact situation contemplated by the testator when lie employed this phrase. The testator is dealing with the disposition of an estate legally vested in trustees, the income of which these trustees are collecting and disbursing in execution of their trust. This was the situation which would necessarily exist not only up to the time of Mrs. McLane’s death, but, except in respect to the disbursement of the income, after her death until the persons-entitled to receive the estate should have been ascertained, and the estate should have been paid over and transferred by the trustees to such persons. Therefore when Mrs. McLane is given the power to appoint “a life estate in the income”, of this trust estate, it seems to me that it is quite plain that the testator, the donor of the power, is contemplating the trust as continuing in the event of the exercise of this power of appointment in order that there may be an income which the appointee is to enjoy for life. This is not a case where the income of property is given to A and the corpus to B while the property exists in its entirety as a unit in the donor’s hands, or as an asset of his estate. A severance between income and principal has been effected by the trust. The income exists as a distinct property independently of the corpus. That the testator was contemplating the income of the trust estate as entirely distinct from the principal is indicated, I think, by the very significant phraseology which he saw fit to employ. He does not' say that Mrs. McLane might give her husband either the whole of the capital absolutely or the whole or a portion of the capital for life. He provides that she might give her husband either one of two things, viz., (1) a life estate in the whole income or any part thereof, or (2) the whole of the capital.

But still more significant is the fact that the donee is empowered to appoint a life estate in a part of the income, while no express provision- is made for the application of the remainder of the income'during the husband’s lifetime. If Mrs. McLane had undertaken to exercise this power - and had appointed to her husband, for life, one-half of the income of the trust estate, it is difficult to see how any good argument could be presented against the continuance of the trust estate in order that the income might be collected and divided into two portions, one of which only would go to the surviving husband. It is unnecessary to inquire where, in ease of such appointment of part of the income, .the remainder of the income would have gone.

If we construe the provision of Mr. 'King’s will in the light of the circumstances which surrounded him when he made it, and in the light of. the conditions which he must have contemplated as existing when the -power of appointment which he vested in his daughter, Mrs. McLane, would become operative, I think that the conclusion is unavoidable that this testator was providing for the ■ appointment for the benefit of the surviving husband of an inóome, or a part of an income which these trustees would necessarily be collecting, and that therefore his intention was that the trust should continue and the income thereby -be collected out of which the surviving husband might receive such share as the donee of the power might appoint. This is not a case, in my opinion, where the gift of income of property should be construed as equivalent to a convejmnce of the corpus of the property to be held for the period during which the income is to be enjoyed. See Parker's Executors v. Moore, 25 N. J. Eq. (10 C. E. Gr.) 228, 236; Conant v. Bassett, supra.

-Of course Mrs. McLane could not extend her power of appointment — could not create interests which she was not empowered to create by appointment. The broad provision of her will, undertaking to give her husband a legal life estate in both her own property and that held in trust under her father’s will when applied to the trust estate, must be limited to the sort of life estate which she was empowered to appoint.

6. There are certain questions in regard to the attempted distribution by Mrs. McLane, under her power of appointment, of the corpus' of the trust estate after her husband’s death, which may arise in the future, the discussion of which at the present time would be premature. All these questions merely relate to the ascertainment of the parties who are to take the corpus of the trust estate upon the death of Mrs. McLane’s husband, and in regard to that matter, whatever construction may be placed upon Mr. King’s will or Mrs. McLane’s attempted exercise of her powers of appointment under that will, the independence of the power to appoint either corpus or income to a surviving husband is not in the slightest degree affected. Even if we assume that the appointment of the trust estate attempted to be made by Mrs. McLane by her will is wholly or in part invalid on account of the rule against perpetuities, or for any other reason, the validity of her exercise of the other independent power of appointment for the benefit of her surviving husband is unimpaired. I think that all the questions in regard to the construction of the power of appointment of the corpus which Mrs. McLane undertook to •exercise, and all questions in regard to the 'legal effect of what Mrs. McLane undertook to do in the exercise of that power, relate solely to the disposition of the corpus of the estate which the trustees are bound to make after the death of. the surviving husband and do not relate to any conduct on the part of the trustees in the execution of their trust in regard to which they are entitled tó instructions from this court at the present time.

7. A decree will be advised instructing the complainants to retain the trust estate in their hands and to continue collecting the income thereof, and to pay over the income to the defendant, James L. McLane, the surviving husband of Fanny King McLane, during his lifetime.


author: Stevenson, Y. C.

text:
    David H. Bilder v. Edgar S. Robinson.
    [Decided August 17th, 1907.]
    1. A purchaser at an execution sale of the title of the debtor in real estate, held by him and his wife as tenants by the entirety under a conveyance executed after the passage of the Married Woman’s act, acquires a freehold, and the sheriff’s deed gives him the same title which a deed executed by the debtor would have given.
    2. A conveyance of land, after the passage of the Married Woman’s act, to husband and wife, creates in them an estate in entirety, gives to each a right to a half of the rents and profits, and vests in each a freehold estate corresponding to the rights of each.

      3. Courts of equity are.averse to appointing receivers of land held by tenants in common, who cannot agree on the management of their estate, though receivers have been appointed, where the sole object was to secure a receiver and the collection and equitable division of the rents and profits.

