text:
    James T. Ackerman v. Cornelius P. Crouter et al.
    [Submitted November 22d, 1904.
    Decided January 6th, 1905.]
    ■ 1. A devise of “the farm which I own at Wortendyke, and known as ¡he David D. A. Wortendyke farm,” applied to three tracts of land acquired by David D. A. Wortendyke and used by him together as a farm, and afterward acquired by testator and used by him as a farm.
    2. Proof that the testator usually designated the farm as the “Wortendyke farm,” or as the “David D. A. Wortendyke farm,” was competent and admissible as to testator’s intent.
    3. The erection of a dwelling-house upon a portion of the farm not separated from the remainder by fences or designated boundaries, and the letting of such house, with the land on which it was erected and some adjoining land to a tenant, did not sever such house and land from the farm so as t.o render the devise inapplicable thereto.
    On bill for construction of the will of Peter Ackerman and relief.
    The following portions of the will of said deceased are involved :

      “Fifth. I give and devise unto Lizzie P. Yoorhis and Minnie Hopper, daughters of John A. Yoorhis, Katie Hopper, wife of Demarest Hopper, and Jemima Hopper, wife of John Hopper, the farm I own at Wortendyke, and known as the David D. A.’ Wortendyke farm, to them, their heirs and assigns forever, to be equally divided between them, share and share alike, but in case I shall have sold and disposed of said farm before my decease, then I give and bequeath unto said Ifizzie P. Yoorhis, Minnie Hopper, Katie Hopper and Jemima Hopper, in lieu thereof, each the sum of twenty-five hundred dollars.”

      “Eighteenth. I authorize, empower and direct my executors hereinafter named, or the survivor of them, to sell and dispose of any and all of my real estate not devised by this will at such time or times as they shall deem for the best interest of my estate, either at public or private sale, and give good and sufficient deeds to the purchasers thereof.”

      “Twentieth. All the rest, residue and remainder of my estate not specifically disposed of by this my will, I give and bequeath unto James Turner Ackerman, David D. Ackerman, Mabel Harper, Annie M. Ackerman and Edwin Ackerman equally, share and share alike, to them, their heirs and assigns forever, except as to Edwin Ackerman, whose share of my residuary estate I order and direct my executors to invest and keep invested and pay the income arising therefrom half yearly to said Edwin Ackerman during his natural life, and upon the death of said Edwin Ackerman X give and bequeath his share of said residue so set apart to his heirs, to them, their heirs and assigns forever.”

      Mr. David D. Ackerman, solicitor for some of the defendants, and also one of tire parties defendant.

      Mr. Cornelius Doremus, for the executors and devisees of Peter Ackerman, deceased.
   Magie, Chancellor.

James T. Ackerman, the complainant, alleging himself to be a resident of New York, filed this bill, which he has signed as a party, no solicitor of this state appearing.

His bill is for relief, involving the construction of the will of Peter Ackerman. He is one of the residuary legatees under the clause of the will set forth in the prefatory note. He makes parties to his bill all the other residuary beneficiaries, the executors of Peter Ackerman and the four persons named in the fifth clause of said will, also' set forth above.

The bill seeks to make a case for relief upon these chai-ges. Complainant asserts that Peter Ackerman died seized of lands in Bergen county, possession of which has been taken by the four devisees named in the fifth clause of said will, under the claim that all the said lands were thereby devised to them. Complainant claims that, upon a true construction of the clause, only a part of said lands passed to those devisees, and that the remainder of the lands fell within the power of the executors to sell, shown in the eighteenth clause of the will. He contends that that clause not only empowers, but directs, the executors to make sale of all the lands of decedent n'ot specifically devised. He further claims that he, or those interested with him in the residuum of the estate, have demanded that the executors should perform their duty of selling the disputed lands, which the executors have neglected or refused to do.

The prayer of the bill is for a decree requiring the executors to make sale 'of the lands in question if they do not pass by the devise contained in the fifth clause. This involves equitable relief, and therefore brings the case presented within the jurisdiction of this court respecting the construction of wills. Hoagland v. Cooper, 65 N. J. Eq. (20 Dick.) 407.

The question thus presented is doubtless within the jurisdiction of this court, although it involves not so much the construction of any obscure- passage of decedent’s will, but rather the application óf the language to the facts. It is in this sense that jurisdiction has been frequently exercised in this state. Benham v. Hendrickson, 32 N. J. Eq. (5 Stew.) 441. It should be exercised in such eases whenever such construction is necessary to relief, which can only be given in equity. It will not be exercised When the question is a purely legal one. Torrey v. Torrey, 55 N. J. Eq. (10 Dick.) 410; Hoagland v. Cooper, ubi supra. If, therefore, complainant makes out a case, by his bill, under which this court can require the executors to perform a duty in the performance of which complainant is interested, jurisdiction ought to be entertained.

The defendants made no objection to- the bill of complainant, either by demurrer or plea. All those made defendants as interested in the residuary clause of the will filed answers admitting the charge of the bill and supporting the complainant as to the relief sought except one, who disclaims any interest.

The executors have filed an answer, -substantially submitting to any proper order or direction of the court.

The four devisees under the fifth clause have joined in an answer denying the charges contained in the bill, and contesting the construction of the clause asserted by complainant, or the application which complainant seeks to attribute to it.

Replications having been filed, proofs were taken before an examiner of this court 'and the cause has been thus brought to hearing.

The facts disclosed are substantially these: Peter Ackerman, at his death, was seized of lands in the county of Bergen, at a place called Wortendyke. He had acquired title thereto by a deed from the sheriff of Bergen county, made by force of a fieri facias issued out of this court, upon a decree for the foreclosure of a mortgage or mortgages upon the said lands. This title was acquired on January 16th, 1886, which was the date of the deed made by the sheriff, and decedent continued to hold all of the lands thereby conveyed up to- the time of his death, except some small tracts which he conveyed out of the same, but which were not in question in this case. The sheriff’s deed conveyed the lots in three tracts. The description of the three tracts was taken from the mortgage upon which the decree was made. That mortgage was made by David D. A. Wortendyke and his wife to one Maria Ackerman. Of tírese three tracts the first is a tract or farm conveyed to David D. A. Wortendyke, in 1859, and described as containing fifty acres and thirty hundredths of an acre. The second is described as containing seven acres and twenty-five hundredths of an acre, more or less, and as the property devised to David D. A. Wortendyke by Abraham Wortendyke. It is recited that this tract was declared in said will to be known as the Lewis Masker lot. The third tract is described as being thirteen lots, each fifty feet front, and of a depth of two hundred and two and sixty-one hundredths feet, and as described by the numbers on a map of property of C. A. Wortendyke, filed in the Bergen county clerk’s office, and further described as bounded by avenues. It is conceded and appears by proof that the second tract adjoins the first, and the third tract lies on the opposite side of a public road, facing the first tract. It is charged and proved that David D. A. Wortendyke acquired title to the second lot by' devise from Abraham Wortendyke, whose will was probated on August 19th, 1851?; that he acquired title to the first tract by deed of John B. Wortendyke and wife, recorded July 25th, 1859, and that he became the owner of the third tract by a deed not otherwise described than as being made to him on or about August 12th, 1863.

Tire complainant’s claim, disclosed by his bill, is that the devise contained in the fifth clause of decedent’s will, which is in this language, viz., “the farm I own at Wortendyke, known as the David D. A. Wortendyke farm,” is to be confined, in its application to the first tract described in the Ackerman mortgage and the sheriff’s deed, as being the farm conveyed to David D. A. Wortendyke by John B. Wortendyke. This is the first disputed point.

On the part of defendants, it is contended that the second and third tracts, though acquired by David D. A. Wortendyke from different sources than the first tract, were, after his acquisition of title, joined with and, as it were, annexed to the fifty-acre farm, so that the whole was usually denominated the David D. A. Wortendjdje farm, and that it was that aggregation of land which the testator had in mind and expressed by the devise of the “farm owned by me and known as the David D. A. Wortendyke farm.”

The evidence, in my judgment, sustains the defendants’ contention. It makes clear that after David D. A. Wortendyke had the title to the three tracts, which were contiguous, he used them all together, as one farm. The seven-acre tract and the thirteen lots were from time to time cultivated and made use of by him, and he lived in a house yet standing on the fifty-acre tract. The evidence justifies the conclusion that after Peter Ackerman bought the three tracts at the sheriff’s sale he went into possession of all of them, and continued in the combined use of all of them as one farm. It is true that at times the seven-acre tract and the thirteen lots were not under cultivation, but they did not lose their character as part of the farm by the fact that Peter Ackerman, who lived elsewhere, did not continuously cultivate them. He did, from time to' time, take from them that sort of produce which they did furnish, viz., the hay, made from the grass, which he from time to time cut therefrom.

It is further proved that the whole of the tracts were called and recognized by those living in the vicinity as the Wortendyke farm. Although there is some evidence that that phrase was restricted to the fifty-acre tract, it is by no means persuasive, and is confronted by much evidence to the contrary.

