text:
    John Terhune v. The Trustees of the Methodist Episcopal Church of Matawan.
    [Submitted January 15th, 1917.
    Decided February 27th, 1917.]
    1. Under the facts proved in this case—Held, that there was no agreement on complainant’s part to make no complaint of the noise made by a church clock in striking the hours.
    2. Evidence held to show that such noise was a personal annoyance and discomfort to complainant sufficient to entitle him to relief.
    S. Where complainant had moved into his residence some time after the bell had been installed and rung for ordinary church services, he could not restrain such ringing as a nuisance, but the striking of the hours on the clock will be restrained.
    Heard on bill, answer, replication and proofs.

      Mr. Jacob B. V<m Mater Lefferts. and Mr. Gilbert Collim/im the complainant.

      Messrs. Fort & Fort, for the defendant.
   Foster, V. C.

The bill in this case is filed to restrain the defendants from making a noise by the ringing of a church bell, caused by the striking thereon of the hours; this noise, if is alleged, being of such an unusual degree as to render the dwelling of complainant uncomfortable and to amount to a nuisance.

On the hearing it developed that complainant resides in Matawan in a house on the south side of the church building and twenty-two feét distant therefrom.

Eor a number of years there has been a bell in the church steeple which was regularly rung for the usual church services. About 1914 the Brown estate presented the church with a clock, and the installation of the clock in the steeple was completed on February 26th, 1915, by being connected with the bell so that it would strike the hours. The bell, which is made of bell metal, measures thirty-five inches from its base to the top; it is forty-five inches in diameter at the bottom and twenty-five inches at' the top, and weighs two thousand and fifty pounds; and the hours are struck on it from seven A. M.-to ten p. M., inclusive, by means of a hammer weighing forty pounds. By means of an apparatus attached to the clock, this hammer drops a distance of seven and one-half inches ánd strikes the outside of the bell in ringing the hours, and it takes about twenty-eight seconds for the longest hour to strike, and, in addition to the ringing of the bell on Sunday and at other times for the regular church services, the clock strikes the hours fifteen times between seven a. M. and ten p. m.

The bell is fifty-eight and thirty-two hundredths feet froni the ground, and the distance from the centre of the bell to the upper windows of complainant’s house is forty-six and four-tenths feet; the distance from the bell to the windows in tire living room on the lower floor of his house is fifty-two and eight-tenths feet; the bell has a very loud tone, and when the hours are struck on it they can be heard for a distance of from two and one-half to four and one-half miles. Complainant and members of his family and guests and visitors at his home, as well as occupants of houses adjoining complainant’s house on the south and adjoining the church on the north, and also residents across the street from the church, say the bell has a very loud, harsh tone; that it is annoying and discomforting to them at all times, and that at some times it is startling; that in some cases, and particularly in complainant’s home, all conversation must cease while the hours are struck; that conversations over the telephone while the bell is striking is impossible; that complainant and members of Ms family have been obliged to leave Ms piazza and to close the windows in their rooms because of the noise caused by the bell striking the hours; that if complainant or members ■ of his family retire before ten r. m., they are awakened by the noise of the bell striking the hours; and complainant and his family, and some of his neighbors, say it is impossible, because of this noise, for them to obtain sleep during the daytime if the nature of their work or their condition requires them to do so. Mr. Duncan, a produce commission merchant, whose business makes it necessary for him to sleep during the day, and whose home adjoins that of complainant, states that the noise of the bell awakens him and spoils Ms rest. It wakens him with a start; it has made him nervous'and he had been obliged because of the noise to leave his bed and dress and wait downstairs until it was time to take a train to his business; he and members of his family say they cannot carry on a conversation in their rooms or over the telephone while the. hours are striking. Other residents in the neighborhood of the church testify to the same effect. Complainant and others say the vibrations caused by the striking of the hours is very severe, shaking the house sometimes; and that the.noise is loud enough to echo through the house. And one of the witnesses, who moved from the vicinity of the church, described the noise produced by striking the hours as a “very loud, booming sound; it used to seem to hit the house; * * * it used to wake up the child when he had his nap in the daytime and in the evening when he went to bed.”

The defendants have produced a number of witnesses, some of whom reside or do business in the immediate vicinity of the church, and none of them find the noise of the bell annoying or discomforting; most of them think the bell has a pleasant sound and like to hear it; and some of them find the striking of the hours á convenience in telling the time, and that it does not interfere with conversations in their homes or places of business.

This testimony, so far as it relates to complainant’s case, is, of course, merely negative, and it does not overcome the positive proof of complainant and others who have suffered annoyance, discomfort and .injury from the noise complained of, and I am satisfied that this annoyance and discomfort to complainant and others is real and not imaginary, and that it is the sole basis for his complaint.

During the hearing and on the briefs of counsel attention was called to an agreement or understanding said to have been reached between complainant and the trustee^ of the church at or about the time the clock was installed, which, it is claimed, estops complainant from objecting to the noise about which he now complains. The basis for this contention is, that some time in October, 1914, Mr. Terhune spoke to Mr. Bedle, the president of the board of trustees of the church, about the installation of the clock, and that complainant offered to pay the debt of the church if the clock were not installed; Mr. Bedle told him that as the clock was a gift the trustees would have to install it, but that they would try to arrange so that the hours would not be struck between ten p. M. and seven a. m., and that complainant thereupon remarked, “All right, that settles it.”

I am unable to find that this was an agreement on complainant’s part to make no complaint about the noise caused by the bell. The clock had not then been installed; it was not installed and the bell did not begin striking the hours until the latter part of the following February, and I am unable to say that by the remark quoted, or any other statement attributed to him in the record, complainant bound himself to submit for all time without complaint to such annoyance, discomfort and injury as the noise of the bell should cause him.

I am satisfied that complainant has shown that the noise caused by the ringing of this bell in striking the hours causes him and others positive personal annoyance and discomfort to such a degree as to entitle him to relief from what is to him and others clearly a nuisance. And, in reaching this conclusion, I have taken into account the degree and character of the noise, and also the circumstances and necessity for its occurrence, and also the time or hours of its occurrence, and there is nothing before me to show the necessity for this noise, or that in any way a useful or public service is rendered to the community by the striking of the hours on this bell. This conclusion, I think, is in accordance with the rule stated in Kroecker v. Camden Coke Co., 82 N. J. Eq. 373, and tbe cases collected there, including Seligman v. Victor Company, 71 N. J. Eq. 697; affirmed, 72 N. J. Eq. 946, and in Roessler & Hasslacher Chemical Co. v. Doyle, 73 N. J. Law 521; affirmed, 74 N. J. Law 850, and Gilbough v. West Side Amusement Co., 53 Atl. Rep. 289.

As complainant moved into his present residence some time after the bell had been installed and had been rung for years for ordinary church services, I do not find that he has shown his right to have defendants restrained from continuing the ringing of the bell for such purposes, but a decree will be advised that defendants be restrained from having the bell rung or struck for the purpose of announcing the hours.


source: Caselaw Access Project

author: Poster, Y. C.

license: Public Domain

text:
    Harry Clayton Povey, executor, &c., et al., v. Matthew J. Ready et al. Marcus D. Traurig et al. v. Harry Clayton Povey, executor, &c., et al.
    [Submitted December 27th, 1916.
    Decided February 19th, 1917.]
    Under the evidence in this case—Held, that the judgment was fraudulently obtained and should he set aside, and the sheriff’s sales there-' under declared void, and that all property obtained thereunder should be reconveyed and returned.
    Heard on bill, answer, replication and proofs.

      Mr. Arthur Harris, Mr. William L. Brunyate and Mr. Ralph Hum, for the complainants* Harry Clayton Povey and others.

      Mr. ■ Philip J. Schotland, for the complainant's Marcus D. Traurig and others.

      Mr. Thomas 8. Henry, for the defendant Matthew J. Ready.

      Mr. Edwin C. Gaffrey and Mr. Alfred P. SJcmner, for the defendant Edwin D. Kenyon.

      Mr. William Greenfield, for the defendant Jane A. Taggart.
   Poster, Y. C.

These two cases were tried together. The second action is on a bill of interpleader, and was brought as a result of the situation presented in the first suit, which is brought to have a judgment obtained by Matthew J. Ready against one John Boyle, and all sales and proceedings thereunder set aside as fraudulent.

