author: Buchanan, Vice-Ordinary.

text:
    Edwin Robert Walker, Ordinary.
    Edmund B. Leaking, Vivian M. Lewis, John H. Baokes, John Grieein, John E. Foster, Malcolm G. Buchanan, James F. Fielder, Alonzo Church, Robert H. Ingersoll and John Bentley, Vice-Ordinaries.
    In the matter of the estate of Louis Huggins, deceased.
    [Decided May 7th, 1924.]
    1. Prior to the amendment (P. L. 1922 oh. 171/) the “succession” of a surviving joint tenant was not taxable under P. L. 1909 oh. 228, as a transfer by or from the deceased joint tenant if the latter did not. participate in the creation of the estate in joint tenancy.
    2. Such “succession” is or may be so taxable, however, where the deceased joint tenant created, or participated in creating, the joint tenancy.

      3. Where two brothers, owning property of substantially equal value, created a joint tenancy in the whole thereof between themselves, the “succession” of the survivor as to one-half the total property, is taxable under P. L. 1909 eh. 228, as a transfer by or from the deceased joint tenant.
    Transfer tax appeal.
    On final hearing.

      Messrs. Scammell & Besore, for the appellants.

      Mr. EAward L. Eaizenbach, attorney-general, for the respondent.
   Buchanan, Vice-Ordinary.

The executors of the estate of William Huggins, deceased, appeal from the transfer tax assessed by the comptroller, under P. L. 1909 ch. 228, and the subsequent amendments, against the estate of Louis Huggins, deceased.

Louis Huggins died January 8th, 1918, a resident of Missouri. He was a joint owner with his brother William in considerable property, including some shares of stock of New Jersey corporations, but other than this left no estate whatever. William Huggins, as the survivor, became the sole owner of this jointly-owned property; after his death his executors sought to transfer the corporate stocks, but the comptroller refuses his consent thereto unless the tax assessed by him in respect to the “transfer” from Louis Huggins be paid.

The affidavits submitted to the comptroller set forth that the two brothers, Louis and William, were men of advanced years; that all their lives they had been exceptionally close and intimate; had lived in the same house, had the same office, a single desk, shared the same friends, amusements, business activities, bank account and the like; the property which they accumulated was considered and treated by them as joint or common property—anything which belonged to either belonged to the other—and this was so, notwithstanding that the formal legal title to different portions of the property might have been taken in the individual name of one ox the other.

On March 22d, 1917, the two brothers, being then both about seventy-five years of age, mutually executed an agreement, and pursuant to the provisions thereof conveyances were executed by them vesting in them as ¡joint tenants, with the right of survivorship, the title to all property, real and personal, held by them and each of them. The agreement (omitting formal parts) reads as follows:

“Witnesseth, That whereas the legal title to sundry tracts of real estate and sundry articles of personal property, accounts, stocks, notes, bonds, choses in action and securities is vested in the said Louis Huggins, in which the said William Huggins has a beneficial and equitable interest as joint owner thereof with the said Louis Huggins ; and whereas, the title to sundry tracts of real estate and sundry articles of personal property, accounts, stocks, notes, bonds, choses in action and securities is vested in the said William Huggins in which the said Louis Huggins has a beneficial and equitable interest as joint owner thereof with the said William Huggins; and whereas, it is desired by the said Louis Huggins and the said William Huggins to settle, adjust, fix and determine the rights of property of each of them in and to all of said property, real and personal, so held as aforesaid by said Louis Huggins and said William Huggins; and
“WIheeeas, Considering the situation and character of said property, real and personal, so held by said Louis Huggins and said William Huggins, they deem it not best to their interests to partition and divide the same in two parcels to be held in severalty by them, but they deem it wise and prudent, as being for the best interest of both of them, and as being a fair and just settlement of the rights of each of them therein that the title to all of said property, real and personal, be vested in both of them, the said Louis Huggins and the said William Huggins, to be held by them jointly with the right of survivorship in the survivor of them; and
“Whereas, The said Louis Huggins and the said William Huggins are each possessed of an individual estate which they deem advisable for the best interests of both of them to own and hold like their joint estate by joint title with the right of survivorship in the survivor of them;
"Nou>, therefore, The said Louis Huggins and the said William Huggins, in consideration of the premises above recited and of the covenants entered into by each with, the other herein, do covenant and agree with each other that from and after the execution hereof the legal title to all said property, real and personal, wherever situate, including all accounts, stocks, bonds, notes, securities and choses in action held by either cf them in which the other has an interest, and all such property, real and personal, held by either of them individually, and all such property, real and personal, held by them jointly, and all such property, real and personal, held by any other person or corporation in which they, or either of them, have an interest, legal or. equitable, shall vest in both of them, the said Louis Huggins and the said William Huggins, jointly to have and to hold the same unto them, the said Louis Huggins and the said William Huggins, jointly and unto the survivor of them forever.
‘‘And the said Louis Huggins and the said William Huggins do further covenant with each other that all necessary and proper assignments, transfers, deeds and conveyances of said property, real and personal, will be made as speedily as.practicable, to vest the full.and complete title, legal and equitable, of, in and to all of such property, real and personal, in the said Louis Hluggins and the said William Huggins, jointly and in the survivor of them as above provided.”

It is contended by appellants (1) tliat there was no' transfer of any property or interest therein from Louis to William at Louis’ death, and hence no tax could be assessed thereon; (2) that the only transfer, if any, was at the time of the creation of the joint tenancy, and that the transfer at that time was merely a technical legal one, which simpfy put into legal form the equitable and actual situation which had always theretofore existed between the brothers, and hence is not taxable; (3) that such transfer as was made at the creation of the joint tenancy was in nowise donative in character, but for valuable consideration, and hence not taxable.

I have little difficult)'' in determining that the change of interest, ownership or possession (whatever it may be called), which takes place at the death of the first of two joint tenants was not taxable under our statute as it existed in 1917, or at Louis’ death, if that change be considered simply by itself, uncomplicated by any question of participation by the joint tenants in the creation'of the joint tenancy.

Let us assume, for instance, that the property held in joint tenancy was conveyed to- them in joint tenancy by a third party, without consideration from them, or either of them, and without request from them, or either of them, that the conveyance be in joint tenancy, and consider the “transfer” or “succession” which occurs on the death of one of the joint tenants.

Section 1 of the act specifies the transfers which .are; made taxable. The tax is imposed on transfers “in the following cases”; ergo,- transfers not coming within the ensuing category are not taxable. . .

Subsection 5, of section 1, expressly makes the “succession” of a surviving joint owner a taxable transfer; but this provision (vide, P. L. 1992 ch. 174) was not written into the statute until after the death of Louis. . ,

Subsections 1 and 2 deal only with transfers by will or intestate law. The “succession” by survivorship does pot fall within either of these classes, for it is an incident of the joint estate which takes place irrespective of whether the other joint tenant dies testate or intestate. A joint tenant may dispose of his interest, thus severing the joint tenancy, during his lifetime, but cannot do so by will. . .

Neither does the “succession” of a surviving joint tenant come within the scope of subsection 3, for it is not a “transfer” -from the deceased joint tenant by “deed, grant, bargain, sale or gift.” . .

Finally, it is not taxable under subsection 4—for, assuming that it comes within the meaning of “an estate (or interest) in expectancy of any kind or character which-is contingent or defeasible,” it is not transferred by any instrument made by the deceased joint tenant. Section 26 of the statute provides that the words “estate” and “property” • (the transfer whereof is made taxable) means “the.interest of the testator, intestate, grantor, bargainor or vendor”—the deceased joint tenant is none of these—“passing to the legatee, devisee., heir, next of Icin, grantee, donee or vendee”—the surviving joint tenant is none of these, as regards the otljer joint tenant. Neither is the succession of the surviving joint tenant a transfer “by. -distribution by statute, descent, devise, bequest, grant, .deed, bargain, sale or gift”, from the deceased joint tenant. See section '26 of -the act. Assuming, as I have said, that it comes within the scope of, subsection 4, I think- it is clear .that that • subsection contemplates its taxability as -a tranfer from the. original, creator _,of the. joint tenancj1, and not from the deceased .joint,tep.apt. Compare section 3, dealing also with “instruments” creating estates in expectancy, &e., and section 5, providing that the taxes shall be due and payable at the death of the “testator, intestate, grantor, donor or vendor.”

