author: Reed, V. C.

text:
    Robert A. Weir v. The Granite State Provident Assn.
    1. When a building and loan association is put into the hands of a receiver because of its insolvency, the mortgages held by the association become due at once, and the receiver can foreclose and the mortgagee can redeem.
    2. In computing the amount then due upon a mortgage, the borrower should receive credit for all his payments of interest or premium but not on dues.
    3. When all the premium was deducted when the loan was made, the borrower should be charged with the amount of money actually paid to him, with interest thereon, and credited with all interest paid by him, including interest paid upon the premium.
    4. When the premium was not deducted when the loan was made, but was paid in subsequent installments, he should be charged with the amount received and interest and credited with interest and premiums paid, including interest on the installments of premium from the time of their payment.

      This bill is filed by a mortgagor to redeem his real estate from the encumbrance of a mortgage. The cause is heard on bills and answers and replication. The mortgage was given to the defendant, a building and loan association of the State of New Hampshire, which has become insolvent, and whose affairs have gone into the hands of a receiver.
    The mortgagor is the holder of ten shares of stock of the insolvent company, nine of which shares were assigned to the company as collateral security. Those shares were not matured at the time of the company’s insolvency.
    The questions involved are, first, whether the complainant is entitled to redeem; second, if so, what sum is he obliged to pay to effect such redemption.
    The scope of the business which the corporation transacted, and the methods of its transaction, are set out in the pleadings.
    Subscribers for shares agreed to pay $1 each month on account of shares, the par value of which was $200. This $1 a month is called dues, and the money so paid was separated into two parts — one part was used to defray operating expenses of the association and the other part was put into a loan fund for investment among members.
    If any member wished to borrow money from the association it was loaned to him on bond and mortgage, and he then agreed to pay, in addition to the regular subscription payments upon his shares and interest on such loan, also an additional premium, which premium and interest went into the loan fund. The loan fund was held in trust for all shareholders. When the accumulation of the loan fund was such an amount that the proportion belonging to any shareholder equaled the par value of his shares, less the loan that had been made to him, his shares were canceled.
    There was also a plan by which the association assumed the payment of any mortgage on the property of the shareholder, and in that ease the shareholder, in addition to paying the interest on the loan, also paid to the association the interest on this mortgage, and also premiums in proportion to the amount of the mortgage, and the association agreed to pay the said mortgage out of the share of the loan fund belonging to the shareholder, when said share should equal the amount of the said mortgage.
    The particular transaction is thus stated in the pleadings: On January 11th, 1890, one Charles C. Jewell, with his wife, made a mortgage upon their property to Flemming & Lewis, trustees, to secure the sum of $1,080. Jewell and wife, on January 17th, 1890, subscribed for ten shares of stock in the Granite State Provident Association, and at the same time made a second mortgage to the association, consideration for which second mortgage was stated to be the sum of $400 (it was in fact $360) paid by the association to the mortgagor, and further that the association agreed to pay off the Flemming & Lewis mortgage. The condition of this mortgage was that if the mortgagor should pay to the association $2 per month, and monthly in advance, on each of the nine shares of stock owned by the mortgagor, as provided for by the terms, rules and by-laws of the association, until the series of which the nine shares are a part shall be worth $200 per share, when the mortgage and shares are to become canceled, then the instrument to be void.
    Jewell assigned the nine shares of stock to the association as security for the loan.
    On May 12th, 1891, the Jewells conveyed the mortgaged property to one Peter Abstein, who, on May 12th, 1896, conveyed the same to the complainant.
    On March 14th, 1892, David Taggert was appointed assignee of the association in New Hampshire for the benefit of its creditors, and subsequently George R. Gray was appointed receiver in this state.
    The bill charges that on March 12th, 1896, the complainant tendered to the receiver the amount actually loaned on the said mortgage, with all arrears of interest then due, less the premiums paid on the said mortgage, and that the receiver refused to receive less than-the full amount of the mortgage, with interest.
    It appears that the association has paid interest upon the Flemming & Lewis mortgage up to January 11th, 1896.
    From the amended bill and the answer of George R. Gray,, receiver, it appears that the amount borrowed by the mortgagor, in cash, was $720, which, with the first mortgage of $1,080, which the company covenanted to pay, made up the matured value of the nine shares assigned to the association as collateral security. The company deducted twenty per cent, of the $1,800’ as gross premiums, amounting to $360. This sum was deducted from the cash loan of $720, leaving $360 as the amount of cash actually received by the mortgagor.
    Of the payment of $2 a month on each share required by the condition of the mortgage, the payment of $1 a month seems to-be referable to the six per cent, interest on the whole sum of $1,800, which sum would amount to $108, and which sum was-the amount paid each year upon the nine shares of stock.
    The payment actually made by the mortgagor up to the time-of insolvency, seems to have been altogether $1,433, of which $657 was paid on account of interest and $770 on account of' dues and $6 on account of a fine.
    Of the $770 paid for dues, $180, under the rules of the company, is applicable to the expense account in running the business, thus leaving $590 of dues paid in to be applied to the-value of the shares.
    To the bill for redemption the corporation, Mr. Taggert, the-New Hampshire assignee, and Mr. Gray, the New Jersey receiver, are made parties.

      Messrs. Duffield & Kinney, for the complainant.

      Mr. Cortlandt Parker, for Taggert, assignee.

      Mr. Howard W. Hayes, for George R. Gray, receiver.
   Reed, V. C.

It seems to be entirely settled that upon the insolvency of a-corporation of this class, its receiver is at once empowered to-collect the amount loaned to any borrower by the association, and that he can, for that purpose, proceed to foreclose a mortgage held by such association, although there had been no default by the mortgagor in the payment of any installment of interest or dues previous to the insolvency of the company.

The collapse of the scheme renders it impossible to carry out the object of the association. The debtor cannot pay according to the terms of his contract with the association. The necessity of winding up the affairs of the insolvent company involves the right to immediately collect its assets and distribute the fund to its stockholders and creditors. End. Build. Asso. 523; Cook v. Kent, 105 Mass. 246; Curtis v. Granite State Provident Association, 69 Conn. 6; Rodgers v. Hargo, 92 Tenn. 35.

If the debts of the borrower become due by the fact of insolvency, it must follow that if those debts are secured by a mortgage which can be foreclosed, then from the fact of insolvency the right of the mortgagor to redeem his property from the encumbrance of such mortgage must accrue. Until the mortgage debt is due there can be no redemption. Brown v. Cole, 14 Sim. 426; Kingman v. Pierce, 17 Mass. 247; Abbe v. Goodwin, 7 Conn. 377; Moore v. Cord, 14 Wis. 213. But the moment the debt matures, anyone interested in the land is entitled to discharge the property from the encumbrance. Indeed, the right to foreclose and the right to redeem may be said to be reciprocal. I am therefore of the opinion that the mortgagor need not await the foreclosure proceedings of the receiver, but can now pay off the amount which could be recovered against him by a sale of his property.

The important question is to determine the theory upon which this amount is to be calculated.

As already stated, the condition of the mortgage was not that the mortgagor should pay a single sum, but that he should pay $18 a month until his shares #ere worth $1,800. Eighteen hundred dollars was an aggregate sum made up of the first mortgage assumed by the association together with the $360 in cash loaned and $320 of premium charged and retained. One-half of the monthly payments which had been made by the mortgagor, although lumped with the dues, was obviously paid as interest on the sum of $1,800, which sum was composed of the items just mentioned.

The complainant insists upon his right to redeem by calculating his liability upon the following theory: He is to be charged with the cash actually received by him, with interest upon it up to the date of the insolvency of the company; he is to be allowed for all payments made by him.

To entitle the mortgagor to redeem, he must pay the same amount that could be recovered by the mortgagee by foreclosure. The question then is what sum could be collected from Weir?

If there were no condition of insolvency — if the company was still a going concern — nothing could now be collected, for the mortgagor would not be in default in any payment required by the condition of his mortgage. And if he had been in default and the company solvent, the rule for computing the amount recoverable would be this: Calculate the length of time which would be required to mature the series of which the mortgagor’s shares are a part and charge him with all the dues and interest he would still have to pay up to the end of this period. Hoboken Building Association v. Martin, 2 Beas. 427, 433.

But upon the occurrence of insolvency, with its consequential winding up of the affairs of the company, the application of this rule becomes inequitable.

The shares can never mature. The object to- be attained by future payment of dues can never be accomplished. The mortgagor is discharged from his duty to further pay. Therefore, in arriving at the amount which the insolvent company or its receiver can recover, his non-liability to make such payment must be assumed.

As the scheme under which the loan or advancement was made and the mortgages were given and the dues and interest were paid has collapsed, the problem is to establish a rule which will operate equitably between all classes of shareholders under these new conditions.

First, then, with what should he be charged?

Inasmuch as he is relieved from paying, according to the terms of his mortgage, and is remitted to the position of an ordinary borrower whose debt is due, his liability is to be limited to the amount which he actually received, with legal interest thereon. This course seems to be the rational one and is supported by all the cases. 4 Encycl. L. (2d ed.) 1081.

With what is he to be credited ? He paid $9 a month as dues; he also paid $9 a month as interest. There was also deducted from the gross amount loaned, namely, $720, a premium of $360.

