text:
    The United New Jersey Railroad and Canal Company et al. v. Francis Lewis et al.
    [Decided November 10th, 1904.]
    A city and a railroad company entered into a contract, under which the company was authorized to elevate its tracks and make changes in the grades of certain streets, the damages resulting from such changes to be paid by the city. — Held, that a suit at law against the railroad company, by an owner of land abutting on the street, the grade of which had been changed, for damages resulting from such change, where the act complained of was done by the railroad company without an ordinance permitting such change of grade, will not be restrained merely because the city had contracted to assume all liability for damages resulting from the changing of the grades of streets. '
    On demurrer to bill.

      Mr. George T. Parrot and Mr. Joseph Cross, for the defendants.

      Mr. Alan H. Strong, for the complainants.
   Bergen, V. C.

'The defendants Lewis and his wife, Elizabeth, being the owners of a tract of land on Mary street, in the city of Elizabeth, have instituted a suit in the supreme court of this state against the complainants to recover damages which they have suffered through the unlawful acts of the complainants in changing the grade of Mary street along their property.

The bill of complaint in this cause prays that Lewis and his wife be enjoined from the further prosecution of their suit, and that it may be decreed that the changes in the grade of the street were lawfully made, and that the city of Elizabeth, one of the defendants, may be compelled to pass a proper ordinance validating and confirming such changes in grade; that it may also be decreed that the complainants are not liable to the landowners for any damages they may have suffered by reason of the alteration of the grade of the street, and if they are entitled to any, that the city of Elizabeth, be decreed to make satisfaction therefor.

To this bill tire defendants Lewis and wife have interposed a demurrer, upon which argument was had, and the sufficiency of which we are now called upon to determine.

Tire facts stated in the bill of complaint, which must be taken to be true where properly poleaded, in disposing of this demurrer, are as follows: that for the purpose of elevating their tracks through the city of Elizabeth, an agreement was entered into on December 24th, 1890, between the complainants and said city, by tire terms of which the complainants were authorized to elevate their tracks and make changes in the grades, lines and location of certain streets in the city, the contract establishing tire character of the change to be made in each instance, Mary street being one of the streets provided for in this contract; that the contract contained the following covenant: “(33) The said city hereby assumes all legal liability, if any, for damages for changes of street grades and vacations of streets, as provided in this agreement.” It was further stipulated that each party to the contract should forthwith proceed to poerform any of the acts therein required to be done by each party, respectively, and upon refusal or neglect to do any act or take any proceeding therein required of either party to accomplish the object contemplated by the contract, appropriate action to compel specific performance might be taken by either party, in addition to the enforcement of any legal claim for damages. That the complainants carried out the contract in good faith, making all the changes required by the contract at their own expense; that no complaint was made by the defendants while the work was going on, nor did they question the legality of the' acts of the complainants in changing the grade of Mary street; that the complainants depressed Mary street and completed the work in good faith and in entire reliance upon the assumption by the city of all legal liability for damages for changes of street grades, and in the belief that the city would observe all formalities and pass all ordinances to legalize the said changes; that after suit was brought by the defendants to recover the damages they had suffered by reason of the change of grade, the complainants notified the city of Elizabeth of the pendency thereof, and requested the city to assist in the defence of said action; that upon receipt of such notice, the city of Elizabeth notified the complainants that it would disclaim all liability for any damages recovered in that suit; that no ordinance was ever passed by the city of Elizabeth authorizing the depression of Mary street, and that, without such ordinance, the complainants, in changing the grade of Mary street, were trespassers on the Lewis property and liable in an action at law for the damages they had sustained thereby; that it was within the power of the city, by passing a proper ordinance, to have made the change of grade legal, thereby prcn tecting the complainants from all liability in making such change of grade, as they did the same as agents of the city.

Upon the foregoing statements the complainants insist that, while .under the law the acts which they committed amounted to a trespass, which they cannot justify in a court of law, because they changed the grade and depressed the surface of Mary street, in the absence of any ordinance or effective municipal action in the premises, they are entitled to equitable relief, because, by the terms of their contract with the city, that municipality was bound to pass a proper ordinance under which they could justify at law, and haring contracted to, do> so, ought now to be required to specifically perform its contract and take the required steps to effectuate it. They further insist that if the ordinance be now passed, the defendants will be entitled to a writ of mandamus compelling the city officers to take the proper proceeding to have their damages ascertained and paid by the city, and as the city has contracted to indemnify them against damages of this character, the equitable result will be reached of placing all parties where they would have been had the city done what it agreed to do> and that it is contrary to good conscience to permit these defendants to compel the complainants to pay damages against which they are indemnified by the city because the city has neglected its duty.

The court of errors and appeals, in Clark v. Elizabeth, 61 N. J. Law (32 Vr.) 565, having a contract somewhat similar to this under consideration, held that the contract did not operate ex proprio vigore to affect a change in the grade of the streets, and that official action was necessary, which could only be taken by ordinance, without which the changing of the grades of streets was illegal. As in the case we are now considering there was no ordinance, it follows that the acts of the complainants in changing the grade of Mary street were unlawful, and that they were trespassers so far as these defendants are concerned.

Without considering the question whether a court of equity will compel a municipal body to exercise its discretion, and pass an ordinance because it has contracted to do so, upon the ground that a party is entitled to the specific performance of a contract, when the work the ordinance was supposed to be necessary to aid has been fully completed, and it can only have a retroactive effect, the propriety of which I doubt but about which I express no opinion, it is sufficient to say that in my judgment this contract contains no such covenant.

One of the sections of the contract contains a stipulation that as to certain streets, of which Mary street is not one, the city will use its power of condemnation, if required, to acquire land for the improvement of those streets, but nowhere in this agreement is there a covenant by the city agreeing to change by ordinance the grade of Mary street.

It is insisted by the complainants that if there be no express stipulation to adopt an ordinance, such an agreement is to be inferred from a covenant which reads as follows: “That each party to this contract shall forthwith proceed to perform the acts, and all the acts herein required to be done, by each party, respectively.” But, manifestly, “the acts herein required” cannot be made to include an act not mentioned in the contract.

I am quite satisfied that this contract was entered into under the notion that the act of May 7th, 1889, did not apply to the city of Elizabeth, and that as the act of 1858 (3 Gen. Stat. p. 2820 §§ 70-75) was not operative in Elizabeth, the city might change street grades without liability to the landowner, and therefore no ordinance was required. The result in the Clark Case dispelled this illusion. Nevertheless, the complainants are chargeable with knowledge of the law, and knew that they were contracting to change the grade of the streets in Elizabeth, which they could not lawfully do without an ordinance, and yet with this knowledge neglected to so frame their contract as to provide for an ordinance before their agreements therein became effective.

In my judgment, the bill of complaint does not present any equitable features as against the defendants Lewis and wife. Their property has been injured — at least we must so consider it on this argument — by the complainants, who have confessedly committed an unlawful act, and it is sought to restrain them in the enforcement of a legal remedy because by a contract between the wrong-doer and his alleged principal that principal has agreed to indemnify the tort feasor against any damages he may be required to pay to an injured third party, a stranger to the contract. What relation may exist between the complainants and the city as to the right of the complainant to be reimbursed damages imposed for the doing of an unlawful act, even if done under a contract, does not concern these demurrants. The proper forum for the ascertainment of their damages is a court of law, where the assistance of- a jury may be had in fixing damages now unliquidated. If settled adversely to the complainants, they may call upon the city to respond, so far as their contract requires them to. It is. very clear that at the outset the complainants and the city supposed they could inflict this injury against the protest of the defendants Lewis and wife, and that they were without remedy either against the city or the complainants. In this they were mistaken, and the complainants now ask that these defendants subject their rights to a contest between complainants and the city for the purpose of ascertaining who is primarily liable. The statement of the proposition does not present an equitable ease.

There being no-equities shown in the bill of complaint against the demurrants, the demurrer should be sustained, and I will so advise.


source: Caselaw Access Project

author: Bergen, V. C.

license: Public Domain

text:
    The United New Jersey Railroad and Canal Company et al. v. William McCulley.
    [Decided November 10th, 1904.]
    An action at law, by the owner of an unimproved lot, for damages resulting from the changing of the grade of a street upon which the land abuts, the change being made by a railroad company in improving its property, will not be enjoined, upon the ground that no liability arises unless the land has buildings thereon, this, if true, being a perfect defence at law.
    On demurrer to bill.

      Mr. George T. Parrot and Mr. Joseph Cross, for the defendant.

      Mr. Alan H. Strong, for the complainants.
   Bergen, V. C.

This case is similar to that considered and determined in a cause between the same complainants and Francis Lewis and others,.in which I have just filed my conclusions (supra, p. 437). As the reasons given for the result in that cause are, in the main, applicable to this case, I refer to and adopt them as a justification for the conclusion reached here. The only difference in the cases is that in the Lewis Case the lands alleged to be injured were improved, having on them a dwelling-house, while here the lot was without any buildings.

