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    George H. Earle, receiver, &c., v. American Sugar Refining Company.
    [Decided September 15th, 1908.]
    1. S., who owned a majority of the stock of the O. C. Oo., which in turn owned a majority of the stock of the P. S. R. Oo., borrowed $1,250,-000 from the A. S. R. Co., upon a pledge of such stock (among other collateral), under an agreement that the P. S. R. Co. should not be operated during the pendency of the loan. The P. S. R. Co.’s plant, which was practically, but not entirely, completed, was erected for the purpose 'of undertaking the same business as that in which the A. S. R. Co. was engaged. One attempt to borrow money with which to start the P. S. R. Co. was made, and proved abortive. To secure the carrying-out of the agreement mentioned, the board of directors of the last-named company was organized in the interest of the A. S. R. Co., the lender corporation. The P. S. R. Co. was subsequently declared insolvent, and the complainant was appointed its receiver. He filed the bill in this cause to have the A. S. R. Co. declared trustee for the creditors and stockholders of the P. S. R. Co. because of the former’s control of the plant of the latter, and asked that it account for profits alleged to have been made by and through such control. It was proved that the P. S. R. Co. was insolvent when the loan was made; that it never was a going concern, and it was not proved that it could have made profits if it had been operated. — Held, that a case is not made which entitles the complainant, as receiver of the P. S. R. Co., to an accounting in this court from the A. S. R. Co. for profits, as it appears that no profits were made in the transaction.
    2. Where a corporation, organized under act April 21st, 1S96 (P. L. 1896 p. 277), loaned the owner of a majority of the stock of another corporation a large sum of money, and took from him a pledge of such stock, It was a violation of the third section of such act, providing that no corporation created under the act should possess the power to carry on the business of discounting bills or notes, or of buying and selling bills of exchange, the loan, while not strictly a discounting of the note, was the “buying of a bill.”
    3. The “banking business,” as defined by laws and customs, consists, among other things, in making loans of money on collateral security.
    On bill for accounting by George H. Earle, Jr., auxiliary receiver of the Pennsylvania Sugar Eefining Company, against the American Sugar Eefining Company.

      Messrs. Grey & Archer, Mr. J. De F. JunJein and Mr. H. Snowden Marshall, for the complainant.

      Mr. Richard V. Lindabury, Mr. John G. Johnson and Mr. Ilenry W. Taft, for the defendant.

      Messrs. Davies, Stone & Auerbach, for certain bondholders of Philadelphia Sugar Refining Company.
   Walker, V. C.

The bill in this case prays that it may be decreed that the defendant, the American Sugar Refining Company, on December 30th, 1903, became trustee in the control of the affairs and plant of tire Pennsylvania Sugar Refining Company, for the benefit of that company and its creditors and stockholders; that as such trustee the defendant make discovery of all profits made and acquired by it by reason of its actions in controlling the . affairs and plant of the Pennsylvania. Sugar Refining Company, and account to the complainant as auxiliary receiver of that company for such profits; that whatever profits have been made by the American Sugar Refining Company, by reason of its actions in so. controlling the Pennsylvania Sugar Refining Company, belong to, and be paid to, the complainant as such receiver, and for further and other relief. For the sake of brevity the defendant will be referred to. as the American Sugar Company, and the complainant’s insolvent corporation as the Pennsylvania Sugar Company.

The state of facts upon which the defendant’s liability is said to arise are, succinctly stated, these: The Pennsylvania Sugar Company, a corporation, built a plant and works for the refining of sugar in Philadelphia, which plant was practically completed in the winter of 1903-1904. Its- construction was commenced in or about the year 1901. The plant was erected for the Pennsylvania Sugar Company by a corporation known as the "Champion Construction Company.” Mr. Adolph Segal was the owner of the majority of the stock of tire Champion Construction Company, which company owned a majority of the stock of the Pennsylvania Sugar Company. He was, therefore, the master of both. The Pennsylvania Sugar Company’s works were constructed by Mr. George M. Newhall, an engineer and general designer for manufacturing plants, including sugar refining plants, who appears to be in every way a competent man. He testified that in the winter of 1903-1904 the plant of the Pennsylvania Sugar Company w'as practically finished, and that it was tested in detail. Certain complements to' the machinery, and certain supplies, however, remained to be acquired to make the plant a complete going concern, as will be hereafter mentioned.

Prior to December 17th, 1903, Mr. Gustav E. Kissel called upon Mr. John E. Parsons, the counsel and one of the directors of the American Sugar Company, concerning an application for a loan by that company to Mr. Segal. Mr. Kissel, the defendant asserts, was Mr. Segal’s agent at that time, but that he after-wards became the defendant’s agent. My judgment is that he never was the agent of Segal in any legal sense, but was always the agent of the American Sugar Company. Segal undoubtedly acted for himself so far as he was not represented by Mr. Thomas B. Iiarned. The amount of the loan asked for was $1,250,000. At an interview between Mr. Hamed, counsel for Mr. Segal, and Mr. Kissel, with Mr. John E. Parsons, Mr. Parsons was informed that the loan would be secured by $1,000,000 of bonds of a property, known as the “Majestic Apartment House,” in Philadelphia, by $500,000 of bonds of the Pennsylvania Sugar Company, and by twenty-six thousand shares of that company. There was a voting trust in respect to this stock, which was incomplete. It was stated, either by Mr. Earned or Mr. Kissel, that there was to be an arrangement that the Pennsylvania Sugar Company should not run during the pendency of the loan, which was to be for a year. On another occasion Mr. Segal was present, as well as the persons just mentioned. It was stated that Mr. Segal was not willing to apply for consent from the other stockholders, and that he did not wish anything about the transaction in writing. Mr. Parsons declined to have anything to do with the transaction unless all of the particulars were committed to writing. In passing it might be observed that on the first visit of Mr. Segal in company with Messrs. Harned and Kissel to Mr. Parsons, he (Mr. Segal) stated that he understood or believed that the loan was to be made by the American Sugar Company. This fact, like the other, is not, in my judgment, of any very great importance. The fact is, as I believe, that Mr. Segal knew from the first that the loan was to be made by the American Sugar Company. In other words, I believe that, in casting about him for the procurement of a loan with which to complete his Majestic apartment house, he conceived the idea that through his virtual ownership and his actual control of a majority of stock of the Pennsylvania Sugary Company he could secure such loan from the American Sugar Company, under an agreement whereby the Pennsylvania Sugar Company was not to be run in competition with the American Sugar Company. Upon this head there is no difficulty, and I think that the defendant itself does not seriously contend otherwise.

In order to secure his client, not so much for the repayment of the loan, for which the security appeared to be inadequate, but more for the purpose of the principal object for which the loan was made, namely, that the Pennsylvania Sugar Company should not run and operate, Mr. Parsons prepared what is called in the pleadings and proofs “Mem. re Segal Loan.” It provides that an agreement be made and exchanged; that a stock note be signed and securities be turned over; that Mr. Hippie (the trustee named in the incomplete voting trust agreement) must give a certificate that he holds twenty-six thousand shares subject to the control of the lender, and that he will not accept directions from the proposed committee (provided for in the voting trust agreement), or does accept notice from the majority of the stockholders; that they will not appoint, or consent to the appointment of, the committee; that the construction company notify Mr. Hippie, as depositary of the stock, that inasmuch as no names for a committee have been agreed to in the pooling agreement, as owner of twenty-six thousand shares (a majority of the stock of the Pennsylvania Sugar'Company), it elects to treat the agreement as not complete, and that Mr. Hippie will be so good as to act accordingly, accepting no directions from a committee, should names for a committee be proposed, and accepting notice that the construction company, as the holder of a majority of the stock, will not, until the notice is countermanded in writing by the construction company or its assigns, participate in the appointment of such comipittee, or consent to such appointment; that Mr. Hippie acknowledge the receipt of the communication by a letter or certificate in which he shall say that he has received it, that he holds the twenty-six thousand shares of the stock of the construction company subject to the rights, if any, under the pooling agreement as thus stated, to the ownership and control of the construction company and its assigns ; that the construction company transfer the certificate with trust certificates, if trust certificates are to be issued, to Mr. Kissel under the terms of the Segal agreement; that if the stock is in the name of the construction company, it must give an irrevocable proxy, and should assent to whatever is the arrangement with Mr. Hippie; that changes in the board (of directors) be arranged as proposed; that tire lender should be satisfied that the executive officers will obey the orders of the directors in respect _to the running of the refinery; a note from the president of the Compaq, addressed to Mr. Kissel, in substance or effect, as follows, will answer:

.“Referring to the resolution of the directors of the Pennsylvania Sugar Refining Company, passed this day, with reference to the starting of the refinery, I wish to say that I recognize the authority of that resolution, and will act in conformity with it, subject to any change that may hereafter be made by a majority of the board of directors

that a resolution of the directors may be in this form:

“Whereas, to start the refinery at the present time would involve an outlay of a large sum of money which would need to be provided, for which the time is not opportune: Resolved, that the refinery do not run, and that no proceedings looking to the beginning of operations be taken until the further order of the board.”