As to the interest. If he is charged with interest upon the amount he has received, he should be credited with the interest he has paid, for it is apparent that the interest should be charged on both sides or neither side of the account.

Next, in regard to the premiums paid. This is a sum paid, for the right to borrow the assets of the association, usually in preference to some other shareholder. Premiums are paid in. two ways — in some associations an amount is paid each month, as a bonus for the privilege of borrowing, and in other associations, as in this, a gross sum is deducted from the entire amount bought out, and the remainder only is paid to the borrower.

In whatever way the credit is allowed, it is generally admitted that when an association is prematurely wound up by reason of' insolvency, the borrower is entitled to a credit of the premium paid or deducted. Now, it is true that all the shareholders, both borrowers and investors, would share in the increment arising from the payment of bonus and interest thereon by the borrowers, if the scheme was carried out; and it is true that, by crediting the premiums paid by each borrower upon his loan, the investing members lose all benefits from such premiums. The principle, however, upon which the latter class of shareholders are excluded from those benefits is, that the premiums were paid by the borrowers in consideration of the complete-, execution of their contracts, which would permit the borrower to pay his debt by the application of his matured shares. If the-existence of the company is prematurely terminated, and so the borrower is prevented from liquidating his debt by applying his-shares when matured, and is prevented, as well, from receiving-their withdrawal value, then the consideration for his payment of premiums, fails. The borrower does not receive the benefit for-which he has bargained. Under these conditions the non-borrowers, having paid no premiums, cannot share in those paid' by the borrowing class. Not only are the premiums deductible, but when they are retained at the time of the making of the loan, and the borrower has paid interest upon the gross sum borrowed, including the premiums, then that part of the interest subsequently paid upon the premium, or, in other words, the interest paid in excess of the amount due upon the sum actually loaned, must be deducted. The cases supporting the deduction of both premiums and interest are: Brownlie v. Russell, L. R. 8 App. Cas. 235; City Loan Association v. Goodrich, 48 Ga. 445; Waverly Mutual Building Association v. Buck, 64 Md. 338; Cook v. Kent, 105 Mass. 246.

While the deduction of all moneys paid as premiums is probably the most equitable that can be adopted, yet it is to be remarked that it may, unless the power to appoint a receiver is employed with caution, work to the injury of the non-borrowing or investing class of shareholders. Instances may occur where the members of this class, by their investment in an association, have acquired the right to have the value of their shares of stock arising from the application of the high rate of interest, which the system of premiums is intended to secure, impaired by the premature winding up of the association. They should not be deprived of their right as shareholders, unless the condition of affairs calls emphatically for the dissolution of the association as an act of justice to.all concerned. If, after the value of the shares of all the series has approached par, the company is thrown into bankruptcy, the one class is stripped of this part of the withdrawal value of its shares, while the other class receives all the benefit, by the application of this value to the payment of its loans.

The risk of losses by mismanagement is inherent in the character of the scheme, and while such losses may protract the life of the series, they do not prove insolvency. Á ease of such rottenness in the affairs of the association should appear as to render it in the highest degree improbable that the shareholders, in the face of the discouraging condition of affairs, will continue to pay dues and so bring the series to maturity.

In connection with this observation it may be remarked that there is much to be said in favor of the rule laid down in the case of Towle v. American Building Association, 61 Fed. Rep. 446, in dealing with premiums in insolvent cases. The rule announced in that case was that the borrowing member had the right to be credited only with the unearned portion of his premium, that is, the proportion which a withdrawing member would be entitled to. I will, however, adopt, the rule sustained by the great weight of authority and by the supreme court of New Hampshire, in advising Mr. Taggert in this matter, viz., that only the sum actually received by the complainant is to be charged against the borrower, which, as already remarked, amounts to actually the same thing as crediting him with the premium paid. He is also to be credited with that part of the interest paid on account of the amount so deducted.

The last question is whether he should be credited with all or any part of the dues paid by him.

It has been held by some highly-respectable courts, that a mortgagor, when an association of this kind is prematurely wound up, is entitled to a credit for all the dues which he has paid. Other courts have held that he is not entitled to credit on the mortgage on account of dues paid, and that he must await the final distribution of the assets of the association and then take what his shares are proved to be worth.

The rule supported by the last class of cases, in my judgment, produces a more equitable — indeed, the only equitable— result. The payment of dues stands upon an entirely different footing from the payment of premiums. The latter are paid by shareholders, it is true, but not as shareholders, but as borrowing shareholders. It is paid as a part of his contract with the association, of which the mortgage is a part, and it can be said that when the association fails to perform, then the debtor is relieved from paying what he agreed to pay in consideration of performance.

But dues are paid by all the members alike. If, by maladministration of the affairs of the association, the fund is diminished, the losses should fall evenly upon all. The accuracy of this proposition seems to be too obvious for discussion. Now, if a borrowing member is permitted to set off all the money he has paid as dues, it is perceived that he receives the value of his shares so far as that value is the result of dues, while the non-borrowing members are compelled to bear all the losses.

The accuracy of this proposition seems, also, to be equally manifest.

Now, what is equitable is that each member shall receive his proportionate share of the assets which represents the remainder of dues accumulated. Inasmuch as this amount cannot be determined until the coming in of the final account of the receiver, and inasmuch as the amount due upon the mortgage must be settled at once, there can be no credit upon the mortgage debt on account of this at present indeterminate amount. As to it, the mortgagor must await the period of final distribution.

The non-applicability as an offset of the dues paid by the borrower is held in the following cases: Strohen v. Franklin Savings Fund, 115 Pa. St. 273; Rogers v. Hargo, 92 Tenn. 35; Curtis v. Granite State Provident Association, 69 Conn. 6; Connecticut Bank Commissioner v. Granite State Provident Association (unreported, New Hampshire).

The last case embodies the instructions given by the supreme court of New Hampshire to Mr. Taggert concerning the affairs of this corporation. The result in detail is therefore this : The complainant is to be charged with $360, with interest, and to be allowed the interest paid, including the portion of the interest paid on account of the premium as an overpayment. Interest should also be allowed upon the overpayment from the date of each payment.


source: Caselaw Access Project

license: Public Domain

text:
    Henry E. Irwin v. The Granite State Provident Association.
    [Filed November 5th, 1897.]
    1. Whether, after a foreign corporation doing business in this state has-passed into the hands of a receiver in the state of its domicile, a receiver will be appointed in this state, and if so, whether the domiciliary receiver will be appointed here, will depend upon the volume and kind of business done in this state, and whether any special interest of the creditors or citizens in this state is likely to be involved in the settlement of the insolvent affairs.
    2. The receiver in this state is amenable alone to the direction of this court and not to the direction of the domiciliary receiver.
    3. The securities deposited by a foreign building and loan association with the secretary of state as a condition upon which it is permitted to do business-in this state, will be controlled by this court so as to secure the payment of the amounts awarded to shareholders in this state upon final distribution of the assets of such insolvent corporation.
    The Granite State Provident Association is a corporation, chartered under the laws of New Hampshire, with power, inter alia, to carry on the business of a building and loan association, which consisted in selling shares of stock, upon which the purchaser agreed to pay $1 a month until the value of the shares-reached the sum of $200; also in loaning the money so collected to shareholders, upon which loans interest and premiums were to be paid by the borrower. These loans or advancements, the amount to which, to any one shareholder, was limited to the' matured value of all the shares he held and deposited with the company as collateral security, were to be paid and canceled whenever his shares of stock matured, i. e., reached the value of $200 each, so that the sum total equaled the amount advanced. The loans or advances were also to be secured by real estate mortgages given by the borrower to the association, which mortgages were of course to be canceled at the maturity of the stock.. The scheme was substantially that of all building and loan, associations.

      The association sold its shares and made loans not only in New Hampshire, but in several other states, including New Jersey. Among those who, in this state, bought shares and procured loans was the complainant, Irwin. He bought seven shares and borrowed $1,400, and deposited his shares as collateral security and gave to the association two real estate mortgages, one for $200 and the other for $1,200. On these shares he paid certain dues and interest.
    Afterwards, on March 18th, 1896, the company became insolvent. The bank commissioners of New Hampshire caused it to be enjoined from transacting further business, and David A. Taggert was appointed assignee.
    On March 25th, 1896, Irwin, the present complainant, filed his bill in this court, setting up the fact of the company’s insolvency and the appointment of an assignee in New Hampshire, :and further setting up that he, the complainant, was a stockholder and creditor of the company.
    Upon this bill George R. Gray was appointed receiver in this state. In this suit the association was made a party defendant.
    On December 21st, 1896, Mr. Taggert, upon his petition, was made a party defendant with leave to file an answer and cross-hill, which he did on March 27th, 1897.
    The answer and cross-bill set up the right of the New Hampshire assignee to all the assets in New Jersey, and that the duty of the New Jersey receiver is only to preserve and deliver those assets to the former officer; that Mr. Taggert, the assignee, should be substituted for Mr. Gray as receiver; that Mr. Gray should be instructed to collect and pay over the proceeds of collection to Mr. Taggert, and that Mr. Gray should be ordered to conform to the directions given by Mr. Taggert and approved by the court in New Hampshire. The defendant also asks that it may be decreed that mortgagees are not creditors of the association.