As a matter of fact, the “succession” of the surviving joint tenant, .1 take it, is not a transfer by, or a succession from, the deceased joint tenant at all, any more than the “succession” of a remainderman is a transfer by, or a succession from, the prior life tenant. The change of interest which takes place on the death is in nowise the act of the decedent nor a succession by operation of law, but is the act of the original creator of the estate. The additional interest which the survivor gains on the death of his co-tenant comes to him, not fhoin the co-tenant, but from the original grantor. Essentially, the original grantor conveys to him, not only a half-interest defeasible at his death if he predecease his co-tenant, but also a contingent remainder in the other half if he' survive the co-tenant. The fact that the right of survivorship may he terminated at the will of either co-tenant during the joint lives does not alter the situation. The fact that the deceased co-tenant has failed ,to exercise his right to deprive the other co-tenant of his contingent half interest in “remainder,” in nowise changes the fact that the survivor takes that contingent half interest “in remainder” from the original grantor and not from the deceased tenant. It cannot be said, in this regard, at least, that a man does an act by failing to do an act.

So far, however, as concerns the question of taxability of transfer from the deceased joint tenant under our statute, we have a very different situation with which to deal, if the deceased joint tenant himself created or participated in the creation of the joint tenancy, as is the fact in the case at bar.

By the third paragraph of the agreement of 1917 both brothers acknowledge that each has separate individual property which he is transferring to joint ownership with right of survivorship. That is competent in this proceeding as an admission by Louis and William that Louis had and was transferring such individual estate.

The effect of the 1917 .agreement (assuming for the moment that the individual property of each was equal in amount) was substantially to transfer the property thereto-for, individually owned by each (both as to estate during his life, and remainder), to an estate in each for the joint lives of both, with remainder to whichever one of the two should survive the other—contingent also upon there being no severance of the joint tenancy by either during the joint lives.

The fact that, technically, there was an immediate transfer from Louis to William of only a half interest in his original estate, is of no significance; it is the net substantial result of the entire transaction that is to. be looked at. William at the same time made an immediate transfer ,of a half interest in his original estates; so. that the substantial nature of the entire transaction was as set forth above.

bTo severance took place during the joint lives, and on Louis5 death William came into possession and enjoyment, by the original transfer from Louis, of this “remainder55 interest, which is an estate or interest in expectancy, contingent or defeasible, in the shares of stock of the blew Jersey corporations, and was transferred by Louis by an instrument taking effect after 1909. It, therefore, is taxable under the provisions of subsection 4—at least prima facie.

It may be added, in case it be material (and I am inclined to think it is), that the instrument or agreement was a transfer by bargain intended—so far as the “remainder55 interest is concerned—to take effect in possession or enjoyment at or after the death of the transferor, Louis. This is obvious, not only because the parties to the agreement must be deemed to intend the legal effect and meaning of their agreement, but also because of the age of the two men and the fact that the incident of right of survivorship is so* prominently and especially mentioned, repeatedly, in the agreement. There seems no doubt, from the facts, that that is the one thing they desired to establish and effectuate.

Let us now turn to the question of consideration. It is clear, I think, from the history and purpose of the legislation on the subject, that by this taxing statute the legislature intended to tax only transfers of a donative nature, and, so far .as I know or can recollect, there has never been any attempt made in this state to levy a tax on any contrary theory. Under subsection 3 of section 1, if the transferor received a consideration of substantially equal value to the property ■ transferred by him, his transfer would not be deemed taxable. Likewise, if a decedent gave property by will to a man from whom, he had in his lifetime received property of equal ■ value in consideration of his promise to malee the testamentary gift in question, the testamentary “gift” would probably not be deemed taxable.

Assuming this to- be so, the present case goes quite beyond that situation. Here we have wha.t amounts to- mutual promises to make wills in favor of each- other, to take effect if the beneficiary survive- the testator. The two promises are of equal value, but the actual effect o-r result is a testamentary benefaction by one only, without any property of equal value having been received by the testator's estate m exchange for the gift. This situation, to my mind, does not come within the implied exceptions based on the legislative intent.

So far we have considered the matter only with regard to the individually-owned property which each of the brothers, as acknowledged in the agreement itself, had and transferred to joint ownership with survivorship. The tax has been assessed upon the basis of a previous individual ownership of the entire half interest in the whole of the joint estate created by the agreement, or perhaps it would be more accurate to say, -upon the basis of the1 absence of any prior joint tenancy or right of survivorship in any of the property. I am unable .to find that this was erroneous. It is true that the agreement refers to the other property as being “jointly owned”—that they are joint owners, equitably and beneficially, and, perhaps, legally, of this other property mutually transferred by this agreement—but nowhere does-it say that such joint ownership1 is in -technical joint tenancy, o-r-that it has the incident- of survivorship. The same thing is true- as to the affidavits submitted to the comptroller. The affiants speak variously of “common property”; “jointly held”; “common fund”; “community of interest”; “jointly interested”: “joint owners”; “owning everything in common.”

, The most that might be argued for appellants is that this. evidence is in equipoise as between joint tenancy and tenancy in common. Rut even that is not the fact, for “joint ownership” does not mean “joint tenancy” alone; partners and tenants in common are joint owners, though not joint tenants.

Joseph Morton, the attorney for the brothers, says the purpose of the execution of the agreement was “to establish in proper legal manner the arrangement, agreement and understanding long time theretofore had between the two men respecting the title to their properties.” This is not the same thing as saying that the equitable ownership prior to the execution had been in joint tenancy; rather does it mean that they had long before agreed that they would eventually put their property into an estate in joint tenancy. If there had in fact been a prior equitable joint tenancy, the presumption is that Morton would have said so.

To my mind the proofs not only do not establish a. prior joint tenancy, or right of survivorship, in any of the property, but rather preponderate in the other direction. Even were the evidence in equipoise, the result, I think, would be the saíne, for the law does not favor joint tenancies, and the existence of such would be required to appear by at least a preponderance of the evidence.

The assumption was made herein that the shares -which each brother contributed to the joint estate were equal. This assumption is, to my mind, warranted by the proofs. Consideration of' the affidavits leads one to- the conclusion that the shares or interests of the brothers in the.property were substantially equal.

The tax was assessed under the “ratio clause” in section 12 of the statute. No objection was been taken to- the method of computation in this regard, nor to the rates, and it is therefore unnecessary to make any examination in this behalf.

The New York court of appeals had before it in Matter of Orvis, 223 N. Y. 1, a case essentially similar. Two brothers,. partners., took from a partnership funds a sum in which, they had an equal share as partners, and established it as a fund in equal shares by them, but to go -to the survivor o-n the death of either. It was there held that the “succession”, of the survivor was taxable under the section of the New York statute corresponding to our subsection 3 of section 1, as a transfer intended to take effect a-t death, and not exempted by consideration.

The assessment under review will be affirmed.


source: Caselaw Access Project

license: Public Domain

text:
    In the matter of the estate of Frank J. Dupignac, deceased.
    [Decided June 2d, 1924.]
    1. On appeals under Transfer Tax act (P. L. 1909 oh. 228, and amendments), it is not the function of the prerogative court to weigh the evidence and substitute its judgment for that of the comptroller, but only to determine if error has been committed.
    2. Qiiwre. Is it within the function of such court, on such appeal, to determine whether a finding of fact by the comptroller is against the clear weight of the evidence?
    3. Qncore. Under section 1, subsection 3, of P. L. 1909 oh. 228, as amended by P. B. 1922 oh. lllf, is the burden of proof, where there is conflicting, evidence, upon the state to establish that a transfer sought to be taxed as having been made in contemplation of death, was, in fact, so made?
    4. Evidence examined—Held, that it fails to disclose that the comptroller acted upon any erroneous principle, or that his finding of fact is against the clear weight of the evidence.
    On appeal from transfer tax. On final hearing.

      Messrs. Baches & Schroth, for'the appellants.

      Mr. Edward L. Katzenbach, attorney-general, for the respondents.
   Buchanan, Vice-Ordinary.

The executrices of the estate of Prank J. Dupignae appeal from so much of the transfer tax assessed in respect of his estate as is based upon certain gifts made by him prior to his death. The sole question involved in the appeal is, as to whether the comptroller erred in determining that these gifts were made in contemplation of death. It is not contended by the state that the gifts were intended to take effect in possession or enjoyment after death; it is conceded that they were perfected gifts—completed transfers.

The gifts in question were made to testator’s two daughters (the executrices and appellants), $75,000 cash ($37,500 to each), in December, 1920; and in March, 1921, his-city (winter) residence and his country (summer) residence, with their contents, to the two as tenants in common. The total value of this March, 1921, gift was $127,000. He died May 10th, 1922, leaving net assets of some $550,000 (exclusive of the gifts).

Concededly, the transfers in question were gifts, without any valuable consideration. Under the statute in force at the time of his death (P. L. 1909 ch. 228 § 1, and subsection third, as amended by P. L. 1922 ch. 174), these gifts, therefore, being made within two years prior to his death, are to be deemed to have been made in contemplation of death (and therefore taxable), in the absence of proof to the contrary.

