author: Stevenson, V. C.

text:
    Amparo Mining Company v. Fidelity Trust Company, executor, &c., of Edward M. Paxson.
    [Decided April 13th, 1908.]
    1. An action by a home corporation against a foreign corporation not engaged in business in this state, and without any office, agent, or place of business in the state, to establish title to treasury shares of the capital stock of complainant, which defendant claims to own absolutely, but which complainant alleges were held by defendant’s testator in his lifetime as security for the payment of a sum of money, is an action quasi in rem, although complainant asks for a transfer of the shares of stock, and no receiver has been appointed to take possession of the res, and therefore is within the jurisdiction of the court of chancery, and defendant, having been duly notified of the suit by the statutory publication of notice, and actual service of notice of the suit, and of the order requiring it to appear and plead on or before a time stated, will be bound by the decree, if it refrains from appearing, so far as the same relates to the status of the stock.
    2. The essential-elements of an action quasi in rem are a res located within the territorial limits of the state in such a way that the state can exercise absolute power to control and dispose of it, a course of judicial procedure, the object of which is to subject the res to the power of the state directly by the judgment or decree, which is entered as distinguished from a course of procedure which only disposes of the res by compelling a party to control or dispose of the res, and a course of judicial procedure on its face directed sufficiently toward the res so as to disclose this res to the defendant when reasonably notified of the action.
    3. The notice to non-resident defendants prescribed by P. L. 1902 p. 514 §§ IS, IS, directing service on non-resident defendant by notice, the form and scope of which shall be prescribed by the chancellor, and rule 58 of the chancery court, stating that the notice shall state “the object of the suit and why the persons to whom it [i. e., the notice] is addressed are made defendants,” require that the notice shall apprise the defendant, not only that he is sued, but also of the nature of the suit, and disclosure of the res toward which the suit is directed.
    4. The jurisdiction in actions quasi in rem is based on the power of the sovereign state to exercise control over all objects to which that power can be directly applied.

      5. Where an action is brought which involves property within the state, and non-resident defendants are fairly notified of the action, and have ample opportunity to appear and be heard therein, the rights of all parties interested in such property are determined in such action by due process of law.
    6. An action strictly in personam for the recovery of corporate stock, the situs of which is in the state, may be brought in the chancery court.
    7. Where a holder of an equitable title to chattels takes possession, he thereby acquires a legal title, as the only right in respect to the chattels remaining in the original holder of the legal title is to convey the same to the holder of the equitable title, and this right of the holder of the equitable title is further established by P. L. 1902 p. 524 (section 44 of the revised Chancery act of 1902). providing that “the decree of the court of chancery shall * * * have the force, operation and effect of a judgment at law in the supreme court of this state,” and P. L. 1902 p. 526 § 46, providing that, when a complainant obtained a decree the court of chancery should have power “to cause by injunction the possession of the effects and estate demanded by the bill, and whereof the possession or a sale is decreed, to be delivered to the complainant or otherwise according to such decree and as the nature of the case may require,” and therefore a court of equity may acquire jurisdiction of a suit to establish rights in personal property in the custody of a person in this state, as against a non-resident, as such a suit would be one quasi in rem; a decree in personam not being necessary to transfer the legal title to complainant.
    8. A contention, that jurisdiction cannot attach for the reason that the court cannot enforce its decree cannot be sustained, since the court can enforce the decree .by the appointment of a receiver to take possession of the property, and by a decree enjoining- the custodian from interfering with the receiver’s possession.--
    9. But such jurisdiction is not dependent on the action of the complainant in moving for, or actually obtaining, the appointment of a receiver, or the issuance of an injunction, but on the existence of the power to seize the property; and a mere possibility that the court’s decree may be rendered nugatory by a removal of the property from the state does not destroy the quality of the suit as one quasi in rem.

    10. Nor is the character of such suit as one quasi in rem taken away by the fact that 'the suit is brought by the custodian of the property, since the same remedies for the enforcement of the decree may be applied at the instance of the defendant.
    Heard on plea to the jurisdiction.

      Messrs. French & Richards, for the complainant.

      Messrs. Linddbury, Depue & FauTlces, for the defendant.
   Stevenson, V. C.

The complainant is a New Jersey corporation and the defendant is a corporation existing under the laws of Pennsylvania, in which state it has its office and conducts its business: The object of the bill is to establish title to five hundred and forty-nine thousand five hundred and four shares of the capital stock of the complainant, of the par value of $1 per share, which the defendant claims to own absolutely. The bill alleges that the defendant’s testator acquired these shares of stock under such circumstances that his executor and trustee, the defendant, must be deemed to hold the same in trust for the complainant; that the sole interest of the defendant in these shares of stock is the right to hold them as security for the sum of $40,000, advanced by the defendant’s testator in his lifetime, in the business of acquiring the shares as agent or trustee for the complainant. The bill shows that the shares of stock in question are what are commonly called treasury stock, i. e., stock once lawfully issued which may be held by or on behalf of the complainant, and lawfully transferred at any time. The bill does not set forth a claim that the defendant is 'holding shares of stock which upon payment of $40,000, should be surrendered for cancellation, or that upon such surrender the shares would ipso fado be retired. According to the allegations of the bill, the shares will remain definite personal property belonging to the complainant in case its title to them shall be established in this suit, having the same legal status as if they were shares of stock in some other New Jersey corporation.

The plea to the jurisdiction is substantially the same as that which was sustained in the case of Wilson v. American Palace Car Co., 65 N. J. Eq. (20 Dick.) 730. It sets forth in effect that the defendant is a Pennsylvania corporation not engaged in business in New Jersey and without any office, agent or place of business in New Jersey, and that it has been proceeded against as an absent defendant under our statute by publication and actual service of notice of the suit, and of the order requiring the defendant to appear and plead, answer or demur to the bill of complaint on or before a time stated. It is not suggested that ample notice of the existence of the suit and of its precise nature lias not been given, and in fact the plea exhibits such an ample notice. The sole bar which the plea attempts to raise to the action is the same which was adjudged effective by the court of errors and appeals in the American Palace Car Company Case above mentioned. In that case the plea was held good because the court found that the action was strictly in personam, and not either an action in rem or an action quasi in rem. It must be conceded that if this present action is strictly in personam the plea is good and must be sustained. It is obvious that the present action is not strictly in rem. The question which must determine the validity of this plea is whether or not this action belongs to that class of actions having some of the characteristics of an action strictly in personam, and some of the characteristics of an action strictly in rem, which of late years have been styled actions quasi in rem. If this is an action quasi in rem, the plea is bad and must be overruled.

