author: Gummeee, Chief-Justice. White, J. Black, J.

text:
    General Investment Company v. American Hide and Leather Company. Jacob B. Joel et al. v. American Hide and Leather Company.
    [Decided May 18th, 1925.]
    1. The fact that the rights of preferred stockholders in a corporation may be injuriously affected by the issue of prior preference stock constitutes no bar to the issuing by the corporation .of such stock when the power to do so is conferred by the statute under which the corporation is organized and the statutory provision is an integral part of the corporate charter.
    2. In buying stock for retirement, a corporation is required to purchase ratably from each stockholder who desires to sell.
    3. A corporation cannot legally appropriate to the purchase of stock for retirement accrued dividends that remain in the treasury of the company, against the objection of stockholders who are entitled to share in the distribution thereof.
    4. The fixing by a corporation of the redemption price of stock which it may wish to retire, at a figure above par, is not a violation of the clause in the Corporation act limiting the amount of dividends to be paid on such stock.
    On appeals from decrees of the court of chancery advised hy Vice-Chancellor Bentley, whose opinions are reported in 97 N. J. Eq. 214, 230.

      Messrs. Hudspeth & Hemarest, for the appellant General Investment Company.

      Mr. Arthur F. Egner, for the appellants Joel et al.

      Mr. John R. Hardin and Mr. Waldron M. Ward, for the respondent.
   The opinion of the court was delivered by

Gummeee, Chief-Justice.

The American Hide and Leather Company was organized in May, 1899, under the General Corporation law of 1896. By its certificate of incorporation it was authorized to issue $35,000,000 worth of capital stock, divided into three hundred and fifty thousand shares of the par value of $100 each, fifty per cent, of the authorized issue to be preferred stock and fifty per cent, common stock. Pursuant to this authorization, there were actually issued one hundred and twenty-five thousand four hundred and eightv-three shares of preferred stock and one hundred and twelve thousand seven hundred. and forty-one shares of common stock, the unissued stock still remaining in the company’s treasury. Under the provisions of the certificate of incorporation the holders of preferred stock were entitled to receive each year out of the surplus net profits of the corporation a yearly dividend of seven per centum, if declared, before any dividend should be set apart or paid on the common stock. These dividends were to be cumulative, so that, if any year’s dividends amounting to seven per centum were not paid on the preferred stock, the deficiency was to be payable, subsequently, before any dividends were set aside or paid on the common stock.

In the latter part of the year 1934 the board of directors of the corporation, considering it to be for the benefit of the company that changes should be made with relation to the capital stock of the company, both that issued and outstanding, and that still remaining in the treasury of the corporation, issued a notice to the stockholders containing a suggested plan for the accomplishment of this purpose, and providing, for a meeting of the stockholders to pass upon the question of the adoption or rejection thereof, after having first adopted a resolution that the changes specified in the notice were advisable. In brief, the plan, as set out in the bills of complaint, was to substitute for thirty-five thousand shares of the unissued preferred stock of the company a new issue of thirty-five thousand shares of eight per cent, cumulative prior preference stock, having priority both as to its principal and cumulative dividends at the rate of eight per cent, over the outstanding preferred stock, and to be subject to redemption at any time after three years from the issue thereof at fifteen per cent, above par. The plan further provided for a decrease of the total capital stock by canceling ten thousand of the preferred shares and sixty thousand shares of the common stock still 'remaining in the company’s treasury. It also provided for the purchase for retirement of thirty thousand shares of outstanding preferred stock at not above par, and that, in making such purchase, the Chase Securities Corporation, the holder of fifteen thousand shares thereof, should be entitled to sell to the company its holdings at a price of, approximately, $69 per share, the price to be paid, to some extent, out of a fund accumulated by the company and held in its treasury, which fund, as complainants aver, represents accumulated accrued and unpaid dividends on the outstanding preferred stock.

In compliance with this notice, the holders of, approximately, three-fourths of the outstanding preferred capital stock and seven-tenths of the outstanding common stock attended the meeting, either in person or by proxy, and voted in favor of the adoption of the proposed plan. Before the scheme was acted upon, however, the present bills of complaint were filed, praying an injunction restraining the corporation from carrying it into execution, upon the ground that it was without warrant of law and injuriously interfered with the rights of the complainants. A preliminary injunction having been refused, an appeal was taken to this court to review the validity of the order of refusal.

The principal contention on the part of the appellants is that the issuing of cumulative prior nrefeiancfc^s.t.Qck carrying a dividenrl-.-ft^-eÚ¥.ht-p.er cent., and giving it precedence over ~e-x-isting-preferrerl_stock; both in payment of dividends and the repayment of principal upon dissolution, is in violation of the vested .nights, of the holders of such stock, and, consequently, without warrant of law. The question presented is not an entirely novel one in this court. In the case of Berger v. United States Steel Corp., 68 N. J. Eq. 506, it was contended that a scheme for the retirement of a large block of preferred stock by exchanging for it bonds of an equal amount, to be issued by the corporation for the purpose, involved an absolute change of the previous status of those preferred stockholders who should decline to make the exchange by subjecting their stock to the prior claim and lien of those who should take the bonds, thus injuriously affecting their right to the payment of dividends and to preference in the distribution of capital upon dissolution. It was considered by the court of chancery that a scheme producing such results was in violation of the vested rights of the preferred stockholders, and, for this reason, an injunction was ordered restraining the corporation from putting it into execution. The case was then appealed to this court, and we dissented if rom the conclusion of the court of first instance. Id. 809. ¡We held that although the rights of the complainant, who'was a preferred stockholder, might be injuriously affected in the respects indicated, yet that fact could not operate to nullify powers conferred upon the corporation 'Ey) the act under which it was organized (our present Corporation act), and then pointed out that the proposed plan was clearly within the powers thus conferred. A like situation, we think, is presented in the present case. Section 27 of the statute provides that any corporation organized under it may, at any time during its existence, and without regard to the character of its outstanding stock, “create one or more classes of preferred stock,” providing the board of directors shall resolve it to be advisable to do so, and two-thirds in interest of each class of stockholders shall thereafter approve such proposed action. The power thus conferred is only curtailed by those other provisions of the statute which declare the limits beyond which the corporation may not go in issuing such new stock. Nowhere in any of those provisions is there an intimation that the corporation in exercising this power shall not create any one or more classes of preferred stock which shall confer upon the holders thereof rights superior to those of the holders of previous issues of preferred stock, and, in the absence of such intimation, the power thus broadly conferred bjr the legislature is not to be limited by judicial decision.

It is further argued in support of this point that the proposed change is not permitted by the articles of incorporation ; that those articles constitute a contract between the stockholders inter esse, which cannot be altered except by the unanimous consent of such stockholders. The answer to this argument is that the fifth section of the statute declares that '“this act shall be a part of the charter of every corporation * * * hereafter formed hereunder;” and that, consequently, the twenty-seventh section of the act, the scope of which we have discussed, is in an integral part of the stockholders’ contract, and, so, is binding upon every stockholder.

The next point submitted by counsel for the appellants is that they are entitled to be afforded an opportunity of selling to the corporation for retirement their pro rata holdings of the total amount of shares, the purchase of which is contemplated, and that this right is injuriously affected by the preference given to the Chase Securities Corporation in the making of such purchase.. We concur in the view that, in the purchasing of this stock for_retirement, it should be acquired ratably from each stockholder who desires to sell. It was so held by us in the Berger Case, supra; and, if it be true that the proposed scheme is in violation of that right— which seems, at least, doubtful — the respondent company should be restrained from refusing to afford the complainants the opportunity to dispose of their stock to the corporation to the extent indicated.

Next, it is asserted on behalf of the appellants that thev' corporation is without power to appropriate to the purchase of the stock proposed to be retired accrued dividends belonging to the preferred stockholders, which now remain in the treasury of the company. If the purpose indicated is to be attributed to the corporation, the appellants are entitled to have it restrained from using so much of these accrued dividends as are applicable to the stock held by 'them, respectivety, in the purchase contemplated by the plan which has been adopted by the shareholders. The appellants are"" not concerned, however, with this proposed action of the corporation so far as it relates to the accumulated dividends payable to other stockholders, who either have not made any complaint against the carrying into execution of the proposed plan, or who have by their votes approved of it. s'

Lastly, we are told that the provision for the redemption of the so-called cumulative prior preference stock, in whole or in part, at any time after three years from the issue thereof, for fifteen per cent, above par, is a violation of section 18 of the Corporation act as amended in 1901 (Comp. Stat. p. 1608), which prohibits the payment of dividends on preferred stock in excess of eight per cent.; and the argument is that the payment of this premium is, in legal effect, the payment of a dividend in excess of the limit fixed by the statute. This argument, however, overlooks the earlier provision of the section, which declares that “preferred stock may, if desired, be made subject to redemption at any time after three j^ears from the issue thereof at a price not less than par.” The fixing of a minimum price connotes a maximum, the amount of which the legislature designedly left to the discretion of the corporation; and that this was the legislative design is made clear by the fact that the statutory provision as originally enacted required that the redemption price, which should not be less than par, be expressed in the stock certificate (P. L. 1896 p. 288), and that the amendment of 1901 makes no change therein except by eliminating the requirement that the redemption price shall be stated in the stock certificate. Reading the whole section together, we have no doubt that the fixing of the redemption price at a figure above par is not a violation of the clause therein limiting the amount of dividends to be paid upon such stock.

