author: Emery, V. C.

text:
    Frederick F. Wilson v. Georgiana B. Terry et al.
    [Decided November 2d, 1905.]
    • 1. Where an absolute deed is claimed to be a mortgage, the burden of proof is upon the grantor, and the proof must always be olear and convincing, and where the grantee is the wife of the grantor, that fact has an important bearing on the nature of the transaction, and the ordinary presumption of a gift must also be overcome.
    2. Where complainant is called as a witness in an action to have his deed to decedent declared a mortgage and for an accounting, in which action he is also a party as administrator of decedent, his testimony of transactions with decedent to show the deed was a mortgage is in his own behalf, and not in his behalf as administrator, and is inadmissible under the Evidence act. Rev. MOO, P. L. p. 363 § 4-

    3. Evidence given after the death of the grantee in a deed, as to her verbal statements made after its execution, in the nature of admissions that the deed was intended as a mortgage must be very clear and convincing, in order to overcome the effect of the previous conduct of the parties to the deed during her life, and the written admissions of the grantor tending to show that the deed was absolute.
    On bill, amended bill, answer, replication and proofs.

      Mr. Frank Durand and Mr. David Harvey, Jr., for the complainant.

      Mr. - James D. Carton and Mr. Gilbert Collins, for the defendants.
   Emery, V. C.

The complainant’s hill is filed by him in his individual capacity and as administrator of his deceased wife, against the two defendants, Mrs. Terry and Mrs. Smith, the sisters and heirs-at-law of his wife.

The general object of the bill is to have the absolute deed, under, which the wife at her death held the title to a hotel property at Asbury Park, called the Laurel House, declared to be only a mortgage given to secure the wife for the advances made or liabilities assumed by her in the payment of debts incurred by her husband in the purchase and improvement of the property. The money for the payment of these debts of the husband, amounting to about $6,000, was procured from the Long Branch P>anking Company, upon the individual note of the wife for that amount, on the transfer of the property to her by the husband, and it is claimed by the bill that the object of the conveyance to the wife was to secure her for the liability assumed, on the note, and that the note was subsequently paid out of the rents of the property. The entire indebtedness is alleged to be p>aid and a decree is asked declaring and directing a conveyance from the heirs to the complainant. The bill was originally filed by the complainant alone, but being in effect also a bill to redeem, including an account of the amount due on the mortgage, the administrator of the alleged mortgage was thought to be a necessary party, and at the hearing the bill was amended, by consent, making complainant a party in that eapacitjr. No claim, however, is made for rents received beyond the payment of the mortgage, and it is alleged by the bill that complainant, as well as his wife, had control of the rents after the execution of the deed. The circumstances under which the deed to the wife was executed wore as follows: The complainant, in July or August, 1883, agreed to purchase of Rev. George Clarke the land in question, which was then unimproved, for $8,000, and paid $200 on account of the purchase-money. In the fall of 1883 complainant, before securing title, commenced the erection of a large hotel building on the premises, which was ready for renting by May, 1884, and was then rented to a Mrs. Pemberton, for "three years, at $1,600 a year, besides $225 per year for the rent of two stores in tlie building, altogether $1,825, all of which was paid to complainant before the delivery of the deed, in December following. Complainant had not sufficient means to pay for the building erected, but had from his own property made payments on account to the extent, as he claims, of about $4,000, including the amounts received from rent. One thousand seven hundred dollars was paid to the mason, of which $1,300 was paid by conveying to the mason a property owned by complainant and taken at that value, and complainant claims to have paid, besides, about $600 to Martin, a carpenter, on account of his bill, between $200 and $300 to the painter, and other payments to the slater and men working on the building, the amounts of which are not specified. He also paid Barber, Towner & Eielder about $2,000 on account of their bill of $4,000, borrowing for this purpose the note of a Mrs. Harrison, which was endorsed over by him to this firm. There is no sufficient reason to doubt that the complainant, before the passing of the title, about December 15th, 1884, had expended from his own funds (including the rents of the property) about $5,000 (including the $2,000 note) towards the purchase and improvement of the property. There still remained debts to the amount of about $6,000, and complainant’s means, as well as His credit, were exhausted. Complainant had previously arranged for a loan of $9,000 on the propertjr from the executors of a Robert Patterson, but beyond this does not seem to have been able to borrow from outsiders money on the property. Mrs. Wilson had considerable property in land and securities, but had not fin cash sufficient means to pay the balance due on the property. The builders were pressing for payment and threatening suits and liens, and at least one suit was commenced against Wilson, on which judgment was obtained. In this situation Wilson applied to his wife, who agreed to take over the property and pay the outstanding debts. The arrangement by which this agreement was carried out was as follows: .On December 15 th, 1884, Mr. Clarke, the vendor, together with Mr. and Mrs. Wilson, Mr. David Harvey, Jr., counsel for Mr. Wilson, and Mr. Hawkins, counsel representing building creditors, and Mr. Johnson, the cashier of the Long Branch Banking Company, met at Freehold. Mr. Clarke delivered his deed for the property, made out to the complainant, dated October 21st, 1884, and acknowledged November 28th, 1884, by Mr. Clarke and his wife, before an officer of Westchester county, New York, where they then resided. Complainant executed and delivered to Clarke his own bond (bearing the same date as the deed) for $8,000, the entire purchase-money, payable in three years, which was secured by a mortgage on the premises, executed by Mr. and Mrs. Wilson to Clarke, dated October 21st, 1884, but acknowledged on December 15th, 1884. Wilson, delivered, also, his bond for $1,000 to tire executors of Robert Patterson, also payable three years after its date, and Mr. and Mrs. Wilson also executed a mortgage on the property to secure this bond. The bond and mortgage were both dated October 21st, 1884, but this mortgage was executed and acknowledged December 15th, 1884, the first day of the meeting at Freehold, but because of the omission to have checks certified the deliveries were not made on that’day. On the following day the Patterson executors paid to Clarke $8,072 (being the principal sum, with interest from the date of the mortgage), taking an assignment of his mortgage, and the $1,000 loaned on the mortgage was, according to Mr. Harvey, paid to the complainant, but was probably used to pay the expenses of obtaining the loan and the interest due Mr. Clarke. On the 16th of December, Wilson and his wife executed to Edward M. Fielder a general warranty deed for the premises, subject only to the $9,000 mortgages, for the nominal consideration of one dollar. This deed to Fielder was made for the purpose of conveying the title to Mrs. Wilson,'and Fielder did not assume the payment of the mortgages. The deed from Fielder and his wife, drawn and dated on the 15th of December, was acknowledged and delivered on the 19th. This was a bargain and sale deed, conveying the premises to Mrs. Wilson, for the nominal consideration of one dollar, subject to the $9,000 mortgages, the payment of which was assumed by Mrs. Wilson. Whether Fielder was present on the 16th does not clearly appear, but his wife was not there, and the delay of three days in conveying the property to Mrs. Wilson was probably due to-the necessity of her joining in the deed. On December 15th, 1884, and before the conveyance to her of the hotel property, Mrs. Wilson and her husband executed to the Long Branch Banking Company a mortgage upon other property in Asbury Park, belonging to Mrs. Wilson, to secure the sum of $6,000. This sum is declared to be payable according to the condition of a certain bond in the penal sum of $12,000, but the bond has not been produced. This mortgage was recorded on the date of its execution, and before any of the deeds or mortgages on the hotel property were delivered and before the mortgages were 'executed. Mrs. Wilson also assigned to- the bank, as further security for the loan, mortgages on property in Cincinnati, held by her as her own property. On the same day, December 15th, 1884, Mrs. Wilson gave her individual note to the bank for $6,000, payable three months after date, and the amount of this note, less the discount ($93), was placed to her credit in the bank on December 17th. By checks on this account, all dated December 16th, 1884, amounting to $5,809.50, Mrs. Wilson paid all the bills outstanding against the property. This included $180 insurance and $82.50 taxes on the property. The $1,000 received from the Patterson executors was probably taken for the payment of the commission and expenses of the loan, about $400, Mr. Wilson says, and the interest due to Mr. Clarke. A memorandum in Mrs. Wilson’s diary, under date of December 1 Gth, states that Clarke received $8,478.53. On this transfer of title no evidence of debt from Mr. Wilson to his wife was given, nor was any written agreement or other paper executed, either' at the time or afterwards, to further explain or qualify the transaction as between Mr. and Mrs. Wilson, nor does Mrs. Wilson seem to have been specially represented by counsel. The value of the property at the time of the transfer has been estimated at from $15,000 to $20,000. None of the defendants’ witnesses fix the value at less than $15,000 in 1884, which figure is also fixed by one of the complainant’s witnesses. The estimates of value given after this length of time, and only from general knowledge and recollection of the values of property at that time, are, of course, to be considered with some caution. Complainant and Mr. Clarke, estimating the values rather from the basis of the cost of the land and buildings, fix, respectively, about $19,000 and $20,000 as the value, in which latter estimate Mr. Winsor, another witness for complainant, concurs. He was, in 3884, secretary of a building loan association, which made loans in Asbury Park, and also owns property in the neighborhood and has bought and sold property in that locality. The property was in a good location, and 'a fair value at the time, had the question been one between seller and purchaser dealing at arms’ length, would probably not have been as low as $15,000, neither, on the other hand, as between borrower and lender, dealing on the same basis, would a sum as large as $15,000 have been loaned on the property. Mr. Johnson, for the bank, had declined to loan $3,500 on the property subject to the $9,000 mortgage. It is clear, I think, that in this transaction, and in order to determine whether by the agreement between the parties made at the time the absolute title was to be conveyed to Mrs. Wilson, or whether, as complainant claims, she took the title only to secure her against the liabilities she assumed on the note and mortgages, due weight must be given to the fact that the transaction was between husband and wife, and that the husband was dealing with the wife’s money, for his benefit, in relieving him of obligations he had incurred. The relations then existing between husband and wife were not only amicable, but it appears, also, the rvife was devoting her own income to the support of herself and husband, as for personal reasons she did not wish him to continue active work in his profession of minister.