      4. Where a purchaser at an execution sale of the title of the debtor in realty, held by him and his wife under a conveyance executed after the passage of the Married Woman’s act, is excluded by the debtor and his wife from participating in the rents, and the debtor and his wife, who-are insolvent, collect the rents, the purchaser may obtain a decree for an accounting, the payment to him of his share of the rents and the appointment of a receiver.
    5. A bill by one tenant in common for the appointment of a receiver, because of his exclusion from the possession and enjoyment of the land held in common, may be amended on his application so as to contain a prayer for partition.
    On motion for an injunction and receiver. Heard on bill and affidavits, and answering affidavits.

      Mr. David Ii. Bilder, pro so, for the motion.

      Mr. Waller R. Hudson, contra.

   Stevenson, Y. C.

The conveyance of land in question was made to the defendants in 1903, describing them as “Edgar S. Robinson and Ottie E. Robinson, his wife,” without any other words which throw light upon the character of the estate which the grantees took. They became tenants of an estate in entirety. In 1906 the Paterson Consolidated Brewing Company recovered a judgment against Edgar S. Robinson, upon which the sheriff levied upon “all the right, title and interest of the said Edgar S. Robinson, in and to,” the said land, and thereupon such right, title, &c., were sold at sheriff's sale and conveyed to the complainant by sheriff's deed, dated September 28th, 1906. The bill charges that the complainant is entitled to receive one-half of the rents in question from the date of his deed, but that the defendants, who are insolvent, totally exclude him from possession and refuse to account for his share of the rents which they, the defendants, have collected since the complainant received his deed from the sheriff. The bill insists that the defendants were “seized in fee-simple of an estate by the entirety,” and that “the defendant Edgar S. Robinson became entitled to one-half the rents,” and that the complainant, by virtue of his deed from the sheriff, succeeded to all the rights of the said Edgar S. Robinson.

The bill prays that a receiver may be appointed “preliminarily and permanently to receive the rents, issues and profits of the said premises for the benefit” of the complainant, “ana all other persons having any legal interest therein,” that such rents may be divided, &c., and that the defendants may make discovery of prior rents collected since September 28th, 1906, the date of the sheriff’s deed to the complainant, and that an account may be taken of the rents, &c.

While the bill of complaint sets forth all the facts upon which any possible rights of the complainant must be based, it does not undertake to define, nor has counsel for complainant in his argument undertaken to define, the legal nature of the right which the judgment debtor, the husband, had to receive one-half of the rents, issues- and profits of the land, which right the bill claims passed to the complainant by the sheriff’s deed. It was urged that the complainant is without remedy for the enforcement of his peculiar right in a court of law, and hence must find his remedy in a court of equity. It was not insisted on behalf of the complainant that the deed from the sheriff passed a definite legal estate in the land. It seems to be plain, however, that no right to receive the profits of land not connected with a legal estate- in the land is leviable -upon a common law execution. The thing that was, in fact, levied upon by the sheriff and sold and conveyed to the complainant was “the right, title and interest” of the husband in this land. Either a common law estate in lands passed by this sheriff’s deed, or else the complainant took nothing whatever. This is not a bill filed by the Consolidated Brewing Company, the judgment creditor,.in aid of execution to reach assets which have not been levied upon and which, in fact, were non-leviable. • In order to give the complainant any standing in this court on this bill it must appear that he has acquired an estate in the lands ‘in question, and, as no means whereby he could have acquired anything but a strictly legal estate are suggested, we are brought face to face with the very narrow alternative that the complainant either holds some legal estate- in these lands or holds no interest in them whatever.

It seems to be settled beyond question in New Jersey that the complainant, under the judgment and execution against the husband, acquired a freehold estate in this land, although exactly what the -extent of such estate may be, whether an estate for life or a sort of conditional or determinable fee, seems to be a matter still open for argument and determination. Washburn v. Burns, 34 N. J. Law (5 Vr.) 18 (1869) ; Den v. Gardner, 20 N. J. Law (Spenc.) 556, 558 (1846).

In order to ascertain the exact nature of the complainant’s legal estate we must first ascertain what legal estate the husband held, and to what extent such estate was capable of being levied upon and sold under a judgment recovered against him in a court of law. All the authorities agree that during the joint lives of the husband and wife the husband, according to the common law, -was “entitled to the use and possession of the property,” and that he could transfer his interest, and, according to the great weight of authority, the same could be seized and sold under execution against him. Whether the husband could convey an estate in fee which his grantee would hold subject to the wife’s right of survivorship, is a matter about which there seems to be some difference of opinion, and also great vagueness of statement among the authorities. Inasmuch as the husband, in theory of law, held the entire estate in fee, and, unlike the wife, was under no general incapacity to make convejuinces of land, it would seem to follow that the husband could, by his deed, convey the estate which he held, viz., an estate in fee subject only to be defeated in case his wife should survive him. -There are authorities which distinctly declare the power of the husband to make such a conveyance. 1 Washb. Real Prop. (6th ed.) 913; Freem. Co-ten. & P. (2 ed.) § 76; Ames v. Norman, 4. Sneed (36 Tenn.) 683 (1857); Berrigan v. Fleming, 2, Lea (70 Tenn.) 271 (1879).

'Of course, we are not considering the effect which’ the husband’s deed may have to pass an after, acquired estate by way of estoppel. The point under consideration is the effect of the deed at the time when it is delivered — the extent and nature of the estate which it then passes to the grantee.

The courts of the State of New York seem to have settled the law of that state in favor of the right of the husband to convejq not only a life estate, but the fee subject to the wife’s right of survivorship, but the decisions apparently are based upon the statute of the State of New York in relation to the conveyance of estates in expectancy. Hiles v. Fisher, 67 Hun 229 (1893); S. C. on appeal, 144 N. Y. 306 (1895).

