text:
    Florence Pfefferle et al. v. Charles F. Herr, executor and trustee of John F. Pfefferle, deceased.
    [Decided January 14th, 1909.]
    1. That an executor and trustee paid to the children of testator sums in excess of the income of the estate, while the will directed that none of the estate should be paid to them before they attained a certain age, and that until that time they should have so much of the income as might be necessary for their maintenance and education, does not justify his removal from office on the application of the children, in the absence of bad faith and a wanton and wasteful invasion of the corpus of the estate for their maintenance and education.
    2. % Gen. Btat. p. 1616 § 3, authorizing the orphans court to order a guardian to sell so much of the ward’s lands as may be adequate for his maintenance and education, applies to testamentary as well as statutory guardians.
    3. A testamentary trustee may in a proper case apply for and obtain the protection of an order of the court to make an encroachment on the ■ corpus of the estate in behalf of his ward, and what may be done in advance may be subsequently ratified.
    4. A testator giving his real and personal estate to his children equally, subject to the right of dower of his wife, and directing his executor to sell such parts of the personalty as may be necessary to discharge encumbrances on the real estate, expresses a clear intention to pass the real estate to the devisees unencumbered and to endow the widow in the same value therein as that value has in the hands of the devisees.
    5. That an executor and trustee sold his testator’s real estate and made excessive payments to the widow on account of her dower without having her dower interest ascertained according to law, and that a bill filed by the widow, pending proceedings for the removal of the executor and trustee, has not been prosecuted with due diligence, do not justify the removal of the executor and trustee, at least until it has been definitely ascertained what the fact is as to such excessive payments and delay.
    6. That an executor and trustee allowed taxes on the testator’s real estate to become defaulted so that penalties and interest were added to them, and so that a part of the land was sold for taxes, does not justify h:s removal from office on it appearing that the property has been redeemed and lie has been surcharged with all penalties and interest paid to effect the redemption.
    7. P. L. 1898 p. 767 § HO, which provides that, when property in the hands of any executor or trustee is insecure or in danger of being wasted, he may be required to give bond conditioned for the faithful performance of his duty under testator’s will, is a declaration of legislative policy indicating that it is not for every unwarranted act of omission or commission that an executor is to be removed, and where he has strayed from the path of fiduciary duty he may be compelled to secure those who might suffer loss by reason of his dereliction, but the stigma of removal can be placed on him only in a flagrant case.
    . S. Where an executor and trustee, who had made excessive payments to testator’s widow on account of her dower, and had thereby made the estate insecure, gave a bond as required by the court, conditioned on his faithful performance of bis duty under the will, and thereby secured the estate, his misconduct was not ground for his removal.
    On appeal from an order of the Essex county orphans court refusing to remove the respondent from his office of executor and trustee.

      Mr. Samuel A. Besson and Mr. Joseph M. Roseberry, for the appellants.

      Messrs. Pitney, Hardin & Skinner, for the respondent.
   Walker, Vice-Ordinary.

John P. Pfefferle died January 1st, 1892, leaving him surviving his widow, Margaret E. Pfefferle, who was his second wife and who has since married, and whose name is now Margaret E. McClellan, and his three children, Florence, Gertrude and Frederick, by his first wife, and two children, Ida and Oscar, by his second wife. At the time of his death Florence was twelve years old, Gertrude, nine; Frederick, seven; Oscar, two, and Ida, three months. Mr. Pfefferle left a last will and testament dated November 11th, 1891, which was proved before the surrogate of Essex county, January 25th, 1892. Mr. Herr was made executor and he and the testator’s wife were appointed guardians of his children during their minority. Mr. Herr qualified as executor and took upon himself the burden of the administration of the estate upon letters testamentary being issued to him on the date of the probate of the will. Neither he nor Mrs. McClellan qualified as testamentary guardians of the infant children of the deceased, but Mrs. McClellan in 1903 was appointed guardian of her two infant children by the Essex county orphans court.

The testator in his will devised and bequeathed all his real and personal estate unto such of his children as should be living at the time of his death, in equal shares, subject to the right of dower of his wife in the real estate, and directed his executor to sell so much and such parts of his personal estate as might seem necessary to pay and discharge all encumbrances on his real estate, it being his will and he did order that none of his real or personal estate should be conveyed or paid over to his children before they attained the age of thirty years, respectively, they, however, to have so much of the income and profit thereof as might be necessary for their maintenance and education during their minority and for their support until they attain said age.

The appellants in their petition to the orphans court alleged that the executor and trustee had wasted and misapplied the estate committed to his custody and had abused the trust and confidence reposed in him by the testator; that up to September, 1901, he had paid to the widow $9,215.42 of the principal of the estate in violation of the provisions of the will; that he had so paid out of the principal to Florence the sum of $5,199.49; to Gertrude, $3,732.41; to' Frederick, $1,661.33; to Ida, $1,012.84, and to Oscar, $829.97, in all $21,650.56.

It will be noticed that the petitioners are Florence, Gertrude and Frederick, who were recipients of the respondent’s disbursements out of their father’s estate. The fact is that the respondent, from the death of the testator until the filing of his second account as executor, provided the petitioners and other children of the decedent with means for their support and education as seemed to him justified; but because of exceptions filed to that account, questioning among other expenditures those made for the support and education of the petitioners, and complaining that the respondent should not have allowed more moneys from the estate to be expended for the petitioners than the share of the net income belonging to them, the respondent, for his own protection, ceased making allowances to the petitioners.

In this posture of affairs the appellants filed a bill of complaint in the court of chancery praying in the alternative, among other things, that the respondent as executor be decreed to pay to each of the complainants out of the income to which they axe entitled under the will of their father, the sum of $40 per month for their maintenance and support, or that he be ordered and decreed to provide in some other way for the necessary education, support and maintenance of the complainants. The defendants to this bill were Mr. Herr, the executor, Mrs. McClellan, the widow, and her infant children, Ida and Oscar Pfefferle.

The executor answered and a decree pro confesso passed against Mrs. McClellan. The clerk in chancery was appointed guardian of her infant children, and filed answers on their behalf through counsel appointed for that purpose. After hearing and on February 2Gth, 1906, a final decree was made in the cause (no opinion being filed), which ordered and adjudged that the real estate whereof the testator died seized, together with the personal estate remaining in the hands of the respondent as executor, after administering upon said estate, are held by him in trust for the complainants and the defendants, Ida and Oscar Pfefferle, to keep the same and to apply the equal undivided one-fifth part of the nebincome and profit, or so much thereof as in his judgment may be necessary for the maintenance and education of each of said children who have not reached the age of twenty-one years, and for the maintenance of each who have reached that age until they shall attain the age of thirty years, and to pay to each his or her equal undivided one-fifth part of the principal of said estate, together with any accumulated income, as and when he or she shall attain said age, and upon the further trusts declared in said will, subject, however, to the right of dower of the widow; and that the trustee apply an equal one-fifth part of the net income and profits of the estate or so much thereof as in his judgment may be necessary for the maintenance and education of each of the children who Lave not reached the age of twenty-one years, and for the maintenance of each of them wlio has reached that age until he or she shall reach the age of thirty years respectively.

The question of the amount of allowance out of the estate to the children of the decedent was a question of doubt and difficulty at least, for, on a prior bill filed which was demurred to for want of parties, Vice-Chancellor Stevenson, in his opinion (Pfefferle v. Herr, 65 N. J. Eq. (20 Dick.) 325 (at p. 327), said: “Whether the light of each child to maintenance, &c„ applies only to the income of his share or to the income of the entire estate, is the question of construction to be determined at the start. The will says That so much of the income and profit thereof’—i. e., of the entire real and personal estate—‘as may be necessary’ shall be applied to the maintenance and education of the children. The will does not say that so much of the income of each share as may be necessary shall be applied to the maintenance and education of the child entitled to the share.”

The objection, as I understand it, is that the executor and trustee paid to the children of the testator sums of money in excess of the income of the, estate; but there is no allegation that any of these sums was paid for anything other than maintenance and education.

Assuming that portions of the allowances made for the support and education of the infants were advanced out of the principal of the estate upon the sale of certain portions of the realty, the executor may settle that score with the infants when they are entitled to their shares in severalty upon attaining the prescribed age, especially in view of the fact that the trustee has given security.

By statute (Gen. Stat. p. 1616 § 3) the orphans court may order a guardian to sell so much of the ward’s lands as may be adequate for his maintenance and education. And this as I understand it applies to testamentary as well as statutory guardians. It was held (In re Hannah Barry, 61 N. J. Eq. (16 Dick.) 185) that this court will leave the question of the necessity of expenditure out of the principal of an infant’s estate for his maintenance to the judgment of the guardian, subject to the supervision of the orphans court on the settlement of the accounts. In Stephens v. Howard’s Executor, 32 N. J. Eq. (5 Stew.) 244, Vice-Chancellor Van Fleet held that -where a legacy-vests in an infant, but is payable when it attains a certain age, and its father is unable to support it and the interest arising from the legacies is-not sufficient for that purpose, a court of equity may, in advance of the time fixed for payment by the will, order the principal of the legacy applied to the support of the legatee. These citations are made for the purpose of showing that encroachment upon the principal of the estate of a legatee in advance of the period of distribution, is not absolutely and under all circumstances forbidden. A trustee may, in a proper case, apply for and obtain the protection of an order to make such encroachment in behalf of his ward. And it appears, too, that what may be done in advance may be ratified afterward. In the absence of bad faith and unless there be wanton, excessive and wasteful invasion of the corpus of an estate for the maintenance and education of its beneficiary, it would appear that a foundation does not exist for the removal of a trustee upon that score. It may be that the trustee will have to submit to a surcharge in this matter in the end, but for present purposes a showing is not made which calls for the removal of the trustee because of these advances.