For the reasons stated, the order appealed from will be affirmed, with the modifications indicated.

White, J.

(concurring).

Complainants own cumulative seven per cent, preferred stock in defendant corporation, upon which there has been default in payment of dividends to the extent of one hundred and forty per cent. The corporation' now has a surplus of $5,000,000. It has outstanding, approximately, $12,500,-000 preferred stock and $11,500,000 common stock (par value), both of which have voting power without distinction as to whether common or preferred, and there remains unissued of its total authorized capital (which is $35,000,000) $5,000,000 of preferred stock and $6,000,000 of common stock. The board of directors and more than two-thirds of each class of stockholders have adopted a resolution to—

1. Change and reclassify thirty-five thousand shares ($3,500,000 at par) of the unissued preferred stock into thirty-five thousand shares of eight per cent, cumulative prior preference stock having priority, both as to dividends and principal, over the remaining preferred stock, and over the common stock.
2. Besides reducing the authorised capital stock of the corporation by $10,000,000, reduce the outstanding capital stock so that it will be approximately—
First preference eight per cent, cumulative (new)....... $3,500,000
Cumulative seven per cent, preferred (remainder of old stock) ......................................... 6,500,000
Common stock (approximately) ....................... 11,500,000
this to be accomplished;— . ¡ )C. •
(a) By the purchase with $2,100,000 of cash out of the company’s capital assets and retirement and cancellation of $3,000,000 (par value) of the outstanding cumulative seven per cent, preferred stock (thereby cancelling also the dividends in arrear thereon amounting to $4,200,000).
(b) The substitution (with proper pro rata subscription rights to outstanding stockholders preserved) of the $3,500,000 of first preference eight per cent, stock above mentioned for a like amount, share for share of the then remaining (that is after the purchase and retirement of the thirty thousand shares thereof above mentioned) outstanding cumulative seven per cent, preferred stock, thereby retiring the latter and cancelling $3,500,000 of additional present capital obligation and $4,900,000 of additional unpaid accrued dividend obligation thereon, such substitution to be brought about by sale of the new eight per cent, prior preference stock (at not below par) and pui’ehase of a corresponding amount (at not above par) of the said remaining old seven per cent, preferred, or by direct exchange, jihare _ for .share, as shall be deemed most satisfactory by the board of directors; it being expressly provided in said resolution that at no time shall there be outstanding more in the aggregate of prior preference stock and preferred stock than one hundred thousand shares, that would be upon the completion of this plan thirty-five thousand shares of prior preference stock and sixty-five thousand shares of preferred stock.
3. Amending article 4 of the certificate of incorporation accordingly, whereby, inter alia, “the holders of the eight per cent, cumulative prior preference stock shall be entitled to receive, when and as declared by the board of directors, dividends from the surplus of the corporation or from the 'net profits arising from its business, at the rate of eight per cent, per annum and no more, accruing from the date of issue of such stock, payable quarterly on dates to be fixed by the by-laws of the corporation, or by resolution of the board of directors. Such dividends shall be payable before any dividends shall be paid upon or set apart for the preferred stock or the common stock of the corporation, and shall be cumulative,” &c.. &c.

Complainants are the holders of preferred stock who voted against the adoption of the resolution, and they now ask that the corporation be enjoined from carrying out the provisions of the resolution so adopted, for substantially the following reasons:

1. The proposed amendment of the certificate of incorporation, by interposing a new class of prior preference stock ahead of preferred stock already issued in accordance with the original certificate of incorporation, is claimed to have no legislative authority.

2. The prior preference stock cannot be issued because it is claimed to invade the vested rights of the present preferred stockholder’s to have their cumulative unpaid dividends up to the present time discharged out of present or future earnings of the company before any prior charge can be placed thereon.

3. The proposed retirement of the $3,000,000 (par value) of preferred stock by the purchase thereof at a cost of' $2,100,000 in cash, is claimed to be violative of the rights of the other preferred stockholders, because it is said the $2,100,000 purchase-money will be taken from the $5,000,000 surplus of the corporation, which, it is claimed, equitably belongs to the preferred stockholders on account of their arrears of unpaid dividends. The difficulty with this proposition, as it seems to me, is that it is founded on a false premise. The surplus of the corporation will not be de: creased by this transaction, but, on the contrary, will be increased by the difference between the par value of this stock, $3,000,000, and the price, $2,100,000, which is to be paid for it. The $2,100,000 will therefore be paid out of capital assets (as the resolution sav^s) and not out of surplus. So that without passing upon the question of whether or not the board of directors, particularly with the assent of two-thirds of the stockholders of each class, in reducing the amount of its outstanding capital stock, have the right to use money in the surplus for that purpose, it is sufficient now to say that such condition does not here arise.

4. The plan, if consummated, will, by ultimately leaving the number of common stock shares outstanding greater than the number of preferred stock shares, reverse the present condition and transfer the controlling weight of the voting power from the preferred stock as at present to the common stock.

5. The provision which makes the prior preference eight per cent, stock redeemable at the option of the board of directors after three years at 115 is claimed to be unauthorized by legislation, because section 18 of the Corporation act expressly limits the rate of annual dividend to not exceeding eight per cent., whereas, it is claimed this might give an additional, due to what is equivalent to, five per cent, per annum dividend, to the holders of this stock.

I am unable to see arguable merit in either of the two last above-named propositions. There was no provision in the original certificate of incorporation that the preferred stockholders should always have a voting power even with or greater than that of the common stockholders. On the contrary, when it came to voting, each shareholder voted as a shareholder in the whole, and not as a shareholder in any particular class. It was a mere accident that more preferred stock came to be issued and outstanding than common stocky It might have been exactly the other way. So, also, the redemption privilege at 115 of the new prior preference stock is not an obligation on the part of the corporation to retire the stock at that price, and, therefore, does not fall within the provision of section 18 of the Corporation act, which says that the dividend on the preferred stock which the corporation is thereby made bound to pay shall not exceed eight per cent, per annum. The redemption right is a privilege which the corporation may or may not adopt, as its business exigencies in the future may dictate. It is not bound to do so. If the prior preference stock on the market should become worth more than $115 per share, and for any reason the corporation might deem it advisable to retire its preferred stock and borrow the money with which to do so at five per cent., instead of 8 per cent., in that event the option privilege of retirement at 115 would be quite valuable to the corporation. The only prohibition on the subject is that the corporation cannot make its preferred stock retirable at “less than par.” Inferentiahy, of course, this means that it may make it retirable at more than par as well as at par. As this redemption authority clause is a part of section 18, which fixes the maximum of annual dividend at eight per cent., it seems to me quite obvious that the dividend limitation was not intended to affect the redemption provision.

Turning now to the first point, the question is, Where a corporation which might in the beginning have created the two classes of preferred stock here involved if it had seen fit to do so, but which, in fact, created only one class of preferred stock and one class of common stock, can it now, by amendment to its charter, create and interpose ahead of the preferred stock already created and issued and in the hands of stockholders (and, incidentally, ahead, also, of the common stock likewise so outstanding and held) a new class of preferred stock having preference, both in dividends and upon dissolution, in principal over both the existing preferred and common stocks? This right is challenged — ■ first, on the ground that the amending power of this corporation has been exhausted by an amendment to its charter, which took place some years ago, the assertion being that there is no legislation authorizing 'an amendment to an amendment. This seems to me trivial. The charter as it now exists in its original state or as the result of an amendment, is the charter of the corporation to which the existing legislation applies at the present time, and legislative authority to amend, it would seem to me, would apply to this charter as it now exists; second, it is urged that the amendment legislation does not provide for the creation of a class of preferred stock where such a class already existed before the amendment. I cannot unite with this view. The language of section 27' is: “Every corporation organized under this act may change the nature of its business, change its name, increase its capital stock, decrease its capital stock, change the par value of the shares of its capital stock, change the location of its principal office in this state, extend its corporate existence, create one or more classes of preferred stock, and make such other amendment, change or alteration as may be desired, in the manner following,” &c. Ho one, it seems to me, can deny that what is now proposed to be done is, in fact, the creation of a class of preferred stock. There is nothing in the legislation which limits the power to do this thing to corporations which have not, in fact, already created one or more classes of preferred stock. The legislation seems to apply to all corporations, because it says, “every corporation organized under this act.” The objection, if sound, would apply quite as logically in favor of the existing common stockholders where no class of preferred stock had originally been provided for in the certificate of incorporation; but that would, in effect, nullify the amendment power given by the twenty-seventh section. ' A mere statement of this proposition seems to me to indicate the unsoundness of the contention here urged. I think, therefore, that valid objection to the creation of this prior preference stock cannot be found in the alleged absence of legislation authorizing its creation by amendment as here proposed. If there is such valid objection it must lie rather in the contract rights of the holders of the existing preferred stock, and in the fact, if it is a fact, that those rights would be successfully invaded by the rights given the prior preference stockholders; and that, after all, is the big question in this case.

