text:
    Adelaide V. Geishaker and husband, and Alfaretta E. White and husband v. David J. Pancoast, Gladys W. Fillebrown and husband, Roy Alton Fay and Louise Fay.
    [Decided April 27th, 1898.
    Filed January 4th, 1899.]
    1. One purchasing at an execution sale does not acquire an interest to which he knew one not an execution defendant was equitably entitled.
    2. A Us pendens merely disclosing an interest held by complainants will not give a purchaser constructive notice of an interest of another disclosed by complainants’ bill, which is referred to by the Us pendens.

    3. Defendants purchased under foreclosure, knowing that complainants were equitably entitled to a certain undivided interest in the land. When the mortgage was executed the mortgagee had no notice of complainants’ interest.— Held, that complainants were entitled to an order of sale permitting them to redeem their interest in the land by paying whatever deficiency there might be due on the mortgage after sale of the interest which the mortgagor owned.

      4. The owner of an interest in land executed a mortgage that was valid against complainants because the mortgagee had no notice that they were equitably entitled to an undivided interest. — -Held, that defendants, purchasing the mortgagor’s interest in the land under execution, knowing of complainants’ rights, took the land subject to complainants’ equitable right to have the mortgagor’s interest first sold to satisfy the mortgage.
    Heard on bill, answer and proofs.

      Mr. John J. Crandall, for the complainants.

      Mr. Daoid J. Pancoast, for the defendants.
   Pitney, V. C.

The bill in this canse prays no specific relief, but it was answered, and defendants went to hearing without objection, and I shall therefore assume that its object is to establish the equitable title of the two female complainants to an equal undivided one-seventh each in a lot of land in the village of Hammonton, in the county of Atlantic, in this state, the legal title of which at one time stood in their brother, Thornton W. Fay.

These lands formerly belonged to one Cyrus J. Fay (the father of the female complainants), who died seized of the same intestate, leaving nine children, who became tenants thereof in common. At a sale under partition proceedings instituted by another brother, William H. Fay, the premises were bought by Thornton W. Fay for the benefit of himself and six of his brothers and sisters, including the two complainants and George W. Fay, the father of the defendants Mrs. Fillebrown and Roy Alton Fay. The six brothers and sisters released to Thornton their share in the proceeds of the sale, with the result that a trust arose in their favor of one-seventh each. See Fay v. Fay, 5 Dick. Ch. Rep. 260, in which case the present female defendants were complainants in a suit commenced by bill filed March 8th, 1892, and their right was finally established and a decree made in their favor declaring that, as representatives of their deceased father, George W. Fay, they were each entitled to an equal undivided one-seventh part of the premises in question in this suit. Fay v. Fay, 29 Atl. Rep. 356.

The fact that the female complainants herein were two of the six brothers and sisters who released to their brother Thornton their share in the proceeds of the sale on that partition proceeding, and that they had never been paid by him for the same, was proven in this cause, and by such proof their equitable interest in the land in question was established.

The defence is that, pending the suit brought by the female ■defendants, which is reported in its preliminary stage in 5 Dick. Ch. Rep. 260, and in its later stage in 29 Atl. Rep. 356, Thornton W. Fay, having, apparently, the title to the premises, free and clear of any trusts or encumbrances, mortgaged the same to one Stout for $500; that, after giving that mortgage, the decree establishing the right of the female defendants to an equal undivided one-seventh part was made and costs recovered against Thornton Fay, and an 'execution issued out of this court to enforce payment of those costs, and the premises were brought to sale under such execution and purchased in the interest of the female defendants herein by the defendant Pancoast, who was their solicitor and counsel; that, subsequently, foreclosure proceedings were commenced by Stout upon his mortgage, and the premises were brought to a sale, and the defendant Pancoast purchased them at that sale. He then conveyed the same to the female defendants and took back from them a mortgáge to secure him for the money which he had paid and expended and for his services in their behalf.

The allegation of the defence is that the mortgage from Thornton Fay to Stout conveyed a fee-simple in the premises, free from complainants’ equitable estate, but subject to redemption, and that a purchaser under that mortgage obtained a clear title, though he himself had notice of complainants’ title.

The position of the complainants is that the defendants, and each of them, had full notice of the complainants’ equity in the premises; that such notice arose from the examination of the witnesses in the suit of the defendants against Thornton, and that special notice was given to Mr. Pancoast of their equitable rights before he purchased at either of the sheriff’s sales.

I am satisfied that the defendants did have actual notice of the female complainants’ equitablé rights, in these premises, and the result is that their title, under the execution for costs, must be confined to the interest of Thornton W. Fay in the premises. Harney v. Bank, 7 Dick. Ch. Rep. 697.

With regard to the title under the mortgage, it was not disputed by the complainants but that Stout was a bona fide mortgagee for the sum mentioned in his mortgage — $500; that,is to say, he advanced that much money in reliance upon Thornton’s apparent title and had no actual notice of complainants’ rights. But complainants claim that he had constructive notice of their rights by virtue of a notice of Us pendens filed by the present defendants in pursuance of the statute (Gen. Stat. p. 402 § 161), in their suit in the county of Atlantic, on the 9th of March, 1892, the day after their bill was filed in this court.

That document sayfe nothing about any claim to the land, except that of the complainants in that suit. It says :

“That a suit has been commenced and is pending in the court of chancery, and that the object of it is to have the title to an undivided one-ninth part of the lands and premises declared to be in the complainants, and to require a conveyance to be made of the same by the defendant, free and clear of all encumbrance put thereon by him.”

It does not state the ground upon which that claim is founded. But the complainants contend that it was the duty of a proposed mortgagee to examine the original bill referred to in that notice, and see what that stated. That proposition may be maintainable so far as relates to any right on the part of the present defendants to an undivided one-ninth interest, afterwards declared to be a one-seventh interest. Undoubtedly the mortgage of Thornton Fay to Stout was inefficient as to an undivided one-ninth of the premises vested in equity in the present defendants. But I am unable to see upon what principle other parties interested in those premises had any legal or equitable right to expect' that the proposed mortgagee or other purchaser should look at the original bill to which the lis pendens referred. It may well be that Mr. Stout, if he examined the notice of lis pendens, of which there is no proof, was willing to loan $500 on the eight equal undivided one-ninth shares of the premises in question, and was indifferent with regard to the one-ninth covered by the lis pendens; and I do not see that there was anything in the notice to put him upon inquiry as to any other share than the oue equal undivided part claimed by the complainants therein, or as to any other outstanding interest in the property.

But if we look at the bill of complaint referred to in the notice, all that we find in it is a statement that Cyrus Fay, the ancestor, died seized of the premises, and that by virtue of partition proceedings by one of his heirs the premises were sold, and that Thornton Fay purchased, and that it was agreed by and between him and his brothers and sisters, the other heirs-at-law of their father, without naming any of them, except George W. Fay, father of the complainants therein, the defendants herein, and William H. Fay, the complainant in partition, that he should purchase the same in his own name, but in the interest and with the joint funds of the other heirs, excepting William H. Fay, and hold the title for the equal benefit of those concerned till the same should be more advantageously disposed of by the common consent.of all those concerned. It further says that George W. Fay, the father of the complainants in that suit, the defendants in this, executed a release for his one-ninth part of the proceeds, and, as the result of that, Thornton held one-ninth part in trust for him. It does not say whether the other heirs executed any release, or whether they had or had not been settled with.

Now, it seems to me that it may well be considered doubtful whether that statement, if actually seen by the mortgagee, would have put him upon inquiry as to the right of the complainants, who were not parties to that suit, and in whose behalf no claim was thereby made. But I do not find it necessary to decide that question, since I am clearly of opinion that upon general principles the notice in question, and the suit to which it refers, can operate only in favor of the party complainant in that suit. I have examined the precedents with some care, aud am unable to find a shred of authority for the contrary contention of the complainants in that behalf.

It must be remembered that the statutory notice in question is not an extension or amplification of the operation of the maxim “pendente lite nihil innovatur.” It is not declared by the statute to act as notice of anything to anybody. It acquires from the statute none of the qualities of the record of a title deed. Nor is it a part of the chain of title of any person claiming through any of the defendants in the suit. On the contrary, its object is to act as a limitation and restraint upon the operation and effect of the maxim in question by way of ameliorating its admitted hardship as originally applied, and the maxim itself is not founded upon the idea of notice, but of the necessity for the efficient administration of justice that the result of a suit shall bind all parties who acquire an interest in its subject-matter pending its progress. Haughwout v. Murphy, 7 C. E. Gr. 531 (at p. 544) (Court of Errors and Appeals, per Mr. Justice Depue), and cases there cited. And see a fuller examination of the authorities in Turner v. Haupt, 8 Dick. Ch. Rep. 526 (at p. 553) et seq.