(There is a further condition precedent specified in this statute, namely, that the gifts be of “a material portion of his estate, or in the nature of a final disposition or distribution thereof.” This, however, need not here be considered, since the gifts obviously were of a material portion of the estate—the first one, $75,000, being approximately ten per cent, of the net estate, and the second, $127,000, being more than twenty per cent, of the then net estate—and the appellants so concede.)

It is contended by appellants that the statutory provision that gifts under the circumstances mentioned shall be deemed to have been made in contemplation of death, “in the absence of proof to the contrary,” does not place the burden of proof upon the decedent’s estate to show that the gift was not made in contemplation of death, but is simply a rule of practice, an arbitrary legal presumption functioning only if there be no evidence at all tending to disprove that the gift was made in contemplation of death-; that if there be any evidence tending to prove that the gift was not so made the burden of proof is upon the state to show that the gift was made in contemplation of death, and that on such an issue this arbitrary rule of law cannot be considered in determining the balancing of the evidence.

Assuming, without deciding, that appellants are correct in this contention, I do not see that it is of any benefit to appellants upon this appeal, because there is nothing in the record to show that the comptroller made any ruling to the contrary or acted upon any contrary principle, nor is there any admission to that effect in the brief for the state. Such admission cannot be spelled out of the mere fact that the attorney-general’s argument contradicts the correctness of appellants’ legal contention above mentioned.

It is argued by appellants that since the evidence shows that decedent had made a gift of $25,000 each to the two daughters, about May 1st, 1920, and the comptroller did not assess tax in respect thereto, it is a necessary conclusion that he made the distinction solely by reason of the fact that the May gift was more than two years prior to the death, and that this shows, therefore, that in assessing tax on the subsequent gifts, he did so ujoon the theory that the statute imposed the burden of proof upon the estate.

This conclusion is not sound. The evidence is by no means so strong in regard to the May, 1920, gift as it is in regard to the later gifts. For one thing there are the facts and circumstances in connection with the transfer of the houses, hereinafter mentioned, which do not appear in connection with, or affect, the gift in May, 1920. For another, it appears that the gift in “the early part of December, 1920,” was contemporaneous with the making- of a codicil to decedent’s will, -on December 9th, 1920. Again, the daughters swear that “during the whole of the year 1920” decedent was advised by his physician that “there was no reason to anticipate that he would not live for many years.” It would seem highly probable that this statement was made by the physician in response to inquiry by decedent, and that such inquiry showed some solicitude by decedent, and the comptroller might reasonably have thought it a fair inference that this occurred prior to December, 1920, but have thought that, the burden of proof being, on the state, it was not a fair inference that it happened prior to May, 1920.

It is not the function of this court to weigh the evidence or substitute its judgment for that of the comptroller, but only to determine if error has been committed. In re Pierce, 89 N. J. Eq. 171; In re Hall, 94 N. J. Eq. 398. Hence, if there be any evidence—or, at least, any substantial evidence—in support of the comptroller’s finding, this court is not at liberty to review and weigh the entire evidence and say that in its judgment the evidence seems to preponderate in favor of the decedent’s estate on the issue in question and that the assessment should therefore be set aside.

, This, indeed, if I correctly apprehend appellants’ argument, they do not controvert. Their position is, apparently, that there is no substantial evidence in the case upon which a finding that the gifts were made in contemplation o£ death can legally be made. An examination of the evidence shows that this position is untenable. The circumstances shown, while not making out quite so strong a ease as in the Bottomley Case, are nevertheless to a considerable extent similar to those appearing in In re Bottomley, 92 N. J. Eq. 202. The gifts were made to his .two daughters, who had previously lived with him, at least, alternately, and continued so'to do, in the very'houses transferred, which were the only residences owned by decedent; decedent was seventy-two years old and knew that he had heart disease, which, in fact, caused his death a year and five months after the first of the two gifts in question; contemporaneously with the first of these two gifts, he had made a codicil to his will; and he stated, as one of the reasons which influenced him to make the gifts, “the fact that hy turning over these properties during his lifetime, no possible question could arise after his death, as to the right of the daughters to the possession and enjoyment of these properties, even if, what seemed an unlikely event, a successful contest was made over his will.” (His will gave all his estate to the two daughters, except a small bequest of about $15,000 to his son.) • Decedent continued to pay the household accounts after the transfer.

This is, of course, not all the evidence, but is enough to show that sufficient basis existed from which a reasonable man might fairly, even though not necessarily, draw the inference of fact that he made the gifts in contemplation qf death. The fact that, in connection with his advanced age, he had heart disease and knew it, is not by any means eliminated as a factor in the .case by the; fact that his doctor had told him, in 1920, that there was no reason for him to anticipate death in the near future, nor to anticipate that he would not live for many years to come. It is a matter of common knowledge that persons who know that they have heart disease are commonly apprehensive as to death ensuing therefrom, and the fact that decedent made inquiry in that behalf shows that he had at least some solicitude in regard thereto. ,

If it be contended on behalf of appellants—in connection with their contention that the burden of proof is upon the state to show that the gift was made in contemplation of death'—that it is within the power and duty of this court to consider and determine whether or not the comptroller’s decision in that behalf is against the'clear weight of the evidence; and, that in the present case, the comptroller’s decision was against the clear weight of the evidence upon that point, the answer is that, assuming the correctness of the first two of these contentions, in my opinion the determination of the comptroller was not against the clear weight of the evidence. This, indeed, sufficiently appears, perhaps, from what I have hereinbefore stated.

No error appearing, the tax will be affirmed.


text:
    In re estate of William P. Cowan, deceased.
    [Decided June 5th, 1924.]
    1. Under P. T_¡. 1909 eh. 228, and amendments, the tax imposed by, and assessed under section 1 and 2, in the case of a non-resident decedent owning shares of stock in New Jersey corporations, is a tax on the succession, from the decedent to his executor or administrator.
    2. .Section 12 of the act does not impose any tax upon a transfer by the executor or administrator, but provides that at that time of transfer the tax above mentioned shall be collected.
    3. The provisions of section 5, that the tax shall be due and payable at testator’s death, and shall bear interest from one year after that date, are not modified by section 12.
    Oil transfer tax appeal. On final hearing.

      Messrs. Scammell & Besore, for the appellant.

      Mr. Ediuard L. Katzen'bach, attorney-general, for the respondent.
   Buchanan, Vice-Ordinary.

The comptroller assessed a transfer tax and interest. thereon as against-the estate of William P. Cowan, deceased, a non-resident intestate. The administrator appeals from so much of the assessment as represents interest on the tax, challenging the validity of any interest charge. (A second ground of appeal appears in the petition of appeal, alleging that interest, if chargeable, should have been at six per cent, only, instead of ten per cent., as charged by the comptroller, but this ground was not mentioned in the argument, and must, accordingly, be deemed to have been abandoned.)

The tax was assessed in respect of certain shares of stock in New Jersey corporations, owned by decedent at his death, and computed pursuant to the so-called “ratio clause/’ the last paragraph of section 12 of the act. The correctness of all this is conceded.

Section 5 of the act provides that “all taxes imposed by this act shall be due and payable at the death of the * * * intestate * * * unless in this act otherwise provided * * }}C »

Appellant contends that as to the tax to which decedent’s estate was subject, the legislature did “otherwise provide” in the statute, and refers to the language of the first sentence in section 12, which provides:

“If a foreign executor, administrator or trustee shall assign or transfer any stock or obligation in this state standing in the name of a decedent, * * * liable to' any such tax, the tax shall be paid to the treasurer of this state on the transfer thereof.”

The argument is that the tax, in such a case as the present, is imposed on the “assignment or transfer” by the administrator, and not upon any other transfer; that it is made payable on such assignment or transfer and not earlier, and hence that the exaction of interest by the comptroller from the date of decedent’s death was and is unlawful and erroneous.

I think that both the premises and the conclusion of this argument are clearly unsound.

Appellant cites in support of his contention Neilson v. Russell, 76 N. J. Law 655. That case decided that the tax which was imposed by our statute of 1894 was a “legacy duty and not a transfer or succession tax.” In Carr v. Edwards, 84 N. J. Law 667, it is held that the present statute of 1909 imposes the tax (in the case of a non-resident decedent) upon the transfer or succession from the decedent to the executor or administrator of title to personal property having its situs in New Jersey. This was also pointed out In re Dellinger, 94 N. J. Eq. 409 (at p. 412). So far as is material to the present case, the statute was the same at the time of Carr v. Russell, supra, as it is. now.

The first sentence of paragraph 12 does not impose any tax on an assignment or transfer by the foreign administrator, and does not purport so to do'. Neither does any other part of the statute. On the contrary, it quite clearly refers to the tax imposed by section 1—the tax on the administrator’s succession as above pointed out—by the words "any such tax,” and goes on to provide that “the tax” (i. e., that tax), shall be paid "on the transfer thereof.” The transfer which is meant in these last four words, is the transfer which is mentioned at the beginning of the sentence, the assignment or transfer by the administrator, which is not taxed by the statute.