It is said that this question has never been decided in this court, and no ease has been called to my attention in direct conflict with this assertion. The same contention, however (namely, that where preferred stock is issued with the usual preference provisions for its dividend and its principal on dissolution over dividends and principal of the common stock, it carries with it, in itself, a contractual obligation on the part of the corporation that there will not, in the future, be created by the corporation any other class of obligation holders having a superior priority, or even an equality, to or with that thus secured to the already existing preferred stock), was urged in the case, of Berger v. United States Steel Corporation, 63 N. J. Eq. 809, where the attempt was to prevent a bond issue of a somewhat complicated nature which would take precedence over the preferred stock already in existence, and this court there held that there was no contractual right in the preferred stockholder which would be invaded by such an issue.

Of course, the point is a particularly important one, for while it is quite desirable that corporations organized under the laws of New Jersey should have ample proper latitude in making readjustments to meet new and unexpected business conditions, it is even more important that the contractual rights of stockholders of all classes of stock shall be upheld by the courts under all circumstances. ® If, therefore, the preferred stock of this corporation, when originally created, had had affixed to it by the certificate of incorporation, as one of the terms of its preference (as expressly authorized by the Corporation act) a provision to the effect that no class of stock should ever be issued having a preference over or equality with it, without the unanimous consent of all of the holders of this class of stock, I should, without hesitation, say that the present proposed issue of prior preference stock could not be upheld, and that, even though every cent of past dividends has been, in fact, paid; but there was no such provision, although it is a very common one in preferred stock issues. In its absence, therefore, I incline to the view that as to future dividends on the old preferred stock, and also as to priority of payment of principal upon dissolution, the proposed prior preference stock does not invade any contract . rights of the old preferred stockholders. It was a part of their contract with the corporation and with the other stockholders, both common and preferred, that the corporation should have all the powers given it by the legislation in existence when the corporation was organized, unless those powers- were expressly surrendered in some particular respect by the articles of incorporation themselves.

This brings me to the only question in the case which has given me trouble, and that relates to the earned but unpaid dividends up to the present time upon the old preferred stock. These unpaid dividends, amounting in all to one hundred and forty per cent., seem to be partially covered by present surplus (to the extent of about forty per cent.), but as to the rest of them seemingly, although cumulative, the company has not, up to the present time, had sufficient earnings to meet them if the board of directors saw fit to apply them to dividends. As a matter of fact, none of the present surplus, amounting to about $5,000,000, has been voted by the board of directors to be distributed as dividends. In the absence of circumstances strongly indicating fraud, and there seem to be no circumstances of this nature urged here, surplus can only be ascertained to be available for the payment of dividends by action of the board of directors. I incline to the view, therefore, that from a dividend standpoint all of this one hundred and forty per cent, of arrears of dividends must be theoretically taken not to have been availably earned up to the present time. But the question in my mind is, is that sufficient to authorize the corporation to destroy the cumulative portion of the contract held by preferred stockholders in a retroactive way, so that not only is that cumulative provision modified as to the future (which is a risk which all investors in preferred stock not secured by express contractual provision undertake when they buy ’ such preferred stock), but as to the past also? Can the rights of the preferred stockholders to receive compensation according to their contract, even though at some future time, for the period during which their money has already remained invested on the faith of that contract, be absolutely wiped out and destroyed ? I find myself unable to adopt this view. In Morris v. American Public Utilities Co., 122 Atl. Rep. 696, the court of chancery of the State of Delaware, in an opinion by the chancellor (citing as authority for the proposition opinions by Vice-Chancellor Emery in our court of chancery in Pronick v. Spirits Distributing Co., 58 N. J. Eq. 97, and Colgate v. United States Leather Co., 73 N. J. Eq. 72, as well as several New York cases), held: “While it is true that a holder of cumulative preferred stock is not a creditor of the corporation, so as to entitle him to bring suit at law against the corporation for dividends in arrear, but not declared [American Steel Foundries Co. v. Lazear, 204 Fed. Rep. 204], yet, considering the relations of the stockholders inter sese in such a ease as the instant one, there is every reason to hold that, as soon as the accrued dividend which the preferred stockholder is to receive is matured by time, a right to its ultimate payment as against those who have agreed to its payment becomes a vested right. It is a present property interest. The period of its enjoyment may be deferred by the directors of the corporation in the legitimate exercise of their discretion in the management of the corporate affairs, and thereby the privilege of asserting the right to the dividend in a suit or action may be postponed. This, however, does not in anywise impair the status of the preferred stockholder as the owner of a present right against the corporation, assertable upon the arising of the proper contingency, namely, when the earnings are such as to justify the declaration of a dividend. Nor is the fact that the preferred stockholder may be required to await the contingency of adequate earnings sufficient to deprive him of the right to be recorded in substance as a creditor as against the common stockholders.”

It seems to me, therefore, that as to the accrued unpaid dividends upon the preferred stock up to the present time, complainants cannot be deprived of their vested present property right to have those dividends paid to them at some future time out of earnings of the corporation before the payment of any dividends which did not have priority over them at the time they from time to time matured.

But does this view invalidate the proposed action of this corporation to which complainants are now objecting? I am inclined to think that it does not. As to future accruing dividends, the dividends of the prior preference stock about to be issued will, of course, have preference, but, as above stated, I think there is nothing illegal in that. As to dividends already accrued, however, my view is that the dividends on the new prior preference stock will not have preference over them, and that, therefore, the carrying out of the plan does not, in itself, overturn the vested rights to these back dividends of the complainants. Those vested rights will not be invaded until, as it seems to me, there shall be an attempt to pay dividends either to these prior preference stockholders or to the common stockholders before the present, matured and unpaid dividends on the preferred stock of complainants shall have been paid. When that occurs, if it ever does occur, I shall be inclined to think that, as in Day v. United States Pipe Co., 95 N. J. Eq. 389; 96 N. J. Eq. 736, such action could be enjoined.

I am requested by Mr. Justice Katzenbach to say that he concurs in the views herein expressed.

Black, J.

(dissenting).

The fundamental question involved in this appeal is whether, under the Corporation act, cumulative prior preference stock, carrying eight per cent, dividend redeemable at $115 per share, can be created and issued airead of already outstanding cumulative preferred stock? The defendant company, in its certificate of incorporation dated May 3d, 1899, created two kinds of stock, common and preferred. The preferred stock has a preference. • It is made cumulative.

Liquidation is to be paid in full both as to principal and accrued dividends, and after the common stock is paid at par, the balance of the assets shall be divided pro rata among the holders of both classes of stock.

The Corporation act (P. L. 1896 p. 288 § 18; 2 Comp. Stat. of N. J. p. 1608) provides, “every corporation shall have power to create two or 'more kinds of stock of such classes,” as shall be stated and expressed in the certificate of incorporation. Section 27 provides that the corporation may change the nature of its business, extend its corporate existence, &c., “oreaite one or more classes of preferred stock,” &c. P. L. 1.901 p. 245, added the words “or in any certificate of amendment thereof.” P. L. 1908 p. 128, inserted in section 27 the words, “change its common stock into one or more classes of preferred stock,” before the words, “create one or more classes of preferred stock.” Section 29 provides, “the decrease ■ of capital stock may be effected by retiring or reducing any class of stock.” From the words thus used in. the twenty-seventh section of the statute, “create one or more classes of preferred stock,” power is found by the court for creating cumulative prior preference stock ahead of preferred cumulative stock already created, issued and outstanding. These sections should be read together. Thdy contemplate a complete scheme for creating common and preferred stock.

The words in section 18, “every corporation shall have power to create two or more kinds of such stock,” are precise and apt words for the creation of different kinds of stock, where none has been created. The wbrds in section 27, “create one or more classes of preferred stock,” are likewise precise and apt words for the creation of preferred stock, where none of that class has already been created. Thus read, the construction of the two sections .are harmonious. A power to set cumulative preference stock over already created and outstanding cumulative preferred stock, if it exists, should be expressed in such clear and precise language that the man on the street may know what he is buying, and that he will not be misled. If there is doubt whether such power has been granted from the words of the statute it ought to be denied. Such a power ought not to be interpolated into the statute by implication or by judicial construction. These provisions in the statute limit a corporation to a classification of its preferred stock once and for all time. They should not be construed as though they read change the common stock and create additional classes of prior preferred stock, unless there can be no other legitimate construction. A critical examination of the words of the statute leads to the same conclusion.

The word “preferred,” standing alone, means first in rank, to set above something else, having the first claim, it has some advantage over another thing of the same character. It should not be construed to mean secondary, if so, the expression is pertinent. If such a power exists, it seems to me, it must rest upon the notion that words have no settled meaning or that language is powerless to express thought.

For affirmance — The Chiee-Justtce, Parees, Mintukn, Katzenbaci-i, Campbell, Lloyd, VYi-iite, Van Buskikk, Kays, JJ. 9.