The maxim in question, in my judgment, inures to the benefit of the party complainant for the purposes of the particular suit, and for the benefit of no other person and for no other purpose.

Not only is there, so far as I can find, no authority for the notion that any person other than the complainant can have its benefit by way of implied notice, but there is authority to the contrary, namely, Bellamy v. Sabine, 1 De G. & J. 566. The facts in that case are quite complicated, but may be abbreviated for present purposes thus: A brought suit' in equity against B and C in respect to certain lands, and the pleadings therein showed that, in addition to the particular equity set up by A against B aud C, B had an equity against C, his co-defendant, in respect to the same lands. Pending that suit, C, who held the legal title, mortgaged the premises to D. In a subsequent suit, B enforced his equity against C and claimed that D was bound by it because it had been set out in the pleadings in the previous suit, pending which D took his mortgage. This claim, after elaborate argument, was disallowed by Lord-Chancellor Cranworth and Lord-Justices Knight-Bruce and Turner. Lord Cran worth (1 De G. & J. 581) says: “ If the doctrine really rested on the ground of implied notice, the consequence might be that the person affected by notice is affected- by notice of everything reasonably deducible from or appearing in the suit, and this might warrant the order now complained of. I am, however, of opinion that the pendency of Francis Bellamy’s suit cannot be treated as having amounted to notice of the equitable rights of John Bellamy against his co-defendant Sabine.” And Lord-Justice Knight-Bruce (at p. 582) says: “In that suit [of 1830], the only suit which, in or before 1833, existed, Francis Bellamy was the sole plaintiff, and neither of the mortgagees of 1833 was a defendant; consequently, in my opinion, there was not a Us pendens created by it between John Bellamy and Thomas Sabine, who were both defendants in the cause, or between John Bellamy and the mortgagees of 1833; and as those mortgagees respectively had, neither in nor before the year 1833, actual notice, so, in my judgment, as between them and John Bellamy, neither in nor before that year had either of them constructive notice of the suit of 1830. John Bellamy, in and before the year 1833, stood, so far as any litigation was concerned, on the defensive merely. John Bellamy was not, in any sense, an actor in any litigation before the year 1835.” To the same effect is the judgment of Lord-Justice Turner.

The argument from a ease where an equity was set out, but not attempted to be enforced, between two defendants, to a case where the equity is set out in favor of a person not a party is a fortiori.

The result is that, .on the case made before me, Stout’s mortgage, and the title under it, is good as to the undivided shares of the complainants.

But then another equitable rule intervenes to limit the effect of the defendants’ title under that mortgage. We have already seen that they, the defendants herein, had notice of the complainants’ equity before they purchased. Hence, they can claim under that mortgage no more than what they actually paid for principal, interest and costs on the Stout decree, the familiar rule being that they are in equity entitled to indemnity and no more. Haughwout v. Murphy, 7 C. E. Gr. 548, 549, and cases cited in argument of counsel at p. 535 et seq.

Then another equity arises in favor of the complainants, which I think is superior to that of the -defendants, and that is this: although Stout got a title superior to that of the complainants, yet he took it subject to the equity of the complainants to have the mortgage enforced, in the first place, against Thornton’s undivided share or interest, whatever it may be, in the premises; and this equity is also superior to the title of the defendants under the sale of Thornton’s interest, by virtue of execution issued in the suit of Fay v. Fay, on the familiar principle that the complainants’ rights are first in point of time.

The result is that the complainants are entitled, in the first place, to have the share or interest of Thornton Fay sold first to repay the defendants the amount paid by them on the decree on the Stout mortgage; and they are entitled to redeem their two undivided shares by paying the balance remaining due thereon after the application of Thornton’s share as aforesaid.

If asked for, the complainants are entitled to an account of the rents and profits of the premises.

For present purposes, I treat the share or interest of Thornton in the premises, which must be applied to the payment of the Stout mortgage and of the defendants’ execution for costs, as uncertain. It is true that the complainants’ bill alleges that Thornton had conveyed parts of the premises purchased by him under the partition proceedings, not here involved, to three of the seven persons interested, not parties to this suit, in payment m specie for their equitable interests in the premises here in question, whereby Thornton’s equitable interest in the premises was advanced from one-seventh to four-sevenths. But the persons whose interests were so alleged to be extinguished are not parties to this suit, and no proof was offered upon that subject, and, if there had been, their absence would have rendered it inefficient for purposes of adjudication herein. The uncertainty as to the extent of Thornton’s equitable interest will not, as I think at present, affect the working out of the decree which I propose to advise. I will, however, hear any suggestions counsel may have to make upon that point.


source: Caselaw Access Project

author: Pitney, V. C.

license: Public Domain

text:
    S. Augusta Freeman, administratrix, &c., of Charles D. Freeman, and Wilson Fitzgerald v. The Sea View Hotel Company, The Sea View Land Company et al.
    [Decided April 30th, 1898.
    Filed January 4th, 1899.]
    1. A bill charged fraud in the directors of a hotel company (1) in conveying its land to a land company, claiming that directors of the hotel company were interested in the purchase by the land company, and (2) in a purchase by the hotel company of land in which some of its directors were interested. The proof showed that after the property had been bargained to be sold by the hotel company, a stockholder in the hotel company joined in the formation of the land company; that a director in the hotel company, and one of the committee to sell, was a partner of a party who induced certain persons to form the land company; that only one of the directors of the hotel company-had any interest in the land sold to the company, and he did not know that the purchase was being made for the hotel company. — Held, insufficient to. sustain the allegation.
    2. A hotel company, a corporation, has power to sell and convey its real estate by virtue of P. L. of 1896 p. 277, providing that every corporation may hold, purchase and convey such real estate as the purposes of the corporation shall require, not exceeding the amount limited by its charter, although such power of sale is not clearly expressed in its charter.
    3. The directors of a hotel corporation were charged with negligence in making a sale of its property, and were sought to be made liable therefor. The evidence showed that the directors sold the property for the best obtainable price, in order to change the location of the hotel, which had become unprofitable. The number of shares of stock was one hundred and twenty-six, which-had never sold for more than §1,000 a share. The property sold for §129,000 in cash, the furniture being reserved. A boom occurred in the city, and the-purchasers, by a sale, made a large profit; but the directors had no reasonable belief that such boom would occur, as same was brought on by a combination' of circumstances. — Held, that the directors were not liable.
    4. A hotel company’s charter authorized it to purchase land and maintain a hotel at or near Atlantic City, which it did. Its business became unprofitable at its location, and it sold the property and purchased at another place in the city. — Held, that the company could make the purchase, there being nothing in its charter restricting it.

      Heard on bill, answer and proofs. ■
    [The cause was partly heard by the late Vice-Chancellor Green in his lifetime, and most of the testimony taken in his presence-. After his death additional testimony was taken before a master, and the case was then brought on for final hearing on the pleadings and proofs so taken.]

      Mr. Herbert A. Drake and Mr. Henry B. Freeman (of the Philadelphia bar), for the complainants.

      Mr. Peter D. Voorhees, for the defendant the Sea View Land Company, and the defendant Fries.

      Mr. Samuel H. Gh'ey and Mr. Joseph H. Qashill, for the Sea View Hotel Company and its individual directors, defendants.
   Pitney, V. C.

The bill was filed by Charles D. Freeman and Wilson Fitzgerald, two of the stockholders (holding eight of the one hundred and twenty-six shares of stock) of the Sea View Hotel Company. Pending the suit Mr. Freeman died, and his widow and administratrix was substituted as complainant in his place. Besides the defendant the Sea View Hotel Company, which may hereafter conveniently be called the Hotel company, certain directors thereof are made parties defendants; also a corporation known as the Sea View Land Company, which may conveniently be called the Land company, together with one Fries, a director thereof, are defendants.

The bill (filed March 2d, 1891), in the first place, attacks a conveyance of land made June 19th, 1889, by the Hotel company to the Land company, on two grounds — -first, for want of power to convey in the mode in which the conveyance was made, and second, for fraud, the specification of fraud being that the property was sold at a grossly inadequate price, and that the directors (defendants herein) of the Hotel company were interested in the purchase by the Land company, and that great profits were made by the Land company, in which the directors of the Hotel company participated; or, if there was no actual fraud, then that there was such gross negligence in the sale as to render the directors of the Hotel company liable to make good the loss. The prayer as to this branch of the bill, briefly stated, is that the defendants the Land company and the directors of the Hotel company, or some of them, may account for those profits to the Hotel company, to the end that the complainants may have their share thereof, and to that end that the Hotel company may have an account of the proceeds of so much of the lands as have been resold by the Land company to bona fide purchasers, and as to that portion of the lands not so sold, the same may be declared to be the property of the Hotel company.