It is contended, on behalf of the complainants, that the right) to damages for changing the grade of a street is limited, as to the city of Elizabeth, to lots having buildings on them, and that no legal injury is sustained, whatever may be the change of grade, if the lot be vacant. It is not necessary to consider this proposition, for if the complainants are right they have a perfect defence at law for any lawful act done as the agent of the city. That under the contract by virtue of which the work was done they were the employes of the city, was settled in Clark v. Elizabeth, 61 N. J. Law (32 Vr.) 577, 585.

The demurrer should be sustained.


text:
    George W. Jessup, receiver, &c., v. Samuel Thomason et al.
    [Decided November 17th, 1904.]
    1. Where the president and treasurer of a corporation paid to themselves claims due from it within ten days of its insolvency, they may be charged with knowledge therebf, and required to refund.
    2, In a suit by the receiver of an insolvent corporation to recover payments, made within ten days of the appointment of the receiver, to a creditor who was not an officer, evidence held to show that the creditor, at the time of receiving payment, had knowledge of the insolvency of thé corporation, requiring him to refund the same.
    On bill, &C.

      Mr. Norman Grey, for the complainant.

      Mr. William S. Darnell, for the defendants.
   Bergen, V. C.

This bill was filed by the complainant, as receiver, to compel the defendants to return to him moneys paid them as creditors of the Philadelphia Worsted Company, an insolvent corporation, upon the ground that such payments were made when the corporation was insolvent, or in contemplation of insolvency. The defendants are three in number — Charles Thomason, his wife, Agnes, and Samuel Thomason, the father of Charles. The insolvency of the company was decreed and receiver appointed October 21st, 1903. Charles Thomason and his wife, Agnes, were, respectively, the president and treasurer of the company, and paid themselves the following sums: Charles, on October 11th, 1903, $400; Agnes, October 14th, 190.3, $1,000, and October 15th, $400. As these payments were made only a few days before the appointment of the receiver by the officers of the company to themselves, I have no difficulty as to these items. They were manifestly paid and received by these creditors after they, as officers, knew that the company was insolvent, and were paid as preferences to creditors of the company in contemplation of its collapse, and they should refund the amounts so paid.

The other defendant, Charles Thomason, was paid, between October 10th and October 15th, 1903, $1,615, for money loaned and advanced and on account of wages. He was not an officer of the company, and if it had been a payment to an ordinary creditor without notice of insolvency, received while the company was carrying on its usual business, I should, hardly feel justified in holding that such payment would fall under the condemnation of the sixty-fourth section of the Corporation act. If a creditor has no right to retain a payment he would have no right to accept it, and unless he had ascertained that the corporation, when paying him an ordinary debt, was solvent, he could .not with safety accept it. Manifestly such a rule would interdict the transaction of business with a corporation, for a condition of insolvency might exist for months, or even years, while to all appearances, so far as strangers to the corporation were concerned, it was solvent; and thus every payment to a creditor, during the period of insolvency, would have to be refunded when the insolvency was disclosed.

My attention has been called to Miller, Receiver, v. Audenried, 67 N. J. Eq. 252, but in that case the corporation had suspended business; its property had been destroyed by fire and the directors were preferring creditors from the proceeds of the insurance, while the conditions were such as to properly charge the creditors who were preferred, with knowledge of the situation.

A consideration of the evidence relating to the claim of Samuel Thomason convinces me that he knew of the insolvent condition of this company when the payment was made to him.

The stock of the company was largely, if not entirely, held by his son and the son’s wife. Current obligations of the company were past due and unpaid, and it was not in funds to pay the above claim. In order to provide the money the father purchased from the company, of which he was the superintendent, a portion of its stock in trade, which he afterwards removed and sold, and the pajnnent made by him for such stock in trade was used to liquidate his claim and that of his son and the son’s wife.

I am satisfied that this sale had no other purpose than to provide money in order to prefer the claims of those parties, and that the father knew the company was then in an insolvent condition. The sale of the goods was made, after the company had become insolvent, to the father, who was not a Iona fide purchaser for valuable consideration, without notice of insolvency, and was carried out for no other purpose than to permit these defendants to obtain a preference, to the injury of other creditors of an insolvent corporation. The father was engaged in no business other than as an employe of this company; he had no use for the goods purchased other than for a resale, and in making this sale the company was doing, through its superintendent, what it could and should have done in the due course of its business, and for no purpose other than that of promptly turning this stock into money, that they might unlawfully distribute it before being overtaken by the insolvency proceedings which so immediately followed.

If the defendants are entitled to a preference for any part of their claims as wages, they can establish that right in the usual way.

The complainant is entitled to a decree against all the defendants, according to the prayer of the bill.


text:
    Henry W. Stover v. Josiah Hellyer.
    [Filed November 29th, 1904.]
    Where a mortgage provided that certain, judgments against the mortgagor should have priority over the mortgage, an indorsement on the margin of the mortgage, reciting that the mortgage is given to secure so much of the purchase-money,' is not inconsistent with the agreement for priority of the judgments.
    On bill to foreclose.

      Mr. Benjamin W. Ellicott, for the complainant.

      Mr. James Buchanan, for the defendant.
   Bergen, V. C.

The mortgage upon which the complainant’s case rests contains the following stipulation:

“It is understood and agreed by and between the parties hereto that the lien of three judgments recovered in the New Jersey supreme court against Josiah Hellyer, and now held by Samuel K. Wilson, shall have priority over the lien of this mortgage.” .

Written on the margin of the mortgage was the following clause: “It is hereby understood by the parties herein interested that this mortgage is given to secure so much of the purchase-money.” It is insisted by the complainant that this latter clause overthrows the preference accorded to Wilson, but in my opinion the latter statement is not inconsistent with the agreement that the lien of the judgments should be prior to that of the mortgage. The mortgagee may have said “this mortgage is for a part of the consideration, and I want that stated in the paper/’ but at the same time he might waive his right to priority as to another encumbrance.

The material facts, as disclosed by the testimony, are as follows: Josiah Hellyer, who held the title to the property, conveyed it to his brother-in-law, Henry W. Stover, who then held mortgage encumbrances on the property amounting to $15,000, which mortgages were afterwards canceled. The judgment creditors of Hellyer, by a bill in chancery and supplemental proceedings, assailed the bona, fides of that conveyance. They claimed that the conveyance to Stover was without consideration and with an intent to perpetrate a fraud upon Hell-yer’s creditors. While they were apparently pursuing tire matter vigorously, Mr. Hellyer, for some reason which does not appear in the case, was very anxious to stop the investigation, and applied to his friend, Samuel N. Wilson. Mr. Wilson is dead, but Hellyer and the counsel for the complainant both testify that Mr. Wilson agreed to buy the judgments, provided Hellyer would have the property reconveyed to him, so that his judgments would be a lien upon the property. They further testify that while Mr. Wilson knew that Stover was to have a mortgage for $6,000, it was understood that the mortgage should be so drawn as to provide for the priority of the judgments, subject to the qualification, as both witnesses testify, that Stover should agree to it. This happened on the 12th day of October, 1899. The parties were then before the master for the purpose of being examined as to the integrity of the conveyance to Stover, and in order to stop the proceedings that day, Mr. Wilson, relying upon the promise of Hellyer and of Mr. Ellicott, the attorney of Stover, that the property should be conveyed to Hellyer, at once paid for and took an assignment of these judgments. Four daj's after that the deed to Hellyer was made by Stover, and the mortgage in controversy executed by Hellyer and accepted by Stover. The mortgage containing the clause providing for preference was drawn by Mr. Stover’s attorney and mailed to him for execution. Mr. Stover and Mr. Hellyer met at the office of a commissioner of deeds, in Stockton, New Jersey, on the 16th day of October, 1899, where the papers were executed. It is not pretended that Mr. Stover did not fully understand the contents of the mortgage, but he now says that he was not willing to accept it subject to the lien of the judgments, and that the commissioner, to cure this, wrote the statement on the margin as above set out.

It further appears that this mortgage was put on record, and that Mr. Wilson was never told that Mr. Stover was unwilling to allow a preference to his judgments. The commissioner who took the acknowledgment and made the entry on the margin of the mortgage testified that that statement expressed all that Mr. Stover insisted upon at the time. It thus appears that Mr. Samuel K. Wilson agreed to take up these judgments, provided the property was reconveyed to Mr. Hellyer, in order that they might be liens thereon; that he expected the mortgage for $6,000 to recognize the priority of his judgments; that the written documents fulfilled his expectations; that he was never informed that the document, as written and accepted by Mr. Stover, did not express the true agreement, and that now, after Mr. Wilson’s mouth is closed in death, it is sought, by the testimony of Mr. Hellyer and of the counsel of this complainant, to contradict their written agreements.