When the executor sold real estate he made payments to the widow on account of her dower, without having her dower interest ascertained according to law, and it is claimed that he has paid her excessive amounts.

The testator directed that all tire encumbrances on his real estate should be paid out of his personal estate. It would seem from this that the testator intended that his wife should be endowed in the gross value of his real estate, not deducting any encumbrances thereon. In McLenahan v. McLenahan, 18 N. J. Eq. (8 C. E. Gr.) 101, it was held that if lands are devised subject to a mortgage not made by the decedent the heir or devisee takes cum onere unless the decedent shall have assumed the debt in such manner to show his intention to charge his personal estate. And in Campbell v. Campbell, 30 N. J. Eq. (3 Stew.) 415, on a bill for dower in lands of an intestate, it was held the personal estate must exonerate the land from a mortgage put thereon by the intestate, and dower be assigned therefrom as if unencumbered, and as to a mortgage upon the land assumed by the decedent, dower must be assigned therefrom, subject to the mortgage. The direction in the will for-the payment of all encumbrances on the testator’s real estate out of his personal property, is, to my mind, the expression of a clear intention to pass the real estate to the devisees unencumbered, and to endow the widow in the same value therein as that value has in the hands of the devisees. Hetzel v. Hetzel (October Term, 1908), not yet reported.

Since this controversy has arisen between certain of the beneficiaries and the executor, the widow has filed a bill for dower in Hie court of chancery. It is asserted by the appellants that the bill for dower has not been prosecuted with due diligence. Whether this be so or not, in a collateral proceeding like this, the want of diligent prosecution of a suit for dower should not be made the basis of the removal of an executor who is said to have made overpayments on account of dower to the widow; at least until it has been definitely ascertained what is the fact in this regard, the matter should be allowed to remain in statu quo. I fail to see that bad faith or gross incompetence is chargeable against the executor in reference to this matter.

It is charged also against the executor that he allowed taxes upon the testator’s real estate to become defaulted in and that penalties and interest were added to the amount of the taxes, and that some, at least, of the real estate was sold to the city of Newark. As a matter of fact the lands have been redeemed and the executor in his account in the orphans court was surcharged with all penalties and interest that were paid to effect such redemption. In this respect the estate has not suffered at all. Of course, the executor was very derelict in permitting this thing, but he has atoned for his default.

Because it appeared to the judge of the orphans court, who heard this matter below, that by reason of advances made by the trustee on account of the widow’s dower the assets of the estate were to some extent insecure, it was ordered that the executor give a bond to the ordinary in the sum of $10,000, conditioned for the faithful performance of his duty under the will, which bond I understand has been given, and the estate thus secured.

By section 140 of the Orphans Court act (P. L. 1898 pp. 715, 767), it is provided that when property in the hands of any executor or trustee is unsafe or insecure or in danger of being wasted, such executor or trustee may be required to give bond to the ordinary conditioned for the faithful performance of his duty under the will of the testator. This declaration of legislative qDolicy dearly enough indicates that it is not for every unwarranted act of omission or commission that an executor is to be removed; onty that if he has strayed from the path of fiduciary ■cluty, he may be compelled to secure those who might suffer loss by reason of his dereliction, the stigma of removal to be placed upon him only in a flagrant case.

In Carpenter v. Gray, 32 N. J. Eq. (5 Stew.) 692, Chancellor Runyon, as ordinary, refused to remove an executor or require him to give security on a petition asking for an accounting as to the investment of a trust fund of $3,000, no bad faith appearing.

The court of errors and appeals held, in Holcomb v. Coryell, 12 N. J. Eq. (1 Beas.) 289, that a testator has a right to impose confidence in whom he pleases, and if he selects as his representative an irresponsible or insolvent person, in the absence of fraud or misconduct or breach of trust, security cannot be required of such executor, but if the acts or omissions of the trustee be such as to endanger the trust property or to show a want of honesty or a want of proper capacity to execute the duties or a want of reasonable fidelity,- equity will remove such trustee. In that case (Holcomb v. Coryell) it appeared that executors filed an inventory containing five items of assets, one of which was “bonds, notes and books of account, $84,004.15.” Upon a bill filed complaining of the inventory and calling upon the executors to account and state the particulars which constituted the assets, instead of availing themselves of the opportunity thus afforded of placing themselves right upon the record, they put in an answer insisting that the inventory and appraisement was all that the law required. It appeared, however, as a fact, that a true inventory and appraisement exhibited one of the executors as a debtor to the estate in the sum of $32,000 and upwards, and the other in the sum of $3,600 and upwards. The executor who owed the larger amount brought in a bill for his services as agent of the testator amounting to $11,800, and for purchase-money for property of his own which he had conveyed to the executors amounting to $21,500. After full examination it was determined that he was entitled to $1,200 for services, and that he had conveyed property to the estate for the purpose of exhausting the assets in hand, but not of liquidating his indebtedness, and charged exorbitant prices, and in a manner not authorized by law. The chancellor in the court below, upon this state of facts, remarked that he was not disposed to impute moral turpitude to either of the defendants in the discharge of their duties, but there had been such a palpable mistake on their part as to the obligations and duties imposed upon them, such a disregard of the rights of the infant complainant, in the manner in which the suit had been defended, and such ignorance and negligence in the management of the large fund at their disposal, as imperativeN demanded of the court to extend to the complainant the protection which was invoked, and to which she was entitled when her property was in jeopardy. Security was required, but the executors were not removed, and the court of errors and appeals affirmed the chancellor.

By section 149 of the Orphans Court act (P. L. 1898 pp. 715, 770) it is provided that upon refusal or neglect to do and perform certain enumerated acts, or for embezzlement, waste or misapplication of the estate committed to his custody or for abuse of the trust and confidence reposed in him, an executor or trustee may be removed by the orphans court.

Chancellor Runyon, as ordinary, in Lett v. Emmett, 37 N. J. Eg. (10 Stew.) 535, held that an executor should be removed because he sought by false representations and by taking advantage of her poverty to induce the residuary legatee to sell her interest in the estate to him for a small price and about one-fourth of its value. Here was no case of mistake or ignorance or carelessness, but a fraudulent act of commission of the most palpable sort, • which fully merited the judgment pronounced against the executor.

In Flinn's Case, 31 N. J. Eg. (4 Stew.) 640, Chancellor Runyon, as ordinary, held that it was not proof of waste in a proceeding to remove a guardian who was personally responsible, that he had incurred liability to pay counsel fees in a controversy over his management of the ward’s property, since such fees, if unlawful or unnecessary, might be disallowed in his account.

In Heisler v. Sharp, 44 N. J. Eq. (17 Stew.) 167, it was held in this court that no man is infallible; the wisest make mistakes, but the law holds no man responsible for the consequences of his mistakes which are the result of the imperfection of human judgment, and do not proceed from fraud, gross carelessness or indifference to duty. Affirmed for the reasons given by the vice-ordinary. Heisler v. Sharp, 45 N. J. Eq. (18 Stew.) 367.

There is much to criticise in the conduct of this executor and trustee, but I do not think that a case has been made which requires his removal and the revocation of his letters. The giving of security which was ordered in the court below was, I think, all that was required.

The order appealed from will be affirmed.


source: Caselaw Access Project

author: , Pitney, Chancellor.

license: Public Domain

text:
    James C. Colgate et al., complainants-appellants, v. United States Leather Company et al., defendants-respondents. Ellen A. Johnston, executrix, complainant-appellant, United States Leather Company et al., defendants-respondents.
    (No. 35.)
    (No. 33.)
    [Argued June 24th, 1908.
    Decided March 1st, 1909.]
    1. The power of corporations to consolidate and merge is not to be implied, and exists only by virtue of plain legislative enactment.

      2. It follows that there is no right to consolidate without unanimous consent of stockholders, unless the power to consolidate has been conferred by legislation that may be read into the contract of incorporation.
    3. Under P. L. 1898 p. 121, and P. L. 1896 p. 809 § 104, the power to merge two corporations is conferred only where they are organized for the purpose of carrying on business of the same or a similar nature.
    4. The purpose for which a company is organized is primarily to be sought in its charter or certificate of incorporation.
    5. As between the corporators, the corporate objects expressed in its certificate of incorporation cannot be changed without unanimous consent, unless changed by virtue of some act of legislation which may be read into the contract.
    6. Action on the part of the corporation to change the nature of its business pursuant to the authority conferred for that purpose by our General Corporation act, is to be exercised, if at all, by direct proceedings taken pursuant to the statute.
    7. The acts authorizing- consolidation and merger of corporations (P. L. 1898 p. 121; P. L. 1896 p. 309 § 104) neither permit nor contemplate that a change of the objects of incorporation is to be accomplished by means of a consolidation agreement.
    8. Upon an examination of the respective certificates of incorporation of the United States Leather Company and of the Central Leather Company—Held, that these two corporations were not “organized for the purpose of carrying on business of the same or a similar nature” within the meaning of the act of 1893 (P. L. 1893 p. 121), and that the proposed consolidation of the two companies is unauthorized by law and violative of the rights of non-assenting stockholders.
    On appeal from orders of the court of chancery advised by Vice-Chancellor Emery, whose opinion is reported in 73 N. J. Eq. (3 Buch.) 7£.