At the hearing it was established by complainants that John Boyle, a resident of Irvington, in Essex county,.in this state, died on January 16th, 1916, leaving a last will and testament, of which the complainant Harry Clayton Povey was named as executor, and that Mr. Povey has duly qualified and is acting as executor, and that the other complainants, in the first suit, Elizabeth B. Gordon and Alice Deroussen, are the sole devisees under this will. •

Mr. Boyle, at the time of his death, was about seventy years old, and had accumulated property worth about $30,000. •

About ten years prior to his death he had married Florence Rooney, who was then about fifteen years old. In 1907, Boyle and his wife had some difficulty, and the defendant Matthew J. Ready, representing the wife as her solicitor, secured from this court a decree for a weekly allowance of $8 for her separate maintenance.

Later, Mr. Thomas S. Henry was substituted as- solicitor for Mrs. Boyle, because of Mr. Ready’s suspension from the bar in 1908; and still later, in 1912, Mrs. Boyle was represented by the firm of Michael T. & Hugh C. Barrett.

In 1910, while under suspension, Mr. Ready was connected as a clerk or in some other capacity with the law office of Helm & Knight, and, during a part of 191.0 and 1911, he was either in Bermuda or Chicago.

In February, 1912, Mr. Ready’s suspension was vacated by the supreme court, and he resumed the practice of law and was then employed by Mr. Boyle to straighten out the title to his properties and to adjust the claim of his wife for her separate maintenance allowance.

At- this time Boyle was the owner of property at Market and Jackson streets, Newark; another property on Bruen avenue, Irvington, the title to which stood in Boyle’s name as trustee for Elizabeth B. Gordon, and another property situate on Market street, Newark, the title to which stood in the name of Elizabeth B. Gordon as trustee for John Boyle. Ready claims that when Bojde employed him in 1912 to act as his attorney, the employment was on a contingent fee basis by which he was to receive “ten per cent, of the sale price of the property at Market and Jackson streets and $5,000 for vacating .the chancery order and for getting Boyle control of the other property adjoining the Market and Jackson street property.”

In June, 1912, Boyle sold the Market and Jackson street property to the Traurigs, the complainants in the interpleader action, for $25,000, receiving $10,000 in cash and a first mortgage on the property for the balance of $15,000. Mrs. Boyle did not join in the deed for this property.

Because of Ready’s refusal to act, Boyle retained John E. Helm to represent him in contempt proceedings arising out of his failure to pay Mrs. Boyle the $8 weekly allowance, and, in 1913, Boyle consulted with Mr. Charles C. Pilgrim about his property and domestic affairs, and later he retained Eugene H. Meyer to act for him in regard to his wife’s allowance and to secure evidence against her, if possible, as a basis to force her to release her interest in his property. Meyer received $250 from Boyle as a retainer and a written promise that $1,25'0 more was to be paid him by Boyle for his services. Ready claims this arrangement was made with Meyer with his knowledge and approval, because Ready refused to handle this part of Boyle’s affairs, and he further claims that he and Boyle had an understanding that Meyer’s fee was not to interfere with Ready’s fee, and that he probably wrote the agreement between Boyle and Meyer fixing the latter’s fees.

During 1912 and 1913 Ready claims he was endeavoring to obtain Mrs. Boyle’s signature to deeds for her interest in Boyle’s properties, and to obtain her consent to vacate the order for her separate maintenance, and, finally, some time in January or February, 1914, a settlement was effected by Ready with Mrs. Boyle, through Messrs. Barrett, her attorneys, for $2,250; and, some time in the latter month, Ready sent his bill to Boyle for his services. Ready claims Boyle admitted the correctness of the bill, but wanted time in which to pay it, and Ready says Boyle suggested that he add $200 to the amount of his bill as an inducement for Ready to give Boyle time for its payment. About this time Boyle and Mrs. Gordon, who was his housekeeper, and probably lived with him as his wife, had some trouble and she left him. It was then that Boyle consulted Ready about the condition of his properties in which, as stated, he held title to one as trustee for Mrs. Gordon, and in which she held title to the other as trustee for Boyle, although she actually had no interest in either property. Ready, after a week’s delay, told Boyle he could fix the matter up by bringing suit against Boyle, obtaining judgment, and selling the properties to satisfy the judgment, and in this way he and Boyle could also secure some money they needed; and, accordingly, Ready brought suit against Boyle, and, on May 12th, 1914, judgment by default was entered therein, in the Essex county circuit ■ court, for $7,-425 damages and $387.74 costs.

The complaint in- this action contains six' items which are as follows:

“(1) In the month of March, 1912, defendant retained plaintiff as his attorney to transact various legal matters for him.
“(2) That in the month of April, 1912, plaintiff attended the first criminal court, part 2, in Van Burén street, Newark, New Jersey, at defendant’s request, for which service plaintiff claims $50.
“(3) That on or about the twenty-fourth day of June, 191% plaintiff made a search of premises No. 10 Bruen avenue, Irvington, New Jersey, for said defendant and passed title thereto for him at his request, for which services plaintiff claims §175.
“(4) That on or about the last-mentioned date, plaintiff obtained for said defendant at his request §10,000 in cash and a first mortgage for §15,000 on property corner Jackson and Market streets, Newark, New Jersey, for which services said defendant agreed to pay plaintiff §2,000.
“(5) That on or about the 17th day of August, 1912, plaintiff obtained possession of §600 piano for said defendant at his request, for which service defendant agreed to pay plaintiff §200.
“(6) That on or about the twenty-seventh day of January, 1914, plaintiff settled the defendant’s chancery troubles between said defendant and his wife, at his request, by having the decree in chancery therein against the defendant vacated and by settling up property rights belonging to said defendant, amounting to a large sum of money, for which services said defendant agreed to pay plaintiff §5,000.”

Considering these various charges in the order stated in the complaint, Mr. Beady states, in regard to item number two, $50 •—a charge for services in the first criminal court, that he cannot recall what it was about, what services he rendered, or what the title of the matter was, as he kept no docket or books of any kind.

Begarding item number three, the charge for $175, it appears the property on Bruen avenue, to which this charge relates, was purchased by deed dated June 19th, 1912, from the proceeds of the sale of the Market street property on June 18th, 1912, and that Beady, according to his complaint, rendered services in searching and passing title to this property on or about June 24th, and it also appears that Beady did not search the title to this property, but that he employed one Beilly to do it for him at a cost of aborit $100, and that Beady was not present, at Boyle’s expressed request, when Boyle took title to the property and paid the purchase price of $5,000 therefor; although the item in question states that the charge is made not only for the search but for Beady’s services in passing title to the property at Boyle’s request. It further appears that on June 14th, 1912, ten days before these services are claimed to have been rendered, Beady received from Boyle $55 on account of $300 for legal services to be performed, but it does not appear if the balance of this amount was paid or what was the nature of the legal services to be rendered, unless it was, as Ready explains, that after the contract for the .sale of the property at Market and Jackson streets was closed, he was to have the property sold for taxes of about $80, in order to clear up the title to be given the Traurigs, and, after settling with the city comptroller, he was to have what remained out. of the $300. . ,

The fourth item of the complaint is the charge of $200 for replevining a $600 piano in the district court. This piano had been bought seventeen years before the replevin suit for $170. Ready at the time this action was brought was under suspension from practice, and the action was actually brought in the’ name of Helm & Knight, as attorneys, and charged for by them.

The remaining item of the complaint is the charge of $5,000 for settling Boyle’s trouble with his wife for $2,250, and in settling up property rights belonging to Boyle.

Mr. Hugh C. Barrett, who acted on behalf of his firm in representing Mrs. Boyle, says she never asked more than $2,500 for the settlement of matters between herself and Mr. Boyle; he contradicts Mr. Ready, who claims Senator Barrett was actually representing Mrs. Boyle, and states that because of his illness Senator Barrett had very little, if any, knowledge of the matter, and that he personally conducted negotiations for a settlement with Mr. Eugene Meyer, and not with Mr. Ready, until a few days before the settlement.

In explanation of this charge, Ready states that Boyle was very much worried over the amount of $8 which he was compelled to pay his wife weekly; that he claimed if it continued it would impoverish him; that it represented the interest of five per cent, on nearly $9,000, and that he couldn’t afford to pay it any longer. By the settlement with Mrs. Boyle these weekly payments were ended and her dower rights in Boyle’s properties were released. To effect these results, and for clearing up Boyle’s property interests, Ready claims Boyle agreed to pay not only $2,250 to Mrs. Boyle, but $5,000 to him, or a total of $7,250, the interest on which at five per cent, is within $100 a year of the amount Boyle had been paying his wife. Ready did not clear up the difficulties connected with the other property owned by Bojde on Market street, Newark, or on Bruen avenue, Irvington.