I am not disposed to accept the statement that Mr. Wilson agreed to subject his claim to the condition that Mr. Stover’s consent should be obtained. Mr. Hellyer, who was the brother-in-law of Mr. Stover, and Mr. Ellicott, the counsel of- Mr. Stover, are, I think, mistaken as to the latter part of their interview with Mr. Wilson, because, when the matter was fresh in the mind of the counsel, he prepared the mortgage which contained'the agreement, precisely as these defendants claim. A long time has elapsed since this thing happened, and the excu-se offered by counsel for preparing the mortgage in this shape, namely, that it could be stricken out in case Mr. Stover would not agree to it, does not encourage me to rely implicitly upon his recollection, for if he, as the attorney of Mr. Stover in making this arrangement in his behalf, knew, as he must have known, that Mr. Stover would not agree to it, for it is not to be presumed that the arrangement had not been communicated to Stover before the papers were prepared, he would not have incorporated it in the mortgage.

It must be remembered that Hellyer and Stover were both parties defendant to the proceedings taken by these creditors to have the conveyance set aside as fraudulent, and if the conveyance to Stover had been an honest one, for which he had paid $15,000 consideration, he would not have agreed to transfer the property to Hellyer, and accept from him his personal obligation, of no value, for $9,000, as representing a part of the $15,000 he had paid. I am entirely satisfied that Stover, his counsel and Hellyer, were all convinced they could not defend the transaction, and appealing to Mr. Wilson to assist them were willing to give the judgments he was requested to purchase priority.

My conclusion is that when Mr. Stover accepted this mortgage he knew that it provided that the judgments held by Samuel.K. Wilson should be a prior lien upon the land embraced in the mortgage, and my conviction is strengthened by the circumstance that, although the bill of complaint filed in this cause was drawn by the same counsel who drew the mortgage, it is nowhere alleged that there was any fraud, accident or mistake in the form of the mortgage as drawn, and certainly this counsel, who had attended to the matter for Mr. Stover from the beginning, would have seen, upon inspection, that' the part which he expected Mr: Stover to erase before execution, if it did not correctly state his understanding and agreement, had-not been erased, and he would have charged that the paper as drawn did not correctly state the agreement.

The result I have reached is that the evidence by which it is sought to overthrow this written agreement has not the force and conclusiveness which should be required when we are asked to set aside the rights of a party, as established by a solemn writing, in favor of another, whose claim depends upon the oral testimony of persons strongly interested in the result.-


text:
    William G. Audenried, Jr., v. East Coast Milling Company.
    [Decided December 7th, 1904.]
    1. In an action against the directors of a corporation to enforce a liability, under the Corporation act, for the withdrawing a part of its capital stock, it appeared that the stock was transferred to a trust company, under a syndicate agreement requiring the written consent of the syndicate managers to accept the stock of the constituent corporations for exchange for the stock of a proposed consolidated company. — Held, that the issue of the proposed consolidated company’s stock to a constituent corporation for stock deposited within the knowledge of the syndicate managers, without objection by them, was a waiver of their formal written consent, and hence defendants could take no advantage of the failure of the managers to give their written consent.
    2. In such action a judgment obtained against the corporation, of which defendant was director, is not conclusive against the defendant as to the debt sued on, where it was obtained in another jurisdiction, and the only plea interposed by the corporation was one challenging the jurisdiction of the court.
    3. When a promoter induces subscriptions to the stock of a corporation on the promise that, in consideration of stock to be retained by him as a part of the plan, he will furnish certain subscriptions for the benefit of the subscribers, the promise is a p>art of the consideration of the contract of subscription, and hence a default on the part of the promoter in that respect vitiates the contract.
    4. A provision in a certificate of incorporation that any resolution, in writing, signed by all the members of the board of directors, shall constitute action by the board, with the same force and effect as if the same had been duly passed by the same vote at a duly called meeting of the board, is not authorized by the General Corporation act.
    On bill, &c.

      Mr. F. Morse Archer and Mr. Reynolds D. Brown and Mr. Charles H. Burr (of the Pennsylvania bar), for the complainant.

      Mr. Norman Grey and Mr. J. D. F. Junken and Mr. J. B. Kinley(of the Pennsylvania bar), for the defendant Samuel T. Kerr.
   Bergen, V. C.

The complainant, as a creditor, seeks to compel the directors of a corporation to pay him $35,000, with interest, because, as he alleges, they have violated section 30 of the General Corporation act of this state.

The only defendant brought into court was Samuel T. ICerr, who has answered and interposed a defence. The complainant’s claim is that the East Coast Milling Company, which I shall call “Milling Company,” was organized January 11th, 1902, for the purpose of controlling the stock of the Eastern Milling and Export Company, which is hereinafter referred to as “Export Companj1',” and also the capital stock of the Atlantic Flour Mills Company, the assets of these companies being the capital stock of two Pennsylvania corporations. Under a proposed plan of organization certain shares of the capital stock of the “Export Compaq,” and all of the stock of the “Atlantic Company,” were deposited with a trust company doing business in Lancaster, Pennsylvania, to be disposed of according to said plan. Between the incorporation of the “Milling Company” and the 7th day of August, 1902, efforts were made by its officers to carry out this undertaking, but determining on the latter date that it could not be accomplished, they directed the trust company to restore the stock deposited to the depositors thereof, and this was done. After the date of organization of the “Milling Company,” and before the 7th day of August, 1902, the complainant asserts that the “Milling Company” became indebted to him in the sum of $34,000, for which a judgment was recovered after the latter date, and that the action of the directors in returning the stock was a withdrawal or reduction of the capital stock of the “Milling Company,” in violation of said thirtieth section, by reason whereof the directors who participated in the return of the stock, of whom this defendant was one, became liable to pay his debt.

The complainant limits his claim to sufeh stock as was actually transferred to the “Milling Company,” which embraced only a portion of the “Export Company” stock, and none of the “Atlantic” shares, for although all of the stock of the latter company was deposited and returned by' the samé act, no claim is made that the complainant was injured because of its restoration to its original owners.

What actually happened, so far as is material to the determination of the questions presented, was that in the latter part of the year 1901 some of the officers of the “Export Company” submitted to the defendant Kerr a proposition looking to the incorporation of a company to acquire the stock of the “Export” and “Atlantic” companies, which latter company it was' proposed., to incorporate to take over a large and valuable property in the city of Philadelphia, in which the defendant Kerr was largely interested, and then consolidate the two corporations. The “Atlantic Company” was incorporated and the Philadelphia property conveyed to it. After considerable negotiation a Mr. Culver, of New York City, was consulted with reference to the promotion of the proposed scheme, and he consented to act as manager, and prepared and issued a prospectus or plan, which he sent to all the stockholders of the two companies, under which their stock was afterwards deposited with a trust company.

This paper was entitled “East Coast Milling Company plan of organization and subscribers’ agreement to exchange securities,” and bears date January 17th, 1902, signed “Frederick F. Culver, syndicate manager.” It recited that the “Milling Company” had been organized with a capital stock of $9,000,000, of which $2,000,000 in amount was preferred and $7,000,000 common stock; that the “Export Company” had outstanding bonds for $800,000, preferred stock $629,400, common stock $3,000,000; that the “Export Company,” through its ownership of the stock of -the Philadelphia Milling Company, a Pennsylvania corporation, controlled twenty-seven milling plants, and that the property of the “Atlantic Company,” which was elaborately described, was of great value. It then proposed that the “Milling Company” should acquire at least a majority, in the aggregate, of the preferred and common stock of the “Export Company” and all of tire stock of the “Atlantic Company” by exchanging the stock of these corporations for stock of the “Milling Company,’’ and that to carry out the plan a syndicate had been formed, with Culver as manager, to whom it was proposed the “Milling Company” issue $629,400 of its preferred stock, for which he was to deliver to the .“Milling Company” an equal amount of the preferred stock of the “Export Company,” or such portion thereof as should, with the common stock of the latter company, constitute a majority, in the aggregate, of both classes of stock. The plan further provided that the “Milling Company” should issue to such manager all of its common stock, in consideration of which he was to procure and deliver to the “Milling Company” such amount of the common stock of the “Export Company” as, with the preferred stock acquired, would make, in the aggregate, a majority of the stock of that company, and also a like quantity of the “Atlantic” stock. He was also to deliver to the trust _ company such an amount of the common stock of the “Milling Company” as would be required for the acquisition of the balance of the common stock of the “Export Company” and of the “Atlantic” stock, and that

“any balance of the said common stock of the ‘Milling Company’ not disposed of as above set forth shall belong to the syndicate, in consideration of their effecting the above exchange, defraying organization expenses, with the exception of legal expenses, and obtaining subscriptions at par from good and responsible subscribers for at least four hundred thousand dollars ($400,000) in amount, at par, of the preferred capital stock of the ‘Milling Company,’ the proceeds of which are to be used as cash working capital.”