For reversal — Black, Clakk, McGlennon, JJ. 3.


source: Caselaw Access Project

author: Trencttabd, J.

license: Public Domain

text:
    John N. McGarvey, complainant-appellant, v. Charles W. Young et al., defendants-respondents.
    [Argued March 18th, 1923.
    Decided May 18th, 1925.]
    Complainant’s bill averred that the defendant Young entered info an agreement with the defendant International Speedway Association for the purchase from the latter of certain lands; that the $2,500 Young paid as earnest money was complainant’s; that Young was complainant’s agent in procuring such agreement, having no financial interest in the agreement or in the land, and that, after procuring such agreement, he refused to assign same to the complainant. The bill prayed that Young be decreed to assign the contract, and the association to make a deed, to complainant.. The defendants answered, denying the material allegations of the bill — Reid, that on final hearing, to warrant the relief asked for, the evidence m-ust be of such weight and sufficiency as will reasonably justify the court in finding (among other things) the existence of the agency charged in the bill, and that in the absence of such satisfactory proof the bill was properly dismissed.
    On appeal from a decree of the court of chancery advised by Vice-Chancelioi Ingersoll.

      Mr. Clarence L. Cole (Cole & Cole, on the brief), for the appellant.

      Mr. Emerson L. Richards and Ruby R. Vale (of the Pennsylvania bar), for the respondents.
   The opinion of the court was delivered by

Trencttabd, J.

Complainant’s bill averred that the defendant Charles W. Young entered into an agreement with the defendant the International Speedway Association, a corporation, for the purchase from the latter of certain lands in Atlantic City: that the $2,500 Young paid as earnest money was complainant’s; that A’ouug was complainant’s agent in procuring such agreement, having no financial interest in the agreement or in the land, and that, after procuring such agreement, he refused to assign same to complainant, the real and only purchaser.

The prayer of the bill was that “it lie decreed that, in procuring the agreement referred to in the bill, defendant Young was acting as agent for complainant; that he holds said agreement in trust for complainant; that he has no interest, legal or equitable, in the same or the lands and premises described; that he be commanded to assign, transfer and set over said agreement to complainant, and that the International Speedway Association be required to execute and deliver a deed to complainant,” &c.

Both defendants answered denying the material allegations of the bill. Upon final hearing the vice-chancellor considered that the bill should be dismissed. Such a decree was entered and the complainant appeals.

We are of the opinion that the decree should not be disturbed.

To warrant the relief asked for in the complaint the evidence must be of such weight and sufficiency as will reasonably justify the court in finding (among other things) the existence of the agency charged in the bill.

Apparently, the vice-chancellor thought that such proof was not adduced, and we think that was right. No documentary evidence was presented in support of complainant’s contention that the defendant Young acted solely as his agent in the transaction. True, the complainant himself testified in support of such claim, and there was some corroboration, but the preponderance of the evidence was to the contrary. The fact that Young procured from complainant the $2,500 which he used as cash payment on the contract is far from conclusive upon the question of agency, since, as we think, the greater weight of the evidence is that it was procured as a loan. It is undisputed that the complainant knew nothing of the land in question, nothing of the possibility of its purchase, until it was called to his attention by Young, who had an option to purchase it. Young testified that, needing money to finance the purchase, he first went to one Smith and was by him referred to the complainant. He is corroborated as to that. Young sajrs, in effect, that his agreement with the complainant was that he should borrow the money from the complainant, procure the contract of sale, and, in the event of a resale within a specified time, the profits were to be divided; otherwise, complainant was to have his money returned, less his portion of the expense.

Tt is unnecessary for present purposes to determine precisely what were the contractual relations between the parties. It is sufficient to say that we find that complainant’s claim of agency was not made out. We think that a careful consideration of complainant’s own testimony indicates that Young was not acting solely as his agent. He unconsciously reveals the fact that he did not regard himself as the owner of the land, but, on the contrary, recognized Young as having a real interest. He makes repeated references to “security for my money.” Moreover, complainant’s conduct seems to show that he did not regard Young as his agent. When the contract of sale arrived in Atlantic City from the “west,” where it had been negotiated by Young, it was examined by complainant, and his attention was drawn to the fact that it was made to Young or his nominee. With this knowledge, complainant and Young went to Mays Landing and had the agreement recorded, and it is significant that at this \ery time, according to a seemingly disinterested witness, Young declared, in complainant’s presence, that “he [Young] had purchased the speedway tract,” and this the complainant did not deny. Finally, we call attention to the fact that complainant’s later'talk with Mr. MacCain, in Philadelphia, is quite inconsistent with his present claim for relief.

Since the bill was properly dismissed for want of proof of the agency essential to relief, therein alleged, it will be unnecessary to consider other objections leveled against the relief asked for in the bill.

The decree below will be affirmed, with costs.

For affirmance — The Chief-Justice, Trenci-iard, Parker, Black, Katzenbach,. Campbell, Lloyd, Clark, Mc-Glenkoh, Kays, JJ. 10.

For reversal — White, Gardner, Van Buskirk, JJ. 3.


author: Parker, J.

text:
    Margaret Ireland, executrix, etc., complainant-respondent, v. Penn Motors Corporation, defendant-appellant.
    [Submitted March 27th, 1925.
    Decided May 18th, 1925.]
    1. Tinder the Transfer of Canees act, (P. L. 7.912 p. .[77,• amended, P. L. 7.915 p. 89) a court is authorized to direct a transfer only where it has no jurisdiction on the whole case.

      2. A bill in equity charged that complainant had agreed, in writing, with defendant to convey land to defendant, taking back a purchase-money mortgage without interest for the full price of the land, and with the additional stipulation by defendant to build a factory on the property within six months, or in default thereof to reconvey the land. Peed and mortgage were delivered, apparently in the ordinary form. Xo factory was ever built. The bill charged fraudulent misrepresentation of the contents of the deed and mortgage, and prayed reformation and reconveyance. The vice-chancellor held no fraud proved. Held, there still remained in any event the equitable jurisdiction to determine whether there was an agreement to reconvey; that he should have dismissed the bill or directed specific performance and that a transfer to a court of law was erroneous.
    On appeal from a decree advised by Vice-Chancellor Ingersoll.

      Mr. Clarence, L. Cole, for the appellant.

      Messrs. Bourgeois & Coulomb, for the respondent.
   The opinion of the court was delivered by

Parker, J.

The appeal is from “so much of the order made in [the court of chancery] on, &c., as decrees that complainant has a cause of action on the written agreement set forth in the bill of complaint, and transfers the cause to the New Jersey supreme court * * * for trial.” The real attack is not on the adjudication of a cause of action, but upon the order for transfer, based, of course, on the provisions of P. L. 1912 ¶. 417, as amended in P. L. 1915 p. 89. In examining into the propriety of this order it will be necessary to g'o somewhat into the facts of the case as. pleaded and as found by the vice-chancellor on the evidence before him.

The bill was filed by Samuel Ireland, who died before the hearing, and the suit was continued in the name of his executrix. The bill charged that Ireland had been induced to convey the land therein described to the defendant under a written agreement which provided that the consideration was to be $4,500, secured by a purchase-money mortgage for five years, drawing no interest, and the promise by the defendant, contained in the agreement, that defendant would erect an automobile assembling plant on the property within six months from the date of the deed, in which case vendor’s security for the purchase-money would be adequate, and that in default of defendant erecting such plant within that period, defendant would recoilvey the property; that the deed and mortgage were executed and delivered, and defendant was put into possession of the property, but that nothing was ever done toward the building of the plant, though nearly three years had elapsed; “that at the time of the delivery of the deed and bond and mortgage, the agreement * * * was taken by the agents of” defendant, and complainant was informed by them that the mortgage “covered the terms of said previous agreement, which agreement has since been lost.” The hill charges false and fraudulent misrepresentation as to the contents of the mortgage; failure and refusal to build the plant; that the mortgage.papers, in fact, contained only “references” to the agreement for reconveyances (they were pfit in evidence but are not printed in the case) : tenders back the bond and mortgage upon a reconveyance, and prays (1) that the deed be decreed to have been procured by fraud and a reconveyance ordered; (2) that the mortgage be reformed so as to embody the agreement to reconvey; (3) injunction, subpoena, &c. The answer admitted the deed and mortgage, denied fraud, and denied the existence of any agreement to reconvey.

When the cause came to hearing, the claim of fraudulent misrepresentation broke down, largely because the original complainant had died and, consequently; his testimony could not be taken. But the proof of the existence and contents of the agreement (and that it was in writing) was satisfactory to the vice-chancellor, as it is to us. He held, in an oral deliverance which need not be reproduced here, that while there was no fraud shown, yet the agreement (as we understand his findings) was a live agreement on which complainant was entitled to some relief, but that the only relief thereon was in a court of law, and in the decree he adjudged that the court of chancery was without jurisdiction, and directed the transfer as already stated.