The complainant, Mr. Clarke, the vendor, and Mr. Harvey, the attorney for Mr. Wilson, are the only survivors of the persons attending the meeting at Freehold, and their evidence is strongly relied on to support complainant’s claim. [Evidence here examined in detail.]

Complainant’s evidence as to transactions with the wife was admitted, subject to objection, and leave reserved to move to strike out the evidence at the argument. My impression at the hearing was that, under the ruling in Smith v. Burnet, 85 N. J. Eq. (8 Stew.) 314 (Court of Errors and Appeals, 1882), and Adoue v. Spencer, 62 N. J. Eq. (17 Dick.) 782, 794 (Court of Errors and Appeals, 1900), the evidence was inadmissible under the Evidence act (Rev. 1900, P. L. p. 363 § 4), excluding

“testimony to be given by any party to the action as to any transaction with or statement by any testator or intestate represented in said action, unless the representative offers himself as a witness on his own behalf and testifies to any transaction with or statement by his testator or intestate, in which event the other party may be a witness on his own behalf, as to all transactions with or statements by such testator or intestate which are pertinent to the issue.”

The administrator being a necessary party in the suit, the rule considered by me in McKinley v. Coe, 66 N. J. Eq. (21 Dick.) 70 (1904.), to be settled in this court, that the evidence was admissible in suits against heirs or devisees to which the administrator was not a party, does not apply. Counsel for complainant urge that the evidence is admissible as evidence given by the administrator on his own behalf under the statute. The complainant was, however, called generally, and the evidence was given on his behalf individually and not specially on his behalf as administrator.

On a bill to have a deed declared a mortgagé, the interest of the mortgagor and of the personal representative is perhaps the same, so far as it involves the conversion of real estate into a personal security, upon which the personal representative is entitled to receive the amount due, but it is essentially an adverse interest in that it seeks to impose on the personal representative a contract of the testator under which the representative is bound to account under the mortgage. Regularly, therefore, the representative would be a party defendant in such suit, not a party complainant, and the fact that complainant is himself the representative, and must therefore be complainant in that character, does not make the evidence given by complainant tending to establish his claim against the personal estate evidence given by the representative on his own behalf, i. e., on behalf of the estate. Excluding the evidence of complainant as to the circumstances under which the deed was originally given, I do not think the evidence of Mr. Clarke and Mr. Harvey, the only other witnesses as to the facts transpiring at the time of execution of the deed, warrants the conelusion that the title was intendéd to be conve}red to the wife by way of mortgage only, and not absolutely. Their evidence must be taken in connection with the tilings actually done, and their statements as to the wife’s taking title go no further than to show that the property was supposed to be the wife’s security for the liabilities she was personally incurring, and which she ivas expected to pay and was aide to pay. This would be the case whether the title Avas absolute or by Avay of mortgage, for the Avife undoubtedly supposed she AA'as running some risk in raising the money and had nothing to show for it but the property. The documents executed are. all consistent with the intention, as between husband and wife, that the title then taken should be absolute in the Avife. Her assumption of the mortgages for $9,000. is not to be explained in any other vieAV, nor is the absence of any writing or document, showing either that any debt from the husband to his Avife existed, or that the husband held any right in the property, consistent Avith the ArieAv that the title was not absolute. The Avife Avas acting without counsel, and it Avas a situation in Avhieh no counsel would probably have advised her that the transaction ivas a safe or prudent loan. She should therefore not be deprived of any right or advantage given to her by the transfer, unless it clearly, appears-that it would be inequitable for her to retain it; nor should she be deprived of the title she received except upon very clear and satisfactory evidence that she then understood that the title was not absolute in her, but Avas then intended merely as a mortgage, and that her husband had the right to call for a reconveyance. The general rule in all cases where absolute deeds are claimed to be mortgages is that the burden of proof is upon the grantor, and his proof must be clear and convincing, and the present case is within the application of the additional rule or presumption relating to conveyances of property from the husband to the Avife, viz., that the conveyances, so far as they are not based on consideration, are presumed to be intended as gifts of the husband’s property to the Avife. In this case the husband and wife were not bargaining with each other at arms’ length, but the wife, at the husband’s instance, Avas undertaking to relieve him of the liabilities then pressing him for the purchase and improvement of the property, and to save the amount he had already expended. The amount which Mrs. Wilson assumed was much more than would be adrancecl as a mere loan on the property, and was nearly, if not quite, the full value of it. The husband’s entire property was exhausted, and beyond the amounts paid by Mrs. Wilson, he was liable on the $2,000 note of Mrs. Harrison, borrowed for his benefit and endorsed over to Towner for debts incurred 'in building the hotel. Mrs. Wilson did not assume this or any other indebtedness or obligations beyond the $15,000 for debts which were chargeable on the property itself. It is probable that Wilson’s financial situation at the time was a motive, at least on his part, and probably on the part of both husband and wife, for having the absolute title of the property in his wife,, and for passing the title in such manner as to clearly show a purchase on her part for the fair value of the property. All documents indicated a purchase, and none were executed which indicated a loan to the husband or a mortgage of his interest in the land, and this view that Wilson’s financial position and prospects were one reason for making the transaction an absolute sale to the wife, rather than a mortgage, derives additional probability from Wilson’s subsequent conduct. [The evidence on this point is then examined.]

Looking alone at the whole evidence relating to the circumstances up to the time of the execution of the deed, I find that this evidence is not sufficient to establish that the' deed was not an absolute deed, but a mortgage. And the further question is whether the evidence relating to the action, conduct or declarations of the parties, and especially of Mrs. Wilson, subsequent to the deed, either alone or taken in connection with the other evidence in the case, is sufficient to establish that the deed was originally intended as a mortgage. The intention of the parties at the time of the execution is the vital question, and the evidence of subsequent transactions is generally important only as authorizing inferences in relation t<5 the intention at the time. Frink v. Adams, 36 N. J. Eq. (9 Stew.) 485 (Vice-Chancellor Van Fleet, 1883); affirmed on appeal, 38 N. J. Eq. (11 Stew.) 287. But, in relation to their subsequent conduct, the relation of the parties has also an important bearing, for even if the original transaction was only for securing the wife’s obligation on the note, as the bill alleges, the subsequent investment in the property of the wife’s money, with the consent and acquiescence of,the husband, while the title stood in her name, might, under the usual presumption as to husband and wife, be considered as indicating a gift on the husband’s part of his entire interest in the property.

The evidence relating to the dealings of the parties—Mr. and Mi's. Wilson—with the hotel property, subsequent to the delivery of'the deed, including the evidence offered as to their declarations in regard to it, is substantially as follows: [This evidence is then examined in detail.]

Outside of the testimony of Mr. Wilson himself, the principal evidence of communications after the transfer between the husband and wife relating to the ownership of the property, are letters of complainant written to his wife, in October, 1897. At that time Mrs. Wilson was at the house of her sister, Mrs. Smith, in Asbury Park, having gone there in consequence of some quarrel or misunderstanding with- her husband. Mr. Smith, the brother-in-law, says that one cause pf the difference between them was Wilson’s refusal to give Mrs. Wilson the deed for the property now in question. Wilson came to Smith’s house to see his wife, and in the interview between them Mrs. Wilson accused her husband of having the deed, and of always claiming the hotel wasn’t hers, to which Wilson said: “I don’t claim the house; I have got ,no interest in the house; it is your property and it all belongs to you.” Wilson wrote several letters to his wife while she was at Smith’s house, urging her to return to their home, and in these letters her ownership of this property, and not his, is also asserted by Wilson, apparently for the purpose of reassuring her against his claims. One of October 8th is especially important as giving a statement of a bargain ■ in reference to the Laurel House. He asks her to come home and talk things over, and says that it is

“annoying for Mrs. Smith to tell yon yon had no property. It is all yours and a very fine property. You said after the Laurel House was out of debt yon were going to let me have so much a month, but after being here so many years I have nothing yet.”