It also provided that immediately upon the issue to the syndicate manager of the preferred and common stock of the “Milling Company,” the manager should deposit the same with the trust company for the purpose of making the exchanges, and that thereupon, since the balance earned by the syndicate would be $4,400,000 of such common stock, that certificates representing the same should forthwith be delivered by the trust company to said Culver, his assignees or appointees, and that certificates of stock of the “Export” and “Atlantic” companies, endorsed for transfer, subject to the control of the manager, should be deposited with the trust company upon the execution of the agreement to deposit, which was referred to in the prospectus as “the agreement hereinafter contained,” and recited that “the undersigned have read and approved the foregoing plan of organization, bearing date the 17th day of January, 1902, and assenting to the plan therein outlined do deposit” their stock with the trust company, “and do hereby sell and assign the same to the said Frederick F. Culver, manager for the syndicate, to be exchanged by said manager for securities of the 'Milling Company’ hereby subscribed for upon the basis and of the kind and in the amounts specified and set forth in the plan;” and, further, that no exchange of securities should be made by the trust company until there should have been deposited with it at least $2,100,000 in amount, at par, of the preferred and connnon stock of the “Export Company,” and all but three shares of the “Atlantic” stock.

Hnder this jdan at least a majority of the stock of the “Export Company,” and all of the “Atlantic” stock required, were deposited, and certificates were issued to the “Milling Company” on the 19th day of April, 1902, for thirty-nine thousand and thirty-seven shares of the common, and six thousand nine hundred and thirty-seven shares of the preferred stock of the “Export Company.” The minutes of a special meeting of the board of directors of the “Milling Company,” held on the 7th day of August, 1902, show that it was resolved that, as there had been delivered to the “Milling Company,” pursuant to said plan, six thousand nine hundred and thirty-seven shares of the preferred and thirty-nine thousand and thirty-seven shares of the common stock of the “Export Company,” for which new certificates had been issued to the “Milling Company,” and that it was deemed to be for the best interest of all concerned that the plan of organization should not be carried out, and that the stock of the “Export Company” so issued to the “Milling Company” should be returned to the trust company, to be redelivered to the original depositors, and that all other stock of the “Export Company,” and the stock of the “Atlantic Company” deposited with the trust company under said plan should be returned to the holders of the trust receipts which had been issued under the terms of the plan, and that tire company consented to the abandonment and rescission of the plan, and directed the syndicate manager and officers of the company to take the necessary steps to carry out the resolution.

I11 pursuance of this action the stock referred to was properly transferred to the trust company for distribution, and it, together with the other shares of stock deposited under the plan, was returned to the original holders and depositors. The transfer of this stock is the act which the complainant claims constitutes the violation of the statute upon which he rests his right to a decree.

The insistment of the defendant is that the plan never became effective because its terms had not been complied with, and also because the financial condition of the “Export Company” had been so grossly misrepresented as to justify the stockholders of the “Atlantic Company,” whose stock had not been transferred, in withdrawing their deposits of stock, without which the plan could not be carried out, and that the transfer of the stock of the “Export Company,” issued to the “Milling Company,” was procured by the syndicate manager without the right to do so, as he held it in trust, upon terms not fulfilled.

As to the charge that the terms of the agreement had not been complied with, it is insisted, first, that it does not appear that any of the preferred or common stock of the “Export Company” had been accepted for exchange with the written consent of the syndicate manager and Andrew J. Toomey, as the plan required. I am not disposed to accord much force to this objection, because the issue to the “Milling Company,” in exchange for stock deposited, was within the knowledge of the syndicate manager and Toomey, and they having made no objection, should be considered as waiving the formal written consent.

The second insistment under this head presents a more serious question. The plan contained a statement that one of the considerations for the stock issued to the syndicate manager as earnings was the obtaining from responsible persons subscriptions for $400,000, at par, of the preferred stock of the “Milling Companjq” to be used as working capital and for the erection of the plant and mills of the “Atlantic Company,” and it is admitted that efforts were made to secure this subscription, without success. The complainant contends that the procuring of these subscriptions was not necessary to the binding of the depositors, and that when their stock was deposited and transferred the title passed to the “Milling Company,” without regard to the fulfillment, by the manager, of the part of the plan now under consideration, and that such depositors are bound by their agreement as an independent contract, separate and distinct from the plan proposed. To this contention I cannot give my approval. In my judgment, all of the statements of the syndicate manager, as contained in the prospectus issued by him, constitute a part of the agreement, of which obtaining subscriptions for $400,000, to be used as working capital and for the erection of the “Atlantic” mills, was an essential element. It was a recital in the proposed plan which would be alluring to the holders of the stock proposed to be exchanged, and was undoubtedly a potent factor in persuading them to accept it. Without it 'there was no substantial inducement to make the exchange, and upon the failure of the syndicate manager to carry out the promises held out by him the persons who had deposited their stock were in equity entitled to its return; they demanded it, and the officers of the “Milling Company,” recognizing the failure of the plan, onty did what thejr could have been compelled to do. The stock was deposited upon the understanding that all of the proposed plan should be carried out, not a' part of it, and until the manager to whose order the stock was deposited was in position to execute the whole trust, he had no legal right to transfer any of the stock, and the depositors were not required to accept the “Milling Company” stock in exchange unless the “Atlantic” stock was also transferred, and it is not pretended that it ever became the property of the “Milling Company,” and for that reason a part of the consideration for the exchange failed.

By the terms of the agreement the syndicate manager was to have transferred to him a large part of this stock, the ownership and possession of which made' him an influential factor in the management of the companjr, and entitled him to a share of the profits, in common with stockholders who were surrendering property as a consideration for the stock to be issued to them. For the stock issued to him as earnings, the manager agreed to obtain subscriptions for the preferred stock to the amount named, and the depositors of stock, who were in fact subscribing for the new stock, could not be held for their subscriptions until this preferred stock was subscribed for, because they understood, and had a right to understand, that if they subscribed they were to be aided by subscriptions to the preferred stock. It is a general rule that it is an implied part of a contract for subscriptions that the contract is to be binding and enforceable against the subscriber only after the full capital stock has been subscribed. 1 Cook Corp. 357 § 176. This rule is subject to the qualification that-parties may agree to commence business with a smaller subscription, as was done here, but, on the other hand, when a promoter induces subscriptions on the promise that, in consideration of stock to be retained by him as a part of the plan, he will furnish subscriptions to stock for the benefit of the siibscribers, that promise is a part of the consideration entering into the contract of subscription, and a default on the part of the promoter avoids the contract.

In addition to the prospectus, the syndicate manager issued and sent to the stockholders of the “Export Company,” of whom the complainant was one, a circular letter, dated March 1st, 1902, addressed to the stockholders of the company, setting forth, among other things, that the manager reserved the right, at any time in his discretion, to wholly abandon the transaction, in which event all stock deposited was to be returned to the depositors, so that at the time the complainant’s debt was created he had knowledge that the manager might, in his discretion, abandon the transaction, and he entered into the arrangement he sets up, with full knowledge that the stock to be acquired might never be assets upon which he could rely.

• As to the charge of misrepresentations, it must be remembered that the complainant was, at the time they are alleged to have been made, the president of the “Export Company,” and properly chargeable with knowledge of the financial condition of that company. In order to induce deposits and to secure subscribers to the preferred stock of the “Milling Company,” a circular was issued, which contained, among other things, a statement of the company, signed by “David R. Loeher,” the treasurer of the “Export Company,” he being the principal witness for the complainant, and the person who managed the sale of complainant’s stock -to the “Milling Company.” This statement bears date January 24th, 1902, and was addressed to the defendant Kerr, as president of the “Milling Company,” and stated the net profits of the “Export Companjy’ for six months prior to December 31st, 1901, to be $144,618.39. There was also in evidence a report of the Federal Audit and Transfer Company, purporting to show the condition of the “Export Company,” on March 18th, 1902, but as this report expressly states that it was prepared in accordance with figures shown on the books of the “Export’Company,” i't has little value as a disclosure of the true condition of the company. Some time after a more careful audit was made by the same accountants, showing the condition, as of March 18th, 1902, of the Eastern Mill-' ing and Export Company of Pennsylvania, the stock of which constituted all the assets of the “Export Company.” This-auditing disclosed that instead of a profit of $144,000 on the 31st of December there was an actual loss in the business, on March 18th following, of over $90,000, or a difference of about $230,000, and it is not pretended that this great loss occurred between December 31st and March 18th.