The principles which control the decision of the present case are all contained, I think, in the opinion of Vice-Chancellor Stevens in the ease of Andrews v. Guayaquil, &c., Railway Co., 69 N. J. Eq. (3 Robb.) 211 (1905), in which case I understand the decree was affirmed by the court of errors and appeals upon the vice-chancellor’s opinion. The same principles are again laid down and applied by Vice-Chancellor Howell in the case of Sohege v. Singer Manufacturing Co., 73 N. J. Eq. (3 Buch.) 567 (1907). It seems to me that these two recent decisions of this court control the present case, and necessarily lead to the conclusion that the defendant’s' plea to the jurisdiction should be overruled. The essential facts, the controlling facts, in these two cases, in my judgment, are the same as in the case at bar so far as those facts fix the character of the actions as actions quasi in rem. Nevertheless, the above-mentioned two cases certainly present facts not found in the present case, and the present case exhibits facts not found in either of those cases. It is argued on behalf of the defendant that even although this court and the court of errors and appeals have fixed the character of the Guayaquil, &c., Railway Company Case as an action quasi in rem, nevertheless the action set forth in the complainant’s bill in this case is strictly in personam. It must be conceded that there is no de«cided ease in New Jersey presenting precisely the same set of facts with, which we have to deal in this present case, nor has my attention been called to any decision of any court in which the attempt is made to point out and define the essential characteristics of all actions quasi in rem.

In- endeavoring to determine whether the action disclosed by the bill of complaint is one strictly in personam, or quasi in rem, it may be well to bear in mind the respects wherein that case differs from both the Guayaquil, &c., Railway Company Case and tire Singer Manufacturing Company Case. In the case at bar we have a sole complainant resident in New Jersey, and a sole ¡defendant resident in Pennsylvania. Unlike the Guayaquil, &c., Railway Company Case the defendant has not in any way directly, or through an agent, instituted' any action in New Jersey affecting the res, which beyond all doubt is located in Now Jersey. In the Guayaquil, &c., Company Case (and the ¡same was true in the Singer Manufacturing Company Case) the res was capital stock of a New Jersey corporation, but was not the capital stock of the complainant corporation, as counsel for the defendants have erroneously alleged in their elaborate and learned brief. But, further, in the case at bar no receivership is prayed for, and no party having the custody of the res is brought in as a defendant in order to subject the res to the control of the court. The situation seems to he analogous to one where a complainant in New Jersey,'holding the possession of chattels, files a bill in this court to obtain equitable relief .against a defendant not resident in New Jersey, in respect to such chattels. This case will also, I think, appear on further -consideration to be analogous to a suit in this court for divorce brought by a resident of New Jersey against his non-resident ¡spouse.

The authorities which control this court indicate, I think, the following as the essential elements of an action quasi in rem:

1. A res located within the territorial limits of the state in such a way that the state can, if it see fit to do so, exercise absolute power to control and dispose of it.

2. A course of judicial procedure, the object and result of which are to subject the res to the power of the state, directly by the judgment or decree which is entered as distinguished from a course of procedure which only affects or disposes of the res by compelling a party to the action to- control or dispose of the res in accordance with the mandate of the judgment or decree.

3. A course of judicial procedure on its face directed specifically toward the res so as to- disclose this res to the defendant when reasonably notified of the action. The failure to recognize this element, it seems to me, vitiates the argument contained in the minority opinion of Mr. Justice Hunt in Pennoyer v. Neff, 95 U. S. 714 (1877). A citizen of New Jersey when notified that an action has been brought against him for the recovery of a money judgment in the State of Colorado,, may elect to disregard the notice so received. He may prefer not to appear and have his ease tried under disadvantageous-circumstances in a remote court, the result of which would be a judgment binding upon him. He may not know that he has-any property situate within the jurisdiction of the Colorado-court. The Colorado' action out of which arose the case of Pennoyer v. Neff, was not specifically directed toward the res, nor was any effort made to notify the defendant, the non-resident owner of the res, that any such res existed, or that the action had any relation to- it. The course of procedure prescribed by the Colorado statute and pursued in the case above mentioned, in respect of the matters now under consideration, is analogous to a foreclosure suit brought in New Jersey against an owner of the equity of redemption residing in New York, in which the-notice of the suit served or published merely states that En-action in the court of chancery of New Jersey has been brought against the non-resident defendant, without further informing-Mm that the object of the action as described in the bill of complaint is to foreclose a mortgage on land belonging to the defendant and situate in New Jersey. An heir of the mortgagor residing in a foreign state may not have the slightest knowledge of the existence of the res of which he is the owner or part owner.

The notice to non-resident defendants prescribed by our Chancery act (P. L. 1902 p. 514 §§ 12, 18) is plainly intended to be a notice which shall apprise the defendant not only that he is sued but also of the nature of the suit, and such notice necessarily involves a disclosure of the res toward which the suit is directed. The statute (section 13) makes it the duty of the chancellor to prescribe the exact form and scope of the notice by rule of court, and in the discharge of this duty the chancellor has ordained that such notice shall state “the object of the suit and why the persons to whom it (i. e., the notice) is addressed are made defendants.” Buie 58. If the Colorado statute above referred to had consistently with the constitution of the state prescribed an action in which the plaintiff not only set forth his money claim against the defendant, but also described property of the defendant situate in the State of Colorado and within the jurisdiction of the court, and prayed not only for the establishment of the money claim against the defendant, but the application of the property described to the payment of such claim, it seems to me a plain instance would be presented of an action quasi in rem. It is plain that no notice to the defendant of such an action quad in rem would be reasonable which did not distinctly disclose the res and its relation to the defendant, and to the demand of the plaintiff.

The origin of the jurisdiction of our courts in actions quasi in rem is to be found in the power of the sovereign state to exercise control over all objects to which that power can be directly applied. The state must control all property within its territorial limits. Parties interested in that property and residing within the state, or voluntarily coming into the state in order to have their rights in respect of the property in question enforced or protected, have a right to be heard in the courts of the state, and the utmost that can be demanded on the part of non-resident defendants is that they shall be fairly notified of the action so as to have an ample opportunity to appear and be heard therein. When these conditions exist the rights of all parties interested in the res are determined by due process of law.

Formerly, when a decree in equity for the specific performance of a contract to convey real estate was enforceable solely by the compulsive power of the court brought to bear upon the defendant so as to constrain him to make a conveyance in accordanee with his contract and the decree of the court, the action in which such a decree was obtained was strictly an action m personam. Spurr v. Scoville, 3 Cush. 578. As stated by Mr. Justice Gray, in Hart v. Sansom, 110 U. S. 151: “Upon a bill for the removal of a cloud upon the title as upon a bill for the specific performance of an agreement to' convey the decree, unless otherwise expressly provided by statute, is clearly not a judgment in rem establishing a title in land, but operates in personam only by restraining the defendant from asserting his claim and directing him to deliver up his deed to be canceled, or to execute a release to the plaintiff.”