In another letter he tells her that her property is increasing, and after stating he had heard Mrs. Smith had said $2,000 or $3,000 were gone, and that he had bought lots with it, he says this was untrue; that tire property had been well managed; that he had bought nothing with it except the Allenhurst property, which was in her name, and adds:

“the property is all yours and we have made several thousand, come home and enjoy it. Mrs. Smith knows she tells what is not so when she tells you you have no property. No one believes her and any goose knows better. All yours and all straight.”

These letters, written at the time when the question seems to have been directly raised between the husband and wife as to the ownership of this property and his alleged claims on it, cannot be reconciled with the view that both the parties intended the title to be taken only as security for debts or obligations, and it must require very clear and decisive evidence to the contrary to outweigh these admissions of the complainant, advisedly made, and made for the purpose of procuring her return. Had complainant’s present claim been then set up, Mrs. Wilson would have had the opportunity to defend her ownership, and the husband’s direct and unreserved admission of his wife’s ownership at that time has an important bearing on his right to contest it, after his wife’s death and at this lapse of time.

Mrs. Wilson returned to her home shortly after these letters were written, and lived with her husband up to the time of her death. After her return Mr. Wilson seems to have again taken charge of the hotel, leasing it and collecting the rents, and attending to the repairs and management of the property. One of the tenants, Mrs. Kemp, paid the rents by checks to his order, and these were endorsed by him and deposited, as he says, to Mrs. Wilson’s account in the bank where Mrs. Wilson kept her account. In all of the other tenancies the checks were made either to Mrs. Wilson alone or jointly to both, and all checks went ultimately to Mrs. Wilson’s credit. Mr. Wilson does not appear to have kept any separate bank account after the transfer of title, nor to have had resources of his own. It appears, also, that the expenses for the support of the family were paid from Mrs. Wilson’s income, including that received from the hotel, and I think Mr. Wilson’s management of the hotel, under these circumstances, is to be considered rather as a management of his wife’s property than the continued possession and control of the property by a mortgagor, as is now claimed on his behalf.

In addition to the evidence above referred to, complainant relies on oral declarations proved to have been made by Mrs. Wilson subsequent to 1898, when she returned home. In some courts it is held that evidence of subsequent oral admissions by a grantee that an absolute deed was intended as a mortgage is not sufficient without corroborating circumstances to establish this fact. 1 Jones Mort. (5th ed.) 241 § 335, and cases cited, note (1/.). And certainly evidence of this character, in order to divest the title to lands and to overcome the effect of the previous conduct of the parties and written admissions of the husband, must be scrutinized with great caution, after the death of Mrs. Wilson, and be very clear and convincing.

In none of these conversations does it appear clearly that the attention of the wife was distinctly drawn to or fixed on the question whether this deed was only a mortgage or whether she had the right to hold the title to the property, if she chose to do so, and many of the declarations are such as may fairly be considered expressions indicating nothing further than that this hotel was an enterprise of Mr. Wilson’s, and not of her own, and that she had taken hold of it to save the money he had put in it, and that Wilson was managing the hotel.

[The evidence is then examined in detail.]

On the assumption that tírese conversations give in all respects Mrs. Wilson’s exact words, and giving them all fair effect, they are not sufficient, in my judgment, to outweigh the evidence as to the nature of the original transaction, which is supplied by the documents themselves, and the conduct and admissions of the parties under them, up to at least the jeax 1898. Mrs. Wilson’s account or explanation of any of them cannot now be heard, and bearing this in mind in considering the weight to be given to them on the questions now to be solved, viz., the agreement at the time of the transfer of title, or at the time of Mrs. Wilson’s subsequent investment of her money in the property by the payment and cancellation of the Patterson mortgages and otherwise, I think that, outside of the conversations sworn to by Mr. Sexton and Mrs. Kemp, the scope of statements cannot clearly be held to go further than to give what was then (in 1898 or later) Mrs. Wilson’s statement as to her motive in taking the property and an explanation of her investment. The direct statement made to Mr. Sexton that “the property is Mr. Wilson’s; what money I have pnt in it I have pnt in for his benefit,” was a statement, not that she had lent money to Wilson which he was to pay back or account for, but that she had put her money in the hotel to help him out, as she wanted him to have something in his old age, and imports rather a gift to Wilson of the money she put in. This may well have been her intention as to the ultimate disposition of the property, but so long as she held the title in her own name, this gift was still unexecuted and under her own control, and in none of these conversations is there any sufficiently clear indication on her part that the title to the property was not then her own, or that she had no right, as between herself and Wilson, to hold the title as her own. These conversations all occurred after the reconciliation, in 1891, after a separation, during which she was reassured about her title to this very property, and her subsequent declaration as to her husband having this property or the benefit of it, are very probably due to a subsequent change in her disposition toward her husband, while living amicably with him, and having the benefit of his management of the property. And while they may possibly be taken to indicate her intentions in reference to the property, they are not sufficient to divest her title after her death.

Upon the whole evidence, I conclude that complainant has failed to make out a case for relief, and the bill must be dismissed.


source: Caselaw Access Project

author: Emery, V. 0.

license: Public Domain

text:
    The Township of Belleville, in the county of Essex, v. The City of Orange et al.
    [Decided November 13th, 1905.]
    3. A township not charged with duties relating to the public health and not suffering any injury to its property rights cannot enjoin a public nuisance on the ground of breach of contract, unless the legislature has authorized the township to make a contract for that purpose, such power to protect public rights being vested in the attorney-general.
    2. Where a township contracted with a city without legislative authority, that the city as' a part of the construction of a sewer to tidewater through the streets of the township, should maintain in another municipality a tidal collection chamber, to be operated in a certain manner, the township did not thereby acquire the right to- compel specific performance of that portion of the contract regulating the. use of such chamber for the sole purpose of the protection of the common public rights against public nuisances.
    On demurrer to bill.

      Mr. William A. Lord, Mr. Edwin B. Goodell and ilir. Charles H. Halfpenny, for tlio demurrants.

      Mr. Egbert J. Tamblyn, for the complainant. (Mr. Oliver II. Perry, solicitor.)
   Emery, V. 0.

The city of Orange, by the act of April 7th, 1890, entitled “An act to provide for drainage and sewerage in cities of this state” (1 Gen. Stat. p. 622), was authorized (section 4) to construct a sewer to tidewater, and for this purpose, if necessary, to lay its sewer through the streets of any other township or munici-

“under such reasonable regulations, if any, as may be imposed by such township or municipality with respect to like work done therein by itself, and such street or highway shall be, as far as possible, restored to its original condition, at the proper cost of the city for whose benefit the work is done.”

On April 29tli, 1892, the city of Orange and the township of Belleville entered into a contract (annexed to the bill) by which the township consented to the construction through part of its territory by the city of Orange of a sewer to tidewater, the sewer, in the language of the recital, “to be an outlet for other sewers already constructed and in the course of construction within its (the city’s) limits.” The consent of the township was given upon certain terms and conditions, all of which, except two, related to the places in the streets where the sewer pipes were to be located, the protection of public travel during the construction, the restoration of the streets, and the payment of_ the expense of inspection of the construction. These terms and conditions were all regulations of a character which' might be imposed by the township with respect to the construction of its own sewers. Another of these “terms and conditions” related to the location of the outlet at tidewater, and the fourth, the only one now in question, was as follows:

"Fourth. A tidal chamber shall be constructed in connection with said sewer, into which all the sewage shall be carried. Said tidal chamber shall be air tight and water tight and shall be emptied only during the first two hours of the ebb tide.”

The city of Orange expressly agreed to observe and fulfill the terms and conditions. The sewer was constructed according to the agreement, the outlet being within the boundaries of the city of Newark, and a tidal chamber, also within the city of Newark, was constructed in connection with it, and, as the bill alleges, for a considerable period after the agreement the sewage was collected in the tidal chamber and discharged within the hours specified in the agreement. The city of Orange, as the bill further alleges, subsequent to the construction of the outlet, allowed other municipalities, the townships of Bloomfield and Montclair, to discharge sewage into the outlet sewer, by reason of which the sewer is overcharged, and the tidal chamber is inadequate to hold the sewage for the term required by the agreement. The agreement with Montclair for the use of the sewer was made before the contract, and the agreement with Bloomfield in the following year, 1895. Both of these agreements were made under the authority of a previous act of March 36th, 1890, entitled “An act to provide for drainage and sewerage in townships.” 3 Gen. Stat. p. 3649. The bill charges that for more than a year past the sewage has been allowed to pass through the tidal chamber into the river at all hours of the day and night; that the city of Orange refuses to collect and discharge it according to the agreement. By reason of this breach of the agreement the sewage discharged into the Passaic river accumulates at the mouth of the sewer and is carried by the tide up the Passaic river,

“to and along the property of complainant and the citizens of the township of Belleville, to the injury and damage of the property of your orator and the citizens of the said township of Belleville, and that the same is a menace to the health of the said citizens and inhabitants of the said township of Belleville.”