I am entirely satisfied, on this, branch of the case, that the officers of the “Export Company” knowingly misrepresented the condition of their company for the ■ purpose of inducing the “Milling” and “Atlantic” companies to exchange stock. It further appears that after considerable of tire stock had been deposited it was discovered by the officers of the “Milling Company” that the complainant, as president of the “Export Company,” had, without any authority, endorsed accommodation paper, with the name of that company, to the extent of $64,000; that when his attention was called to it he agreed to relieve his company from such liability by the 10th of May, 1902; that he did not fulfill this agreement on the date specified, and although during the summer of 1902 he had partly done so, he did. not complete it until after the resolution to abandon the enterprise was adopted. The testimony also shows that sufficient stock of the “Milling Company” was never deposited by the syndicate manager to provide for the exchange of all the stock deposited, and that to such extent he did not carry out his part of the agreement.

I wall next consider the character of the complainant’s claim. It seems that he, although president of the “Export Company,” having knowledge of its financial condition, declined to deposit his stock for exchange under the proposed plan, and that the “Milling Company,” by a resolution, not adopted at a meeting of its board of directors, but signed by them at different places, agreed, as the complainant alleges, to purchase from him one thousand shares of the preferred stock and two thousand shares of common stock of the “Export Company,” for $34,000, payable October 1st, 1902, in bonds' of the Atlantic Flour Mills Company, or in cash, if the bonds were not delivered. As the bonds were not delivered owing to the failure of the plan, the complainant brought suit against the “Milling Company” in the United States circuit court for the eastern district of Pennsylvania, and recovered a judgment against the company for the full amount claimed, with, interest. The transcript of that judgment was offered in evidence and admitted, after proof satisfactory to me that process was duly served on an officer of the company residing in that state where it was carrying on business, although the only plea interposed was one wdiich challenged the jurisdiction of tire court. This record is proof of the fact that such a judgment was recovered against the company, and, so far as it wras concerned, would establish a debt upon which recovery might be had in the courts of this state, but on the hearing I was of opinion that the record was not conclusive against the defendant as a director, proceeded against under the thirtieth section of the Corporation act; nor would it be even if the judgment was domestic and not of another jurisdiction, as in this case, and further consideration of the question has strengthened my conviction that it was necessary to support the claim with proof of the sufficiency of the original obligation of the company to the extent required if no judgment had been recovered. The complainant, while protesting against the correctness of this conclusion, undertook to establish his debt by evidence other than the record. As that evidence may be insufficient, in which event the question of the conclusiveness of the record as proof of the debt becomes important, I feel called upon to give some of the reasons which control me on this point.

The thirtieth section of onr Corporation act, while not strictly penal in its character, imposes a liability, not arising from any contract, but because of the misfeasance of a director. As it would be a great hardship to hold a director liable for the amount of a judgment recovered against a company in an action to which he was not a party, upon the ground that a corporation ought not to have the power to suffer a recovery, and thereby bind the director, without further proof, to the payment of a debt which, if properly resisted, might have no legal existence, such judgment ought not to be held conclusive unless the weight of authority sustains so severe a construction, especially in a case like this, where it appears from the record that the judgment was recovered without any defence by the company as to the merits, the recovery being practically by default.

Many cases which I have examined relate to actions against stockholders for non-payment of subscriptions for stock, as distinguished from proceedings against an officer for a misfeasance, and, while they are alike in character, there is a distinction in favor of a director, pursued, not for a debt due to the company on a subscription, or on any previous obligation assumed by him, but upon a liability created by statute. In Miller v. White, 50 N. Y. 137, the action was against directors for the omission of a statutory duty. The trial court held that a judgment recovered against the company was not only prima facie, but conclusive, evidence of the debt as against the defendants. This was unanimously reversed by the court of appeals, and it was there held that the directors were not bound by the judgment, nor was it even prima facie evidence against them, Judge Peek-ham saying: “There is no hardship in requiring a party to prove his case against these defendants. If lie has sold the company goods, loaned it money or rendered it service, it is easily proved in this action. It seems to me that connivance and fraud are prevented by requiring such proof.”

In McMahon v. Macy, 51 N. Y. 155, the majority of thé commissioners of appeals held that a judgment against the company is not even prima facie proof of the debt against a director sought 'to be held.

In Stephens v. Fox, 83 N. Y. 313, it was held, in a suit by a creditor against a stockholder for unpaid subscriptions, that a record of a judgment against the company was sufficient evidence of the debt, because the stockholder was indebted to the company and the creditor was subrogated to the company’s right; but, referring to Miller v. White, supra, the court said: “The defendant was not pursued as a debtor to the corporation, or for any pre-existing liability of his own, but upon an original liability created by the statute, and it was not in the power of the corporation to admit away his case, or suffer' a recovery which should be binding upon him, and create, as against.him, a liability to which he was not previously subject;” but, in a proceeding for unpaid subscriptions, “whether the company owed the debt or not was of little consequence to the stockholder, and did not affect his liability to the company. He was bound to pay to the company even if there was no creditor.”

In Allen v. Clark, 108 N. Y. 269, the action was based upon the failure of the directors to file an annual report, and the record of a judgment against the company for costs was held to be pñma facie evidence of its existence, the conclusion' being put upon the ground that the judgment against the company had been recovered prior to the date fixed for filing the annual report, and that it being then an existing debt it became the duty of the directors to malm it known by such report. The opinion in this case, however, distinguished it from Miller v. While, supra, because the judgment in the latter case rested upon a debt “antecedently existing,” the distinction being that in Miller v. White the judgment was recovered after the default, while in the case the court was then considering the judgment existed as a debt of the company prior to the default. The principle established in Miller v. White has never been repudiated by the courts of New York. There are a number of cases relating to suits brought-by creditors to compel payment of unpaid subscriptions to stock which were cited for complainant, and which I have examined, as in Stutz v. Handley, 41 Fed. Rep. 531; Powell v. Railroad Company, 38 Fed. Rep. 187; Glen v. Springs, 26 Fed. Rep. 494, but they are not controlling, because they clearly rest upon a different basis from suits brought to enforce a statutory non-contractual liability imposed upon a director for violation of a statutory duty.

In Tabor v. Commercial National Bank, 62 Fed. Rep. 383, it was held, under the Colorado statute requiring annual reports' to be hied by the directors, and in case of failure imposing a personal liability for the debts of the company, that a complaint which counted upon a judgment, and did not plead the original debt, was good, and under the statute of Colorado the judgment might be introduced in evidence to prove the debt it established. In this case judgment was recovered against the company before the last default of the directors, and the question to be settled was whether the judgment was a debt of the corporation, for which the director was liable, within the meaning of the statute he was construing.

A careful comparison of the statutes of New York and Colorado shows they are substantially the same, and the court, in determining the case last cited, stated that the result reached is contrary to the doctrine held by the courts of New York on this subject. The law, as established in New York, has, however, been approved by the supreme court of the United States. That court, in considering the New York statute, rejected the judgment against the corporation as either evidence or ground of liability against the directors, and founded the liability upon the obligation of the corporation, on which the judgment itself rested. Chase v. Curtis, 113 U. S. 452. It seems to me that sound reason and the weight of authority uphold the proposition that it would be inequitable to hold that a judgment recovered against a company is conclusive against a director; but, on the contrary, it is the duty of the complainant, under facts similar to those shown in this case, to satisfy the court, as a part of his case, that the original obligation upon which the judgment against the company is founded is of such a character as to make him a creditor of the company holding a claim which, in equity, he should be allowed to enforce against a director under the statute invoked.

Having concluded that it is incumbent upon the complainant to substantiate Ms claim by evidence other than the record of his judgment, I will next consider whether he has done so. The complainant was president of the “Export Company,” and the holder of considerable of its stock, nearly, if not all, of which he had pledged as collateral for personal loans. Between the 17th day of January, 1902, and the 8th day of March following, he had, through Mr. Locher, the treasurer 'of his company, endeavored to sell his stock in the “Export Company” to the “Milling Company.” The sale was effected through Mr. Locher, who suggested that the complainant “put himself in his hands,” the result of which seems to have been the signing of a resolution, which Mr. Locher prepared and passed from one to another of his co-directors for signature. This resolution was not adopted at a regular meeting of the board, nor do ffieNnmufgsJof Jhe company show that it wasjever approved; it bears date the..8th day' of March, 1902; is signed bv the directors and pasted in the book of minutes, succeerlinfi- an entry_of^_mnendnitíntsjQ„üie__. company’s charter filed March 18th, 1902. This paper recited that in the opinion of the board of directors it was to the interest of the company that it acquire, by purchase from the complainant, certain shares of his stock in the “Export Company,” in the manner and upon the terms above set out. It also appears the complainant secured certain certificates of the “Milling Company,” signed by Mr. Locher., as treasurer, and Mr. Toomey, as vice-president, but as these certificates were issued without any authority from the board of directors, and are not the obligation provided for in the original- resolution, they have no force in establishing the complainant’s claim. The testimony shows that during the summer of 1902 Mr. Toomey and Mr. Locher, without the knowledge of the board of directors of the “Milling Company,” were issuing certificates and the notes of that company to the complainant, to assist him in his private business affairs. This irregular conduct!, participated in by Locher, Toomey and the complainant, and the manner in which this sale was brought about, excites my suspicion and leads me to doubt their integrity in the transaction. The cornplainant was juesident of the company whose stock he sought to sell, chargeable with knowledge of its financial condition, and Mr. Locher, his active agent in the matter, was treasurer of the company, and also an officer of the purchasing Compaq, and knew of the unsound condition of the “Export Company,” and instead of calling a meeting of the board of directors to consider the matter he prepared a resolution (which the complainant saw before it was signed, for he said he approved of it) providing for the purchase of the stock, and procured the signatures of the directors to- it, his name appearing first. The fact that the certificate of the corporation provided that the directors might adopt resolutions in this manner does not aid the Iona fides of the act, for this most important act of the board is the only one where this peculiar [provision was availed of, and I am convinced from the relations existing between the complainant and Mr. Locher that it was instigated by the complainant and carried out in the manner indicated for the purpose of avoiding a discussion of the proposed action, such as would likely arise if submitted at a board meeting.