      Mr. Cortlandt Parker, for Taggert, assignee.

      Mr. Howard W. Hayes, for Gray, receiver.
   Reed, V. C.

Assuming that Mr. Taggert, at this stage of the suit, is in a position to question the appointment of the New Jersey receiver, I am of the opinion that there is no substance in the objections-raised. The insistence made on this behalf is, that all right in the assets of the insolvent corporation passed to him by force of his appointment as assignee in the State of New Hampshire. This proposition undoubtedly states the general rule. The right to collect personal assets everywhere passed to the receiver, but the exercise of that right beyond the limits of the state of his appointment is by virtue of the comity which may be extended to him by the court of the state in which the right is asserted. This comity will not be extended where the rights-of the citizens of the state are likely to be prejudiced or where it would be in contravention of the policy of the state. Hurd v. Elizabeth, 12 Vr. 1; National Trust Co. v. Miller, 6 Stew. Eq. 155; Sobernheimer v. Wheeler, 18 Stew. Eq. 614.

In view of this admitted rule it follows, I think, that whenever application is here made for an appointment of a receiver-for a foreign corporation which is already in the hands of a receiver at the place of its domicile, the court in which the application is made can do one of three things — first, it can refuse to appoint a receiver here and let the domiciliary receiver bring suit in this state to collect all the debts of the insolvent corporation within its limits; second, it can appoint the domiciliary receiver as ancillary receiver; third, it can appoint someone other than the domiciliary receiver.

In this instance the latter course was adopted. The receivership in this state is, however, but ancillary to the receivership in New Hampshire and constitutes a mere agency to collect assets here and forward them to the original receiver, unless it appears-that creditors or stockholders in this state are asserting a special right in the local assets, which right should be settled by the-courts here. Whether a receiver at all should be appointed in this state depends upon the volume of business and the kind of business which the foreign corporation was here transacting, and whether, if a receiver is appointed here, the appointee should be Mr. Taggert or another depends upon several considerations, the main one being whether the interest of New Jersey parties would be likely to antagonize in any respect the interest of the general shareholders and creditors.

One prayer only in the cross-bill need be referred to to justify the appointment not only of a receiver in this state, but a receiver other than the domiciliary officer. This prayer is that the New Jersey receiver be directed to pay over the proceeds of the money collected by him to the New Hampshire assignee, to be distributed by him according to the laws of New Hampshire.

Now, a part of the money to be collected is the sum of $30,000 deposited by the association with the secretary of state for the benefit of the creditors in this state.

This condition of affairs, therefore, raised a question of importance, namely, whether this part of the assets at least should not be retained in this state to answer the purpose for which it was deposited.

The existence of this question, however it may be decided, is sufficient to show the propriety of a separate receiver in this state.

The remaining part of the cross-bill seems to be foreign to the subject-matter of the suit. The bill is filed to have a receiver appointed to administer the New Jersey business of the insolvent corporation. So far as the answer and the cross-bill are directed to matters pertaining to the right to have such an appointment made, they are entirely proper; but the other matters contained in the pleadings, which are designed to obtain the order of this court in respect to the conduct of the New Jersey receiver, are not germane to the purpose sought to be accomplished by the bill. Mr. Taggert undoubtedly, as the representative of the general body of stockholders, has a right to the aid of this court in compelling the receiver here to promptly and properly perform his duty.

But this object can be accomplished by a petition presented to the court. However, the receiver here, for the purpose of a speedy deliverance of this court upon the question presented by the cross-bill, is willing to regard the bill as a petition, and has, therefore, fully answered it. I will, therefore, proceed to consider the points involved.

One of the prayers of the cross-bill is that the New Jersey receiver shall be directed to sue in the name of the New Hampshire assignee. It is apparent that the granting of this prayer would establish a condition entirely novel in the administration of affairs by an ancillary receiver. The fact that a receiver has been appointed in this jurisdiction is the best evidence that, in the judgment of the court, the presence of a local officer is expedient to gather in the assets here, so that those assets will be under the control of the court, whose officer this receiver is. A suit in the name of the foreign receiver would be exactly the same as a suit by that receiver himself. The receiver here would be no more than the attorney in fact of that officer, not even subject to the direction of this court, either in the collection or the distribution of the money collected. Mr. Gray would be merely a receiver in name.

The same condition of affairs would result if another prayer of the cross-bill should be granted, namely, that the New Jersey receiver should be ordered to conform to the directions of the assignee regarding the collection or .compromise of claims. Such an order would make the New Jersey receiver the instrument for executing the will of the New Hampshire assignee, rather than an officer of this court, amenable to its directions and liable to it for the manner in which he should discharge his duties. Mr. Gray is an officer of this court, and if any person interested in the administration of the corporate affairs confided to him thinks that he, through delay or mismanagement, or otherwise, is jeopardizing any such interest, he can, by application to this court, have the matter rectified if there appears to be a grievance.

As already observed, Mr. Taggert, as the representative of all the creditors, can thus, through this court, secure a prompt and equitable administration of the affairs of the insolvent association within this state.

The important question discussed upon the hearing is raised by another prayer and the facts upon which it is based, namely, that Mr. Gray be directed to collect all debts and pay over all proceeds to Mr. Taggert, to be distributed according to the laws of New Hampshire.

That, as a rule, the prayer states correctly the duty of the ancillary receiver is not controverted by the counsel of the New Jersey officer. It is now admitted, and has never been denied, that the general assets of the association should be distributed by the home assignee. But there is a part of the assets in this state regarding which it is doubtful whether this general rule applies. This portion consists of the mortgages deposited with the secretary of state as a condition precedent to the association obtaining a certificate of authority to do business in this state. This deposit is of securities amounting to $30,000 and is made under the provisions of section 3 of the act of 1890. Gen. Stat. p. 3250. The language of the statute is that the securities shall be held by the secretary of state in trust for the benefit of the creditors of such corporation within, this state.

The insistence on behalf of Mr. Taggert is that there are no creditors in this state. It is argued that the only parties here who have claims against the assets of the estate are shareholders and that they are not creditors, but part owners with all the shareholders in these assets.

I think that a shareholder is not a creditor. Mr. Smith observes that these associations have been not inaptly termed corporate partnerships,” for the reason that the stockholders are in fact copartners in their business relations. Sm. Rec. § 322. Judge Hallett, in delivering the opinion in the case of Patterson v. Mercantile Trust Co. and others in the circuit court of the United States, said: The shareholders who have petitioned for these assets [in Colorado] are not upon the footing of creditors of the corporation. They cannot, under any circumstances, be creditors until their shares should mature and $200, which would be payable to them upon the completion of the term of eight years, become due. * * * The business of the corporation was not of a character to create indebtedness so as to give people in general the standing of creditors of the corporation. There could not be creditors unless some or all of the officers should have claims against it for services rendered it.”

To the same purport are the cases of Towle v. American Building and Loan Association, 61 Fed. Rep. 446, and Maynard, Attorney-General, v. Granite State Provident Association.

But the question is, What is meant in the New Jersey statute-when it uses the word “ creditors ? ” This must be ascertained by the purpose sought to be attained by the legislature. The title of the act includes loan and building associations, and it certainly could not have been the legislative intent to confine the benefits of its provisions to officers or agents who have claims against the company for services rendered, or to dealers who have furnished stationery or coal or light for the company’s office. It is admitted that while the association is a going concern, no shareholder becomes a creditor until the maturity of his shares. But when insolvency occurs, the rights and liabilities of the shareholders and borrowers are radically changed. The borrower becomes liable to pay his debt at once, and upon the confirmation of the final account of the receiver the shareholder becomes entitled to his distributive share. Now, it seems-to me, that the right of a shareholder to, this ascertained portion of such fund then becomes as secure as the right of a holder of matured shares. The dividend declared in his favor is as much a debt as would have been the par value of his shares had they matured. In both instances the shareholder becomes a creditor, within the meaning of the New Jersey statute.

The deposit of the fund in this state does not, in my judgment, change in the least the proportion to which New Jersey shareholders will be entitled. All the assets here are to betaken into account as a part of the fund to be distributed ; but-the right to control the fund deposited in this state for the purpose of securing the payment to shareholders in this state of their proportion of the assets to be distributed, resides in this-court. Whether such fund is to be turned over to the domiciliary receiver or is to be retained here, or whether a part is to be so-turned over and the remainder retained, will depend upon circumstances. All this court can reasonably exact is that its citizens shall not be driven into the court of another state to obtain their distributive shares and that the payment of such shares; shall be secured, so far as the amount received from the securities deposited will furnish security.

The securities deposited with the secretary of state were mortgages upon New Jersey property, and those mortgages are i lithe hands of the New Jersey receiver for collection. The theory for the calculation of the amount due upon each of those mortgages has just been declared in the case of Weir v. Granite State Provident Association.