The sheriff’s deed to the complainant in this case passed the same title which a deed of bargain and sale executed by the judgment debtor, Mr. Robinson, would have passed. 3 Gen. Stat. p. 2980 § 7; P. L. 1799 p. 486 § 12; 1 Nev. 280; Hackensack Savings Bank v. Morse, 46 N. J. Eq. (1 Dick.) 161; Brady v. Carteret Realty Co., 67 N. J. Eq. (1 Robb.) 641.

It may be noted, however, that our statute authorizing the transfer of estates in expectancy is made inapplicable by an express proviso to sales of real estate under executions. P. L. 1851 p. 282; 1 Gen. Stat. p. 881 § 188.

It will not be necessary in this case, in my opinion, to determine the exact extent of the freehold estate which the complainant would have taken under the sheriff’s deed to him prior to the act of 1852, in relation to married women. Nor is it necessary to determine the extent of the estate which the complainant now holds. It is settled law that prior to our legislation in regard to married women the complainant under the common law would have taken at least a freehold estate during the joint lives of the husband and wife, these two defendants. This freehold estate, if it be considered disassociated from the estate in the entire fee, which the husband also held in theory of law, corresponds exactly with the freehold estate which the husband took in all lands of which the wife alone was seized. It is equally well settled that the -estate in fee which the husband held had all the qualities of an absolute estate upon the death of the wife in the lifetime of the husband, and may be said, without going into the metaphysics of the situation, to come to an end and disappear wholly upon the wife surviving the husband. Whether apart from the benefit of any estoppel in the husband’s deed, and of any statutory authorization for the conveyance of estates in expectancy, the husband’s conveyance of all his right, title and interest would or iyould not transfer to the grantee the husband’s estate in fee subject to be defeated-by the survivorship of the wife, is a point which I do not think necessary to decide in this case. Assuming that such estate would so pass by the voluntary conveyance of the husband, the further question whether it would also pass by a sheriff’s deed under a judgment against the husband, may also be left undecided.

Whatever may be the true view as to the status of the fee of land held by a husband and wife as tenants in entirety, it seems to me that the nature and extent of their respective interests and estates during their joint lives have been rendered sufficiently definite and certain for all present purposes by the decision of the court of errors and appeals in the case of Buttlar v. Rosenblath, 42 N. J. Eq. (15 Stew.) 651 (1887). At first the view seems to have prevailed that the Married Woman’s act of 1852, if logically applied, had the effect to abolish the ancient estate by the entirety and to substitute for the same the ordinary tenancy in common. Kip v. Kip, 33 N. J. Eq. (6 Stew.) 213 (1880); Rosenblath v. Buttlar, 7 N. J. L. J. 143 (1884)The decisions in this state and in other states, in law and in equity, dealing with the effect of legislation in regard to married women, I think admonish us to be cautious in drawing what we think are logical inferences from the establishment of these new statutory rules. In the case of Buttlar v. Rosenblath, above cited, the court of errors and appeals held that our New Jersey legislation in regard to married women has not abolished the estate in entirety, and does not “change or modify in anywise the signification or effect of terms used in common-law conveyances.” The estate in entirety still remains, but the married woman is no longer obliged to surrender to her husband the entire rents and profits of the land. The husband has a right to one-half and the wife has a right to the other half. Creditors of the husband no longer can appropriate the entire rents and profits, but they can appropriate the husband’s share. The opinion of the court at the conclusion expressly states that “the just construction of this legislation [Married Woman’s act] and the one in harmony with its spirit and general-purpose, is that the wife is endowed with the capacity during the joint lives to hold in her possession as a single female one-half of the estate in common with her husband, and that the right of survivorship still exists at common law.” The judgment creditor of the husband was allowed to appropriate the husband’s interest, but whether the estate thus appropriated did or did not include 'the husband’s right of survivorship does not appear and apparently' was a question not presented for adjudication.

It would seem that the doctrine is thus established in New Jersey that a conveyance to a husband and wife gives the wife a legal estate for their joint lives as a tenant in common with her husband. It is a general principle of ancient application that a right to the use and enjoyment of the entire income and profits of real estate implies a legal estate sufficient to support such right. The ancient freehold estate which the husband took at the common law in his wife’s lands had its origin in this principle. When the common law gave the husband the right to the sole use and possession of lands held by himself and wife as tenants of the entirety, a corresponding freehold estate necessarily went with this right, whether such estate can be deemed as existing as a distinct life estate, or must be regarded as part of the estate in fee which the husband held. When our statute prevents the husband from appropriating the entire rents and profits and vests in the wife an equal right with him to’ receive and enjoy those rents and profits, it follows that a freehold estate must be recognized as vesting in the wife corresponding with her right to enjoy the rents and profits, and a similar freehold estate must be recognized as vested in the husband corresponding with his right. This seems to be the plain result of the decision of the court of errors and appeals in the Buttlar Case.

The last question to be discussed is whether upon the case made out on this bill and affidavits annexed, and the affidavit of the defendants, a receiver should be appointed. The bill does not pray for partition, -although it seems to set forth a case upon which the complainant would be entitled to partition of the life estate held in common if he prayed for such relief. The bill, however, contains a general prayer, for relief, and if the complainant should desire to obtain a decree for partition, and is entitled to use this suit for that purpose, a special prayer for such relief, if necessary, might be supplied by an appropriate amendment. As yet, however, the suit is not for partition. It is a suit by one tenant in common to have a receiver appointed because of his total exclusion from the possession and enjoyment of the land held in common, while his co-tenants who are insolvent are appropriating the entire rents and profits. Courts of equity are averse to appointing receivers of land held by tenants in common who cannot agree upon the management of their estate. High Bee. § 60S. In some cases, however, receivers have been appointed apparently where the sole object of the bill was to secure the appointment of a receiver and the collection and equitable division of the rents and profits through such receiver under the direction of the court. High Bee. §§ 60S, 605.