      Messrs. Pitney, Hardin & Skinner, with whom were Mr. Lewis L. Delafield and Mr. Eugene D. Hawkins (of the New York bar), for James C. Colgate and others, appellants.

      Mr. Chauncey 0. Parker, with whom were Mr. Francis Q. Huntington, Mr. Thomas N. Rhinelander and Mr. Origen S. Seymour (of the New York bar), for Ellen A. Johnston, executrix, and others, appellants.

      Mr. Robert II. McOarter, attorney-general, and Mr. Richard V. Lindabury, with whom were Mr. Edward M. Shepard, Mr.

      L. G. Krauthoff and Mr. William 11. Harhness (of the New York bar), for the respondents.
   The opinion of the court was delivered by

, Pitney, Chancellor.

These bills of complaint were filed in the court of chancery bjr certain preferred stockholders of the United States Leather Company, for an injunction to restrain the consummation of a proposed consolidation or merger of that company with the Central Leather Company.

Both corporations were organized under the laws of this state. The United States company was incorporated under the provisions of the General Corporation act of April 7th, 1875 (Rev. 1877 p. 175; Gen. Stat. p. 907), and its supplements, by articles of association dated, recorded and filed on February 25th, 1893. An amended certificate of incorporation was made under date April 29th, 1893. The Central company was incorporated under the revised General Corporation act of 1896 (P. L. 1896 p. 277), under articles of association dated, recorded and filed April 12th, 1905.

The amended certificate of incorporation of the United States company contains provisions entitling the preferred stock to a cumulative dividend of eight per centum per annum, payable out of the net earnings of the company before any payment is made on the common stock, and in case of non-pajnnent in full of any such yearly dividend, the portion unpaid is to be a charge, without interest, upon the earnings of the company prior to the claims of the common stock; in case of liquidation the preferred stock is.to be paid in full at par, together with all earned and unpaid dividends, before any payment is made on the common stock. The common stock is entitled to all dividends declared and payable out of the net earnings after the dividends have been paid upon the preferred stock. And in case of liquidation, the common stock is entitled to the entire assets of the company remaining after the payment in full at par of the preferred stock then outstanding, together with all dividends thereon earned and unpaid.

By the amended certificate it is also provided that the United States company may create and issue debentures to the amount of $10,000,000, and that no other bond or debenture and no mortgage shall be made or granted by that company -without the consent of the holders of record of eighty per cent, of the preferred stock of the United States company then outstanding.

In December, 1906, when the Central Leather Company held about ninety per cent, of the preferred stock and about ninety-six per cent, of the common stock of the United States company, a proposed agreement of merger and consolidation was arranged between the boards of directors of the two companies for submission to the stockholders thereof under the terms of an act of March 8th, 1893. P. L. 1893 p. 121.

The bills prayed an injunction to restrain the submission of this agreement to the stockholders of the United States Leather Company, and to restrain the taking of any steps to' carry fhe agreement into effect, without the consent of the complainants and other non-assenting preferred stockholders. Upon the filing of the bills, applications for injunctions pendente lite were made before Vice-Chancellor Emery. In his opinion (Colgate v. United States Leather Co., 78 N. J. Eq. (3 Buck.) 72, he overruled most of the contentions of the complainants, but held in their favor that the consolidation agreement violated the equitable rights of the preferred stockholders of the United States company, because it required them to accept stock of the consolidated company in lieu of the liability of the United States company to account to the preferred stockholders for accrued and unpaid dividends.

The directors of the defendant companies, acquiescing in this decision, rescinded the proposed merger agreement that had thus been denounced, and proposed for submission to the stockholders a modified agreement bearing date October 10th, 190?1, similar in terms to the former agreement, but containing a provision permitting any holder of preferred stock of the United States company to retain

“any lawful right, whether past, present or future, of the holder thereof to demand of receive from the United States Leather Company or the Central Leather Company any money, value or thing by reason of any dividends accrued and unpaid upon the said share.”

Thereupon the court modified the preliminary injunctions to such extent as to permit the agreement of October 10th, 1907, to be submitted to the stockholders of the two companies for approval.

From the orders modifying the injunctions the complainants appeal to this court.

The cases present numerous questions that we have not found it necessary to determine, and upon which we must be understood as not committing ourselves.

First. The learned vice-chancellor held that the right and power of consolidation must be rested upon the act of March 8th, 1893 (P. L. 1893 p. 121), which was not a supplement to the General Corporation act of 1875, but an independent act that still remains unrepealed. Since that act was passed after the organization of the United States company, it is questioned whether an attempted consolidation thereunder without the consent of all the stockholders is not in violation of the contract rights of the stockholders of the United States company, created by its original certificate of organization, dated and filed February 25th, 1893.

Secondly. After the passage of the Merger act, and on March 21st, 1893 (P. L. 1898 p. 444), a supplement to the General Corporation act of 1875 was enacted to take effect immediately, which in its sixth section authorized any corporation organized under any general law of this state, with the assent of a majority in interest of the stockholders, to amend its original certificate of incorporation by a certificate that should be signed by its president, attested by its secretary under its corporate seal, and in all respects executed in the same manner as its original certificate of incorporation, and enacted that upon being recorded and filed this amended certificate should take the place of the original certificate of incorporation, and be deemed to have been recorded and filed on the date of the recording and filing of the original certificate, provided “that nothing herein contained shall permit the insertion of any matter not in conformity with the law under which such company was organized,” &c. It was under this supplement that the amended certificate of incorporation of the United States Leather Company was made on April 29th, 1893. -This certificate in terms declared that the original certificate should be amended “so that it shall read and be as follows,” and then follows a copy of the original certificate, dated as of February- 25th, 1893, but containing the amendments intended to be made therein.

The clauses providing for the issue of preferred stock and defining the rights of the holders thereof are in the amended certificate, none such being in the original certificate of incorporation.

Thereupon questions are raised whether the act providing for the filing of such an amended certificate permits the making of any agreement of incorporation other than such as could have been made at the date of the original incorporation; whether, in short, corporations organized before the Consolidation act of March 8th, 1893, was passed, could under the act of March 21st, 1893, so amend the certificate of incorporation as to accept the power of consolidation without the consent of all stockholders, and whether, if the act of March 21st admits of such acceptance, the amended certificate of April 29th, 1893, by its terms excluded such an acceptance, or at least amounted to a waiver of the power of consolidation.

Thwdly. It is also questioned whether the right of stockholders to object to the exercise of the power of consolidation (supposing such power to have been conferred upon the United States company by the act of March 8th, 1893) belongs only to stockholders who became such prior to the passage of the Consolidation act, or pertains also to stockholders wlio became such after the passage of the act. The learned vice-chancellor in his reported opinion treated the right of the stockholder to object to the exercise of a power conferred upon the company subsequent to the charter as a separate and distinct personal equitjr, enforceable by each owner of shares who is such at the time the power is conferred, terminating when he ceases to be a stockholder, and not passing- to a transferee of the shares. It is questioned whether this view is correct, and whether the right to object is not rather a property right, inseparably annexed to the ownership of shares, and 'arising out of, and solely out of, the character of such shares as property, they being the eviclenee of a right of participation in the business of the company conducted for the purpose specified in the articles of association and for none other.

Fourthly. It is questioned whether the proposed consolidation agreement is not voidable at the instance of any stockholder, either because a considerable number of the directors of the one company were also directors of the other, or because both boards of directors were in the control of the Central Leather Company.

Fifthly. It is questioned whether the proposed consolidation agreement of December 10th, 1907, does not violate the equitable rights of the preferred stockholders of the United States Leather Company in remitting them to an action against that company or against the Central Leather Company for the ascertainment and enforcement of their rights to dividends accrued and unpaid, and in depriving them of the exemption of their property from the imposition of a mortgage or the issuance of bonds and debentures other than such as are permitted by the amended certificate of incorporation of the United States company.

Sixthly. It is questioned whether the proposed consolidation agreement is not vitiated by the fact that it contains a provision for the issuance of a considerable block of the common stock of the consolidated company to Messrs. Armour & Valentine for the apparent purpose of inducing them to take an interest in the company, and without provision for the payment of monejr or other equivalent value for the shares.

Upon these and certain other questions, that are either treated in the opinion of the learned vice-chancellor or were discussed in the argument before us, we find it unnecessary to express an opinion, because if all these questions could be answered in favor of the respondents, the proposed consolidation must, in our view, be restrained for another reason.