The New Jersey officer will at once proceed to collect the amount of those securities. When they are all, or substantially all, collected, the New Hampshire assignee may file a petition, showing the amount of assets, as nearly as possible, the amount and character of his bond, and then this court will make an order, either that the assets in this state be paid over to Mr. Taggert, upon his giving bond in this state to pay the New Jersey shareholders their distributive shares, or possibly upon the security of his original bond, taken together with the assumption that the court of New Hampshire will see that the shareholders everywhere are paid; or the order may be that sufficient assets may be retained here to be distributed through the hands of the receiver in this state, but according to the proportion fixed by the decree of the court of New Hampshire. The receipts of any collections by Mr. Gray, other than those thus deposited, will, after deducting expenses, be paid over at once.


text:
    Augustus F. Brombacher et al. v. Max B. Berking et al.
    [Filed November 19th, 1897.]
    1. A will directed that all the testator’s property be sold and the proceeds invested by the executors and trustees, and that one-third of the income therefrom be paid to the widow of the testator during her life as often as semi-annually, the remainder of the income to be paid to testator’s children during life, in fixed but unequal proportions. Then followed the following paragraph: “ In the event of the death of my wife, the income herein given her is thereafter to be payable to my children respectively pro rata, and in case of the death of any child leaving issue, such proportions of the capital or corpus of my estate as was represented by the income of which such child shall have been entitled hereunder at the time of his or her death shall go and be paid to such issue in equal shares, if more than one; but in case any child shall die without issue, then his or her share of such income shall be paid ratably to my surviving children.” — Held, first, that by the use of the words “pro rata ” the testator meant that the income which the widow was to receive during life was upon her death to be paid to the children in the same proportions as the income given to them immediately upon testator’s death; second,, that the gift of the use of the income is to be regarded as equivalent to a gift of the use of the corpus; third, that the children of the testator took a life estate only in the income, both in that which was to be paid to them after the widow’s death as well as in that which was to be paid to them after the death of the testator.
    2. The income to be paid to the widow during life is to be regarded as interest and not as an annuity, and such part of said income as accrued after the last payment until her death belongs to her estate.
    3. The trustees are directed, in case of the marriage of a child, to pay to such child a marriage portion; and in case any son should engage in any business or profession with the approbation of the executors, to pay to such son one-half of the corpus of the share of such child — in either of which events the income of such child is to be correspondingly reduced. — Held, that a child takes an absolute and not a life estate, in a portion paid under these provisions.

      Mr. Joseph P. Osborne, for the complainant.
   Reed, V. C.

The complainants are trustees of the estate of Charles H. Berking, deceased. They have filed this bill for the purpose of obtaining the instruction of this court as to the meaning of certain parts of the will of Mr. Berking, deceased, under the directions of which they are. to execute their trust. The will provided,first, for the payment of debts and funeral expenses; second, it appoints three trustees and executors; third, it devises and bequeaths to the executors and survivors of them all the testator’s estate, real and personal, remaining after payment of debts, funeral and testamentary expenses, in trust, to invest proceeds of sale of said estate, real and personal (which he empowered the executors and trustees to convert into money by sale or otherwise), in first-class securities or real estate mortgages; to collect and pay over the income therefrom as often as semi-annually as-follows: To the widow, thirty-three and one-third per cent, of said income during her life; to a daughter, Pauline, nine per cent, of the income during life; to a son, Charles, twelve and a half per cent, of the income during life; to a daughter, Jessie,, thirteen and one-third per cent, of the income during life; to a daughter, Dora, sixteen per cent, of the income during life; to a son, Max, sixteen per cent, of the income during life.

The fourth paragraph is as follows :

“ In the event of death of testator’s wife the income given to her is thereafter to be payable to testator’s children, respectively, pro rata, and in case of the death of any child leaving issue, such proportion of the capital or corpus of my estate as was represented by the income to which sucb child shall have been entitled hereunder at the time of his or her death shall go and be paid to such issue in equal shares, if more than one; but in case any child shall die without issue, then his or her share of such income shall be paid ratably to my surviving children.”

The widow died December 22d, 1896. She had, upon the-death of the testator, qualified as the sole executrix and trustee-under his will. Upon the death of the widow the complainants-were appointed trustees in her stead.

The first question propounded by the trustees is in respect to-the distribution of the income formerly payable to the widow. The fourth paragraph provides, as already displayed, “ that in the-event of the death of my wife the income herein given to her is hereafter to be payable to my children, respectively, pro rata.” The query is, what did the testator mean by the use of the phrase-“pro rata?” Did he mean that the income was to be equally divided among his children, or did he have in his mind the proportions fixed by him in the third paragraph for the payment of the rest of the income ?

Pro rata means according to a measure which fixes proportions. It has no meaning unless referable to some rule or standard. If the use of these words did not follow, as they did, the-third paragraph, and if there was no other gauge to fix the proportions, they would probably, in the absence of such standard, be regarded as equivalent in meaning to the words “per capita.” But, in my judgment, the testator had in mind when he employed these words the measure or standard fixed by him in the preceding paragraph for the division of the two-thirds part of the income among his children.

That the testator meant to distinguish between a distribution pro rata and a division in equal shares, appears from his language in the latter part of the fourth paragraph, for it is observed that, in that part, he provides

“that in case of the death of any child leaving issue, such portion of the corpus as was represented by the income to which such child shall have been entitled at the time of his or her death, shall go and be paid to such issue in equal shares, if more than one; but in case any child shall die without issue, then his or her share shall be paid ratably to my surviving children.”

The word “ratably” is, of course, equivalent to the words “pro rata.”

My conclusion is that the income, which during the life of the wife was paid to her, should now be paid to the children of the testator in the same proportions as the other part of the income is payable.

The next question propounded is whether the unpaid portion of the one-third of the income which accrued up to the time of the death of the widow, is payable to her personal representatives.

She was paid up to August 31st, 1896. She died December 22d, 1896. The point is whether the income accruing between the date of the last payment and the date of the widow’s death, belongs to her estate.

When a sum is given as an annuity and the annuitant dies between the pay-days, there can be no claim by his personal representative for anything accruing after the last pay-day. But this rule is subject to exceptions, one of which is that where the annuity is given in lieu of dower, or for the support of a widow, or of minor children. In such instances the amount of the annuity will be apportioned. Lackawanna Iron and Coal Company’s Case, 10 Stew. Eq. 26, and notes.

The bequest in this case is of income or interest.

The whole of the testator’s property was to be sold and invested by the terms of his will. The income is to be paid not at any particular time, but not less frequently than semi-annually. The income accrues from day to day, and belongs to the life legatee from the time of its accrual. Edwards v. Countess of Warwick, 2 P. Wms. 176; Craig v. Craig, 3 Barb. Ch. 76; Eyre v. Golding, 5 Binn. 472.

I conclude that the income unpaid up to the time of the widow’s death belongs to her estate.

Other questions are propounded regarding the construction of a clause in the fourth and of the fifth and sixth paragraphs of the will.

The clause in the fourth paragraph is in these words:

“And in case of the death of any child leaving issue, such proportion of the capital or corpus of my estate as was represented by the income to which such child shall have been entitled at the time of his or her death, shall go and he paid to such issue in equal shares; if more than one, and in case any child shall die without issue, then his or her share of said income shall be paid ratably to my surviving children.”

The fifth paragraph is as follows :

“ In case of the marriage of any of my children, my executors are to pay to such child, as a marriage portion, twenty-five hundred dollars out of the corpus of the share of such child, and the income of such child will thereafter be correspondingly reduced.”

The sixth paragraph is in these words:

If any of my sons shall, with the approbation of my executors, engage in any business or profession, then one-half of the corpus of the share of such son may thereupon be paid to him by my executors, in which event his income shall be thereafter correspondingly diminished.”

The queries which concern the clause in the fourth paragraph are, first, in respect to the present interest of children of the testator, and second, in regard to the interest of the issue of these children leaving issue, or in regard to the interest of the survivors of those children dying without issue.

The question as to the present interest of the children is involved in the inquiry whether the death of a child leaving issue- or without issue is referable to death before the death of the testator or before the death of the widow or to death at any time.

All the children have survived the testator and the widow.. If the period to which the death of a child is referable is death, before the death of either testator or widow, then inasmuch as-the event upon which either one of the alternative limitations over-was to occur has failed, the children take an absolute interest.

I am of the opinion that each child takes only an interest for life, not only in that portion of the estate the income of which-was to be paid to such child during the life of the widow, but also in that portion of the income which became payable to each-child after the widow’s death.

The death of a child refers to death at the time the life estate-shall determine. 3 Jarm. Wills 614; Hawk. Wills 255.

It is entirely clear that in that part of the estate the income-of which was to be paid to the children from the time of the testator’s death, each child took only a life interest. The direction of the will is that the trustees pay over to each child during life his or her proportion of the income. The rule is that a gift of income is equivalent to a gift of the land or corpus out of which the income springs. Traphagen v. Levy, 18 Stew. Eq. 448, 452; Gulick v. Gulick, 12 C. E. Gr. 498. The gift of the income, or direction to pay the income during life to the children, gave a life interest. Monarque v. Monarque, 80 N. Y. 320; Sampson v. Randall, 72 Me. 109; Green, Executor, v. Howells, Executor, 2 Vr. 570.

As to this part of the estate it is entirely clear that each child took, upon the death of the testator, a life estate with remainders-over either to his issue or to his or her surviving brothers or sisters.

I am not including within this statement either the marriage- or the business or professional portions, of which I will presently speak.