The reason I say that the principal object of the loan was to prevent the operation of the Pennsylvania Sugar Company rather than to secure a return of the money is that a corporation, no part of whose legitimate business was the loaning of money, would never have made such a loan at legal interest, unless lurking behind the transaction there was some advantage of great importance to the lender. The American Sugar Company was safe. If the loan were repaid, it lost nothing, and had the advantage of no opposition from the Pennsylvania Sugar Company during its pendency. If the borrowed money were not returned, then the advantage from stifled competition was enduring, and the security was available, in case of default, with at least the possibility of the ultimate acquisition of a rival plant.

On December 30th, 1903, an agreement in writing was signed by Mr. Segal and Mr. Kissel, “as agent.” It was expressed to be made between Mr. Segal, therein called the borrower, and Mr. Kissel, “as agent, his principals and assigns,” therein called the lenders. It recited Mr. SegaPs desire to borrow $1,250,000 upon a stock note to be given therefor, a copy of which is recited in the agreement. The form of note recited that Mr. Segal, twelvemonths after date, for value received, promised to pay Mr. Kissel, agent,- or his assigns, $1,250,000, with interest at six per cent., having deposited with him as collateral security the following property: One thousand first mortgage bonds of $1,000 each of the Majestic Apartment House Company; five hundred first mortgage bonds of $1,000 each of the Pennsylvania Sugar Company; receipt of Mr. Hippie for twenty-six thousand shares of the capital stock of the Pennsylvania Sugar Company, the-right to the stock, and all voting and other rights which belonged to it. Then followed the usual undertaking of a collateral note concerning the sale of the securities, after default, at public or private sale without advertisement or notice, &c. Then a recital that the bonds of the Pennsylvania Sugar Company, and the right to the twenty-six thousand shares of the stock of that company, and the voting and other powers which belonged to-that stock, were regular, and the stock regularly issued and continued a majority of all of the stock of the company. The agreement 'then proceeds to recite that the bonds of the Majestic Apartment House Company are the entire issue of such bonds; that the entire issue of first mortgage bonds of the Pennsylvania Sugar Company is $3,000,000, the five hundred bonds being one-sixth of the total authorized issue; that the borrower (Mr. Segal) will so arrange that the absolute voting power of the twentjf-six thousand shares of the stock of the Pennsylvania Sugar Company shall be in the lenders, who shall have the right to use such voting power as may be suitable to aid or effectuate the purposes of the agreement, and, as the control thereby given is a material part of the consideration for the note, the borrower further agrees that he will so arrange that, of the seven directors of the Pennsylvania Sugar Company, four to be nominated by the lenders, of whom one shall be Mr. Kissel, shall be put in place of four of the present directors, and that they, or substitutes to be nominated by the lenders, shall be directors so long as any part of the loan shall remain unpaid, and that the control and possession of the property of the Pennsylvania Sugar Company shall be in such way and so effectually subjected to the control of the board of directors that so long as the note, or any part thereof, remains unpaid the refinery of the Pennsylvania Sugar Company shall only be run or operated or do business, as shall be directed by such board.

To effectuate the purposes of the agreement, and to carry out the terms of the transaction, the Champion Construction Company on the same date, December 30th, 1903, gave Mr. Kissel its proxy to vote the stock owned by it and standing in its name, which proxy is expressed to be irrevocable pending the life of the agreement mentioned. It is signed for the company by Mr. Harned, president, and is attested by its secretary. On the same date Mr. Harned wrote a letter to Mr. Hippie, which stated that, inasmuch as no names for a committee had been agreed upon, the construction company, as owner of twenty-six thousand shares of the stock of the Pennsylvania Sugar Company (a majority of the stock), notified him, as depositary of the stock, that it elected to treat the agreement as not complete, and that he would be so good as to act accordingly, accepting no directions from a committee should names for a committee be proposed. This letter Mr. Harned signed as president, stating it was by order of the board of directors. To this Mr. Hippie replied, by letter of the same date, acknowledging the receipt of Mr. Harned’s communication, and stating that, as there was no committee in existence to direct him in voting the stock, and none could be nominated except by the holders of the majority of the stock, he could not exercise any right to vote the stock deposited with him until such committee of direction be appointed. This letter from Mr. Hippie to Mr. Harned, president of the Champion Construction Company, was by that company assigned, transferred and set over to Mr. Kissel, as a paper in the nature of a certificate signed by Mr. Hippie, trustee, contemporaneously with the'assignment and delivery to him (Mr. Kissel) of trustees’ certificates for twenty-six thousand shares of the stock of the Pennsylvania Sugar Company, under the terms of the agreement bearing date December 30th, 1906, expressed to be made between him (Mr. Kissel) and Mr. Segal. This assignment is signed for the company by Mr. Harned, as president, and is attested by the secretary. On the same day, December 30th, 1904, the board of directors of the Pennsylvania Sugar Company met, and in pursuance of the agreement that four directors should resign in the interest of the lenders, and four others, to be nominated by them, be elected in the places, four of the directors did resign, and their resignations were accepted and their successors electe'd, among those chosen being Mr. Kissel, according to agreement. At that meeting a preamble and resolution, reading as follows, was adopted:

“Whereas, to start the refinery at the present time would involve an outlay of a large sum of money, which, would need to be provided, and for which the time is not opportune: Resolved, that the refinery do not. run. and that no proceedings looking to the beginning of operations be taken until the further order of the board.”

On June 16th, 1904, Mr. Harned wrote Mr. Parsons that Mr. Segal requested a return of the twenty-six thousand shares of stock against a cash payment of $100,000 on account of the loan, in which case he would enter into such guaranty as necessary to insure refinery remaining closed until October 1st, 1904; that he would pay off unconditionally the entire loan with interest to October 1st, against return of all securities; that if neither proposition be acceptable, he would like to feel free to make sale of his entire position, legal and otherwise, and it would be more satisfactory to all concerned if that be not objectionable. Segal did n,ot pay the loan, either on October 1st, 1904, or at maturity (nor has he at any time, as it appears), and on July 6th, 1905, Mr. Parsons, representing the American Sugar Company, wrote to Mr. ITntermeyer, then representing Segal, in which he said that the sugar company (meaning the defendant) regarded Segal’s Camden affair (i. e., sugar, refinery built by Segal in Camden) as a strike; that the company did not think or believe that Segal, or anyone else, could run. the present refinery (meaning the Philadelphia refinery, of which the complainant is receiver) at a profit, but that the attempt could do harm, and to the extent of making the loan (under investigation) the company yielded, but it declined to do so if Segal was to be at liberty, by borrowing, either to run the refinery, or for any other purpose to put indebtedness ahead of the stock collateral, or to use the money obtained from the loan in any way to hurt the lender. This letter was admitted in evidence, over objection, upon the ground that it tended to contradict the verbal testimony given by Mr. Parsons; the question whether or not it amounted to an admission of the American Sugar Company’s motive in making the loan being reserved by me, with the statement that it (the motive) was to be inferred from the evidence already in, notwithstanding Mr. Parsons’s testimony, then the complainant did not need the letter for the purpose mentioned, otherwise the complainant did need it. Now, I have no difficulty whatever in holding, from the testimony in the cause, laying aside entirely the letter of Mr. Parsons to Mr. Untermeyer, that the motive of the defendant company in making the loan to Segal was either to stifle threatened competition, or to avoid the consequences of a “strike” by Segal, whatever that may exactly mean in the connection in which it was used. Therefore the letter is not received as evidence of any admission by the defendant. Another thing of which there can be no doubt is that the whole matter of the loan was arranged by Mr. Segal and Mr. Havermeyer, president of the American Sugar Company, before Mr. Parsons had anything to do with it. It appears that it was referred to him to arrange details and put the matter in the best legal shape his well-known talent could devise, to at once secure and disguise the loan. Whether Segal’s offer to make a payment on account of the loan for a return of the stock was bona fide or not makes no difference. The incident does not touch the merits, and is only adverted to for the purpose of introducing Mr. Parsons’s letter to Mr. Untermeyer.