There is no inconsistency whatever between this sentence in section 12 and the provision of section 5 that the tax is due and payable at the death of the intestate. After so providing, section 5 goes on to make provision for interest and discounts under certain circumstances, recognizing that the actual time when the tax could be paid, or could be collected, was a very different thing from the time it accrued due: It is obvious that the tax could never be paid immediately at the death of the testator. The legislature so recognizes in providing for the exaction of interest on the tax only after the expiration of a year from that death.

In section 12 the legislature, however, makes a mandatory direction, that this tax, in the case of a. non-resident decedent, in so far as it is due in respect of stock or obligations in this state, shall be paid at the time the foreign executor or administrator assigns or transfers it, before the assignment or transfer will be permitted to be effectually made. This seems too clear for argument, especially in view of the immediately succeeding provisions of section 12, prohibiting corporations and persons, whose acts could be essential in effecting such assignment or transfer, from permitting or participating in any such assignment or transfer, under penalty, unless the tax be paid.

The time of any such attempted assignment or transfer is obviouly a time when the tax can b.e effectively and conveniently enforced and collected; such enforcement and collection might be attended with much difficulty, expense and delay, if the transfer were permitted without payment. Hence, the legislature provided that the enforcement and collection should be made at that time. That is all that is meant or intended by the provision on which appellant relies. The assessment under review will be affirmed.


author: Gummere, Chief-Justice.

text:
    Mary Moyna, appellant, v. Prudential Life Insurance Company, respondent.
    [Decided May 19th, 1924.]
    1. An appeal fnom an order of a surrogate granting letters of administration upon the estate of a decedent lies to the orphans court of the county, by force of section 201 of the Orphans Court act; and this is so, notwithstanding that the order contains an adjudication of the death of the alleged decedent.
    2, Where, 'by the provision of the statute, the right to review an order of a surrogate is conferred upon the orphans court, an appeal from such order cannot be taken directly to the prerogative court.
    8. An insurance company that has issued a policy payable bo a beneficiary named therein upon the death of the insured has no interest in the appointment of an administrator of the estate of the insured, and, consequently, no standing to contest the validity of such appointment.

      On appeal from the prerogative court.

      Mr. Ward Kremer, for the appellant.

      Mr. John J. Quinn and Mr. Theodore ParsonSj for the respondent.
   The opinion of the court was delivered by

Gummere, Chief-Justice.

This is an appeal from an order of the prerogative court setting aside an order of the surrogate of Monmouth county, adjudging one Minnie Shirley to be dead, and appointing the1 appellant as administratrix of her estate.

The following are the material facts: On September 18th, 1922, the appellant, Mary Moyna, a resident of Asbury Park, filed a petition with the surrogate of Monmouth county,, averring that Minnie Shirley, formerly a resident of that county, had been absent-from the State of New Jersey for more than seven years, last past, and had not been heard from during that period; - that she had taken out four policies of insurance in the Prudential Insurance Company, the respondent, of varying amounts (in all $880), and that said Mary Moyna was the beneficiary named in these several policies!;. ¡that Minnie Shirley, left no next of kin, so far as the petitioner was able to ascertain; and praying that an order to show cause be made why letters of administration on Minnie Shirley’s estate should not be granted to her, the petitioner. Upon filing this petition a rule to show'cause ■was .made by the surrogate, returnable November 9th, 1922, by which he directed that cause be shown before him on the return day of the rule why an order' should not be made declaring Minnie Shirley to be presumed to be dead, and why letters of administration should not be granted to the petitioner, Mary Moyna, or to such other fit and proper person as might be deemed advisable. This rule to show cause was duly published, according to law, and on the 27th day of November, 1922, the surrogate made an order adjudging the said Minnie Shirley to be legally deaü and directing the issue of letters of administration on her estate to Mary Moyna, and. thereupon letters of administration were issued in accordance with this order. On Eebruary 6th, 1923, the Prudential Insurance Company, the present respondent, claiming to be a party interested in the estate of Minnie Shirley, filed a petition in the prerogative court challenging the validity of the surrogate’s decree, and, upon a hearing had upon this petition, the order of the surrogate was adjudged invalid and was reversed and set aside. The present appeal is taken by Mary Moyna, who challenges the validity of this adjudication.

The primary question to be determined is whether an appeal from an order of the surrogate granting letters, of administration can ble taken directly to the prerogative court. We think that such an appeal will not lie. Section 201 of the Orphans Court act, which was engrafted into that statute by the legislature on March 17th, 1855 (P. L. p. 342), provides as follows: "Any person aggrieved by any order or proceeding of a surrogate in * * * granting letters of administration. * * * may, by filing a petition of appeal with the surrogate within twenty days after such order or proceeding, appeal therefrom to the orphans court, which appeal the said court shall hear in a summary way, and affirm or reverse the order or proceeding complained of, either wholly or in part.” By force of this section, any person aggrieved, by such an order, who may desire to have it reviewed, must appeal to the orphans court first, and, after-wards, if he is not satisfied with the result in that court, further appeal to the prerogative court.

It is argued, however, that this section does not apply to the present case, because of the fact that the adjudication of the surrogate was twofold—first, that Minnie Shirley was presumed to be dead; and, second, that letters of administration on her estate should be granted; and that the adjudication on the first subject could only be reviewed by a direct appeal to the prerogative court; the contention being that section 203 of the Orphans Court act, which declares that “all proceedings of surrogates from which an appeal is not provided for in the last two sections shall be subject to appeal'to the prerogative court by any persons interested,” applies, and that a review of the adjudication of death is not provided for except in this latter section. But this contention overlooks the fact that, as a preliminary to the granting of letters of administration, the surrogate must adjudicate the fact of the death of the person whose estate is to be administered; for, unless such death is proved, no letters of administration can be granted. An order directing' the issue of such letters, therefore,- contains, by necessary implication (when not expressly stated), an adjudication of the fact of the death of the alleged decedent.

We conclude, for the reason above stated, that the appeal to the prerogative court was improvidently taken, and should have been dismissed, rather than a hearing afforded to the appellant therein on the merits.

There is another reason why we are of the opinion that the appeal to the prerogative court should have been dismissed. The petition of the Prudential Insurance Company was filed with the ordinary, upon the theory that the petitioner had a status because it is a party interested in the administration of the Minnie Shirley estate. It seems to us that the corporation has no interest in this matter. As has already been stated, Minnie Shirley took out several policies of insurance upon her life with this company, payable to Mary Moyna upon the death of the insured. This being the fact, the estate of Minnie Shirley has no interest in these policies. The moneys due thereon belong, not to the personal representatives of Minnie Shirley, but to the beneficiary named in the policies, and, consequently, the obligation of the insurance company is to pay to the beneficiary and not to the administratrix of the Shirley estate. This obligation to pay the beneficiary became complete on the death of Minnie Shirley, providing the payment of premiums had been kept up until that event had occurred. If the beneficiary sues on the policies, 'she is bound to prove the existence of the facts which make them presently payable; that is to say, slie is bound to prove the death of the insured, and that the premiums have been paid up to the happening of that event, in' accordance with the requirements of the policies. It seems to be assumed by counsel for the appellant that his client is “a person interested” in the administration of the Minnie Shirley estate, because her death may be proved in a suit brought to enforce the company’s obligation on the policies by the production of a copy of the order of the surrogate adjudicating that fact. But this is not so. The administration of the alleged decedent’s estate was a matter of no concern of the Prudential Insurance Company; it was not a party to the proceeding and had no standing to be heard therein. In this situation, the adjudication is without legal force, so far as it is concerned, and, consequently, would not be evidential against it in a suit brought by the beneficiary under the- policies to enforce the obligations of the company thereunder. Eor this reason also the attempted intervention of the insurance company in the administration proceeding was without legal justification.

The order appealed from should be reversed.

For affirmance—None.

For reversal—The Chief-Justice, Trenchard, Mikturh, Kalisch, Black, Katzenbach, Campbell, Lloyd, White, Yak Buskirk, Clark, McGlekkok, Kays—13,


text:
    Mary Agnes Dolan, appellant, v. James H. Wagner, respondent.
    [Decided May 19th, 1924.]
    1. Where a man and woman enter into a marriage contract in good faith, each believing that there is no lawful impediment to their marriage, although there is such an impediment in fact, and thereafter live together as husband and wife, believing themselves to be such, and, after the impediment has been removed, continue to live together under the same belief, their relations are lawful and a common law marriage exists.
    2. Robinson v. Robinson, 84 N. J. Mg. 201, followed; Tyll v. Keller, 94 N. J. Mg. 4%6, distinguished.
    On appeal from a decree in chancery.