It is entirely well settled that the power of corporations to consolidate and merge is not to be implied, and exists only by virtue of plain legislative enactment. 1 Thomp. Corp. § 315; 7 Thomp. Corp. § 8216.

It follows of necessity that there is no right to consolidate without unanimous consent of stockholders, unless the power to consolidate has been conferred by legislation so that the power may be read into the contract of incorporation. 1 Thomp. Corp. §§ 75, 343.

To simplify the discussion that follows, we will assume (in favor of respondents) that the United States Leather Company, as well as the Central Leather Company, had been incorporated after the passage of the act of March 8th, 1893.

That act (P. L. 1893 p. 121) provides:

“That any two or more corporations, organized or to be organized under any law or laws of this state for the purpose of carrying on any kind of business of the same or a similar nature, may merge or consolidate such corporations into a single corporation, which may be either one of said merging or consolidating corporations or a new corporation to be formed by means of such merger and consolidation.”

Similar provisions are in the Revised Corporation act of 1896. P. L. 1896 p. 309 § 104.

Under either of these acts it is plain that the power to merge two corporations is conferred only where they are organized for the purpose of carrying on business of the same or a similar nature.

The purpose for which a company is organized is primarily to be sought and found in its charter or certificate of incorporation. Our Corporation acts of 1875 and 1896, while permitting the organization of companies to carry on many kinds of business, require that the certificate of incorporation shall state the “objects for which the company is formed.” Gen. Stat. p. 912 § 11 II; P. L. 1896 § 8 III. This statement of the objects of the company is not only a limitation of the franchises that are derived by the corporators from the state, but is likewise a limitation of the purposes to which the corporators as between themselves have agreed that the joint capital shall be devoted.

The amended certificate of incorporation of the United States Leather Company sets forth that the objects for which the company is formed are the manufacture and sale of leather, lumber and belting, including the acquisition of lands and other property necessary to or convenient in connection with that manufacture, and, in general, the engagement in any and all lawful business necessary or convenient in connection with the business of manufacturing and selling leather, lumber and belting, and also. to the extent necessary or convenient in connection with the business of the company already mentioned, to purchase, acquire, &c., shares of stock of any other company created under the laws of this or any other state or country, and to purchase securities or evidences of debt created by any other corporation. From this language it is clear that the primary object of this company is the manufacture and sale of leather, lumber and belting, and that the other objects mentioned are but incidental.

The certificate of incorporation of the Central Leather Company states the following as the objects for which that corporation is formed: (a) To manufacture leather, lumber, belting and any and all other merchandise and commodities of whatsoever nature and character, and all materials, machinery, appliances, products and supplies proper to be used in connection with or incidental to such manufacture, and any commodities which result from or are by-products of the manufacture, production or preparation of leather, lumber, belting or other merchandise or article; (5) to engage in any other manufacturing, warehousing, trading or selling business of any kind or character whatsoever; (c) to acquire, dispose of, &e., lands, timber, bark, tanneries, mills, warehouses, &c., and any and all articles of property which the corporation may deem to be necessary or convenient to the attainment or-furtherance of any of its objects; {cl) to -buy, sell, &c., shares of stock, bonds and other evidences of debt issued or created by any other corporation, whether foreign or domestic, and whether now or hereafter organized; (e) to acquire, hold, use, operate, sell or otherwise dispose of, trademarks, patents, inventions, &c.; (/) to build, buy, lease or otherwise acquire and maintain and operate without the State of New Jersey, railroads, tramways, canals and terminals, and all appurtenances, together with such other transportation facilities as the corporation may deem necessary for its business operations, and, to the extent permitted by law, to develop, improve and aid any properties, water-powers, industries, manufacturing or merchandising enterprises or companies for transportation by land or water in any of which this corporation may be interested; {g) to carry on any other lawful business whatsoever which the corporation may deem proper or convenient to be carried on in connection'with or incidental to any of the foregoing purposes; provided, that the corporation shall not construct, &e., any railroad or telegraph or telephone lines in the State of New Jersey, or engage in any business hereunder which shall require the exercise of the right of eminent domain within said state, unless power in either or any of said respects shall hereafter be conferred upon it by law.

After this statement of the objects of the company, the certificate of incorporation proceeds to declare that “the purpose of the corporation is from time to time to do any one or more of the acts herein set forth as within its authority.”

To say nothing of the incidental powers, it is plain "that the principal objects and purposes of the Central company are much more extensive than those of the United States company. Clause (a) permits it to manufacture not only leather, lumber and belting, but any other merchandise or article. Clause (&) declares an independent power to engage in any other manufacturing, warehousing, trading or selling business. Clause (d) declares-an independent power to buy, sell, &e., shares of stock, bonds and other evidences of indebtedness of any corporation, foreign or domestic. And clause (e) permits the general dealing in trademarks, patents and inventions. The objects thus asserted cannot fairly be construed as limited to such as are incidental to the manufacture of leather, lumber or belting; for the incidental purposes and powers are made the subject of separate mention in clauses (c) and (g).

If the power to build and operate railroads, &e., mentioned in clause (/), is to be deemed an independent power, it seems to exclude the company from the act of March 8th, 1893, because of the plain prohibition contained in the proviso of that act.

But, aside from this, the articles of association confer upon the Central company, in plain terms, very extensive primary powers that are not at all within the letter or intendment of the articles' of association of the United'States company. The majority in interest of the Central Leather Company could, at any time, without violating the contract of incorporation, abandon the leather, lumber and belting business, and embark its resources in any other kind of manufacturing or trading business, or in a general course of trading in shares of stock, bonds and other corporate obligations.

The certificate of incorporation of the United States Leather Compány admits of no such extensive business.

As between the corporators of any company, the corporate objects expressed in its articles of association cannot be changed without unanimous consent, unless changed by virtue of some act of legislation which may be read into the contract. Our General Corporation act authorizes a change in the nature of the business of the company by the vote of two-thirds in interest of the stockholders. Act of 1875 § 33; Rev. 1877 p. 182; amended P. L. 1893 p. 478 § 10; Gen. Stat. p. 966 pl. 274; Act of 1896 § 27; P. L. 1896 p. 285; amended P. L. 1908 p. 127. But action on the part of the eorportion to change the nature of its business is to be exercised, if at all, by direct proceedings taken pursuant to the statute authorizing it. The acts authorizing consolidation neither permit nor contemplate that a change of the objects of incorporation is to be accomplished by means of a consolidation agreement.

The merger agreement now before us provides that after the consolidation the resulting company (to be known still as the Central Leather Company) shall possess the powers, privileges and rights granted by and shall be governed by and be subject to the certificate of incorporation of the Central Leather Company, a copy of which is thereunto annexed and made a part thereof. We deem it plain that this would constitute a substantial diversion' of the assets of the United States company from the objects and purposes limited in its articles of association, and a violation of the letter and spirit of the Consolidation act, which permits the consolidation only of companies organized for the purpose of carrying on business of a similar nature.

There seems to be no reported decision in this state upon the subject. And since the matter depends upon a mere interpretation of statute law, eases decided in other jurisdictions and upon other statutes can be of little service. New Orleans Gaslight Co. v. Louisiana Light Co., 4 Wood 90, and Chevra Bnai Israel v. Chevra Bikur Cholim, 24 N. Y. Misc. 189, are, however, decisions tending to support the view above expressed.

If we were to look beyond the objects expressed in the respective certificates of incorporation, and deal with the purposes of the United States Leather Company and of the Central Leather Company, respectively, as manifested by their actual course of business, it does not seem to us that the case would be bettered for tire proposed consolidation. For, it appears, the purpose of tiróse interested in the Central company was simply to secure control of the United States company and reorganize it in such fashion as to get rid of the limitations contained in its certificate of organization respecting the rights of preferred stockholders and the prohibition of mortgage indebtedness.

But in the present case we do not need to gO' beyond the declaration of purposes as contained in tire respective articles of association, it being manifest from these that the two corporations were not organized for the purpose of carrying on business of the same or a similar nature, within the meaning of the act. P. L. 1893 p. 121. It results that the consolidation is unauthorized by law and violative of the rights of the complainants.

This point seems not to have been argued before the learned rice-chancellor, but it was raised in argument in this court, and while it is contended by the respondents that the point was not made in the bills of complaint, we think it is sufficiently covered by the averments that the merger and consolidation of the corporations cannot be lawfully accomplished under the provisions of the acts of the legislature referred to, and that the proposed consolidation without the consent of the complainants is an invasion of their rights, and without, authority of law as against the complainants.

The orders under review should be reversed, with costs, in the court below and in this court, and the record remitted for further proceedings in accordance with the views above expressed.

No. 33—

For affirmance—None.

For reversal—The Chancellor, Chief-Justice, Garrison, Swayze, Reed, Trenci-iard, Parker, Bergen, Voorhees, Minturn, Bogert, Vredenburgt-i, Gray, Dill—14.

No. 35—

For affirmance—None.