In the second place, the bill charges that the Hotel company, about the date of the sale to the Land company, purchased other lands which it had no power to purchase, and in which certain of its directors were interested, and the prayer is that this sale may be set aside and the directors of the Hotel company be compelled to account for the actual cash invested therein, with the like view of giving the complainants their share thereof in money.

One element of the case attempted to be made by the complainants may be disposed of quite briefly. Complainants charge, with detail, the particulars of fraud in the conveyance of land by the Hotel company to the Land company and in the purchase by the Plotel company of other land from third parties, and call on the individual defendants to answer under oath. All those who lived long enough to answer.have answered, and deny fully and explicitly, under oath, all the allegations of fraud. This casts upon the complainants the burden of sustaining the charge by a decided weight of evidence. This they have failed to do. Not a single one of the directors or stockholders of the Hotel company was in anywise interested in the purchase by the Land company of the lands of the former, with the possible exception of a Mr. Zimmerman, who was the secretary and treasurer of the Hotel company and also a small stockholder; and after the property had been bargained for by two persons, to wit, the defendant Fries and a Mr. Kremer, and its purchase secured by written contract, which was May 28th, 1889, they took in Mr. Zimmerman, in order to have the benefit of his knowledge and experience of the property for the purpose of managing it, and gave him an interest in the new purchase. He joined in the formation of the corporation June 11th, and the deed was made to it June 18th. But at the argument no relief was claimed against him or his estate, he having died without answering.

The only circumstance shown in the case which tends in the slightest degree to indicate fraud in the sale of the premises is that the defendant Wood, who was a director in the Hotel company and one of the committee to sell, was a partner in business, in Philadelphia, of Mr. Kremer, who was active in inducing Mr. Fries and others to form a syndicate to purchase it. Mr. Kremer undoubtedly heard that the property was for sale from his partner, Mr. Wood, and was advised by Mr. Wood to look into it and examine its value. Mr. Fries is a gentleman of independent means, who is engaged in railroading and somewhat connected with the Pennsylvania railroad. He had no interest in the Hotel company, and I cannot see that these facts are sufficient, in view of all the other circumstances of the case, to raise even a serious suspicion that any of these defendants were directly or indirectly interested in the purchase.

With regard to the new purchase of land, none of the defendants, except Mr. John Lucas, had any interest in the lands sold to the Hotel company. The fact that the directors had decided to purchase the lands in question was properly kept a secret, and the purchase was made through agents, and those agents took an option for a small tract from Mr. Lucas without disclosing to him the fact that it was being purchased for the Hotel company, and Mr. Lucas swears that he did not know that it was so purchased. It constituted a small part of the whole tract purchased, and there is no proof or contention that'it was not worth the price paid for it.

After the completion of the purchase of the new site, some gentlemen organized a land company to purchase, on speculation, land in that neighborhood, and the defendant General Sewell, the president of the Hotel company, took an interest in it, but it does not appear that he had such venture in contemplation at the time the purchase by the Hotel company was decided upon, or that it did or could influence his action in the premises in the least degree.

So much for the allegation of fraudulent practice.

With regard to the power of the directors of the Hotel company to sell its lands, that (laying out of view the power at common law) depends, in part, upon the language of its charter, which was passed February 10th, 1869. P. L. of 1869 p. 40. By the first section, several gentlemen therein named, and their successors, were incorporated by the name of The Sea View Hotel Company,” and it is declared that by that name they shall

“have power to lease, purchase and hold real estate at or near Atlantic City, in the county of Atlantic, and State of New Jersey, and to erect and maintain a hotel and other buildings and improvements thereon, or upon any part thereof, for the accommodation of the public, and to mortgage said real estate with the appurtenances or any part thereof, and to transact all such business as may he incident or appertaining to the managing, erecting, furnishing, Conducting, leasing, holding or mortgaging of said premises, or otherwise controlling or disposing of the same.”

That language seems to me to give them power to convey the land at any time that, in the judgment of the directors, it might be best for the company so to do.

But independent of the special power given by the statute, the General Corporation act (P. L. of 1896 p. 277), which is a reenactment of an old statute, declares that every corporation as such shall have power to hold, purchase and convey such real and personal estate as the purposes of the corporation shall require,” not exceeding the amount limited by its charter. And this seems to be a mere declaration of the common law. Morawetz Corp. § 152.

The position of the counsel of complainants is that such power to convey must be confined to a conveyance for the purpose of winding up the affairs of the corporation, in which transaction the directors must necessarily act as trustees and not as directors, under the power given to them by the fifty-fourth section of the Corporation act of 1896 (P. L. of 1896 p. 295), and that it follows that they could not sell except by advertising at public sale as other trustees or public officers are required to do.

But, in my opinion, that position is untenable. First, because I do not think that the power of sale given by the statute can be confined to a power of sale for the purpose of winding up ; and, in the second place, the section of the statute relied upon seems to give them, while acting as trustees, power to sell at private sale. I think the sale and conveyance were clearly within the power of the directors, as well by virtue of the statute as at common law.

But the complainants pushed their argument further, and claimed that the sale, if made with power and free from fraud, was yet so carelessly made, and the directors manifested so little judgment and exercised such a small degree of business sagacity and good management in the sale, that they are liable on the score of negligence for a very heavy loss which the complainants contend resulted.

I am by no means sure that it is necessary, for purposes of ■the present suit, to consider this position. But I have done so with care, and have examined the mass of evidence which has been given upon the question of the actual value of the property at the time it was sold and the care which was bestowed, for the purpose of obtaining a full price for the property, and have come to the conclusion that the complainants’ case fails therein as well as on the other parts just referred to.

A statement of my reasons for this conclusion requires a statement of the history of the enterprise from the start.

[Statement and discussion of facts omitted.]

For these reasons I think this part of complainants’ case also fails, and with it the whole case as against the Land company and Fries.

There remains, then, for consideration but a single topic, and that is the power of the directors of the Hotel company to purchase the new site and invest the moneys of the corporation therein. The prayer in that regard is that they shall be held personally responsible to account to the Hotel company, for the benefit of its stockholders, for all the cash so invested

The argument of the counsel for complainants in support of the position that the company had no power to make the new purchase may be summarized as follows: That the company, being authorized by its charter to purchase and hold real estate and erect and maintain a hotel and other buildings and improvements thereon, was thereby limited to a single purchase and the erection and maintenance of one establishment, and having once exercised the power, its power in that behalf is expended, and it was unable to exchange those grounds and that hotel for other and different grounds and a different hotel, and that this limitation of power formed a contract between'the stockholders which the majority had no right to break without the affirmative consent of each individual stockholder.

Two phases of the Hotel company’s charter are to be kept in mind in considering this question. First, no particular quantity or parcel of land is mentioned in the charter, and no limitation in location except that it is to be at or near Atlantic City; and there is not a shred of evidence in the case to show that there was even an implied or verbal understanding among the stockholders, when they subscribed to the stock, that any particular site was in contemplation. This at once distinguishes it from a line of cases relied upon by the counsel where railroads are authorized, either by special charter or by their statutory organization, to build a railroad from a particular point to a particular point, which case was dealt with in Morris and Essex Railroad Co. v. Central Railroad Co., 2 Vr. 205, and the other familiar-line of cases, of which Kean v. Johnson, 1 Stock. 401, is the leader in New Jersey, in which railroads have already been built and operated in accordance with the strict terms of chartered rights.

Another phase is that the only franchise which is granted by the charter is that of being a corporation. No public franchise for the condemnation of land for public purposes, or even for engaging in the public business of carrying passengers, is granted, and no grant of eminent domain is made. Hence, the question is not, as in the case in 2 Vr., whether the company had the power to acquire by condemnation proceedings the new purchase.

There is, then, no question of ultra vires between the corporation and any individual member of the public, nor between the corporation and the state as to an abuse of its corporate power. It is a simple question between the stockholders whether or not there is anything in the. original written contract between them which prevents the directors, in the exercise of their discretion and with the approval, as appears in this case, of a large majority of the stockholders, from exchanging one hotel property for another hotel property.