When, however, the state, through its legislature, imparts an equality to tire decree in equity in the classes of cases above mentioned, so as to make such decree operate directly upon the res so as to make the decree establish the rights of the parties litigant in respect to the res, irrespective of any compulsory action by the parties themselves or any of them, the whole character of the action at once is changed, and what was under the former course of procedure an action strictly in personam becomes an action quasi in rem. Arndt v. Griggs, 134 U. S. 316.

In the present case the res is personal property. It does not follow that because anciently an equity decree affecting real estate operated only m personam, and did not, proprio vigore, transfer or establish title, that such decrees affecting personal property within the jurisdiction of the court were in the same way limited in their practical operation. Assuming that formerly in neither case did the decree establish title but only the right of the complainant to receive a title, the important distinction still remains that, in the case of real estate title did not pass upon delivery of possession, whereas in the case of chattel property it did. Anciently the court of chancery would not give to a successful complainant in a suit for the specific performance of a contract to convey real estate,' a writ of assistance to put him in possession, because no legal title would be thereby established. The same difficulty does not exist in the case of chattels. The argument to sustain the plea in this case seems to assume that a party complainant, who has obtained a final decree in this court establishing his equitable title to chattels in possession of a defendant holding legal' title thereto, and who in pursuance of such decree has actually obtained possession, has no legal title and will have none until the defendant has voluntarily or under the compulsion of the court executed a conveyance. The general principle, I think, is now recognized that a bare legal title to chattels ceases to exist when the holder of a complete equitable title takes possession, for the reason that such possession creates a legal title. Kronson v. Lipschitz, 68 N. J. Eq. (2 Robb.) 367 (1904). Such certainly must be the effect of the union of a complete equitable title and possession when the only right or duty in respect of the chattels remaining in the original holder of the legal title is to convey the same to the holder of the equitable title. Possession of a chattel under a complete equitable title in such a ease must make a complete legal title.

We are not, however, at the present day in a case like this, confined to the consideration of those principles of equity jurisprudence and equity procedure and practice which were recognized a hundred years ago. Mr. Paterson’s famous Chancery act of 1799 contained a number of provisions which, I think, bear very directly upon the subject under discussion. Section 47 provided that a decree of the court of chancery “for a conveyance, release or acquittance,” after the allotted time for compliance had passed, should be considered “in all courts of law and equity to have the same operation and effect, and be as available as if the conveyance, release or acquittance had been executed conformably to such decree.” Pat. L. p. JfSS. There seems to be nothing in this language, especially when considered in the light of the section of the statute next to be cited, which limits the conveyance, &c., to instruments affecting real estate only. This original statute, apparently extending to all classes of property, came down through the revision of 1846 unaffected. Rev. Stat. p. § 56. In 1852, in a supplement to the Chancery act of 1799, a provision was inserted making a decree of the court of chancery for a conveyance, release or acquittance “of lands or any interest therein” directly and immediately effective to pass title, notwithstanding the disability of any party to the suit whose estate was so transferred “arising from infancy, lunacy, coverture or otherwise.” P. L. 1802 p. 257 § 6. Section 47 of Paterson’s law, however, remained entirely unaffected by this new law which merely provided for a wider effect of a decree in the case of real estate than the effect of a decree relating to personal property.’ The revisers who drafted the Chancery act of 1874, possibly deeming that they were only ’ expressing what had theretofore been implied, consolidated to a certain extent the two laws above mentioned, and left their unified and revised section applicable to real property only. Rev. Stat. p. 115 § 63. The section as drafted in 1874 is now found in section 45 of the revised Chancery act of 1902. P. L. 1902 p. 525. Conceding that the argument on behalf of the complainant cannot be strengthened by any reference to the existing law defining the effect of a chancery decree directing a “conveyance, release or acquittance,” nevertheless there are other provisions in the act of 1799, and an early supplement thereto, which remain to-day unrepealed, which, I think, greatly strengthen the force and effect of a chancery decree relating to personal property and undertaking t'o establish title thereto when the situs of the property is within the jurisdiction of the court.

Section 46 provides that the “decree of the court of chancery shall * * * have the force, operation and effect of a judgment at law in the supreme court of this state.” This mandate is now found unchanged in section 44 of the revised Chancery act of 1902. P. L. 1902 p. 524. The dictum of Chief-Justice Hornblower in deciding the case of Van Buskirk v. Mulock, 18 N. J. Law (3 Harr.) 184 (1840), which would greatly limit the meaning and effect of this statutory provision, may certainly, at the present day be disregarded, the decision itself having been overruled. Bullock v. Bullock, 57 N. J. Law (28 Vr.) 508 (Court of Errors and Appeals, 1895); Mutual Life Insurance Co. v. Newton, 50 N. J. Law (21 Vr.) 571, 575 (1888).

In the supplement to Mr. Paterson’s Chancery act, passed in 1820, it was provided that when the complainant obtained a decree the court of chancery should have power, among other things,

“to cause by injunction the possession of the effects and estate demanded by the bill, and whereof the possession or a sale is decreed, to be delivered to the complainant or otherwise, according to such decree, and as • the nature of the case may require.” Rev. L. 1821 p. 105 § 1.

This language is repeated in our present Chancery act. P. L. 1902 ¶. 626 § 4.6.

Whatever may have been the exact doctrine prior to these statutes, it seems to me that ever since these acts were passed a decree of the court of chancery of New Jersey establishing a complete equitable title to personal property, coupled with actual possession by the equitable owner, constitutes a legal title which must be recognized as such in courts of law as well as in courts of •equity. It may be admitted that the complete equitable title referred to does not include cases where the holder of the legal title has any interest or has any duty as trustee or otherwise to perform with respect to the property in question othan than the duty to •convey the same to the equitable owner.

The question now arises whether a decree of the court of chancery of New Jersey, establishing a complete equitable title to personal property, can be enforced by the court in any other way than by compelling action on the part of the defendant in the way of delivering up possession. I shall not discuss this question at length, because it is no longer an open one in New Jersey, while the two recent decisions of this court above cited remain in full force. A careful examination of the ancient rules of equity applicable to the case, with the aid of the statutory provisions above set forth, in my opinion, leaves no ground for, the proposition that the court of chancery of this state, having pronounced a decree establishing title to personal property within its jurisdiction, and in the custody of a party to the suit, can only give possession of the property to the party who is entitled to it under the decree by compulsive force exerted upon the custodian constraining him to deliver up possession. The court may appoint a receiver, and such receiver will have a right to possession, and may take possession, and the custodian, after being enjoined from preventing the receiver from taking possession, may be removed as an obstructive force and be placed in jail.