I shall not undertake to discuss this narrow head of equity jurisdiction, assuming that it exists in New Jersey. A court of equity certainly should be cautious in undertaking permanently through a receiver or otherwise to collect the rents of land held by tenants in common, and equitably divide the same among them merely because they disagree among themselves and thereby become incapable of attending to this business for themselves in a satisfactory manner. When no partition is prayed for, although it appears that the land held in common is capable of partition, or, being incapable of partition, is of such character and is SO' related to the parties that a sale thereof and division of the proceeds will accomplish justice, this court, it seems to me, should be extremely cautious in establishing what might be a permanent receivership for the administration of the land held in common. A court of equity will not carry on a partnership business through a receiver in a suit in which a dissolution is not sought merely because the partners disagree, or because the complainant partner is excluded.

I do not, however, have to pass upon this question because the application for a receiver does not stand alone upon the total exclusion of the complainant and the insolvency of the defendants. Tlie bill shows that the defendants have collected and appropriated to their own use the rents of the property ever since the complainant’s title accrued, which was nearly ten months before the bill was filed, and are still collecting and appropriating those rents, and the bill prays for an accounting of rents so collected. The receivership applied for, therefore, is not the sole object of the suit, but is to some extent ancillary to the decree for an accounting and the ascertainment and payment of the complainant’s share of the rents collected. A receiver will be appointed and the injunction restraining the defendants from collecting the rents will be continued. If the complainant desires to amend his bill so as to pray for partition, he may make such application 'upon the settlement of the order which will now be made, and thereupon any objection to allowing such amendment will be duly considered.


text:
    August Menge v. Morris and Essex Railroad Company et al.
    [Decided September 20th, 1907.]
    1. Injunction is the proper remedy to restrain a railroad company from taking complainant’s property without compensation, not because an injunction will issue to restrain an ordinary trespass, but to protect the property owner’s constitutional right against aggression.
    2. Where a railroad company may condemn land for.railroad purposes, an injunction will be issued at the suit of a private property owner to restrain the company from taking or using the land without first making compensation only where the corporation is willfully proceeding in violation of the owner’s constitutional right.
    3. Where a railroad company has entered private property to appropriate the same without first having proceeded to condemn it, the property owner may sue at law every day for damages for the trespass, or he may maintain ejectment.

      4. A constitutional right differs from a right conferred by the common law or by statute only in the fact that it is guarded from any attack or interference by the legislature, or any other governmental agent, and is not entitled by its nature to protection by injunction to a greater extent than any other right.
    5. A railroad, under the belief that a satisfactory arrangement would be reached for the taking of complainant’s land for a tunnel, delayed condemnation proceedings, and prosecuted the work up to complainant’s property line before he made complaint to any court. The railroad proposed to tunnel through solid rock in complainant’s land fifty feet below the surface without affecting the enjoyment of complainant’s building, and without any intent to evade its duty to pay complainant’s compensation, which it stood ready, willing and able to- do. — Held, that though defendant was a trespasser in taking complainant’s land without first making compensation, an injunction restraining defendant’s construction would be refused on condition that defendant pay a satisfactory sum into court to guarantee complainant just compensation, and diligently prosecute condemnation proceedings.
    On bill for injunction.

      Mr. James J. Murphy and Mr. Charles J. Roe, for the complainant.

      Mr. Albert C. Wall, for the defendant.
   Stevenson, Y. C.

(orally).

In- the case of August Mange, complainant, and the Morris and Essex Railroad Company et al.,' defendants, the conclusion I have reached is, that the motion for a preliminary injunction will be denied, upon condition that the railway company deposit forthwith, within a time to be named in the order, in the court of chancery, an amount of money to be fixed by the order, which will guarantee to the complainant the just compensation which he is entitled to receive for land which the railway company is now occupying and which it proposes to take permanently for its railroad, and upon the further condition that'the railroad company will diligently prosecute the present condemnation proceedings which it appears to have instituted, the complainant having the right at all times to apply again to this court in this cause for an injunction in case of any violation of these conditions.

The principle which I apply to this case I shall endeavor, briefly, to explain, although I have had occasion to lay it down and apply it in another case very recently (the case of Nelson v. New Jersey Short Line Railroad Co., 67 Atl. Rep. 1032), in which case an appeal is now pending in the court'of errors and appeals. The court of errors and appeals may make a deliverance in that case which will necessarily lead to a different result in this present case, but all that I can do at present in this case is to follow the ruling which I made in that case after very careful examination of the authorities and consideration of them as well.

No doubt it is true that, as a general rule, a private property owner is entitled to an injunction to restrain a corporation from unlawfully taking his land — a railway corporation, for instance. The general principle is well settled that á railway corporation will not be permitted to take property for the uses of its railway without making just compensation first, and that the remedy of" the property owner, whose constitutional right is invaded, or threatened to be invaded, is by an injunction, and that the injunction will issue, as the authorities hold, not upon the same principles which apply to the issuing of an injunction to restrain an ordinary trespass. The injunction will issue to enforce the constitutional right of the property owner 'against dangerous aggression and in order to keep corporations within the limits of their powers. That is the principle which was enunciated in the case of Pratt v. Roseland Railway Company, reported in 50 N. J. Eq. (5 Dick.) 154, In which Vice-Chancellor Van Fleet quotes with approval and adopts the following language from Mr.. Kerr in his Treatise on Injunctions :

“A private person who applies for an injunction to restrain a public incorporated company from entering illegally on his land, is not required to make out a case of destructive trespass or irreparable damage. The inability of private persons to contend with these powerful bodies, which have often large sums of money at their disposal and are often too prone to act in an arbitrary and oppressive manner, raises an equity for the prompt interference of the court to keep them within the strict limits of their statutory powers and prevent them from deviating in the smallest degree from the terms prescribed by the statute which gives them authority.”