      Mr. Robert Newton Creme, for the appellant. .
   The opinion of the court was delivered by

Gummere, Chief-Justice.

. This is an appeal from a decree of the court of chancery dismissing a' petition filed by Mary Agnes Dolan, praying to have annulled and declared yoid a marriage between her and James H. Wagner, the defendant below, the ground upon which the relief prayed for is sought being that at the time of this marriage she had another husband living, from whom she had not then been divorced. The case was undefended, and, a reference having been made to a special master, he reported that the attempted marriage between the petitioner and the defendant was a nullity and should be so declared. Upon the coming in of this report, it was confirmed by the court. Subsequently, however, the case of Tyll v. Keller, 94 N. J. Eq. 426, having been decided by this court, the court of chancery, concluding that this decision was controlling so far as the present case was concerned, vacated the original decree and dismissed the petition.

' The proofs taken before the special master disclosed that the petitioner, Mary Dolan, and the defendant, James Wagner, had gone through a marriage ceremony on the 10th day of October, 1908, before a justice of the peace; that some years before the petitioner had married one Robert Carson; that in the early part of 1908 she instituted a suit in the court of chancery against Carson for a divorce on the ground of desertion; that on the 25th of June, of that year, a decree nisi was entered in that suit in her favor, divorcing her from her then husband, Carson; that she understood from a conversation with her solicitor in that case that she was thereafter legally competent to enter into a marriage eeremony with another man; that, acting on this understanding, she and the present defendant were married on the date above mentioned (the final decree not having been entered until some three months later); that Wagner and she lived together as husband and wife from the date of their marriage until the autumn of the year 1921, a period of thirteen years; that she then saw in a newspaper an article relating to the matrimonial troubles of an actor, arising out of the fact that he had married again before his divorce decree had become legal by lapse of time; that she thereupon consulted counsel as to the marital status of herself and the defendant, and was then informed that she and Mr. Wagner were not legally married; that she then reported this to Wagner, and told him that they could not live together any longer; and that, on the strength of this information, they separated a few days later.

'. On the' facts abové1 recited, we reach the conclusion that the court of chancery properly decreed a dismissal of the petitioner’s petition. We do not concur, however, in the view that the present case is within the doctrine of Tyll v. Keller, supra. In that' ease the petitioner had married a woman who had a husband living, from whom she had not been divorced at the time they were married, nor at any time subsequent, so far as the facts showed. In this situation, it was considered that the appellant (the second husband) was entitled to a decree of nullification, provided that when he married the respondent he was ignorant of the fact that she then had a husband living, from whom sne had not been divorced, but that, if he had this knowledge, and notwithstanding it went through the marriage ceremony with the respondent, with a full appreciation that their subsequent relations would be meretricious, he was not entitled to the aid of a court of equity in nullifying his marriage; and that, as he had failed to- prove such ignorance on his part, his petition should be dismissed.

The facts in the present case present a very different situation. Here the petitioner and defendant were married in good faith, each believing that no lawful impediment to their marriage existed. The impediment was, in fact, removed shortly after their marriage, and they continued to live as husband and wife after the removal of that impediment for more than twelve years. These facts bring the present case within the doctrine of Robinson v. Robinson, 84 N. J. Eq. 201. In that case the wife sued for divorce a mensa ei ihoro. The defense relied on was that the parties to the suit were not, and never had been, husband and wife. That there had been a ceremonial marriage between the parties was not denied by the defendant, hut his contention was that this marriage was a nullity because of the fact that when it took place the petitioner was a married woman. This the petitioner admitted; but she proved to the satisfaction of the court that at the time of her marriage to the defendant a divorce proceeding instituted by her against her first husband had been pending for more than a year, and that before her marriage to the defendant she had been advised by her solicitor in the action against her first husband that a decree for divorce had been granted. It appeared in the proofs that at the time o'f their marriage both the defendant and the petitioner believed that she had been divorced from her first husband, and that there was no legal obstacle to their marriage. It further appeared that the decree divorcing the petitioner from her first husband was entered only a few days subsequent to her marriage to the defendant, and that thereafter they continued to live together as husband and wife for a number of years. On these facts we held that the wife was entitled to the decree prayed for, following our earlier decision in the case of Chamberlain v. Chamberlain, 68 N. J. Eq. 736, which was based upon the proposition that when a man and woman intend to marry and live together as husband and wife, but their intent is frustrated by the existence of some unknown impediment, when the impediment is removed, and it is shown that the same intent continued, their relations are lawful, and that a common law marriage exists from and after the removal of the impediment.

Under the doctrine of the two cases just cited, the relationship between the parties in the present suit became a valid and existing matrimonial relationship after the entering of the final decree in the divorce proceedings brought by the petitioner against her first husband, Carson, and her application to have the marriage annuled, for the reasons stated in her petition, was properly denied.

The decree under review will be affirmed.

For affirmance—The Chibe-Justice, Trenci-iard, Parker, Minturn, Kalisch, Black, Katzenbach, Campbell, Lloyd, White, Gardner, Van Buskirk, Clark, McGlennon, Kays—15.

For reversal—None.


author: Trenchard, J.

text:
    Edward M. Shauinger and Lillian F. Shauinger, complainants-respondents, v. Olga Apter and Barney Apter, executors of Philip Apter, deceased, et al., defendants-appellants.
    [Argued March 6th, 1924.
    Decided May 19th, 1924.]
    1. The authority of a real estate broker into whose, hands an owner places real estate to be “listed for rent,” is merely to find a tenant who is ready, able and willing to enter. into a lease on the terms specified by, and acceptable to, the principal, and in the absence of special authorization to complete the contract of letting, he has no authority to enter into a lease binding upon the owner.
    2. An inference that a real estate broker has been endowed by his principal with authority to bind him in a written lease cannot be drawn from circumstances entirely consistent with his employment as a mere broker, nor without other circumstances clearly indicating the grant of such greater authority.
    9. If a real estate broker acts in excess of the authority which has been conferred upon him either expressly or by implication, the principal'is not bound except in ease of ratification or estoppel.
    4. Where a real estate broker, with authority merely to negotiate a lease, accepts a deposit on account of rent of real estate and sends same to the owner, together with the draft of a proposed lease, for a longer term than he was authorized to negotiate for, the owner is not bound by the transaction where it appears that such proposition was immediately rejected by the owner in a letter to the broker pointing out the owner’s terms, and when it further appears that the owner, after waiting for a reasonable time without hearing from the broker, sold the property, and so notified the proposed tenant, offering him his deposit, which he refused, and that such owner thereupon returned the deposit to the broker, notifying him that the property was sold.
    5. The duty of the court of errors and appeals is to inquire whether there is any error in the judgment or order or decree appealed from and not whether the reasons given for the conclusion reached are tenable. It is, however, the province of the court to avail itself of the light which may be.furnished by the reasoning of the court below. And for that purpose, on an appeal from a decree of the court of chancery, the court will examine the opinion of the court below, filed pursuant to the requirement of our state constitution (article 6, section 2, paragraph 5), that “when an appeal from an order or decree shall be heard, the chancellor shall inform the court, in writing, of the reasons for his order or decree,” and such opinion will be examined even though it was filed after the appeal was taken.
    On appeal from a decree of the court of chancery advised by Vice-Chancellor Lewis, whose opinion is reported in 95 N. J. Bq. 70.

      Mr. Jay Leo Rothschild (Messrs. Rothschild & Rothschild on the brief), for the appellants.

      Messrs. Autenreith & Gannon, for the respondents.
   The opinion of the court was delivered by

Trenchard, J.

The complainants filed this bill to foreclose a purchase-money mortgage dated May 18th, 1920, upon property in Bradley Beach, given by Philip Apter (in his lifetime), and now represented by the defendants.

The bill alleged a breach of the terms of the mortgage by default in interest and installments of principal. The defendants’ answer admits the non-payment of principal and interest, but denies that the non-payment thereof was equiva^lent to a default, and alleged by way of justification for such non-payment a counter-claim in which defendants claim the sum of $800 damages.

The entire controversy at the trial was concerning the validity of the counter-claim.

The vice-chancellor, in his decree, dismissed the counterclaim and ordered foreclosure and the sale of the mortgaged premises, and we think rightly.