But without pursuing this subject further, it may be pointed out that prior to the Chancery act of 1799 the fundamental weakness of a decree of the court of chancery in suits to obtain title to real estate, such as suits for.specific performance of a contract to convey real estate, did not arise out of any essential incapacity of the court to obtain possession of the res or to give possession of the res to the party entitled thereto under the decree. The fundamental weakness of the decree consisted in the fact that possession of the res gave no legal title under the technical rules of law governing the transfer of freehold estates in land. • Possession, which was so potent for the transfer of title to personal property, has had no effect to transfer a freehold title to real estate since the days of livery of seizin.

It is undoubtedly true that an action strictly in personam may be brought in the court of chancery of New Jersey for the recovery of corporate stock, the situs of which is in New Jersey. In the Guayaquil, &c., Railway Company Case, if the complainant in the cross-bill had commenced an original suit against the resident of the State of New York who claimed to own the stock of the Guayaquil, &c., Railway Company in dispute, without making the last-mentioned company a party to the suit, it seems to me that the action would have been strictly in personam. The decree in such case, even if the defendant had appeared in the suit, would have had no direct effect upon the possession of the res, nor do I see that proceedings upon the decree could have been conducted which would have had the effect to give the successful complainant possession of the res. The decree could only have been enforced by compelling the defendant, by stress of imprisonment, to execute a transfer or otherwise deliver the shares in dispute to the complainant in conformity with the decree. The New Jersey corporation would have been left free to act in relation to the disputed shares of its stock as it might see fit. It is unnecessary to discuss the effect of the decree in a new suit brought by the complainant against the custodian, the Guayaquil, &e., Railway Company. The point to be observed is that a decree in an action against the non-resident stockholder, as sole defendant could not operate directly upon the res and be made to control and disjtose of the res without regard to any action on tlie part of the sole' defendant which the decree might direct to be taken.

In supporting the proposition that the present suit is strictly a suit in personam the brief for the defendant alleges “that the object of the suit is to obtain relief which could only be decreed in personam ” and points out that “the prayer is specifically limited to a decree directing the defendant to transfer the shares of stock in question,” and that “the operation of the decree would be purely against the person of the defendant.” In support of these views it is alleged that “the case differs from those in which decrees are sought to compel the conveyance of lands,” in which cases by statute the “decree, if not complied with by the defendant, can operate itself as a conveyance,” and it is insisted that “no similar provision is made for the transfer of property purely personal” such as the shares of stock in question.

This argument seems to rest upon a mistaken view' of the nature of the case set forth in the complainant’s bill, and of the relief therein prayed for, as well as an inadequate view of tlié power of the court of chancery to enforce its decree affecting personal property which it can seize and control. The allegations of the bill show that the stock in litigation is charged with a trust for the complainant’s benefit; that the complainant is the equitable owner of this stock, and that the defendant as executor, &c., has no estate or interest therein excepting so far as the same stands as security for the sum of $40,000. The prayer of the bill is that the rights under the trust above mentioned may be established by the decree of the court as well as that the defendant may be decreed to assign and transfer the said shares of stock to the complainant upon payment of the said sum of $40,000 with the interest thereon.

Of course, it must be conceded that in any action to recover stock, if the relief prayed for includes the surrender of a certificate, or the execution of an assignment or power of attorney, such relief can only be obtained by compelling the defendant to act, and if such relief is the whole relief prayed for, the action, as we have seen, may be strictly in personam. In the present case, while the bill prays that the defendant may be decreed to assign and transfer the shares of stock in dispute, the main relief prayed for is the establishment of the complainant’s equitable title. The jurisdiction of the court is sustained by the existence of a trust — a trust in respect of a res situate within the jurisdiction of the court and in the custody of a party to the suit. If the complainant shall obtain a decree in this case establishing its right in respect of the res, and then shall desire to secure the surrender of the outstanding certificates representing the res, it may be obliged to bring a suit in the State of Pennsylvania in order to secure such surrender. A similar situation would exist if the defendant were a natural person resident in New Jersey, who had been duly served with process in New Jersey, but who had gone out of the state carrying with him the certificates representing the stock which was the subject-matter of the litigation. In such a case, however, the decree would be enforceable in personam whenever the defendant could be seized within the State of New Jersey.

The last matter to be considered is whether it is necessary, where the res is personal property, to have the res actually placed within the custody of the court through the instrumentality of a receiver, in order to give to the action the quality of an action quasi in rem. I can find no warrant in reason, and none in the authorities, disregarding a few dicta, which make the actual seizure of the res by air officer of the court essential to the status of the action as one quasi in rem. The fundamental essential, of course, must be that the personal property, which is the res, is so situated within the state that it may be seized. In other words, the res must be within the control of the state. If the state provides for an action affecting the res, but the court in which the action is brought has no power to directly control the res, and can only control the res by compulsory action on the part of the defendant, then we have an instance where the state has full power to provide for an action quasi in rem, but has seen fit not to do so — has seen fit to provide only an action strictly in personam. It is not the actual seizure of the res which is the essential element of an action quasi in rem, but the power to seize the res and to seize it in the action. If the res is within the jurisdiction of the court, it may be entirely unnecessary to take possession of it through a receiver in order to secure its presence when the decree of the court is to be enforced. An injunction restraining the custodian of the res, who is a party-defendant, may be amply sufficient to secure the desired result. Neither a receiver nor an injunction may be necessary to preserve the res within the control of the court. So long as the res is situate within the jurisdiction of the court, and the custodian of the res is made a party to the suit, the requirement of an action quasi in rem under consideration seems to me to be complied with. The mere fact that the failure of some party to the action to move for an injunction, or for the appointment of a receiver, may, in fact, result in the disappearance of the res pending the suit, and its absence from the state, when the final decree passes, cannot^ in my judgment, affect the .essential character of the action at the time when it was commenced, if at that time the res was within the state and within the control of the court. The actual seizure of chattels which constitute the res, and the custody thereof in a receiver appointed by the court, cannot exclude the possibility that the res may be removed from the jurisdiction of the court while the action is pending. It is, however, unnecessary to consider several questions which are suggested in regard to the effect of the removal of the res' prior to the final decree in an action which is plainly, at the time of its institution, an action quasi in rem. In considering the essential nature of an action quasi in rem, both at the time of its institution and at the time of the final decree, there is a plain distinction between the mere possibility that, pending the action, the res may be removed from the jurisdiction of the court, and the actual removal of the res.

I think it follows from the principles enunciated in a number of recent federal cases, and in the New Jersey cases above cited, that an action like the present one, brought by the complainant to establish a trust in shares of stock in a New Jersey corporation, is an action quasi in rem, provided the corporation, the stock of which is in litigation, is made a party to the suit, and is lawfully subjected to the jurisdiction of the court in which the suit is brought by service of process within the state or by voluntary appearance. Arndt v. Griggs, supra; Jellenik v. Huron Copper Mining Co., 177 U. S. 1; 44 L. Ed. 647; Roller v. Holly, 176 U. S. 398; 44 L. Ed. 520; Citizens Savings and Trust Co. v. Illinois Central Railway Co., 205 U. S. 46; 51 L. Ed. 703.