Evidence was put in tending to show that the testator habitually spoke of this property as the Wortendyke farm. This evidence was objected to, and it is contended upon this hearing that it was improperly admitted and ought not to be considerecl. I am unable to yield to this contention. We are entitled to put ourselves in the place of decedent at the time he executed his will. The names by which he called his children or other beneficiaries under his will, the names by which he called the subjects of his testamentary dispositions, the court is entitled to have to enable it to perceive what was in the mind of the testator, and what was his intent in his devise. If, to use one of the old illustrations, the testator devised a field called “White Acre," the fact that a field in his ownership had acquired that title, and that testator had applied that title to it, would be proper and important evidence.

Looking at the whole evidence, I do not think it admits of a doubt that after David D. A. Wortendyke acquired the title to these three tracts they were all used by him together and properly acquired the name of tire Wortendyke farm, and that after Peter Ackerman acquired them he continued their use, so as to justify the use of the same title to express his intent that all of the three tracts which remained yet in his ownership (he had sold some parts) should pass to the devisees under the fifth clause, unless the further contention of the complainant and those interested with him is sustained.

The further contention is that some time in the year 1895 the decedent separated and enclosed a tract of land out of the first tract of fifty acres and built thereon a dwelling-house, and afterwards rented the separated lot and the dwelling-house thereon to a tenant, who remained his tenant until his death. Complainant and the residuary legatees contend that by the separation of this lot from the rest of the fifty acres, and by the use of the dwelling for a tenant, to which it was put by Peter Ackerman, the separated lot was excluded thereby from the description of the fifth clause, viz., the farm known as the David D. A. Wortendyke farm. It is argued that it ceased to be farm land; that although it'continued in the ownership of Peter Ackerman, it was no longer a part of the farm he owned.

In my judgment, this is hypercritical. The evidence of any definite separation of the lot on- Which the dwelling was erected, from the rest of the farm, is very vague and uncertain. No written lease was made. The oral agreement between the tenant and the testator is testified to- by the tenant. No one else was present at the time the bargain was made. But it clearly appears, from the tenant’s evidence, that there was no definite pointing out of the boundaries of a separate lot. No new fence was erected. Some old stone fences which had been the dividing lines of the farm fields were indicated, and one line is claimed not marked out by any fence or post or stake, but by a very uncertain reference to distance. The impression the evidence of this tenant makes upon me is that Peter Ackerman, living at a distance from this farm, and finding farming operations not productive of income, built upon a portion of the farm a house for renting. He did not, by any severance visible upon the ground, indicate an intent to change the character of his ownership. The dwelling-house was built upon a part of his farm which he owned at Wortendylm. It was a part of the farm properly designated as the David D. A. Wortendyke farm, and the contention that by the erection of the house he withdrew the property on which the house was erected from the rest of the farm, without its being definitely designated by some boundaries, it seems to me, is destitute of force.

It results that the complainant has failed to support his bill by sufficient evidence to justify a decree. The bill must therefore be dismissed, with costs to the four defendants whose answer contests the complainant’s claim.


source: Caselaw Access Project

author: Magie, Chancellor.

license: Public Domain

text:
    Michael Brady v. Carteret Realty Company.
    [Submitted December 9th, 1904.
    Decided January 10th, 1905.]
    Under the act for quieting titles to land, requiring an issue at law to be directed on application of either party, and declaring that the court of chancery shall be bound by the result of such issue, but that it may, for sufficient reasons, order a new trial thereof, application for a new trial of such an issue should be acted on according- to the practice in respect to new trials of actions at law upon contested titles.
    On motion for a new trial of issue at law.

      Mr. Willard P. Voorhees and Mr. Ephraim Gutter, for the motion.

      Mr. Gilbert Collins, contra.

   Magie, Chancellor.

Whether a motion for a new trial of an issue directed by the court in a cause in which relief is sought under the provisions of the Quiet Title act,, is to be dealt with as are motions for new trials of issues directed by tire court in causes arising under the general jurisdiction of the court of equity, is a question raised by counsel moving for a new trial.

Issues directed under the general jurisdiction of the court of chancery are said to be for the information of the conscience of the court. The verdict may be disregarded and a decree made in opposition to tire verdict taken thereon. But by the act under consideration, upon the application of any party, an issue is required to be directed. If such application is made the chancellor can malee no decree except upon the finding returned upon such issue. The act further declares that the court shall be bound by the result of such issue, but that it ma3r, for sufficient-reason, order a new trial thereof. The issue thus required to be made obviously takes the- place of a trial at law upon.a contested title. It may be doubted whether tire act, if it had failed to afford any party- concerned a right to a trial at law, and to accord to tire result of that trial a binding force, would have possessed constitutional validity.

It results, in my opinion, that in dealing with applications for new trials of such issues, this court should act in accord with the practice in respect to new trials of actions at law upon contested titles. Such has been the apparent trend of all orneases, from the leading case of Powell v. Mayo, 26 N. J. Eq. (11 C. E. Gr.) 120; S. C., 27 N. J. Eq. (12 C. E. Gr.) 440. See Holmes v. Chester, 26 N. J. Eq. (11 C. E. Gr.) 79; Jersey City v. Lembeck, 31 N. J. Eq. (4 Stew.) 255.

The issue directed was in respect to the right of possession to some thirteen acres of land in Middlesex county. The realty company was the plaintiff and Brady was the defendant in the issue. At the trial the company proved a paper title to the locus in quo and rested. Brady then produced evidence tending to show that he had acquired title to' the locus in quo by adverse possession. This was the real issue tried. By Brady’s- evidence it was made to appear that'he had been in possession of two tracts, viz., one of about fifty-eight acres and the other of about thirteen acres (which was that in dispute), under lease from two persons named Parsons, who were predecessors of the company in the chain of title. This lease expired in April, 1880.

Brady himself testified that prior to the expiration of the lease he had, at an interview with the two Parsons, then the owners, agreed with them, in behalf of his son, Charles Brady, for a lease to the son, of both tracts, for the year, from April, 1880, to April, 1881. Charles’ right, if any, depended upon this parol agreement thus testified to.

Brady also testified that he remained in possession of both tracts during the year, from April, 1880, to April 1st, 1881, as before that time. It was apparently deemed important t-o establish that during that year the son, Charles, was the tenant, and that Brady’s possession was under Charles, and not under the Parsons, whose tenant he had previously been.

Eor this purpose Brady offered in evidence a letter, dated in February, 1881, addressed to Charles Brady and signed by the two Parsons, who were then the owners of the tract in dispute. It contained these words: “We have sold the farm which you rent to Mr. G-. W. Brown, and you will please pay the rent to him from the 1st of December, 1880.” This offer was overruled and exception duly taken.

Whether Brady’s possession, up to April, 1881, was a holding over from the expiration of his previous lease or was a possession under Charles, who was the Parsons’ tenant, was immaterial. If Charles was tenant and Brady his agent or subtenant (which it was did not appear), Brady’s possession could not have been adverse to the Parsons until after the tenancy of Charles, to which Brady had testified, had expired. Whether Charles was tenant during that year or not was therefore of no consequence with respect to the question at issue. The adverse possession which was claimed must have assumed that character after April, 1881.

The letter was subsequently admitted in evidence. But as its admission was for the sole purpose of contradicting the Parsons, who had both, testified that they had not rented to Charles, this would probably not have cured its previous rejection if erroneous. But, for the reason given, I think the rejection was proper.

It is further contended that the trial judge erred in his charge restricting the jury, in the consideration of Brady’s claim to a possession adverse to the owners of the title, to the erection of a building or buildings on the land and the payment of the yearly taxes. Taken in connection with the precedent matter of the charge, this was in no sense erroneous. The judge had just stated that the proofs were plenary that Brady had been for at least twenty years in actual, exclusive, visible, notorious possession. He had declared that tire sole question for them to settle was whether the proved possession was adverse or hostile to the owners. He had added that Brady’s possession, if a mere holding over as a tenant, would not be indicative of hostility, without some proof of claim to ownership. In that connection it was proper to direct attention to the evidence which might tend to evince that claim of hostile ownership which was necessary to sustain the issue on Brady’s part.

I find no substance in the objections to the rulings of the trial judge on tire admission or rejection of evidence, nor do I think the verdict was against the weight of evidence.

It results that the application for a new trial must be denied, and a decree must be made for the company, pursuant to the statute.


author: Pitney, V. C.

text:
    Freda Blauvelt v. William Blauvelt.
    [Filed November 14th, 1904.]
    Where the original petition in a divorce suit failed to show jurisdiction by not stating that petitioner had lived in the state for two years next before the petition was filed, and no process was taken out on the amended petition and defendant had no notice of it, but.there was a reference and a master’s report, petitioner may either take an order on defendant to show cause why a decree should not be entered on such report, where remedy is available only if personal service can be had on defendant, or may issue a new citation, and, on its return not served, take an order of publication, and if defendant does not come in a decree may be had on the report.
    On petition for divorce.