I cannot resist the impression created by the evidence that Mr. Locher, with full knowledge of the unsound condition of the “Export Company,” undertook, as the agent of the complainant, and with his knowledge, to impose upon his fellow-directors, and thereby effect a sale of this amount of stock, most, if not all, of which could not be delivered because it was held in pledge by the complainant’s creditors, and in order to allow the complainant to relieve the stock and deliver it, unlawfully used the credit of the company for that purpose.

It is insisted, on behalf of the defendant, that when this agreement to purchase was made the true condition of the “Export Company” was not made known; that this complainant, as president of that company, had full knowledge of its weakened condition; that Mr. Locher, as its treasurer, when acting for the complainant in the sale of this stock, and in inducing the directors of the “Milling Company” to sign the resolution, also concealed the condition of the company, and that this misrepresentation and concealment of the truth was a fraud upon the “Milling Company,” which justified it in refusing to accept the stock. It is also- claimed by the defendant that when the negotiations for the sale of this stock were proceeding it was not known that the complainant, as president of the “Export Company,” had pledged the credit of that company as an accommodation endorser to the extent of $64,000; that before the resolution was signed agreeing to purchase this stock it came to the .notice of the defendant, and he protested that he would not become an officer of that company, nor agree to the purchase of the complainant’s stock until this obligation was removed, and that the complainant agreed to relieve the company from its endorsement on or before the 10th day of May next following; that while the complainant did, during the summer of 1902, and after the 10th day of May, relieve the company from some of its liability, it is admitted that the liability was not extinguished until long after the “Milling Company” had abandoned the effort to effect the purpose for which it was created and had directed a return of the stock. The complainant denies that the extinguishment of this endorsement was a condition to be performed before the sale of the stock became effective. I am not disposed to take his view of the case. I believe what the defendant Kerr sa37s on this subject, not only because his appearance and maimer as a witness satisfies me that he told the truth, but also because his contention is the natural one.

My conclusion on this branch of the ease is that the complainant, with the aid of Loclier, was guilty of a fraud upon the directors of the “Milling Company” when the sale of his stock was made, and that the agreement would never have been made if the complainant had disclosed the true condition of his compan37, instead of permitting this defendant and his co-directors to rely upon the misstatement made by Mr. Locher, as treasurer, and that a court of equity should not hold this to be an obligation for which this defendant is liable. I also find that the complainant agreed to extinguish the endorsement objected to by May 10th, 1902, and that he did not comply with his agreement.

The defendant also insists that the debt of the complainant, at the time of the transfer of stock of which the complainant complains, was not an obligation of the company, because no lawful corporate action, looking to that end, was ever taken by the board of directors acting as a board, and that the pretended resolution, although signed by all of the directors, was not, and could not be, the act of the corporation, and he invokes the well-settled rule that where the management of the affairs of a company are committed to a board of directors, they cannot act separately. It is not denied that the official action of the board upon which the complainant relies depends upon the efficacy of a resolution not adopted at a meeting of the board, but prepared and carried from one to another of the directors, by whom it was signed, each director acting independently of the other, and without conference. The complainant not denying that such official action was obtained in this manner, attempts to justify it under the authority conferred by the certificate of incorporation contained in the following clause:

“Any resolution, in writing, signed by all tbe members of tbe board of directors or executive committee, shall be and constitute action by sucb board or executive committee, as tbe case may be, to tbe effect therein expressed, witb tbe same force and effect as if tbe same bad been duly passed by tbe same vote at a duly called meeting- of sucb bodies, respectively, and it shall be the duty of tbe secretary of tbe company to place sucb resolution, as signed, in tbe minute book of tbe company under its proper date.”

As the complainant rests his right upon a resolution adopted in that manner, it becomes important to ascertain whether the power attempted to be conferred by this clause is supported by the law under which the articles of association were filed. Wren authority to manage the affairs of a corporation is vested in a board of directors it is conferred upon them as a board and not as individuals. If they act or give their consent separately, and not as a board, their conclusion is not the action of the corporation, although all may consent, and the corporation is not bound, in the absence-of ratification. Clark & Marsh. Corp. 2074 § 677; First National Bank of Fort Scott v. Drake, 35 Kan. 564; 57 Am. Rep. 193.

This eminently wise and just rule, the complainant claims, may be abrogated by persons incorporating themselves under the General Corporation act of this state, and he relies upon subdivision 7 of section 8 of the act, which permits any provision which the incorporators may choose to insert

“for the regulation of the business, and for the conduct of the affairs of the corporation, and any provision creating, defining, limiting and regulating the powers of the corporation, the directors and the stockholders, or any class or classes of stockholders; provided, such provision be not inconsistent with this act.”

If the power to legislate as these incorporators have legislated exists, it must be found in the expression, “any provision creating, defining, limiting and regulating the powers” of directors.

Under this clause, it is insisted that the legislature has granted the right, not only of creating, defining, limiting and regulating the powers of the corporation, but also the right to authorize the directors to exercise the powers thus established according to any method the incorporators may see fit to adopt, although the power to do this is not granted in express terms. I do not so interpret these words. The right “to create” is limited to the establishing of or regulating a power to be exercised by the. corporation through its directors, which power shall not be inconsistent with the terms of the general act. The method of exercising the power created must conform to settled legal principles, unless it be otherwise distinctly authorized by the legislative act. No such express authority is conferred by this act and it ought not to be inferred from ambiguous expressions.

To hold that the legislature of our state, by the adoption of our General Corporation act, intended to confer upon individuals an indefinite power of legislation, would require the adoption of a liberality of construction which the act does not warrant, and which upon every known principle is contrary to public policy. The act is, by its terms, sufficiently broad, elastic and liberal, and I am unwilling to read into it any such power as this complainant insists upon, for, in my judgment, it is only a board duly convened and acting as a unit that is made the representative of the company. Nowhere in this act is it intimated that a board of directors may act independently or otherwise than as a united body, counseling with each other with regard to every determination that may affect the corporation. On the contrary, it requires that the business of every corporation shall be managed by its directors, and that all votes of the corporation and directors shall be recorded by the secretary in a book to be kept for that purpose, which we must assume means that this secretary, who is required to be a sworn officer, shall be present and record the votes of the directors.

The proposition that the stockholders, in assenting to this provision in the articles of association, waived the advantage and protection they would enjoy under the common law and our Corporation act, does not meet the case. Stockholders may waive an advantage, but they cannot by waiver ordain a method of corporate action which the law does not recognize, nor dispense with the aid of a board of directors as a means of corporate action. Such a course is not sanctioned by our law and is inconsistent with the twelfth section of our act, which requires that “the business of every coloration shall be managed by its directors.” But we ought not to confine the consideration of this question to the relationship' existing between the stockholders and the directors. The business of the state is to a large extent carried on by corporations, and their transactions directly and vitally affect the interests of all the people. In committing the transaction of business so generally to corporations, the legislature mav be presumed to have provided for and recognized-deliberative meetings of directors-.as.. a._safegmrd-Yo-ihe--'pnblic interest, which presumption ought not to be overthrown by a forced construction of the act. The fundamental idea of a business corporation involves an advantage coming from the aggregation of wisdom, knowledge and business foresight which results from bringing a large number of stockholders and directors into a common enterprise. It is their knowledge and wisdom combined, acting as a unit, that gives efficiency and safety to the corporate management.