What I said about Mr. Kissel being the agent of the defendant is abundantly shown by Mr. Parsons’s testimony. It will be remembered that in the agreement it was provided that four directors of the Pennsylvania Sugar Company should be nominated by the lenders, of whom Mr. Kissel should be one. By that very agreement Segal and Kissel dealt at arms length, so to speak, Segal being the borrower, and Kissel, “as agent, his principals and assigns,” being the lenders. Now, Mr. Parsons says that, so far as the directors were concerned, he was willing that Kissel (who he stated was Segal’s broker), or anybody whom he nominated, should supply the place of those whom Segal said he controlled, remarking that they (meaning the defendant company) had confidence in Kissel, although he was Segal’s broker. Later on in his testimony Mr. Parsons said that the loan was made in the name of Kissel, and the promissory note which Segal gave went to Kissel, and that it was stated, in the conversation referred to, that the arrangement was that from that time on Kissel would hold the loan for the company. If anything were wanting to show the real character of Mr. Kissel with reference to the transaction, it is supplied by the letter of Mr. Iiavermeyer, president of the defendant company, directed to Mr. Kissel, dated January 5th, 1904, in which he says:

“Referring to the loan .made by you [Kissel] as agent for us to Mr. Segal, under the agreement o£ December 30th, 1903, we will hold you harmless by reason of the execution of that agreement and of any action taken under it.”

This shows conclusively the character of the transaction. It was a scheme on the part of the defendant company, born of Segal’s necessities, to tie up the Pennsylvania Sugar Company .and prevent its operation in competition with the defendant company so long as the loan should be outstanding. And it was entered into in a secretive manner — that is, the name of the defendant companj'- did not appear in the transaction, and the form in which the papers were cast might have protected the defendant from disclosure in any attack by third parties, or in any investigation by public authorities. But when attacked by one of the parties, or, wliat is the same thing, by the receiver of the Pennsylvania Sugar Company, who was, by reason of his position, able to obtain his information of the transaction from inside sources, the proceeding is laid bare.

And now an appeal is made to a court of equity, which penetrates all disguises of form, and, disregarding the shadow, grasps the substance. Stockton v. Central Railroad Co., 50 N. J. Eq. (5 Dick.) 52. If the complainant were entitled to the relief he asks upon the state of facts which is disclosed by this cause, it would unhesitatingly be accorded to him. It is, however, conceded by the complainant that there is no precedent for the relief he prays, and I am asked to go a step further than the courts have yet done in dealing with the operations of corporations in the stifling of competition and the restraint of trade. Want of precedent would not deter me for a moment in awarding the complainant a decree if I could find law upon which to rest it. The principles of equity will be applied to new cases as they are presented, and relief will not be withheld merely on the ground that no precedent can be found. Van Duyne v. Vreeland, 12 N. J. Eq. (1 Beas.) 142. The absence of precedents or novelty in incident presents no obstacle to the exercise of the jurisdiction of a court of equity. It is no objection to the exercise of jurisdiction that, in the everchanging phases of social relations, a new case is presented and new -features of wrong are involved. Vanderbilt v. Mitchell, 72 N. J. Eq. (2 Buch.) 910 (Court of Errors and Appeals). While it is trué that equity will make a precedent to fit a case novel in incident, yet in my judgment the facts of the case must come within some head of equity jurisprudence. This observation is not, as I understand it, in conflict with the broad doctrine of the expansive and expanding jurisdiction of this court as laid down in Vanderbilt v. Mitchell. Each of the cases cited by Judge Dill, in the opinion of the court of errors and appeals in that case upon this head, were cases in which the facts involved were referable to some head of existing equity jurisprudence. Chancellor Pitney, in his opinion in Bigelow v. Old Dominion Copper Mining and Smelting Co. (May Term, 1908), ante p. 2, in dealing with the question of promoters’ liability, says that it “is not the creature of statute; it is ‘judge-made’ law, in the sense that courts of equity everywhere, recognizing the obligations arising from the fiduciary relation, have applied to it the same principles of equity that obtain in all cases of trust.” This, as I read it, is but another declaration to the effect that known principles of equity will be applied to new cases as they arise, and that the expansion of equity goes to new facts, not that it calls into being new principles. *

The doctrine invoked here is the right to an accounting, and that right must be denied, unless the complainant can show, under the law, that he is entitled to an accounting. Because the American Sugar Company loaned the owner or controller of a majority of the stock of the Pennsylvania Sugar Company a large sum of money, and took from that owner a pledge of that stock and an agreement whereby the Pennsylvania company could not be run and operated in competition with the American company during the pendency of the loan, will not entitle the complainant to an accounting, unless the more ancient law, or the more recent policy of the state, affords the remedy which the complainant seeks. I cannot make law. I can only apply it. This observation is probably subject to this exception, namely, I can make law by the application of existing principles to new cases. Nevertheless, I cannot call into being principles which have no existence in equity, the common law, the statute law, or what may be called the “public policy of the state.” The legislature may make public policjr, but not the courts. Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. (13 Dick.) 507, 524; Dittman v. Distilling Company of America, 64 N. J. Eq. (19 Dick.) 537, 545; 54 Atl. Rep. 570.

It ought to be observed in passing that it was no part of the business of the American Sugar Company to loan money. The objects for which the company was formed are the purchase, manufacture, refining and sale of sugar, molasses, and melada, and all lawful business incident thereto. These are the only objects expressed in the charter under which this corporation was organized, and its charter limits its powers. Robotham v. Prudential Insurance Co., 64 N. J. Eq. (19 Dick.) 673, 682. The loan to Segal was in direct violation of the third section of our Corporation act, April 21st, 1896 (P. L. 1896 p. 278), which provides, among other things, that no corporation created under the provisions of the act shall, by implication or construction, be deemed to possess the power of carrying on the business of discounting bills, notes or other evidences of debt, or of buying and selling bills of exchange. While the loan to Segal was not, strictly speaking, the discounting of a note, it undoubtedly was the buying of a bill, within the meaning of the section. In other words, it was the doing of a banking business, as the loan was not made by the company for its own benefit in the course of its own business. This section is understood to be a prohibition against the exercise of banking powers by companies organized under our General Corporation act. The business of banking, as defined by law and custom, consists, among other things, in making loans of money on collateral security. 1 Boll. Mod. L. Bank. 2, citing Mercantile Bank v. New York, 121 U. S. 138, 156; 7 Sup. Ct. 826; 30 L. Ed. 895. The transaction under investigation falls directly within the definition of banking just adverted to; that is, it was a loan of money upon collateral security. The supreme court in McCarter, Attorney-General, v. Imperial Trustee Co., 72 N. J. Law (43 Vr.) 42, 45, that the third section of our act is a regulation of and limitation upon all corporations, and is not confined to corporations created under the act of 1896. Besides an exactly similar provision existed in the Corporation act of 1876, under which the defendant company was organized. Gen. Stat. 1895 p. 910 § 4. It was incorporated by certificate filed in the office of the secretary of state January 10th, 1891. The loan was an act clearly ultra vires. Of course, Segal could not take advantage of this situation. He got the company’s money, and estoppel would prevent his defending a suit for its recovery. His obligation was clearly enough to repay. The doctrine of ultra vires, when invoked for or against a corporation, is not allowed to prevail where it would defeat the ends of justice or work a legal wrong. Ohio and Mississippi Railway Co. v. McCarthy, 96 U. S. 258; 24 L. Ed. 693. The plea of ultra vires is not admitted, except where it is practicable to restore the status quo ante. Rutherford v. Hudson River Traction Co., 73 N. J. Law (44 Vr.) 227, 235; Campbell v. Perth Amboy Shipbuilding Co., 70 N. J. Eq. (4 Robb.) 40, 57; 62 Atl. Rep. 319. The loan would have been legitimate had it been made to advance the corporation’s business. Whitehead v. American Lamp and Brass Co., 70 N. J. Eq. (4 Robb.) 581, 585; 62 Atl. Rep. 554. While the transaction under investigation is illegal and reprehensible, the only penalty, so far as I am aware, which might be visited upon it for its excess of corporate power would be the forfeiture of its charter. If a corporation violates its charter or the laws of the state, it is liable to proceedings to forfeit its charter. Camden and Atlantic Railroad Co. v. May’s Landing, &c., Railroad Co., 48 N. J. Law (19 Vr.) 530; Elizabethtown Gas Light Co. v. Green, 46 N. J. Eq. (1 Dick.) 118; Attorney-General v. American Tobacco Co., 55 N. J. Eq. (10 Dick.) 352; Phillipsburg Electric Co. v. Phillipsburg, 66 N. J. Law (37 Vr.) 505, 507. This, however, is a matter which concerns the state alone. Should the loan, or any part of it, be ultimately lost to the defendant company, its officers who authorized the transaction would undoubtedly be liable as for a waste or misapplication of corporate funds. Citizens’ Loan Association v. Lyon, 29 N. J. Eq. (2 Stew.) 110; Id., 30 N. J. Eq. (3 Stew.) 732; Williams v. Riley, 34 N. J. Eq. (7 Stew.) 401; Ackerman v. Halsey, 37 N. J. Eq. (10 Stew.) 361.