Injunction is sought compelling the specific performance of this article of the agreement, and defendant demurs to the bill for want of equity. . .

The bill is not filed for the protection from an alleged nuisance of property owned by Complainant, and the ownership of any property entitled to such protection is not alleged by the bill. As mere riparian owners of property situate on tidewater it is doubtful, under the decision in Marcus Sayre Co. v. Newark, 60 N. J. Eq. (15 Dick.) 361 (Court of Errors and Appeals, 1899), whether the township is entitled to such protection. Nor is the complainant charged by law with any such duties relating to the public health as to entitle it, independent of any contract, to file a bill for protection against a public nuisance common to all its citizens. The attorney-general alone has this right. Newark Aqueduct Board v. Passaic, 45 N. J. Eq. (18 Stew.) 393, 401 (Chancellor McGill, 1899). The question in the case, therefore, is whether the township, having no property or public rights to be protected against the nuisance alleged, is entitled to the substantial relief of enjoining the alleged nuisance by a specific performance of the terms of the contract relating to the manner of the use of the sewer. This equitable remedy is usually given for the purpose of protecting rights of a complainant, or, in case of public bodies, for the protection of public rights with which they are charged by law and relating to which there are contracts authorized by law. The township cannot, in my judgment, by a mere contract with another municipality, and in the absence of legislative authority, invest itself with the rights which belong to the .attorney-general or other public authorities for the protection of public interests. Nor in the absence of like authority could the city of Orange, by contract, give such public rights against itself to the township. The statutory authority to make regulations as to laying the sewer through the territory of the township, such as might be imposed for laying its own sewers therein, did not, either expressly or by implication, authorize a contract relating to the use of the sewer in another municipality when constructed, on breach of which the township would be entitled, as representing the common public rights, to enjoin a violation of the contract for the sole reason that the violation resulted in a public nuisance. The remedy against the alleged public nuisance, if any remedy exists, is with the attorney-general, and the township cannot, in my judgment, acquire the right to enjoin a public nuisance on the ground of breach of contract unless the legislature has authorized the township to make a contract for that purpose.

It was claimed by defendant that this clause of the contract was ultra vires, but as the city had power under the act to construct the tidal chamber and to control its operation, an agreement relating to this operation, if made with a person or municipal authority who had property or public rights to protect, would not, I think, have been ultra vires, and not being necessarily ultra vires, it is possible that an action at law for nominal damages might be maintained in favor even of a contractee not having any property or public rights to protect. I do not pass on this question, for the equitable remedy of specific performance is given, not for the mere enforcement of contracts, but because specific performance is necessary to give complainant the full benefit of the property or other rights which he is entitled to receive by the contract.

The demurrer will be sustained.


text:
    Pauline K. Radley v. William M. Radley et al.
    [Decided November 13th, 1905.]
    Where a woman and her husband executed a deed for certain of his property to a trustee, the deed reciting' that it was for the purpose of placing the title in the trustee and his heirs free from, the wife’s dower or right of dower which she thereby released, the trustee to hold the property for the sole benefit of the husband and his heirs, to whom he should convey on written demand, the deed created merely a passive and not an active trust and of itself raised an equitable estate in fee in the husband, as to which the deed was not effective as a release of the wife’s dower conferred by the Dower act. 2 Gen. Siat. ¶. 1275 § 1. Construed in Yeo v. Mereereau, 18 N. J. Law (3 Harr.) 887 {181/2).

    On bill for dower. Heard on bill, answers, replications and proofs.

      Mr. Francis V. Dobbins, for the complainant.

      Mr. George 8. 8ilzer, for the defendants, heirs-at-law.

      Mr. Edward 8. Savage-, for the defendant Heald.

      Mr. Fred G. Ilyer, for the defendant Acken, trustee.
   Emery, V. C.

To a bill for dower, the heirs-at-law set up by their answer the defence that complainant released her right of dower by a conveyance of the property, made by herself and her husband in his lifetime, to the defendant Acken. They also deny that complainant was the wife of Alfred N. Radley, the intestate, but this defence was not urged after the proof of marriage made at the hearing. As to the conveyance, the proofs disclosed the’ following facts bearing on the issues now involved: On November 18th, 1901, Alfred N. Radley and the complainant, Pauline K., his wife, as parties of the first part, executed and acknowledged a deed to the defendant Moses H. Acken, reciting as its consideration the payment of $1,000 to Pauline K. Radley and conveying to Acken in fee the premises in question, and further stating:

“The object of this conveyance being to place the legal title of the premises above described in Moses H. Acken, as trustee for Alfred N. Radley, his heirs or assigns, free and clear of the dower and right of dower of the said Pauline K. Radley, she having by these presents, for the consideration above expressed of one thousand dollars, the receipt whereof is hereby acknowledged, sold, assigned, transferred and released all her dower and right of dower in and to the land above described.”

All estate, right and demand of the parties of the first part, as well in law as in equity, was also conveyed to Acken, his heirs and assigns forever, “in trust, nevertheless, and for the benefit of Alfred N. Radley, his heirs, executors, administrators and assigns.” This deed was dated November 14th, 1901, and before its execution seems to have been submitted to the counsel of complainant. On its execution and acknowledgment, on the 18th, Mr. Harris, the commissioner of deeds who took the acknowledgment, received from the husband $1,000, and paid it over to the wife, as the consideration for the deed. Subsequently, and on November 20th, 1901, Acken executed and acknowledged a declaration of trust, reciting-the conveyance to him and declaring that he held and would continue to hold the premises

“in trust only, for the use and benefit of the said Alfred N. Radley, his heirs and assigns, free and clear of the right of dower of the said Pauline K. Radley,”

to whom the consideration named in the deed, was paid by Alfred N. Radley, for the release of her dower in said premises, and for himself and his heirs, he further covenanted to

“convey said premises or any part thereof by good and sufiicient deed to the said Alfred N. Radley, or to his heirs and assigns whenever and as soon as I or they shall be thereunto requested, in writing, free of dower and clear and discharged of and from all' and every encumbrance thereon by me or my heirs.”

The validity of the transaction as a post-nuptial settlement on the wife, in lieu of dower, which a court of equity would enforce as properly executed and reasonable, is not expressly involved on the pleadings in this case. The wife has not attacked the conveyance as unreasonable or improvidently made, nor, on the other hand, have the heirs alleged or proved that it was a reasonable settlement. At the hearing each party urges that the burden of attacking or supporting the release as a settlement is upon the other, and for the purposes of the present suit each party stands on the deed alone. The only direct issue here between the parties is therefore the effect of the wife’s conveyance as a conveyance which is a bar to her dower, both at law and in equity, so long as it stands unimpeached. The Dower act (2 Gen. Stat. p. 1275 § 1) provides

“that the widow, whether alien or not, of any person dying intestate or otherwise, shall be endowed for the term of her natural life of the one full and equal third part of all the lands, tenements and other real estate whereof her husband, or any other to his use, was seized of an estate of inheritance, at any time during the coverture, to which she shall not have relinquished or released 'her right of dower by deed executed and acknowledged in the manner prescribed by law for that purpose.”

The wife has in this case released her. right of dower by deed duly executed, but the question arises whether this deed to Acken operated to release her right of dower in the equitable estate of her husband, which was created by the deed itself. As to dower in equitable estates, under our statute, it was held by the supreme court, in Yeo v. Mercereau, 18 N. J. Law (3 Harr.) 387 (1842), that the effect of the statute ih extending dower to lands whereof any other person was seized to the husband’s use, ivas to give the wife an estate in dower in all cases in ■which, during the coverture, a third person was seized to the use of the husband under such circumstances as in equity entitled the husband or his heirs to a conveyance of the legal estate and actual seizin and possession of the lands. It was not thought or decided by the majority of the court (Chief-Justice Hornblower and Justices White and Elmer concurring) that dower in all trust estates was created (at p. 391; &c.), although Justice Uevius (at p. 1/02) thought it applied to estates held in, trust, and this general scope seems to have been given to the statute by Mr. Justice Depue, in Cushing v. Blake, 30 N. J. Eq. (3 Stew.) 689, 695 (Court of Errors and Appeals, 1879).

In Yeo v. Mercereau, the widow was held entitled to dower in lands conveyed to a third person “in trust to and for the use of the husband and his heirs,” and as to which the grantee six months subsequently executed a declaration of trust to the husband, covenanting “to convey the premises to him, his heirs and assigns at any -time thereafter.”