For reversal—The Chancellor, Chief-Justice, Garrison, Swayze, Reed, Trenchard, Parker, Bergen, Voorhees, Minturn, Bogert, Vredenburgt-i, Gray, Dill—14. '


author: Swayze, J.

text:
    Horace B. Burr v. Henry L. Nivison et al.
    [Argued July 3d, 1908.
    Decided March 1st, 1909.]
    Negotiations for the sale and conveyance of land in New Jersey were had in Connecticut, on Sunday, between the vendor and the agent of the vendee; the written memorandum required by the statute of frauds was signed by the vendor and delivered to the agent who in return delivered the vendee’s check, made and dated on Saturday, for the first payment; the memorandum embodied terms to which the agent was not authorized to agree, and it was not delivered to the vendee nor assented to by him until Monday.—Held, that the contract was made on Monday and not invalid as a Sunday contract.
    On appeal from a decree advised by Vice-Chancellor Howell, whose opinion is reported in '7f N. J. Fq. (J¡. Buck.) SW.

      Mr. Winfield 8. Parker, for the appellant.

      Mr. Thomas P. Fay, for the respondent.
   The opinion of the court was delivered by

Swayze, J.

The bill seeks to set aside and cancel of record an agreement for the sale of land by complainant to the defendant Rosenstein, because it was secured by fraud and because it is invalid by reason of the fact that it was made on Sunday. We agree with-the vice-chancellor that the complainant failed to establish fraud. As tc- the other ground of invalidity we reach the same result, but by a somewhat different process. Our view renders it unnecessary to pass upon the legal question whether the court will intervene at the instance of one of the contracting parties to cancel a contract made on Sunday; we express no view on that question.

The vice-chancellor found that Mrs. Nivison was not the agent of Rosenstein but of Burr. We think that she went from New Jersey to Connecticut as Rosenstein’s agent to buy the farm apon the terms agreed upon between Rosenstein and the complainant’s son. .We are led to this conclusion by the fact that most of the terms of sale were agreed upon with Burr’s son before she went to Connecticut, that she took with her Rosenstein’s check for the first payment, and took from Burr an agreement for the conveyance to Rosenstein. These facts are hardly consistent with the view that she was only Burr’s agent for the purpose of making the sale. The fact that Burr was to pay her a commission is not inconsistent with our conclusion; this he might well do, and if it was done with the knowledge of Rosenstein and without objection on his part there was no impropriety. Rosenstein gave his check for the first payment on Saturday. Mrs. Nivison went to Connecticut and secured from Burr the written memorandum required by the statute of frauds and delivered Rosenstein’s check on Sunday; the memorandum was dated on Monday and delivered to Rosenstein on that day. If this memorandum contained only the terms that had been agreed upon between Rosenstein and the complainant’s son on Saturday, we should hold that the contract was made on Sunday, since we think that Mrs. Nivison was authorized to assent as Rosenstein’s agent to those terms. The memorandum, however, does not contain merely the terms to which Mrs. Nivison had been authorized to assent; it adds a provision that if Rosenstein fails to pay the purchase price in accordance with the agreed terms, he shall forfeit $500, and,give up possession.

We recognize the rule adopted long ago in the supreme court that where a contract is illegal because made on Sunday, it cannot be validated by subsequent ratification, for the reason, as stated by Chief-Justice Beasley, that the parties have no power to give life to an act which from reasons of public policy has been ordained by the legislative authority to be absolutely void. Reeves v. Butcher, 31 N. J. Law (2 Vr.) 224. Nothing short of a new bargain can be valid. Ryno v. Darby, 20 N. J. Eq. (5 C. E. Gr.) 231. These views have been frequently reaffirmed in the supreme court and the court of chancery in cases which are collected and cited with his usual thoroughness by the present chancellor in Newbury v. Luke, 68 N. J. Law (39 Vr.) 189. If, therefore, the assent of Rosenstein on Monday amounted merely to a ratification of Mrs. Nivison’s ac't on Sunday, the contract would be invalid. It is a question of some nicety to determine whether his act was a mere ratification or whether it was an assent on his part to the terms finally offered by Burr, by which assent, for the first time, there came into existence a completed contract. The solution of this question depends upon the intention of the parties. Burr meant to make a binding contract; he is presumed to have known the law of Connecticut forbidding Sunday contracts; it was in view of this that the memorandum was dated on Monday; the memorandum was meant to be delivered in New Jersey to Rosenstein, and Burr could not be ignorant that he had added a term to the contract which would require Rosenstein’s assent. He must, therefore, be held to have intended that there should be no final contract until the delivery of the memorandum to Rosenstein and his assent to the terms. This imputes to him' only a knowledge of the legal situation and an intent to abide thereby. In our view the contract was consummated on Monday.

The question remains whether it is vitiated by reason of what took place on Sunday. In Cannon v. Ryan, 49 N. J. Law (20 Vr.) 314, the supreme court held that where a notice to a tenant, that after the expiration of his existing term he would be charged an increased rent, was given on Sunda3r, and the tenant simply remained in possession after his term ended, there was no valid contract to pay the increased rent. This was put upon the ground that the mere retention of possession had no significance without proof of the notice, and Justice Reed was careful to distinguish the case from one in which a preliminary conference held on Sunday had been merged into a contract made upon a secular day. In that case the landlord was seeking to avail himself of his own act done upon a Sunday.

It has been held in other jurisdictions that a contract completed on a secular day is not invalid because negotiations leading up to it were had on Sunday. Of the cases collected in 27 Am. & Eng. Encycl. L. 405, it will suffice to refer to Tuckerman v. Hinkley, 9 Allen 452; Dickinson v. Richmond, 97 Mass. 45; Gibbs & Sterrett Manufacturing Co. v. Brucker, 111 U. S. 597. The last case is quite in point. The defendants had delivered a written contract of guaranty to the plaintiffs agent oh Sunda3>', but the agent had no authority to sign or close the contract on behalf of the plaintiff; it was necessary to send it to the plaintiff to be accepted and signed, and it was so accepted on a secular day. The court said: "In order to make good the defence set up in the answer it is necessary to prove not only that the defendant signed his name to the contract on Sunda3g but that he delivered it on Sunday. The mere signing of a contract on Sunday, which is not delivered on that da3g does not avoid the' contract.” In that case the defendant relied upon the delivery to the agent, but the court held that he was not the agent of the plaintiff for that purpose but a mere messenger to transmit the contract to the other party for approval or disapproval. So in the present ease, when Burr added the provision as to forfeiture and delivery of possession to which Mrs. Nivison was not authorized to assent, he made her his messenger to transmit the offer to Rosenstein, and there was no contract until Rosenstein assented.

Let the decree be affirmed, with costs.

For affirmance—The Chiee-Justioe, Swayze, Reed, Trenci-iard, Parker, Bergen, Voorhees, Minturn, Bogert, Vre-DENBURGH, VROOM, GRAY, DlLL—13.

For reversal—None.


text:
    The State Council of the Junior Order of United American Mechanics of the State of New Jersey, respondent, v. Enterprise Council, No. 6, appellant.
    [Argued November 19th, 1908.
    Decided March 1st, 1909.]
    A beneficiary order was organized into national council, state councils and subordinate councils. By the scheme of the order the funds contributed by the individual members were paid to the subordinate councils, and a small sum for expenses only paid each year to the state council, part of which was for the expenses of the national council. The constitution, by-laws and permission to organize the subordinate council contained provisions that upon dissolution of the subordinate council its property should be forfeited. After a severance of relations between the national council and the state council, one of the subordinate councils remained true tp its allegiance to the national council, retained its organization, and continued its operations as before.—Kel<L, that under the circumstances the state council could not, by its own act, work a forfeiture of the property of the subordinate council.,
    Ou appeal from a decree of the court of chancery advised by Advisory Master Pitney.
    The bill was filed for a discovery and account of the assets in the hands of the defendant and a decree that the complainant was the owner of the same and requiring the defendant to deliver all of its property to the complainant. The history of the organization is set forth in the opinion of Vice-Chancellor Pitney in State Council v. National Council* 'll N. J. Eq. (1 Buch.) 488 (at p. 487). The defendant is one of two local councils* which adhered to the national council at the time of the severance of relations between the national council and the state council. It was originally organized pursuant to leave of the Pennsylvania state council* on October 9th* 1868* prior to the organization of the state council of New Jersey and of the national council. The written authority to organize is called a charter, but is in effect merely a permission to certain gentlemen to form a subordinate council. This permission provided that if Enterprise council was dissolved by forfeiture of its charter or otherwise* then all books* papers, &c.* the property of said council* should become the property of the state council of Pennsylvania. The “laws” of the national council provide as follows:
    “In the event of the disbanding of a council the national or state council (granting its charter) shall collect its charter, private work, books and other property previous to granting a charter for its reorganization.”
    By the “laws” of the state council (edition of 1873) provision was made for a revenue to be derived from the sale of certain printed matter and from the payment of not less than three nor more than ñve per cent, on all amounts received for propositions, initiations* admissions by card, degrees and weekly dues, as the state council might from time to time direct; and it was provided that any council neglecting or refusing to- pay the same should be deprived of the privileges of the order and be debarred of the right to be heard through their representatives on the Boor of the state council. The “laws” of the state council (edition of 1900) contain the following provision:

      “A. council may be suspended or dissolved, and its charter and property forfeited to the State Council, for improper conduct, or for a refusal to enforce or obey the laws adopted by this State Council, for refusing or neglecting to make proper returns in due time, or for non-payment of its per capita tax, for not holding a regular meeting for a period of three months, or being reduced in membership to less than seven; but a charter of a council shall not in any case be forfeited until it shall have been duly notified and opportunity offered to answer the charges preferred against it.”