Row, this statement is from Mr. Kerr and it was applicable to a right under an English statute. Some authorities think that the principle should be applied even more rigidly in this country, in view of the fact that the right which the court is asked to protect is a constitutional right. I do not quite follow the reasoning of the authorities in regard to this matter, but that is a view which has frequently been expressed.

Vice-Chancellor Van Fleet continues: “Other authors state the rule in substantially the same way,” citing High on Injunction and Leiuis on Eminent Domain, and concludes in the following language:

' “This rule has been repeatedly recognized in this state, notably so by Chancellor Pennington in Ross v. Elizabethtown and Somerville Railroad Co., supra, and by Chancellor Zabriskie in Stevens v. Paterson and Newark Railroad Co., 20 N. J. Eq. (5 C. E. Gr.) 126, 129, and by Chancellor Runyon, in the Morris and Essex Railroad Co. v. Hudson Tunnel Railroad Co., 25 N. J. Eq. (10 C. E. Gr.) 384, 387. I think I am bound to regard it as the established law of this court.

“An injunction must issue restraining the corporate head from further constructing its railroad on the land in question, until it shall have made just compensation to the complainant for his estate in the same.”

The authority of this decision of Vice-Chancellor Van Fleet certainly seems to have been impaired by what subsequently occurred. The ease was a motion for a preliminary injunction and was heard in the usual way on order to show cause. There is no suggestion that there was any final hearing in the court of chancery, and the vice-chancellor’s opinion concludes that an injunction — that is to say, a preliminary injunction — should issue. From the order for this preliminary injunction an appeal was taken to the court of errors and appeals, where the cause appears to have slumbered for five or six years. The only report of the case in the appellate court is found in 5'S N. J. Eq. (13 Dick.) 586, from which it appears that the case was argued at the March term, 1899, but no decision appears to have been rendered. A reporter’s note states that, on November 14th, 1898, an order was entered reversing the order of the court of chancery for a preliminary injunction and dismissing the bill of complaint, and directing that the record be remitted in order that said decree might be carried into execution. Whether or not this decree directing that the bill should be dismissed was entered after a settlement by consent does not appear. It may be that the. court of errors and appeals, on reviewing a motion for a preliminary injunction, condemned the bill on its merits as if the case were heard on a demurrer, and without giving the complainant an opportunity to amend, pronounced a final decree dismissing the bill in accordance with the practice followed by Chancellor Bum yon, in Dusenberry v. Newark, 25 N. J. Eq. (10 C. E. Gr.) 295, and some other similar eases. I have not examined the original files in the court of chancery and the court of errors and appeals, in order to learn precisely what action the court of errors and appeals took in disposing of the case in the way I have mentioned. However this decree dismissing the bill on the nierits came to be entered, I think that the general statement which I have read from the opinion of Vice-Chancellor Van Fleet is recognized as law in this state and very generally throughout the country. But, in my judgment, it applies only to those cases where the corporation is willfully and intentionally proceeding in violation of the constitutional right of.the property owner. It is said that the purpose of the rule is to keep corporations in their place, to keep them from high-handed aggression; but there are very many cases which arise where, without any intent to violate the rights'of the private property owner, the corporation unfortunately finds itself in the position of being a trespasser.

Well, it has to take the consequences in such a case. 'It is liable to an action at law for damages; it may be liable to an action for damages every day; it may be liable to an action of ejectment. The question is whether it is liable to an injunction which will paralyze its operation and may stop the construction of a great public work. I do not understand that the rule of practice, laid down by Vice-Chancellor Van Fleet and all other authorities, leads to any such conclusion.

In the case of Nelson v. New Jersey Short Line Railroad Company, the case now pending in the court of errors and appeals, 67 Atl. Rep. 1032, the regular condemnation proceedings were started by the railroad company. They laid out their route through a large farm, and after paying the amount awarded by the commissioners into the court of chancery, they went to work laying their rails and constructing their roadbed. The owners of the farm (a number of tenants in common, according to my recollection), were made parties to the condemnation proceedings. There was, however, a man in possession of the farm who may have been regarded by the agents of the railroad company as a mere caretaker, or a mere employe of the owners. This man, by mistake, was not made a party to the condemnation proceedings. There was no question that the agents of the company had iii good faith endeavored to make all parties entitled to any share of the award parties to the proceedings, but this person somehow was overlooked. It was a clear case of mistake. This man then (the complainant, Mr. Nelson) filed his bill to enjoin the occupation of his property by the railroad company and presented a lease for a year to himself from the owners, with the right to an extension. He had an undisputed right to the possession of the property; he had a legal estate in it; he was openly and notoriously in possession. The railroad company, however, had acted in good faith and had instituted condemnation proceedings to ascertain the value of the land, which means the value of the land itself, the sum total of all the possible estates of all the owners, including this tenant, Mr. Nelson, in the land taken, and had paid the entire amount of the award, about $6,000, into court. Rone of the substantial owners made any objection, or if they made objection the proceedings had been conducted to a finish. The money in court represented the actual value of the whole land as between the railroad company and those who had been brought into the condemnation proceedings, but the whole proceeding was void as to Mr. Nelson, this tenant of the property, and he insisted that the well-settled, hard and fast rule was that the railroad company was liable to an injunction restraining it from taking his property without first making just compensation for the same.