Now, as already remarked, there was nothing in the original charter, or in the facts accompanying the organization of the company, which can amount to a contract between the stockholders that the particular premises first purchased by it, and the particular hotel first erected thereon, was the only one which the company expected to use or own or could use or own. And we have in this case an example of the exercise by the directors of the supposed right to buy additional property, in the purchase by them of the West Jersey Excursion House, in 1886. This was done because there was really a consolidation in interest of the West Jersey railroad excursion business and that of the defendant Hotel company.

Now, the charter authorizes the company to purchase land and maintain a hotel. The circumstances showed that in the latter part of 1888 the business for which the company was organized could not be carried on to advántage upon the property then owned by it. The removal from its premises of the terminus of the railway worked a substantial destruction of its business, and it became no longer profitable for it to maintain that hotel and keep those grounds for the purposes of the corporation. It seems to me that it would be a-very narrow construction to put upon the contractual aspect of the charter to say that the stockholders had agreed that, in such a posture of affairs, the company could not exchange that property for another property in a more eligible situation and where it could have the advantages of a railway terminus, and thus pursue the business provided for in its charter.

I think the complainants’ case fails throughout, and I will advise a decree that the bill be dismissed, with costs.


text:
    Serophine Fountain v. The Mayor and Common Council of the City of Newark.
    [Decided May 7th, 1898.
    Filed January 4th, 1899.]
    Under the law of 1886 (P. L. of 1886 p. 10), known as the Martin act, providing for the collection and settlement of arrearages of unpaid taxes and assessments in cities and imposing a lien for such arrearages, it is competent for a city to levy an assessment for improvements made prior to the passage of the act, even though an assessment for the saíne improvements had been made before the act was passed, and a sale thereunder had been adjudged invalid and set aside, as that decree applied only to the estate claimed under such sale, and the chancery court had no power in that suit to adjudge that the municipality could not thereafter make a new assessment and thereby acquire an estate in the premises.
    Heard on bill and answer.
    The bill is filed under the act providing for suits in the court of chancery to quiet title, by Serophine Fountain against the mayor and common council of. the city of Newark, and its object is to have declared to be void a certificate of sale of land owned by complainant, held by the city of Newark, founded on the lien of. an assessment made under what is known as the Martin act. P. L. of 1886 p. 149.

    The bill sets out that there was an assessment for street improvements made in the year 1873 by the city of Newark, upon certain premises then owned by one John Fountain, which premises included those now belonging to the complainant, and under that assessment a sale took place and the city became the purchaser for a term of years of the whole tract, and that after-wards John Fountain brought a suit in the court of chancery to have that assessment declared null and void, and that a decree was made therein on the 29th of January, 1878, by this court, declaring the invalidity of that assessment, and that the city of Newark had
    “ no estate or interest in or encumbrance on said parcel of land or any part thereof under said assessment or the lien thereof, or said sale, or said certificate of sale, or any of the proceedings on or under said assessment, and that the said complainant holds the said tract or parcel of land and premises free from said assessment and the proceedings for the enforcement thereof; ”

    that, subsequently, under the Martin act, a new assessment, founded on the same basis as that of 1873, was made upon the same premises, and a certain sum was apportioned to the parcel now owned by the complainant and duly affirmed by the court; that a sale had taken place under the new assessment and the city had become the purchaser. And the contention of the complainant is that this last assessment under the Martin act is invalid.

      Mr. William H. Frauds, for the complainant.

      Mr. Frederick T. Johnson, for the defendant.
   Pitney, V. C.

This case has been elaborately argued on both sides, but I do not deem it necessary to discuss the questions argued, for the reason that I think the case as presented is thoroughly covered by authority.

The sale under the assessment of 1873 was undoubtedly set aside by this court upon the authority of the Agens Case, decided in 1874 and reported in 8 Vr. 415. Subsequently, the legislature passed the Martin act, and the constitutionality of that act and the validity of assessments made under it, founded on street improvements made before its enactment, assessments for which had been declared void by the proper judicial tribunals, has been considered by the courts and authoritatively determined in favor of the assessments. I refer to In re Commissioners of Elizabeth, 20 Vr. 488; Protestant Foster Home v. Newark, 23 Vr. 138, and Howard Savings Institution v. City of Newark, 23 Vr. 1. The last-cited case is precisely in point. The decree of the court of chancery there set up seems to have been substantially in the same language and to the same effect as that here relied upon.

But if, upon a careful comparison, the present decree is found to be broader than that made in the case last cited, I think it will not help the complainant. Eor it is perfectly clear upon principle, as shown by the reasoning of the late Chief-Justice Beasley, in 23 Vr. 5, and of Mr. Justice Garrison, in 23 Vr. 141, that it is quite incompetent for the court of chancery, in a suit to quiet title of the character in question, to declare that the municipality cannot, by any subsequent proceeding or legislation, acquire a lien by reason of facts in existence before the commencement of the suit in which the decree of nullity is made.

The chief-justice (23 Vr. 5) says: “At the time of the decree the city had ‘ no estate, interest or right in or encumbrance upon ’ these premises, and none such is now pretended or sought to be enforced. A right to obtain an encumbrance is a very different thing from an existing lien. What the decree dealt with was then present estates and encumbrances; it declared that none such existed, but it neither did nor could adjudge that none such could be afterwards acquired.”

And Mr. Justice Garrison (23 Vr. 141) says: “The essentials of that jurisdiction are that a public improvement has been made; that an assessment therefor has been made and imposed, or attempted so to be, and that payment thereof has not been had. Where these elements co-exist, the authority of the commissioners to proceed is assured without regard to the invalidity of the legislation under which the assessment was made. The nullification of an invalid assessment, whether for inherent defects or because it rests upon unconstitutional legislation, must not be confounded with the discharge of the land from its liability to contribution. The matter of assessment is legislative; the question of liability is not. The basis of all municipal legislation of this class, as well as that of the fundamental right out of which it springs, is the value imparted to the land by the improvement. Hence, the liability of the land to pay the assessment arises as an incident to the improvement, and does not depend upon the validity of the legislative methods provided for its enforcement. If no such legislation be in existence, or, what is the same thing, if supposed legislation proves to be unconstitutional and void, the liability remains in the form of the responsibility of the landowner to future legislative action looking to the enforcement of contribution. The mode in which this contribution shall be apportioned and exacted is, it is true, with certain limitations, at the will of the legislature, but legislative power does not create the liability it enforces any more than it does the limitations it obeys. Hence, it follows that the partial or total failure of the legislative scheme leaves the question of liability untouched.”

In this reasoning I fully concur. The decree must be in favor of the defendant.


text:
    Henry Johnson v. The Johnson Railroad Signal Company.
    [Decided May 5th, 1898.
    Filed January 4th, 1899.]
    1. Where a receiver makes up an account under a special direction which necessarily includes payments made by the insolvent corporation before his appointment, and enters in his account entries of payments appearing on the corporation’s ledger for which he can produce no vouchers, the fact that vouchers had been furnished originally may be established by the testimony, of one of the officers of the company.

      2. Where a contract is made between a patentee and a company by which the company is to prosecute all claims for infringement on the patent or for the royalties thereon, and out of the proceeds of any suit for damages or royalty to pay costs and attorney’s fees incurred which were not taxable against the defendant, and pay the balance to the patentee, the costs and attorney’s fees of a suit begun in equity for the infringement of the patent, which was decided adversely on the ground that the article was manufactured by the defendant upon a proper license by the patentee, may properly be deducted from the amount realized in a subsequent action at law between the receiver of the company and the same defendant to collect royalties.
    3. Where a patentee of a railroad signal sold his patent to a company, and was to receive a royalty on all signals sold by the company, and he claimed under his contract the same royalty on signals subsequently manufactured by another company previously licensed by him, which royalty was collected by his assignee, the amount which he claims must bear its proportionate share of the expenses of collection. •
    4. An attorney received a note secured by a void mortgage from his client for services rendered in a suit, and receipted for it with the condition that it should be in full payment when paid. — Held, that his lien on the judgment was not thereby lost.
    In insolvency. On petition of Henry Bezer. Exceptions to account of-receiver.

      Mr. John Griffin and Mr. Wcdradt (of New York), for the exceptaut.

      Mr. William H. Corbin, for the receiver.
   Pitney, V. C.

The petitioner claims to have a paramount interest as cestui que trust in a sum of money recovered by the receiver in a suit instituted by him in the federal court, and by petition called upon the receiver to account for it. The receiver, under direction of the court, did account; the petitioner excepted thereto, and a hearing was had upon those exceptions.