The complainant contends that the defendant, under the contract of loan, put those who would do its bidding upon the board of directors of the Pennsylvania Sugar Company, and controlled that company as against the interests of its minority stockholders, and that the defendant is therefore bound to account for the profits it made in the transaction. To this doctrine, thus broadly stated, I assent. Bu;fc my trouble is to find that the complainant has made a case which shows him to be entitled to an accounting upon the theory that profits were made by the defendant company in consequence of its illegal act. To better apply the law upon this branch of the case the facts with reference to the situation of the Pennsylvania Sugar Company at and before the making of the agreement and loan should be understood. They were these: Assuming its plant to have been practically complete in the winter of 1903-04, as stated by Mr. Newhall, its architect and builder, nevertheless, it clearly appears from the evidence that the refinery could not have been operated economically without an expenditure of about $150,000 for boneblack, filter bags, tools and sundries. The company’s treasury was empty, and all its property was mortgaged for $3,000,000, the refinery and its lands being worth'approximately $1,370,000; that is, if the cost of the refinery (about $1,075,000 or $1,080,000) and the value of the land (about $293,600) are a criterion of its value, and that is the evidence of value in the case. Taxes on the property were in arrears since the year 1899, and no interest had been paid upon the bonds which were issued. The company was therefore insolvent, and, apparently, hopelessly so. At least one attempt was made to operate the Pennsylvania Sugar Company. Mr. Cook, who had a knowledge of the sugar business as a lender of money on raw and refined sugars, investigated the refinery, its capacity to produce the refined product, its probable earnings, and dealt with his associates looking toward the making of a loan to enable the company to start business. Application was made to Mr. Cook through Mr. Sparhawk, a broker, for a loan of $750,000 with which to commence the operations of the refinery. Mr. Cook’s deliberate judgment appears to have been that at least twice that amount of money, or $1,500,000, was requirable for the purpose. The terms upon which Mr. Cook and his associates appear to have been willing to make the loan were such as the company apparently could not accept, and the loan was not made. The terms were hard on the company. They were that the stock of the company was to be put under control of the lenders so that they could control the running of the plant. The interest on the bonds was to be postponed for eighteen months, and raw material and material in process of manufacture were to be subject to a lien for the money of the lenders. They were to name the manager of the plant. There was to be a voting trust with reference to the stock. The lien upon the material, raw and manufactured, was to continue until the product was sold. The lenders were to have supervision of the sales, so that no funds should be diverted from them. The application for this loan was made by Mr. Sparhawk, as counsel for the Pennsylvania Sugar Company, the Champion Construction Company and Adolph Segal — the same parties exactly who figure in the loan transaction under consideration. They were unwilling to accept, for. the benefit of the Pennsylvania Sugar Company, the harsh terms proposed by Mr. Cook, though afterwards, for the benefit of Segal alone, they accepted the still harsher ones imposed by the American Sugar Company.

We have now reached the last analysis in the facts of this case, and it remains only to apply the law arising upon those facts. As already remarked, the complainant may prevail, if prevail he can, by calling upon the defendant to account. The cases cited by the complainant do not support his contention. For instance, in Docker v. Somes, 2 Myl. & K. 655, the executors of the decedent continued his business, gradually closing it out. They went into the same business themselves, and used the money of the estate in their enterprise. They accounted for the moneys, and charged themselves with interest on the same, and the court held that they were chargeable with the actual profits that they made by use of the trust funds in their business. Manifestly that case has no application to the one sub judice. The numerous cases relied on by the complainant do not, in my opinion, any more nearly apply to the facts of the case under consideration than does Docker v. Somes, to which allusion has just been made. Vice-Chancellor Reed said, in Clark Thread Co. v. William Clark Co., 55 N. J. Eq. (10 Dick.) 658 (at p. 667); 37 Atl. Rep. 599, that a decree for an accounting could only go if it appeared that there was something for which the defendant was liable to render an account. In Bergmann v. Macmillan, L. R. 17 Ch. Div. 423, Mr. Justice Fry held that an account of profits will not be directed if it is clear that no profits have been made. On a bill for an accounting the court must always decide in the first instance whether or not there is anything for which the defendant is liable to account, and will not, I take it, direct an accounting in any transaction unless the evidence discloses the profits were made. Surely an accounting will not be directed for the business of a company which hover commenced operations, and certainly not unless it be shown that the concern, if operated, could have made profits. The language of Chief-Justice Green, speaking for the court of errors and appeals in Campbell v. Campbell's Administrator, 8 N. J. Eq. (4 Halst.) 738 (at p. 743), is particularly'apposite. He said: “But if the court be satisfied that there is nothing due, no account will be decreed. The chancellor must first be satisfied that the complainant is entitled to have an account taken. If he be satisfied upon that point, the practice is to refer it to a master to state the details of the account, and ascertain the balance. But the chancellor may, if he sees fit, take the account himself. In this case, however, I understand the chancellor to say that the complainant is upon the evidence not entitled to an account. He not only may, but ought to refuse an account, if he be satisfied upon the evidence that nothing is due the complainant, or that for any cause an account ought not to be decreed. * * * Now, the chancellor does not, as has been insisted, arrive at his conclusion by examining an account and then refusing an account. He arrives at his conclusion by evidence independent of the account.” In Stout v. Seabrook’s Executors, 30 N. J. Eq. (3 Stew.) 187, an accounting was denied by Vice-Chancellor Van Fleet, who remarked (at p. 193 of 30 N. J. Eq.), that if, in an action for an account, the court is satisfied nothing is due from the complainant to the defendant, no further proceedings will be permitted, but the bill will be dismissed, citing Campbell v. Campbell’s Administrator, ubi supra. Stout v. Seabrook’s Executors was affirmed for reasons given in the court below. 32 N. J. Eq. (5 Stew.) 826. This court, in case of equity cognizance, may award damages. Ackerman v. Halsey, 37 N. J. Eq. (10 Stew.) 357, 366; affirmed, Halsey v. Ackerman, 38 N. J. Eq. (11 Stew.) 501, 509.

Aside from the trustee aspect of this case, the accounting feature involves the law of loss of profits, which is usually to be found in cases sounding in contract or in tort. The law concerning speculative, remote and contingent profits is here applicable. They are never allowed, as I understand it, in either class of cases. In Poll. Torts (6th ed.) 538 (1901), it is laid clown:

“With regard to the measure of damages, the same principles are, to a great extent, applicable to cases of contract and of tort. * * * The rule with regard to remoteness of damage is precisely the same whether the damages are claimed in actions of contract or of tort.”

And (at p. 540) :

“One point may be suggested as needful to be borne in mind to give a consistent doctrine. Strictly speaking, it is not notice of apprehended consequences that is material, but notice of the existing facts, by reason whereof those consequences will naturally and probably ensue.”

In States v. Durkin, 65 Kan. 101; 68 Pac. Rep. 1091, it was held: “Before one may recover damages, occasioned by the wrongful acts of another, for loss of profits to an established general business, it must be made to appear that the business had been in successful operation for such period of time as to give it permanency and recognition, and that such business was earning a profit which may reasonably be ascertained or approximated.” In Kenny v. Collier, 79 Ga. 743; 8 S. E. Rep. 58, it was held (at p. 747 of 79 Ga., at p. 60 of 8 S. E. Rep.) : “That anticipated profits from a business intended to be carried on * * * cannot be allowed is as well settled as anything can be in an age of legal skepticism.” These cases of States v. Durkin and Kenny v. Collier were contract cases, but Dudley v. Briggs, 141 Mass. 582; 6 N. E. Rep. 717; 55 Am. Rep. 494, was a tort case, in which the court held (at p. 586 of 141 Mass., at p. 720 of 6 N. E. Rep.; 55 Am. Rep. 494) : “Until the plaintiff had entered upon the compilation of the directory for 1885, we do not think there was any business of publishing a directory for 1885 carried on by the plaintiff, or anything that, for example, could have been sold as a going concern by an assignee in insolvency, if the plaintiff had become an insolvent debtor.” And (at p. 587 of 141 Mass., at p. 721 of 6 N. E. Rep.; 55 Am. Rep. 494) : “The fatal objection to the present case is that it is entirely problematical whether the plaintiff would actually have published a directory if the defendant had not made the fraudulent misrepresentations alleged. The plaintiff abandoned his intention to compile and publish a directory in consequence of the defendant’s acts, but this, upon the principle stated in Bradley v. Fuller, 118 Mass. 239, and the cases therein cited, is not sufficient to support an action.” Among the cases cited in Bradley v. Fuller, just referred to, is that of Wellington v. Small, 3 Cush. (Mass.) 145; 50 Am. Dec. 719, wherein the court said (at p. 149 of 3 Cush. (Mass.) : “The uncertainty of the plaintiff’s damage seems, of itself alone, to be a sufficient reason for his not recovering. In an action on the case ex delicto the plaintiff must show injury and damage, and these must be shown as facts by legal proofs, except in a few cases, where, by the rule of law, damage is presumed from the act complained of. This case does not fall within that exception. How could this plaintiff prove that he suffered from the acts of the defendant, which are averred in the declaration ? How could he prove that he would have secured his debt by attaching the property of his debtor, if the defendant had not intermeddled with it? Other creditors might have attached it, or it might have been stolen or destroyed while in the debtor’s possession. The fact that the plaintiff has suffered actual damage from the defendant’s conduct is not capable of legal proof, because it is not within the capacity of human knowledge, and cannot be shown by human testimony. It depends on numberless unknown contingencies, and can be nothing more than a matter of conjecture.”