Under this decision the effect of the deed to Acken, in trust for the husband and his heirs, was to create at once, and by the deed itself as soon as it took effect at all, an equitable estate in fee in the husband, and the question for decision therefore is whether the release of dower given in the deed creating this trust estate operated on this equitable estate of Radley, which was the result of the deed. Had the deed, simply conveyed the legal estate in fee to Acken without declaring or raising a trust, and had the equitable estate in Radley arisen by a subsequent conveyance to him, or by a declaration of trust creating a merely passive trust, then clearly the release of dower in the lands made by the previous deed would not reach to or affect the right to dower in the equitable estate arising in the husband subsequently to the deed. In such case the wife, notwithstanding the release to Aekeh, would be entitled to dower, because of the subsequent seizin of an. estate to the use of her husband, just as she would have been entitled to dower under a deed subsequently conveying the legal title of the premises to her husband. But as the wife might, under the statute, by a subsequent deed, duly executed, have released her right of dower in this subsequently-acquired equitable or legal estate, the question is whether this deed is in fact operative as releasing the wife’s dower, not only in the legal estate, which the deed expressly conveys, but also the dower in the equitable estate, which is created in the husband by the deed itself, which dower in the equitable estate arose by operation of law, on the deed taking effect. That the parties intended the deed so to operate appears from the express declaration of the object of the conveyance, taken in connection with the express conveyance “in trust.” Taking the whole conveyance, the object was to convey to Acken the legal title to be held in trust for Radley, free and clear of dower and right of dower of Mrs. • Radley in the lands, the trust, so far as it was created by the deed itself, being a merely passive trust to hold the lands. But the case cannot be settled merely as a question of intention of the parties. It is a question as to the operation and legal effect of the deed, and whether this intention was carried into effect by the deed, or whether the deed, so far as the dower in the equitable estate of the husband created thereby is concerned, is not ineffective as a release of an estate, and is not merely an equitable agreement in reference to it, which may or may not be carried into effect as a post-nuptial settlement. In other words, the question is, did the release of dower in the equitable estate created by the deed have the operation of an executed conveyance of the estate in dower, or has it, as to this, only the effect of an executory contract ?

Treating the case as one merely of the construction of the operation and effect of this deed on the equitable estate thereby created, I think the deed must be held not to operate as a conveyance or release of the dower in the equitable estate. The reason is that this right of dower in the equitable estate arose in the wife by operation of law as soon as the trust deed was executed and an equitable estate in the husband was created, and as an incident created by law in such equitable estate, and the parties could not by their deeds or declarations prevent the operation of the rules of law relating to the creation or vesting of estates, or the incidents of such estates. The wife might agree that the deed should bar her against any future claim to dower in the equitable estate, and such agreement might be enforced, and the conveyance may be treated in equity as sufficient evidence of such an agreement, but her mere release of dower to the grantee in trust did not of itself release or pass the right of dower in the trust estate which arose by the deed. The wife was not a party to, the subsequent declaration of trust, and hex rights to dower depend, therefore, on the construction of the deed to Aclcen, the trustee. This deed created a purely passive trust in the grantee “for the benefit of Radley, his heirs, executors, administrators and assigns.” By the subsequent declaration of trust, to which only the trustee and Radley were parties, the trustee covenanted to convey the premises to Radley, or to his heirs and assigns, upon request in writing, free of dower of the wife, and it may be that by this covenant an active trust was created in favor of the heirs of Radley. If an active trust in favor of the husband or his heirs had been created by the deed itself, a different situation might perhaps have resulted, for the decisions do not seem to go to the extent of giving the wife dower in equitable estates, where the trusts are active as distinguished from merely passive trusts, where the grantee’s sole trust is to hold the legal title for the benefit of the husband. But the trust estate, so far as created by this deed of the wife, was only such purely passive trust to hold the title for the husband and his heirs. And as the trust to convey on request in writing was one subsequently created by a declaration of trust, to which the wife was not a party, she cannot be affected by it, and the question whether this declaration did create an active trust is not material in the present case, and I do not decide it. Under the pleadings and proofs as they now stand, the deed cannot be considered as in itself a bar to dower, nor can it be considered as being a post-nuptial settlement which should be enforced to bar the dower, for the reason that such agreement being executory in its operation, defendants must show that it is a reasonable and proper settlement. The burden is upon them to allege and prove this defence, and it has neither been set up nor proved. Ireland v. Ireland, 43 N. J. Eq. (16 Stew.) 311 (Chancellor McGill, 1887).

As the case now stands, complainant is entitled to a decree.


author: Emery, Y. 0.

text:
    The Borough of Washington v. The Washington Water Company.
    [Decided November 22d, 1905.]
    1. A water company, which is the sole source of water-supply for a borough, is a q»®si-public corporation bound to supply water to the borough at a reasonable price, to be fixed by a competent tribunal in case no agreement between the parties can be reached.
    2. If the company threatens to cut off the supply unless the borough pays a sum for past service which the borough claims to be unreasonable, a court of equity, in a suit to restrain- the cutting off of the supply and to fix a reasonable 'charge, may at the final hearing determine whether the price demanded is unreasonable, and if so, may enjoin the cutting off of the supply for its non-payment.
    3. If on application for preliminary injunction a fair case for the trial of the question of -unreasonableness is shown, the court may, on proper terms, enjoin the cutting off of the supply pending the hearing.
    On application for preliminary injunction. Heard on bill and affidavits and answer and affidavits.

      Mr. Oscar Joffcry, for the complainant.

      Mr. William Á. Slrylcer and Mr. William, II. Morrow, for the defendant.
   Emery, Y. 0.

Defendant has for over twenty years furnished a water-supply to complainant for fire hydrants and other public purposes under tendear contracts. Under the first contract the annual sum paid was $1,000 a jrear, and under the second (expiring July 1st, 1903), $800 a year. On the expiration of this contract, and during the last two years, the parties had negotiations for the continuance of the supply for another term of years, but have failed to agree on the sum to be paid. In the meantime the service has been continued as heretofore, but without any payment, and on August 17th, 1905, the water company notified the borough that from July 1st, 1903, to July 1st, 1905, tlie water had been supplied under the original contract for $800 a year; that the borough was now indebted to the company for $1,600, which it had refused to pay, and that unless this indebtedness of $1,600 was paid by August 25th, 1905, the public water-supply would be cut off. The supply includes street hydrants, the only source of supply for extinguishing fires. The borough thereupon filed this bill for an injunction against cutting off this supply, claiming that the price demanded was unreasonable, and praying, also, that this court fix the reasonable price to be paid. Defendant, on the other hand, insists that the price demanded is reasonable, and by its answer denies jurisdiction of this court for any purpose.

Complainant is entitled to a preliminary injunction restraining this cutting off of its water-supply pending the final hearing, for the following reasons:

The defendant, in respect to the rights and duties now involved, is a gms¿-pu.blic company, and is bound to make a reasonable price for the water-supply to the borough. And the borough, on the other hand, is bound to pay’ a reasonable sum. Public Service Corporation v. American Lighting Co., 67 N. J. Eq. 122 (Vice-Chancellor Pitney, 1904). The public duty of the officials controlling each of the parties is to agree on a reasonable price for this public service, but if they fail to agree on any price the reasonable price must be fixed by a competent tribunal.

The claim for water heretofore supplied is.altogether legal in its nature, and an action brought solely for the purpose of recovering a reasonable sum for past services, or of determining what is such reasonable sum, is not within the equity jurisdiction. But such jurisdiction exists to maintain the status quo and require 'the continuance of the supply pending the settlement of the question of reasonable price for past supply. If the water company demands an unreasonable price and threatens to cut off the public supply unless this unreasonable price is paid, the municipality has the right to enjoin the company from cutting oft' the supply because of failure to pay such sum. Ordinarily, the scope of the decree in such equity suit would be the determination of whether the price demanded was unreasonable, and if so found then to enjoin the cutting oft of the supply for its non-payment. The equitable jurisdiction in such suit would not extend to fixing either the reasonable sum to be paid for the past supply or for the future. Such being the scope of the final decree, the complainant, if it can show on application for preliminary injunction a fair case for trial on final hearing of the unreasonableness of the price demanded, is, under proper conditions, entitled to a continuance of the supply pending hearing. In the present case the water company demanded $1,600, the price of two years’ service under the last contract with the borough, which expired over two years before the suit. The affidavits show a case where the complainant is entitled to have the question as to the unreasonableness of this sum tried, and they further show that the decision of this question cannot be satisfactorily made on ex parte affidavits, but only upon full hearing and proofs. On proper conditions, complainant is therefore entitled to the preliminary injunction. The conditions to bo imposed depend on the scope of the issues to be finally tried in the suit and the situation disclosed by the affidavits presented. As to water service or supply pending the suit, they should include payment into court (or securing payment) of at least a fair proportion of the amount previously paid; this amount, if taken out or recovered by the defendant, to be applied and credited as payment on account by defendant for water supplied pending suit, without prejudice to either party. Three-fourths of the sum paid under the last contract should he thus paid or secured. As to water service or supply pending suit, the further condition should be imposed that the complainant should stipulate to pay (or secure) such further sum as the court may by final decree, and as a condition or otherwise, direct to be paid for such service or supply pending suit. Complainant’s bill, in terms, offers only to pay a price fixed by a standard referred to, viz., the rate charged to private consumers for water actually supplied. Defendant on its answer and affidavits fairly contests the reasonableness of this standard as applied to public water service, and as it may establish its case on this point at final hearing it has a right to be secured by this further condition for its supply pending suit. The conditions in the present case should not require payment for any portion of the supply previous to filing the bill, for three reasons—-first, under the present pleadings, this question of the amount to be paid as a reasonable price for the water supplied, or ready to .be supplied, previous to the suit, cannot be tried in this court unless defendant consents. It has clearly the right to bring its action at law for past services or supply and cannot be restrained from so doing, and has in its answer objected to the jurisdiction of the court for any purpose. The objection is clearly valid as to the past supply. Second, so far as relates to past-due bills, the company could at any time after the expiration of the contract have sued for the value of its supply, and its omission for two years to sue and test the question of reasonable price in this wáy must, in the absence of any facts showing the defendant’s financial irresponsibility, disentitle defendant to having payment of any portion now enforced by way of condition to supplying water pending the suit. As to the supply pending suit, the equity to payment rests on the fact that this court virtually orders this supply, and in equity it is therefore bound, also, to assure the payment for this service, by the exercise of its powers, i. e., by making the supply pending suit conditional on payment. In the third place, to make such condition would require the borough to pay at once a considerable sum of money, and it does not appear that the money is in hand, or that the statutes regulating the borough would authorize the payment. Payment of the rate now fixed for the pending supply can be provided for by taxation, along with other annual burdens. Unless some money for the purpose of the past water-supply has been already raised by taxation and is in hand, the amount finally recovered by decree or judgment must probably be met as such obligation.