Under the Transfer of Causes act, ubi supra,, a court is authorized to direct a transfer only where it has no 'jurisdiction on the whole case. Curran v. Carroll, 3 N. J. Adv. R. 603, 607. There were, at least, three features of equity jurisdiction in the case at bar — (1) fraud, (2) reformation and (3) specific performance. ' Assuming for present purposes, but without deciding', that the elimination of fraud as a fact defeated any claim for reformation, and wiped out of the ease those two features, there still remained the prayer for a reconveyance, which, if granted, would mean the specific enforcement of the' reconveyance clause in the contract of sale, which, as the vice-chancellor must necessarily have found, was extraneous to the deed and mortgage, and, hence, if he was right in this, not merged in either.. We refrain from passing on the merits of this point because it has not been argued, and, indeed, is not involved in the appeal. The question is whether the court had jurisdiction of it, and it is fundamental that it had. If the agreement was wholly merged in the deed and mortgage, and there was nothing-said in either about a reconveyance, the court should have dismissed the bill; if, on the other hand, the reconveyance clause was not merged, but was still a live contract, as was apparently held below, then equity had full jurisdiction to decree specific performance. In neither event was it proper to shift the cause to a court of law.

The decree under appeal will be reversed, and the cause remanded for further proceeding in accordance with these views.

For affirmance — Hone.

For reversal — The Chief-Justice, Trencharb, Parker, .Minturn, Kalis ck, Black, Katzenbach, Campbell, Lloyd, White, Gardner, Van Buskirk, Clark, McGlennon, Kays, JJ. 15.


author: Mint (ten, J.

text:
    Emma Popovics, petitioner-appellant, v. John Popovics, defendant-respondent.
    [Argued March term, 1925.
    Decided May 18th, 1925.]
    1. Where n decree of the court of chancery in a maintenance suit by a wife adjudged that the husband had abandoned and separated himself from her without any justifiable cause, and that he neglected and refused to provide for her, on an application for divorce by the wife the defendant stands convicted of desertion by the decree.
    2. Evidence examined, and held that the efforts of the husband to induce his wife to return to him were not sincere, and did not come up to the requirements of the law, and the wife is therefore entitled to a decree of divorce.
    On appeal from court of chancery.

      Messrs. Silverman & Grosman, for the petitioner-appellant.

      Mr. Ernest P. Bird, for the defendant-respondent.
   The opinion of the court was delivered by

Mint (ten, J.

On the 24th day of March, 1922, the defendant, husband, upon a petition for maintenance, Bled by his wife, the petitioner, was adjudged by a decree of the court of chancery to have “abandoned and separated himself from her without any justifiable cause,” and that he “refused and neglected to provide for her.” With that adjudication, fixing the status of the parties, the wife, on December 24th, 1923, filed her petition in this cause for divorce from the defendant upon the ground of his desertion. Upon the hearing, the learned vice-chancellor dismissed the petition upon the ground that the petitioner liad failed to respond favorably to the overtures made by her husband seeking her return. From that decree this appeal has been taken.

The testimony taken in the suit for maintenance is before us as a part of the state of the ease, and the contention is made that it forms no part of the record, since the only offer of the petitioner in the trial court was that of the record, and since the testimony taken does not properly constitute a part of the record, hence, the testimony is not properly before us upon this appeal. If that contention be conceded, we are still confronted with the undeniable fact that the defendant stands convicted of desertion by the decree of the court of chancery.

The desertion took place, according to the petition, which is a part of the record, in the month of September, 1921, since which time and for more than the statutory period of two years thereafter, the defendant has continuously and obstinately deserted the appellant.

The petition in the maintenance suit alleged facts which, in view of the finality of that decree, must be accepted as proved in the case. It depicts facts from which we are enabled to fully appreciate the state of mind of the wife, after the decree in her favor, when she testified that she failed to return to her husband because she feared him. The learned vice-chancellor, in the maintenance suit, found that her fear of the husband was fully justified, and that her departure from the household was entirely warranted by his cruel and vicious conduct. From the time of their marriage the defendant treated her harshly and cruelly, and if there was a period during the nineteen years of their marital existence when he manifested any other disposition towards her, the facts narrated fail to indicate it. He accused her of neglecting her home and of accosting and meeting other men upon the street for immoral purposes, and during those accusations frequently struck and beat her; at one time during a fit of temperamental anger, striking her upon the face. In the presence of her children he called her a common prostitute, and indulged in other vile and filthy language, finally biting her right hand and ordering her from their home. This cruelty and abuse she bore in silence because, as she sa.ys, she was a stranger in a strange land, and for the sake of the children. But when her power of humility and self-abnegation weakened under the incessant strain, fear for her safety induced her to take him at his word, and she, with her two girls fled from the home, and thereafter she sought and' obtained employment in a factory, from the receipts of which employment she maintained herselE and the children. This financial support was supplemented, eventually, by the weekly contribution which the husband was forced to make by the decree of the vice-chancellor in the maintenance suit. Two years have ela.psed since she left him, and during that period the status thus legally created was maintained until the filing of the petition in this cause, for a divorce, upon tire ground of the husband’s desertion. It is met by the latter with a plea that he has endeavored to procure her return, and that -she has obstinately and rmreasonably refused to listen to his appeal. A plea, of that character must be supported by at least proof of his bona fide intention, and some proof of his heart-felt contrition for his past conduct. Lister v. Lister, 65 N. J. Eq. 109; affirmed, 66 N. J. Eq. 434; McVicker v. McVicker, 46 N. J. Eq. 490.

Tn estimating the sincerity of such an appeal, the court necessarily proceeds upon the theory quo animo, and in reaching any satisfactory conclusion as to his motives, the old adage that conduct speaks louder than words must needs play an important part. Ada exteriora indicant interiora secreta.

In the present instance, notwithstanding his conviction by the court of chancery, he still viewed his wife as a malfaetor, and himself as an injured innocent. In that spirit lie testified that when he called upon her, at her place of employment, with two witnesses, at the suggestion of his counsel, as it were, fully equipped to supply the necessary links in the proposed evidential chain against her. he said, “l will forgive everything and forget the past.” He resided in Newark, and he knew her residence in the same city. He called and interviewed the landlady. He wrote letters urging her to return, all of which he circumspectly copied, manifestly for evidential use, not one of which the petitioner says she received, and some of which were returned to him. He was indebted to her at Christmas time for overdue alimony, but he sent her a registered money order for $15 as a Christmas gift, which also was returned to him. His son, who continued to reside with him, he sent to induce the petitioner to return. Upon the witness-stand, where his contrition might be publicly evinced, and the bona fide character of his overtures fully examplified, he displayed his old animus, for there he again characterized her as an adulteress and again charged her with illicit relations with promiscuous men. He told of his pursuit of her with a detective upon the public streets in an endeavor to criminally entrap her; and, finally, he crowned his recital with a story of his efforts to publicly impale her before the Glen Eidge police court upon a charge of immorality. And during all of this period, while she was supporting herself and two children. from her daily toil, supplemented by the allowance which the court compelled him to contribute, while her children were severed in their relationship, and the home that everjr woman craves, as the basis of conjugal felicity, was thus despoiled, he failed to conceive or utter the one word "peccavi,” that might have gone far to heal the miseries of their embittered years. He knew from nineteen years of a tempestuous life why she left his home. He knew why she shunned, abhorred and feared him. He knew with a vividness that no one else possessed that fear of him alone, instilled into her soul, by the intolerable cruelty of their bitter years, had conjured in her mind, as her testimony in this suit evidences upon every page, a Gorgon monstrosity, whose very vision carried with it the incarnation of embruted cruelty. He not only knew that such was her fear, but he knew that the court of chancery, by its decree of maintenance, had practically placed him in such a category. Love, and even decent respect, which tolerates and suffers hardships, misfortunes and human ills which arise in the companionship of married life, does not spring from such a mental and moral attitude; nor, fortunately, is the American home constructed upon a foundation of fear, for the maxim is as ancient as the philosophy of Aristotle, that no man (and a fortiori no woman) can love the man whom -he fears.

Therefore, to expect this petitioner, in such a situation, upon a perfunctory and artificial plea> enveloped in all the paraphernalia of a studied legal performance, to return to the embraces of the man who slandered, traduced, villified, beat and abused her, without even an expression on his part of apology, recantation or repentance for the past, and without any hope, promise or expectation for the future of a new and reformed life, under decent, social, conjugal conditions, would be to impose upon human nature an artificial and extravagant attribute of self-abnegation and slavish devotion, which neither the law of nature nor the law of the land contemplates or exacts.

The decree appealed from will therefore be reversed.

For affirmance — -None.

For reversal — The Chief-Justice, Trenci-iard, Parker, Mintukn, Black, Campbell, Lloyd, White, Gardner, Van Busicirk, Clark, MoGlennon, Kays, JJ. 13.


author: Kalis ch, J.

text:
    Reliable Cloak Company, complainant-appellant, v. Clara Sorbella et al., defendants-respondents.
    [Argued March 19th, 1925.
    Decided May 18th, 1925.]
    Upon the issuance of a preliminary injunction, a subpoena must be taken out and served, but the only penalty for failure to do this is a dissolution of the injunction, and a dismissal of the bill for that reason is improper.

      On appeal from a decree advised by Vice-Chancellor Ingersoll, dismissing complainant’s bill of complaint.

      Messrs. Cole & Cohj for the appellant.

      Mr. Walter 8. Keown, for the respondents.
   The opinion of the court was delivered by

Kalis ch, J.