And now, finally, the case on the law of accounting may be summarized as follows: That the Pennsylvania Sugar Company was not a going concern at the time its stock was hypothecated; that its business had never been established; that it cannot be postulated that, if its business had been established, it would have been profitable, but, on the contrary, it is entirely problematical whether its business would have been successful in the fierce competition it would necessarily have encountered from the defendant company; that, while the complainant may have shown injury t.o his insolvent corporation, he has not shown damage; that if damage has been suffered, it has not been proven, because it is incapable of proof; that anticipated profits from a business intended to be, but actually not, carried on, cannot be allowed.

Hpon the whole case, I am constrained to the conclusion that nothing has been shown to be due from the defendant to the complainant, and that consequently the complainant is remediless, and therefore his bill must be dismissed, with costs.


source: Caselaw Access Project

author: Walker, V. C.

license: Public Domain

text:
    Mary Hetzel v. John Hetzel et al.
    [Decided September 24th, 1908.]
    A testator devised to three children certain real estate upon which there were mortgages at the time of its acquisition by him, which mortgages were assumed and agreed to be paid by him and the amount of which was allowed to him as so much purchase-money. He afterwards made one mortgage upon the premises to secure a debt created by himself. By his will he devised the residue of his real estate to the children mentioned and bequeathed to his widow, in lieu of dower, a sum of money equal to one-third of the value of such real estate, to be paid to her by the children and to be a lien upon the real estate until paid.— 1-Ield, that the value of the lands, to one-third of which the widow is entitled, is the same value as those lands have in the hands of the devisees, that is, that they are entitled to have the mortgage made by the testator paid out of his personal estate in exoneration of the lands, but must accept the lands subject to the mortgages which were upon them at the time of their acquisition by the testator, and which mortgages he assumed. Consequently, the widow is entitled to one-third of the value of the lands, deducting the amount of the mortgage encumbrance created by the testator, but subject to the amount of the encumbrances assumed by him.
    On bill, answer, replication and proofs.

      Mr. Joseph E. Hunt, Mr. Aaron V. Dawes and Mr. John Rellsiab, for tlie complainant.

      Mr. Linton Saiierthwait, for the defendants.
   Walker, V. C.

The construction of the last will of Jacob Hetzel, late of the city of Trenton, is involved in this cause. He died in tire month of September, 1907, and his will was proved before the surrogate of the county of Mercer on the twentieth day of that month. It was made August 9th, 1900, and consisted of eight items. Aftertva,rds and on various dates lie made four codicils. The will and the codicils were all proved together. Such provisions of the will and codicils as are necessary for the determination of the question involved are as follows: The testator provided — first, that all of his j list debts and funeral expenses be paid; second, he bequeathed to his wife, Mary Hetzel, certain articles of furniture, and $500 in cash; fourth, he devised and bequeathed to his son Charles certain personal property and a lot of land; fifth, he devised to his sons Charles and John, and his daughter Mary, all the rest and residue of his real estate, subject to his wife’s right of dower; sixth, he ordered and directed his executor to sell all the rest and residue of his personal property and from the proceeds thereof to pay his debts, funeral expenses and the cost of a monument; seventh, the bequests to his wife to be in lieu of dower in the lot devised to Charles and in lieu of any interest she might claim in his personal property.

By a codicil of April 26th, 1904, he recited the devise of the rest and residue of his real estate to his sons and daughter, subject to his wife’s right of dower, and then provided

“now I do give to my wife, Mary Hetzel, a sum of money equal to one-third of the value of the said real estate, to be paid to her by my said children and to be a lien upon said real estate until paid, the said sum of money to be in lieu of her dower therein mentioned.”

fir. Hetzel died seized of seven different tracts of land which he acquired in five different conveyances. All of the tracts’are encumbered by mortgages assumed by the testator as part of the consideration given for them, save in one instance, in which a mortgage of $1,000 was made by him. The value of his real estate is $17,200. The encumbrances thereon amount to $7,200, including the mortgage made by himself. The personal estate is sufficient to satisfy the testator’s debts, including the mortgages upon his real estate.

The real estate being worth $17,200 gross, its net value after deducting the mortgage made by the testator is $16,200. After deducting the mortgage encumbrances assumed by the testator upon the acquisition of the property, and omitting the $1,000 mortgage made by himself, the net value is $11,200. After deducting all the mortgage encumbrances it is $10,000.

The question is shall the widow, in lieu of her dower, have one-third of $17,200, or of $16,200, or $11,200, or of $10,000 ?

On behalf of the complainant it is contended that the testator meant that his widow should have one-third of the value of his real estate without any deduction of the mortgage encumbrances, while the defendants insist that he meant to give her one-third of the value of his lands, first deducting the mortgage encumbrances thereon, except, possibly, the amount of the mortgage made by himself, which was for a debt created by him.

My opinion is that the testator meant that his widow should have one-third of the value of the residue of the real estate he devised to his sons Charles and John, and his daughter Mary, just as that value passed to them bjr virtue of the devise, for, in the codicil of April 26th, 1904, tire testator, after reciting the devise of the residue of his real estate to his sons and daughter just mentioned, subject to his wife’s right of dower, in the fifth item of his will, proceeds to give her “a sum of money equal to one-third of the value of said estate;” that is, the residuary estate, “to be paid to her by my said children and to be a lien upon said real estate until paid.”

In the presence of such expressions it would be hard to find,, it seems to me, that the testator meant that the devisees, his children, should give his widow one-third of the gross value of the lands devised to them if those lands in their hands were subject to encumbrances amounting to more than one-third of their value. So, the solution of this question depends, in my opinion,, upon the status of these devisees with reference to the lands devised, and the question is, are the lands subject to the encumbrances in the hands of the devisees, or, are the devisees entitled to have the lands exonerated by the personal estate. The fact that the widow is not the mother of decedent’s children is, I take it, quite unimportant.

That the testator meant that the value of the lands to his wife (for the purpose of his bequest to her in lieu of dower) should be the same as their value to his children is plain, it seems to me, by reason of the juxtaposition of the two gifts, the bequest to the wife being a condition annexed to the devise to the children. By the language he used the testator could not, I think, have intended one value for his wife and another for his children.

It is true that the testator charged the payment of his debts upon his real estate; his personal property being the primary fund for their payment. Such was the effect of the first item in his will. Suydam v. Voorhees, 58 N. J. Eq. (13 Dick.) 157, 165; Roll v. Roll, 68 N. J. Eq. (2 Robb.) 227, 229. By the sixth item of his will he directed a sale of all of his personal property, not specifically bequeathed, to pay his debts, funeral expenses and the cost of a monument. By these provisions for the payment of his debts, the testator did not, in my judgment, intend to include obligations upon which he was liable only by way of indemnity in the case of mortgages which he had assumed but did not create, and which neither he nor his estate might ever be called upon to discharge. If, in his lifetime, he had divested himself of title subject to the mortgages his grantees might eventually have paid the mortgage debts. So, too, his devisees after him may convey the mortgaged premises in the same way.

The testator, in my opinion, wrote into his will the directions concerning the payment of his debts in view of the law upon the subject, which law he is presumed to have known, and which will now be noticed.

In Mount v. Van Ness, 33 N. J. Eq. (6 Stew.) 262, in the prerogative court, it was held, that the assumption of the payment of a mortgage upon lands purchased, and the allowance of its amount as so much of the purchase-money, was not such personal assumption of the mortgage as entitled the heir to whom the premises descended to exoneration out of the personal estate for the amount of the mortgage. This case was decided upon the authority of McLenahan v. McLenahan, 18 N. J. Eq. (3 C. E. Gr.) 101, and Campbell v. Campbell, 30 N. J. Eq. (3 Stew.) 415. In the former case (McLenahan) it was held in this court, that if lands descend or are devised, subject to a mortgage not made by the decedent, the heir or devisee takes cum onere, unless the decedent shall have assumed the debt in such manner as to show an intention to charge his personal estate; .that making himself or his representative liable to be called on by the mortgagee is not sufficient, of itself, to charge the personal estate in relief of the lands. The latter ease (Campbell) was one on a bill for dower in lands of an intestate which were subject to a mortgage put thereon by the intestate, and also lands which were purchased by him subject to a mortgage, the amount of which was allowed to him as so much of the purcliase-mone3, and the payment thereof assumed by him; and it was held, that as to the first, the personal estate must exonerate the land, and dower be assigned therefrom as if,unencumbered; and that as to the second, a mere assumption of a mortgage by the decedent was not such prooí of an intention to make the debt his own as rendered his personal estate primarily liable therefor, and dower must be assigned therefrom subject to the mortgage.