The circumstances were these: Mr. Bezer, the petitioner,'is the irrevocable attorney in fact of one Cheeswright, of England, in whose name two certain patents were issued by the United States, in 1881, on the 26th of April and on the 10th of May respectively, for the manufacture of a certain style of railroad signal known as the “ Sykes signal.” Cheeswright had, in 1881, given a power of attorney to one Yeomans to come to the United States and exploit the patents. Under that power Yeomans had given a license, subject to a royalty of ¿64 per signal, for the exclusive use of the patents during their life to the Union Switch and Signal Company, of Pennsylvania. The Union company and Yeomans did not account to the satisfaction of Cheeswright. On October 31st, 1889, a more comprehensive power of attorney was given by Cheeswright to Mr. Bezer, and later on — May, 1890 — the power to Mr. Yeomans was specially revoked.

Bezer came to the United States, and on December 17th, 1889, entered into three separate contracts, which were of the same date and part and parcel of the same transaction, with the insolvent defendant, the Johnson Signal Company, which, apparently,, was organized for the purpose of manufacturing railroad signals; under the patents controlled by Cheeswright.

One of these writings. recites the issuing of the patents to Cheeswright, and that he

“ alleges or claims that the Union Switch and Signal Company is indebted or liable to him either for royalties for the use of the said inventions covered by said letters-patent or as damages for the infringement of the rights of the said patentee under said letters-patent, by making, using and selling to others [the right] to use the invention therein described,”

and that it is claimed by Cheeswright

“that various railroads and others in the United States of America have infringed the rights of the said Cheeswright under said letters-patent, and are liable to said Cheeswright for damages therefor.”

After these recitals the agreement proceeds to

“sell, assign, grant, transfer and set over unto the Johnson Railroad Signal Company all his right, title and interest in and to the above-named letters-patent of the United States of America, and all his said claims or rights of action, of whatsoever kind, nature or character, against the said The Union Switch and Signal Company and against any and all persons, railroads, corporations or companies, &c., which have in any way accrued to or exist by and in favor of the said Cheeswright, either for royalties or for damages for the unlawful use of the said patented inventions or appliances, or in any way, with full and irrevocable power to sue for, prosecute and collect the same at its own cost, expense and. risk.”

By another of the writings, the Signal company, in consideration of this assignment (and of a license also given by Bezer at the same time to it for the use of the patents, reserving a royalty of £3 per signal),

“promises and agrees to well and truly prosecute the said claim against the Union Switch and Signal Company in particular, and any other claims which the said The Johnson Railroad Signal Company may conclude to be just and collectible, and to bear the entire cost and expense of such pz-osecution or prosecutions and suit or suits. And it further agrees to render a tz-ue and correct account of any and all moneys collected or received in any such suit or proceeding, and oizt of the proceeds thereof'to pay, first, the actual costs, expenses, attorney’s and counsel’s fees incurred which are not or may not be taxable or colleoted from, the defendant in any such suit or pi'oceeding, and after deducting all such necessaz-y and proper expenses of any such suit or proceeding, to pay over to the said Henry Bezel', as the attorney of the said Cheeswright, the remaining or net proceeds of the sums collected.”

In pursuance of that agreement, the Johnson Signal Company employed Mr. George W. Miller, a member of the New York bar, to bring, either in his own name, as attorney or solicitor, or in the name of some local attorney or solicitor, proper suit against the Union Switch and Signal Company, with the result that ou the 14th of February, 1890, a bill in equity was filed by Mr. Miller for the Johnson Signal Company against the Union Switch and Signal Company, in the circuit court of the United States for the western district of Pennsylvania. The bill sets out the issuing of the letters-patent to Cheeswright, the assignment of them and the damages and claims for royalties mentioned in that assignment, to the complainant, and then charges'that the defendant, the Union Switch Company, had been constructing, selling and using, and threatens to continue to construct, sell and put in use, upon various railroads of the United States, railroad signal apparatus substantially the same as that described under the Cheeswright patents, and that it declined to account for the same, and prays a discovery and account for the income and profits and for' an injunction. This bill seems to be the ordinary bill by a patentee for the infringement of a patent.

The Union Switch Company, by its answer, denied the title of the complainant to the Cheeswright patents, and set up a right by purchase from Cheeswright of the exclusive right of use in the United States under the patents, and that it'was using the patents under such assignment from Cheeswright, without setting out the particulars of its title in that behalf. Then, by a cross-bill, it set up its title in detail under Yeomans, by an instrument in writing, dated March 21st, 1882,- recorded in the patent office, and asked for a decree of the court establishing its title to the patents in the United States, and for an injunction restraining the complainant, the Johnson company,-from exercising any right under its assignment made by Mr. Bezer as attorney for Cheeswright. This cross-bill was answered, and motion for injunction made in behalf of the defendant (the complainant in the cross-bill), which was denied, as reported in 51 Fed. Rep. 85, on the ground that the power of attorney to Yeomans did not authorize him. to convey the patents to the Union Switch- Company.

The usual order for proofs was taken, and under it a mass of evidence, oral and documentary, was submitted.

The questions of law involved were the true construction of the power of attorney from Cheeswright to Yeomans, and of the license or grant by Yeomans to the Union company. The question of fact was as' to notice to Cheeswright and his intelligent acquiescence in and affirmation of the license from Yeomans to the Union company.

This involved the taking of depositions in London, and Mr. Miller attended there for that -purpose, and also argued the cause on final hearing. The result was a decree substantially in favor of the complainant, on the opinion of Acheson, circuit judge, concurred in by Buffington, district judge, as reported in 59 Fed. Rep. 20. The decree was that the letters-patent were' valid; that the assignment to the Johnson Signal Company was valid, and that thereby.that company became and was the lawful owner and assignee of the patents; that the defendant had infringed the exclusive rights of the complainant therein, and that injunction issue against the Union company restraining the further use of the patents, and that the complainant recover the profits which the Union company have received or made, or which have accrued to them since October 31st, 1889, and also damages which the complainant has sustained thereby, and it was referred to a master to take an account. The cross-bill of the Union company was dismissed, with costs.

From that decree an appeal was taken to the circuit court of appeals, where the decree was reversed, and' the bill of the complainant dismissed, as reported in 61 Fed. Rep. 940. The court of appeals differed with the court below as to the construction, of the power of attorney from Cheeswright to Yeomans,' and held that the Union company obtained rights which still exist under the Yeomans title, but confirmed the Johnson company’s rights, viz., the right to collect all royalties which became due from the Union company for which they had not paid Yeomansprior to the revocation of his authority, and for all that accrued after the revocation of his authority. The language of the opinion in that respect is this : “Until Yeomans’ authority was revoked and the defendants had knowledge of it, their settlements-with him were a discharge of liability. For any moneys which may have become due since, settlements must be made with the plaintiffs. How the account stands we are not called upon to-determine. The parties disagree about it, and the question is-one principally of figures.. If there is anything due, the courts of the state have jurisdiction and afford adequate remedy. The-suit is not based on such a claim.”

It would thus seem that the reversal was partly on the ground of the frame of the bill and partly on the ground of lack of jurisdiction in the federal courts; but, by a stipulation found in the printed book, it sufficiently appeared that the Johnson Signal Company was a non-resident and that the jurisdiction of the federal court was ample upon the amount involved, without regard to the character of the subject-matter of the controversy.

After the dismissal of the bill, which was some time early in-the year 1894, and on the 5th of February, 1895, the Johnson company was declared insolvent and a receiver appointed. That receiver, under the advice of his counsel, Mr. Miller, commenced a suit on the law side of the United States circuit court for the western district of Pennsylvania, against the Union company, and the action was brought to trial at great expense, and the jury was charged and retired. Pending its deliberation, a compromise was agreed upon by which the Union company paid to the complainant $6,750, besides costs. No criticism is made upon this settlement. That sum was paid to Mr. Miller. Out of that he paid certain disbursements to experts, and for traveling and other expenses, and to local counsel in Pittsburgh, amounting to $1,152.20; charged for his own services in that suit, $2,100, making a total of $3,252.20; then charged for a balance due him for services in the previous equity suit of $2,500, making a total charge of $5,752.20. He then credited a retainer, paid by the receiver to him, $100; check received for expenses, $250; check received for costs, $200, deposited with the clerk; check of the Union Switch Company, in settlement of compromise, $6,750, making a total of $7,300, which, deducting his bill of $5,752.20, left a balance of $1,547.80, which he paid to the receiver.

The receiver found on the ledger of the Johnson company charges for money paid by that company for the expenses of the equity suit, amounting to $3,221.45, so that the $1,547.80 received by the receiver left the suit still in debt to the Johnson company about $1,675.