All parties, whether resident in New Jersey or residing in other states, may be lawfully brought into the suit by serving process upon the New Jersey residents, and giving the reasonable notice provided by law to the defendants residing in other states. I discover no basis- for the proposition that the whole fabric of the action quasi in rem falls to the ground unless the court of chancery, through a receiver, attempts in some way to take possession of the res and actually obtains such possession.

The question remains whether, when the custodian of the res, the New Jersey coloration, whose stock constitutes the res, comes into court as a party complainant, the case is essentially different from that which is presented where.the custodian is made a part3 defendant. In each case the res is subjected to the power of the court, in the one case by the control over the res, which the court acquires when the custodian of the res is brought into court by service of process, and in the other by the voluntary action of the complainant in coming into court and presenting to the court for adjudication his claims in respect of the res. No doubt the court, at the instance of the defendant, may preserve the res to meet the decree of the court by an injunction or by a receiver.

Tf, however, in cases like the Guayaquil, &c., Railway Company Case and the Singer Manufacturing Company Case, a prayer for a receiver or the appointment of a receiver, or the actual placing of the res in the custody of a receiver, is necessary to give the action the status of an action quasi in rem, I do not think that it would necessarily follow that such receivership proceedings would be necessary to constitute the present action one quasi in rem. If the decree in this case is in favor of the complainant no action on the part of any receiver is necessary. The situation of the res is not disturbed.' The complainant stands with its equitable rights to the res established b3 the decree, and it remains in possession of such res. If, on the other hand, the decree is in favor of the defendant, no action on the part of any receiver can do the defendant any good. Presumably the defendant holds some certificates which have already been issued representing the stock in dispute. The decree will merely adjudge the complainant’s claim void and establish the title of the defendant. Assuming that there are certificates representing the res in possession of the defendant in the State of Pennsylvania, it is somewhat difficult to see precisely what a receiver could take into his possession. In the Singer Company Case the stock in litigation was stock of a New Jersey corporation which was made a party to the suit and was practically the custodian of the res. This corporation was enjoined from transferring the stock, and receivers were appointed according to the report “to whose charge and custody” the court “committed the shares in question.” What was actually done by the receivers in the way of getting possession of stock in a corporation, the certificates of which had been lawfully issued, and were in the possession of a party beyond the jurisdiction of the court, does not appear.

My conclusion is that the present action has all the essential characteristics of an action quasi in rem, and that the defendant having been duty notified of the suit so as to give it an ample opportunity to appear and make defence therein, will, if it refrains from appearing, be bound by the decree so far as the same relates to the status of the res, and that in such case the defendant cannot'maintain that it is deprived of property without due process of law. This conclusion is not affected by the admission that, if the defendant were a natural person and should come within the jurisdiction of the court after the decree had been passed, the court would have no power, by process of contempt or otherwise, to enforce the decree so far as such decree might undertake to constrain the defendant to deliver certificates of stock, execute assignments or powers of attorney or pursue any other course of conduct relating to the res which the decree might undertake to prescribe.

An order will be advised overruling the 'plea.


source: Caselaw Access Project

author: Garrison, V. C.

license: Public Domain

text:
    Joseph Feudtner v. Robert Ross, executor, &c.
    [Decided February 11th, 1908.]
    1. A unilateral contract contained in a lease, and purporting to bind the lessor, will be upheld; the rent reserved in the lease being a sufficient consideration for the contract.
    2. A purchaser of a mortgage during foreclosure bought the premises at the foreclosure sale, and leased them to the mortgagor, and agreed that, if the mortgagor purchased them on or before a designated date, the purchase price would be a specified amount. The mortgagor accepted after the designated date leases in which no reference was made to his right to purchase. — Meld, that the agreement gave to the mprtgagor a mere option to purchase before the designated date.
    Heard on bill, answer, replication and proofs in open court.

      Mr. James J. Furey and Mr. Gilbert Collins, for the complainant.

      Messrs. McDermott & Fish, for the defendant.
   Garrison, V. C.

The immediate object of the bill in this suit was to obtain an injunction to prevent the defendant from dispossessing the complainant from a piece of land in Jersey City. The ultimate and important object of the bill was to secure title and possession in the complainant of the land in question.

The bill was framed upon the theory that a trust existed between Mathews in his lifetime (the defendant being his executor) and Feudtner, and the complainant prayed that (by means which need not be recited) this trust should be so carried out and enforced that title would be vested in him.

There was an utter failure of proof of any trust, and the case was actually tried and argued upon another theorjq namely, that there existed between Mathews in his lifetime and Feudtner an agreement by which Mathews agreed to convey the property to Feudtner for $1,150.

I shall decide the ease with respect to this theory.

The proofs show that Jacob Feudtner owned the land in question prior to the 1st day of February, 1901. There was a mortgage upon the property for $675 held by people named- Neilson. This mortgage was being foreclosed prior to the date mentioned. During the process of foreclosure Frank J. Mathews bought the mortgage from the Neilsons. Frank J. Mathews and Feudtner had some sort of an understanding or had had some talk concerning the property prior to the decree of foreclosure. There is no evidence as to what this talk was, or what arrangement, if any, was made between them. The property was sold about February 1st, 1901, under the decree of foreclosure and was bought in by Mathews for less than the amount of his decree. After the sale in foreclosure, and in the early part of March, 1901, Mathews came to the premises and saw Feudtner in the presence of Feudtner’s son. Mathews had with him a piece of paper upon which was written various items concerning this property, namely, the amount of the foreclosure decree, the costs and sheriff’s fees, the back taxes and other like items, showing an aggregate of $1,137. At this interview Mathews, giving this paper to Feudtner, told him that he, Mathews, had bought the property in at sheriff’s sale, that Feudtner should not worry, that he might at any time he wanted buy it back at the same price that Mathews paid for it providing he paid Mathews interest on that amount.

Subsequently the parties entered into a lease for the premises in question, dated March 22d, 1901, providing for a term running from the 1st of February, 1901, Feudtner having been in possession all the time, and that date being the date of the sheriff’s sale. This lease provided for an annual rental of $100, payable in quarterly installments of $25 each. On the back of this lease, in Mathews’ handwriting, there was written as follows: "March 22d, 1901, purchase price $1,150 if purchased before August 1st, 1901. F. J. M.”