In addition to the proportions of income which each child was to be paid immediately, there is the income of the widow, which, upon her death, is to be paid to the children. There is no express limitation of the period during which the payment of this part of the income is to continue. There are also alternative gifts over. These conditions will sometimes restrict the gift over to the period of distribution, which is in this instance at the death of the widow. Barrell v. Barrell, 11 Stew. Eq. 60.

In my judgment, it was not the intention of the testator to give the children who survived the widow an absolute interest in this portion of his estate.

The manifest scheme was, that upon the death of the widow her portion of the income should coalesce with the rest of the income, and all should be paid by the trustees alike and enjoyed by the beneficiaries for the same period and by like title.

The will provides that in the event of the death of the widow, the income given to her is thereafter to be payable to the children pro rata, and in case of the death of any child leaving issue, such proportions of the capital or corpus of the estate as shall be represented by the income to which each child shall have been entitled at the time of his death shall go and be paid to such issue.

Here is a gift of the income to the children with a gift over of the corpus to the issue.

This circumstance was by Sir J. Leach thought significant to indicate that the gift over in case of the death of the prior legatee meant death whenever it occurred, and that, therefore, the prior legatee took only a life estate. 2 Jarm. Wills § 750.

It is transparent that all the estate which came to each child, whether originally or at the death of the widow, goes to the issue of that -child or to his surviving brother or sister at the same time. It is that part of the corpus “ represented by the income to which such child shall have been entitled at the time of his death ” that, by the language of the fourth paragraph, is given over. This includes all income from whatsoever portion of the corpus derived. All the income is treated as a unit. The contingency upon which the gift over is.to occur is obviously single, not double. It is death in the lifetime of the testator, death in the lifetime of the widow or death whenever it shall occur.

How, in regard to two-thirds of all the income or of the corresponding estate, the will, by an express limitation of the estate of the children to a life interest, has fixed the end of each child’s natural life as the time when the gift over is to take effect. The gift over of all the income or estate necessarily occurs at the same timé.

My conclusion is that each child has now a life estate.

This interest, however, may, in part, become absolute under the fifth and sixth paragraphs, providing for the payment of marriage portions and for the payment of a moiety of the corpus to those who engage in business or in a profession.

The bill propounds a question relative to the fifth paragraph in these words, “what is to be the disposition of the income of the $2,500?” The purport of this question, I assume, is whether the marriage portion is to be taken into account- as part of the estate to be distributed upon the death of any child so advanced. This query is already answered. The payment is made absolutely and becomes the property of the child. The only part of her income which is thereafter limited over is the reduced income accruing from the advanced child’s diminished capital.

The sixth clause provides

that if any of my sons shall, with the approbation of my executors, engage in any business or profession, then one-half of the corpus of the share of such sum may thereafter be paid to him.”

The query is, what is meant by “ engage in any business or profession ? ”

It is impossible to give a general definition which is more specific than the words themselves. Whenever a son claims that he is engaged in a business or profession, an intelligent construction can be given when the instance arises.

In regard to those questions which relate to the interest of the issue, or to the interest of the surviving children after the death •of a child, I think the consideration of these matters should be postponed until the event occurs. The interest of. the infants should not be passed upon now, when such judicial action is not required for the purpose of guiding the trustees in the performance of their present duties; nor if it were necessary should it be settled without assigning counsel to specially present the case of the infants.


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    The Inhabitants of the City of Burlington v. The Pennsylvania Railroad Company.
    [Filed November 19th, 1897.]
    1. Without statutory authority, expressly given or arising from necessary Implication, a railroad placed longitudinally in a street is a nuisance.
    2. A municipal government invested with the ordinary power to regulate .streets is a trustee for the public, and its control over the streets is restricted to acts in furtherance of the rights of the public in them.
    3. The charter of a railway company which authorizes it to lay its tracks between certain termini involves no necessity of running longitudinally along a street.
    4. The legislature has the right to discriminate and enact (P. L. of 1896 p. 228) that railway tracks may he laid on streets in smaller cities if the municipal authorities deem it safe to grant such permission, while in more populated oities tracks shall be laid only by direct authority of the legislature.
    5. P. L. of 1896 p. 228, which authorizes cities, except of the first class, to enter into contracts with railway companies whose roads now enter or lie within their limits, or whose routes have been located therein, and ratifies such contracts, but provides that no such track shall hereafter be laid unless the right of the abutting owners shall be acquired, is unconstitutional, as being special in the regulation of the internal affairs of municipalities.
    6. And such act is also unconstitutional as conferring special privileges upon one class of corporations only.
    Heard on bill and answer.

      Mr. Howard Flanders and Mr. Samuel W. Beldon, for the complainants.

      Mr. Joseph H. Gaskill and Mr. Samuel H. Grey, for the defendant.
   Reed, V. C.

This bill is filed by the inhabitants of the city of Burlington to restrain the Pennsylvania Railroad Company from laying an additional track through Broad street in said city, and to compel, the defendant to remove such portion of said track as is laid in said street. The Camden and Amboy Railroad Company laid its route through, and built a single track upon, this street in-1832 and 1833. The mayor, recorder, aldermen and commonalty of the city of Burlington granted to the company the right to construct the railroad authorized .by the act incorporating the railroad company, upon, through and along Broad street, in the said city of Burlington, from the eastern to the western extremity of the city; and the city covenanted that it should be lawful for the company, their officers, engineers, agents and workmen, to enter upon said street and grade the same, and lay rails thereon, and to do any other acts and things necessary to be-done for the proper and effectual completion of said road, and for the keeping of the same in repair, doing no unnecessary damage or injury either to the said street or property adjacent thereto. But it was agreed that the road should be constructed,. as nearly as may bej in the middle of Broad street, or so nearly, so as to leave an ample and sufficient carriageway along said street on each side of said railway. The query is whether this - municipal consent is sufficient to legalize the existing and proposed structure within the street.

It is entirely settled that without statutory authority expressly given or arising from necessary implication, a railroad placed longitudinally in a street is a nuisance.

A railroad so placed is regarded as practically an exclusive appropriation of that part of the street which it occupies to a use inconsistent with the legitimate use of the street by the public.. Its presence in the street is as repugnant to the rights of the public as would be the presence of a church or a market-house or any other structure devoted to private objects. New Jersey Southern Railroad Co. v. Long Branch Commissioners, 10 Vr. 28, 33; Citizens’ Coach Co. v. Camden Horse Railroad Co., 6 Stew. Eq. 267.

A municipal government, invested with the ordinary power to regulate streets, is a trustee for the public. Its control over streets is restricted to acts in furtherance to the rights of the public in them. Trustees of M. E. Church v. Council of Hoboken, 4 Vr. 14, 19

It is of course true that the public right, so far as it is concerned, is subject to the legislative control over streets. As to the public, the legislature can authorize the abandonment of a .street in toto, or turn it in part over to a private enterprise. It may, therefore, legalize the operation of a steam railroad transversely or longitudinally over or along a highway. The legislative authority, however, must appear either in express terms or must flow as a necessary implication from powers expressly granted. State v. Warren Railroad Co., 5 Dutch. 353; Newark v. Delaware, Lackawanna and Western Railroad Co., 15 Stew. Eq. 196; Hoboken Land and Improvement Co. v. Hoboken, 6 Vr. 205. The grant of power may be made directly by the legislature or it may be delegated to the government of a municipality. It may be, contained in the charter of a city, in the charter of a railroad or in a general statute.

. No such delegation of a grant of power to the municipal government is to be found in the charter of the city of Burlington in existence at the time of the execution of the consent named. 'The city was empowered to make by-laws and ordinances relative to the laying out and regulating of streets and highways. 'The generality of this grant contains no authorization which •empowered the city to turn over a street to purposes inconsistent with its use as a highway.

Nor is any such power observable in the charter of the Camden and Amboy Railroad Company. The company was empowered to lay its tracks between certain termini, which involved the necessary implication of a power to cross highways that lay between the terminal points. But it involved no necessity of running longitudinally along a road or street. Dill. Mun. Corp. § 707.

No legislative authority in support of the consent granted by the municipality exists unless it be found in the act passed in 1896. P. L. of 1896 p. 228. This act provides that any city, except cities of the first class, are authorized and empowered to enter into contracts with any of the railroad companies whose roads now enter or lie within their cities respectively, or whose routes have been located thereon, and granting to said railroad companies or any of them the right to lay their road and construct their tracks in, through, along or upon any of the roads- or streets of the said cities, upon such terms, &c., and any such contracts heretofore or hereafter made by said cities or any of them with any railroad company or companies as aforesaid are-hereby fully authorized, ratified and confirmed; provided, that hereafter no road shall be laid or track constructed in, through or upon any of the said roads or streets, other than such as have been authorized by any such contract hereinbefore made, until said railroad company shall have acquired the right of the abutting owners on said road or street, either by agreement, purchase or condemnation.

It is perceived that the statute confers powers upon certain cities to grant powers to certain railroads to lay their tracks in the public streets of such cities. The counsel for the city of Burlington propounded the query whether the act is not one regulative of the internal affairs of cities, and if so, whether it conformed to the constitutional requirements of generality in its operations. That it regulates the internal affairs of cities is too-obvious for argument. It confers power upon cities to grant licenses to railroad companies to use the streets of a city, which is a matter of strictly municipal concern.