But in view of the fact that .the railroad company had the right to condemn the land which it had taken, and had in good faith instituted condemnation proceedings of which it had intended and endeavored to notify all the parties interested, and had paid the award of the commissioners into court, and that such award necessarily included a sum which represented the value of Mr. Nelson’s entire leasehold estate if it had any substantial value, I held that the general rule was not applicable, even though Mr. Nelson was not bound by the award, and was therefore not bound to accept any portion of the award as the ascertained value of his property and the ascertained extent of his damages. The application for the injunction was therefore denied, upon condition that the defendant corporation would forthwith deposit a sum of money in the court of chancery amply sufficient to cover all possible claims of Mr. Nelson, and also institute condemnation proceedings to which Mr. Nelson would be made a party.

I think it is a mistake to suppose that any man has an absolute right to an injunction, merely because his constitutional right is invaded. What is a constitutional right ? Iiow does it differ from a right under the common law or under a statute? Is it more sacred ? The distinguishing feature of a right created directly by a constitutional provision seems to be that éuch right is guarded from attack or interference of any kind by the legislature, or any other governmental agent of the state. It does not follow, however, that if a man has a constitutional right the invasion of that right calls for any remedy different from that to which he would be entitled in case his right were based solely upon the common law, or upon a statute. It has been suggested that unless a court of equity will in every case enjoin a corporation from appropriating or occupying property without first making the just compensation provided by the constitution, the constitutional safeguard is nullified. In other words, it is claimed that the writ of injunction is practically the only method of enforcing the constitutional provision requiring compensation to be made before the property is taken.

This view, it seems to me, is clearly fallacious. Common-law rights are generally recognized and enforced by remedies which are compensatory; the instances in which rights are specifically enforced and the invasion of those rights prevented are comparatively few. The constitution provides for compensation before appropriation. If a corporation appropriates before making compensation its action is illegal, and the party injured has various appropriate actions at law for the recovery of damages and the restitution of his property. Whether the trespass of the corporation — the illegal appropriation of property by it — will be restrained by an injunction out of a court of equity is a matter, it seems to me, to be examined and decided without reference to the origin of the right which the corporation is proposing to violate.

As is illustrated in the language of Mr. Kerr, quoted by Vice-Chancellor Van Fleet, precisely the same question as to the use of the writ of injunction in cases of this kind comes up in England where there is no question of constitutional law involved, where an omnipotent parliament has the power, if it sees fit to exercise it, to authorize the taking of private property for public use before making compensation therefor, or even without making any compensation at any time.

In the case now before the court, it may be conceded that if the railroad company willfully and deliberately, with full knowledge of all the facts, undertook to run its road under and through the complainant’s property, this court ought to stop it by an injunction and pay no heed to arguments which are effectually addressed to the court to prevent the issuing of a writ of injunction to restrain an ordinary trespass. Excluding from consideration the constitutional right of the complainant, it has not been argued that there are any circumstances in this case which would entitle the complainant to a writ of injunction to restrain the trespass of which the defendant corporation appears to be guilty. The complainant is not disturbed in the possession of his property, and does not seem'to be practically injured in any way by what the defendant has done. The utmost possible damage to the complainant is very slight. His remedies at law, including an action of ejectment and an action for damages, seem to be adequate. In case the railroad company should be ejected — should not succeed in acquiring title in any way — the complainant will be restored to the full possession of his property. All these considerations are to he disregarded, as seems to be well settled, if it appears that the railroad company has intentionally undertaken to appropriate the complainant’s property without-first rendering him the just compensation to which he is entitled.

Now that is not this case at all. I am thoroughly satisfied from the proofs that the railroad company in good faith endeavored to have the complainant receive full compensation for his property before they began to run their tunnel through it. Undoubtedly, the case would be very different if the railroad company were appropriating or occupying the surface of the complainant’s land, or in any way disturbing the complainant’s occupation or use of that land. It must be borne in mind that the railroad company is boring its tunnel through solid rock fifty feet below the surface without in any way affecting the enjoyment of the use of the complainant’s building. The evidence shows clearly that the defendant had no intention to evade its duty with reference to compensating the complainant, but, on the contrary, at every stage of the construction of its tunnel had good reason to believe that an adjustment would be made without litigation and without expense by which the complainant would receive the ample compensation which the defendant stood ready and willing to pay him, and was amply able to pay him at any time.

There was also a very strong indication, I think, that the complainant was not prompt in bringing his suit for an injunction, but allowed the defendant to delay condemnation proceedings upon the assurance which the complainant’s conduct seemed to give, that the amount of the complainant’s compensation would be fixed by agreement between the parties interested. The defendant corporation ought not to be punished because it made a mistake in perfect good faith in adjudging that no condemnation proceedings would be necessary. The defendant, manifestly relying upon the assurance of a satisfactory voluntary settlement which seemed to be indicated by the conduct of the complainant, brought its tunnel up to the line of his property and then, in daily expectation of a settlement, carried the tunnel very nearly through the complainant’s property before he made complaint to any court. The complainant now undertakes, T think, to apply a very harsh rule to the situation: He asks a court of equity to subject the defendants to the very great inconvenience and expense of suspending work on its tunnel until the proceedings for .condemnation can be conducted to an award which can be paid into court.