      The printed record fails to show whether this provision was contained in the laws of the order in force prior to 1900, as nothing is printed but extracts from those laws. By the constitution of the national council an appeal was given to the national council from the action of a state or subordinate council.

      Mr. Alan H. Strong (with whom was Mr. Fergus A. Dennis), for the respondent.

      Mr. Banion B. Hutchinson and Mr. Robert H. McCarter, for the appellant.
   The opinion of the court was delivered by

Swayze, J.

In the opinion of the court of chancery in the first case which arose in this state growing out of the controversy between the national council and the state council, it was held that the relation between the parties was a purely voluntary one; that any member might withdraw at any time. Since neither the national council nor the state council had any individual members, but were composed of delegates, it necessarily followed that the subordinate councils might continue their life and existence without reference to or assistance from either state or national council, and that they and their individual members comprised and formed the very life and soul of the whole order, as was subsequently stated by the same vice-chancellor, in the opinion in State Council v. National Council, 71 N. J. Eq. (1 Buch.) 433. In that opinion he contrasted the legal relation between the national, state and subordinate councils with the legal relation between the national government and the governments of the several states. The decree in the first ease was affirmed upon the vice-chancellor’s opinion, and the appeal from the decree in the second ease was dismissed. It is thus settled that it is the subordinate councils which have an independent existence, and that their relationship with the state and national councils is, as the vice-chancellor said, a purely voluntary one. The state council could have no greater right to coerce the subordinate council than the national council had to coerce the state council.

The fact that the national and state councils chose to call their permission' to organize subordinate councils a “charter” and chose to call their constitution and by-laws “general laws,” does not give them the force of law. As the vice-chancellor held in the opinion approved by this court, the relationship is purely contractual, and in ascertaining the terms of that contract, recourse must be had to the so-called “charter” and “laws,” which embodied the terms upon which individual members became associated in these organizations. Those documents have a twofold aspect. In the first place, they determine the relationship between the three grades of councils and the method of securing co-operation and enforcing discipline, and in the second place, they contain provisions affecting the property rights of the individual members of the order in the funds arising out of their contributions. In the present case, we are concerned only with the property rights.

In determining these rights it is of the first importance to consider the object with which the funds are raised and the method of disposition in contemplation of the individual members of the order. Enterprise council is a New Jersey corporation organized for benevolent and charitable purposes. Its specific objects are set forth in what is called its constitution, which are to maintain and promote the interests of the American youth and shield them from the depressing effects of foreign competition; to assist Americans in obtaining employment; to encourage Americans in business; to establish a sick and funeral fund; to prepare the youth of America to become members of the order of United American Mechanics when the}1" arrive at the proper age. It seems probable that the only object for which funds would be likely to be accumulated is the establishment of a sick and funeral fund. ■ No provision is made in the constitution and by-laws either of the national or state council for turning over any of this fund to either of those organizations. The right of the state and national councils to revenue is limited to what is called a tax, and is really a contribution of 'a small sum par capita for the necessary expenses of those councils collected

of the individual members by the subordinate councils. Such revenue as the state council derived from the sale of ¡printed blanks was nothing more than a profit upon the sale of merchandise, which the subordinate councils might buy elsewhere if they chose. The form of traveling card issued by the subordinate councils indicates that the amount of sick and funeral benefits to be allowed to a member, was fixed and determined by the constitution and by-laws of the local council, and there is nothing to indicate that there was any legal claim on the part of a member to relief from a council other than that to which he belonged, or that there was any legal obligation on the part of either national or state councils to pay such benefits. The claim of the individual member to relief, and the obligation to afford it, rested upon the subordinate council only. Enterprise council has paid the capitation tax collected by it from its members on behalf of the state council up to the time of the severance of relations, and the only question is whether, since that severance, the state council is entitled to the funds accumulated by Enterprise council for the purposes of the order. Those purposes, as far as concerns the accumulated funds, were the relief of the members of Enterprise council alone, and if that council is to be deprived of those funds, it must be by reason of something in the contract which justifies the conclusion that the members who contributed the funds did so with the understanding that in certain contingencies the money should be turned over to purposes other than that for which it was raised, the relief of members of Enterprise council. As was held in National Council v. State Council, 64 N. J. Eq. (19 Dick.) 470, the burden of proof was upon the complainant to establish the trust, and that trust must be the trust created by the individual members who contributed to the fund. It is quite evident that these contributors did not intend to create any trust in favor of either the state or national council as long as the relations between the subordinate council and the state council and between the state council and national council remained unsevered. The only provisions that seem to contemplate any change of the trust when the relations were severed is that contained in the so-called charter of Enterprise council and the extracts from the laws above quoted. The provision in the charter was that upon the dissolution of Enterprise council the books, papers, &c., the property of the council, should become the property of the state council of Pennsylvania. If we assume, as perhaps we fairly may, that upon the organization of the state council of New Jersey and the affiliation of Enterprise council therewith, the state council of New Jersey took the place of the state council of Pennsylvania, the question still recurs whether the condition upon which the property was to be forfeited has been complied with and whether the accumulated funds are a part of the property that was to be forfeited.

It is convenient to deal with the latter question first. The provision relates to “all books, papers, &c., the property of the said council.” It would seem that this language was hardly intended to cover accumulated funds. If it had been in contemplation in 1868 that such funds would -be accumulated, it is difficult to explain the omission of any reference thereto, and the charter is careful not to say that all the property of Enterprise council shall become the property of the state council, but to limit it to the “books, papers,” &c., which are the property of Enterprise council. It probably was not contemplated at the time that funds would be accumulated, and it was no doubt thought that all that would be necessary upon the dissolution of Enterprise council would be to take up the books and papers, including, perhaps, the regalia and similar property. But even if the language is sufficient to include invested funds, it becomes necessary to determine whether the condition upon which the property was to pass to the state council has been fulfilled. This condition was not that the so-called charter should be forfeited, but that the council should be dissolved, and the law which we have quoted provided that a council might be suspended or dissolved and its charter and property forfeited to the state council. In view of the use of language such as “charter,” “laws,” “tax” and “dissolution,” which appears throughout the documents, it seems probable that the authors had the idea that the order possessed the power to grant charters, enact laws, levy taxes and dissolve subordinate councils; in short, that it possessed, so far as the order was concerned, governmental powers. If this is so, the word “dissolution” should be construed as meaning what it would mean when we speak of a corporation being dissolved by an act of government or judicial proceedings, and this is the construction that we think ought to be adopted in view of the legal principle that conditions involving a forfeiture of property are to be construed strictly. If this is the proper construction, the condition upon which the property was to be forfeited has not come to pass, for, in fact, Enterprise council has not been dissolved; it is still an existing body; all that has happened has been that it has thrown off allegiance to the state council and adhered to the national council, just as the state council itself threw off its allegiance to the national council. Moreover, the state council is without power to dissolve Enterprise council, for that is a corporation under the laws of the State of New Jersey, and can only be dissolved by proceedings in accordance with the New Jersey statutes. The fact is that the word “dissolution” is inapt to express any legal intent which the parties may have entertained, for, even in the case of an unincorporated association, it would be quite impossible for the state council to dissolve such a voluntary association as long as its members chose to continue together. If, however, we should assume, in order to give a force to the language which the parties probably did not themselves have in mind, that by dissolution they meant only the dissolution of the relations existing between the state council and the subordinate councils, the question would still remain how that termination should be brought about so as to work a forfeiture of property. The complainants must establish that they themselves had the right to dissolve this connection, and thereby possess themselves of the property of Enterprise council held in trust by that council for the purposes of its organization and subsequent incorporation, and for the benefit of its individual members. It was upon that view that the vice-chancellor determined this cause. Such a provision for the forfeiture of property or, what amounts to the same thing, a change in the personnel of the cestuis que trust, would be contrary to the fundamental principle which prevents one from being a judge in his own cause, and, as far as Enterprise council is concerned, it would be illegal al%o because it would strip that council of the property which it held for the purpose of carrying-out the object for which it was incorporated.

We approve of the rule established in Austin v. Bearing, 16 N. Y. 112. The court there said: “The effect of some of the provisions of these constitutions is to create a tribunal having power to adjudicate upon the rights of property of all the members of the subordinate lodges, and to transfer that property to others; the members of this tribunal being liable to constant fluctuations, and not subject in any case to the selection or control of the parties upon whose rights they sit in judgment. To create a judicial tribunal is one of the functions of the sovereign power, and although parties may always make such tribunals for themselves, in any specific case, by a submission to arbitration, yet the power is guarded by the most cautious rules. A contract that the parties will submit confers no power upon the arbitrator, and even where there is an actual submission it may be revoked at any time. The law allows the partjr, up to the last moment, to ascertain whether there is not some covert bias or prejudice on the part of the arbitrator chosen. It would hardly accord with this scrupulous care to secure fairness, in such cases, that parties should be held legally bound by the sort of engagement that exists here, by which the most extensive judicial powers are conferred upon bodies of men whose individual members are' subject to continual fluctuation.”