There was no proof of any other lease during Mathews’ lifetime. Mathews died on the 22d of August, 1902. After Mathews’ death the Frank J. Mathews Company managed this property as the agent of Kobert S. Eoss, the executor of Mathews, and there were four leases executed between Eoss and Feudtner. These leases were, respectively, for the years 1903-1904, 1904-1905, 1905-1906 and 1906-1907, the last one terminating on the 1st day of May, 1907. No one of these leases, either in its body or by endorsement, contains any reference whatever to the matter of purchase. The rent reserved in each lease, excepting the last one, was the same as stated above. In the last lease the rent was increased to $120 a year, payable in quarterly installments of $30 each. It was not until this raise in rent was made that Feudtner seems ever to have communicated to Eoss or to anyone in his behalf that he, Eerrdtner, claimed to have any contract to purchase the property.

Before the signing of this last lease Feudtner did go to the office of the Mathews company and state that he had a contract with Mathews, but he did not produce whatever it was that he claimed to have.

Later than this he informed Mr. Eoss personally that he claimed to have such a contract, but as Eoss knew nothing about the matter he referred him to the agent of the Mathews company which had managed the property, and there the matter ended.

After the termination of the last lease the defendant started dispossess proceedings against the complainant, and it is those proceedings which the complainant seeks to enjoin by this bill.

The contention of the complainant now is that the facts show a contract made by Mathews in his lifetime with Feudtner by which it was agreed that Feudtner might purchase the property for $1,150, and that time is not of the essence of this contract, and, therefore, it should be enforced now.

The complainant, of course, concedes that if there was any contract it was unilateral, and he endeavors to bring himself within those cases, not necessary to be cited, which have held that a unilateral contract contained in a lease will be upheld because the rent reserved will be held to be sufficient consideration for the contract. This principle is firmly established, and, if it applied, would undoubtedly result favorably to the complainant.

But I clo not find that the fatíts bring the complainant within the principle contended for.

I think it clear that all that can be said to be proven in this case in favor of the complainant is that Mathews, by a writing (which, if it satisfies the statute of frauds,) agreed'with him that if he purchased the property on or before August 1st, 1901, the purchase price would be $1,150.

It may be conceded, without being decided that it is the law, that if Feudtner, on or before August 1st, 1901, had tendered to Mathews the $1,150, he could have required Mathews to convey the property, contending that this endorsement on the back of the lease should be read with the lease, and the rent reserved would be sufficient consideration, and his rights, therefore, would be enforced in accordance with the' principle of law contended • for.

But I do not think that the facts proven in this case amount to any more than an option given by Mathews in favor of Feudt- ' ner, by which the latter, if he exercised the option before the date fixed, might obtain the property at the price named. • This gives fiill weight, I think, to all of the proofs adduced in favor of the complainant. It also gives effect to the written papers which must control in this matter, and is consistent with the conduct of the parties. To now hold that Feudtner may exercise this right, after the acceptance by him of the four subsequent leases, in which no reference whatever is made to the matter of purchase, and to so extend the language of the endorsement on the first lease as to hold it an unlimited agreement to sell, would, in my view, be a most dangerous and unwarranted extension of the principles which control the subject of agreements with respect to real estate.

Under these circumstances I am constrained to deny the relief prayed for, and to advise a decree in favor of the defendant.


text:
    Marie G. Kuerzi v. Henrietta Scott et al.
    [Decided February 11th, 1908.]
    A stipulation in a bond and mortgage to secure the payment of money borrowed as to the date when the interest on the money should begin to-run was controlling, though the money was not paid over to the borrower until a much later date, where the agreement for the loan was made at the time stipulated, and the whole of the money was then held ready for the use and control of the borrower.
    Heard on bill, answer, replication and proofs in open court.

      Mr. William H. Osborne, for the complainant.

      Messrs. Traphagen & Beehman, for the defendants.
   Garrison, V. C.

This is a suit to foreclose a mortgage given by Henrietta Scott and her husband to- Marie G. Kuerzi. The bond and mortgage are dated March 20th, 1906, and call for interest at six per cent-from the 15th day of March, 1906.

The only question that I find necessary to advert to in the decision relates to the matter of interest. It is the contention of the defendants, the mortgagors, that interest should not be calculated from the 15th day of March, 1906, the date which, in the bond and mortgage, is fixed as the time from which the interest is to be calculated.

They base this contention upon the fact that the money, or the-bulk of it, at least, was not actually paid over to them until a much later date, and this is true.

Sufficient appears to show that the defendant Mrs. Scott was purchasing a property from a third party, and desired to obtain from Mrs. Kuerzi $7,000 to pay on account of the purchase-money. She made an agreement with Mrs. Scott to obtain this money some time in February or March, and the uncontradieted testimony is that from that time, which is fixed by the witness as March 15th, 1906, the whole of the $7,000, at the request of the mortgagors, was held ready for their use subject to their call. Under these circumstances, I find that the stipulation in the bond and mortgage as to the date of interest controls, and there is no reason in equity why the mortgagors should not be called upon to pay interest from the stipulated date.

An authority in point in the State of New York will be found in Bevier v. Covell, 87 N. Y. 52.

I will advise a decree accordingly.


text:
    Mary E. Filley, executrix, &c., v. Frederick A. Van Dyke et al.
    [Decided February 17th, 1908.]
    Where a bill by a distributee in the estate of a decedent alleges that the estate has not been settled, and that no decree of distribution has been made by the orphans court, and fails to aver any special reason or cause why the court of chancery should interfere with the administration of the estate in the orphans court, the court of chancery will not interfere.
    On bill and demurrers.

      Mr. John J. Crandall, for the complainant.

      Messrs. Godfrey & Godfrey, for the demurrant the Guarantee Trust Company.

      Messrs. Thompson & Cole, for the' demurrant Atlantic Safe Deposit and Trust Company.
   Garrison, V. C.

The demurrers in this suit were filed by the Guarantee Trust Company and by the Atlantic Safe Deposit and Trust Company.

The complainant is the executrix of the will of her mother, who was entitled to a distributive share of the estate of Sarah E. Buck, deceased, late of Atlantic county. Of the estate of Sarah E. Buck, Frederick A. Van Dyke and William B. Tan Dyke were administrators, under appointment of the surrogate of the county of Atlantic. Subsequent to their appointment the orphans court of Atlantic county'substituted the Guarantee Trust Company of Atlantic City in place of Frederick A. Tan Dyke.

The bill charges that the estate of Sarah E. Buck has never been settled and no decree of distribution has been obtained from the orphans court of Atlantic county. It charges that one of the administrators, namely, Frederick, has refused to turn over to the substituted administrator the assests of the estate,' and that the bondsman of Frederick is liable therefor. It also charges that the substituted administrator has failed to compel the turning over to it of the assets by Frederick,

There are some charges of fraud in general language, but no specific charges thereof.