Under 'the judgment obtained by Eeady for the above charges, execution was issued on May 13th, 1914, and on June 8th, 1914, the sheriff of Essex county, by virtue thereof, sold, in the presence of Eeady, Boyle and Alice Deroussen, one of the complainants, and Boyle’s niece, all of Boyle’s personal property to Alice Deroussen for' $1,000. Included in the levy was the purchase-money mortgage for $15,000 given by Traurigs to Boyle. Mrs. Deroussen never paid the amount of her bid, never received a' bill of sale for the property, and supposed she was buying in the property for her uncle.

On August 18th, 1914, under this execution, the real estate on Bruen avenue, Irvington, in the name of John Boyle, as trustee, was sold by the sheriff to Mrs. Deroussen for $1,000. She never had a deed for the property delivered to her and never paid the amount of her bid and supposed she was also buying in this property for her uncle, “to get him out of the tanglement of his property,” for which purpose she heard Boyle and Eeady agree that the judgment should be obtained and ’the property sold thereunder j and that Eeady admitted to Boyle that the judgment was taken only for this purpose, as Boyle did not owe him anything. Eeady states that Mrs. Deroussen’s testimony on this point “is half the truth and half a lie.” Mr. Boyle, after these sales, continued in the possession, use and enjoyment of both the personal and real property, and collected the interest and income therefrom.

After Boyle’s death in January, 1916, and on April 11th, 1916, the defendant Jane A. Taggart brought an action of replevin for some of the personal property, including the horse which Mrs. Deroussen had purchased at the sheriff’s sale on June 8th, 1914, and an examination of the records then disclosed that on August 17th, 1914, a bill of sale for this personal property from the sheriff to the defendant Jane A. Taggart had been recorded, and that on April 13th, 1916, a deed from Mrs. Deroussen and husband to the defendant Jane A. Taggart for the property at Irvington had been recorded. This deed bears date August 18th, ■ 1914, the date Mrs. Deroussen supposed she had bought in the property at the sheriff’s sale, and the certificate of acknowledgment is signed by the defendant Eeady; the consideration is stated to be “$1,000 and other valuable consideration.”

The explanation of the execution of this deed given by Mr. and Mrs. Deroussen, who are an elderly respectable couple, with very little knowledge of law or of legal papers, is, that shortly after the day of sale, Eeady, accompanied by Mr. Boyle and some others, called at the Deroussen home on Long Island; that they appeared to be in a great hurry; that Eeady briefly explained that before. Mrs. Deroussen could obtain title to the property it was necessary for her to sign the sheriffs deed, and she and her husband thereupon signed and acknowledged the deed, receiving no consideration therefor and thinking she was taking title for her uncle John Boyle. They did not then, and do not now, know Miss Taggart, except as they have seen her in court during the hearing.

After Bojde’s death, and about March 20th, 1916, Eeady assigned the judgment he had obtained against Boyle to the defendant Edwin D. Kenyon, a New York lawyer, and a friend of Eeady and Helm, for the stated consideration of $5,000. Of this amount Mr. Kenyon states that onty $500 was paid, the balance was not paid because of this suit. This $500 Mr. Kenyon states was paid in cash when Eeady gave him tire assignment, and he gave Eeady nothing to show that $4,500 of the consideration remained unpaid, or when it was to be paid, but after making this payment of $500, he gave the assignment to Mr. Eeady to have it recorded, and took no receipt from Mr. Eeady for the assignment or for .the $500 which he had paid him. .. .

The explanation of these transactions given by the defendants Eeady and Jane A. Taggart is, that Mr. Boyle w-as indebted to Eeady for $7,500; that he was unable or unwilling to settle with Eeady when asked to do so; that they frequently had quarrels about a settlement and about Eeady’s and Boyle’s need of money; that at the end of one of these quarrels, Helm, the employer or partner of Eeady, suggested that Eeady sue Boyle, obtain judgment against him, and either raise money on the judgment or hold it as security. Acting upon this suggestion, Boyle thereupon allowed Eeady to obtain the judgment by default; that thereupon Boyle’s property was levied upon and advertised for sale by the sheriff.

Shortly before the sale of Boyle’s personal property was to take place, Boyle told Ready that in order to raise some money for both of them he would be willing to sell the Traurig mortgage, the principal of which was then $12,750, and the property on Bruen avenue, Irvington, worth between six and seven thousand dollars, and his household effects, horse and carriages, for one-half of their value, if he could continue to collect the interest on the mortgage and occupy the house and use his personal effects so long as he lived. Ready thereupon brought the matter to the attention of Miss Taggart, who some years before had been employed by him as a clerk and typewriter, and who some years before had employed Ready in her roofing business, during his suspension from practice. Ready pointed out to Miss Taggart how she could make money by accepting Boyle’s offer and persuaded her to invest her savings in the purchase of Boyle’s properties. Miss Taggart met Boyle and Ready and agreed to buy the personal property and the Traurig mortgage for $4,500, upon the condition that the bond and mortgage should be turned over ^ to her when she paid the money and Boyle had executed and delivered an assignment of them to her, subject, however, to Boyle’s right to collect the interest as long as he lived. She also agreed to buy Boyle’s real estate at Irvington for $4,000, subject to Boyle’s right to occupy the same for life on the payment by him to her of an annual rental of $50, and all taxes, water rents, as-' sessments, &e. She would not, however, buy the real estate at sheriff’s sale, as she thought a sheriff’s deed worthless, and insisted on having a warranty deed. Boyle agreed to have his niece buy in the real estate and convey the same to Miss Taggart by warranty deed. The sheriff in his original levy had not included the Traurig mortgage, but at Ready’s suggestion this was added, and on the day of sale they say Mrs. Deroussen was not present; that as the deputy was about to sell the personal effects Miss Taggart produced $4,500 in money, which she handed to Ready or Boyle, and in return Boyle handed her the bond and mortgage, but not an assignment of them. Ready then bid in the personal property in Miss Taggart’s name for $1,000, although she says it was worthless and that she would not give $200 • for it. Mr. Boyle never executed an assignment of the bond and' mortgage, and the mortgagors were never notified during his lifetime of their sale to- Miss Taggart, or anyone else. After the sale of the personal property Eeady had Boyle examined in supplementary proceedings—for what purpose or object does not appear—and later the real estate at Irvington was sold by the sheriff to Mrs. Deroussen, -who later conveyed the same, to carry out the agreement claimed to have been made between Mr. Boyle -and Miss Taggart. This deed from Mrs. Deroussen contained a provision that the conveyance was made subject to a life interest therein of John Boyle on the payment by him of $50 annually to Miss Taggart, and also all taxes, water rents, assessments, &e. Miss Taggart claims that at the time of the sheriff’s sale of the real estate she paid $1,200 on account of the purchase price -of $4,000, and obtained a receipt therefor from Eeady, and in the following January she says she paid the balance of $2,800 and received a receipt therefor from Eeady, who then delivered to her the deed from Mrs. Deroussen. At the- time Miss Taggart claims- to have paid the $4,500 for the personal property, Eeady claims he took the monéy and counted it and retained $2,000, which he applied on account of his judgment, and gave the remaining $2,500 to Boyle. The bid o-f $1,-000, which Eeady claims he made for Miss Taggart for Boyle’s personal property, was only a fictitious one; no payment was made to the sheriff or his deputy, but Eeady gave the sheriff a receipt for $1,000 on account of his judgment and execution. Neither was the $1,000 paid for or by Mrs. Deroussen when she bid in the real estate, but Eeady at the time of receiving the sheriff’s deed gave the sheriff a receipt for. $907 and paid the sheriff’s fees.

Miss Taggart claims that the $8,500 -which she paid for Boyle’s real and personal property was money which she- had1 saved from her earnings and investments. It appears that she worked as a cleric for Eeady for about a year, nearly ten years ago-. She received a salary of about $12 a week, and made in addition about as much more from outside work. When Eeady was suspended from practice Miss Taggart says 'about 1909 she went into the roofing business, in which her brother, J. A. Taggart, was, and still is, engaged; that she employed Eeady and paid him a salary and commission whenever he worked; she claims she did quite a business while trading with a Mr. Naylor, until 1912, and that since then her roofing business has been conducted'on a much smaller scale. She states she also conducted a company dealing in tax sales certificates of property which she understood was sold by the sheriff, and that Eeady managed this business for her; she claims this business was very profitable, and that when Eeady and Boyle suggested that she buy Bojde’s property, she had about $5,000 cash on hand; this money she did not keep in bank, but kept it in a box which she concealed in the fireplace in her home; from this $5,000 she made the $4,500 payment. • In August following she paid $1,200 cash on account of the purchase of the real estate, and in January,‘1915, she borrowed $800 from her sister, and with money she claims she had made in the meantime from tax titles, she completed the payment on the real estate by paying the balance of $2,800. Her sister had no bank account; and she also kept her money in the box in the fireplace.