It appears that the property in question was sold by the complainants to Apter at the time of the making of the mortgage. The counter-claim of the defendants was based upon an alleged breach of the covenant for quiet enjoyment contained in the deed to Apter, the allegation being that prior to the making of the deed the complainants had leased the property for the summer season of 1920 to one Garfinkle, and that Apter, in consequence thereof, was unable to obtain possession of the property until the end of the season. At the trial it was not denied that Garfinkle occupied the premises during the summer of 1920. He appears to have entered them by force June 5th, 1920. He claimed to have been entitled to do so by virtue of a receipt for a deposit of $100 on account of rental of the premises given to him by a real estate agent in Bradley Beach named Borden, who admitted that he acted for the owners merely “as a real estate broker,” with authority to “procure a party ready and willing to lease the property.” Mrs. Shauinger (one of the Owners, and who acted for the other) denied that she authorized Borden to make a lease of the property, and apparently none of the parties to the present proceeding ever received or attempted to get any rent from Garfinkle. Mrs. Shauinger testified that she merely placed the property in Borden’s hands to be “listed for rent” for the three summer months, specifying the amount of rental she expected to get—in other words, that his employment was merely to negotiate a lease. In that she is corroborated by the documentary evidence. The distinction between a mere broker and an agent with power to contract is clear, and was pointed out in Lindley v. Keim, 54 N. J. Eq. 418.

The authority of a real estate broker into whose hands an owner places real estate to be “listed for rent” is merely to find a tenant who is ready, able and willing to enter into a'lease on the terms specified by,' and acceptable to, the principal, and in the absence of special authorization to complete the contract of letting, he has no authority to enter into a lease binding .upon the owner. See Lindley v. Keim, supra Scull v. Brinton, 55 N. J. Eq. 489; Stengel v. Sergeant, 74 N. J. Eq. 20.

Tn the present case, as we have pointed out, there was no special authorization to make a lease.

But the defendants further contend that such authority is to be inferred from the circumstances of the case¡ We think not. It seems clear that the times of payment of rent had not been stated by the owners. The receipt which the broker gave, and which it is contended amounted to a lease, purported to fix the payments in installments at stated periods. Moreover, it purported to'fix the term for five months, whilst the employment was to find a tenant for the three summer months, although the broker was told in effect that a lease for a longer term would be considered. Furthermore, the making of this receipt by the broker was immediately followed by his sending to the owners a five-months’ lease to sign, but which the owners refused to sign. These circumstances were consistent with, and indicated no greater authority than, that of a mere broker. An inference that a real estate broker has been endowed by his principal with authority to bind him in a written lease cannot be drawn from circumstances entirely consistent with his employment as á mere broker, nor without other circumstances clearly indicating the grant of such greater authority. See Lindley v. Keim, supra.

If (as here) a real estate broker acts in excess of the authority which has been conferred upon him either expressly or by implication, the principal is not bound except in case of ratification or of estoppel. Planer v. Equitable Life Association (N. J.), 37 Atl. Rep. 668.

The defendants make no claim of estoppel. They, however, do contend that even if the broker had no authority to bind the owners, the latter ratified his act.

We think not. It appears that the negotiations between the broker and the owners were opened by the broker writing to the owners, asking if their house was for rent, and in response to his inquiry he received a letter, stating the amount of rent expected for each of three properties owned in Bradley Beach for the coming season, one of which was the property in question, and further advising him that the owners desired to sell at least one of them as soon as possible. This letter also stated, in effect, that if any of the properties could be rented for “more money” for a longer term than the season, that would be considered. On January 24th, 1920, the broker gave the receipt for a deposit on account of rental of the property in question, designating the term to be five months, and thereupon forwarded to the owners such deposit with a draft of a proposed lease for five months for the owners to sign. This was rejected by the owners in a letter, informing the broker that the owners’ terms were for three months only, and of their purpose to sell rather than to lease on the terms proposed. Later, although they held the check and the draft of the lease, the owners wrote the broker several times to the same effect, and not hearing from him, they, as we think, within a reasonable time, notified Garfinkle that the property was sold, offered him his deposit, which lie refused, and thereupon returned the deposit to the broker, advising him that the property was sold and was not for rent. In our judgment such circumstances do not show a ratification of the action of the broker, and the owners are not bound thereby.

The only other contention requiring mention is that “the opinion of the vice-chancellor is a nullity; there ivas no decree upon the merits.”

We think there is no substantial ground whatsoever for this contention. It seems to be based solely upon the fact (1) that the decree contains a recital that Apter had elected his remedy on the counter-claim by bringing suit thereon in New York, and (2) the fact that the vice-chancellor’s opinion was> filed after this appeal had been taken.

As we have pointed out, the decree dismissed the counterclaim after a full and fair hearing on the merits thereof. Our state constitution (article 6, section 2, paragraph 5) declares that “when an appeal from an order or decree shall be heard, the chancellor shall inform the court, in writing, of the reasons for his order or decree.” In compliance with the duty thereby imposed, the vice-chancellor, after the appeal was taken from the decree advised by him, filed an opinion, which was laid before the court, setting forth the reasons for the decree, which were substantially those expressed in this opinion as justifying such decree.

On appeal the duty of this court is to inquire whether there is any error in the judgment or order or decree appealed from, and not whether the reasons given for the conclusion reached are tenable. It is, however, the province of this court to avail itself of the light which may be furnished by the reasoning of the court below. And for that purpose, on an appeal from a decree of the court of chancery, the court will examine the opinion of the court below filed in pursuance of the constitutional requirement, even though'it was filed after the appeal was taken.

In the view we take of the case, the recital respecting Apter’s election of remedy has no proper place in the decree, and it will be eliminated therefrom. With such modification the decree will be affirmed, with costs.

For affirmance—Hone.

For reversal—Hone.

For modification — The Chiee - Justice, Trekci-tabd, Parker, Mihturn, Kaliscii, Black, Katzehbach, Campbell, Lloyd, White, Gardner, Yah Buskirk, Clark, McGlehhoh—14.


text:
    George A. Smock, complainant-appellant, v. Buchanan & Smock Lumber Company and Harry W. Smock, defendants-respondents. George A. Smock, complainant-respondent, v. Buchanan & Smock Lumber Company and Harry W. Smock, defendants-appellants.
    [Argued November 30th, 1923.
    Decided May 19th, 1924.]
    1. The manager of the mill department of a .private corporation, of which he is a stockholder and director, will not be compelled, at the instance of another stockholder and former president, to further account for petty cash received and disbursed by such manager in his department, when it appears that the bookkeeping system employed by him had been in force for many years in his department, was well known to the complainant (then president of the company) and acquiesced in by him during all the years of its existence, and its accuracy never questioned until shortly prior to the time when the complainant was removed from his office as president by resolution of the board of directors, and when it further appears that, so far as was possible to ascertain, in view of the nature of the system, all moneys passing through the hands of such manager had been accounted for by him.
    2. The president of a private corporation, organized under our General Corporation act {2 Comp. Stat. p. 1595), although elected for a fixed term, may be removed by the board of directors for adequate cause.
    3. The president of a corporation is not entitled to take for his own use from the company’s treasury the salary of the absent treasurer (in addition to his own fixed salary as president), without the knowledge or consent of any of the other directors or officers of the company, and such taking constitutes adequate cause for his removal from his office as president by the board of directors, even though he had voluntarily performed part of the duties of the treasurer during his temporary absence, as he had done before in such circumstances, but always theretofore without extra compensation.

      On appeals from a decree of the court of chancery advised by Vice-Chancellor Foster.

      Mr. Ralph R. Lum (Messrs. Lam, Tamblyn. & Colyer, on the brief), for the complainant.

      Mr. John S. Applegate & Son, for the defendants.
   The opinion of the court was delivered by

Trenchard, J.

This bill was filed by a stockholder, and former president of the defendant company to compel an accounting by both the individual and corporate defendants. Answers were filed denying the allegations of the bill, and setting up1 a counterclaim in the nature of a cross-action for an accounting by the complainant. By consent, the matters in dispute were referred to a special master to take and state an account. The master filed his report, and both complainant and defendants filed exceptions to certain parts thereof as hereinafter more particularly stated, which exceptions were overruled by the vice-chancellor, and both parties appealed.

The complainant’s exception is to that part of the master’s report which finds, in effect, that the defendant Harry W. Smock, has not misappropriated nor failed to account for any money belonging to the defendant company.

It appears that the defendant lumber company is a corporation organized in 1900 under our General Corporation act (2 Comp. Stat. p. 1595), and in business at Asbury Park; that the complainant was president thereof from 1913 to August, 1918, and had been an officer thereof since the organization in 1900; that the only other stockholders, directors or officers of the company were his brother, the defendant Harry W. Smock, and W. Harvey Jones.

The work of the company for convenient operation was divided into three departments, viz., the mill department, at some little distance from the main department, in charge of Harry W. Smock; the finance department, in charge of Jones, and the lumber and main department, in charge of the complainant, who was also in general charge of the bookkeeping of the company.