      Mr. William M. Rysdyk, for the petitioner.
   Pitney, V. C.

The original petition in this cause was radically defective in that it did not state that the petitioner 'had lived in the State of New Jersey for tw0‘ years next before the desertion charged. The defendant was brought in by publication, and the counsel for petitioner, perceiving the defects in his original petition, applied to Vice-Chancellor Emery and procured an order for leave to amend, and in pursuance of th|it order prepared an amended petition, which was filed January 22d, 1902, a little more than a year and a half after the filing of the original petition. In the amended petition he alleges that the petitioner is a. resident of the city of Paterson, “where she has resided for more than two years last past.” That means two years before the date of the petitioner’s affidavit to that petition, which affidavit was made the 15th of January, 1902. No process was taken out on that petition, nor did the defendant have any notice of it. An order of reference, however, was made thereon, and a master’s report, by which it clearly appeared that the petitioner was a resident of this state from April, 1895, and that the desertion took place in February, 1898, more than two years before the filing of the original petition.

The solicitor was clearly in fault (1) in not properly stating facts sustaining the jurisdiction of the court'in the original petition, and (2) in not giving the defendant notice of the amended petition. No decree can be advised on the papers as they now exist.

Two modes are open to the solicitor to correct this error, and he should incur the expense of the correction out of his own pocket: (1) He may take an order on the defendant to show cause at a future day why a decree should not be entered in pursuance of the master’s report. This remedy is available only in case he can make a personal service upon the defendant, and is the cheapest and best mode, if such service can be made. (2) To issue a new citation, and on its return not served take an order of publication,. which is, in effect, commencing de novo. If the defendant does not come in and answer to either the notice or,the order of publication, as the ease may be, the petitioner may have a divorce upon the report of the master already made, so that the only expense will be the service of notice upon the defendant, either personally or by publication.


text:
    Frederick F. Guild, receiver of the Commercial Building and Loan Association, v. Jennie E. Baker et al.
    [Decided December 1st, 1904.]
    1. A certificate of stock in a building association recited that the holder was entitled to interest on the amount paid for the stock, and provided that the certificate might be surrendered by the holder when he should receive the full amount thereof, with interest. The association assigned to the holder a mortgage as collateral. — Held, that the holder, as against other stockholders, was entitled to treat the certificate as a promise on the part of the association to pay the amount thereof, and to hold the mortgage as security therefor.
    2. The fact that the holder of a certificate of stock in a building association secured by a mortgage assigned to him as collateral made a claim on the certificate in insolvency proceedings against the association, did not prevent him from holding the mortgage as collateral.
    On final hearing on bill, answer and proofs.

      Mr. Frederick F. Guild, pro se.

      Mr. John Whitehead!, for the defendant Jennie E. Baker.
   Pitney, V. C.

The matter in dispute between the parties is the ownership of a bond and mortgage, made in July, 1899, by one Bayne and wife, to the Commercial Building and Loan Association, for $1,000.

The complainant, Guild, claims it by virtue of a vesting order of this court, made in November, 1902, in and by which he was appointed receiver of the said building and loan association, and it was declared insolvent.

The defendant Jennie Baker claims it by virtue of an assignment, accompanied by actual delivery, executed by the corporation to her for a consideration of $1,000, in cash, then presently advanced by her to the corporation.

The facts, more in detail, are as follows:

At and before the 1st of February, 1902, Mrs. Baker and her husband, who reside in New York, were social acquaintances of Mr. Frederick M. Payne and his wife. Mr. Payne was the treasurer of the corporation and his law partner, Mr. Whitehead, was the president thereof. Mrs. Baker was the holder of five shares of the stock of the company. On the evening of one of the last days of January, 1902, Mr. and Mrs. Payne were making a social visit to Mr. and Mrs. Baker, in the course of which Mrs. Baker stated to Mr. Payne that she had $1,000 which she wished to invest on safe security at six per centum interest.

Mr. Payne, knowing that the corporation was pressed for money, suggested to Mrs. Baker that she should invest her $1,000 in full paid stock of the corporation. This she positively declined to do, and her husband joined, with emphasis, in her determination, saying that he had heard that the corporation was not in good standing. Mr. Payne then suggested that he might be able to give her a mortgage, and she handed him the $1,000, upon condition that it should be invested in a mortgage.

Mr. Payne paid the money into the treasury of the corporation, and, at or about the same time, he made a formal application, on a printed blank, to the board of directors for five fully paid Commercial Building and Loan Association shares, of $200 each. The application was signed, in his handwriting, “Jénnie E. Baker by F. M. Payne, her attorney,” and contained a provision that it was on the understanding that, by giving sixty days’ notice, tlie holder of the stock could withdraw the full value of her holdings, with interest at six per centum per annum, and that the stock should bear interest at six per centum per annum, payable semi-annually.

At a meeting of the board of directors, on the 11th of Feb- ' ruary, the pressing need of the corporation for money was under consideration, and the following minute was passed:

“Mr. Payne then informed the board that he had $1,000 that he could put in the association belonging to Mrs. Jennie Baiter, providing the ass’n could assign to Mrs. Baker a mortgage for like amount as col. security, but as some of the board did not think favorable of making any one member a preferred one, the following resolution was passed: Whereas, a certain Jennie Baker has $1,000 and is desirous of investing same in stock of this ass’n, providing she can get an assignment of a mtge of sufficient amount as coltr security, be it resolved that said $1,000 be accepted, issuing a certificate for 5 shares of fully paid stock, also assigning as further col security a certain mortgage given by Arthur Bayne to ass’n, amount of said mtge being $1,000. Without precedent.”

Thereupon, but under date of February 3d, 1902, a certificate, in the ordinary form, that Mrs. Baker was the holder of five shares of $200 each in the association, was executed under the seal of the corporation and the signatures of its officers.

Across the upper part of the face of the certificate were printed the following words:

“The holder of this certificate is entitled to interest on the amount paid, at the rate of sis per cent, per annum, payable semi-annually.
“This certificate may be surrendered by the holder, or called in by the association, at any time after-year from the date hereof, by giving-due notice, when the holder hereof shall receive the full amount paid, together with the interest due and unpaid, to the date of said notice of surrender, under article IX. of the constitution and by-laws.”

The corporation then executed to Mrs. Baker an assignment of the Bayne mortgage as collateral to her stock.

This assignment was never recorded and has been lost, and its precise language cannot be determined, but the distinguishing word seems to have been “collateral.”

The certificate of stock, the bond and mortgage and assignment were forwarded to Mrs. Baker and retained by her without protest.

The corporation, as we have seen, went into the hands of a receiver the following November, and in J'anuar}'-, 1903, the usual order limiting creditors was made.

It trirned out that there were ample assets to pay all the creditors except the stockholders, most, if not all, of whom held certificates of stock of the same character and with the same right of withdrawal as that found in the certificate of Mrs. Baker. It soon appeared that as to these the association was hopelessly insolvent.

In order to facilitate the winding up the receiver prepared a blank affidavit to be made by the stockholders, whose holdings, with the number of the certificate and the number of shares held by each he obtained from the stubs of the certificate book, and to each he mailed a printed notice of the order limiting creditors and a blank affidavit.

This blank affidavit was received by and filled out by Mrs. Baker, duly verified by her on March 24th, and returned to the receiver. In it she swears that she is the owner of five shares of stock, of the value of $200 each, witnessed by the certificate number 210, being the certificate issued as above mentioned.

The fact that the Bayne bond and mortgage, so given to the company, had been assigned and delivered to Mrs. Baker, coming to the knowledge of the receiver, he obtained leave of the court to begin this suit. Since its commencement the mortgagor (Bayne), desiring to discharge his mortgage, was permitted so to do by paying the money to- the receiver, who, by stipulation, holds it subject to the further order of this court.

Counsel for the complainant claims that the result of the whole transaction was that Mrs. Baker became a stockholder in the corporation and entitled to share in the profits of the enterprise, and thereby liable to stand her share of the losses, and that equity will not permit her, as against creditors, to occupy that position and also to receive collateral security, or any security, for the money which she advanced for the stock.

If counsel's premises of the facts are correct, his conclusions thereon are, I think, indisputable.

It was so distinctly held in the ease of Boney v. Williams, 55 N. J. Eq. (10 Dick.) 691, by Vice-Chancellor Grey, and, again, by the same judge, in Reed v. Helois Carbide Specialty Co., 64. N. J. Eq. (19 Dick.) 231.

The same principle was, in substance, held in Black v. Hobart Trust Co., 64. N. J. Eq. (19 Dick.) 415, in which case the decree of this court was affirmed by the court of -errors and appeals for the reasons given by me in this court.

But in each, of those eases the question arose between the mortgagee of tire insolvent corporation, who was also a stockholder, and the general creditors of that corporation.

The question did not, as here, arise, after the payment of the general creditors, upon a division of the assets among the stockholders.

It is earnestly argued by counsel for defendant that the circumstance that in the present case there axe no general creditors remaining unsatisfied distinguishes the present from the decided cases just mentioned.