After the sale of the personal and real property, Miss Taggart claims she retained the bond and mortgage and that Eeady .thereafter always endorsed the interest payments made thereon, as attorney, and that Boyle collected the interest and remained in possession of the house and household goods and the horse and carriages until his-death; that Eeady had possession of the bill of sale from the sheriff, and the deed from the sheriff and also the deed from Mrs. Deroussen. At the time Miss Taggart bought the bond and mortgage, the principal due thereon was $12,750, and she understood that Boyle and Eeady were to have the privilege of collecting $750 of this amount, and that $12,000 was the amount that she was to receive from the property.' Miss Taggart and Eeady claim that when she consented to buy Boyle’s property, she insisted upon two things, viz., that the bond and mortgage should be in her hands when she paid the $4,500, and that she must have a warranty deed for the real estate, as she considered a sheriff's deed worthless. She made no investigation'of the properties: she did not ask for a written assignment of the bond and mortgage; and her reason for insisting on a warranty deed was because she understood the party who gave the deed would have to pay her the $4,000 she paid for the property, if anything happened; she did not. make any investigation of Mrs. Deroussen’s financial responsibility when she agreed to take the warranty deed from her. When she paid the $4,500, Ready-turned his back on the deputy sheriff and divided the money between himself and Boyle, while the sReriff was selling the property.

In the mortgage which Miss Taggart claims she bought is a provision, to the effect that the principal secured thereby should not become due unless and until any dower rights should be paid out of the proceeds thereof.

It also appears that when Miss Taggart claims she engaged in the roofing business, Ready and one Stowell were to engage in the business with her; that they were each to have a one-third interest in the business and a certificate was executed by Harry Stowell, J. A. Taggart and M. J. Ready and filed, in which they assumed “Stowell Paint and Roofing Company” as a trade name. This certificate was typewritten by Miss Taggart, and the acknowledgment written by her for J. A. Taggart .states that he has read the foregoing certificate, &c. Ready and Miss Taggart explain this as a typographical error, and say that it does not refer to James A. Taggart, the brother of Miss Taggart, who was then conducting a roofing business under the name of J. A. Taggart, at the same address at which they proposed to do business. As stated, Miss Taggart says she, only paid Ready when he worked, and Ready claims that after some months’ experience in the business he left it, and went to Bermuda, because Miss Taggart refused to recognize that he was entitled to a one-third interest in the business. Notwithstanding this breach in their relátions, Miss Taggart retained absolute confidence in Ready, and because of this confidence, and on his advice and judgment, she made the purchase of Boyle’s property. At the time of the sales of the personal and real property Ready, according to Ids receipts, was acting as attorney for himself, for Mr. Boyde, Miss Taggart and Mrs. Deroussen, and although he knew at the time Miss Taggart was not getting a valid title to the Irvington property, because of the trust in favor of Mrs. Gordon, he did not disclose this fact to either Miss Taggart, who bought the property, or to Mrs. Deroussen, whom he had induced to give a warranty deed for the property.

Because of the serious nature of the charges made in this action affecting a member of the bar of the state and an officer of this court, I have thought it advisable to recite the principal facts established, in order that a comprehensive view may be had of the situation.

These facts, to my mind, conclusively show that Ready and Miss Taggart, with the» assistance of relatives and friends, entered into a conspiracy to defraud Boyle of his property.

The fraud is clear and unmistakable. Ready took advantage of the confidence he had inspired in Boyle—a heavy habitual drinker, a man of “dull .intelligence,” as Judge Pilgrim describes him, of meagre education—and under the pretence that he was to relieve him of his domestic and property 'troubles,-he induced Boyle to allow Ready to obtain judgment against him for thousands of dollars Boyle did not owe him. Ready went through the form of having a levy made on Boyle’s property and a .sale thereof to Boyle’s niece, Mrs. Deroussen. I am satisfied she, and not bliss Taggart, was the person who bid in the personal and real property. After the levy on the household goods, Ready bethought him of the Traurig bond and mortgage, which the deputy had not included in the list of property attached to the levy; he caused them to be added and tiren directed the sheriff’s deputy not to sell them, as he claimed they had been previously sold at private sale to Miss Taggart. As a matter of form, carrying out the original scheme of Boyle and Ready, the property was sold to Mrs. Deroussen in Boyle’s presence, but in Boyle’s absence a bill of sale prepared by Ready was given for the balance of the personal property, a month after the sale, by the sheriff to Miss Taggart.

It is significant to note that the deputy, despite Ready’s orders, apparently sold everything covered by his levy, including the bond and mortgage, and that the bond and mortgage is not mentioned in the bill of sale which Ready prepared.

After this sale Ready had Boyle examined in supplementary proceedings—for what reason does not appear—as Ready says lie was entirely familiar with Boyle’s affairs and properties.

There was nothing in the entire transaction to arouse Boyle’s suspicion. The judgment was obtained as he agreed it should be: the amount of it was apparently unimportant; his personal and real property was sold and bought in by his niece, Mrs. Deroussen—an object of his bounty, and to whom by his will he left half of his estate; his enjoyment of-his property was uninterrupted; he collected the interest on his mortgage from Traurig; he occupied his home, drove his horse and was lulled ■into the belief that Ready, his attorney and companion, had straightened out' his affairs in a satisfactory manner. At or shortly before the time Ready sued him, Ready had paid back to1 Boyle money he hack advanced to enable Ready to adjust matters for him or to pay Ready for services he was to perform. Boyle was not called upon to execute an assignment of the bond and mortgage-or a deed for the Irvington property. His troubles with his wife had been settled two years before. The only matters he had to worry him was the title to the Market street and Irvington properties, which were-held in trust and which apparently Ready had cleared up¡ by his judgment and the sheriff’s sales, although as a matter of fact he had not clone so; the insurance covering the mortgage and that covering the Irvington property was not changed; Mrs. Deroussen, after buying-in the -property, had not interfered with him in any waj-, and had executed a deed at his request, which Ready prepared, which for all Boyle'knew had conveyed this property to him; this deed was carefully kept off the record until after Boyle’s death, and Boyle died, evidently believing he was the owner of all the properties over which he had exercised ownership while living.

I am satisfied Miss Taggart never saved from her work as a clerk and in the roofing business- and the tax sale business and had on hand $5,000 or $7,000, or any such sum. In fact, I doubt if she were ever in the roofing business, or in the tax certificate business. The initials of her brother’s name are similar to her own; ‘admittedly, he was, and still is, engaged in the roofing business in a very small way, and it would appear from the form of the acknowledgment to the certificate that he, and not'she, was the J. A. Taggart referred to therein. B'u-t if it be considered that she was in this business between 1909 and 1912, then the profits therefrom-, according to the certificate on file, were to be divided among herself. Ready and Stowell; and it appears from Naylor’s books, the dealer with whom they traded, that she never bought any ihaterial, and that in 1910 Ready bought about $262-worth of material, and that in 1911 he bought about $165 worth, which certainly indicate that no great profit was made by either of them from the roofing business. Furthermore, I am not convinced that either Miss Taggart or her sister ever had the sums of money they claim to have invested in Boyle’s property; they were both too impertinent and evasive when examined on this point, and, in addition, they both appear to be too intelligent io place the savings of sixteen years in any investment without some investigation. Miss Taggart claims she expected to realize at least $12,000 from the Traurig mortgage-which she was buying for $4,500, and yet- the mortgage by its express terms informed her that she would not receive one dollar of this sum until all claims for dower in the property covered by the mortgage had been paid from the principal sum secured thereby. She made no inquiry about Mrs. Boyle’s dower rights at the time she claims to have bought the mortgage, and was not informed that they had been released; there is nothing in the record to show that she knew that Mrs. Boyle’s claim had been settled; she wishes it believed that she invested her life’s savings in Boyle’s property on representations made by Ready and Boyle, without such investigation, and without a written assignment of the bond and mortgage from Boyle to herself, although Bojde and Ready had promised her a written assignment as soon as she had paid the purchase price; and although she knew according to her statement that Ready was having B-oyle’s property sold by the sheriff in order that Boyle and Ready could raise some money, she was content to take receipts from Ready, as attorney for an unnamed client, and never asked Boyle to give or sign a receipt. During the period between June, 1914, and January, 1915, she managed, she claims, to have accumulated about $2,000 from her profits "on tax certificate sales, but she is unable to name a single such transaction from which she derived a profit; and Ready, who she says managed this tax sale business for her, is silent on the subject.