The defendant Smock had in his department a petty cash fund produced from daily cash sales of small amounts. From this Smock paid the expenses of trips of employes made to estimate on contracts, &c. The moneys making up this fund were kept in a desk, and when they amounted to any considerable sum they were placed in a box in the safe, known as the reserve fund, and when this reserve fund amounted to $100 or thereabouts, it was transferred to the main department in charge of the complainant. The petty cash account was kept in small books, and the only entry of money transferred from the reserve fund to the main department was made in the books of the latter department.

It was the moneys of this petty cash fund and so-called reserve fund that the complainant contended had been misappropriated by the defendant Smock, and for which he should further account.

With respect thereto the .special master found: "I am satisfied that every dollar which passed through the hands of the defendant Harry W. Smock, as manager of the mill department, was expended in the interest of the company, and that no recovery should be had by the complainant against said defendant.”

In that conclusion the vice-chancellor concurred. He pointed out accurately that the evidence showed that the bookkeeping system employed by the defendant Smock had been in force for many years, was known to the complainant and acquiesced in by him, if not expressly sanctioned, during all the years of its existence, and its accuracy never questioned until shortly prior to the time when the complainant was removed from his office of president of the company by resolution of the board of directors, and that so far as it was possible to ascertain from the nature of the system, all moneys passing through the hands of the defendant Smock had been accounted for by him. Accordingly, the vice-chancellor overruled the exception, and we think rightly.

It remains to consider the questions raised by the defendants’ appeal.

The complainant claimed from the defendant corporation, salary as president from August 8th, 1918, the date of his removal from office, to January 15th, 1919, the date of the annual meeting, and the master reported in favor thereof. The defendants excepted thereto, and appealed from the order of the vice-chancellor overruling such exception.

It is admitted that the complainant was elected president of the company for one year at a salary of $75 a week, his term expiring January 15th, 1919. He was removed from such office August 8th, 1918, by resolution of the board of directors.

Of course, if he was lawfully removed from his office as president he was not thereafter entitled to the salary claimed.

We think that he was lawfully removed. The president of a private corporation organized under our General Corporation act, although elected for a fixed term, may be removed by the board of directors for adequate cause. See In re Griffing Iron Co., 63 N. J. Law 168, 175. The statute recognizes a power of removal (section 15) and such power is indeed inherent.

But the complainant, under this head, contends that there was no cause for his removal. We think there was adequate cause.

It appears that in 1918, W. Harvey Jones, treasurer of the defendant company, with the consent of the board of directors, discontinued, during the early summer months, his active supervision of the affairs of his department, as it had been agreed that he might do at the time he entered the company, for the purpose of attending to his outside private interests; that the complainant, during such absence, voluntarily performed some part of Mr. Jones’ duties, and, conceiving that he was entitled to remuneration in, addition to what he was already receiving as president of the company, which was $75 a week, he took for his own use, without the knowledge or consent of any of the other directors or officers, $40 a week additional (more than one-half of the salary of the treasurer), although it appears that at other times he had performed Mr. Jones’ work in the latter’s absence under similar circumstances, but always without any compensation. The resolution of the board of directors removing the complainant shows that he was removed - because of such misappropriation of the funds of the company.

Now, we think that the president was not entitled to take for his own use from the company’s treasury the salary of the absent treasurer (in addition to his own fixed salary as president), without the knowledge or consent of any of the other directors or officers o'f the company, and that such taking constituted adequate cause for his removal from his office of president by the board of directors, even though he had voluntarily performed part of the duties of the treasurer during his temporary absence, as he had done before in such circumstances, but always theretofore without extra compensation.

Since the complainant was lawfully removed from his office as president, he was no longer entitled to the salary, and we think that the learned vice-chancellor erred in overruling the exception directed to the allowance of that item.

There was also included in complainant’s demand for an accounting an item of $469.30, which he claimed -on account of dividends declared by the defendant corporation on complainant’s stock in the year 1918. This item is admitted by the defendant company, but it contends that it should be permitted to offset against that sum the- sum of $400 representing the moneys taken by complainant from the company’s treasury as salary for extra services rendered by reason of the absence of the treasurer heretofore referred to. This claim of the defendant was included in its counter-claim, and was disallowed by the master, and the exception to such dis-allowance was overruled by the vice-chancellor. Since, as we have said, the president had no legal right to the $400, the defendant company was entitled to offset that sum against the amount claimed as dividends, and hence the exception to the refusal to permit that to be done was erroneously overruled. ' -

The result is that the decree below must be modified in accordance with the views herein expressed, and as so modified will be affirmed. In this court no costs will be awarded either party as against the other.

For affirmance—None.

For reversal—None.

For modification — The Chief - Justice, Trenchard, Minturn, Kalis ch, Black, Katzenbach, Campbell, Gard ner, Clark—9.


author: Parker, J.

text:
    George Conover, complainant, v. Guarantee Trust Company, defendant-appellant; Harvey F. Carr, receiver, respondent.
    Argued November 26th, 1923.
    Decided May 19th, 1924.
    The appellant, heretofore held guilty of breach of an express trust (88 N. J. Bq. 450; 89 N. J. Bq. 584, 5S5), now held disentitled to be subrogated to the rights of its cestuis que trust as against a guarantor of bonds held by them, and on which appellant was required to reimburse them in part.
    On appeal from order in chancery advised by Vice-Chancellor Ingersoll.

      Mr. Clarence L. Cole, for the appellant.

      Mr. Henry F. Stockwell, for the respondent.
   The opinion of the court was delivered by

Parker, J.

After the decision of the court of chancery in this cause, reported in 88 N. J. Eq. 450, and its affirmance in this court (89 N. J. Eq. 584, 585),-the vice-chancellor made a further order dated May 27th, 1920, fixing the' cash liability of the appellant, Guarantee Trust Company, at $62,000 and interest, less $763.36 net proceeds of foreclosure sales, and after certain minor adjustments directed the balance of the $62,000 fund paid into court for distribution among the several bondholders in specified fractional parts, proportionate to their respective holdings. This seems to have been done.

The trust company, appellant, then made a claim on the receiver of the West Jersey Mortgage Company, one of the parties concerned in the scheme as “guarantor” for reimbursement pro ianto of what it'had been obliged to pay, as follows:

1. (Scheduled as 39-A.) In its individual capacity: For the amount of mortgages held not to be authorized by the trust agreement and so improperly guaranteed by the mortgage company and improperly accepted by the trust company as collateral to the Ventnor Syndicate bonds, less a nominal sum realized by foreclosure sales under said mortgages, at which sales the trust company was the purchaser. The amount claimed under 39-A was $65,987.76.

2. (Scheduled as 39-B.) In its capacity as trustee: For deficiency arising on the foreclosure of three mortgages of $5,000 each, adjudged by the order of May 27th, 1920, to have been properly held for the trust; the trust company having bid the properties in at the nominal figure of $100 each, and the deficiency amounting to more than the face of the three mortgages.

The receiver rejected the first claim in ioio, and as to the second, ruled that as the trustee had purchased at a nominal figure at the sales, it must show by competent and satisfactory proof the fair value of the properties covered by the $15,000 of mortgages, and that on being satisfied of such value the receiver would “make a definite adjudication of the amount to be allowed,” and if not'satisfied he would himself conduct an inquiry into such, value. The branch of the claim designated 39-A was formally disallowed, and on appeal to the court of chancery the rulings of the receiver with-respect to claim “39-A unliquidated” were sustained, substantially for the reasons given by him. T,he trustee now appeals to this court.

Although the relations of the parties and their respective rights and liabilities under the trust agreement were adequately stated in the reported opinion of Vice-Chancellor Learning (88 N. J. Eq. 450), a repetition of'some of the salient features of that agreement will be useful. The Vent-nor Syndicate, a land company, was to sell its lands from time to time and take back purchase-money mortgages. In order to realize on these, the scheme, as arranged and as elaborately set out in the so-called “trust agreement,” was for the Ventnor Syndicate to issue its own bonds against the mortgages, and the trust company was to hold the purchase-money mortgages as collateral, and certify the Ventnor bonds against them to the public. The function of the West Jersey company was to make written appraisal of the purchase-money mortgages and to guarantee the payment of the Ventnor bonds “to the registered or other legal holder” thereof.

The scheme broke down in several ways. The guarantee company accepted mortgages not contemplated by the trust agreement and certified Ventnor bonds thereon. Eor this it was held liable to the holders in this suit. The West Jersey company became insolvent and a receiver was appointed. The Ventnor Syndicate met the same fate.