In the later case of Wicks v. Monihan, 130 N. Y. 232; 29 N. E. Rep. 139, the court said: “The property of local assembly No. 4119 was not derived from the general assembly, but was contributed and owned by the associated members of No. 4119, and held by an absolute title as perfect and unconditional, so far as is shown by the case, as is the title by which any person or corporation holds its individual property. To hold that the general assembly can, by a decree, divest the title to property and vest it in itself, is giving to it a power which is forbidden to be exercised by congress or by the legislature of any state.”

A similar result was reached in Wells v. Monihan, 129 N. Y. 161; 29 N. E. Rep. 232. The court said, referring to Excelsior Assembly 4120 of the Knights of Labor: “Their charter was revoked for insubordination, of which, very likely, they were guilty. The offence and its punishment ended their powers and privileges so far, and so far only, as they were derived from the rules and regulations of the Knights of Labor, but could not destroy their rights as individuals, or as an unincorporated association derived from the law of the state. Under that law they could, as they did, associate for a common purpose, and choose officers, in whose names they could sue. These powers-they had when their charter from the knights was given, and retained when it was taken away. That event broke off their relations with the order, but not with their own treasury. That treasury they could control, in their collective capacity, until some superior power took it away, or it disappeared in a final distribution among the members.”

The same result was reached in a like litigation in Maryland (District Grand Lodge v. Jedidjah Lodge, 65 Md. 253; 3 Atl. Rep. 104, and in a later phase, 67 Md. 117; 9 Atl. Rep. 13), where the court said: “It is true that when this corporation was formed, this lodge was a subordinate lodge, forming part of the general order, and by several of the articles of association it was bound to observe and enforce the rules and regulations of the grand lodge of the district. But the courts must look to the powers, which the state has, by its laws, conferred upon this corporate body. Among them, as we have said, is the power to change its articles of association, given not only by the original act of 1853, but secured by the present corporation laws. Such a change of its articles as would completely sever all connection between this corporation and the district grand lodge or the general order could be made without, so far as we can perceive, affecting injuriously any substantial property or pecuniary rights of any of the corporators or members; and it is such rights only that the courts can consider. But, even if such change could not be made without inflicting such injury, and if the corporation has wrongfully refused to obey the order of tire grand lodge, still this would only be cause for the annulment of its charter by the legislature, or for proceedings against it as provided by the corporation laws. A corporation can only be dissolved, but the mode for doing that is likewise provided by^ law.”

The court added: “Whatever powers the higher lodges in such an organization as this may have to mate rules or laws for the government of the subordinate lodges and the discipline of their members, we think it quite certain that the courts can never recognize as valid any rule or law so made, the effect of which is to confiscate property, or to arbitrarily take away property rights from one set of members, and give them to- another set; nor will the courts allow or recognize the enforcement of any such rule when its enforcement will accomplish, and is designed to accomplish, such a result.”

There is another objection to the procedure by which the state council attempted to forfeit the rights of Enterprise council. -By virtue of the constitution and by-laws of the order, an appeal was allowed from the action of the state council to the national council, so that the contract between the parties did not permit a forfeiture by the a.ction of the state council alone. It is no answer to say that the appeal from the state council to the national council had become impossible by reason of the severance of their relations, for the right of forfeiture was a contractual right, and the terms of the contract must be strictly complied with to work the forfeiture. If such compliance became impossible by reason of the act of the state council in severing its relations with the national council, whether that act was rightful or wrongful, it did not thereupon become possible for the state council to alter, to its own advantage, the contract with Enterprise council and with the individual members.

The attempt to forfeit the qharter of Enterprise council seems to have been made upon notice, as required by the then existing constitution and by-laws of the state council, adopted in 1900. But the effect of the forfeiture, if it has the force attributed to it by complainant, is to take away not only the rights of Enterprise council growing out of its connection with the state council, but to destroy the interest of the individual .members of Enterprise council in funds contributed by themselves or their predecessors and associates. Before they could- be deprived of this property right they were themselves entitled to be brought into the proceeding. So far as appears, the only effort that was made to give notice was a service upon the recording secretary of Enterprise council.

It can hardly be urged that, although the attempt by the state council to forfeit the property of Enterprise council was insufficient to accomplish that purpose, the court ought now to forfeit the charter. A court of equity is not the tribunal in which corporations are to be dissolved for such reasons; nor does a court of equity lend its aid to enforce the forfeiture of property rights. Moreover, no cause for forfeiture appears. Enterprise council, so far as the case shows, is still performing the functions for which it was organized, and carrying out the purposes for which it was incorporated, and administering the funds contributed by its members in accordance with their wishes and for the purposes for which they were contributed. As Vice-Chancellor Pitney said, with the approval of this court, in National Council v. State Council, 64 N. J. Eq. (19 Dick.) 470 (at p. 473), the relation between the parties is a purely voluntary one, and any member may withdraw at any time. “The adhesive power which holds these several bodies together is the supposed benefit, first, to the individual members by reason of their membership ; then to the subordinate council by reason of its connection with the state council, and then to the state council by reason of the benefit supposed to be derived by its connection with the national council.” In that case he held that the national council could not recover from the state council moneys which had been collected by the state council of the individual members, for the reason that, under the circumstances of that case, they had not been contributed by the individual members for the use of the national council. The case is entirely analogous to the present, where the funds were contributed by the members for the relief of themselves and their associates, and not for the purpose of being turned «over to another organization for the benefit of other persons when neither that organization nor those persons were under any obligation to hold the funds for the purpose for which they had been contributed. The case differs very materially from State Council v. Sharp, 38 N. J. Eq. (11 Stew.) 24, where the complainant’s constitution provided that the amount received by the state council upon dissolution of the subordinate council should be appropriated for the assistance and support of the widows and orphans of members of the subordinate council, and that if there were no such widows and orphans, the amount should be invested and paid in case of reorganization to the subordinate council. In that case the subordinate council disbanded and undertook to divide up its funds, contrary to the scheme under which they had been raised, and the state council was seeking to enforce the trust created b3r the contributors to the fund, not as in the present case to work a forfeiture of the rights of the cestuis que trust. It differs also from the case of Knights of Pythias v. Germania Lodge, 56 N. J. Eq. (11 Dick.) 63, where the statute of the order provided that the receipts of a subordinate lodge should constitute a trust fund for carrying out the fraternal and beneficial features of the order, and that the fund should not be subject to paftition among the members of the lodge, but should revert, in case the lodge ceased to exist, to the grand lodge. In that case, also, the subordinate lodge disbanded and undertook to turn its funds to a channel other than that contemplated by the statutes of the order. So, also, in the case of Schubert Lodge v. Schubert Verein, 56 N. J. Eq. (11 Dick.) 78. So far as the case of Altmann v. Benz, 27 N. J. Eq. (12 C. E. Gr.) 331, is applicable, it favors the position of the defendant, for it was there held that those who remained true to their allegiance to the grand lodge of the United States, and the grand lodge of this state, were entitled to the' property of the society. The defendants have remained true to the national council. The distinction between funds in which, by virtue of the terms under which tl^r were contributed, the superior council or lodge has an interest, and those which are under the control of the subordinate lodge is pointed out b3r Vice-Chancellor Green in Lady Lincoln Lodge v. Faist, 52 N. J. Eq. (7 Dick.) 510.

We have not found it necessary to determine the question whether the advisory master who heard this cause was at the time authorized to hear it. If he was not, the appellants were quite within their rights in not arguing the case before him; if he was, the appellants should not, by reason of that default, be deprived of their right of appeal, for the reason that the respondent submitted to answer the petition of appeal, and has thereby submitted the case to the decision of this court, and should be lielcl to' have waived its right, if it had such, to dismiss the appeal.

Eor the reasons stated we think the property in question was the property of Enterprise council, and the decree adjudging that it belonged to the state council must be reversed, with costs.

For affirmance—None.

For reversal—The Chancellor, Chief-Justice, Garrison, Swayze, Reed, Trenciiard, Parker, Bergen, Voori-iees, Minturn, Bogert, Vredenburgh, Vroom, Gray, Dill—15.


text:
    The L. Martin Company, respondent, v. L. Martin and Wilckes Company, appellant.
    [Argued December 1st, 1908.
    Decided March 1st, 1909.]
    1. On a bill to enjoin unfair competition a court of equity, upon granting an injunction, may also decree an account of the profits made by the defendant by means of the unfair competition.
    2. On a bill to enjoin unfair competition it is not permissible for a court of equity, upon granting an injunction, to decree that the defendant shall account for damages suffered by the complainant in addition to accounting for the profits made by the defendant.
    On appeal from a decree of the court of chancery advised by Vice-Chancellor Stevenson, whose opinion is reported ante p. SO.

      2lr. Robert E. McCarter and Mr. Charles L. Garrick, for the respondent.

      Mr. Craig A. Marsh and Mr. Frank P. McDermott, for the defendant.
   The opinion of the court was delivered by

Swayze, J.