Another significant circumstance is that, like Ready, she has no books from which information about her business and the extent of it can be obtained; she never had a bank account, and whatever books she kept are incomplete, or are lost; all her transactions appear to be cash ones, and the entire absence- of checks, vouchers or receipts, except receipts from Ready, warrants the conclusion that her extensive business and the profits made therefrom are purely fictitious. Miss Taggart shows her ignorance of the tax certificate sale business which she.sa}rs Ready has largely managed for her since 1910, when she states that the business consists in dealing in tax certificates for properties that are sold by the sheriff when people don’t pay their taxes. With this display of ignorance on her part, I am unable to believe that she ever invested in the course of any year $1,000 in such certificates, as she claims to have done, or even made the profits from this business which she claims.

Consideration of the reasons given by Ready for obtaining the judgment against Boyle only goes to confirm the impression that Ready’s conduct was fraudulent throughout. His contention that Boyle was indebted to him, on an agreement for the amount of the judgment, is shown to be false.; his failure to explain why he repaid money to Boyle at the time he claimed Boyle owed him thousands, demonstrates this;, furthermore, his claim that the judgment was obtained and the sales of the properties held for the purpose of enabling him and Boyle to obtain money they both badly needed, is not borne out by the results. When Miss Taggart, as she claims, paid Ready on Boyle’s account $8,500, with this money in hand and his necessities'pressing him, Ready only retained $2,000 and turned $6,500 over to Boyle. This $6,500 was not paid in one sum. From the first payment of $4,500, in June, 1914, Ready says he retained the $2,000; when $1,200 more was paid, in August, on. account of the Irvington property, Ready deducted nothing from this amount, and claims he paid it over to Boyle; and, again, on January 2d, 1915, when it is claimed Miss Taggart paid Ready the balance of $2,800, he deducted nothing therefrom, but turned the entire amount over to Boyle. If Ready’s necessities were so great in May, 1914, that he had to have money and was obliged to sue Boyle in order to obtain wliat ho claimed was owing him, I cannot understand why Ready did not get more of the money which it is claimed Miss Taggart paid for Boyle’s properly, particularly as Ready knew that all of Boyle’s property out of which his judgment could be satisfied was being sold to Miss Taggart for less than half what it was worth, except the trust property on Market street, and when he felt that he could not proceed against this property because of an unexecuted trust in favor of his nephew, which he'says Boyle created therein. Not only did Ready fail to press the collection of the judgment on which he was anxious to obtain his money, at the times mentioned, but he waited for nearly ten months after the first payment and until after Mr. Boyle’s death before he did anything more to realize on his judgment; and then, in March, 1916, he sold the judgment tó the defendant Ivenyon; without informing Kenyon of the nature, extent or condition of Bojde’s property, and without telling Kenyon how the judgment could be collected, he induced Kenyon to buy the balance of his judgment 'against Boyle for $5,-000. Kenyon, without question or investigation, agreed to buy the judgment and to pay $5,000 therefor, and he took an assignment of it in which the consideration was expressed as $5,000; he claims he then paid Ready $500 on account ánd was to pay the balance in sixty days. Like Miss Taggart, Kenyon distrusts banks, and he says he had this $500 in cash in his safe and paid it to Ready, taking 'no receipt therefor, being satisfied with the assignment of the judgment which he handed back to Ready to have recorded.

If Ready had honestly obtained this judgment for money actually, owing him, and of which he was in need, I do not understand and could not obtain from him any satisfactory explanation to show why he did not retain inore of the money-which he claims Miss Taggart paid Boyle, through him, to 'apply on the judgment ; nor could I learn why he did not proceed in a regular, orderly way to collect the amount of the judgment from Boyle’s property which was amply sufficient for the purpose.

Possibly, the explanation, if given, would also explain why Boyle’s bank accounts, of which he had three or more, do not show the deposit of moneys therein about the times or in any-tiling like the amounts which Ready and Miss Taggart sáy were paid him.

My conclusion is that Ready and Miss Taggart have perpe- ' trated a fraud upon Mr. Boyle and upon his estate; that the judgment obtained by Ready with Boyle’s consent, for the purpose of adjusting Boyle’s affairs, and the sheriff’s sales thereunder, have been fraudulently used by Ready and Miss Tag'gart to obtain possession of Boyle’s property. I find that Boyle was not indebted to Ready for any amount at the time the judgment was obtained, and that any judgment Ready obtained therefor and claims the benefit of was fraudulently obtained, and that Boyle’s defence thereto was lost through his ignorance and Ready’s fraudulent conduct.

I'also find that Miss Taggart did not buy Boyle’s real ox personal property, or the bond and mortgage, or any or all of them, and that she did not pay $8,500, or any other sum therefor.

I also find that Kenyon was not a bona fide, purchaser and assignee of Ready’s judgment. I am not convinced that he ever paid or agreed to pay Ready $5,000, or any other sum therefor, or that he ever paid Ready $500, or any other sum, on account thereof.

Because of the parties involved, and the peculiar nature of the caso,' I have permitted the defendants to testify to transactions with Mr. Boyle in his lifetime, believing, if fraud existed, the facts could be best ascertained by giving Mr. Ready and Miss Taggart all the opportunity they asked to present their version of the matter. And I am convinced very largely by their own testimony that they are guilty of the fraud charged against them, and a-decree will be advised that the judgment should be set aside, and the sheriff’s sales thereunder be declared void, and that Miss Taggart be directed to return and roconvey all of the properties she obtained thereunder, and that the money paid into court by the complainants Marcus Ü. Traurig and others, as ' mortgagors, be paid to the defendant TIarry Clayton Povey, as 'executor of the .last will and testament of John Boyle, deceased, and that the bond and mortgage of said complainants to said John Boyle bo, on such payment being made, surrendered to the complainants for cancellation.


author: Lane, Y. C.

text:
    Jennie R. Morse v. Metropolitan Steamship Company et al.
    [Decided February 13th, 1917.]
    1. It is within the power of a court of equity to appoint a receiver for a corporation not insolvent:

      (a) \Yhenever, because of gross abuse of trust, or dissension among the members of the board of directors or the stockholders, or the absence of a properly constituted board of directors, or because the company has failed of its purpose, there is a necessity for judicial intervention, a court of equity may under its general powers appoint a receiver and'grant such other relief as may be necessary.
    (5) A court of equity may, if it appears that the business of a solvent corporation cannot continue to be properly conducted by reason of the fact that no proper competent board of directors can ever be elected (as for instance, if the .stock must continue in control of those convicted of gross fraud in the management), under its general equity powers actually wind up the business and distribute the assets. —"
    2. A majority of the stockholders, no matter how large, has no right to divert to themselves assets of the company to the detriment of creditors and other stockholders. ^
    3. lYhen they fraudulently attempt to do so they become to all intents and purposes trustees.
    4. The acts done by a majority of the stockholders in this case create a situation where the appointment of a receiver, on petition of the minority stockholders, is proper.
    5. No stay" of appointment of a receiver in the interest of the stockholders should be granted where there was evidence that the purpose of applying for it was to commence proceedings in another state to deprive this court of jurisdiction.
    On bill, &e.

      Mr. English {Mr. Littleton, Mr. Swacker and Mr. Brown, of the New York bar), for the complainant.

      Mr. Frederic J. Faulks and Mr. Ward, for the defendants.

      Mr. Wickersham (of tlie New York bar), for a creditor.
   Lane, Y. C.

(orally).