The order for payment of the past-due bills in the Long Branch ■ Oase, ante p. 71, referred to by counsel, was, as I find, made by consent, and the money was in hand ready for payment. In that case, also, the pleadings were by consent so framed that the court of equity undertook the settlement of what was a reasonable price to he paid both for the past and future supply. Vice-Chancellor Pitney, in this case, in his opinion, not yet filed, but which I have seen, proceeds upon the views of the power of the court of equity which I have indicated.

The terms of the order will be settled on notice, unless agreed on.


author: Emery, Y. C.

text:
    John N. Mills, receiver of the F. D. Stephens Company, v. Charles B. Hendershot, et al.
    [Decided December 23d, 1905.]
    1. The directors of an insolvent corporation ordered that corporate property should be transferred to two of their number, who agreed to pay certain creditors. The remaining property was insufficient to pay the corporate debts. The transfer was made in contemplation of the corporation suspending business by reason of its insolvent condition.—Held, (1) that the transfers were void under the Corporation act (P. L. 1896 p. 298 § 61/), and the receiver of the corporation is entitled to recover from each transferee the value of the property received by him; (2) that one of the directors who paid debts of the corporation in consideration of the transfer is entitled to be subrogated to the rights of the creditor to the extent of the debts; (3) that as the transfers were in violation of the duties of the directors and were participated in by all, each is liable for the division of the assets as far as necessary to pay debts.
    2. Dividends paid out of the capital of a corporation are recoverable by the receiver of the corporation on its insolvency, so far as may be necessary for the payment of debts.
    3. Where the stockholders of an insolvent corporation did not continue business for the purpose of giving an officer a salary, and the officer drawing the salary acted in good faith, and but for a division of opinion between him and other holders of the stock who controlled the corporation the business would have been closed up several years earlier, the receiver of the corporation, seeking to recover assets to pay debts, could not recover the reasonable salary received by the officer after the insolvency of the corporation. ' '

      4. Three persons, contemplating the formation of a corporation, entered into an agreement which provided for their salaries as officers of the corporation, and declared that they should be paid from the profits of the business and that the stockholders should be paid dividends before salaries were paid. The certificate of organization did not refer to the agreement, nor was it adopted at the first stockholders’ meeting to organize the corporation. The three persons were elected directors and at their meeting adopted a resolution providing that the dividends and salaries should be paid as specified in the agreement.—Held, (1) that the receiver of the corporation, seeking to recover assets to pay debts, was not entitled to enforce the agreement for that purpose, and could not recover under it salaries paid from the capital with the acquiescence of the stockholders, and (2) that upon a decree in favor of the receiver for payment of debts the court will not on cross-bills by defendants establish the order of liability between the three defendants based on the agreement, but such rights must be enforced by independent suits between themselves.
    5. A stockholder, receiving in good faith dividends declared by the officers of a corporation, without knowledge that they were paid out of the capital instead of the profits, holds them under a constructive trust, and an action by a receiver for their recovery to make assets to pay debts is barred in.six years.
    6. Equity will not interpose the bar of limitations to prevent a re- • ceiver of a corporation from recovering from the directors and officers of the corporation dividends paid to them out of the capital of the corporation, such acts being in fraud of the corporation and its creditors.
    7. A person seeking to enforce a contract entered into between himself on the one hand and a decedent and a third person on the other is, under the express provisions of section 4 of the Evidence act (P. L. 1900 p. 363 § 4), incompetent to testify as to the transactions between himself and the decedent, resulting in the contract.
    S. The contract set up in this case, if proved, established a purely legal and not an equitable liability.
    Hoard on bill, answers and cross-bills, replication and proofs.

      Mr. Charles SUlwell, Jr., for the complainant.

      Mr. Elmer King-, defendant as Stephens’ administrator, pro se.

      Mr. Joseph Einchman, for the defendant Welsh.

      Mr. ATbridge G. Smith, for the defendant Hendershot.
   Emery, Y. C.

The receiver of an insolvent corporation files this bill against the defendants, Hendershot, Welsh and Downs, three of the fonr stockholders of the company, and the administrator of the only remaining stockholder, E. D. Stephens, who is deceased. Eor the purpose of 'paying the debts of the insolvent corporation, a recovery is sought upon three classes of alleged liabilities. Against the two defendants, Hendershot and the administrator of Stephens, the receiver claims the value of goods of the corporation taken by Hendershot and Stephens on a partial division of its assets made between them after its insolvency, and on an agreement between Hendershot, Welsh and Stephens, the only officers and directors of the company, for closing up its business and affairs without legal proceedings. The second claim is a several claim against all of the stockholders, including Downs, for the dividends received by them on their respective stock from the year 1895, it being alleged that the company from that time was insolvent, and that the dividends were paid, not out of the profits, but out of the capital of the company. The third claim of the receiver is against the defendants Hendershot and the administrator of Stephens for a return of their respective salaries since the year 1895. The liability to return the salaries is based partly on an agreement (set out in the bill) made prior to the formation of the company between the three proposed stockholders, Hendershot, Welsh and Stephens, and partly on the claim that since 1895 the business was continued and their salaries drawn with full knowledge of the insolvency of the-company, and that it is liable to the extent of this further depletion of its assets by continuing the business instead of closing up its affairs in insolvency or otherwise. The agreement between Stephens, Hendershot and Welsh was made for the purpose of taking over a general plumbing, heating and tinware business previously conducted by Stephens, and of continuing' the business, with its good will, as the E. D. Stephens Company, Stephens contributing stock, plant and good will, for which paid-up stock was to be issued to the amount of $8,000, $5,000 on the formation of the company and $3,000 by subsequent purchase. Hendershot and Welsh each paid in $2,500 in cash for their subscriptions to that amount. As to salaries, the agreement provided that Stephens, as secretary and salesman of the company, and Hendershot, as treasurer and bookkeeper, should each have an annual salary of $1,000, for which each should give his whole time and attention to the business. Welsh, the president, was to have no salary as such officer, but was to be paid for other services. The agreement contained these further provisions, on which the claim of the receiver is based:

“Said salaries are to be paid from the profits of the business. The stockholders are to be paid a dividend of ten per cent, before anything is paid in salaries, and next in preference shall be the salary of O. B. Hendershot before any other salaries are paid.”

The certificate of organization did not refer to this agreement, nor did it contain the agreement in reference to the payment of dividends and salaries, nor was the agreement referred to or adopted at the first stockholders’ meeting to organize the company. But at the first meeting of the stockholders, Welsh, Hendershot and Stephens were elected the three directors, and at the first directors’ meeting a resolution was passed that the dividends and salaries should be as specified in the article of agreement, which was placed in the book of minutes of the company.

Cross-bills are filed by the defendant Stephens’ administrator; against Hendershot and by defendant Welsh against both Stephens’ administrator and Hendershot. The general object of each cross-bill is to establish against Hendershot a primary liability for the claims made by the receiver, or some of them, if established. This primary liability was claimed at the hearing as arising out of the contract relating to the postponement of salaries to dividends, and it is claimed that by reason of this agreement, Hendershot should be held primarily liable for the salaries received, so far as necessary to pay debts, before any decree for the payment of dividends.