The complainant filed its bill for injunction against the defendants in the court of chancery, to the end that they be restrained from interfering with the business of complainant, and from unlawfully intimidating and interfering with its employes, &c. On the 6th day of August, 1923, a rule to show cause was allowed ordering the defendants to show cause, on the 14th day of August, 1923, why an injunction should not issue in accordance with the prayer of the bill, and in the meantime the defendants were restrained from personal molestation of persons willing to be employed by complainant with attempting to coerce such persons from entering complainant’s plant, &c. After a hearing, the proceedings resulted in the issuance of a writ of injunction on July 29th, 1924, against the defendants. On the 9th day of September, 1924, counsel of defendants gave written notice to the complainant’s counsel on September 15th, 1924, of a motion to be made in the court of chancery to dismiss the original bill of complaint, for the following reasons: 1. That complainant had failed to serve copies of the preliminary injunction upon the defendants. 2. That the complainant failed to cause subpoenas to be issued for the defendants to answer the bill of complaint within the time limited of the rules of the court. 3. That the complainant had failed to diligently prosecute the suit. On the 12th day of September, 1924, before the return day of the motion, counsel of complainant caused a subpoena to be issued to the defendants. The matter came on for a hearing before Vice-Chancellor Ingersoll, who dismissed the bill upon the ground that the complainant had not issued the subpoena to answer in accordance with the rules and practice of the court of chancery.

From this order the complainant appeals to this court.

The learned vice-chancellor relied for his action in dismissing the bill on Allman v. United Brotherhood of Carpenters and Joiners of America et al., 79 N. J. Eq. 150. It is evident from a reading of the case that the vice-chancellor must have misconceived the purport of the decision. What Chancellor Walker, then vice-chancellor, said in that case (at p. 152), is as follows: “It is entirely settled that, upon the issuance of a preliminar}' injunction, a subpoena must be taken out and served. Lee v. Cargill, 10 N. J. Eq. (2 Stock.) 331. The penalty for neglect is dissolution of the injunction.”

In Lee v. Cargill, supra, Chancellor Williamson (at p. 332) said: “The subpoena must be taken out with the injunction. The rule of the court requires the injunction to be served within ten days after issuing thereof, and a return of service made to the court within twenty days after such service. The practice will be hereafter strictly followed requiring the subpoena to be taken out with the writ of injunction, and returned to the court within the time prescribed by the rule for a return of service of the injunction. In this case the complainant is in laches according to the practice heretofore adopted. West v. Smith, 1 Gr. Ch. Rep. 309; 1 Halst. Dig. 535 § 1. And the injuction must be dissolved, with costs.”

The only penalty which follows the neglect to issue a subpoena is a dissolution of the injunction and not a dismissal of the bill.

The order dismissing the bill is reversed, with costs.

For affirmance — None.

For reversal — The Chief-Justice, Trek ci-iard, Parker, Mihturh, Kalisch, Black, Katzekbaci-t, Lloyd, White, Yah Buskirk, Clark, McGlehkok, Kays, JJ. 13.


author: Black, J.

text:
    Louis Dorfman et ux., complainants-respondents, v. Joseph Segal, defendant-appellant.
    [Submitted March term, 1925.
    Decided May 18th, 1925.]
    A bill of complaint was filed to compel the specific performance of a contract, under which a decree by the court of chancery was made, compelling the defendant to perform his part of the contract by paying the consideration and accepting a deed for the premises. On appeal, it is held, the decree is supported by the evidence, that time was not of the essence of the contract, and the decree of the court of chancery is affirmed.
    On appeal from a decree of the court of chancery.

      Mr. David Lesnick, for the respondents.

      Mr. Nathan H. Berger, for the appellant.
   The opinion of the court was delivered by

Black, J.

This is a case of specific performance.

The bill of complaint was filed to compel the defendant to perform his part of a real estate contract, dated January 3d, 1924, by accepting a deed conveying complainant’s factory property to him. The property consists of two tracts of land with a three-story and loft factory building located on Brandford street, in Uewark. The title by the contract was to be passed on or before the 1st day of April, following. The property was to be free from all encumbrances, except two leases and a contract of insurance, dated February 19th, 1917. There was no expressed stipulation that time was to be of the essence of the contract. The vice-chancellor before whom the case was heard advised a decree in favor of the complainants', compelling the defendant to perform the contract by paying the consideration and accepting the delivery of a warranty deed from the complainants conveying the title to the defendant. The case is largely one of fact. The learned vice-chancellor reviews at some length the facts as developed by the testimony. It would serve no useful purpose to restate the facts as found by the vice-chancellor. Our reading of the testimony leads us to the same conclusion as that of. the vice-chancellor, and we find the decree is supported by the evidence.

It may not be amiss, however, to point out some of the controlling facts. The evidence shows that between January 3d and April 1st, and also between April 1st and May 5th, 1924, there were many conversations had between the parties and their respective attorneys relating to tlie closing of the title to the premises, that on May 1st the defendant was notified by letter, Exhibit 0-4; that on Monday, May 5th, 1924, at two p. m., at the office of his lawyer, was the time and place fixed by the complainants for passing the title. On that day a tender of a deed for the premises was made by the complainants to the defendant’s solicitor, which was refused. Then, the bill of complaint was filed. After the case was heard, the vice-chancellor, on November 5th, 1924, permitted the defendant to file an amended answer setting forth a “second separate defense,” which alleges that certain circumstances made time of the essence of the contract, and the complainants consistently refused to deliver possession of the premises at the time fixed in the contract.

The vice-chancellor found that none of the defenses were borne out by the testimony, that time was not of the essence of the contract, that the defendant was unwilling to live up io the performance of his part of the contract under any circumstances. With this view of the testimony we concur.

The only point stressed in the argument, by the defendant, on the appeal, is that the time of delivering possession, as shown by the facts, was of the essence of the contract. This, as stated, was found by the vice-chancellor not to he so.

The decree of the court of chancery is affirmed.

For affirmance — Tub Chiee-Justice, Then chard, Parker, Minturn, Kalisch, Black, Katzbnbaci-i, Campbell, Lloyd, White, Gardner, Van Buskirk, Clark, McGlennon, Kays, JJ. 15.

For reversal — Hone.


author: White, J.

text:
    David Friedlander, complainant-appellant, v. Gustave A. Lehr and Bertha P. C. Lehr, defendants-respondents.
    [Submitted March term, 1925.
    Decided May 18th, 1925.]
    1. Specific performance will not be decreed against a vendor where it appears that the decree would be futile, because of the fact (there being no proof of equitable title in such vendor) that title to the real estate in question is in a stranger to the contract of sale, who is not made a party-defendant.
    2. Where application is made after final hearing and after the filing by the vice-chancellor of his conclusions, for permission to amend a bill for specific performance of a contract to sell real estate by adding the names of the present holders of the title, whose Iona fides is not challenged either in the bill or by the proof, and of whose existence the claimant had knowledge before he filed his bill — Held, the vice-chancellor was well within the bounds of his discretion in denying the application.
    3. Where after final hearing and the filing of the conclusions of the vice-chancellor, advising- that the bill be dismissed, but before the actual entry of the decree an application was made to the vice-chancellor for permission to suffer a voluntary dismissal of the bill without prejudice, and no circumstances were brought to the attention of the vice-chancellor which moved him in the exercise of his discretion to grant the moton in order to prevent a miscarriage of justice, a denial of the application will be affirmed.
    On appeal from a decree advised by Vice-Chancellor Ingersoli.

      Mr. William 8. Darnell, for the appellant.

      Mr. Clarence L. Cole, of counsel (Messrs. Cole & Cole, on the brief), for the respondent.
   The opinion of the court was delivered by

White, J.

The bill prayed for a decree of specific performance against the defendant-vendors of an unrecorded contract in writing for the sale of real estate, which real estate, after the signing of the agreement, but prior to the filing of the bill, had been conveyed by said vendors to third parties, who, although complainant learned of the conveyance before filing his bill, were not made parties and charged with such circumstances as would justify a decree against them. Under these conditions the decree of specific performance prayed for would have been futile, and was properly refused, and the bill dismissed for that reason. Flattau v. Logan, 72 N. J. Eq. 338; Klausner v. Watson, 86 N. J. Eq. 220.

Complainant’s petition of appeal and the brief of his counsel also aver, however, that about a month after the learned vice-chancellor had filed his conclusions in the case advising that the bill be dismissed, but, before the decree of dismissal had been actually entered, application, after notice, was made to the vice-chancellor for permission to amend the bill by bringing in the omitted parties-defendant who held title to the property in question, and, presumably, by making the necessary averments against them; and also, in the event of that application being denied, for permission to suffer a voluntary dismissal of the bill, presumably, also, without prejudice, and that both these applications were denied. We think this action of the learned vice-chancellor was quite within his discretion under the circumstances here involved. Defendant’s answer to the bill expressly set up the fact that they, after rescinding the contract of sale because of complainant’s alleged breach thereof, had sold the property to a third party whose name was stated in the answer, and on the final hearing the evidence disclosed knowledge on the part of the complainant before he filed his bill of this alleged sale and of the conveyance of the title in pursuance thereof.