1 announced yesterday that I would appoint a receiver at once, owing to what I consider to be the exigencies of the occasion. It is now stated that appeal will be taken to the court of errors and appeals, and, as there may be a necessity for an early application to thát court for ad interim relief, I will announce my conclusions on the law at this time. Counsel for the defendant corporation has made application for a stay of the operation of the order or interlocutory decree and the application has been argued as if the order had actually been signed. I am going to. deny the application, for the same.reasons which induced me to act at once yesterday induce me now to refuse to practically nullify the action I then took. •

The case was fully argued and I have examined the authorities cited. I will not attempt to analyze them to any great extent. 'The power of a court of equity to appoint a receiver of a corporation, not insolvent upcler certain circumstances, has been before the courts of this state in several cases, and I think is clearly settled. In Benedict v. Columbus Construction Co., 49 N. J. Eq. 23, the chancellor, while holding that the court cannot dissolve a corporation or declare its franchises forfeited and extinguished except under statutory provisions, yet said • that “but where it plainly appears that the object for which the company was formed is impossible of attainment, it becomes the duty of the company’s agents to put an end to its operations and wind up its affairs, and should the3r, even though supported by a majority of the stockholders, pursue operations which must evidently be ruinous, any shareholder feeling aggrieved would, upon, plain equitable principle, be entitled to the assistance of this court, and a decree should be made compelling the directors to wind up the company’s business and distribute its assets among those who are entitled to them unless they can lawfully be used for other business purposes allowed by the charter. This course is pursued in case of partnerships in similar situation and for the reasons there controlling I perceive no reason why it should not also be pursued in the ease of corporations.” He also said: “If stockholders in a corporation disapprove of a company’s management which is conducted without fraud'or by action ultra vires, or in gross abuse oí trust, or shall consider their speculation a bad one, their remedy is to elect new officers or sell their shares and withdraw/' In Einstein v. Rosenfeld, 38 N. J. Eq. 309, the chancellor, while not doubting his power to appoint a receiver, did not do so under the circumstances of that case. In Avery v. Bless Manufacturing Co. et al., 27 N. J. Eq. 412, the chancellor, upon a bill filed for relief against fraudulent acts of a board of directors alleged to be unlawful, did appoint a receiver. He said: “The property must be preserved pending this litigation, and the conduct of the president and his associates in the direction has been such that they cannot be permitted to retain control of the affairs of the company.” This is precisely the situation I find exists here. In Kean v. Colt, 5 N. J. Eq. 365, the chancellor, while declining under the circumstances of that case to appoint a receiver, yet did not doubt his power. In Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. 756, the court of errors and appeals, reversing Yice-Chancellor Pitney, who had appointed a receiver, said: “The frauds of' these defendants as directors of this corporation are all capable of adequate remedy and complete redress by the court within the principles of remedial and preventive equity. This being so, the court was not justified in a decree of first instance in stopping the business of a solvent company and taking possession of its affairs for the mere purpose of aiding, the withdrawal of the injured party with a proportionate share of the corporate property and its increment, assuming such jurisdiction to exist in any case in the first instance.” I direct attention to the language used by the court in that case, to wit, where the wrongs are capable of adequate remedy and complete redress. In Sternberg v. Wolff, 56 N. J. Eq. 396, the court of errors and appeals was careful to say that that court, in Fougeray v. Cord, 50 N. J. Eq. 185, 756, did not deny the power of the court of chancery to appoint a receiver pendente lite for the management of the affairs of an incorporated company organized for the purposes of trade. It said: “The ruling of this court was that The disturbance of corporate functions incident to a receivership are extreme powers, and may not be decreed by a court of equity when the specific acts complained of are capable of redress and complete restitution, and those apprehended fall within the ordinary jurisdiction by injunction.’ ” In the last case the court cited with approval Edison v. Edison United Phonograph Co., 52 N. J. Eq. (at p. 620), in which case Yice-Chancellor Yan Fleet had said: “The power of this court to appoint a receiver of a corporation, either because it has no properly-constituted governing body, or because there are dissensions in its governing body as to make it impossible for the corporation to carry on its business with advantage to its stockholders, I think must be regarded as settled, but 1 think it is equally well settled that this power is subject to certain limitations, namely, it must always be exercised with great caution and only for such time and to such an extent as may be necessary to preserve the property of the corporation and protect the rights and interests of its stockholders. As soon as a lawfully-constituted and competent governing body comes into existence, whether it is brought into existence by an adjustment of the dissensions or by the election of a new body, and such body is ready to take possession of the property of the corporation and proceed in the proper discharge of its duties, the court must lift its hand and retire.” I do not find all the circumstances under which the court may intervene have ever been definitely determined. In the nature of things they could not be. I do not find that the courts of this state have in anywise limited the. general doctrine which prevails in England and throughout this country that whenever because of gross abuse of trust, because of dissension among the members of the board of directors or the stockholders, because there is no properly-constituted board, or because the company has failed of its purpose; there is a necessity for judicial intervention a court of equity may intervene under its general jurisdiction and appoint a -receiver and grant such other relief as may be necessary. The text-hook authorities aro to the ■ effect that the power exists, but that, of course, it must be exercised with discretion. 5 Thomp. Corp. 6826; Beach Bee. § 1$1+; 2 Mach. Corp. § 1161; Clark & Mar. Corp. § 556; High Rec. (4th ed.) § 288.

T will refer to only two of the cases from other jurisdictions cited by counsel for the complainant, because the facts are almost similar to those in the case at bar. Dupuy v. Transportation Company (Court of Appeals of Maryland), 33 Atl. Rep. 889; Miner v. Belle Isle Ice Co. (Supreme Court of Michigan), 53 N. W. Rep. 218. In the latter case the court held that because it would be impossible to elect a proper board of directors, for the reason that the control of the majority of the stock was in the persons who had been convicted of gross fraud, the court would under its general equity power appoint a receiver and wind up the affairs of the corporation.

In the case of United States Ship Building Co. v. Conklin (Circuit Court of Appeals, Third Circuit), 126 Fed. Rep. 132, where the bill was filed alleging insolvency produced by gross mismanagement of the directors and the appointment had been made under the statute of New Jersey, the court said: “Upon the whole, we are of. opinion the bill presented a case of which the circuit court sitting in equity had jurisdiction, and that the appointment of a receiver was within the authority of the court.” The court struck out of the decree the provision that the appointment was under the statute and substitutéd therefor the words, “the receiver to be subject at all times to the orders and directions of this court,” and added to the end of the order the following provision: “The foregoing order to stand until the further order of the court.”

N^ííiat a majority of the stockholders of a corporation, no matter how large, has no right to divert to themselves assets of the company to the detriment of its creditors and stockholders is, of/ course, settled. Kean v. Johnson, 9 N. J. Eq. 401; Black v. Delaware and Raritan Canal Co., 24 N. J. Eq. 456; Siegman v. Electric Vehicle Co., 72 N. J. Eq. 403; Lillard v. Oil, Paint and Drug Co., 70 N. J. Eq. 197. In the latter case, Yice-Chaneellor Emery pointed out that, although the majority of the stock of a company may vote, and vote as self-interest dictates, and that under ordinary circumstances the relation of trustee and cestui que■ trust does not exist, and the ordinary rules in respect to trusts is not to be applied, yet such power is not unlimited and I the majority of the shareholders, although they may deal with I the assets of the. company, cannot so deal with them as to divide the assets more or less between themselves to the exclusion of the minority. I think that when the majority of the stockholders of a company clo act fraudulently and do attempt to divert the assets of the company to themselves to the exclusion either of a minority .of the stockholders or the creditors, for all practical purposes they become trustees. Vice-Chancellor Emery, again, in the case of Colgate v. United States Leather Co., 73 N. J. Eq. 72, after examining the authorities, said: “The general rule under our decisions is, that the individual stockholders are not trustees for each other, but each may, as a member of the general corporate body, exercise his individual right and vote equally with other stockholders on the ratification of a contract in which he is interested, and ratification or adoption of the contract is valid even though carried by his vote. * * * The right of the majority (statutory or other) either to originally direct of to affirm contracts or other proceedings in which the directors or the majority stockholders are interested is not, however, absolute, but is subject to the necessary qualification that the majority, although they may deal with the assets of the company, cannot so deal with them as to divide these assets more or less between themselves to the exclusion of the minority."

^■"Whether this court can or will at some future' time in this present suit make a decree which will have the effect of substantially winding up the corporation, dividing its assets among its creditors and stockholders, it is not now necessary to decide. What I hold at this time is that, the court has power, under the circumstances, if there is no other complete and adequate remedy, to ajopoint a- receiver for the purposes contemplated by the order I am about to advise.

I am willing to say that if it were necessary to sustain the jurisdiction of this court upon the present bill I would, as presently advised, hold that this court may, if the circumstances indicate that the corporation cannot properly be conducted by reason of the fact that no competent, proper board of directors can ever be elected, under its general equity power, actually wind up the corporation and divide its assets.