Before discussing that point, let us consider the question of fact.

In the Black Case I stated that the examination of the cases led to the conclusion that the crucial question in that class of cases was, did the party claiming the benefit of a security occupy the position of a stockholder or that of a creditor?

Let us see what position Mrs. Baker occupies here.

It seems to me that, on the evidence,- Mr. Payne was not authorized by Mrs. Baker to appty for and procure to be issued to her the shares of stock in question. His doing so was entirely without her warrant, and did not, at the start, bind her at all. His authority was confined entirely to loaning her money on bond and mortgage, or other good security, excepting always the stock of his company. If he had contented himself with simply procuring the assignment of the Bayne mortgage to her in exchange for her $1,000, the transaction would have been entirely within his authority. The power of the company to assign the mortgage for cash was indisputable. But he went further, and procured the stock to be issued to her. Just why he did that, and what was his object, the case does not disclose.

Both Mr. and Mrs. Baker admit that she, at once, observed the certificate for stock among the papers, and so were fully aware of what had been done. She had the benefit of the advice of her husband, and, it seems to me, that her acquiescence in the situation was such as to bind her, and, if the certificate of stock was of the ordinary form only, I should say that she had become a stockholder in the ordinary sense.

But the certificate, although in the ordinary form, contained, on its face, in conspicuous print, the words above quoted.

These words were authorized by an article in the constitution and by-laws of the association.

■ Now, upon mature consideration, I come b> the conclusion that the certificate of stock, with those words printed upon it, was, in effect, a promise by the corporation, under its seal, to repay, with interest, the amount paid by Mrs. Baker in accordance with' the terns of the special imprint above mentioned, and that she, upon reading it, had a right so to treat it, and to hold the mortgage as security for what, in effect, was a promise in writing to pay her $1,000, with interest.

This view does no injustice to any other stockholder. The association received cash to the full value of the assets with which it parted. There was no element of an attempt to secure a prior creditor. The association was enabled, by the funds so received, to pay off and satisfy a stockholder who was asserting and threatening to enforce his right of withdrawal under a similar certificate.

I do not think that Mrs. Baker should be prejudiced by the sworn claim which she made upon her stock under the circumstances above stated. The mortgage was assigned to her merely as collateral security. That made it proper, if not necessary, for her to malee a claim on the sealed obligation called the certificate of stock above described.

My conclusion, therefore, is that the money in the hands of the receiver should be paid to Mrs. Baker, but under the peculiar circumstances in the case I think no costs should be awarded to either party.

I shall advise a decree accordingly.


text:
    Michael P. O’Connor v. International Silver Company and the United States Silver Corporation.
    [Decided December 1st, 1904.]
    1. Under P. L. of 1896-p. 290 oh. 185 § 38, declaring that the stock of a corporation belonging to the corporation shall not be .voted on, the officers and directors of a corporation which has acquired some of its own stock by the purchase of all the capital stock of another corporation owning it, are precluded from voting on the shares so acquired at a meeting of the stockholders for the purpose of electing directors.
    2. Where the officers and directors of a corporation which has acquired some of its own stock, by the purchase of all the capital stock of another corporation owning it, attempt to vote on the shares so acquired at a meeting for the purpose of electing directors, a person who owns stock in the corporation, but which stands in the name of his grantor on the books of the corporation, is entitled to sue to prevent the illegal voting of the shares in question.
    3. Where the bill in a suit to prevent the officers and directors of a corporation from voting shares of the corporation’s stock at a meeting of the stockholders for the purpose of electing directors charges that persons own and control enough of the stock of the corporation, which, if used in connection with the shares of its own stock acquired ■ by the corporation’s purchase of all the capital stock of another corporation, would make a majority of the voting strength of its stock, and intend so to do, it is sufficient as against an objection of vagueness, though failing to specify the amount of stock and the names of the persons who own and control it.
    4. Where the bill charged that the officers were drawing excessive salaries, the failure to state their names arid their specific official designations would not affect the sufficiency of the bill as .against an objection of vagueness, no relief being sought on such allegations.
    On demurrer to bill.

      Mr. John W. Griggs, for the demurrant.

      Mr. Charles D. Thompson, in support of the bill.
   Pitney, V. C.

Tlie two important questions raised by the demurrer are the following:

First. Where corporation A has acquired all the capital stock of corporation B, and at the time of such acquisition corporation B owned and held a large number of the shares of the capital stock of corporation A, can the officers and directors of corporation A, at a meeting of the stockholders of that corporation held for the purpose of electing directors, be permitted to vote upon the shares of the stock in corporation A held by corporation B at the time of the acquisition of all its stock by corporation A? '

I think there can be but one answer to this question when we come to consider the actual and substantial situation, stripped of its mere shell of formality.

Our trading corporations and all their assets belong to the actual stockholders and not to the directors. The stockholders or shareholders are the actual and beneficial owners. The artificial entity — the corporation — is a mere shell legalized and adopted for the purpose of securing perpetual succession and ' convenience in the division and transfer of ownership. The corporation affairs, indeed, are managed wholly by the directors, who are chosen by and represent the owners, and derive their power wholly from them. In actual practice these owners are powerless to control and manage their property except through their directors.

In fact, the scheme of corporate management is that of a representative government, in which the representatives are bound to be governed by and represent only the interests of those they represent. Hence any device or practice which in anywise or to any degree diminishes or prevents the exercise of the right of each of the actual owners to have a voice in the election of directors precisely in proportion to the amount of his interest) is vicious and in positive contravention of the fundamental principle upon which our corporations are built up.

Applying these principles to the case put, we find that the actual ownership of all the assets of corporation B passed by the sale of all its stock to the actual shareholders in corporation A. It follows, therefore, that the real owners of the shares of stock of corporation A which previously belonged to corporation B is vested in the stockholders of corporation A, and they alone, in justice and equity, have the right to vote upon them in the election of directors. To permit the officers or directors of corporation A to vote upon them is to permit them to vote upon shares which they do not own. And it matters not that they east such vote in their official capacity as officers or directors.

The actual substance of the affair is not changed by the fact that the nominal ownership of the shares in question remains in corporation B. That corporation can no longer have either individual stockholders or directors, because there are not in existence any persons capable of acting as either.

A corporation is incapable of being a director, and, under our sjrstem, the existence of directors is an essential part of the artificial creature known as a trading corporation.

However, granting that corporation B, is still in existence (■which is not a part of the case stated), and that sufficient of its shares are held nominally by individuals to keep up its organization, still they are mere trustees, and are bound to vote upon its shares according to the direction of their cesluis que irusieni, who are tire shareholders of corporation A, and not its officers or directors.

I am unable to perceive the least difference, in the view of a chancellor who disregards the shell and looks at the substance of things, between the case in hand and that where the shares of stock in a corporation are bought directly by it and assigned to it. As to such shares, the common law, as well as our statute, forbids their being voted upon by the officers or directors.

In Ex parte Holmes, 5 Cow. 426, the right of certain persons who held certain shares of tire stock of a corporation in trust for it to vote upon those shares at the election of directors was brought in question upon a summary proceeding in the New York supreme court to test the validity of an election for' directors, and -was thoroughly argued by distinguished counsel and repudiated by the court. The court says (at p. 434) :

“But the question remains whether the latter are to be deemed stockholders, within the spirit of the act. True, the stock on which they voted, in this case, stands in their name; but on the face of the entry they are declared to be mere nominal holders. The real owner of the stock should vote, especiallj' where his name is truly expressed in the books, though it might be otherwise if he chose to have the entry simply in the name of another, without expressing any trust.

“Now these three persons, a majority of whom claim a right to vote, are mere trustees, and they are trustees not for the directors, but for the company — tire corporation itself. If there could be a vote at all upon such stock, one would suppose that it must be by each stockholder of the company, in proportion to his interest in it.

“This brings us to the important difficulty in the case, which is whether stock thus held can vote at all. And we think it is not to be considered as stock held by anyone for the purpose of being voted upon.”

This doctrine was followed in Ex parte Desdoity, 1 Wend. 98, and by the supreme court of Massachusetts, in American Railway Frog Co. v. Haven, 101 Mass. 398.

Mr. Cook, 1 Cook Stock. (3d ed.) p. 421 § 314, says:

“When a corporation buys shares of its own capital stock the capital stock is not reduced by that amount, nor is the stock merged. So long, however, as the corporation retains the ownership the stock is lifeless, without life or powers. It cannot be voted nor can it draw dividends, even though it" is held in the name of a trustee for the benefit of the corporation.”

And, again (at p. 839 § 613):

“Shares of stock owned by the corporation itself cannot be voted, either directly by the corporate officers or indirectly by a trustee of the corporation. This is the established rule, whether the stock is registered in the name of the corporation or not.
“Where the directors, just before the election, issue or sell stock owned by the corporation, the purpose of such issue or sale being to control the election, the courts will interfere at the instance of other stockholders where an actual fraud is involved.” ■

To the same effect is 1 Thomp. Corp. Off. § 734, where he says that the rule is based upon public policy; and, again (§ 3277), he says that the practice of directors voting upon the stock of the company held by itself is not to be tolerated.