The assumption of a mortgage does not make the debt a personal one of the grantee covenantor. DeGrauw v. Mechan, 48 N. J. Eq. (3 Dick.) 219, 223.

In the case of Crowell v. Hospital of St. Barnabas, 27 N. J. Eq. (12 C. E. Gr.) 650, the court of errors and appeals held that the assumption of a mortgage in a deed of conveyance is a contract with the grantor simply for his indemnity, and will not be regarded, either at law or in equity, as a contract with the mortgagee for his benefit. In this case Mr. Justice Depue> speaking for the court of errors and appeals, says (at p. 655) : That “the right of a mortgagee to enforce payment of the mortgage debt as against the grantee of the mortgagor does not rest upon any contract of the grantee with him, or with the mortgagor for his benefit.”

Clearly, then, the mortgages upon the property of which the testator died seized, and which were not given by him as security for debts of his own creation, but which were upon the premises at the time he acquired them, and the payment of which he assumed, were merely contracts of indemnity by him with the mortgagors, his grantors. They were not his debts in a technical sense; he did not create them, and did not give the bonds or obligations for their payment at the time of their inception.

Under tlie law, therefore, as it is settled in this state, neither the heir-at-law nor the doweress could call upon the personal representatives of, a decedent to discharge such obligations out of the personal estate in exoneration of the land. The situation is no different where the parties are devisee and doweress, unless by the terms of his will a testator clearly evinces an intention that the personal property shall exonerate the land.

Chancellor Eunyon in Campbell v. Campbell, ubi supra (at p. 416), speaking of land purchased by an intestate subject to a mortgage, said: “His personal estate is not bound to exoneration. In such case, to make his personal estate primarily liable, there must be clear evidence of an intention to make the mortgage debt his own.” The same chancellor, as ordinary, in Mount v. Van Ness, ubi supra (at p. 263), said: “If land descends, or is devised, subject to a mortgage debt not created by the decedent, the heir or devisee takes the property cum onere, and is not entitled to have the debt paid out of the personal estate unless the decedent has already assumed the debt, intended to make it a charge on his personal estate, or shall have so expressly directed by the will.” This is a directly controlling authority on the subject under consideration. Mark the language of Chancellor Eunyon: “The devisee is not entitled to have the mortgage paid out of the personal estate unless the testator ‘shall have so expressly directed by will/ ”

Now, no express direction to pay the mortgages assumed by the testator upon the acquisition of his lands can be found in his will. Not only that, but, so far as I can see, no language is contained in the will which can be construed into an implied direction for such payment.

The result is that the widow is entitled to a payment of one-third of the value of the testator’s real estate, first deducting the amount of the mortgages assumed by him, but not including in the deduction the amount of the mortgage made by him and for which his personal estate is liable and must exonerate the mortgaged premises for the benefit of the devisees, and also of the widow, the legatee. The sum,.to one-third of which she is entitled, is approximately $11,200. I will advise a decree in accordance with the views above expressed.


text:
    Oliver Smith v. William B. Reed et al.
    [Decided October 9th, 1908.]
    S. filed a bill of interpleader in chancery of New Jersey against R. & L. setting up that R. recovered a judgment against him (S.) in the United States circuit court, and that L. had attached the judgment debt in his hands by process out of the Camden circuit court of this state, and prays for an injunction restraining R. from issuing execution against him (S.) out of the United States circuit court on that judgment pending the interpleader suit. — Held, that an injunction will not lie, because the writ, if issued, would be an unlawful interference by a court of a state with the power of a court of the United States to enforce its judgment; the rule being that courts of different sovereignties cannot so interfere with each other even indirectly by injunction operating upon the parties litigant.
    Heard on older to show cause why an injunction should not issue.

      Mr. Lewis Siarr, for the complainant.

      Mr. Thomas B. Hall, foi the defendant Beed.

      Mr. William T. Bead, foi the defendant Lowiy.
   Walker, V. C.

The bill in this case shows that the defendant Beed recoveied a judgment in the United States circuit court for the district of New Jersey, against the complainant for $750 damages and $58.4.5 costs; that the issuing of an execution on the judgment was stayed upon the application of the complainant to. set off against it a judgment recovered by him against the defendant Beed in the court of common pleas of Philadelphia, Pennsylvania; that the application Was refused; that the defendant Lowry caused to be issued against the defendant Reed an attachment out of the circuit court of the county of Camden, which the sheriff served upon the complainant and attached in his hands all the rights and credits, moneys and effects of the defendant Reed, and particularly the money due and owing to the complainant by the defendant Reed upon the judgment recovered in the United States circuit court. Then follows the usual averments in an interpleader bill that both defendants claim they are entitled to the money due and that the complainant is unable to determine to whom it belongs and is willing to pay the amount to such person as shall lawfully be entitled to it and to whom he may pay the same with safety, offering to pay the amount into court, and alleging that he does not in any respect collude with the defendants and that he has not been indemnified by them or either of them, but brings the suit of his own free will and to avoid molestation and injury. The bill is verified by the complainant’s affidavit.

The defendant William R. Reed has answered and charges, among other things, that the attachment was not issued and levied in good faith, but by collusion between the complainant and the defendant Lowry for the purpose of preventing the defendant Reed from having execution against the complainant, Smith, upon the judgment of the circuit court of the United States; that the judgment in the Philadelphia common pleas, which is the basis of the complainant’s claim, was recovered by him and Lowry and that Lowry assigned his interest in it to Smith, the complainant, to enable him to use it against his, Reed’s, judgment in the United States circuit court.

The defendant Lowry has also answered and admits all of the facts contained in the bill and avers that by reason of his attachment he is entitled to priority over the claim' of the defendant Reed upon his judgment.

The complainant also makes an affidavit, in which he says that it is not true as stated in Reed’s answer that the attachment of Lowry against Reed was in any way or manner based upon the judgment against Reed entered in the Philadelphia common pleas court, nor that the complainant has assigned to. Lowry the claim agaihst Reed, nor that the claim upon which the attachment proceedings of Lowry against Reed is based is in any way or manner owned by the complainant, nor is he interested therein.

The complainant seems to know how the alleged debt for which the attachment issued did not arise, which argues that he knows how it did arise, but he rather disingenuously fails to make any statement concerning that feature of the case.

The bill prays for an injunction restraining the defendant Reed from issuing execution upon his judgment in the United States circuit court or from collecting or selling or disposing of any of the real or personal property of the complainant, and that the defendant Lowry be enjoined from further proceeding in the attachment proceedings commenced by him against the defendant Reed so far as it may refer or relate to the mone3r£ in the hands of the complainant due upon the judgment. Upon filing the bill an order to show cause was made why an injunction should not issue according to its prayer, with an ad interim restraint upon the defendant Reed, enjoining him from proceeding to advertise or sell any property of the complainant on any levy under any execution that might be issued on the judgment mentioned, and from collecting, selling or disposing of any of the real and personal property of the complainant, and that the defendant Lowry be restrained from further proceeding in the attachment proceedings against Reed so far as the same refers or relates to the moneys in the hands of the complainant due upon the judgment.

Upon the hearing of the order to show cause the files of this court in the cause therein depending wherein William B. Reed is complainant and Oliver Smith, Alfred Lowry and others are defendants, was introduced in evidence. In that suit the defendants Smith and Lowry (who are the complainant, one of the defendants in this suit) exhibited an answer by way of cross-bill against the complainant Reed (who is defendant in this suit), in which they set up that they, Smith and Lowiy, were induced by Reed to enter into a certain written agreement dated June 10th, 1902, for the purpose of forming a corporation (which is also one of the defendants in that suit) for the manufacture and sale of soap, by virtue of certain false and frauclulent representations made by Eeed to them, and they pray in their cross-bill that the contract be declared void and for nothing holden, and that they may be relieved from it in so far as they are holden unto the complainant, and that the complainant be declared not -to be entitled to any rights under the contract. Eeed, besides filing a special replication denying the, fraud, filed a supplemental bill in which he sets up that Smith and Lowry by their cross-bill have elected to rescind the contract and have claimed for themselves as individuals the ownership in the stock of the company formed to carry out the terms of the agreement of June 10th, 1902, and prays that Smith and Lowry be ordered and directed to release and discharge unto him all and every claim or demand they have against him arising out of any of the matters and things done or omitted to be done under the contract. Now, under the contract, Eeed was to have $8,000 of stock in the corporation, to be paid for by a loan to him from Smith and Lowry, and the repayment of which he was to secure by life insurance policies amounting to $9,000, and a mortgage of $3,-000 upon lands in Pennsylvania, the stock to be issued in-the name of Eeed and held by the other parties. These conditions were performed, and it is not shown that Eeed owes Lowry otherwise than on account of the transaction just mentioned. It will be noticed that Eeecl’s indebtedness to Smith and Lowry under this contract was one to them jointly. Eeed now alleges that Smith has assigned to Lowry his interest in the securities so that Lowry could be in a position to set off his claim against Eeed, that being impossible while Eeed’s obligation was to them jointly, for, upon well-known principles, a joint debt cannot-be set oif against a several one.