The rule which allows an injunction to restrain corporations from willful and intentional violation of the constitutional rights of property owners is not, in my opinion, applicable to this case. The defendant corporation, although legally a trespasser and liable to be ejected and to be mulcted in damages in the law courts, has become such trespasser, to a certain extent, by mistake, having delayed the institution of condemnation proceedings under a bona fide expectation founded, in 'a large degree, upon the conduct of the complainant that compensation satisfactory to the complainant would be voluntarily accepted by him, and that, therefore, condemnation proceedings would be unnecessary.

For the reasons which I have endeavored to set forth, my conclusion is that no preliminary injunction is proper in this cause, and that the complainant should be left to his remedy at law; provided, however, as I stated at the start, the railway company will prosecute the condemnation proceedings with diligence and effect, and will forthwith — within a few days, say, five or ten days — pay into the court of chancery a sum to be named in the order which will guarantee the cash compensation which the complainant is entitled to receive.


text:
    Meyer C. Nelson v. New Jersey Short Line Railroad Company et al.
    [Decided September 28th, 1907.]
    1. Where a railroad company attempts to take property for railroad purposes without first making compensation, the property owner may, in general, obtain relief by injunction without facts showing inadequacy of his remedy at law.
    2. The rule that an injunction will issue to restrain a railroad from taking property without first making just compensation applies, as a matter of right, where the railroad company is guilty of willful and intentional aggression, but where it has intended in good faith to comply with the law, but finds itself by some accident or mistake in the position of a trespasser, whether an injunction shall issue, is to be determined on the rules applied to an injunction to restrain an ordinary trespass.
    3. AVhere a lessee of land sought to be condemned for railroad purposes was not a party to the condemnation proceedings, he was not bound thereby, but was entitled in a subsequent proceeding to which he was a party to show that a substantially larger 'sum was justly due him for the value of his property and the amount of his damages than the residue of the fund paid into court in the prior proceedings which would remain after the owners, who were parties, had received their shares.
    4. AYhere the owner of a valuable leasehold on property sought to be condemned for railroad purposes was by mistake not made a party to condemnation proceedings, and the railroad, while a trespasser as to him in taking the property, had not intentionally or willfully violated his rights, he was not entitled to restrain the railroad’s use of the land until his claim had been satisfied, where the railroad paid into court a sum sufficient to satisfy such claim and proceeded with reasonable diligence to condemn his rights.
    On motion for 'a preliminary injunction. Heard on bill and affidavits and answering affidavits.

      Mr. Ephraim, Cutter, for tbe complainant.

      Mr. Willard P. Voorhees, for the defendants.
   Stevenson, Y. C.

After learning that an appeal had been taken in this case from the order advised by me denying the motion for an injunction on terms, it became my duty to set forth in writing the reasons for the order which I had advised. Before undertaking this work, a motion for a preliminary injunction to restrain a railroad company from appropriating land before making compensation therefor was argued before me in the case of Menge v. Morris and Essex Railroad Co., 67 Atl. Rep. 1028. The argument and disposition of this motion involved the consideration of practically everything which had been presented and discussed in this Nelson Case, except the definition of the conditions to which the defendant must submit in order to prevent the issuing of an injunction. The opinion in the Menge Case, which has recently been filed, follows the decision in this case and discusses the same at some length, and might perhaps be referred to as a sufficient statement of the reasons which, in my judgment, sustain the order made in this case from which the appeal has been taken.

In each of these cases the defendant, a railroad corporation, stood before this court as a trespasser, and the trespass consisted in the attempted appropriation of lands of the complainant for the defendant’s railroad in violation of the constitutional and statutory rules which protect private property owners against injustice and oppression on the part of corporations.

The general rule was recognized that the writ of injunction will go to restrain such a trespass even in the absence of any facts showing the inadequacy of the complainant’s remedy at law. Pratt v. Roseland Railroad Co., 50 N. J. Eg. (5 Dick.) 150 (1892), and cases cited (at p. 154) 1 Pom. Rem. 762; Kerr Inj. (4th ed.) 85 (1903); Lew. Em. Dom. § 631; Morris Canal Co. v. Jersey City, 26 N. J. Eg. (11 C. E. Gr.) 294 (1875); Hart v. Leonard, 42 N. J. Eg. (15 Stew.) 417, 419 (Court of Errors and Appeals, 1886); Township of Franklin v. Nutley Water Co., 53 N. J. Eg. (8 Dick.) 601, 606 (1895).

In 1871 Chief-Justice Beasley, sitting for the chancellor, expressed a doubt whether the modern English doctrine above set forth had been adopted in New Jersey. Erie Railroad Co. v. Delaware, Lackawanna and Western Railroad Co., 21 N. J. Eq. (6 C. E. Gr.) 283, 292. I think, however, that notwithstanding the peculiar reversal of Yice-Chancellor Van Fleet’s decision in Pratt v. Roseland Railroad Co., supra, by the court of errors and appeals, without opinion or explanation, 58 N. J. Eq. (13 Dick.) 585, the modern English doctrine has been repeatedly recognized as in force in this state especially since the decision of the court of errors and appeals in Hart v. Leonard, supra.