I am satisfied that the section of this charter now under consideration is contrary to the provisions of our Corporation act, and that there is no express or implied authority conferred thereby which will allow a corporation to determine, in its articles of association, that its board of directors may avoid the performance of their duties in the manner required by the word and spirit of our act and the well-settled law on that subject. To permit it would engraft upon the law a vicious and dangerous power, and in the absence of express legislative authority I am ■unwilling to sanction it. It therefore follows that the separate and individual acts of these directors created no liability against the company, and that if no liability existed the complainant has no obligation which he can enforce against this defendant, unless this irregular act has been ratified, or the corporation, because it has received the benefit of the contract, is equitably bound to respond. As to the ratification, the book of minutes shows that this resolution, which bears date March 8th, 1902, was pasted therein some time after March 18th, 1902; that pursuant to a notice stating that a meeting of the board of directors of the company would be held in New York City on April 24th, 1902, for the purpose of ratifying all past acts of the directors and for the transaction of other business, a meeting was held; that the proceedings of this meeting show that the minutes of a meeting held February 14th, 1902, were read and approved; that no reference was made to the resolution of March 8th; that the next meeting was held on the 7th day of August, at which no previous minutes were read or approved; that the next meeting was. held September 11th, 1902, when only the minutes of April 24th and August 7th were approved. At this meeting the defendant referred to the resolution of March 8th, and reported that it was erroneous in that it did not express the consideration of the sale, and a resolution was adopted by the company rescinding, annulling and vacating the resolution, and disaffirming all of the transactions relating thereto. At a meeting held in Jersey City on the 6th day of November, 1902, Mr. Lord, who was then president of the company, made a report upon this matter, and it was resolved that the company disaffirm all tire transactions between Locher, Toomey and the complainant, not only with reference to the purchase of the stock, but of the issue of certificates and the exchange of notes, to which I have hereinbefore referred. There is nothing in the minutes of the company showing a ratification of the individual acts of the directors on March 8th; on the contrary, they protest against it vigorously. But even if the minutes of the two latter meetings could be held to be a ratification, it happened long after the stock had been returned and the commission of the default with which the defendant is charged, and he would not be bound by a ratification after that time because at the time he committed the offence he is charged with the company was under no legal obligation.

As to the delivery of a part of the stock to the company, the evidence shows that it was done by the complainant through his two friends, Mr. Toomey and Loeher, without the knowledge of the board of directors, and never came to their notice until after the abandonment of the proposed plan.

It was argued, on behalf of the defendant, that the act complained of was not such as section 30, above referred to, defines, and that section 30 was confined in its operation to “capital stock” as distinguished from “capital,” and that therefore the defendants had not divided, withdrawn or paid to the stockholders its capital stock. In my judgment, the words “capital stock,” as used in this section, can have no other meaning than that it is such part of the property of the company as represents its capital, for which the stock was issued, and if the defendant, as a director, has aided in withdrawing a portion of the assets of the company, in violation of the statute, he would be liable to creditors for the amount placed beyond their reach. The complainant undertook to establish the value of the stock returned to the depositors by proof of sales of the stock nearly a year prior to the alleged unlawful disposition of it. But this evidence must be considered in connection with the fact that the sales were made shortly after the company was reorganized, during the first six months of its business, and before any statement of its profits had been or could be ascertained. The only shares, that I now recall, being sold after January 1st, 1902, were bought for the purpose of qualifying the defendant, and perhaps one other, for directorship, without reference to the intrinsic or market value thereof, and, while I have disposed of this case on other grounds, I doubt whether, on August 7th, 1902, when it was decided to return this stock to its depositors, it had any intrinsic value; certainly there is no proof that it had any market value.

The conclusions which I have reached are as follows — first, that the stock of the “Atlantic Company” and of the “Export Company,” deposited under the agreement, never became the property of the “Milling Company,” and that the syndicate manager, in whose name it was deposited, never acquired the right to make the exchange or to have any of the stock so deposited transferred to the “Milling Company;” second, that the financial condition of the “Export Company” was so misrepresented that the “Milling Company” was not bound to accept the stock of that company, and that the depositors of the stock of the “Atlantic Company” were justified in demanding a return of their stock, without which the plan could not become effective, and failing in such an essential particular the stockholders of the “Export Company” were justified in demanding a return of their deposits; third, that the stockholders of the “Export Company,” and of the “Atlantic Company,” were entitled to have the syndicate manager secure a working capital of $400,000; that this statement in the plan of organization was an important and essential one, and that the “Atlantic Company” was entitled to have the benefit of at least a portion of that fund as a consideration for their deposits, and that the failure of the syndicate manager to secure subscriptions to the preferred stock to that amount justified the depositors in withdrawing their stock; fourth, that the debt of the complainant is not of such a character as to justify a court of equity in aiding in its enforcement against this defendant, and that the terms of the act under which it is sought to support this claim ought to be strictly construed against this complainant, and every equitable advantage accorded to the defendant, for while it has been held by the highest court in this state that the section under consideration is not penal in its character to such an extent that it ought not to be enforced in a court of equity, and that its sole purpose is not to punish, but to provide for the making of compensation by wrong-doers to one injured by their unlawful act (Appleton v. American Malting Co., 65 N. J. (Eq. (,20 Dick.) 375), I do not understand that to mean that it should be given as liberal a construction as it would be entitled to if the default grew out of a contractual relation. It is not strictly penal in that the dereliction prescribed can be punished as a crime or considered an offence against the state, but it does impose a liability to pay .a corporate debt whenever the director shall act contrary to its restrictions or prohibitions, and not because of any contract entered into by him, and, while remedial as to creditors, it is to a degree penal as respects the officer to which it applies, and is to be governed by some of the principles which apply to strictly penal statutes. Clark & Marsh. Corp. 2654. § 833c; Huntington v. Attrill 146 U. S. 657.

Under the views above stated the complainant has not presented a case which commends itself to a court of equity, and in my judgment equitable aid ought not to be extended to him. I will therefore advise a dismissal of the bill of complaint.


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    James Steen v. John A. Steen, executor, et al.
    [Decided January 10th, 1905.]
    Where testatrix, knowing that her son was engaged to be married to M., and that the marriage had not been celebrated, devised to her “daughter, M., wife” of her son J., all of her real estate during the lifetime of the daughter, and after her decease to the issue of the marriage, but at the death of the testatrix the marriage had not taken place, the devise was void for want of a person in being answering the description of the devisee.
    On bill, &c.

      Mr. Linton Satterthwait, for the complainant.

      Mr. W. Holt Apgar, for the defendants.
   Bergen, V. C.

On April 11th, 1904, Bosanna Steen died seized of an undivided interest in certain lands situate in Mercer county, in this state, and left surviving as her only heirs-at-law two sons, James Steen and John A. Steen. After the death of his mother John A. Steen conveyed to his brother, James, the complainant in this cause, all of his title to said real estate, “whether as heir or devisee of John C. Steen, or of Rosanna Steen, widow of John C. Steen, deceased,” by virtue of which conveyance the complainant became vested with the title to said lands, subject to such disposition thereof as was made, if any, by the last will and testament of Rosanna Steen, which was produced and probated attire instance of John A. Steen, the executor named therein, subsequent to the conveyance above mentioned by him to the complainant.

The controversy arises over the construction of the second section of the last will of Rosanna Steen, which reads as follows:

“I give, devise and bequeath to my daughter, Margueritte J. Irwin Steen, wife of my son, John A. Steen, all of my estate, real, personal and mixed, during the lifetime of my said daughter, and, after her decease, to her heirs, as would by law inherit the same, being the issue of said marriage of my said son, John A. Steen; provided, that my said daughter, Margueritte J. Irwin Steen, has the power and authority of selling and disposing of my said estate at public or private sale, by and with the consent of my executor, hereinafter named, and to give good and valid deeds of conveyance for any or all of the real estate of which I may die seized.”

The testimon}^ discloses that at the time of the execution of said will John A. Steen was not married, either to the said Margueritte or to any other person, nor has he since married the said Margueritte, and the pleadings show that she has answered under the name of Margueritte J. Irwin, and makes no claim that she is the wife of John A. Steen. It further appears that at the date of the execution of the will, in 1896, John was engaged to marry one Margueritte J. Irwin, a resident of the State of Pennsylvania; that the engagement was well-known to the testatrix, and met with her approval, but it does not appear that the testatrix ever saw her intended daughter-in-law, although they had corresponded, and she had and retained in her possession a joint photograph of her son John and Miss Irwin, taken in 1893. There is no charge made or proven showing any misrepresentation to the testatrix, nor that she was ever informed, or had any reason to believe, that her son and Miss Irwin were married, and the devise contained in her last will was evidently based upon her expectation that the marriage would soon take place, and that the condition described in the will would exist at the time of her death.

The complainant files his bill setting forth the foregoing facts, and charges that the devise of said lands is a nullity for want of an actual legatee; that the estate, on the death of his mother, vested in her heirs-at-law, and that by virtue of the conveyance made to him by his brother, John, they being the only heirs-at-law of the testatrix, the entire title to the lands is now vested in him, and prays that the said will may be construed and that it may be decreed that the said devise is void for want of a devisee, and that the estate of his mother descended to her heirs-at-law notwithstanding said will.