I cannot find anywhere in the bill any charges which show that the whole matter cannot be dealt with by the orphans court of Atlantic, county. The only thing which would suggest that it could not is that the judge of that court has bad some relations with this estate as counsel or otherwise, or has been counsel for some of the parties. It is not distinctly charged that he has acted in the suit as judge, but there is an intimation that such is the case. It is possible that this would be a special cause or reason, within the meaning of the authorities, for taking over the administration in this court. If distinct charges of fraud are made, or of the existence of a situation which cannot be dealt with in the orphans court, this court will take over the administration of this estate. But upon the present bill as framed I do not find any specification of special reason or cause which should induce this court to interfere with the administration of the estate in the orphans court of Atlantic county.

There is nothing in the bill, so far as I can see, which requires the interposition of equity, nothing which is not the proper subject of the jurisdiction of the orphans court.

Under these circumstances, this court will not take over the case. Wyckoff v. O’Niel, 71 N. J. Eq. (1 Buch.) 681 (Vice-Chancellor Garrison, 1906).

The effect of sustaining the demurrer will not, however, be to deprive the complainant of the right to lile a bill with specifications of facts, if such exist, which would constitute a special cause or reason inducing this court to take over the administration from the orphans court; and if counsel for the complainant so desires and finds it necessary, such a reservation will be made in the order.

I will advise that the demurrers be sustained, with costs.


text:
    New York and Eastern Telegraph and Telephone Company v. Great Eastern Telephone Company et al. De Elbert A. Reynolds et al. v. New York and Eastern Telegraph and Telephone Company.
    [Decided March 2, 1908.]
    1. While a corporation which has issued two certificates for the same stock may not assert the validity of. one and the invalidity of the other, so that the rights of the holders cannot be settled in an action by the corporation, yet there is no objection to defining the relation of the holders to the corporation in an action by one of the holders to which the corporation and all claimants of the stock are made parties.

      2. Where a promoter to whom stock was issued agreed to hold part of it for a specified purpose, the corporation by issuing other stock in place of it, and recognizing the validity of the issue and subsequent transfers thereof, was estopped to deny its validity in the hands of a subsequent dona fide purchaser without notice of the equities existing in favor of the corporation or the promoter.
    8. Where all of the capital stock of a corporation was issued and outstanding, one purchasing from a stockholder an old certificate in lieu of which new certificates had been issued did not become a stockholder.
    4. 'A stock certificate is merely evidence, and does not itself constitute the right of a stockholder.
    8. Where stock has been rightfully issued, even though nothing has been paid on it by the subscriber, it can only be forfeited in the mode prescribed by statute, and the procedure therein prescribed must be strictly followed.
    6. Where the enterprise for the purpose of which a corporation was formed was dormant and nothing was being done in the way of construction, and none of the proper steps were taken to legally forfeit stock for non-payment of assessments, an attempted forfeiture of the stock and the issue of new certificates to the corporation’s counsel in payment for a past-due indebtedness did not affect the rights of the original holder.
    7. A dona fide purchaser without notice of shares of stock was unaffected by equities which might have affected the stock in the hands of an intermediate holder.
    Heard on bills, answers, cross-bills, answers, replications and proofs in open court.
    The two above-entitled cases .were tried together. That in which the New York and Eastern Telegraph and Telephone Company is complainant is a bill setting out facts concerning the stock issues of that corporation and charging that certain certificates of stock thereof purchased by the defendants are not, in law, valid, and should not be held to entitle the holders to participate as stockholders in the corporation. The prayer is for an injunction to prevent the holders from acting as stockholders, and for a decree directing the surrender of the alleged void certificates for cancellation.
    To this bill De Elbert A. Reynolds, the original purchaser; Edward M. Millard, to whom some of the stock was transferred, and the Great Eastern Telephone Company, for whom the alleged purchase was assumed to be made, were defendants.
    A cross-bill was filed by the defendants in which the validity of the shares in question is asserted, and it is prayed that certain stock in the complainant company should be canceled, and that the stock held by the defendants should be recognized as valid, outstanding stock of the company.
    In the other suit, that in -which De Elbert A. Eeynolds and others are complainants, it is charged that they are the holders of stock in the New York and Eastern Telegraph and Telephone Company, the complainant in the first-named suit (certain of their alleged holdings being the questioned stock); that the corporation is denying their rights, and it, together with the other persons, who are also denying their rights upon the assumed claim that the stock in question belongs to such other persons and not to the complainants, are made defendants. The prayer, broadly stated, is to establish the right of the complainants and invalidate the claim of the individual defendants as stockholders.
    To this bill answers were filed by the several defendants.
    Dpon the issues thus raised the cases were tried together.
    After the oral argument in court a conclusion was reached and stated, but the solicitor for the complainants in the second-named suit desiring to be heard upon a re-argument, the same was granted, and the- conclusions hereinafter stated are not only the oral conclusions stated at the time of the trial, but the result of the court’s determination after the re-argument.

      Messrs. Yredenburgh, Wall & Carey and Mr. Be Fere (of the New York bar), for the New York and Eastern Telegraph and Telephone Company.

      Mr. J. Merritt Lane and Mr. Yermilyea (of the New York bar), for De Elbert A. Eeynolds et al.
   Garrison, V. C.

Any doubt as to the "jurisdiction of the court in the premises to settle the respective rights of the parties under the bill filed by the New York and_ Eastern Telegraph and Telephone Company is, I think, set at rest by the issues properly raised and to be determined in the bill filed by De Elbert A. Eeynolds and others.

While it may be true that a corporation may not, where it has issued and recognized two certificates for the same holding, be heard to assert the validity of one and the invalidity of the other, and that the rights of. the two holders may not be properly settled in such a suit, particularly as they are not here parties, there can be no question, in my view, that in the suit in which Beynolds is complainant, and in which he has brought in all of the holders of the disputed stock, it is proper to settle, as between these persons, their respective rights.

The New York and Eastern Telegraph and Telephone Company is a corporation of the State of New Jersey, incorporated in March, 1894. Its general purpose was to own and operate telegraph and telephone lines. Its authorized capital stock was composed of fourteen hundred shares. There were originally seven incorporators who took fifteen shares each. Subsequently, by appropriate action, they became entitled to take twenty-five more, making forty each. After that three more persons came in, and by appropriate action became entitled to take forty each. These ten, being each entitled to forty, held the four hundred shares initially issued.

A man named Mildenburg was the promoter of the corporation and rendered a bill to it, and it agreed to pay him for services and some properly in the way of a franchise, which he transferred to or secured for it, by giving him one thousand shares of the capital stock of the corporation. These one thousand shares added to the four hundred shares above accounted for make the full authorized stock issue of the company.