Our legislature, as early as December 8th, 1825, in the third section of the act to prevent fraudulent elections by corporations (2 Harr. Comp. 113), provides:

“that if any incorporated company in this state shall purchase any of the stock of such company or take the same in payment or satisfaction of any debt due to them, such company shall not vote in virtue of their stock so purchased or taken, either directly or indirectly, at any election for directors of said company.”

That section remained unchanged upon our statute book until the recent revision of our corporation statutes, when it was displaced by section 38, which declares that “shares of stock of a corporation belonging- to said corporation shall not be voted on, directly or indirectly.”

That the shares of corporation A owned by it through its ownership of all the shares in corporation B are within the equity of this statute as well as within the mischief which it was intended to prevent, is too plain for argument.

Our own supreme court, in M’Neely v. Woodruff, 13 N. J. Law (1 J. S. Green) 352 (1833), dealt with this question. Judge Eorcl (at p. 360) says: “The next definite charge, that the inspectors admitted illegal votes, contains a specification of fifty votes being allowed to Mr. Woodruff, in virtue of shares belonging to the company and transferred to him, as president, in trust, to sell them for the benefit of the corporation. That these shares were equitably and substantially not his own, but the property of the company, is a fact that can admit of no controversy, and the question arising out of it is, how and in what form the company could have voted on them in case they had not been transferred in trust. Belonging to the company, they belonged to each and every stockholder in proportion to his interest in the capital of the bankf an interest that could be represented only -in fractions. As there are no fractions of a vote, the real owners could not possibly exercise the privilege; nor could it devolve on the directors, because they are not the owners of it; they are no more than trustees, like the president himself. The shares are so circumstanced that the real owners cannot vote, and the necessary consequence is that they can be voted upon by nobody. This principle is virtually established by tire third section of the act of 1825' — that if a company purchase or take stock in payment it shall not vote in virtue thereof at any election of directors. It is necessarily so at the common law, without the aid or corroboration of this statute.

“In Ex parte Holmes, 5 Cow. 435, the point was fully considered and determined that stock belonging to the whole company cannot be voted upon in choosing directors for that company by anybody. This determination is the only one that can rationally be adopted, and it shows that these fifty votes were illegally received."

This doctrine was subsequently recognized by the supreme court In the matter of the election of the St. Lawrence Steamboat Co., 44 N. J. Law (15 Vr.) 529 (at p. 539).

The law, as found in our statute and illustrated by these judicial decisions, is so well settled that I should not have thought it worth while to spend any time upon it but for the very earnest and apparently sincere insistment to the contrary of the counsel for the defendant.

Second. The next question raised by the demurrer is this: Can the owner of shares of stock in corporation A,.which he has held for several years, and who is entitled, without question, at any moment, except when the books of transfer are closed preparatory to an election or a dividend, to have a certificate issued to him, but has never exercised that right, and whose shares stand on the books of the company in the name of his grantor, who, however, has no interest therein, have a standing in this court to ask the court to prevent corporation A, by its officers, from voting upon the shares in question?

It may be admitted that the stockholder has not the right to vote in person on his shares. He may be content to permit his assignor to vote thereon because that assignor is willing to vote as he, the actual owner, directs, or, what is perhaps the more common practice, to give 'Mm a proxy to vote in Ms name, but such disability, if it be a disability, is tbe only one under which the actual owner labors. Should any dividend be declared his assignor will-receive it for the actual owner’s benefit, and I think there can be no doubt that the latter has the right in equity to intercept its payment by the corporation to his assignor. Except in these matters his title is absolute and complete.

I am able to perceive little, if anjq resemblance in the relations between the registered owner and the real owner of shares of stock and those which exist between the ordinary trustee of an express trust and his cestui gue trust. In the latter case the trustee is the actual legal owner and the cestui gue trust the owner only in equity. In the case of a transfer of a certificate of shares of stock by.an assignment in the usual form for value received and a delivery of the certificate, which is the usual mode of making title to shares of stock, the -complete legal and beneficial title passes, and the transfer on the books of the company is not necessary in order to make the legal title complete. The situation resulting from such an assignment, without transfer on the books of the company more nearly resembles that of the owner by actual common law conveyance in fee of real estate which he has not taken the trouble to have recorded.

The status of the holder by legal assignment of a certificate of stock which has not been transferred on the books of the company is in some respects better than that, of a real estate owner whose deed is unrecorded, because, in the absence of actual notice, the grantor of such a deed may make a good title to a purchaser in good faith for value. .

This subject was exhaustively dealt with by Chancellor Green, in Bank v. McElrath, 13 N. J. Eq. (2 Beas.) 24. He there gave the holder by assignment of certificates of stock who held them as collateral security for a debt, with the usual transfer in blank from the owner, to whom they were issued and in whose name they stood on the books of the bank, preference over an attaching creditor of the registered owner.. He points out the true office of the rule that the transfer must appear on the books of the hank to be to protect the corporation from conflicting claims and to prevent disputes as to the right to vote and the like.

I am unable to perceive why a clear title to the shares of stock, with the immediate right to have the stock transferred on the books of the company, does not give the owner a right to the ear of this court to protect his interest in the corporation and its management.

Of course, the holder of shares of stock, whether standing in his name or not, may in a proper case be subject to estoppel by reason of something done or omitted to be done by himself or his predecessor in title, and it ma} well be that the case he presents to the court in asking its aid should show affirmatively that his shares are not burdened by any such estoppel. But such estoppel arises, if at all, quite independent of tire status of the owner upon the books of the corporation.

Such a case was Trimble v. Sugar Company, 61 N. J. Eq. (16 Dick.) 340, where Trimble was the registered holder of the shares on which he based his rights.

Such was clearly the ground of decision in Hodge v. Steel Corporation, 64 N. J. Eq. (19 Dick.) 90, and, on appeal, 64 N. J. Eq. (19 Dick.) 807. In that case there were three complainants — Hodge, Smith and Curtis. The case was .heard on an application for an injunction and upon affidavits on both sides. The object was to enjoin a certain proposed action of the defendant corporation which required tire sanction of a majority of the stockholders. It appeared affirmatively that Hodge was. the registered owner of certain shares of stock which had not given any consent to or sanction of the proposed action. Hence his standing was upheld both in this court and on appeal. Smith held stock whose predecessor in title had expressly assented to the proposed action.

This was held a complete answer as to him. As to Curtis, the learned vice-chancellor saj^s: “Complainant Curtis, at the time of the bill, was not, nor has he ever been, the owner of record of any shares, nor is there any affidavit of ownership of shares made by him. In the absence of such affidavit showing Ms ownership and the certificate or certificates of shares which he holds, it cannot be known whether or not the previous holders of his shares, or any of them, have assented to the plan.

“If such previous holders of either the Smith or Curtis shares have assented, then neither Smith nor Curtis is entitled to a preliminary injunction against the execution of the plan assented to, so far as their rights rest on the ownership of these shares.

“My opinion,is that a suit of the present character must be based upon an ownership of record at the time of filing the bill, and that the ownership of shares standing in the name of another will not be sufficient to maintain the suit. The suit, it will be observed, is not one which is brought against a third person to assert tire general right of a holder of stock considered as property where ownership of shares transferred in blank and not actually transferred on the books might be sufficient evidence of ownership of the stock, but it is a suit brought by a complainant solely in the character of a stockholder, against the company itself and its directors, to restrain the violation of his rights as a stockholder, and to restrain proceedings alleged to be ultra vires and fraudulent against the company. This can be done only by a stockholder who holds a complete title as stockholder under tire by-laws of the company, or who, being the owner of the stock, has done everything within his power to complete the title.”

I respectfully suggest that the last sentence -was unnecessary for the determination of the question before him unless it is to be read, as I believe it is, as referring to what he had previously said. That declaration of the law is relied upon here by the demurrants. When the Hodge Case was determined on appeal, 64 N. J. Eq. (19 Dick.) 807, the court said, “Curtis, .so far as he appears, owns no stock,” and that is all tire court said. When we consider that there was no affidavit of Curtis that he owned any stock and no admission of such ownership by demurrer, we can see that this language of the court signifies nothing for present purposes.

Before looking farther into the authorities, let us ascertain just where complainant stands as to his ownership of stock. His allegation admitted by the demurrer is as follows:

“Your orator further shows that he is the owner of four hundred (400) shares of the common stock of the International Silver Company; that he acquired three hundred (300) shares of said stock on May nineteenth, nineteen hundred and two, and the other one hundred (100) shares on July thirtieth, nineteen hundred and two; that while said stock stands on the books of the company in the name of Alfred S. Hart, it is only nominal in him', and belongs to, and is owned by, your said orator.”