In the matter before me it does not appear by competent proof that Smith and Lowry collude with each other for the purpose of preventing Eeed’s making out of Smith the judgment which he recovered against him in the United States circuit court. But, if the facts stated in the pleadings in Smith v. Lowry et al., and in the answer of Eeed in this case be true, then there is collusion between Smith and Lowry. What is the fact in this regard will, of - course, be made to- appear upon the final hearing of the cause.

Passing from the question of .collusion, which I am unable to decide in favor of the defendant Reed on this application, although the matter savors very strongly of it, I come now to the consideration of the power of this court to interfere with the process of the United States circuit court. The- principal authority relied on by counsel for the defendant Reed, on this head, is United States v. Johnson County, 5 Dill C. C. 207. In that ease a judgment had been recovered in the circuit court of the United States for the district of Iowa, against Johnson county in that state and district, for interest on certain bonds issued by the manicipal corporation. Execution was issued and returned unsatisfied and demand was made upon the county officers to levy a tax to satisfy the judgment, and upon their refusal a mandamus was issued by the federal court in which the judgment was recovered, to which the county officials made return that they had been enjoined from levying the tax of a state court in a proceeding between the taxpayers and themselves. The supreme court of the United States held “that federal courts and state courts act separately and independently and in their respective spheres of action the process of the one cannot be enjoined by the other.” It is elementary that no court can directly enjoin proceedings in another court; therefore, when proceedings in court are in effect enjoined, it is because of a restraint operating upon the parties. Although the language of the syllabus in United States v. Johnson County, just quoted, refers in terms to the inability of one court to enjoin another, the headnote is to be read in connection with the facts, which clearly show that the injunction was the usual one operating upon the parties and not one directed to the court. Said Mr. Justice Clifford, speaking for the United States supreme court (at p. 195) : “’State courts are exempt from all interference by tire federal tribunals, but they are destitute of all power to restrain either the process or proceedings in the national courts. * * * Circuit courts and state courts act separately and independently of each other, and in their respective sphere of action the process issued by the one is as far beyond the reach of the other as if the line of the division between them was Traced by landmarks and monuments visible to the eye/ * * * Viewed in any light, therefore, it is obvious that the injunction of a state court is inoperative to control, or in any manner to affect the process or proceedings of a circuit court, not on account of any paramount jurisdiction in the latter courts, but because in their sphere of action, circuit courts are wholly independent of the state tribunals.”

This case (United States v. Johnson County) is certainly an authority for counsel’s contention.

The cases in our state courts are not in conflict with the doctrine of the federal courts upon the question under consideration.

In Shinn v. Zimmerman, 23 N. J. Law (3 Zab.) 150, it was held: “Money due on a judgment recovered in a court of record, either in this state or another state, cannot be attached in the hands of the defendant in such judgment on an attachment against the plaintiff therein.” Chief-Justice Green,' delivering the opinion of our supreme court in that case, said (at p. 153) : “Upon a question of conflict of jurisdiction, it is clear that the court which first acquires jurisdiction of the subject-matter of controversy is entitled to exercise it, and to enforce the execution of its judgment. If the court in Pennsylvania permitted the attachment to supersede the execution, it would in effect permit the process of the courts of this state to interfere with the execution of its own judgment. It is obvious, moreover, that if executions may thus be arrested, it would, in respect to judgments in this state, as well as elsewhere, present a ready mode of embarrassing the administration of justice and delaying the process of the courts.”

Nor is the case of Conover v. Ruckman, 33 N. J. Eq. (6 Stew.) 303, in conflict with Shinn v. Zimmerman, ubi supra. While in Conover v. Ruckman it was held that moneys in the hands of a sheriff, raised by him in pursuance of a decree of this court, are liable to seizure under a writ of attachment, tire principle annunciated in Shinn v. Zimmerman was expressly approved. Said Mr. Justice Depue, speaking for the court of errors and appeals, in Conover v. Ruckman (at p. 309) : “In Shinn v. Zimmerman, 23 N. J. Law (3 Zab.) 150, the attachment was issued against the plaintiff in a judgment recovered in the courts of Pennsylvania, and was served on the defendant in that judgment. * * * The defendant in the attachment had recovered his judgment in another jurisdiction and, as the chief-justice said, there is ‘no rule of law, no consideration of policy or courtesy, which would or ought to induce any court of Pennsylvania to suspend its process and withhold from one of its own citizens the recovery of a debt adjudged to be due, because after the recovery of the judgment, the debt has been attached under the process of this state/ ”

In Conover v. Ruckman in this court (32 N. J. Eq. (5 Stew.) 685), Vice-Chancellor Van Fleet held that there was an irreconcilable conflict between the decisions of the supreme court in Crane v. Freese, infra, and Shinn v. Zimmerman, supra, and, because the court of chancery had established the doctrine that moneys in the hands of an officer raised on execution were not liable to attachment at all, he dissolved an injunction which had been issued in aid of an attachment. In reversing the judgment in Conover v. Ruckman, the court of errors and appeals, adverting to Shinn v. Zimmerman, remarked (33 N. J. Eq. (6 Stew.) (at p. 309), that it was because the attachment in that case had been recovered in another jurisdiction that the doctrine of Crane v. Freese did not apply.

In the class of cases of which Crane v. Freese, 16 N. J. Law (1 Harr.) 305, and Davis v. Mahany, 38 N. J. Law (9 Vr.) 104 are. examples, money in the hands of 'an officer raised on execution was allowed to be attached in favor of a .creditor of the plaintiff, not as the money of the plaintiff, but as a right and credit of the plaintiff, the court in which the money was raised being left to apply it upon consideration of the claims of all the parties. It will be noticed that in these cases the process of execution upon judgments recovered was not arrested, but the moneys raised upon the executions were held to be subject to the rights of creditors. It will be noticed, too, that the attachments, and the execution upon which the moneys attached were raised, were all issued out of courts of the same state. As I understand it, courts deriving their powers from one sovereign cannot, even in the most indirect manner, affect the process or proceedings of the courts of other sovereigns, and that attachment will not lie out of a court of one state against moneys raised bn execution by process of a court of the United States or of another state. This view is noticed by Mr. Justice Scudder in the opinion in Davis v. Mahany, wherein he said (38 N. J. Law (9 Vr.) (at p. 108) : “If the plaintiff in execution, or person having a claim paramount to such plaintiff, or the creditors in attachment under which the right or credit has been levied upon, shall be entitled, the court will order payment according to the justice and right of the case. There will be no case of conflicting suits and opposing jurisdictions, but an honest and convenient appropriation of the debtor’s property to the payment of his debts, if he be liable.” It seems, then, that in Davis v. Mahany attachment was permitted to be levied upon moneys in the hands of a constable made under execution for the defendant in another action before another justice of the peace in which the defendant in attachment was plaintiff, because there were no opposing jurisdictions, as there would have been had the money attached been raised upon process out of a court of the United States or of another state. Anyhow, all that was decided in the class of cases now being discussed was, that the moneys raised upon execution were liable to attachment as rights and credits of the plaintiffs in those writs, the moneys not being theirs until paid over to them, and neither these cases nor any others that I have been able to find are authority for the proposition that process of execution upon a final judgment may be arrested for the benefit of a creditor of the plaintiff in execution.