The important question is whether the legislation is speciaL The exclusion of cities of the first class may be vindicated on the ground that population, having regard to the purposes of legislation, may be a proper basis of classification. The streets of a large city, it may be assumed, are so much more completely used for other purposes, that the presence of a railroad within their limits would be more likely to interfere with traffic and endanger life than if such a road were placed in the streets of a city of less population. The legislature would have the right to discriminate and enact that in the latter cities such a track may be laid if the municipal authorities deem it safe to grant such permission, while in the more populous cities tracks should not be laid at all, or if laid, only laid with the direct authority of the legislature. Therefore, I think, the criticism of the act upon this ground is untenable.

But the other ground upon which the statute is attacked possesses more substance. It is perceived that the power to enter into contracts with railroad companies upon which the municipality grants the right to construct tracks along streets of cities is limited by the statute to cities within which railroads were already constructed or a route was already located at the time of the passage of the statute. The effect of the legislation is to exclude from participatiou in the power conferred any city in which a railroad route shall be located after the passage of the act. Now it is impossible to conceive how a city in which a route may have been filed after April 9th differs from a city in which a route was filed before April 9th, in respect to the condition which called for the legislation. The propriety or necessity for the existence of the power to contract would be exactly the same whether the route has been or shall be filed. The legislature cannot confine the force of its enactment to the condition of affairs existing at the date of the act if similar conditions are likely to arise thereafter. It is upon this ground that statutes which apply to cities having at the time of the approval of the act a certain population have been adjudged “special” in failing to include cities which may grow into the class. Pavonia Horse Railroad Co. v. Jersey City, 16 Vr. 298; Coutieri v. New Brunswick, 15 Vr. 58.

The legislature could, with as much propriety, have fixed any other date, either before or after the approval of the act, and provided that the provisions of the statute should apply to those cities in which routes were filed before, and not apply to those cities in which routes were filed or will be filed after the said date.

Not only does the act operate specially in respect to the matter already mentioned, but it grants exclusive privileges to certain corporations. A railroad company which had filed its route before April 9th, 1896, is permitted to obtain municipal consent to its occupation of city streets, while those companies who shall have filed their route since that date are still deprived of this privilege. The principle underlying the point now mooted will be found applied in the exhaustive opinion of Mr. Justice Lippincott, delivered in the case of Alexander v. City of Elizabeth, 27 Vr. 71. In that case the ?ict under consideration was one in which the legislature empowered a municipality to license the owners of race-courses and to maintain the courses for running and trotting horses. The act applied only to those in use prior to Jauuary 1st, 1893. Race-tracks that sprang into use subsequent to that date were excluded from the privilege of receiving a license. This act was held “special” not only in its regulation of the internal affairs of municipalities, but also as conferring special privileges upon one class of corporations. Upon both these grounds I regard the present act as special and unconstitutional. This leaves it unnecessary to discuss the validity of the proviso which distinguishes between roads which have been authorized by a contract made before the passage of the act and roads authorized by contracts made after the passage of the statute, in respect to acquiring the rights of abutting owners.

The conclusion, therefore, is that- there is no legislative authority to legalize the presence of the railroad track within Broad street.

I will advise a decree for an injunction restraining the construction of the additional track, and so far as the additional track has been partially laid within the limits of the street, I will advise a mandatory injunction for its removal.


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    Annie Garwood v. Edmund J. Garwood et al.
    [Filed November 30th, 1897.]
    A chattel mortgage made by a husband directly to his wife, without the intervention of trustees, is good in equity.
    On bill to foreclose chattel mortgage.

      Mr. William Holt and Mr. Woodbury D. Holt, for the complainant.

      Mr. Willis P. Bainbridge, for the defendants.
   Reed, V. C.

In July, 1893, Edmund J. Garwood made a chattel mortgage upon certain of his personal property to his wife, Annie, to secure her for money loaned to him by her. A subsequent judgment creditor of the husband, who has levied his execution upon the same chattels, contests the validity of the mortgage solely upon the ground that it was made directly by the husband to the wife without the intervention of any trustee or third party.

By the common law such a mortgage is regarded as a nullity. For reasons — partly to secure domestic tranquillity and partly to carry out the policy of the system of feuds — the legal existence of the wife was entirely merged in that of the husband. There was no duality of personality, and as a contract requires two or more parties and husband wife constitute but one, there could be no contract between them which the law would recognize or enforce.

But courts of equity, following in this particular, as in most others, the doctrine of the civil law, have always recognized the wife as possessing a legal entity apart from that of her husband.

The moment that the separate existence of the wife was admitted, it followed that the impossibility of recognizing any contractual relations between them at once disappeared. Therefore, courts of equity have never refused to enforce such contracts merely because of any difficulty springing from the common-law doctrine of the unity of husband and wife. The courts do not enforce all contracts between husband and wife, because the power is an equitable one and to be used for the best interests of all the parties, including their interest as husband and wife. Story Eq. Jur. § 1368; Bisp. Pr. Eq. § 114.

The following are instances of the kind of agreement which equity will enforce: If the wife, having a separate estate, should bona fide enter into a contract with her husband to make him a certain allowance out of the income of such separate estate for a reasonable consideration, the contract, while void at law, would be enforced in equity. Moore v. Freeman, Bunb. 205. So, before the existence of any statute securing the profits of a married woman to her, a promise by the husband, for good reasons, that she should separately enjoy property bequeathed to her, would be upheld by the court of equity. Harvey v. Harvey, 1 P. Wms. 125; Bradish v. Gibbs, 3 Johns. Ch. 523, 540.

If a husband should, for a bona fide consideration, agree that he would purchase land and build a house thereon for her and she should pay him therefor out of the proceeds of her own real estate, if he should perform the contract on his side, she also would be compelled to perform hers. Livingston v. Livingston, 2 Johns. Ch. 537, 539. So, gifts from the husband to the wife, although void at law, were, when reasonable, upheld in equity. But the court of equity always held a restraining hand over such gifts, and the husband would not be permitted, for reason of policy, to impoverish himself nor to defeat his creditors by such gifts. Beard v. Beard, 3 Atk. 72; Slanning v. Style, 3 P. Wms. 337; 2 Spenc. Eq. Jur. 502.

That courts of equity will aid the wife to recover her separate-estate which has come into the hands of her husband and has been retained by him against her consent, is entirely settled. Vreeland v. Vreeland, 1 C. E. Gr. 512. If she loan him money,, equity will enforce his expressed or implied promise to repay it. Wood v. Chetwood, 17 Stew. Eq. 64.

Now, if he can enter into an enforceable contract to repay, so he can pledge his property to secure the performance of his promise. That he could make an absolute sale of his property to her is entirely settled. Said Chancellor Kent in Livingston v. Livingston, supra: “A husband and wife may contract for a bona fide and valuable consideration for the transfer of property from him to her.”

In Wallingsford v. Allen, 10 Pet. 583, Mr. Justice Swayne discusses the question of the extent to which a court of equity had gone in maintaining the transference of the property by the husband to the wife without intervention of trustees. In that case the supreme court of the United States upheld a transfer of slaves from the husband directly to the wife.

A chattel mortgage is a conditional sale. The consideration of this mortgage being admittedly money loaned, the wife’s title under it is, in this court, unimpeachable.

In Woodruff v. Clark and Apgar, 13 Vr. 198, a chattel mortgage had been made by a husband directly to his wife. The wife brought an action of replevin against parties who seized the property. It was held that an action would not lie, because the sale at law was a nullity. But the chief-justice remarked : “ That this transfer was enforceable in equity, and that the title of the plaintiff would have been protected in that forum against the claims of her husband’s creditors, no one will deny.”

I will therefore advise a decree for the complainant.