As to tlie 'merits of tire bill, it alleges that the International (the holding company) was organized in 1898, and absorbed sixteen other corporations engaged in the manufacture of silver and plated ware; that in the fall of 1902 — after the purchase of his stock — the United States Silver Corporation, the other defendant, was formed, and soon became the owner of a large number (enumerating them) of the shares of the International company, sufficient, with that owned by certain persons interested in the management of the International, to control its management; that subsequently the management of the International secured for that company all the shares of the United States corporation, and thereby all its property, including the shares it held in the International; that for the purpose of acquiring all the stock of the United States, including the shares held by the latter in the former, the International issued and put upon the market two million of its bonds and a million and a half of its preferred stock, and that at the next meeting of the stockholders of the International for the election of directors, the management of the International proposes to vote on its own shares so acquired and held.

This statement shows that this case is in its facts quite different from the case of Trimble v. Sugar Company and Hodge v. Steel Company.

In Trimble v. Sugar Company, the prayer of the bill was to enjoin a particular business enterprise in which the sugar company had been engaged for a considerable period of time, with the knowledge of its stockholders. So with the Hodge Case. That is also quite different from the present ease.

I can find no room in the case made by this bill, which, of course, is admitted by the demurrer, to suppose that the complainant or Mr. Hart, his predecessor in title, has ever done anything, or failed to do anything, whereby the management of the International company has been induced to believe he would not object to the voting on the shares of that company. It is impossible to presume, in the present case, as I did in the Trimble v. Sugar Company Case, that any sanction has been given to the proposed action which would give the least ground for an estoppel.

Let us now look at the authorities. Bagshaw v. Railway Company, 7 Hare 114, before Vice-Chancellor Wigram, Avas a suit by scrip certificate holders of the defendant company to- prevent a diversion of the funds of the company to the furtherance of an enterprise claimed to be ultra vires. The scrip Avas issued to the subscribers to the stock, which was payable in installments, and, as I infer, was issued before all the. installments had been fully paid and was entitled, after all payments were made, to an issue of regular certificates of stock. These scrip certificates Avere registered, were assignable and capable of transfer on the books. A scrip certificate holder, therefore, stood in precisely the same situation as the holder of a certificate of stock. Soane of complainants Avere holders of certificates by assignment which had not bean registered.

The headnote in point here is as follows: “The proprietor of a scrip certificate, whether registered or not (such proprietor not being in default) may sue on behalf of himself and all other proprietors of like certificates, and of the stock which they represent, or into which they are convertible^ where the proprietors of certificates and stock are very numerous; there beiaig no incompatibility in the interest of the registered and unregistered proprietors to preclude the plaintiff from representing both classes of persons.” At p. 130, Vice-Chancellor Wigram expressed himself as follows :

“It was not, I think, argued by the defendants that the proprietors and holders of scrip certificates in the perpetual stock had not such an interest iar the application of the capital of the coanpany as was necessary to eaiable them to maintain a bill, properly framed, to preveaat a misapplication of the capital of the company. It clearly could not be so argued, for there Avas an inchoate right in such parties to become general shareholders in the company. Nor was it argued that proprietors of registered certificates had not a similar interest; but it was said that the interest of the proprietors and holders of scrip certificates, and the interest of the proprietors of registered certificates conflicted with each other, and that as- the plaintiff must sue on behalf of both classes the bill could not be sustained. I cannot take that view of the case. The holder of the scrip has an inchoate right to become a registered holder of the perpetual stock, and it is the interest of both classes in that stock which entitles him to sue, and if the scripholder has performed his conditions up to the time of filing the bill there is no such conflict as the argument suggests.”

This ruling was followed in Parrott v. Byers, 40 Cal. 614, a well-considered case, and also in Ervin v. Oregon Railway Co., 62 How. Pr. 490, where the court uses this language: “That the stock of the plaintiff has not been registered is no reason why he should not maintain this action. He is the legal and equitable owner of this stock. The possession by him of the certificate, as owner, gives him a complete title. For certain purposes and for the enjoyment of specific privileges, such as to vote and- receive dividends, it may be necessary, as between him and the corporation, that he be registered as a stockholder. But as the absolute owner of the stock he is, to the exclusion of every other person, entitled to prosecute an action for injury to it or to himself as the proprietor thereof.”

The contrary holding of the circuit court of the United States, reported in Brown v. Railway Company, 53 Fed. Rep. 889, seems to me not to be founded on sound reasoning.

These two principal grounds of demurrer are not, in my judgment, well taken.

Another ground of demurrer is based on the vagueness and indefiniteness of the charges of misconduct found in the ’'bill.

It was argued by counsel for the complainant that the bill will stand, even if these charges are eliminated, upon the bare allegation of intention of the defendant’s officers to vote upon its own shares.

I think the point is well taken. Reading v. Stover, 32 N. J. Eg. (5 Stew.) 326.

But, nevertheless, I will consider these charges. After stating the organization of the two corporations, the acquisition by the younger (United States) company of a large amount, stating it, of the older (International) company’s stock, the bill proceeds :

“That the persons who owned and controlled and acted with said United States Silver Corporation hold a sufficient amount of the preferred stock of the International Silver Company to make, with the aforesaid stock, a majority of the voting strength of the stock of the International Silver Company; that the persons then in control of the International Silver Company represented chiefly the preferred stock of said company [which by previous statements in the bill had a double voting capacity] and had been in control of said company since its formation, and your orator is informed and believes that the officers draw large salaries, the salaries of six of the directors now aggregating nearly sixty-five thousand dollars ($65,000) per year, and your orator charges the truth to be that said salaries .are excessive and that the services rendered to the said International Silver Company by many of its salaried officers are largely nominal.
“Your orator charges the fact to be that the management of said International Silver Company hitherto has not been sufficiently successful to pay the dividends upon its preferred stock, and said dividends are cumulative, and said dividends were in arrears and unpaid to the amount of about one million dollars ($1,000,000), and scrip has been issued to the preferred stockholders representing such dividends.”

The question is, are these allegations sufficiently explicit? The vagueness and indefiniteness is argued to be found in the failure to specify the names of the persons who own and control, &e., enough stock in connection with that owned by the United States, &c., and in not stating the amount so held.

I think such particularity is not required in the pleading when we consider its object and what is common knowledge as to the practice of forming pools of stock to control corporate management. It is enough to state that a majority of the stock of the International, including that held by itself, sufficient to control the company, is held by a combination. Besides, this allegation is supplemented by the statement further on that the officers of the International company had purchased for that company all the stock of the United States company, and thereby the control of the United States company had passed to the officers and directors of that company, if the stock in question had voting power, and would and could be used to perpetuate their control. It thus appears that tire statement of the names of the persons referred to in the first part of the paragraph was wholly immaterial.

So with the designation “officers,” in connection with the charge of excessive salaries, clearly it was not necessary to state the names and specific official designation of these persons. That is within the knowledge of tire defendant.

The object of these allegations is to show the danger to the stockholders at large of allowing the officers and directors of the corporation to vote on the shares of stock owned by it.

No relief is sought upon these allegations. The object of the bill is to prevent the voting on the shares held by the company. For that purpose, at least, they are abundantly sufficient.

A case illustrative of the rules of this court, as applied to language such as is the subject of this part of the demurrer, is Mutual Life Insurance Co. v. Sturges, 32 N. J. Eq. (5 Stew.) 678. Vice-Chancellor Van Fleet (at p. 681, bottom, and p. 682, top) applies the strict rule invoked by the defendant here in the very matter of the names and descriptions of persons, and held that the allegations in that behalf were so indefinite that a decree pro confesso based upon them possessed no value as against the defendants, who, though notified, failed to answer. This was tantamount to considering them as on demurrer.

But his view was not adopted by the court of appeals. Justice Depue, speaking for that court, 33 N. J. Eq. (6 Stew.) 328 (at p. 337), discusses the question, and says: “I think, even on demurrer, a court would hesitate to adjudge this complaint bad for uncertainty.”

I will advise that the demurrer be overruled, upon the usual terms of answering within thirty days, upon payment of costs.


text:
    Alfred W. Law, executor, v. Catharine J. Smith.
    [Decided December 1st, 1904.]
    1. A court of equity has jurisdiction to enforce .a contract for the sale of a bond and mortgage, on bill filed by the holder.
    2. Complainant advanced money to a corporation and received a mortgage therefor. Defendant executed an agreement to complainant, stipulating that she would purchase the mortgage at its maturity, provided complainant would then tender an assignment thereof to defendant, or notify defendant of the desire to assign; and the agreement closed with the recital that, for the purpose of inducing complainant to loan the money and take this guarantee, defendant stated that she was worth $10,000 in real estate. — Held, on defendant’s failure to purchase, that if defendant be regarded as surety it was not necessary that complainant first resort to the mortgage, but he might maintain a bill for specific enforcement of the contract of sale of the mortgage.
    3. The transactions were in New York, and the property was located there, and defendant’s contract was to be delivered there, and was not enforceable until delivered. — Held, that though defendant, a married woman, resided in New Jersey, it was a New York contract and subject to the New York statute permitting married women to, contract as though single, and making her separate estate liable for such contracts.
    4. Such contract by a married woman, being valid in New York, where made, a court of chancery of New Jersey will not refuse to enforce it.
    5. As complainant’s right to payment became vested on the day the contract matured, and she frequently made demand, and there was no change in the character or quality of the subject-matter, her suit for performance was not barred by nearly four years’ delay.
    On bill for specific performance. Final hearing on bill, answer and proofs.