We agree with the conclusion rescued by the vice-chancellor upon the facts of the case and have nothing to add to his convincing opinion in that respect. The decree, after adjudging that the defendant refrain from carrying on the lampblack business under the name of L. Martin and Wilckes Company, or any other name in which the name L. Martin appears, unless words are incorporated in and made a part of such corporate name, which shall clearly and unmistakably distinguish the corporate name so adopted by the defendant from the complainant’s corporate name, proceeds to award an injunction forbidding the defendant from carrying on the lampblack business under the name of L. Martin aild Wilckes Company or under any other name in which the name L. Martin appears. The terms of the injunction provided for are, therefore, broader than the restraint adjudged to the complainant, which permits the use of the name L. Martin if the corporate name of tire defendant clearly and unmistakably distinguishes it from the complainant. The decree, however, rests upon the conclusion that the defendant adopted the name L. Martin as a part of their corporate name for the purpose of securing trade which properly belonged to the complainant. This brings the case within the rule of International Silver Co. v. Rogers, 67 N. J. Eq. (1 Robb.) 646, and we think the broad terms of the injunction were warranted. Since the complainant does not appeal from that part of the decree which adjudges a more limited restraint, we see no cause for reversal on this account.

The decree further orders a reference to a master to ascertain the profits diverted from the complainant, which have been made by the defendant from the sales of lampblack in packages, and such other damages, if any, ns the complainant has suffered by reason of the wrongful conduct of the defendant that is enjoined by the decree. It is the portion of the decree which directs tire master to ascertain, these damages that calls for comment. This goes beyond the prayer of the complainant’s bill, which, in this respect, asks only for an account of sales and profits. The vice-chancellor ably argued in favor of the proposition that it would be unfortunate to remit the complainant to a court of law to ascertain its damages. We are not prepared to accede to his suggestion that we should so extend the jurisdiction of a court of equity, however desirable it may be that such extension should be brought about, either by legislation, or, if that is impossible, in view of our constitutional limitations, by constitutional amendment. The general rule is that unliquidated damages for a tort cannot be recovered in equity. So well settled was this rule in England that an act of parliament was required to change it. 21 & 22 Vict. c. 27. This rule is stated in 2 Dan. (5th Am. cd.) 1080. It is equally well settled in this state. Trotter v. Heckscher, 40 N. J. Eq. (13 Stew.) 612; Alpaugh v. Wood, 45 N. J. Eq. (18 Stew.) 153; Norton v. Sinkhorn, 63 N. J. Eq. (18 Dick.) 313.

There is a class of case's in which a court of equity will ascertain the amount of compensation, but these are cases where the ascertainment is necessary as a condition precedent to the equitable relief which the court of chancery is competent to afford. Illustrations are to be found in cases where equity requires that a landowner should be enjoined from maintaining ejectment against a corporation having the power to condemn lands, but at the same time requires that the injunction should be awarded upon terms that the corporation make compensation. The cases are collected by Vice-Chancellor Pitney in Sparks Manufacturing Co. v. Newton, 57 N. J. Eq. (12 Dick.) 367 (at p. 393); North Hudson Railroad Co. v. Booraem, 28 N. J. Eq. (1 Stew.) 450; New York and Greenwood Lake Railroad Co. v. Stanley's Heirs, 35 N. J. Eq. (8 Stew.) 283. Other cases are cases of compensation on a bill for specific performance, of which Melick v. Cross, 62 N. J. Eq. (17 Dick.) 545, is an instance. Another illustration is Simmons v. Paterson, 60 N. J. Eq. (15 Dick.) 385, where the right to ascertain compensation was contingent upon the consent of the city. In Eggers v. Anderson, 63 N. J. Eq. (18 Dick.) 264, the jurisdiction of equity was sustained in a case of fraud, and it was held that the value of goods furnished might be ascertained by a master, but that case comes short of sustaining the jurisdiction to ascertain unliquidated damages for a tort. The difficulty of applying that rule to the present case arises out of the fact that the rule for ascertaining the compensation of the complainant in equity in cases of this kind is not the" damages suffered by the complainant, but the profits realized by the defendant. The proper rule in such cases is the rule which has been adopted in cases for infringement of patents. That rule allows the complainant to recover the profits made by the defendant, including in profits the advantage derived by the defendant from the use of the invention. Tilghman v. Proctor, 125 U. S. 136, where Mr. Justice Gray said: “The general rule has been sometimes said to be based upon the theory that the infringer is converted into a trustee for the owner of the patent, as regards the profits made by the use of his invention. But, as has been recently declared by this court, upon an elaborate review of the cases in this country and in England, it is more strictly accurate to sajr that a court of equity, which has acquired upon some equitable ground the jurisdiction of a suit for the infringement of a patent, will not send plaintiff to a court of law to recover damages, but will itself administer full relief by awarding, as an equivalent or substitute for legal damages, a compensation computed and measured by the same rule that courts of equity apply to the case of a trustee who has wrongfully used the trust property for his own advantage.” Citing the case of Root v. Railway Company, 105 U. S. 189. The distinction between an account of profits made by the defendant and an ascertainment of the damages suffered by the complainant is well illustrated in the case of Elizabeth v. The American Nicholson Pavement Co., 97 U. S. 126, where the court held, in an opinion by Mr. Justice Bradley, that the city of Elizabeth, having made no profit, could not be held for compensation in the equity suit, although it had made itself liable for damages in an action at law. That case arose prior to the passage of the act of congress of July 8th, 1870 (U. S. Rev. Stat. § 4921), which authorized a court of equity, upon rendering a decree in a suit for infringement, to ascertain the damages which complainant had sustained in addition to the profits to be accounted for by the defendant. ■ In a recent case the supreme court of the United States has again been called upon to point out the distinction between the measure of the recovery in equity and that applicable in an action at law.

Coupe v. Royer, 155 U. S. 565 (at p. 582). The ground upon which the complainant is allowed to recover the profits made by the defendant, or the value of the advantage derived by him from the use of the patent, is that the defendant should not be allowed to profit by his own wrong, since it often happens that the advantage to the defendant exceeds the damage suffered by the complainant. The principle which has been applied by the courts in suits for infringement of patent is equally applicable in bills to restrain unfair competition, and has been so applied by the courts.

Lever v. Goodwin, L. R. 36 Ch. Div. 1, which was followed in the later case of Saxlehner v. Apollinaris Company (1897), 1 Ch. 893. In Singer Manufacturing Co. v. June Manufacturing Co., 163 U. S. 169, upon the reversal of the decree, it was ordered that a decree be entered containing a direction for an accounting by the defendant as to any profits which might have been realized by it because of the wrongful acts by its committee. In Ford v. Foster, L. R. 7 Ch. 611, the decree was that an account be taken of the profits made by the defendants. 1 Seton Dec. 236. In Regis v. Jaynes, 77 N. E. Rep. 774, the supreme judicial court of Massachusetts, in a trade-mark case, said that the same rule was applied to cases of unfair competition merely as well as to cases of the infringement of a trade-mark properly so called. A different rule was adopted in Walter Baker Co. v. Slack, 130 Fed. Rep. 514, and in W. R. Lynn Shoe Co. v. Auburn Lynn Shoe Co., by the supreme judicial court of Maine, 62 Atl. Rep. 499. In the case cited from 130 Fed. Rep. the court was influenced by the fact that the profits made by the infringer would not in all cases be compensation to the injured, for the reason that his loss was in part due to a failure to acquire a just and deserved gain and to the injury to the reputation of his product by reason of the substitution of the spurious article. No doubt there may be such elements of damage quite independent of any profits or advantage gained by the defendant, but the difficult}'' is that the two elements of damage may overlap. For example, the damages of the complainant would include profits which he has lost, but to award him not only those profits by way of damages, but also the profits which the defendant actually gained by the sales would permit of a double compensation. If the profits which the complainant might make, on sales by himself were exactly the same as the profits actually made by the defendant, the compensation would be exactly double; it might even be more than double if the complainant, by reason of ability to sell or market his goods on more advantageous terms, could have realized a larger profit than was actually realized by the defendant. This in itself is a sufficient reason for the rule which has been adopted by the courts. No injustice is thereby done to the complainant. He has his option to sue at law for the damages, or to file his bill in equity for an injunction and account of profits. Whether he can in any case have both remedies is a question not now before us. The decree in this case directs the master to ascertain the profits diverted from the complainant which had been made by the defendant and such other damages, if any, as the complainant has suffered. It fails to take into account the fact that some of the damages may be due to the prospective profits of which the complainant has been deprived, and may be, to that extent, embraced also within the denomination of profits made by the defendant. This of itself would require a reversal of the decree in this respect. We think it is better to follow the rule of the English courts and of the United States supreme court and limit the accounting to the profits made by the defendant.

For these reasons the decree must be reversed, and as the complainant drew the decree in its present form,- and in its answer to the petition of appeal asserts that it is agreeable to equity, we see no reason why the appellant, having been forced to come into this court, should not be entitled to the costs of the appeal. The record should be remitted to the court of chancery with instructions to enter a decree in accordance with this opinion. The complainant is, of course, entitled to costs in the court of chancery.

For affirmance—None.

For reversal—The Chief-Justice, Garrison, Swayze, Reed, Trenchard, Parker, Bergen, Voorhees, Minturn, Bogert, Vredenburgi-i, Gray, Dill—13.