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    Elizabeth Kane et al. v. Daniel Lodor, receiver, &c.
    [Filed December 6th, 1897.]
    1. A chattel mortgage is good, though the affidavit is defective, as against the receiver of the mortgagor.
    2. In an action to foreclose a chattel mortgage given by a corporation and assigned to complainants, it was no defence that complainants were indebted to the company for the money with which it was to commence business.
    3. A chattel mortgage by a corporation, authorized by dc facto stockholders only, is good as to third persons.
    4. A chattel mortgage given by a mercantile corporation was not invalidated, as to it or other creditors, by the fact that it was delivered to the attorney of the lessor of the premises in which the company did business, in pledge, to carry out an agreement by which the lien of such mortgage was to be subordinated to the lien of a new mortgage made to such landlord for rent.
    5. The lien of a chattel mortgage of a retail stock of goods at the time of enforcement rests only on the goods in stock at the time the mortgage was executed.
    6. Where sellers of mortgaged'personalty covenant “to warrant and defend the sale against all and every person whatsoever,” and the mortgage is subsequently assigned to them, they are estopped to enforce it.
    This bill is filed to foreclose a chattel mortgage. The order of events relating to the creation of this instrument, its ownership by the present complainant and the status of the present defendant is this: A number of years since, Patrick McGinley, Peter Kane and Elizabeth Donahue were conducting a dry goods business in Trenton under the name of McGinley & Company. While still in business under the name of McGinley & Company, that firm gave a chattel mortgage to Hood, Foulkrod & Company to secure the sum of $4,200. It gave another chattel mortgage to Crissman Brothers to secure $13,530.26, still another chattel mortgage to Mr. Vroom to secure $500, still another to Mr. Holt to secure $600, and another to Cook Brothers to secure $2,000, which they owed for rent of the business premises. Besides these mortgages there were two-judgments against McGinley & Company, one for $363.72 and another for $93.30.
    On March 18th, 1895, the Capital Dry Goods Company was-organized. This company was formed by Edward Kelly, Patrick McGinley and Peter Kane. Mr. Kelly, for his interest in-the new company, took one hundred and eighteen of the one hundred and twenty shares, one each of the two remaining; shares being held by McGinley and Kane. The capital stock of the company was stated in its certificate of incorporation to-be $25,000 and the amount with which they would commence-business was stated to be $6,000. The property with which they actually commenced business had its origin in this way: Besides the mortgages upon the stock of McGinley & Company, as I have already remarked, there were two judgments amounting to about $457. Executions were issued upon these judgments, and under these writs the equity of redemption of Mc-Ginley & Company in the stock of goods was sold and was-bought in by Mr. Holt, who was at that time the attorney of McGinley & Company, for the sum of $50. Mr. Holt sold this-right to Edward Kelly, father of Mrs. Kane, the wife of Peter Kane, for the sum of $200. Thenj as already remarked, the-Capital Dry Goods Company was organized, and Edward Kelly sold his interest to the company for the express consideration of $1 and other good and valuable consideration. What he got was the one hundred and eighteen shares of stock in the new company. So, when the Capital Dry Goods Company commenced business its capital really consisted of the equity in the-goods covered by the various mortgages, which equity had been bought for $50 and conveyed to the new-fledged corporation. After the organization of the corporation it substituted its own-mortgages for the mortgages made by McGinley & Company. It gave on Angust 19th, 1895, a mortgage for $4,000 to Hood, Eoulkrod & Company, one for $600 to Mr. Vroom and one for $600 to Mr. Holt. Before the close of the year the Capital Dry Goods Company was transferred into the Trenton Dry Goods Company, the insolvent corporation whose receiver is the present defendant.
    The certificate of incorporation of the last company is dated September 30th, 1895, its capital stock is stated to be $50,000, the number of shares two thousand, of the par value of $25 each, and the amount with which the company would commence business was stated to be $3,000. The stockholders were Patrick McGinley, one share; Peter Kane, one share; Patrick Mohan, twenty shares; Elizabeth Kane, forty-nine shares, and Margaret Dorian, forty-nine shares. The shares of Mrs. Kane and Miss Dorian appear to have been paid for in the following manner: On October 19th, 1895, the Capital Dry Goods Company, the previous company, executed a bill of sale of its goods and chattels to these ladies for the consideration of $3,000. On the same day these ladies, for the same express consideration, sold the same chattels to the Trenton Dry Goods Company.
    Patrick Mohan paid for his in this way : He had loaned about $800 to the Capital Dry Goods Company, and in payment had received a lot of goods which he stored. After the Trenton Dry Goods Company was formed, he let the company have those goods and received twenty shares of stock. The new corporation was practically a continuation of the business of the old company, with the same stock of goods, except so far as it had been changed by purchases and sales made during the period of time from March 18th, 1895, to September 23d, 1895. There was upon the property the $4,000 mortgage of Hood, Foulkrod & Company, the Vroom and Holt mortgages, and on October 19th, 1895, the company gave a mortgage to Edward G. Cook and others to secure $1,575 for rent due.
    The mortgage which the complainants are foreclosing is the $4,000 mortgage originally made to Hood, Foulkrod & Company. The complainant became possessed of it in this way : In the latter part of 1896, Mr. Kane approached Mr. Thomas R. Allen, and told him that Hood, Foulkrod & Company were pressing for the payment of their mortgage, and insisted that Mr. Allen should take it, saying that he could buy it for $2,000 or a little less, and that the company would pay it off within a year. Mr. Allen bought it. On February 20th, 1897, he assigned it to Elizabeth Kane and Margaret Dorian, taking seven houses, four on Princeton avenue and three on South Broad street, subject to mortgage.
    The property in these houses originated, according to the testimony of Miss Dorian, in this way: McGinley, her uncle, gave her a house on Prospect street; that house was traded for stock in a shoe store; that stock was traded on August 16th, 1895, for a farm, and the farm was traded for the houses conveyed to Mr. Allen.

      Mr. James L. Kelly and Mr. Woodbury D. Holt, for the complainants.

      Mr. James L. Conard, for the defendant.
   Reed, V. C.

The defendant sets up, among other things, that the affidavit to the chattel mortgage is defective. But as against the receiver, who was the only party defendant, the mortgage is good without registry or affidavit.

The mortgage, as against the mortgagor, was entirely efficacious as an encumbrance, and the receiver took his title to the property subject to all the equities to which it was subject in the hands of the debtor.

This rule was asserted in respect to an assignment for the benefit of creditors in the case of Shaw v. Glenn, 10 Stew. Eq. 32. A receiver, in this respect, stands upon the same footing as an assignee for the benefit of creditors.

It is also set up that the complainants were indebted to the insolvent corporation in the sum of $3,000 cash with which the. corporation was to commence business, when, in fact, it had nothing but the equity of redemption in the mortgaged goods, coupled with the fact that the complainants were the real stockholders, and that they did not make any cash payments. But this, if true, is no defence to the mortgage. If there is any right to assert a claim against the complainants upon this ground, it must be done by another suit.

It is again asserted that this mortgage was executed without corporate authority, and that those who executed it were not bona fide stockholders; they were, however, defacto stockholders, whose official acts were valid as to third persons.

It is again asserted that these mortgages were delivered to the attorney of the landlord from whom it rented the premises in which it conducted its business, to be canceled. The evidence shows that the delivery was only for the purpose of putting the mortgage in pledge to carry out an agreement by which the lien of this mortgage was to be subordinated to the lien of a new mortgage made to such landlord for rent. The transaction did not invalidate the mortgage so far as it stood against the company or against other creditors.

It is asserted that other mortgages have been made to other parties. This appears to be so. The evidence shows the existence of several other mortgages upon the property. The mortgagees are not parties to the bill, but the result of the existence of such other mortgages, if still unpaid, would be that a decree in favor of the complainant in this suit will settle nothing as against the lien of any other mortgagees.

The question of priority will remain open, to be settled by another suit or upon a proceeding taken to distribute the assets in the hands of the receiver resulting from a sale of the property already made by order of this court.

The troublesome questions in the case are two. The first rests upon the defence set up that the goods sold by the receiver were purchased by the company after the execution of the mortgage, and are not subject to the lien of that instrument. The facts upon which this insistence rests are these: The mortgage was executed on August 19th, 1895, at the time of the organization of the Capital Dry Goods Company. The mortgage covered the goods then in possession of the company. That company went on using those goods in its business of retailers until September 30th following, when what was left of the goods passed to the Trenton Dry Goods Company, the insolvent corporation. This corporation continued the business until December 26th, 1896, when it went into the hands of a receiver. The lien of the mortgage, of course, rested at that time upon those goods only which had been in stock on August 19th, 1895. Now, what remained of the original stock after sixteen months of retailing is a question almost impossible to solve. The receiver had already sold a considerable portion of the stock before any claim was put in by the mortgagee, and thereafter no effort was made to identify the old from the new stock. The stock, of course, was replenished from time to time in the usual course of business. That some of the original stock remained at the time of the assumption of possession by the receiver I have no doubt; but, in my judgment, the proportion in value of the old stock to the whole stock was very small. The value of the entire stock, as shown by the inventory and by the receiver’s sale, was, at the time of the company’s insolvency, much less than the estimate put upon it by the officers of the company. In fixing upon any figure as the value of the old stock still remaining at the time of the company’s insolvency the effort would be a mere guess. Whether the complainants, who have upon them the burden of showing the extent of their lien, should have a decree at all for any amount is doubtful. I should be inclined, however, to make an estimate of the proportion of the proceeds to which, as against the receiver, a decree should go if it were not for another feature of the case which, in my judgment, precludes them from any decree. This feature consists of a collocation of facts as follows : In the bill of sale executed by the complainants to the Trenton Dry Goods Company on October 19th, 1895, there is this warranty: “We covenant and agree to warrant and defend the sale against all and every person whatsoever.” This, it is perceived, was a general warranty of title. There was then outstanding this Hood, Foulkrod & Company mortgage.

On February 20th, 1897, the complainants purchased this mortgage. The rule is entirely settled in regard to sales of real estate, that if the sale is accompanied by a general warranty of title, then any title afterwards acquired by the grantor passes directly to the grantee. The rule rests upon the doctrine of estoppel, which shuts off the vendor, who has warranted a clear title, from asserting a claim against the title which he conveyed and warranted. Gough v. Bell, 1 Zab. 157; Moore v. Rake, 2 Dutch. 574; Brundred v. Walker, 1 Beas. 140; Vreeland v. Blauvelt, 8 C. E. Gr. 483; Sugar Refinery Co. v. Mayor of Jersey City, 11 C. E. Gr. 247.

In respect to sales of personal property, it has been held that, without any express warranty of title, the same result follows as in cases of the covenant of warranty in the sale of real estate. The sale of personalty by a person in possession, and in England by anyone, whether in possession or not, carries with it an implied warranty that the vendor has the right to sell.