      Mr. Charles L. Carrick, for the complainant.

      Mr. Robert S. Hudspeth, for the defendant.
   Pitney, V. C.

This is a suit for specific performance. It is brought by the complainant, Alfred W. Law, as executor of his deceased wife, Alice M. Law, against Catharine J. Smith, the wife of William E. Smith.

The subject-matter of the suit is a bond and mortgage for $5,000 given by the New York Milk Products Company, a New York corporation, to the testatrix, dated November 18th, 1896, payable in three years, and covering several separate pieces of property in the western part of the State of New York.

The defendant’s husband was the president of the corporation mortgagor.

At the time of the delivery of the mortgage the defendant entered into a written contract with the testatrix, as follows:

“For and in consideration of the loaning of the sum of five thousand dollars ($5,000) by Alice M. Law to the New York Milk Products Company, I hereby agree to and with the said Alice M. Law that I will purchase the bond and mortgage bearing date the ISth day of November, 1896, given by the New York Milk Products Company to the said Alice M. Law to secure the payment of said sum of five thousand dollars ($5,000) on the 18th day of November, 1899, at its maturity, provided the said Alice M. Law shall at that time tender to me or my legal representatives an assignment of said bond and mortgage, or notify me in writing by mail that she is ready and desirous to assign the said mortgage to me, and for the purpose of inducing her to loan said money and take this guarantee I hereby state that I am worth ten thousand dollars ($10,000) at the present time, consisting of real estate in the county of Middlesex, State of New Jersey.
“Cati-iakine J. Smith.”

A reasonable time before the maturity of the mortgage and contract the defendant was duly notified that the money would be required at the time named. In anticipation of the fulfillment of the contract by the defendant a duly and properly executed assignment of the mortgage from the testatrix to the defendant was executed by the testatrix and placed in the hands of her counsel, Mr. Parmly, and he had it at his office ready for delivery, and the defendant was duly notified thereof by registered letter, the receipt whereof she acknowledged on the stand.

Complainant lived in New York City; the mortgagor was a New York corporation; the money was -loaned in New York City, and the transaction was emphatically a New York transaction.

The defendant’s residence was at South Plainfield, New J ersey.

Several defences were set up.

First, that this court has no jurisdiction, or, at least, ought not to exercise it in this case, for the reason that he has a complete and adequate remedy at law.

This defence is presented in two aspects.

First, that the court ought not, except in very exceptional cases, take cognizance of a suit for the specific performance of a contract for the purchase and sale of personal property.

The jurisdiction of the court to enforce a contract for the purchase or sale of personal property is too well settled to be doubted. The question, from the point of view of judicial authority, was dealt with exhaustively by Chancellor Runyon in Cutting v. Dana, 25 N. J. Eq. (10 C. E. Gr.) 265. That was a bill filed by a purchaser against the seller of choses in action, consisting of liquidated claims, against an insolvent debtor.

The contract was enforced after an elaborate examination of the ancient authorities. The principal difference between that case and this is in the attitude of the parties. This is a suit by seller against purchaser.

Cutting v. Dana was followed by me in Rothholz v. Schwartz, 46 N. J. Eq. (1 Dick.) 477, and, again, in Duffy v. Kelly, 55 N. J. Eq. (10 Dick.), 627. I refer, without repeating, to the authorities cited by me in 46 N. J. Eq. (1 Dick.), at p. 481.

Gannon v. Toole, 32 Atl. Rep. 702, was a case like this, of vendor against vendee, as was also Rothholz v. Schwartz, supra.

The other branch of this defence is that the proper remedy is at law, either — first, in the shape of a suit for the whole purchase-money; or second, a suit to recover the amount, if anything, which may remain due after the complainant has exhausted his remedy on the mortgage by foreclosure.

The remedy by a suit at law to recover the whole purchase-money based on a contract and a tender of a conveyance, is the old answer set up to any suit for specific performance in equity by vendor against vendee. It has long since been abandoned.

The difficulties in the way of using it are manifest. The vendor plaintiff at law ought not to be compelled to part with his title until he has received the purchase-price. If he obtain a judgment for the whole price, he ought not to be permitted to collect the money from the defendant by execution thereon until the title is vested in the other. Here comes in the convenience, if not the necessity, for the machinery of this court. The parties meet in a master’s office and the decree is performed under his supervision.

Then with regard to the other suggestion, viz., that the remedy on the mortgage should be first exhausted by foreclosure, is based on the notion that the defendant stands in the position of a surety for the corporation debtor, and that it is the duty of complainant to exhaust his remedy against the debtor before proceeding against the surety. I do not understand such to be the law of the land. It was said by Chancellor Green, in the brief but comprehensive statement of the law on this subject, found in his opinion in Irick v. Black, 17 N. J. Eq. (2 C. E. Gr.) 189 (at p. 195), that the surety “may in special cases compel the creditor to resort to securities in his hands before coming upon the surety.

“And, although the creditor will not, as a matter of course, be restrained from enforcing his rights, against the surety till his remedies against the principal are exhausted, yet when the creditor is fully indemnified, where he is subjected lo no delay and exposed to no risk of loss, he will be compelled to resort, first, to the property of the principal in satisfaction of his claim. If the court is asked to interfere on behalf of the surety before judgment is recovered against him, he must present some special ground of equitable relief.”

This doctrine is reiterated by the late Justice Depue, in the case of Philadelphia and Reading Railroad Co. v. Little, 41 N. N. J. Eq. (14 Stew.) 519 (at p. 529). But those are mere dicta and statements of a general principle that in all cases the court will examine, consider and weigh all the equitable influences which ought to operate on its mind.

The general rule, undoubtedly, is that the creditor may resort, in the first instance, to the surety, if there be nothing inequitable in his so doing. It is the duty of the surety, in ordinary cases, to pay the debt and himself proceed against the principal debtor. Upon such payment he is entitled, independent of any special contract, to the benefit of any collaterals which the creditor may hold.

In this case it seems to be quite manifest, from all the circumstances and the language and frame of the contract, that the parties contemplated a payment, in the first instance, of the whole money by the defendant, and that they did not contemplate the resort, in the first instance, to the enforcement of the mortgage. The very form of the contract itself, viz., an agreement to purchase the mortgage, seems to prove this most conclusively.

I am by no means sure that the enforcement of the mortgage would not be a waiver of all rights against the defendant under the contract.

For I am not able to see how the complainant could assign and transfer to the defendant a mortgage which had been extinguished, so to speak, by foreclosure; or, in other words, how the assignment of the mortgage, which had been in a sense extinguished by foreclosure, would be such a fulfillment by complainant of the contract on his part as would entitle him to recover against the defendant.

Besides, I think the point is well taken by complainant’s counsel that it would be manifestly unfair to compel complainant to incur the expense and trouble of a foreclosure and the risk of bidding upon property, the value of which is uncertain, and then, in order to protect himself, be obliged to choose between the security of the property and the security of the defendant’s obligation.

On this part of the case I think complainant is entitled to the aid of this court".

Several other objections are made, among them want of consideration and want of mutuality.

I can see no substance in either of them. A full consideration moved from complainant’s testatrix, not, indeed, to the defendant, bnt that is unnecessary. The money was advanced to a third party on the strength — first, of the mortgage, and second, of the defendant’s agreement to purchase at maturity.

That makes the contract binding on the defendant, and when the mortgage shall be assigned to her she will receive full consideration. All hardship is removed by the evidence of her husband that the mortgaged property is ample to pay the debt.

With regard to want of mutuality, the offer of the complainnant, at the time named, to make the assignment, removed that objection, if it ever existed. But, in my judgment, it never did exist.

The case is far outside of that very narrow class of mere options which the courts have held to be unenforceable for want of mutuality. Wherever anything passes from the one party to the other, or to that other’s nominee, at the time of the contract which forms a consideration for it, the element of mutuality exists, and the contract ceases to be classed as unilateral.

One other matter is set up> in defence which I will notice here. It is said, and proof tending to support the allegation is offered, that the corporation gave to the complainant’s testatrix, as further security for the payment of tire money loaned, a chattel mortgage on certain chattels found on the mortgaged premises, and that the testatrix failed to file said chattel mortgage, so that it became void, arid the defendant has lost the benefit of it. It was claimed by counsel for complainant that such was not the effect of the statute of New York, and that the chattel mortgage became void as against creditors only, and no proof was offered that any creditors had intervened.