The rule under consideration, however, seems to rest upon the policy of restraining corporations from willful and intentional aggression as the authorities above cited amply show. But where the appropriation of the complainant’s property is not of such a character, where the corporation has intended in good faith to comply with the íaw but finds itself by some accident or mistake in the position of trespasser, the reason for the general rule, to a large extent, seems to fail, and the question whether or not an injunction should issue remains to be determined after due weight has been given to those considerations which are deemed important or controlling in, all cases where a preliminary injunction is applied for to restrain an ordinary trespass. Wood v. Charingcross Railway Co., 33 Beav. 290 (1863); Pickert v. Ridgefield Park Railroad Co., 25 N. J. Eq. (10 C. E. Gr.) 316 (1874); Lanterman v. Blairstown Railroad Co., 28 N. J. Eq. (1 Stew.) 1 (1877); Mettler v. Easton, &c., Railroad Co., 25 N. J. Eq. (10 C. E. Gr.) 214 (1874); Ocean City Railroad Co. v. Bray, 57 N. J. Eq. (12 Dick.) 164 (1898). See, also, Peck v. Schenectady Railway Co., 170 N. Y. 298 (1902), and the line of cases in New York known as the Elevated Railway Cases, 90 N. Y. 122; 104 N. Y. 269; 122 N. Y. 1, and 125 N. Y. 186.

In such a case', i. e., where there has been no willful or intentional violation of the 'complainant’s rights, if the defendant corporation has the right to condemn the complainant’s land and stands ready to institute and diligently prosecute condemnation proceedings, and also to pay into this court a sum of money sufficient to cover any possible award which may be made to the complainant in the condemnation proceedings, it would seem that the complainant is placed in substantially the same position that he would have occupied if the defendant had proceeded originally in strict compliance with all constitutional and statutory requirements. It 'would also seem that the case does not call for any punitive application of the law to the defendant corporation on account of any willful aggression on its part so as to make it necessary that both the corporation and the public should suffer from the temporary suspension of an important public work. An injunction, it seems to me; in the class of cases under consideration, would do the complainant no good whatever, but only do harm to the defendant corporation and the public, and in some cases a great deal of harm.

Applying these principles which are discussed at some length in the above-mentioned opinion in the Menga Qasa to the present case, the conclusion was reached that the complainant was not entitled to a writ of injunction in the absence of any evidence that his remedies at law were not entirely adequate, provided the defendant would comply with terms which would secure beyond question to the complainant the recognition and enforcement of all his rights.

In regard to the terms upon which the injunction was denied, the propriety of which the defendant challenges by its appeal, little if any explanation is necessary. The complainant’s property has not been lawfully appraised, nor has any inquiry been made in regard to his damages. It may be that the sum of money heretofore paid into court includes an amount which would be awarded to him as the value of his land if he waived his constitutional rights and accepted the award precisely as if he had been made a party thereto. It may be that if the complainant declines to accept this award, as he has a perfect right to do, the portion of the fund which he would be able to take will revert to the. defendant corporation which paid the same into court. A new condemnation proceeding, to which the complainant is made a party, will then result in ascertaining the value of his estate in the land taken, together with his damages. Whatever may be the status of any possible portion of the fund in court, which repre'sents the value of the complainant’s estate and which the other owners therefore cannot obtain for themselves, the fact remains that the defendant, the New Jersey Short Line Railroad Company, a private corporation, has assumed to take the private property of the complainant for the public use of a railroad “without just compensation first made” to the complainant. The complainant may disregard the condemnation proceedings which have been taken as utterly void as to him, and he may yet in a lawful proceeding to which he is a party,’ and by which he is bound, show that a substantially larger sum is justly due him for the value of his property and the amount of his damages than the residuum of the fund now in court, which will remain after the owners, who are parties to the condemnation proceedings, have received their shares.

It seems to me that if I have not erred in making the defendant’s case an exception to the general rule under which preliminary injunctions are issued against corporations restraining them from appropriating private property before making compensation, the defendant should be allowed the benefit of the exception only upon terms which practically place the private property owner in the same position as if the amount of an award binding upon him had been paid into court. The defendant railroad corporation, while found to have acted in the matter without wrongful intent, without actual intent to violate the complainant’s right, nevertheless is not without blame. The affidavits of the defendant, although denying notice of the complainant’s occupancy, do not exclude the inference that careful inquiries duly prosecuted might have disclosed the occupancy and probably the lease of the complainant. The defendant corporation is not acquitted of wrong doing by the decision of this court in this ease. On the contrary it stands before the court as a trespasser. This court'merely adjudges that the railroad corporation is not an intentional or willful trespasser and therefore should not be subjected to the hardship of an injunction, provided, however, this trespassing corporation will comply with conditions which put the complainant in substantially the same position as if he had been made a party to the condemnation proceedings, and his just compensation thus lawfully ascertained had been paid into court. The defendant cannot possibly suffer by the imposition of these terms except so far as it may turn out that the amount of money which it has already paid into court, together with the amount which it now is required to pay, shall exceed the sum total of what is found due to the complainant and the other parties’ interests as owners. Any excess, of course, will be repaid to the defendant. It would seem that a railroad corporation, which has in fact violated the constitutional rights of a landowner by -appropriating his property, ought not to complain of so slight an inconvenience. While the court, it seems to me, should require an amount to be paid which will certainly cover any award which may be made to the complainant, there is no difficulty in fixing an amount which the defendant can pay into court without suffering any very great inconvenience. The deposit of $400 called for in this case does not seem to me to be excessive.

In dealing with the question of the imposition of terms upon which an injunction of the general kind under consideration will be denied, reference may be made to the case of Attorney-General v. Paterson, 60 N. J. Eq. (15 Dick.) 385, although the situation presented by that case differs widely from the one presented to the court in this case.