In this respect such sales differ from sales of real estate by a deed of bargain and sale, for such a deed includes no implied warranty of title. Phillips et al. v. Mayor and Common Council of Hudson, 2 Vr. 143; Gano v. Vanderveer, 5 Vr. 293.

In sales of personalty, therefore, it has been held, and I think rightly, that, without an express covenant of warranty, a title afterwards acquired by vendor in property which he has sold, passes to his grantee. Littlefield v. Perry, 21 Wall. 205; Gottfried v. Miller, 104 U. S. 521; Curren v. Burdsall, 20 Fed. Rep. 835; Frazer v. Hilliard, 2 Strobh. 309.

Although the rule was criticised by the American editors of the Duchess of Kingston case, on the ground that it was an evasion of the rule that no interest can pass either in land or chattels which is not vested at the time of the sale (2 Sm. Lead. Cas. *742), yet a court of equity constantly recognizes the validity of a sale of future-acquired property. Such a contract transfers the beneficial interest in the property, as soon as it is acquired, to the vendee or mortgagee, who may have an injunction to restrain any interference with the property. Holroyd v. Marshall, 10 H. L. Cas. 191.

"Where there is, as in this case, an express warranty of title, the criticism just referred to, if sound, would explode the entire doctrine of title by estoppel in sale of both real and personal property. The rule in respect to real property is settled by an overwhelming weight of authority in respect to sales of all kinds; and Mr. Bigelow remarks that “it may be considered that the weight of authority is in favor of the estoppel whenever there is a sufficient warranty or recital.”

Upon this ground the moment that the mortgagee’s title passed to the present complainants, that title, by force of their general warranty to the Trenton Dry Goods Company, passed by the doctrine of estoppel to the latter company, and so to the receiver.


author: Stevens, V. C.

text:
    Grace Siedler et al. v. Parker Syms, executor, et al.
    [Filed September 20th, 1897.]
    A testator gave national bank stock to the bank’s cashier, in trust, to distribute the dividends to designated employes during the corporate existence of the bank, “ either under its present charter or by virtue of any renewals or extensions thereof.” The bank was incorporated on June 19th, 1865, for the period of twenty years, and its existence was extended twenty years under the federal law of 1882. Testator died in November, 1891, and no law then or has since existed authorizing any further extension. — Held, that the gift violated the rule against perpetuities, and was void in that the trust might not be completely performed in twenty-one years.

      Mr. Washington B. Williams, for the complainants.

      Mr. Charles L. Corbin, for the trustee.
   Stevens, V. C.

The controversy arises over the sixth clause of the will of Samuel R. Syms, who died in November, 1891. The clause, so far as material, reads as follows :

“Sixth. I direct my executors to transfer to such person as shall at the time of my death be the acting cashier of the First National Bank of Hoboken, New Jersey, eighty shares of the capital stock of said bank, now in my name, to be held and used by said cashier and his successor and successors in office, in trust, for the following uses and purposes, to wit: To collect and receive during the corporate existence of said bank, either under its present charter or by virtue of any renewals or extensions thereof, the dividends made and declared payable from time to time thereon, and upon the first days of January in each and every year thereafter to divide and distribute such dividends equally among all the clerks and employes (including the cashier and janitor} of said bank, who shall at the time of such distribution be actually employed therein and whose employment in said bank shall have continued for a period of at least two years. * * * In case said bank shall by dissolution or otherwise cease to exist, then, and in that event, I give and bequeath the said eighty shares of stock, together with any increase of shares thereon,- as aforesaid, or the money payable in lieu thereof, to the Bank Clerks’ Mutual Benefit Association of the City of New York, to be held and invested by said association as a part of its permanent fund, and the income arising therefrom to be used and employed as may be directed by the constitution and by-laws of said association.”

It is plain that neither the bequest to the cashier of the First National Bank nor the bequest over to the Bank Clerks’ Mutual Benefit Association is charitable. Not being charitable, the objection made to them is that they violate the rule against perpetuities.

The gift in the first instance is to the cashier of the bank and its successors, in trust, to collect and receive during the corporate existence of the bank, either under its present charter “ or by virtue of any renewals or extensions thereof,” the dividends received, and on the 1st day of January of each and every year thereafter to divide them among the employes designated. If this is a trust which is to continue more than twenty-one years from the death of the testator it is invalid.

The bank was incorporated on June 19th, 1865, for the period of twenty years. Its corporate life would have ceased on June 19th, 1885, had it not been extended for a further period of twenty years under the provisions of the federal law of 1882. Its charter will therefore expire on June 19th, 1905. It is admitted that at testator’s death there was no act of congress under which any further extension was authorized, nor is there now. If the testator had limited the gift to the corporate existence of the bank, I should have thought, as we could only deal with the facts as they were at the time of testator’s death, and as one of those facts was that the charter of the bank would expire within twenty-one years and could not be .extended beyond that time, that the gift was unobjectionable for the reason that the trust must have been completely performed within the legal period. But the testator has not limited the trust to the legal period. He has expressly declared that it shall continue during all renewals and extensions of its present charter. He has thus, in terms, provided for its indefinite prolongation ; for a prolongation which might perpetuate it far beyond the legal period. It is true that the life of the bank might terminate in 1905, either because of the refusal of congress to legislate further on the subject, or because of the refusal of the bank to continue its existence. But in the class of cases we are dealing with the questiou is not whether in the event that has happened or may happen the gift will have complete effect within the time prescribed, but, in the language of Baron Rolfe, in Dungannon v. Smith, 12 Cl. & F. *575, whether the gift in all its different contingencies must have such effect.

It is an invariable principle, in applying the rule in those cases, says Mr. Jarman, that regard is to be had to possible not to actual events, and the fact that the gift might have included objects too remote is fatal to its validity, irrespective of the event. 1 Jarm. Wills *233.

The decision in the case of First Presbyterian Church v. State Bank, 28 Vr. 27, affirmed on error, seems to me to have some pertinency to this part of the argument. There the bank had given to the church a sealed instrument, in which it was agreed that so long as the church would refrain from extending its buildings westward, so as to obstruct the light on the south side of the bank building,

“ we [the hank] will pay to them [the trustees of the church] the yearly sum of §700, in quarter-yearly payments, commencing on the first day of July next, and after that rate for any portion of a year.”

It appears from the record in the case that the bank was organized in 1865 and was to continue for twenty years. The covenant was made in 1872 and before any act of congress had authorized banks to prolong their existence. The bank took advantage of the act of 1882 and extended its corporate life for twenty years. One of the questions was, whether the covenant was binding after the expiration of the original charter. I was counsel for the bank and, both in the supreme court and in the court of errors, strenuously contended that this covenant must be read in connection with the charter and the act of congress, and that so read it was a contract to pay only during its original charter life; that at the time the covenant was entered into the law provided that at the end of twenty years the bank must terminate its existence and that it must not thereafter perform any corporate act except the act of winding itself up. But both courts, in adjudging the covenant binding on the bank in the year 1892, necessarily adjudged that it was a covenant to pay not only during the period of the bank’s existence under the original charter, but during such further extension of that existence as congress might thereafter authorize and the bank choose to accept. This case decides that it was lawful to make, and that the parties did in fact make, a contract which was to operate beyond the time prescribed by the charter and by the law as it then was for the bank to exist, and that, too, without any words which, in terms, ¡provided for such a continuance. In the face of this decision it seems impossible to assert that it was not competent for the testator to provide in terms that his gift should be enjoyed by the employes of the bank under future extensions of the charter, if they should be authorized by congress. That he has done so is clear. The words “ by virtue of any renewals or extensions thereof” cannot be rejected without materially changing the scope of the bequest, a bequest as much intended for the benefit of those employed by the bank twenty-five years hence, if the bank is then in existence, as now. His gift, therefore, being for the benefit of those who may be employes after as well as before the expiration of the legal period, will not, in all its different contingencies, have complete effect within the time prescribed.

It seems impossible, in the light of the adjudications, to split the bequest into two by reading it as a gift in trust, first, for such persons as might be employed by the bank under its present charter, and secondly, for such as might be employed under future renewals and extensions of that charter. “ When,” says Baron Rolfe in the case I have mentioned, “a testator has made a general bequest embracing a great number of possible objects, there is no authority for holding that a court can so mould it as to say that it is divisible into two classes, the one embracing the lawful and the other the unlawful objects of his bounty.” And that case, decided by the house of lords, after hearing the opinions of eleven of the judges, affords the strongest possible illustration of the stringency of the rule.

In the present case the court would give more effect to the testator’s intention to confer a benefit on the employes of the bank of which he had been so long president, if it declared that the gift was good not only for the fourteen years subsequent to testator’s death (during which it would exist under its present charter), but also for such further period as would, with this fourteen years, make up a term of twenty-one years, than it would if it declared that the gift was valid during the fourteen years only. It would hardly be contended, however, that this could be done. If it could, it might, with equal propriety, have been done in the case of Detwiller v. Hartman, 10 Stew. Eq. 347, and in all those cases in which the testator has attempted to create a trust not charitable, to continue indefinitely or for a period beyond the legal one.

As the first trust is void because it may endure too long, of course the gift over, which is not to take effect until the first trust is completely performed, must be void also.