No proof was offered as to the laws of New York on this subject and the parties, at the close of the case, entered into this stipulation:

“It is further agreed that the defendant may present the record of certain chattel mortgages or mortgage in New York State by the Milk Company to Mrs. Law as additional security for the debt stated in the pleadings, and certified copy- of the mortgage may be offered in evidence hereafter; also a reference to the statute of New York governing chattel mortgages, and the decisions of the courts of that state on the subject, it will be used by the court to ascertain what the law of the State of New York is on that subject.”

Nothing has been done by defendant under this stipulation, and the case stands as it was left at the hearing.

Against the position of the defendant, however, the complainant cites the case of Stephens v. Meriden Britannia Co., 160 N. Y. 178, the first headnote of which is as follows: “While a chattel mortgage, which was neither filed, as required by law, nor accompanied by an immediate delivery, followed by an actual and continued change of possession of the property mortgaged, is void as against judgment creditors of the mortgagor, it is good as between the parties thereto and as against creditors at large.”

Complainant also' cites the case of Sheldon v. Wickham, 161 N. Y. 500, the headnote of which is as follows: “An assignee for the benefit of creditors cannot, in an action to foreclose a mortgage, covering both real and personal property, executed by the assignor prior to the assignment, when there is no claim of fraud in the'transaction, avail himself of the defence that the mortgage is void as to the personal property because not filed as a mortgage of chattels, as an unfiled chattel mortgage cannot be treated as a transfer of property in fraud of the rights of creditors, and therefore does not fall within chapter 314 of the laws of 1858, permitting assignees to disaffirm and treat as void transfers in ‘fraud’ of the rights of creditors, without having such claims established by a judgment.”

As before remarked, there is no allegation or proof in this case that any creditor has actually attacked or is in a position to attack the chattel mortgage in this case. So far as appears it was, at the maturity of the principal mortgage, and still is, a valid instrument. It is not even necessary to consider what would have been the result if it were valid on November 18th, 1899, and had become invalid since, nor what is the effect of the non-action of the complainant’s testatrix, being the result of the request of defendant’s husband not to file it, or of its being an additional security not within the scope of the contract here in question.

One other matter may be noted before coming to the real defence.

It is said that the contract was entered into for a mere temporary purpose, viz., to guarantee complainant’s testatrix against certain apparent but removable objections to the title of the premises proposed to be mortgaged, and those objections to the title were afterwards fully removed. Some parol evidence was offered, subject to objection, in support of that theory.

I think the evidence fails to support it. Moreover, it is clearly entirely inconsistent with the verbiage of the contract itself and with the actual circumstances of the case.

The application for the loan of $5,000 was made by the treasurer of the corporation, a Mr. Eear, a personal friend of the complainant, and who had his confidence. After the verbal contract to make the loan had been made, or was expected to be made, and while the title was being searched and freed from apparent defects, the corporation being pressed for money, Mr. Fear induced complainant’s testatrix to make some temporary advances upon his promise to take care of the testatrix, so that in fact about $2,500 was advanced before the mortgage and contract were executed, and so the defendant contends that the whole $5,000 was not advanced on the strength of this mortgage and contract. But the evidence makes it quite clear that there is nothing in this contention.

Until the mortgage was executed and delivered the $2,500 previously advanced assumed the shape of a loan, payable on demand, and tire accepting for it of. a mortgage payable in three years changed its character and 'postponed its payment accordingly. As temporary security the corporation, under date of September 16th, 1896, adopted the following resolution:

“Whereas, Mr. Law has advanced to this' company two sums of five hundred dollars each, making together one thousand dollars, in anticipation of the pending negotiations for the loan to the company of five thousand dollars, which is still under legal examination as to titles, &c., and it is hereby resolved that in case the loan on bond and mortgage should not go through, or fail to be accepted, that the company hereby agree and resolve to protect Mr. Law in the matter of his advance of one thousand dollars to the extent of making him a first and preferred creditor for that amount in case of any trouble arising.”

The other $1,500, making up the sum of $2,500 advanced before the date of the mortgage, was undoubtedly advanced under the same understanding.

The result is that in law the case stands precisely as if, the $2,500 advanced prior to the execution of the mortgage had been in fact advanced at the date of that instrument.

The remaining $2,500 was paid after the delivery and recording- of the mortgage — $2,000 shortly afterwards and $500 three or four months after.

This brings up the principal defence, viz., that the contract on the part of the defendant, who was a married woman, residing in New Jersey, was in substance and effect a contract of suretyship, and therefore forbidden by our statute.

But it was also clearly a New York transaction, from start to finish. The testatrix was a resident of New York City, the subject-matter — the bond and mortgage — was made by a corporation of the State of New York, executed in the city of New York, and covered property situate in that state. The consideration, $5,000, was all paid in the State of New York. The contract here to be enforced was delivered in the State of New York, and -had no binding force or effect until it was so delivered.

Under these circumstances complainant contends that the law of New York State is clear that a married woman, resident of the State of New York, would have been^ liable under the statute there in force, which, by stipulation between the parties, the court was to be permitted to examine. This I have done. The statute is as follows:

“A married woman may contract with her husband, or any other person, to the same extent, with the like effect and in the same form as if unmarried, and she and her separate estate shall be liable thereon, whether such contract relates to her separate business or estate, or otherwise, and in no case shall a charge upon her separate estate be necessary.”

The only question, then, is whether this court ought to enforce the contract against the defendant.

On this crucial question the complainant relies upon the case of Thompson v. Taylor, in the court of errors and appeals, 66 N. J. Law (37 Vr.) 253.

That was an action at law, brought against a married woman, founded on a promissory note made by her, a resident of New Jersey, to her husband, and by him endorsed and negotiated in the State of New York, and, after full consideration of the question in all its bearings, the court held the married woman liable.

I need not refer to the reasoning of the court. The result binds me, and in principle goes further than is necessary in order to bind the defendant in this cause.

There the defendant’s liability rested solely upon the mercantile law, viz., the negotiable character of the instrument. There was nothing to show that she had previously received, or ever would receive, any benefit from the transaction.

In the present case the element of suretyship is modified, if not overcome and eliminated, by the fact that the defendant will receive for her money an equivalent, viz., a bond and mortgage, which her husband swears is perfectly good and the property covered by the mortgage ample to satisfy it.

This meets the only other point made by the defendant, viz., that this is a hard bargain, and one which the court, in the exercise of its discretion, ought not to enforce.

It is undoubtedly true' that the granting of specific performance' is a matter of discretion, but it must be observed that it is a judicial discretion, the character of which I attempted to explain and describe in the case of Hennessy v. Carmony, 50 N. J. Eq. (5 Dick.) 616 (at p. 625), in which I ventured to say that by judicial discretion was meant “that the judge must be discreet, and must act with discretion and discriminate and take into consideration and give weiglit to each circumstance in the case in accordance with its actual value in a court of equity.”

This judicial discretion is clearly distinguished from the personal discretion of the individual.

Applying that test here and taking into consideration all matters that should have weight in determining the question, I think the balance- of equity is decidedly in favor of the complainant, and that there is no such hardship to result from enforcing the complainant’s clear right as should induce this court to stay its hand.

In arriving at this conclusion I have not overlooked an element mentioned, but not seriously pressed, in the able and comprehensive argument of defendant’s counsel, viz., the delay for nearly four years in the filing of this bill.

The right to the payment of the $5,000 matured on November 18th, 1889, and this bill was filed in July, 1903.

The distinguishing features of this case are these — first, that the vendor’s right to the payment of the purchase-price became vested on the day of the maturity of the contract, and the defendant has ever since been in default; second, that the subject-matter of the contract remains unchanged in character and quality, and, so far as appears, in value.

Hence the defendant has lost nothing by the delay. But if she had, I am unwilling to admit that it would avail her as a defence here, since it seems to me the duty was cast upon her to look after the security after her liability became fixed in law and equity to pay the purchase-price.

It will be seen at once that this case lacks those elements sometimes present in cases where the action is by vendee against vendor and the value of the subject-matter is fluctuating, and which have heretofore induced the courts to refuse relief where there has been unreasonable delay.

An examination of the authorities cited in support of the text in Pom. Spec. Perf. § 403 et seep, shows that Lord Eldon’s famous words, “ready, desirous, prompt and eager,” do not apply to this case.

The complainant in this case has always been ready and desirous to receive the amount due. Frequent demands have been made upon the mortgagor, whose president is the husband of defendant. The commencement of a suit was not necessary, as it sometimes is, in order to perfect complainant’s rights.

I will therefore advise a decree that the defendant repay to the complainant the amount due on the mortgage, with costs, and that the complainant have execution therefor, according to the practice of the court, and that upon payment of the amount so decreed the complainant shall assign the mortgage in question, also the chattel mortgage, to the def endant.

If the defendant shall so desire, I will listen to a motion to stay the execution while proceedings may be had to enforce all the mortgages, both the real estate and chattel, in the ordinary way in the courts of New York, and credit the amount received therefrom upon the decree.

The precise terms of the decree may be settled by me upon notice. If the parties cannot agree upon the amount due, there must, of course, be a reference.