After a careful consideration of the question, I am satisfied that this complainant has mistaken the form of his remedy. He is neither executor, trustee, legatee ox cestui que trust, and rvhile the jurisdiction to construe wills assumed in this state is more liberal than that exercised in some of our neighboring states, in that we do not hold that the jurisdiction of a court of equity to pass upon the interpretation of a will is necessarily connected with its general jurisdiction over trusts, or that its proper exercise is made to depend upon the presence of a trust, expressed or implied, such jurisdiction will not be exercised when only legal rights are in controversy. The complainant in this case, being in possession of the property under color of title, can well defend his title at law, to the extent he may be entitled to maintain the same against an3r encroachments of the legatee under the will. The case of Benham v. Hendrickson, 32 N. J. Eq. (5 Stew.) 441, and the cases there cited, do not help this complainant, for in that case the complainants were legatees under the will, the construction of which they sought, and their remedy at law was held not to be adequate.

The complainant’s real difficulty, however, is that the probate of this will, subsequent to his purchase of the propeity, creates a condition which necessarily casts a cloud upon his title, and as it did not appear that the legatee under the will was actively asserting any rights to the properly, the complainant would have been justified in applying to this court to have such cloud removed, and as the parties are all before the court, and the testimony submitted being ample to justify a determination of the question, I shall allow the complainant to so amend his bill of complaint as to malee it a bill for the quieting of his title, and also permit the defendants to make such amendments to their answers, if any are necessary in order to raise the proper issue, rather than dismiss this bill and require the complainant to institute another suit.

The only question now remaining is, does Margueritte J. Irwin, never having married John A. Steen, take under the devise “to my daughter, Margueritte J. Irwin Steen, wife of my son, John A. Steen?” I have concluded that she does not. There was not, at the time of the making of the will, nor at the death of the testatrix, any person in esse answering to that name and description. It was most strenuously insisted on the argument that it was simply a misdescription of a person in being, and that all of the language used, following the words “Margueritte J. Irwin,” were surplusage, and should be rejected. To this argument I cannot give my assent. I am fully persuaded that it was not the intention of this testatrix to devise this property to Margueritte J. Irwin as distinct from her status as the wife of John A. Steen, and the legatee, not answering that description at the time the will took effect, the gift failed. I am strengthened in my conviction regarding the intention of the testatrix by the fact that the gift over is to the issue of the marriage of John and Margueritte, and am satisfied that she never intended to give this property to a person who was not her daughter— who was not the wife of her son, John A. Steen — and who could by no possibility leave issue of her marriage with John A. Steen.

In Bullock v. Zilley, 1 N. J. Eq. (Sax.) 489, Chancellor Vroom said that if the words “his wife” were used simply as words of description to designate the legatee, she would be entitled to take; but if they were used to indicate the capacity or character in which alone she could take, then, inasmuch as she had ceased to be the wife, she would not be entitled to take. My construction of the devise under consideration is that the words used by the testatrix were intended to describe the character or capacity in which the legatee should take, and that for want of such capacity or status the defendant Margueritte J. Irwin took no estate under the will, and I will advise accordingly.


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    W. Horace Hoskins et al. v. Seaside Ice Manufacturing and Cold Storage Company.
    [Decided January 12th, 1905.]
    1. Where a corporation had power to purchase its own stock, and to pay therefor with its bonds, and bonds payable to bearer were so issued, the corporation was estopped to deny their validity, as against innocent purchasers for value.
    2. A holder of bonds of a corporation, taken as collateral for a preexisting debt, is a iona -fide holder for value to the same extent as though he was a purchaser for cash.
    On appeal from determination of receiver.

      Mr. Norman Grey, for R. T. Miller, the receiver.

      Mr. Joseph S. Conover and Mr. Philip Carpenter (of the New York bar), for the petitioning bondholders.
   Bergen, V. C.

The questions presented for determination arise under the petition of certain bondholders appealing from the determination of the receiver of the defendant corporation disallowing certain claims presented by them against the estate of the insolvent defendant. The receiver conceives that the questions involved are sufficiently presented by the petition, affidavits, receiver’s reasons, and other records in the cause which have been submitted by the respective parties, and therefore declines formal answer. While the usual practice in matters of this character is to require the petitioner to take a rule on the receiver requiring him to answer the petition, and the taking of such testimony as may be required to fairly present the issue, the Corporation act directs the court of chancery to hear appeals of this character in a summary way, and if, as in this case, the receiver consents to the consideration and determination of the matter without answer, I have no doubt of the propriety of proceeding to hear and dispose of the subject of appeal without answer. The facts necessary to a proper consideration of the question presented are as follows: Louis E. Darmstadt holds six bonds of the defendant corporation of the par value of $500 each, numbered from 49 to 55, inclusive. John Scholl and William, his brother, trading as John Scholl & Brother, hold two bonds of like character, numbered 47 and 48. These bonds are in form payable to bearer without limitation or qualification of the negotiable quality usually appertaining to bonds of that description.

Mr. Darmstadt acquired whatever title he has under the following circumstances: On January 21st, 1903, John B. Fitzgerald pledged and delivered to him two of these bonds as collateral security for the payment of a loan, previously made, maturing on that day, of $1,382, represented by two notes, one for $400 and the other for $982, which still remain unpaid, and, together with the bonds, are in the hands of the pledgee.

On June 28th, 1904, Fitzgerald induced Darmstadt to endorse his note for $1,000, securing him against loss by pledging, as-collateral security, two other such bonds. This note was subsequently reduced by payments to $800, which amount still remains due, and in July, 1904, Edward L. Fitzgerald borrowed from Darmstadt $50, and deposited with-him as collateral security for the payment of said loan two of such bonds. The bonds held by John Scholl & Brother were deposited- with them by John B. Fitzgerald January 8th, 1904, as security for a loan of $1,000, which loan is due and still remains unpaid. Darmstadt and Scholl presented their respective bonds to the receiver as debts against the company, and the rejection of such claims by the receiver is the basis of this appeal.

Some of the reasons filed bjr the receiver as a justification for his determination, and which are all that it is necessary now to consider, are as follows: That the bonds were never legally issued to the two Fitzgeralds, because they took them in exchange for stock of the company surrendered by them, and being directors of the corporation, knew that the bonds could not be issued to any stockholder for stock, nor for any purpose other than that for which the issue was authorized; that they, as directors, by the exchange of stock for bonds, were obtaining a jeosition in relation to the assets of the company better than that enjoyed by the other stockholders, which their duty as trustees forbid.; that the corporation was insolvent when the bonds were issued; that the issue was a transfer of property prohibited by the Corporation act, and that the present holders were not purchasers for value.

The authority of the corporation to issue these bonds is beyond question, and they were issued as the obligations of the company in due form, with the expectation that their payment was to be secured by a mortgage upon the property of the company. This •security was attempted to be provided, but through some informality in the preparation or recording of the mortgage, it became useless as a security and left tire bondholders in the position of general creditors without preference.

There was no proof presented to me from which I can find that the corporation was insolvent when the bonds were issued; on the contrary, the affidavits submitted show that the officers had not at the time any reason to suspect insolvency, nor that it was likely to occur, and it is certainly demonstrated beyond question that the present holders had no knowledge of any such insolvency, either present or threatened. What appears is that this company issued its negotiable obligations, which passed to third persons before maturity in due course of business,'without knowledge by them of any infirmity. Some were taken as security for debts matured and others as a consideration for loans then made or liability assumed. Without determining the question as to1 the bona fides of the directors in procuring these bonds, it is enough to say that this company had the right to purchase its own stock and to pay for it in bonds, and there is no evidence before me to sustain the theory that such exchange was made for any unlawful purpose, and by the testimony and papers offered I am satisfied that these bonds were lawful obligations of the company in the hands of the original bondholders. That they are such in the hands of the present holders is too plain for profitable discussion; the bonds are the contract of the company whose assets the holders now ask may be applied for their liquidation, and it does not lie in the mouth of this company to now question its obligations or the consideration 'which it voluntarily accepted for them. If the bonds were fraudulently procured, and a valueless security corruptly put upon the company, a proceeding on its behalf against the original holders to have the sale of the bonds set aside might, under proper conditions, meet with favor, but there, is no pretence that any such condition existed, and if the company overvalued its own stock and put in circulation its negotiable obligations in payment therefor, it is too late now to complain when innocent persons have accepted them for what the corporation said they represented. The obligations were coupon bond's payable to bearer, carrying the usual qualities of commercial paper, and as such are enforceable in the hands of innocent persons (Hebberd v. Southwestern Company, 55 N. J. Eq. (10 Dick.) 18; nor does the fact that some of these bonds were taken as_ collateral security for an existing debt make the holder any less a bona fide holder for value than if he was a purchaser for cash. Allaire v. Hartshorne, 21 N. J. Law (1 Zab.) 665; Armour v. McMichael, 36 N. J. Law (7 Vr.) 92; Oliphant v. Vannest, 58 N. J. Law (29 Vr.) 162. The determination of the receiver should therefore be overruled and the claims of these appellants accepted as debts by the insolvent corporation.