Mr. Bezer’s exceptions to this report may be summarized thus — -first, that the charges of Mr. Miller are too great; second, that the $2,500 charge relates to the equity suit, and that by the terms of the contract the Johnson company was not entitled to retain out of the recovery in the action at law the costs of the suit in equity because it failed therein, and further, that Miller had received a promissory note of the Johnson company, secured by a chattel mortgage, for the balance of $2,500 due him for services in the equity suit, and had thereby waived his solicitor’s lien, and also that there are no vouchers produced by the receiver for the items charged on the ledger of the Johnson Signal Company ; third, that Mr. Miller has no right of lien for his services upon the fund actually recovered; fourth, that a part of the sum recovered represented royalties due for signals installed before the contract of December, 1889, which went wholly to Bezer, and the remaining part thereof represented royalties accruing subsequent to that date, which go to the Johnson Signal Company, and that the expenses of the recovery should be apportioned between these two funds.

With regard to the value of Mr. Miller’s legal services, he was examined at length on the stand and stated in detail the work he had done, and I am satisfied that his charges were reasonable.

One of the officers of the company .was called as a witness and proved that all the payments charged -on its ledger were made upon vouchers made out in due form and audited by the proper auditing officer of the company, and that- each entry in the ledger was supported by such a voucher, most of which could not be found by the receiver. In addition, some of the payments were sustained by the direct evidence of Mr. Miller. So that I think those payments by the Signal company, amounting to the sum just mentioned, are sustained by proper proofs.

With regard to the question whether or not the Johnson company may not charge against the fund recovered in the suit at law the costs of the suit in equity, it is to be observed that the-contract on the part of the Johnson Signal Company was

“to well and truly prosecute the said claim against the Union Switch and Signal Company in particular, and any other claims which the said The Johnson Railroad Signal Company may conclude to be just and collectible, and to bear the entire cost and expense of such prosecution or prosecutions, and suit or suits.”

Then comes the clause which presents the difficulty:

“And it further agrees to render a true and correct account of any and all moneys collected or received in any such suit or proceeding, and out of the proceeds thereof to pay, first, the actual costs, expenses, attorney’s and counsel’s fees incurred, which are not or may not be taxable or collected from the defendant in any such suit or proceeding, and after deducting all such nec.ssary and proper expenses of any such suit or proceeding to pay over to the said Henry Bezer, as the attorney of the said Cheeswright, the remaining or net proceeds of the sums collected.”

The contention is that the Johnson company could, under this language, charge Bezer with such costs only as it might incur in successful suits, and must itself bear the costs of unsuccessful suits. I am not sure that such construction is sound. But admitting its soundness, I think it does not exclude the costs in the equity suit.

It is manifest that the matter principally in the minds of the contracting parties was the claim against the Union Switch ándSignal Company, and that the Johnson company -was bound by its contract to prosecute that claim. It did prosecute it under the advice of competent counsel, and succeeded in the court of first instance, before two judges of high standing. Its counsel chose a bill in equity, and his choice was approved, but because the court above, on appeal, consisting .of three judges, thought that an action at law was the proper remedy, it is now contended that the whole of the costs of the suit in equity should be borne by the Johnson company.

It is to be observed, in dealing with this contention, that while that suit produced no direct money results and ended in a dismissal of the bill, it did serve to develop the precise claim of the Union company and defined the precise limit and scope of the Yeomans license; and further, it compelled the Union company to discover, and it did discover, the number of signals installed by it up to a certain date, giving to the Johnson.company information which neither it nor Mr. Bezer had been able, theretofore to obtain, and which was of great value to it in the subsequent suit. In fact, in this respect it served the purpose of a bill of discovery in aid of an action at law. Under such circumstances, it seems to me that it would be a most .stringent and inequitable construction to put upon the contract in question to say that under it the Johnson company must bear the expense of the equity suit. The whole proceeding was, in substance, a single suit, and it was clearly the intention of the parties that the .expenses of prosecuting the claim against the Union company, should be borne by the proceeds of such prosecution.

Besides, it is manifest that the contract arising out of the three separate papers — namely, the assignment of the patents and the claims against the Union company, the license to the Johnson company, reserving a royalty of £3 per signal, and the contract on the part of the Johnson company to prosecute the Union company — was made on the basis that, by the true construction of the power previously given by Cheeswright to Yeomans, the latter could not grant or assign any permanent right to manufacture and use the Sykes signal. Evidently, both parties so believed. In this they were sustained by the court below but not in'the court above. So it appears that they labored under a mutual mistake. It does not appear that the Johnson company or its counsel was responsible for this error more than Bezer and his counsel. It appears that he had independent counsel. And it was supposed on all hands that a recovery would be had against the Union company, either for the actual profits which they had made or upon the basis of the royalty of £4 for each signal installed up to the time of the transfer to the Johnson company and the revocation of the power to Yeomans, or partly on one ground and partly on the other ground. This is plainly indicated by the language of the agreement, which recites that Cheeswright claims that the Union company “is indebted or liable to him either for royalties for the use of the said inventions, &c., or for damages for the infringement,” &c. Upon the basis of the construction so put by both parties upon the power given to Yeomans, the bill in equity filed by Mr. Miller was the proper remedy, and Mr. Bezer is quite as much responsible for its adoption as the Johnson company, and in point of fact the evidence shows that he personally, and presumably his counsel, approved it. Under these circumstances it would be in the highest degree inequitable to apply the literal construction of the contract with respect to the allowance for costs and charges claimed by Bezer, if it be capable of such construction.

The next point taken is that as to a large portion of the recovery in the successful suit, it was prosecuted for the benefit of the Johnson company alone, and therefore the cost of prosecution should be divided between the parties in proportion to the amount that each was interested in it. This result is arrived at by separating so much of the recovery as covered royalties accruing prior to the assignment of the patents to the Johnson •company from those accruing subsequent thereto, and contending that in so far as the latter class is concerned, the suit was brought by the Johnson company for its own benefit. But Bezer at the same time claims that he is entitled to three-fourths of the latter part of the recovery, and I think that probably he is right in that contention, upon equitable principles. It is true that the Johnson company’s contractual liability to pay a royalty ■of £3 per signal is confined to such signals as it installed, and, by the strict terms of the writing, the recovery from the Union company of royalties for signals installed by it after the Johnson ■company’s right accrued would belong to that company absolutely. But I think that Bezer is probably right in claiming that an equity arises in his favor out of the mutual mistake before referred to, to £3 for each signal out of the latter part of the recovery. That being so, then the whole recovery (less £1 per signal installed by the Union company after the Johnson company’s right accrued) would belong to Bezer. And this is, in point of fact, the precise claim made by him at the-hearing. That being so, it is manifestly unjust for him to claim any part ■of the recovery for royalties due from the Union company for ■signals installed after the date of the transfer of the patents to the Johnson company, without assuming the burden of the cost ■of such recovery. His claim being based entirely upon equitable considerations, it is plainly subject to the maxim “He who asks equity must do equity.”

The contention that Mr. Miller was not entitled to retain $2,500 due him for services in the equity suit, because he had taken a promissory note of the company with a chattel mortgage security for it, cannot prevail. In the first place, it appears by his evidence that when he took the note he receipted for it conditionally — to be in full payment when paid. In the second place, the security was declared void by the court of chancery, as reported in Savage v. Miller, 11 Dick. Ch. Rep. 432, and that part of the decree was affirmed by the court of appeals, as reported in Savage v. Miller, supra; and Mr. Miller swore that he had in his possession the promissory .note ready to be delivered up. Under these circumstances the eases are clear that his so-called lien was not lost. Stevenson v. Blakelock, 1 Mau. & Sel. 535, and Davies v. Lowndes, 3 Man., G. & S. 808 (at p. 824).

But there is another view to be taken of this case, which seems to me to be a complete answer to all the exceptions except that as to the value of Mr. Miller’s services, and that is this— that Mr. Miller, while nominally in the employ of the Johnson company and rightfully, looking to it for his compensation, was in reality working for Mr. Bezer, and the whole prosecution was really for Mr; Bezer’s benefit.; and when he came into possession of the fund which was the result of his labors, his right therein did not depend alone .upon the question of an attorney’s lien upon the papers in his hands, and it appears, that, he did retain all the papers in the case in his hands after the appointment of the receiver, but it depended upon his right to retain, or, as it is sometimes expressed, “ defalk,” the value of his services out of the fund; and this right would extend to the services rendered in good faith in the prosecution of the equity suit, for the simple reason that that suit was prosecuted for the -benefit of Mr. Bezer, who was the real client, and in equity a debtor to ■ Mr. Miller for services rendered therein in good faith.