It should be obvious that the guarantee company is trying to recoup itself for what it had to pay for breach of its trust by a resort to the written guarantee of the Ventnor bonds b}r the West Jersey company. But it is not the owner of those bonds; so far as appears, they have never passed out of the hands of the several parties named in the decree of May 27th, 1920. It is stated in the brief that- there is still owing $247.26 on each $1,000 bond. Hence, it seems plain that the trust company is not within the language of the guarantee of the Ventnor Syndicate bonds, which, runs “to the registered or other holder” of such bonds. As to the guaranty policy of the basic bonds and mortgages, that policy runs to “Guarantee Trust Company, trustee, and all subsequent owners and holders of the bond and mortgage described in schedule A, who shall give this (West Jersey) company notice and proof of ownership.” -It is based on the trust agreement, to which both companies were parties, and is ancillary to, and must be read with, it. So read, it is, as between the parties to that agreement, intended to cover mortgages held in conformity to the agreement, and not those held in violation of it; so that whatever its effect in favor of innocent subsequent holders for value, it should not avail this trustee so far as that trustee was false to its trust in accepting the mortgage at all.

So much for the language of the written covenants. We come now to the claim that the trust company, 'by being obliged to make good to bondholders their losses due to its breach of trust, should be subrogated to their rights as against this guarantor company. But we do not think the right of subrogation obtains in such a case. It is not allowed in favor of one who would thereby reap advantage from his own wrongdoing, nor to relieve a party from the consequences of his oven unlawful act. 37 Cyc. 371, 372, and cases cited. One seeking subrogation must come into court with clean hands. 37 Cyc. 373; German Bank v. United States, 148 U. S. 573. Tire fact that the West Jersey company may have participated in the wrong does not help' the matter, as, on well-settled principles both of law and equity, one wrong-doer cannot recover from the other.

The second branch of the claim, designated 39-B, is presented in the briefs as though the receiver’s ruling thereon were before us; but as the decree of the court of chancery on appeal from the determination of the receiver, and brought before us on this appeal, is confined to the part of the claim called 3 9-A, the scope of our decision is, of course, similarly restricted.

The decree appealed from will be affirmed.

For affirmance — Tiie Chief - Justice, Trenci-iard, Parker, Minturn, Kalisoi-i, Black, Katzenbaci-i, Campbell, Gardner, Van Buskiek, Clark—11.

. For reversal—Hone.


author: Minturn, J. White J. (concurring).

text:
    William L. Greenbaum, complainant-respondent, v. Lafayette and Broad Realty Corporation et al., defendants-appellants.
    [Argued November term, 1923.
    Decided May 19th, 1924.]
    1. Depriving a statutory legal business entity of its corporate life is a judicial act which should not be lightly exercised unless the violation of the provisions of the statutes is manifest and reasonably apparent.
    2. Where the conditions for judicial interference prescribed in the Corporation act do not appear in the situation presented by the proof, the defendant corporation will not be restrained in the operation of its business, nor will a receiver be appointed.
    On appeal from an order of the court of chancery.

      Mr. Jacob L. Newman, for the complainant-respondent

      Mr. Merritt Lane and Mr. David Bobher, for the defendants-appellants.
   The opinion of the court was delivered by

Minturn, J.

A receiver was appointed, by the vice-chancellor, under the following circumstances, as related in the affidavits pro and con, filed upon the application. The realty company was organized on May 12th, 1923, under our Corporation act, with an authorized capital stock of $15,000. Its incorporators were William L. Greenbaum, Solomon J. Wallach and Louis R. Radin, each of whom subscribed for stock in the sum of $5,000 except Greenbaum, whose subscription was taken over by Wallach to the extent of $2,500. The company was thus financed to the amount of $15,000. It thereafter purchased real estate comprising a garage and three stores on Lafayette street, in Newark, paying therefor $15,000 in cash and the balance by assuming two certain mortgages against the property. The garage was leased at a rental of $1,000 per year'to another corporation composed of the same incorporators, Wallach, Radin and Greenbaum. The stores were leased for substantial amounts. About this period, Greenbaum became disaffected towards the realty company, apparently because of some difference in corporate management and administration, and filed this bill for the appointment of a receiver, alleging the insolvency of the realty corporation. The bill in effect charges a conspiracy between Wallach and Radin, his son-in-law, to oust Greenbaum from control, and to substitute a dummy director in his place. It also charges various shortcomings and derelictions against the other two directors. It appears that at this time the financial condition of the realty company was' not that of insolvency. Its only outstanding liability, beyond its stock, was a promissory note for $1,000, due to the Broad and Market National Bank, Newark, and a promissory note for $2,700, payable to one Cronheim, for a balance on insurance premiums./ Its assets consisted of its valuable real estate and a balance of $2,177.50 of rent due by the garage company. There were no pressing obligations requiring the immediate borrowing of money. Its notes were duly honored and outstanding, and were being gradually liquidated, and the corporation was not in need of money to carry on its business. The report submitted by the receiver’s accountants, and in turn submitted by the latter to the vice-chancellor, shows the company to have been at the time this application was made in a solvent condition, and free from any criticism of financial instability, which under our Corporation act could subject'it to legal or equitable animadversion.

Depriving a statutory legal business entity of its corporate life, is a judicial act which should not be lightly exercised, since the intervention of the court carries with it very often in practical execution not only the destruction of the livelihood of th-ose who subsist by its existence, but also the investments of those who have confidently contributed their means to its successful creation, and, finally, but not at all the least of its unfortunate results, such an interposition may be the means of removing from the field of honest successful endeavor, a business asset of substanee and importance to the well-being of the state.

Our Corporation act, operating as a variation from the common law, is intended to encourage honest consolidation of effort, and not to retard it; and our cases illustrative of this principle have consistently manifested a repugnancy to judicial intervention in corporate business affairs, except where the violation of the provisions of the statute is manifest and reasonably apparent. Atlantic Trust Co. v. Cons. Co., 49 N. J. Eq. 402; Benedict v. Columbus Co., 49 N. J. Eq. 23; Sternberg v. Wolff, 50 N. J. Eq. 389; Fort Wayne Co. v. Light Co., 57 N. J. Eq. 16.

The Corporation act, laws 1896, p-age 277, as amended by the act of 1912 (P. L. p. 535; Comp. Stat. p. 1640 § 65; 1st Supp. p. 425 § 33, amending section 65), prescribes three conditions, one of which at least must exist- as a basis for judicial intervention.

(1) “Where the corporation is insolvent.

(2) “Where it has suspended its ordinary business for want of funds to carry on the same, and is not about to resume its business within a short time thereafter.

(3) “Where its business has been and is being conducted at a great loss, and grossly prejudicial to the interests of its creditors or stockholders, so that its business cannot be continued with safety to the public and advantage to the stockholders.”

None of these conditions appearing in the situation presented by the proof in this case, the order of the vice-chancellor restraining the defendant in the operation of its business and appointing a receiver is hereby reversed.

White J. (concurring).

I concur in the reversal by this court of the order of the court of chancery which, at the instance of a defaulting and unclean-handed stockholder, saw fit, as it seems to me most mistakenly, to subject the only two other stockholders, neither of whom was in any way in default, to serious probable loss by stepping in with its strong summary arm and enjoining the corporation from transacting its own running business and by appointing a receiver to take over such business; the corporation at the time being manifestly quite solvent so far as assets and liabilities were concerned, and whose only creditors, none of whom were complaining, consisted of a hank, which held a note for $1,000 not yet due and which the bank was willing and offered in writing to renew if desired when it did become due, and another note for $2,700, held by an insurance broker for unearned premiums on five-year insurance policies recently taken out by the corporation on its real estate, was not due and the holder of which was also willing to renew at maturity, upon partial payments in the usual way.

It may be that a, learned vice-chancellor, as an individual, may well and with good cause seriously doubt his own ability, if 'placed in charge of this corporation’s business, to so conduct it as to successfully pay the principal installments on the mortgages against the corporation’s real estate as they should mature year by year in the future, but the statutes have not made such a doubt a sufficient excuse for the trying out of the experiment through a receiver. There are very few corporations which could successfully withstand such a test.

The statutory summary power of the court of chancery to declare corporations insolvent and to appoint a receiver for that cause, is enormous and there is no adequate redress for its mistaken exercise. The damage done is irreparable and no indemnity bond provides a way for its even partial recovery. Under such circumstances the emphatic cautionary Avords of Vice-Chancellor Van Fleet in Atlantic Trust Company v. Consolidated Electric Storage Co., 49 N. J. Eq. 402, quoting opinions by Governor Pennington, Chancellor Williamson and Justice Depue, to the same effect, cannot, I think, receive too high approval and emphatic reiteration at the hands of this court. Gauged by those pronouncements the facts established by the affidaidts submitted in the present case seem to me Avoefully inadequate and insufficient.

For affirmance—Hone.

For reversal—The Chief-Justice, Trenchaed, Parker, Mintuen, Ivalis ch, Black, Katzbnbach, Campbell, Lloyd? White, Gardner, Van Buskirk, Clark, McGlennon, Kays—15.