The evidence shows the company, whose business had been ‘ unprofitable since at least 1897, was in serious financial difficulty in the spring of 1903, and that in August, 1903, the Pierce, Butler & Pierce Company, its largest merchandise creditor, with a claim of about $2,100, was pressing for payment and threatening proceedings in bankruptcy. In consequence of this, and for the purpose of closing up the business without the appointment of a receiver, an arrangement was made by which Hendershot and Stephens, with the consent of Welsh, the president, and the other director, each took over, at an appraisement or valuation, stock and goods of the company, Hendershot to the amount of $1,846.48 and Stephens to the amount of $1,530.86. Hendershot, under the agreement for division (which was made in August, 1903), was to pay the purchase price for the goods taken by him to the Pierce company on account of their claim, and shortly after making the agreement, and before actually taking the goods or consummating the agreement, Hendershot did, from his own money, pay $1,800 to the Pierce company on account. After this payment disputes arose between the parties in reference to carrying out the agreement, and it was not until September 26th, 1903, that Hendershot took the goods assigned to him,' and on that date this receipt, signed by Welsh as president and Stephens as secretary, was put on the inventory or bill of sale of his goods: “Received payment of the E. D. Stephens Company, the same to be applied to account of Pierce, Butler & Pierce Manufacturing Company.” Stephens was to pay his purchase price of $1,530.86 toward the reduction of notes of the company, amounting to $3,000, held by the Clinton National Bank, on which Stephens and Welsh were endorsers. The balance of the stock not taken by Hendershot and Stephens, inventoried at a few hundred dollars, and which neither party desired to take, was to be sold by either of them and applied to the debts of the company. The assets were finally divided and the business taken over about September 26th, 1903, Hendershot from that time carrying on the steam heating business and Stephens the other business of the company. Hendershot also undertook the completion of the company’s outstanding contracts for putting in heaters, and has carried these out, paying the expenses and realizing a small profit, which has been used toward paying some of the company’s debts. Hendershot also paid from his own money to the Pierce company $1,800 on account of their claim, leaving about $300 still due, for which claim has been presented to the receiver. Stephens, although he took possession of the stock assigned to him, did not pay anything therefor, either to the company, or by paying the price on the note held by the Clinton bank, or on any other claims. He died in November, 1903, and his estate is insolvent. Some of the goods not taken on the division were in the actual possession of Stephens at the time of his death, and his administrator has sold them, retaining the proceeds in a special account. The Clinton bank’s claim is over $3,700, and other valid claims for over $500 have been presented to the receiver, who has realized from the assets (including the stock not divided between Hendershot and Stephens) less than $600. At the time the assets of the company were taken over by Hendershot and Stephens the company was clearly in an insolvent condition. _ Its assets were not sufficient to pay its debts, and the stockholders not being willing to make further advances, its credit was exhausted. The transfer to these two directors was mads in contemplation of the company suspending its business by reason of this insolvent condition, and must, so far as the receiver representing creditors is concerned, be considered as having been made in contemplation of insolvency. The transfers were therefore void under the sixty-fourth section of the Corporation act, and the receiver is entitled to recover from each transferee the value of the property respectively assigned to him. The section saves only bona fide transfers, without notice and for present valuable consideration, and these transfers were in fact substantially arrangements between the stockholders by which they agreed with each other to prefer two of the creditors by paying to them the money which was due to the company for the equal payment of all its creditors. Had the transfers been made to the creditors direct, they would have been utterly void under the statute, and if arrangements of this kind for disposition of a compány’s assets, on the brink of insolvency, are to be sustained, the law has been circumvented. The fair value of the property taken is admitted to be the inventory value, and the receiver is entitled to a decree against Hendershot and the administrator of Stephens for the amounts respectively taken, with interest. Hendershot, however, having paid debts of the company in consideration of the assignment, is entitled to be subrogated to the extent of the debts paid and to have these debts included as part of the claims against the company. If the estate of Stephens by reason of insolvency does not satisfy the decree against him, then for the balance both Welsh and Hendershot are in the second place equally liable, and Welsh is secondarily liable on the decree against Hendershot for the value of the stock taken by him. The reason is that all three were the only directors and officers of the company, and the division of the assets in contemplation of insolvency, in violation of the statute and of their duties as directors, was made and concurred in by all. Each of. them, in his proper order, is liable for the diversion of the assets, so far as necessary to pay the debts, and the value of these assets is the primary source of payment of the debts of the company. But these values, together with the assets in the receiver’s hands applicable to that purpose, are not sufficient to pay the debts (including in these the amount of the Pierce company claim, to which Hendershot is entitled to be subrogated if he satisfies the decree), and the next question is the right of the receiver to recover for that purpose sufficient of the dividends or salaries. This involves also the question of the order of liability as between the recipients of dividends and salaries. The facts relating to the receipts of dividends and salaries are that from March, 1895, the dividends were paid, not out of the profits, but from the capital of the company. At this time Hendershot and Stephens, on account of the condition of the business, agreed to reduce their combined salaries from $2,000 to $1,000, Hendershot receiving $600 and Stephens $400. The payments of dividends continued up to March, 1900, and the amounts received by the defendants respectively were: Stephens (on forty-five shares), $2,475; Hendershot (on twenty-five shares), $1,375; Welsh, $1,375, and Downs (on five shares), $275. Within the six years prior to the filing of the bill (August 25th, 1904) Stephens received $G75, Hendershot, $375; Welsh, $375, and Downs $75. Eor salaries from and after March, 1895, Stephens received'$800 (nothing later than April, 1896), and Hendershot received $7,100, of which all, except $2,400, was received prior to August, 1898. From 1895 to 1899 Hendershot received salary at the reduced rate of $600 yearly; in 1900 and 1901, after payment of dividends ceased, $800, and in 1902 and to October, 1903, at the rate of $1,000.

Stockholders are liable to the receiver for dividends paid out of the capital, so far as necessary for the payment of debts— Williams v. Boice, 38 N. J. Eq. (11 Stew.) 364 (Chancellor Runyon, 1884)—and for the same purpose officers are liable to refund excessive salaries, as being misappropriation of the assets. Hayes, Receiver, v. Pierson, 65 N. J. Eq. (20 Dick.) 353 (Vice-Chancellor Stevens) ; affirmed on appeal, 45 Atl. Rep. 1091; Davis v. Thomas & Davis Co., 63 N. J. Eq. (18 Dick.) 572 (Vice-Chancellor Reed, 1902); Lillard v. Oil, Paint and Drug Co., ante ¶. 197 (Vice-Chancellor Emery, 1903). Erom April, 1896, Stephens stopped drawing salary or rendering service, and Hendershot from that time seems to have managed the entire business, charging for three years $600 a year, besides receiving $250 a year as dividends. The proofs as to the work actually performed by him would not justify the conclusion that $800 ■was an excessive salary. There was, however, no justification or excuse for the increase of his salary from $800 to $1,000 while the company was becoming more deeply involved every year, and his present explanation of it, that he drew the increased amount because Welsh and Stephens insisted on carrying on the business, and that he was entitled to $1,000 under the agreement, is altogether unsatisfactory as a justification of the increase. Eor the excess over $800 a year he must account to the receiver. So far as the receiver alone is concerned, there would be no liability (independent of the agreement between the stockholders) for the repayment by Hendershot of any of the salary beyond this excess, unless it be considered that the mere continuance of the business, after the company’s capital became impaired, created such liability on his part. There is no evidence to sustain a conclusion that the business was continued by the stockholders for the purpose of giving him the salary, or in any bad faith on Hendershot’s part, and, on the contrary, his evidence shows that but for a division of opinion between him and the other holders of the stock -who controlled the company, the business would probably have been closed up several years earlier. Independent of the agreement, therefore, the receiver, as representing creditors, has no right to recover any further portion of the back salaries from either Hendershot or the Stephens estate. Does this agreement give him, as receiver, any right of recovery for that purpose ? I think not. The agreement was made for the primary purpose of regulating, as between these individual stockholders themselves, and inter sese onfy, the disposition of the profits of the business while these stockholders continued to manage the business and draw salaries, and to define inter sese what should he profits. By force of this agreement, salaries, which are ordinarily expenses of the business, were not, as between the stockholders, entitled to dividends and to salaries also, to be considered as expenses. Seasonable salaries are in fact expenses to be deducted before any profits or dividends are payable, and the receiver, as representing creditors, is, in my judgment, not entitled to the benefit of this contract between these individual stockholders for the purpose of recovering hack the salaries which have been paid to them. From April, 1900, no dividends were paid, and to the knowledge of both Stephens and Welsh, Hendershot took his salary without objection on their part. The contract might perhaps have been enforceable against either Hendershot or Stephens drawing salaries as managers, on the application of any of the other stockholders while the company was a going concern, and if the payment had been objected to; but the other stockholders having for over three years acquiesced in the payment of the salary before dividends, it is questionable whether they could require the return for their benefit as stockholders of a going company. The receiver, as representing creditors merely, occupies a less favorable position, and has no claim to recover the salaries, either diréctly or by way of adjusting any supposed equities between defendants. The decree to which he is entitled on his bill for the payment of debts must therefore he that he is entitled to recover—first, the value of the assets diverted in the manner above indicated by the defendants Hendershot and Stephens; secondly, the salary received by Hendershot, after 1901, in excess of $800 a year; and thirdly, the amounts of dividends. This includes all dividends paid within six years from the time of filing the hill, and the next question is whether the dividends paid prior to this date can be recovered, or whether the statute of limitations is applicable to the claim.