I will advise that the exceptions be overruled, with costs; and as the items making up the ledger charge of-$3,221.45 were, disputed and supported by evidence, far enough at least to cover the $1,547.80 received by the receiver from Mr. Miller, I think the receiver is entitled to an order that the $1,547.80 received from Mr. Miller belongs.to the general fund, to be distributed among the general creditors.

I deem it proper to add that the procedure adopted by Mr. Bezer and acquiesced in by the counsel of the receiver seems to me of doubtful propriety. Mr. Bezer was .informed, before he filed his petition, that Mr. Miller had paid over to the receiver, as the net proceeds of the suit, only the sum of $1,547.80, and that he was ready to account for that sum. In the absence of. collusion between the receiver and Mr. Miller, of which there is no proof, that was all that the receiver could be charged with. Nor was he bound, under the circumstances, on the mere request of Mr. Bezer, to bring an action against Mr. Miller to recover any greater sum from .him. The proper practice, as it seems to me, would have been for Mr. Bezer to apply to. the court for an order on the receiver to sue Mr. Miller to recover the moneys withheld by him, and upon a proper showing such order would have been made upon terms that the receiver be indemnified in. the premises. But as both parties have been fully heard npon the merits of the case, I think that the result should be held, in this court at least, to be binding upon .each.


text:
    The Essex County National Bank v. Harriet Harrison, William H. Harrison and Thomas P. Edwards.
    [Decided May 10th, 1898.
    Filed January 4th, 1899.]
    1. A deed absolute in its terms is reduced to the grade of a mortgage by a concurrent writing in the nature of a defeasance clause, signed by the grantee. Quaere. As to the effect of Gen. Stat. p. 2106 \ 21 upon the record of such a deed in the registry of deeds.
    2. Under Gen. Stat. p. 2106 $ 22, providing that “every mortgage shall be void and of no effect against a subsequent bona fide mortgagee or purchaser for a valuable consideration not having notice thereof, unless it shall be * * * registered,” the failure to so record simply deprives the holder of any benefit from the registry as a matter of notice, and does not make the mortgage void as to purchasers or encumbrancers with actual notice thereof.
    3. A third person’s possession of land is notice to a subsequent judgment creditor of everything in regard to his title which the creditor could have learned by inquiring of him.
    4. A party who holds a legal title to property, but who is out of possession, cannot ask the aid of equity to remove a cloud on his title, which has in it none of the elements of fraud, accident or mistake, unless his title is perfectly clear and paramount to the supposed cloud, and he is not practically bringing ejectment in chancery.

      Heard on bill, answer and proofs.
    The complainant is a judgment creditor of the defendants Harriet Harrison and William Henry Harrison, and, by virtue of its judgment, has levied upon, sold and purchased at sheriff’s sale, and now holds his deed for a piece of property situate in East Orange, Essex county, in which, at a time prior to the date of the judgment, Mrs. Harrison had a life estate and William Henry Harrison held the fee, subject to his mother’s life estate, to the equal undivided one-half part. The object of the bill is to remove a cloud upon the complainant’s title, so derived, in the shape of a conveyance made by the two Harrisons to the defendant Thomas P. Edwards, bearing date the 30th of March, 1895, and prior to the entry of complainant’s judgment. The ground of such relief is that such conveyance, being absolute in its terms, was, nevertheless, reduced to the grade of a mortgage by a concurrent writing in the nature of a defeasance, signed by Edwards, reciting that the conveyance was made to secure the sum of $1,500 loaned by him to the Harrisons, and agreeing to reconvey the same upon payment of that money, with interest. The bill alleges that the deed to Edwards was recorded in the records of deeds of conveyance of Essex county shortly after it was made, but that the concurrent Avriting in the nature of a defeasance Avhich rendered it a mortgage Avas never recorded, and hence the affair is brought within the scope of the twenty-first section of the Mortgage act (Gen. Stat. p. 2106), which declares that if in such case the defeasance is not recorded “ the grantee in the said deed or conveyance shall not be entitled to or enjoy the benefits and advantages hereby given to a mortgagee.”
    The bill alleges, and it is an admitted fact in the case, that the defendant Edwards took possession of the premises as soon as the deed was made, and has since remained in the possession thereof.
    The bill further alleges, and it is an admitted fact in the case, that the sum of $1,500 advanced by EdAvards was not paid to the Harrisons, but to one HaAvkins, Avho at the time held the title to the premises by a deed from the sheriff, by virtue of a sale founded on a common-law judgment against the Harrisons and one Inston, which in turn was founded on a promissory note made by Inston and William H. Harrison and endorsed by Harriet Harrison, and that upon the payment of that money to Hawkins he conveyed the premises to the Harrisons, and they, by deed of the same date and executed and delivered at the same time, made the conveyance in question to the defendant Edwards.

      Mr. Alfred F. SJdnner, for the complainant.

      Mr. Samuel J. MacDonald, for the defendants.
   Pitney, V. C.

The first question argued is whether or not the defeasance in question has the effect of reducing the conveyance to the grade of a mortgage, or, in other words, whether it gives the two Harrisons the right to redeem upon the payment of the money in question. I do not think that question is open to the least doubt. The deed of conveyance was no more than a mortgage, and if the object of the bill were to redeem the premises the complainant’s case would be clear. But such is not the object of the bill, and the complainant, at the hearing, declined to accept such remedy.

The next question is as to the effect, under the statute, of the failure to record this defeasance and disclose by the record the true character of the transaction.

Now, the language of the act is that if the grantee shall fail to record the defeasance he “ shall not be entitled to or enjoy the benefits and advantages hereby given to.a mortgagee.” By the word “hereby” is meant, not that particular section alone, but the whole act, of which it is a part; and counsel for defendants contends that, in order to ascertain its meaning, we should go back .to the origin of the clause in question and look at its original connection and surroundings.

The section in question is the fourth section of an act entitled “An act to register mortgages,” passed the 7th of June, 1799. Pat. L. p. 402; Rev. of 1821 p. 463. On the same day was passed Judge Paterson’s “Act respecting conveyances,” which provided for their proof and record and for the use of certified copies in place of the original as evidence in courts, &c.

We thus have two distinct acts, one relating to mortgages, the other to deeds.

The first section of that Mortgage act provided for the procuration, by the clerks of the county courts, of books in which an abstract of the mortgage can be recorded and for the recording thereof; other sections fix the fees for recording and provide for the discharge of the mortgage by an entry in the margin by way of cancellation. In short, the act provided a cheap mode of giving notice to all the world of the existence of the mortgage without incurring the labor and expense of transcribing it at length; and the tenth section provided that

every suck mortgage shall be void and of no effect against a subsequent bona jide mortgagee or purchaser of the same for a valuable consideration, not having notice thereof, .unless it shall be acknowledged or proved and registered within thirty days after the signing and sealing and delivery of the same.”

The whole scope of the act, then, was to confer a benefit upon the holder of the mortgage and to prevent any person from obtaining a superior right in the mortgaged premises, provided an abstract of it was recorded in a particular manner, thereby saving to the parties the expense of a record at length.

The several sections of that act were comprised in eight sections of the Revision of April 15th, 1846. Rev. Stat. of 1846 p. 657. The section here in question is the fourth of that act, and the fifth section is a substantial re-enactment of the tenth section of the. original act.

The Revision of 1877 consolidated all the previous .enactments concerning mortgages into forty-five sections, but those forty-five sections are classified under seven heads, and the fifth head refers to the registration of mortgages and contains fifteen sections. The twenty-first section of the whole act is one of the fifteen and corresponds with the fifth section of the previous revision, and the twenty-second section corresponds with the fifth section of the Revision of 1846. Thus the original Mortgage act is, in a measure, kept by itself in subsequent legislation.

Now, counsel for defendants argues that, in looking for what is meant by the “ benefits and advantages ” given by the act to a mortgagee, we must look mainly, if not wholly, to the sections which refer to registry of mortgages and which composed the original act of Judge Paterson; “and looking at those,” he argues, “ we find that the principal benefit and advantage ’ is that the mortgagee may, by the mere registry of an abstract, give constructive notice to all the world of the existence of his mortgage and its contents.” The contention is that the provisions of the act applicable to mortgages do not prevent the mortgagee from having his mortgage recorded at length in the registry of conveyances, under the tenth section of the act of 1799 (Pat. L. p. 399), and of the ninth and tenth sections of the Revision of 1846 (Rev. of 1846 p. 647), and of the twenty-fifth, twenty-sixth'aud twenty-seventh sections of the Revision of 1877, nor do they in anywise detract from the' beneficial effect of such record as constructive notice to all the world.