The cases cited on behalf of the complainant and the defendant Lowry do not bear out the contentions made in their behalf. One of the eases will be noticed. Counsel for the complainant in his brief asserts that interpleader lies in favor of a person sued in a United States court and attached in a state court, and cites McWhirter v. Halsted, 24 Fed. Rep. 828. Upon examination the case will be found not to be authority for the proposition asserted. The facts were these: Halsted, Haines & Company, of New York, on July 12th, 1884, made a deed of assignment to Lewis Ma3r for the benefit of their creditors. On the same day Deering, Milliken & Company caused a writ of attachment to be issued out of the supreme court of this state against Halsted, Haines & Company under which the sheriff of Essex attached a debt due from McWhirter & Company to Halsted, Haines & Company. On December 3d, 1884, Lewis May, assignee of Halsted, Haines & Company, commenced an action in the United States circuit court for the district of New Jersey against McWhirter & Company. On January 21st, 1885, McWhirter & Company filed their bill of interpleader in the United States circuit court, acknowledging their indebtedness to Halsted, Haines & Company, averring their readiness „and willingness to pay the same to whomever should be determined to be entitled to it, alleging that the assignee claimed it and also the attaching creditors. While Justice Nixon in the opinion seems to have held that the case was properly one for interpleader, he held distinctly that he could not grant any injunction against the attachment proceedings in the New Jersey supreme court, putting the decision of that question upon a federal statute which expressly prohibits a court of the United States from issuing an injunction to stay proceedings in a state court, except in cases of bankruptcy. He remarked (at p. 880) : “Nor is there any difficulty in granting an injunction against the plaintiff in the action at law in this .court restraining him from'further proceeding therein. He is under its control. But it is different in regard to an injunction against the parties to the attachment proceedings in the state court. They are there pursuing a remedy given by the law against the property of a non-resident debtor, and Rev. Stat. § 720, expressly prohibits a court of the United States from issuing the writ of injunction to stay proceedings in any court of a state, except where the. injunction may be authorized by any law relating to proceedings in bankruptcy.” He concluded by observing that he was constrained to decline an injunction against the plaintiffs in the attachment proceedings in face of the federal statute. Had the statute not been in existence and had the court been urged to refuse the injunction because of want of power in the federal court to restrain proceedings in the state court, he must, of necessity, it seems to me, have refused the writ upon the authority of United States v. Johnson County, which, it appears, must have bound him.

The ruling of Judge Nixon, just adverted to, was on motion for a preliminary injunction. The cause afterwards came on for final hearing before Judge Wales (10 N. J. L. J. 91), and the bill was dismissed on demurrer because any decree ordering the parties to interplead would be useless unless they could at the same time be enjoined from further prosecuting the attachment suit, which was precisely what was forbidden by the federal statute.

In Central National Bank v. Stevens, 169 U. S. 432, it was held that a state court was powerless to grant an injunction against enforcing a decree of a federal court which had obtained complete jurisdiction before suit begun in the state court, and that to deprive a court of the power to execute its decree is essentially to impair its jurisdiction. I do not understand this case to be disapproved by the opinion of Vice-Chancellor Bergen in Shaw v. Frey, 69 N. J. Eq. (3 Robb.) 321, wherein he says (after citing Central National Bank v. Stevens) (at p. 324) “The doctrine that a state court may never restrain a litigant in a federal court cannot, in my opinion, be supported by the adjudications of the supreme court of the United States.” And (at p. 325) : “All of these cases (Central National Bank v. Stevens and other cases) present different conditions of fact, but the rule established vindicates the right, of a federal court to complete its judgment by execution, but I can find no express adjudication holding that a state court having jurisdiction over the party is without power to restrain a litigant in a federal court, no federal question being involved, until he shall make such discovery of evidence as the rules of equity require.”

Certain it is that courts of the United States have held that' final processi upon their judgments may not be arrested by injunction out of the state courts operating upon the parties, and I understand, also, that the decisions of our state courts are to the same effect.

Many other grounds have been urged by counsel for the defendant Eeed in favor of the denial of an injunction in this cause, and some of the reasons appear to be meritorious. However, I have not considered them, because the proposition. just discussed is to my mind controlling, and its decision must necessarily be dispositive of the question under consideration.

For want of jurisdiction in the court of chancery to restrain the process of execution on a judgment in the United States circuit court, the ad interim restraint heretofore granted in this cause must be dissolved and the rule to show cause discharged, with costs.


text:
    Johanna Spence v. Thomas H. Spence.
    [Decided October 12th, 1908.]
    .1. In a suit for divorce a mensa et ihoro on the ground of extreme cruelty, if the facts constituting the alleged cruelty are disproved, a decree dismissing the petition of complaint will operate res judicata and be a bar to pleading or proving the same facts in any subsequent suit; but if the facts be true, but insufficient to entitle the petitioner to relief, then a decree of dismissal may be entered without prejudice to the petitioner’s right to plead and prove the same facts in addition to any other or others which may afford the ground of a subsequent suit against the defendant.
    2. Pacts of this case held to be insufficient in law to entitle the petitioner to relief. — Held, also, that the petition should be dismissed, but without prejudice.
    Oil petition for divorce a mensa et thoro. On filial hearing on pleadings and proofs.

      Mr. Marvin A. Spaulding and Mr. Barton B. Hutchinson, for the petitioner.

      Mr. John Sykes and Mr. Linton Satterthwait, for the defendant.
   Walker, V. C.

This is essentially a fact case, and, at the close of the hearing, I took occasion to remark that I was in a state of dubiety concerning the decision. I regarded, and regard the case as a very close one. Upon the hearing I also remarked that unfounded charges of adultery by the husband against the wife were the principal facts of the alleged extreme cruelty. In Black v. Black, 30 N. J. Eq. (3 Stew.) 215, Vice-Chancellor Van Fleet (at ¶. 221) used this language': “Slight violence by a husband who has evinced a hatred almost diabolical, against his wife, in attempting to blast her reputation by fabricating a charge of adultery against, her, has been deemed sufficient.” So, it appears there must be some form of violence coupled with a false charge of adultery to entitle a wife to a decree, and it seems it need not be then actual infliction of physical injury, but may be threatened only, provided there be reasonable ground to apprehend that it will be inflicted. Close v. Close, 25 N. J. Eq. (10 C. E. Gr.) 526; Smith v. Smith, 40 N. J. Eq. (13 Stew.) 566, 594.

The defendant in this case seduced his wife before marriage, and whether from that fact or not, he seems to have taken more or less delight during the ten years they lived together in denying the parentage not only of his first but his second child. He frequently informed his wife, and several times in the presence of others, that he was not the father of her children. This, of course, amounts to a charge of adultery as to the last child and fornication with someone other than .himself as to the first child. There were also some acts of violence testified to, but they were few and far between and not severe. He was -also guilty of some acts of cruelty not violent in character.

The rule is that a divorce from bed and board for extreme cruelty is not granted by wajr of punishment for past offences, but as a preventive measure, to protect the health or life of the wife from threatened danger in the future. Weigel v. Weigel, 60 N. J. Eq. (15 Dick.) 322. Now, the effect of Mrs. Spence’s testimony is that her greatest apprehension, if not her only fear of her husband, that is, fear of bodily harm, from him, is the fact that he had a revolver in the house. He did tell her that he would show her what he would do with it, but she admits that he never pointed it at her or. threatened her directly with it in any wajr.

Spence, upon the witness-stand, expressed a desire to have his wife return to him, and promised to treat her well in the future. His conduct toward her in the past, to say the least of it, was that of a dastard, and it may be regrettable that the evidence, under the authorities, does not entitle her to a decree. His conduct was certainly intolerable at times, but did not, in my judgment, according to the adjudications, amount to what in the law of this state is denominated extreme cruelty. In this cause, as I view it, the petitioner just falls short of making a case under the law.

It is certainly not to be regretted that in dismissing the wife’s petition in this case, I may do it without prejudice to her, so that if she should accept his proffer and renew marital relations with him,’then, in the event of any other outbreak on his part, justifying another appeal by her to this court, the offences which weresmade the subject of her present complaint will be available to her in addition to any fresh outbreak he may commit. This course was adopted in English v. English, 27 N. J. Eq. (12 C. E. Gr.) 579, in which the court of errors and appeals said (at p. 586) : “The bill will be dismissed without prejudice, so that the facts urged in this complaint may be used if the case should again be brought before the court.” Such will be the decree in the ease at bar.

I have no hesitation in pronouncing the rule to be this: If the facts constituting the alleged cruelty are disproved, a decree dismissing the petition of complaint will operate res judicata and be a bar to pleading or proving the same facts in any subsequent suit; but that if the facts be true, but insufficient to entitle the petitioner to relief, then a decree of dismissal may be entered without prejudice to the petitioner’s right to plead and prove the same facts in addition to any other or others which may afford the ground of a subsequent suit against the defendant.

Too often, I fear, men like Spence interpret a decree dismissing absolutely a wife’s complaint in causes like this as a judicial endorsement, and they consequently feel that they can continue their cruel course of conduct toward their wives with impunity. Whenever it is possible in a case of this kind they should be informed otherwise, and given to know that if their wives return to them, a repetition of the past, coupled with the past, is likely to lead to a judicial .separation with an award of the custody of children and alimony against them of a permanent character.