The question, then, is, whether the court should exercise this drastic power. I am firmly convinced that there is no way by which the court can give the complainants the relief to which I think they are entitled, which will be complete and adequate under the case of Fougeray v. Cord, except by the appointment of a receiver. The circumstances in this case and in that are different. In the present case, the^fraud which was practiced was contemplated prior to the incorporation of the company; it was the design before the company was formed to divert to the maw jority of the stock, in the guise of creditors, sufficient at least oil the assets of the company to repay to the majority.of the stocla that which "that minority paid-for its interest in the corporation both ns creditors and stockholders. The remaining creditors and the stockholders who had received their interest in the company as a part of a reorganization scheme, must have contemplated from the very terms of the plan that the company was to actually operate the freight boats ancl the Harvard and Yale, the only assets. The majority of the stock contemplated that the company should" completely, or practically, at least, abandon its business. sell its freight boats and. wharves in the interest of the majority and send the Harvard and Yale to the Pacific coast. The scheme was carried out, and by the latter part of 1910, after the corporation had been in existence for less than a year, its business was practically discontinued. In this case we have a situation where the fraud was contemplated, prior to incorporation, jmd has been consistently carried down to_ the -present time. Duringjdl this period the corporation has been in the control of 'dirpntfrwL-whn had no financial interest and, who, were, and still arm the dummies of Edward D. Bobbins. The court is now asked to permit these directors to remain in control of this company pending the institution of litigation which should be brought ancl the investigation which should be made of its affairs. It is suggested that the court may direct the directors to aid and assist the complainants in ’bringing such a suit and that the books and papers of the company may be made available. I cannot conceive that the court can by the power of injunction grant any adequate relief. The history' of this ca.se shows to wliat extent the complainants or anyone investigating the affairs of the company can expect assistance from the directors. TYeeks have been spent in the trial. No information was given to the complainants, who were stockholders and creditors ; each bit of information had to be drawn out piece by piece; enormous expense has, undoubtedly, been put upon the corporation in defending this suit in the interest of Robbins. All of this would have been unnecessary if a frank disclosure of what had been done had been made in the beginning. It is not a ease where there is a real dispute as to the facts or as to what actually took place. I can conceive, of course, the directors opposing this suit to the uttermost of their power if there was a substantial dispute as to what had been done. The court could have immediately, upon the disclosure of the facts, determined under the law whether they amounted to fraud. What the defendants did was' to have put the complainants to as much trouble as possible in getting at practically admitted facts. I do not consider that directors who have acted in this way are in any position to ask me to permit them to remain in charge. I draw no distinction between the present directors, who were elected last year, and those who preceded them; they are all dummies and all take their orders from Chase' or Robbins. None of the assets are in this state, nor are any of the present directors residents of this state, or parties to this suit; there are none subject to the jurisdiction of this court except, only as they may be directors of the Metropolitan Steamship Company. Pending this suit the directors who'were parties have been supplanted by three others, non-residents. If this company was an operating concern, whose business might be hurt by the appointment of a receiver, there would be, of course, a further argument against any hasty action by this court. It is not. Its only function at the present time is to receive the rentals from the Harvard 'and Yale, which are under a five-year lease on the Pacific coast, and pay such debts as may incidentally accrue. There is no discretion to be exercised. The directors have effectively foreclosed themselves from exercising any discretion. Whatever the directors of this company might do can as well be done by a receiver. It is stated that the appointment of a receiver may result in a foreclosure of the first mortgage. An order to show cause was made upon all parties interested, returnable here, and a large proportion of the first mortgage bondholders approved the appointment of a receiver. None appeared opposing. The self-interest of the bondholders would, I think, prevent them from foreclosing. In any event, balancing tlie possibilities of such a foreclosure with, to- my mind, the certainty of denying adequate and complete relief without the appointment • of a receiver, I have conic to the conclusion to appoint a receiver.

The court was asked by one of the creditors represented'by Mr. 'Wiekersham to delay the appointment of a receiver until certain negotiations, which counsel say have been brought to his attention and which are said to be in progress in New York, are completed. These negotiations are said to be for a settlement of the controversy, a reorganization of the company, or something of that nature. Reading between the lines, and considering the testimony of Mr. Reid, I am of the opinion that since the conclusions on the facts in this case were handed down there have been attempts made to obtain a settlement. Mr. Reid testifies that these attempts went so far that Mr. Galen Stone, of Boston, threatened him in New York a few days ago that a receivership here would get them nothing, because a plan already was in contemplation to appoint a receiver in California at the instance of second mortgage bondholders. Part of this issue, at least, I have held ought not to have been made. It was stated by Mr. Stone'that Mr. Robbins no longer owned the second mortgage bonds ; this, undoubtedly, was for the purpose of indicating that no relief that could be given by this court would be effective because the bonds had gotten into the hands of Iona fide holders for value. The fact that these negotiations are pending, that such threats have been made (no application was made .to me to permit the examination of Mr. Stone to refute the testimony of Mr. Reid), is an indication of the necessity of an immediate action by this court. There are parties involved who have not. appeared; stockholders and creditors, and no settlement between the parties to this litigation, under the circumstances, should be made except under the eye of the court. The last hold that this court had upon the corporation consisted of the fact that prior to the last year it had a New Jersey director. Last year this director was supplanted by-a person resident without the state and an entire set of new directors were elected, SO' that whatever hold this court had upon them as parties to the suit went. The only opposition to the appointment of a receiver conics from the corporation itself, and, inasmuch as I have held that the corporation is governed by Robbins, that opposition must be assumed to come from Robbins and is in his interest. _ In view of this fact I do not think that very much weight should be given to it. Now, with respect tó the application for a stay, precisely the same reasons which influence me now to appoint a receiver influences me to deny the stay. There has been no assurance given to the court that the statement of Mr. Reid that Mr. Stone made the threat is untrue, or that the plan he spoke of was not in contemplation. I assume counsel is not to be expected to make any such assurance. If I should grant a stay, proceedings may be taken in courts of other jurisdictions and before this court or the court of errors and appeals could act much harm may be done. On the other hand, I can see no harm that can come to the corporation at this time by permitting the receiver to go into possession. It is only by the appointment of a receiver that I can protect the creditors and stockholders. To merely permit the injunctions to remain in force is not sufficient. I cannot enforce them if violated. The corporation is not operating; its business will not be disturbed; the only thing that the receiver will do will be to go into actual physical possession of the property; that means simply the money and the books; he is not to interfere with the operation of the Harvard and Yale, and I am at a loss to imagine any possible injury that can be done. With respect to the expense, the receiver will, of course, keep in close touch with the court, and I can as well control this during the interim before the court of errors and appeals will act without a stay as with one. I do not intend, of course, if there ps an appeal taken, to have investigations started that are going to cost thousands of dollars, or suit commenced that may lead to interminable litigation and to a great deal of expense before the action of the court of errors and appeals. I think that the complainants should, and I direct them to, do everything in their power to facilitate a hearing and determination of this case by the court of errors and appeals.


author: Lane, Ah C.

text:
    Charles H. Horne & Company et al. v. Frederick Harrington, Incorporated, et al.
    [Decided February 26th, 1917.]
    1. In proceedings for the dissolution of a corporation apparently solvent, the trustees have no right to make preference of one creditor over another. It may turn out that the assets will not be sufficient to settle all the debts.
    2. This court has no control over non-resident trustees in the dissolution of a corporation, and must operate against them through.the courts of another state.
    3. Where trustees on dissolution have made payments to creditors which may result in preferences', and are non-residents, the court will appoint a receiver even if no actual fraud be shown.
    On bill, &c.

      Messrs. Peirce .<£• Hoover, for the complainants.

      Messrs. Vail & McLean, for the defendants.
   Lane, Ah C.

It appeals that Frederick Harrington, Inc., has been dissolved. Proceedings in dissolution were taken in December, 1915. They did not become effective until December, 1916. Since that time the directors of the company, who are all non-residents at this time, have been acting as trustees under the statute. They have collected in the assets of the company and the charge of the bill, supported by affidavits, is that payments have been made to some creditors in larger proportionate amounts than to others, resulting in ‘ what may in the end be preferences. This statement is not met by the defendant with any convincing proof. Inasmuch as the bill 'was filed in December, 1916, a sufficient length of time has elapsed for the trustees, if the charge of the bill is false, to have presented a concrete, simple statement which would easily demonstrate the true fact. It is contended that under the statute the trustees may make such payments as they see fit, provided the company is not'insolvent. The difficulty with the situation is that one cannot tell whether in the end there will be sufficient to pay all or not. The outstanding claims amount to approximately $5-2,000. The outstanding assets amount to about $70,000. Of these some $36,-000 are accounts receivable, and some $30,000 bills receivable, admittedly slow of collection. There is only at this time in the hands of the trustees some $4,000 in cash. It would be dangerous to conclude that the assets will in the end realize sufficient to pay all the debts. There are too many contingencies, and, in the exercise of good business judgment, we have no right to assume that they may realize sufficient to pay all, and therefore that they yhaj increase the payments of some creditors over others. Whether in any case after dissolution trustees may so act, I greatly doubt. All of the trustees are non-residents, so that this court has no actual control over them, and would have to, if they are left in charge, operate through the courts of some other state. One of the creditors charged to have been preferred is the largest creditor and practically controls the trustees.