Against this position it is argued with great force by the counsel of complainant that such a construction is inadmissible because it results in rendering the section under consideration entirely inoperative, since it was necessarily aimed at absolute conveyances recorded as such.

The section in question, and its effect upon a case like this, has, so far as I know and so far as counsel have been able to aid me, never been actually determined by any court in this state, though the machinery here used of an absolute conveyance and separate unrecorded defeasance has been availed of in innumerable cases since this legislation had its origin. Vice-Chancellor Dodd, in Kline v. McGuckin, 9 C. E. Gr. 411 (at p. 414), does indeed say: “If, in the present case, the defeasance had been written,- it is undeniable, that the deed as recorded would be postponed to the liens of later date. But does the statute apply also where the defeasance is verbal [which was the case he had in hand]-? ' My conclusion is that it does not.” But he did not have the actual ease before hiru for consideration, and the words quoted are mere obiter dicta.

The question-is not without difficulty, and I do not find it necessary to decide it, for two reasons.

In the first place — and this involves the next question argued— granted that the complainant’s counsel is right in his contention as to the scope of this section, still the effect of it'is simply to deprive the holder of it of any benefit from the registry of the instrument as a deed, as a matter of notice to all the world. He must stand as if his deed were not recorded.

Then the next question is, what is the effect of that result in the present case ?

It is admitted that the grantee took immediate possession. And it is argued by the counsel of defendants that possession itself is notice.

In answer to this, however, counsel for the complainant contends that we must look to the next section of the statute for the character of the notice; and that section declares the instrument void as to a certain class of persons if not recorded, and that such is the category in which the defendant Edwards finds himself here — that his deed is absolutely void as against a subsequent judgment creditor or bona fide purchaser not having notice thereof. He contends that the notice there referred to is a notice of the actual character of the instrument, and that the possession of the defendant Edwards, under his deed, could not have the effect of giving the complainant notice of the actual character of this instrument.

The complete and simple answer to this argument, as it seems to me, is that the effect of the constructive notice, due to possession, is a notice of everything which a party interested in the premises would get by inquiring of the party in possession. In other words, the actual possession of the premises puts any person having a claim, or seeking to acquire title thereto, to an inquiry of such person as to what his title actually is; and until the complainant has actually made inquiry and has received an untrue answer from Mr. Edwards in this case, he is not in a position to say that he is not chargeable with notice of what his actual right and title was and is. Non eonstat, if he had inquired of Mr. Edwards, he would not have told him the precise situation of affairs.

The authorities in this state on this topic are uniform, and, I think, fully support the defendants’ position. Havens v. Bliss, 11 C. E. Gr. 363; Wanner v. Sisson, 2 Stew. Eq. 141, 150; Cooke v. Watson, 3 Stew. Eq. 345, 352.

For these reasons, it seems to me that the complainant’s case fails.

But, in the second place, I think this court is, in the present situation of the affair, without jurisdiction, and such want of jurisdiction is set up in the answer. The complainant’s case does not appeal to the ordinary jurisdiction of the court. Neither fraud, accident nor mistake is set up. Its standing is simply that of a person who holds an absolute legal title, but is out of possession, and asks the court to remove a cloud upon his title which has in it none of the elements of fraud, accident or mistake. In order to induce action on the part of the court, his own title must be perfectly clear and paramount to the supposed cloud, and he must not be in the situation of bringing an action of ejectment in the court of chancery.

The doctrine of Sheppard v. Nixon, 16 Stew. Eq. 627, applies here.

Under these circumstances and in this state of the law, it seems to me that the complainant, before coming here to ask the aid of this court, should first establish its title at law. There is no difficulty in the way of its so doing. If its contention here be right it can maintain an action of ejectment, and when it has done that and obtained either the possession or the immediate right to possession, and not before, it may be — I do not say that it will be — in a position to ask the aid of this court to perfect its record chain of title by declaring that its judgment lien was prior to the conveyance in question.

My opinion is that the complainant’s bill must be dismissed unless it shall elect to bring an action of ejectment, in which case the bill will be retained a sufficient time to permit such action to be brought to trial and complainant’s right, finally determined.

I do not find it necessary to determine, at present, whether or not the defendant Edwards is entitled, under the circumstances, to be subrogated to the rights of Hawkins, under his title, at sheriff’s sale. Should the complainant decide to bring an action of ejectment, and the bill is retained for that purpose, and the complainant succeeds in that action, the defendant Edwards will have an opportunity to present that defence by a proper pleading in answer to the complainant’s title.


text:
    Charles Thiele v. August Thiele et al.
    [Decided May 18th, 1898.
    Filed January 4th, 1899.]
    A widow continued to occupy the premises of her deceased husband under an arrangement with her children that she might do so in all respects as if she were the owner, and a part of the arrangement probably was that she should pay the taxes, water rents, insurance and repairs. This she did for several years and then fell in arrears, and one of the children advanced the money to pay the taxes, with the consent of the others, and on proceedings for partition, claimed a lien for the amount so advanced upon the shares of his brother and sisters. — Held that, although the case was probably not within the rule laid down in Spinning v. Spinning, 16 Stew. Eq. 215, yet that the party advancing was entitled, under the circumstances, to a lien for the amount advanced upon the fund, the proceeds of the sale in partition.
    In partition. Exceptions to master’s report, finding a lien upon tbe land held in common in favor of one of the tenants, based upon advances made by him for the payment of taxes and .assessments.

      Mr. Thomas F. Noonan, Jr., for the exceptant.

      Mr. James A. Gordon, contra.

   Pitney, V. C.

The ancestor died in 1880, leaving a widow and four chil■dren — two sons and two daughters — all of whom were adults. The indications are that the widow was well advanced in years. Besides the land in question, a house and lot, the ancestor appears to have left some little personal property, which was taken possession of by the widow and partially distributed among her children.

The parties were foreigners and not familiar with our laws, and seem to have supposed and acted upon the idea that the widow was the absolute owner of the land. At any rate, by the consent of all the children, she continued to occupy the homestead as her own, renting out a portion and taking the rents and profits. She also paid the taxes, water rents and insurance, and made the repairs for several years, and it may be fairly taken to have been a part of the arrangement between her and her children under which she occupied her homestead that she was to incur those expenses. So that the case is probably not within the rule established in Spinning v. Spinning, 16 Stew. Eq. 215.

About the year 1890 she became unable to pay all these ■expenses and support herself, and her son August Thiele advanced money for that purpose and also to pay taxes, water rents and insurance, amounting to about $800.

Shortly before she died, August ascertained the truth as to the situation of the title and conferred thereon with his brother and sisters, and they appear to have all agreed that he should be reimbursed for what he had advanced, and for that purpose ■a mortgage was prepared for three-fourths of the amount, to wit, $600, to be executed by the two sisters, brother and mother to him. The mortgage was executed by one of the sisters, a Mrs. Kunz, since deceased, and by the mother, but the other brother and sister refused to join in it. In that condition of affairs the bill for partition was filed by Charles Thiele against his mother, his brother August and a sister, Mrs. Shock, and the children of the deceased sister, Mrs. Kunz. The mother ■died after bill filed. August, by an answer, set up a lien upon the premises for taxes, assessments, water rents, repairs and insurance paid. The matter was referred to a master, who reported in favor of August for the taxes of 1888, 1891, 1892 and 1894, with interest; for water rents for the same four years, with interest; for an assessment for benefits of $188, made in the year 1891, with interest; also another assessment for benefits made in 1893, with interest; and for repairs and insurance, several small sums; in all, $583.06.

The only ground taken in argument against this finding was that these payments were not made, either directly or indirectly, by August Thiele, but were made by his mother out of her own funds. It was not contended that if he had actually supplied the money for that purpose he should not be reimbursed out of the property.

Admitting that it was the legal duty of the widow, under the circumstances, to pay these taxes, yet, if she failed to pay them, they and also the water rents would be a lien upon the premises, and the property would be sold to pay them.

The evidence shows that it became necessary during the latter part of the widow’s life, in order that she should be supported, to relieve her of the burden of paying these taxes, and, under the peculiar circumstances of the case, I conclude that the children, by their acquiescence in their mother’s occupation and with their knowledge of her poverty, waived their right, if they had any, to have her pay the taxes and water rents. The two assessments for benefits stand on a different basis. It was not her duty to pay those.

So that the only question is the one of fact which was litigated before the master, whether August Thiele actually furnished the money to make these payments. On this question I think the clear weight of the evidence is in favor of the master’s conclusions.

For these reasons, I will advise that the exceptions be overruled.