Against defendant Downs there can be no recovery for dividends received more than six years prior to the filing of the bill. He was not an officer of the company, and there is no proof that at the time of the receipt of the dividends before that time he had notice that the dividends were paid out of the capital of the company, instead of the profits. The dividends, when received, were received as his own money, and the receiver can be entitled to their return only on the equitable doctrine that being in fact paid from the capital, a fund held by the company in trust for the payment of debts, the money received for dividends, being in fact capital, was impressed with this trust. But this trust so raised by the doctrines of the court of equity belongs to the class of implied or constructive trusts, and as "to such trusts the general rule is that in the absence of fraud, the statutes of limitation are applicable. In McLane v. Shepherd, 21 N. J. Eq. (6 C. E. Gr.) 76, 79 (1870), the rule was stated and the authorities cited b) Chancellor Zabriskie. The case, however, was one where the remedies at law and equity for the alleged trust wore concurrent, it being a case of agency, and in that class of cases the validity of the defence is settled. Smith v. Wood, 42 N. J. Eq. (15 Stew.) 563, 569 (Vice-Chancellor Van Fleet, 1887); affirmed on appeal, 44 N. J. Eq. (17 Stew.) 603 (1888). In Hayden v. Thompson, 71 Fed. Rep. 60, 69 (Circuit Court of Appeals, 1895), the leading federal authorities for the general rule that the statute is applicable to implied or constructive trusts are collected by Justice Sanborn, and a suit in equity by the receiver of an insolvent national bank against a stockholder for the recovery of dividends unlawfully paid orxt of the capital was held to be barred by the statute, the stockholder having innocently received the dividends in good faith, and without notice of any fact which would lead a reasonably prudent man to learn that the' dividend was not earned. The opinion of Chancellor Runyon, in Williams v. Boice, 38 N. J. Eq. (11 Stew.) 364 (1884.), is relied on as holding the statute not applicable. That was a bill by the receiver of an insolvent bank to recover dividends alleged to have been paid out of capital, and on general demurrer to' the bill this question of the application of the statute, although not raised either in the demurrer or at the argument, was considered by the chancellor and the statute declared inapplicable. As the bill was filed to recover all dividends paid after a certain date and included (as I read the case) dividends paid within six years, the decision of the question whether the statute applied, was not necessary or involved on a general demurrer.' Under these circumstances, I think I am justified in considering the question as not conclusively disposed of by the opinion. On examining the ground upon which it was based, it appears that the decision of-Justice Storjr, in Wood v. Dummer, 3 Mason 308; 30 Fed. Cas. No. 17,944, was mainly relied on. This case was one where the stockholders of a bank, for the purpose of liquidating its affairs, divided the capital without reserving sufficient to pay the debts, and the right of recovery was placed expressly on the ground that the capital stock, being a trust fund, might be followed by the creditors into the hands of any person having notice of the trust attached to it, and that as to the stockholders themselves there could be in the case no pretense to say that both in law and in fact they were not affected with the most- ample notice. Justice Story held that under the charter of the company the capital stock was a trust fund for the creditors, and the stockholders, upon the division, took it subject to all equities attached to it, as impressed with the trust. and cum one-re. Such division of the capital among stockholders on liquidation is plainly a very different transaction from the receipt by the stockholder of dividends of a going company in the ordinary course of business, and legally declared, as he supposes, from the profits, and not from the capital. As to such innocent stockholder, who is liable only by reáson of a constructive or implied trust, which arose by reason of his receipt of the dividends, and which arose also at the time of the receipt, I think the statute should be held applicable.

The other stockholders, however, Hendershot, Welsh and Stephens, who were also the sole directors and officers of the company, as early as March, 1895, knew that the dividends were not páid from the profits, but from the capital. Their receipts of the dividends were therefore in fraud of the company and of its creditors, and a court of equity will not, on their behalf, interpose the bar of the statute. The circumstance that under the Corporation act (section 30) they are not liable as directors after six years does not affect their liability as stockholders for the amounts actually received in fraud of the company, for the liability of each of the directors under, this statute is for the return of the whole dividend paid to all of the stockholders during the administration of the directors, a liability different in its character from that arising from the actual receipt of funds. Hendershot, Welsh and Stephens are liable for the amounts received by them respectively as dividends since March, 1895, and Downs, since August, 1898, so far as necessary to pay the debts of the company, including the expenses of administration. As stockholders they are not liable beyond the amounts 4 respectively received, but the liability is not merely for a proportionate share of the indebtedness, and therefore the solvent stockholders must make up, so far as they are chargeable with . dividends, the deficiency of the insolvent estate of Stephens to pay its share of the debts. The bill is not framed to enforce any liability as directors, and no decree can be made on that basis.

The defendants Welsh and Stephens’ administrator file separate cross-bills, based on the agreement of April 1st, 1892, relating to the payment of dividends before salaries. The cross-bill of Stephens’ administrator is filed against Hendershot and that of Welsh against both Hendershot and Stephens’ administrator. Neither the receiver nor the company is a party defendant to either cross-bill. Both bills make charges against Hendershot relating to the management of the business, but the whole relief claimed at the hearing rests on the enforcement of the agreement by declaring a primary. liability to the receiver on the part of Hendershot on account of Ms receipt of salaries under the agreement. Neither of the cross-complainants asks in this suit a decree against- Hendershot for the payment to themselves of the amounts withdrawn by him, or claim that there were any profits applicable to either dividends or salaries under the agreement after 1895, or at least 1898. Eor the reasons above given, the receiver is not at all entitled to an account of the salaries under the agreement for the purpose of paying debts, and there should be on his decree no provision for this indirect recovery of the salaries by establishing an order of liability between the defendants themselves based on an agreement which he cannot enforce. If the receiver was entitled, as he claimed in,his bill, to a decree for the return of all salaries paid under the agreement, as well as all dividends, then a settlement of the order of liability^, as between dividends and salaries, might be proper. The cross-bills must therefore, on the evidence, be disposed of as independent suits in equity against Hendershot and Stephens’ estate for an accounting for the salaries. Considered on this basis, they must both be dismissed.

Stephens received no salary within six years from the time of filing the bill, and any claim of Welsh against him is outlawed. Hendcrshot’s salary was received with the assent of both Welsh and Stephens, who knew the financial condition of the company, but desired the continuance of the business by Hendershot, the only manager of the business for six years before the bill was filed. Neither of them, therefore, is entitled to recover back from Hendershot the salary for conducting the business, which they together controlled, and which salary both understood he was receiving. These payments, made by consent and with full knowledge of the condition of the company, cannot be recovered or brought into account on the ground that the payment allowed by themselves was a breach of the contract with them.

Treating the payments of salaries as coming within the scope of the contract, the contract-must, as to these payments, be considered as waived or abandoned. But I think that the sounder view is that these payments of salaries (at least those made after dividends ceased in 1900)_were not considered as payments controlled by the dividend. clause of the agreement, for by the agreement neither dividends nor salaries were to be paid except from profits, and from 1900 at least all parties knew that there were no profits to pay either dividends or salaries, and from this time at least the salary was by common consent treated as part of the expense of carrying on the business. If this view be correct it cannot now be recovered on the theory that it was intended by the parties as a payment out of profits under the agreement relating to the division of profits. Both cross-bills must therefore be dismissed.

On behalf of Hendershot the claim is also made by answer, but not by cross-bill, for the enforcement of the contract alleged to have been made with him on the division of the assets that Stephens should pay $1,500 on the Clinton bank notes, and that Welsh and Stephens should take care of the balance due on these notes,' if the assets were insufficient. This enforcement is also sought by the indirect method of directing a primary liability on their part to pay any decree to the receiver. The receiver does not seek the enforcement of this contract or any rights thereunder, for his decree is based on the repudiation of its validity.- Any right, therefore, which Hendershot has against either Welsh or Stephens under such contract is a matter for enforcement by an independent suit, and not by a direction as to the order of liability for the receiver’s decree. The contract, moreover, if considered io be proved by Hendershot, establishes a liability which is purely legal and not equitable, and both Welsh and Stephens’ administrator are entitled to its establishment in a legal tribunal. In Headley v. Leavitt, 68 N. J. Eq. 591 (Court of Errors and Appeals, March, 1905), a claim under a similar contract was sent to a court of law for settlement. It should be further stated that as against the administrator of Stephens there is no evidence of his intestate’s contract to pay the balance due on the Clinton bank notes after paying thereon the value of the, goods taken by Stephens, except that of Hendershot, as to transactions between the intestate and himself. The evidence was objected to at the hearing, and being inadmissible under the Evidence act (P. L. WOO p. 363 § 4-) cannot be considered. On the answer of Hendershot, therefore, there can be no direction in the decree in the receiver’s bill that a primary liability, either for ihe Clinton bank notes or any other debt of the company, must lie first satisfied by either Welsh or the Stephens estate, because of this alleged contract on .the division of the assets. Decree will be advised in accordance with this opinion, and on the settlement of the decree I will hear parties as to a reference.