What was here involved was not a mere formal addition of parties shown by the evidence to be properly subject to the prayer for relief. So far as these third parties who now hold the title were concerned, additional proof was essential to attack the tona fides of the title they hold. Nevertheless, with this situation staring him in the face, complainant went to final hearing without amending, and then only after all the evidence was in and the case actually decided did he seek his amendment. He was too late with an amendment of this nature. Seymour v. Long Dock Co., 17 N. J. Eq. 169; Jones v. Davenport, 45 N. J. Eq. 77.

The application for permission to voluntarily have the bill dismissed without prejudice was also properly denied. After a trial on the merits the case was duly decided in favor of the defendants, and, certainty, unless there were circumstances property brought to the attention of the vice-chancellor which moved him in the exercise of his discretion to grant such a motion in order to prevent a miscarriage of justice (Maturi v. Fay, 98 N. J. Eq. 377), the defendants were entitled to a decree in accordance with the decision in their favor.

The view hereinbefore expressed makes it unnecessary for us to consider the other reasons going to the merits of the case also relied upon by the learned vice-chancellor as supporting his conclusions, and we, therefore, express no opinion thereon.

The decree is affirmed, with costs.

For affirmance — The Chief-Justice, Trenci-iard, Parker, Minturn, Kaltsch, Black, Katzenbach, Campbell, Lloyd, White, Gardner, Yan Buskirk, Clark, McGlennon, Kays, JJ. 15.

For reversal — None.


author: Campbell, J.

text:
    Baruch (Burah) Fuchsman (Fuksman), complainant-respondent, v. Jacob Winarsky, defendant-appellant.
    [Argued March 23d, 1925.
    Decided May 18th, 1925.]
    Where deeds, not obtained -by fraud or deception practiced by one party against the other, by their terms release every interest the grantor in the deed had in the property described therein, under a certain agreement, such deeds cannot now be questioned, even if the property covered by them has greatly increased in value.
    On appeal from a decree of the court of chancery advised by Vice-Chancellor Church, whose opinion is reported in 97 N. J. Eq. 176.

      Mr. Arthur T. Vanderbilt, for the appellant.

      Mr. Frank E. Bradner, for the respondent.
   The opinion of the court was delivered by

Campbell, J.

This is an appeal from a decree in chancery' adjudging a certain writing bearing date May 3d, 1919, to be an agreement creating an active express trust; that the appellant holds the legal title to the lands therein described in trust for the respondent, and directing that said lands be sold, subject to the existing mortgages thereon, and that there be paid to the respondent from the proceeds of such sale such an amount as shall remain after deducting such sums as, upon an accounting, shall be shown to have been payunents made by-appellant, as authorized by said trust agreement.

The respondent, on May 3d, 1919, was the owner of two lots of land known as Eos. 264 and 266 Prince street, in the city of Newark, having purchased them in 1907 for $41,-000. Upon each of which lots is a tenement-house. Both properties were encumbered by mortgages — 264 Prince street by a first mortgage of $10,000 and a second mortgage of $4,000; 266 Prince street by a first mortgage of $10,000 and a second mortgage of $1,500, upon all of which there were arrearages of interest, and there were also- arrearages of taxes.

The buildings had fallen into a state of disrepair and the revenue from rentals had diminished.

The respondent was indebted in the sum of $2,756 upon several notes upon which the appellant was endorser.

The holder of the first mortgage on 264 Prince street having demanded payment thereof, respondent applied to one Hollander for a mortgage loan of $10,000, which Hollander seems to have agreed, at first, to make, and, subsequently, refused.

On May 3d, 1919, respondent and his wife convejred both premises, 264 and 266 Prince street, to appellant, by deed of warranty, subject to the aforesaid mortgages, for a total consideration of $32,000. This deed is, on its face, and by its terms, an absolute conveyance, and was recorded in the register’s office of Essex county on May 8th, 1919.

Upon the closing of title there was an apportionment made of rents, insurance premiums and taxes; an assumption of payment of interest due on mortgages, past due taxes; cash amounting to $300 paid to respondent’s wife before she would execute the deed; a balance of cash of $1,135.43 paid respondent, and an assumption by appellant of the payment of respondent’s notes of $2,756, upon which he was endorser; and upon the day of closing title, May 3d, 1919, appellant executed and delivered to the respondent a mortgage, covering the premises, to secure the payment of such notes.

It appears by the testimony that at the time "of executing the deed of May 3d, 1919, the wife of respondent made a request of appellant, to make them “a present” if he sold the houses at a profit within two years. This was agreed to by appellant and resulted in an agreement under date of May 3d, 1919, between appellant and respondent, duly acknowledged and recorded in Essex county register’s office in book Q 61 of deeds, on page 43. This agreement recites the convej^ance by respondent and wife to appellant, of May 3d, 1919, and then provides as follows:

“1. That as to the premises 264 Prince street, the appellant shall not convey the same for a period of two years without the written consent of the respondent, and the respondent shall be entitled to receive the balance of the selling price over $16,600, after first deducting any expenses which appellant may have in procuring new loans and in taking title, and that if respondent shall produce a purchaser who is willing to pay more than $16,000, the appellant shall be obliged to convey.
“2. That as to the premises 266 Prince street, the same conditions shall exist as apply to 264 Prince street, and for the same period of time, except that appellant may convey the premises at any time without the consent of respondent, provided that it shall be a bona fide conveyance, not for the purpose of evading the agreement, and respondent shall receive all the excess of the selling price over $16,000, less the expenses as provided for as to property 264 Prince street.”

The agreement further provides that it shall be subsequent and subordinate to any mortgages that appellant shall place upon the property provided that the aggregate of the mortgages on each property shall not exceed $14,000.

Also, on May 3d, 1919, appellant and his wife executed a mortgage of $11,000 to Adolph Hollander, on premises 364 Prince street, to take up and pay the first mortgage of $10,000 thereon, payment of which had been demanded.

In the mortgage given by appellant and wife to respondent to secure the payment by the former of the latter’s notes aggregating $3,756 there appears the following recital:

“This mortgage, executed and delivered for the following purposes on the date hereof—
“The said Baruch Fuksman conveyed to the said Jacob Winarsky, premises commonly known and designated as 264-266 Prince street, Newark, New Jersey, and, as a part of the purchase price, assumed notes and other forms of indebtedness in the amount of $2,756, on which the said Fuchsman was primarily liable and Winarsky secóndarily liable, and the names and amounts of which are set forth in a bond which this mortgage secured and which is made a part hereof.”

On November 12th, 1919, the attorney representing the Dime Savings Institution, which was making Winarsky a mortgage loan on 266 Prince street, finding of record the aforesaid mortgage from Winarsky to Euchsman and the agreement of May 3d, 1919, secured from Euchsman a quitclaim deed, release of mortgage and an affidavit, which latter, among other things, contained the following:

“That at the time this deponent conveyed said premises to the present owner, Jacob Winarsky, an agreement was entered into between them, which agrément is recorded in the Essex county register’s office in which it was the intention of the parties to provide that as to the premises 264 Prince street, that property should not be sold by Mr. Winarsky -without the written consent of this deponent ; that said condition was made to secure to him a portion of any profits that might be made of the sale of said premises over and above a certain figure; that it was not the intention of the parties to that agreement that it affect property 266 Prince street, which Mr. Winarsky is now mortgaging to the Dime Savings Institution.”

The quit-claim deed herein before referred to contains the following recital:

“It being hereby intended to release any interest the party of the first part may have in the premises herein described [266 Prince street] by virtue of agreement recorded in book Q 61 of deeds for Essex county, on page 43,” &e.

On April 15th, 1920, Euchsman released to Winarsky the premises 264 Prince street from the mortgage, securing the payment of the notes amounting to $2,756, and executed and delivered to him a quit-claim deed for the same premises, which deed contained the same recital as that of November 12th, 1919.

Eour years later, and on April 16th, 1924, the bill of complaint in the present cause was filed, resulting in the decree appealed from.

It is evident that at the time of the conveyance of May 3d, 1919, the lands were fairly worth, not exceeding the purchase price of $32,000, but that subsequent to the deeds of November 12th, 1919, and April 15th, 1920, from Winarsky to appellant, the property has materially increased in value, until it is now worth $55,000 to $60,000.

The appellant contends that the agreement of May 3d, 1919, does not create an express active trust; that the court erred in decreeing that appellant holds the legal title in trust for respondent, likewise in disregarding the two-year limitation contained in said agreement; that respondent is in laches, and that the court erred in disregarding the releases and quit-claim deeds of November 12th, 1919, and April loth, 1920.

It is not necessary for us to pass upon any except the last of these grounds of appeal, because our finding thereon completely disposes of the matter before us.

These deeds, by their terms, release every interest respondent had, if any and whatever it was, under the agreement of May 3d, 1919, and we do not find facts and circumstances contained in the evidence before us satisfying us that they were obtained by fraud and deception practiced by appellant upon and toward the respondent.

The decree below is therefore reversed.

For affirmance — The Chief-Justice, Minturn, Black, Katzenbach, Yak Buskirk, Clark, McGlennon, JJ. 7.