I do not make at this time any finding that there is any actual fraud on the part of anybody. I think that, possibly, the trustees considered,. as business men, that they lawfully might do what they did do. However, the fact that they did it, compels me to assume charge in some way or other. I will appoint a receiver.


text:
    Henry F. Backes v. Cyrus B. Crane et al.
    [Decided March 6th, 1917.]
    1. Where a trustee knew that he could obtain a dividend for his trust fund and neglected to do it, he was guilty of neglect and chargeable with the amount he neglected to collect.
    2. He is also chargeable with interest, the rate .being subject to the equities of each particular case, and.in this case the rate is fixed at four per cent., in conformity with the English rule.
    3. Jones v. Haines, 79 N. J. Eq. 110, distinguished.
    4. A complainant may be 'barred from recovery even if there be an express trust by laches, where injury to defendant caused by the delay is proven or may be inferred' because of loss of testimony or some other reason..
    On bill, &C.
    . Messrs. Church c6 Harrison, for the complainant.

      Mr. Albert IF. Harris, for the defendants.
   Lane, Y. C.

I liave considered whether, under the circumstances, the estate of Asher Crane is liable for the portion of the trust' fund which could have been obtained about the year 1880 from the estate of Moses P. Crane if Asher Crane had performed his duties as a trustee and had not refused, as lie did, to accept the dividend. I have come to the conclusion that the estate is responsible. The ground upon which I declined to hold the estate responsible for the entire trust fund was laches on the part of the complainant. I held, that under the decisions which were cited, where injury was proven or might be inferred because of loss of testimony or what not, laches would bar even where there was an express trust. This reasoning does not apply to the dividend which might have been received. The action or non-action on the part of the trustee was a distinct and separate breach of trust. The bond and mortgage were made to Asher Crane, as trustee; he had possession of them; they are now produced from the custody of his executors. There is no claim that Henry E. Backes knew that any- dividend could have been obtained from the assefs of Moses P. Crane, or that Asher Crane ever sought to bring his attention to that fact. If Asher Crane desired to relieve himself of all the burdens of trust he should have notified the complainant and should have delivered to the complainant the bond and mortgage so that the complainant might have protected himself (whether if he had so acted it would have released him I do not decide). On the contrary, he failed to protect the trust fund and permitted complainant to remain in a position without his knowledge where he could not protect himself. Without knowledge there can be no laches in the case of an express trust. 39 Gyc. 604, and eases cited in the original conclusions.

It has not been proven, and there is no suggestion, that the delay of the complainant, so far as this branch of the case is concerned, has prejudiced the defendants, no injury can be inferred. Counsel for defendant does not claim it may be inferred. The iacts are admitted, and could not be changed, no matter how many witnesses were produced.

I, therefore, hold that the estate of Asher Crane must account for seventeen per cent, of $5,600, or the sum of $952, as of 1881. The actual, date when this money would have been paid, and the actual percentage, may be somewhat doubtful. If so, it is the fault of Asher Crane. I will, however, if there is any way by which definite proof can be obtained, refer the .matter to a master, if counsel so elect. In case of failure to make such an application, I. shall treat the percentage as seventeen and the year in which it might have been received and invested as Í881.

The next question is as to whether the estate should be charged with interest, and, if so, at what rate, and for how long a time. The trust agreement provided that the trustee should safely and securely invest the sum on bond and mortgage or in stock or securities, and the interest or income arising therefrom be paid in equal half-yearly payments during the natural life of Charlotte Backes. to her, and after her death then to 'pay the sum, “together with all interest that may have accrued and shall remain unpaid at the death of said Charlotte Backes, to the complainant.-” The duty of the trustee was not only to retain possession of the money but to invest. He neglected to receive the $952, and hence neglected to invest it. Hnder the circumstances, the case must be treated as if he had in fact received and had failed to invest it. The general rule is expressed in 39 Cyc. 428, as follows:

“The rule of computation in each case must depend very much upon its own facts. The beneficiaries are entitled to such method of calculation as shall most closely approximate the amount which would probably have resulted from the fulfillment of the obvious duties of the trust.”

The rule in England seems to be that where an executor or trustee is guilty of mere neglect—that is, where having moneys in his hands which he ought to invest he neglects this duty, but derives no benefit from the use of it, he will be charged only with interest at four per cent. 39 Cyc. 425 note 19, and cases cited.

The solution of the problem depends upon the circumstances of each particular case. Although as a general rule it may fairly be stated that where the trustee is guilty of gross neglect of fraud, or mingles the money with his own, he should be charged with interest at the legal rate, with annual rests, and, if he is guilty of mere neglect, with simple interest only, this rule is subject to exceptions, and the real question is what the equities of the particular case demand! I gather this from a consideration of the following cases in this state: Voorhees v. Stoothoff, 11 N. J. Law 145; Johnson v. Eicke, 12 N. J. Law 316; Lake, Administrator, v. Park, Executor, 19 N. J. Law 108; Blauvelt v. Ackerman, 23 N. J. Eq. 495; McKnight’s Executors v. Walsh, 24 N. J. Eq. 498; Ashhurst v. Fields, Administrator, 28 N. J. Eq. 315; Wilson v. Staats, 33 N. J. Eq. 524; Fluck v. Lake, 54 N. J. Eq. 638; Windmuller v. Spirits Distributing Co., 83 N. J. Eq. 6. And see also note to Re Ricker, 29 L. R. A. 636, and (at p. 637) where the author says:

“The improper investments of the trust fund is equivalent to a failure .to invest' it and is governed by the same rules with reference to the allowance of interest. The fund will be treated as remaining in the hands of the trustee and interest will be charged at the ordinary rate only.”

In- the case at bar, the direction to invest was either in mortgage or securities. No rate of interest was fixed. The trustee was under the duty of realizing as much as he fairly could. In England it has been said that where the direction to invest is in similar words no interest will be allowed. 39 Cyc. 416 note 61, and cases. I do not think that this is the present rule. The result sought for should be to make the estate good—that is, to realize as much for the estate as can fairly be said would have been realized if the trustee liad performed his duty. There was no actual fraud in the present ease. The trustee, undoubtedly, thought that he had the right to do what he did do. The complainant has been guilty of great delay in asserting his rights. While, as matter of law, I think it cannot be held that he is guilty of laches, such as to bar his right to relief, yet, under all the- circumstances, my conclusion is that justice will be done by allowing interest at the rate of four per cent. It is claimed that the offer made' by Asher Crane of $2,800 bars the complainant from recovering interest. I think not. From the beginning the complainant insisted that Asher Crane was responsible for-the entire trust fund. This Asher Crane denied. The offer of $2,-800 was made in consideration of a release by the complainant of his entire claim. It was not offered in settlement of the second breach of trust. Under the circumstances, therefore, the complainant’s refusal to accept the sum cannot now bar him from claiming interest. I do not overlook the case of Jones v. Haines, 79 N. J. Eq. 110, in which Vice-Chancellor Learning, upon the ground -that interest would necessarily, in that case, be as damages, declined to allow it for twenty-eight years because of laches of complainant, although holding that the laches was not sufficient to bar recovery of the principal sum. The circumstances were peculiar, and may be, I think, clearly distinguished from those existing to the present case. There the complainant had knowledge and deliberately delayed asserting her rights because slie thought that she would receive a greater amount under the will of the trustee than she was entitled to from the estate of her father. Here there was no such knowledge and no deliberate failure to demand. Under the .trust agreement- it would appear that the complainant is entitled at this time not only to the principal sum but the interest which had accrued, or should have accrued prior to the death of his mother. I think, therefore, that the complainant is entitled to the sum of $952, with interest at the rate of four per cent, to the date of the death of.the mother. A different rule should be applied after 1906. At that time complainant was in a position in which he could call upon the executors .of-Asher Crane to account for this trust. If he had, his right to the funds, which I now hold he is entitled to, would have - been disclosed. Pyior to that he might have filed a bill quia timet, but he could not have required the trustee or executors to pay over the money to him. I think that it would be inequitable to charge the estate of Asher Crane with interest subsequent to 1906. See Lake, Administrator, v. Park, 19 N. J. Law 110. There will be a decree that the defendant’s account for the sum of $952, with interest 'from 1881 to 1906, $950, or total of $1,902, and with interest upon the whole sum at- the rate of six 'per cent, from the date of the decree.

Counsel should consider whether it is necessary in this view of the case to amend the bill. Costs will go to the complainant. The decree may be settled on notice. Application may then be made for counsel fees.