For reversal — Trenci-iard, Parker, Kalisch, Campbell, Lloyd, White, Gardner, Kays, JJ. 8.


text:
    Vincenzo DeLuca, complainant-appellant, v. Berger Melin, defendant-respondent.
    [Submitted March 27th, 1925.
    Decided May 18th, 1925.]
    Primary jurisdiction over controverted legal titles is at law, and when doubt as to title arises on .the face of a bill or at final hearing, equity does not adjudicate it.
    On appeal from a decree in chancery dismissing a bill of complaint.

      Mr. Isidor Kalisch, for the appellant.

      Mr. Charles Jones, for the respondent.
   The opinion of the court was delivered by

Campbell, J.

This is an appeal from a final decree dismissing a bill of complaint praying injunctive relief against respondent, enjoining him from entering upon or in anywise interfering with appellant’s peaceable use and possession of a roadway.

On May 5th, 1902, the appellant became the owner of certain lands in Montclair, containing a dwelling and other buildings, through purchase arid deed from Josephine L. Hanna, who purchased the tract in October, 1894, from Christopher A. Hinck. At the time of the purchase from Hinck there were no buildings on the land, they having been subsequently erected by Mrs. Hanna. Hinck at the time of sale to Mrs. Hanna was the owner of a large tract of land, including land to the south and fronting on Grove street, a public highway. Hinck is now deceased, and his estate has conveyed to respondent all other property owned by him at the time of his death, fronting on Grove street and extending southerly from the southerly line of property purchased by Mrs. Hanna.

The bill of complaint alleges that at the time Hinck conveyed to Mrs. Hanna he constructed a road on his property “beginning at Grove street * * * to the south of and adjoining” the property of Mrs. Hanna (now appellant’s), “running east about two hundred feet, and having an average width of about sixty feet and running the entire depth of the property.”.

That such road was constructed pursuant to an express agreement between Iiinck and Mrs. Hanna, so that the house which she was to erect should be upon a corner property, and that the purchase price paid by Mrs. Hanna was fixed upon that basis. That it was further agreed that said road should remain open forever, and that Mrs. Hanna, relying thereon, erected an expensive home upon her lands. That said road connected with a driveway on the Hanna property encircling the dwelling-house and re-entering Grove street.

That, after opening the road, Hinck caused a map to be filed showing the road and other lands owned by him.

The town of Montclair, before the filing of the bill of complaint, formally relinquished all right it had in such roadway.

The bill of complaint charges that the respondent has filled in a part of such roadway and is about to erect a building or buildings thereon.

The learned vice-chancellor, on final hearing, dismissed the bill of complaint upon the ground that there was nothing shown in the nature of an equitable estoppel, and that the complainant could not enlarge his title by parole evidence.

We are not concerned with either of these grounds, because there is a fundamental and basic principle demanding a dismissal of the bill of complaint.

That principle, as restated and reiterated by this court in Coombs v. Atlantic City Railroad Co., 96 N. J. Eq. 709, is: “Primary jurisdiction over controverted legal titles is at law, and when doubt as to title arises on the face of a bill or at final hearing equity does not adjudicate it.”

Eor that reason the decree dismissing the bill of complaint is affirmed.

For affirmance — The Chiee-Justice, Trekchard, Parker, Mikturk, Kalisoh, Black, Katzekbach, Campbell, Lloyd, White, Gakdker, Yak Buskirk, Clark, McGlekkok, Kays, JJ. 15.

For reversal — Hone.


author: Lloyd, J.

text:
    Robert Henderson et al., complainants-appellants, v. Thomas Henderson and Frank Van Syckle, defendants-appellees.
    [Submitted March 27th, 1925.
    Decided May 18th, 1925.]
    1. The discretionary power of the court of chancery to specifically enforce contracts, whether of its own officers or others, should only be exercised on meritorious grounds.
    2.. 'Where a receiver of a partnership took no steps in the administration of Ms trust for nearly six years after his appointment, and then, with the members of the partnership and their wives, entered into a contract to sell lands that were the property, of the partners as tenants in common and presumably did not pass to him as receiver of the partnership, and more than seven years later the assignee of the contract to purchase filed a petition in the insolvency proceedings praying for an order confirming the sale, such order should not be granted on account of the laches of the petitioner, the property having largely increased in value, and the inequitable character of the petition on its ¡merits, the receiver having paid the interest and taxation charges on the property, while the petitioner was in possession thereof.
    On appeal from a decree of the court of chancery advised by Yice-Ohancellor Church, whose opinion is reported in , 97 N. J. Eq. 161.

      Mr. John, E. Toolan and Mr. William A. Spencer, for the appellants.

      Mr. Joseph E. Strieker, for the appellees.
   The opinion of the court was delivered by

Lloyd, J.

Robert Henderson and Thomas Henderson were engaged as co-partners in the general contracting business in Perth Am-boy, and, becoming financially embarrassed, Thomas Henderson, on August 36th, 1911, filed a bill in chancery praying a dissolution of the partnership and the appointment of a receiver to take into possession the partnership assets and to convert its property into money under the direction of the court. On September 6th, 1911, a decree was made dissolving the partnership and appointing a receiver in the person of Charles K. Seaman to “take possession of all the effects or property due or belonging to the said partnership, and that the said effects and property of or belonging to the said partnership be sold and converted into money under the direction of” the court.

The receiver took no steps in the administration of his trust until June 17th, 1917, when he, together with the Hendersons and their wives, entered into an agreement with one Emil Stremlau as purchaser for the sale of two lots of ground in Perth Amboy for the price of $6,500, upon which a deposit of $100 was made. On June 31st, 1917, Stremlau assigned the contract to Erank Yan Syekle. Yan Syekle soon afterward went into possession of the property and has so remained. On September 17th, 1934, more than seven years later, Yan Syclde filed a petition in the insolvency proceedings praying for an order confirming the sale, and that the receiver deliver a deed to the petitioner for the lots. While Seaman, the receiver, alone was made a party to the petition, the court issued a rule to show cause addressed, not only to the receiver, but also to Robert Henderson, his wife, Evelyn, and Anna Henderson.

In the opinion filed by Vice-Chancellor Church it is stated that only the receiver appeared in response to the order to show cause and resisted the application, and this on the ground that the property had increased in value. On the return of the order to show cause a decree was made confirming- the sale, and requiring the parties named in the rule, together with Anna Henderson as executrix of Thomas Henderson (who had since died), to execute a deed to the petitioner.

Erom this decree an appeal is taken by Robert Henderson and by Anna A. Henderson, individually and as executrix of Thomas Henderson. Examination of the record discloses that while Van Syckle had been in possession of the property from 1917 until 1924, a period of more than seven years, he had taken no steps to enforce the completion of the agreement beyond requests to the receiver that the latter execute a deed for the property; that a mortgage of $3,000 exists upon the property upon which, presumably, the receiver had paid the interest, and if not paid now must be paid under the decree, inasmuch as the conveyance is directed to be made clear of encumbrances for the sum of $6,400, balance of the agreed price. Presumably, also, the taxes have been or must be paid by the receiver. The affidavits filed on behalf of the petitioner set forth a present value of the lots at $10,000, and those on behalf of the receiver a value of $15,000. Erom these it is fair to assume a valuation between the two estimates, and if $12,500 be taken as the present true value the petitioner has been in the agreeable position of possessing the property, enjoying its use, seeing its worth gradually increase, and at the same time retaining the purchase price, while the receiver carried the burdens of taxation and interest charges on the mortgage. It is difficult to imagine a case more devoid of merit in a court of equity than that of the petitioner. It was open to him in 1917 to apply to the court to enforce his contract as he has now done. He preferred to wait until the enhancement in value presented an opportunity with highly profitable results. This, we think, he could not do. Hot only is the pra)rer of the petitioner inequitable on its merits, but the case discloses a degree of laches which should have restrained the hand of the court. The discretionary power of the court to specifically enforce contracts, whether of its own officers or of others, should not on meritorious grounds have been exercised.

There were, however, other obstacles to the court’s action in the present case. According to the petition the lands in question were held by the Hendersons as tenants in common. The presumption was therefore that it was their individual property and did not pass to the receiver by virtue of the decree declaring the partners insolvent and directing the receiver to take into possession partnership property. 30 Cyc. 435. From the record before us it is not shown that the court had jurisdiction of the subject-matter. Again, the petition applied only for an order on the receiver, the court’s officer. By what right the wives of the parties could by a rule to show cause, for which no one had asked be made to respond to what, in effect, is turned into a bill for specific performance, to convey real estate, it is difficult to see. In the lots the wives, presumably, had dower rights. They were not parties to the insolvency proceedings of the Henderson partnership, and could not be compelled to part with their interest in this summary manner, whether the lots were partnership property or belonged to the individual members of the firm. The proceedings in chancery for such purpose is by bill and subpoena. Having found that the decree, on meritorious grounds, should have been refused, it is unnecessary to pursue further the question of jurisdiction or that of procedure.

The decree is reversed, with direction to the court below to dismiss the petition and to impose the costs of the proceeding on the petitioner.

For affirmance — None.

For reversal — The Chibe-Justice, Tbehchard, Parker, Minturk, Kalis ch, Black, Katzehbach, Campbell, Lloyd, White, Gardner, Yás Buskirk, Clark, McGleuktoh, Kays, JJ. 15.