Mildenburg agreed to give up seven hundred of these one thousand shares, and at first it was tire understanding that each of the ten stockholders already mentioned should receive seventy shares out of these seven hundred, but afterwards it was agreed that they should only have fifty shares each, which would take up five hundred, and that the other two hundred shares remaining out of the seven hundred should belong to the company. These two hundred shares have been referred to as “treasury stock,” but this was a mere term, because there was no direct, distinct understanding as to how the company was to derive the benefit from this stock. It was not determined whether Mildenburg was to hold it and sell it for the company and turn the money in, or whether he was to hand it over to the company and it was to sell it, or what procedure should be adopted.

The only thing that was clearly agreed upon was that the stock was legally issued and belonged to Mildenburg before he parceled it out, and that two hundred shares of it should be so disposed of as to benefit the company.

With respect to certain of the stock thus parceled out Mildenburg’s contention was — and it seems to have been acquiesced in by all the others — that fifty shares in the name of Rich, fifty in the name of Morris, fifty in the name of Noden and fifty in the name of Skinner were to go back to Mildenburg, they being dummies of his in this transaction. The method of parceling it out was to have Mildenburg endorse the power of attorney in the names of the various persons, but the stock was not delivered to these people nor was it then transferred into their names.

Some time in the year 1895 Mildenburg went to Europe and transferred the whole of these one thousand shares of stock which had been issued to him in twenty-five certificate lots, to Gustave A. Jahn, who was a stockholder of the corporation and a director therein. The powers of attorney on these shares were properly signed by Mildenburg.

On the 18th of November, 1895, and while Mildenburg was still in Europe, Jahn caused the company to issue to him a certificate for two hundred and twenty-five shares, to E. M. Millard one hundred shares, to James Ross fifty shares, to T. C. Millard fifty shares, to William J. Griffiths fifty shares, and to James McLaurin fifty shares. It was assumed that this issuance was in place of a like amount of stock previously represented In the one thousand shares issued' to Mildenburg. It is with respect to one hundred and fifty of the shares represented in- the certificate for two hundred and twenty-five shares thus issued to Jahn, and fifty of the shares represented in the certificate of one hundred shares issued to E. M. Millard, that the corporation complainant claims the issue is invalid, and that the individual complainant insists it is valid.

After Mildenburg’s return and while he acted as secretary of the company these issues of stock made on the 18th of Novembcr, 1895, were constantly recognized as valid stock in tlie minutes of the company and in every other way in which stock can be recognized. Mildenburg himself, over his own signature as secretary, recognized the holders thereof as stockholders of record at dates subsequent to the 18th of November, 1895.

Either at the time that Jahn procured the issuance of the above designated stock, or at some subsequent period, he segregated from the one thousand shares of stock that had been issued to Mildenburg, and which he has in his possession, five hundred and twenty-five shares, which, it will bo observed, is just the number that he had issued to himself, and the various persons as above enumerated; and these five hundred and twenty-five shares of the original stock issued to Mildenburg remained in J aim’s possession until at least two years before the bringing of this suit and after the death of Jahn.

The four hundred and sevent3^-five shares remaining out of the one thousand originally issued to Mildenburg, the five hundred and twenty-five shares issued on the 18th of November, 1895, and the four hundred shares of stock initially issued to the ten persons interested were deposited in the Hamilton Trust Company, in the borough of Brooklyn, New York, for purposes which are not germane to this suit. The four hundred and seventy-five shares were gotten out by Mildenburg, or on his order ; the five hundred and twent3'-five shares were gotten out either by Jahn or the persons in whose names they ran; and the four hundred shares were likewise withdrawn subsequently by those entitled to them.

In 1906, De Elbert A. Beynolds purchased, among other certificates of stock, the stock issued on the 18th day of November, 1895, and the first question which arises concerns the validity of two hundred of those shares, the contention of the complainant corporation, being as above stated, that one hundred and fifty thereof represented in the certificate for two hundred and twenty-five to Jahn, and fifty out of the one hundred issued to Millard, were the so-called “treasury stock,” and that the issuance thereof to Jahn and Millard was invalid, and that the original certificates found in the possession of Jahn’s executor or administrator should be recognized.

I find that the stock issued on the 18th of November, 1895, as aforesaid, is valid in the hands of Reynolds. I think it clear that, whether or not as against Mildenburg or the company, Jahn had a right to do what he did, that which Jahn did with the assent of the corporation and with either Mildenburg’s consent or subsequent acquiescence and ratification binds the corporation and the others in interest in favor of Reynolds, who was a bona fide purchaser for value without notice of any equities.

It is a fact that is not controverted by any other fact that from the date in 1895 when this issuance of stock took place down practically to the beginning of this suit, every record of the company and everything in which Mildenburg participated and everything in which Jahn participated which had to do with the stock of this company, recognized the stock of November 18th, 1895, as valid, outstanding stock.

It seems clear to me that there are only two possible sources of attack upon this stock, one is from Mildenburg the other from the corporation, and both Mildenburg and the- corporation are, in my view, clearly estopped to deny the validity of the corporate act of November 18th, 1895. The corporation then issued the stock, has always since affirmed that what it then did was correct, has always recognized this stock, and Mildenburg clearly .acquiesced in and affirmed that which had been done.

There is nothing in the case to show that Reynolds is not a bona fide purchaser for value without notice of latent equities, and that any latent equities which either the company or Mildenburg had, or have, are ineffectual as against Reynolds with respect to this stock.

The next question to be disposed of relates to twenty-five shares of stock represented by certificate No. 23 sold by Mr. Mildenburg to Mr. Taylor. The circumstances, briefly stated, are these: Jalrn, as previously stated, segregated from the one thousand shares of stock put in his hands by Mildenburg five hundred and twenty-five shares, and caused the company to issue five hundred and twenty-five new shares in place thereof. The old shares remained in his possession down to the time of his death. After his death Mildenburg secured one of these certificates, namely, No. 23, for twenty-five shares, and, claiming that, as between him and Jahn, he had a right to get back five hundred shares from Jahn instead of four hundred and seventy-five, the number he actually got back, he took this certificate and sold it to Mr. Taylor.

Since I hold that these old five hundred and twenty-five shares were supplanted by the new five hundred and twenty-five shares issued on the 18th of November, 1895, I hold .that certificate No. 23 (a part of the old issue) is invalid, and Mr. Taylor is not, by reason 'of the holding thereof, entitled to be recognized as a stockholder.

As at the time that this was done all of the capital stock of the company was issued and outstanding, the taking by Mildenburg of this old certificate and reselling it does not constitute the purchaser a stockholder, although it may and probably does invest him with the right to sue the corporation for damages, if, by reason of its carelessness and negligence, it has caused him a loss. I do not, of course, decide this, but merely indicate that whatever remedy he may have is not in this suit.

The remaining issue to be disposed of concerns fifteen shares originally issued to James R. Skinner, one of the original incorporators. He paid $150, the first call, and did not thereafter pay anything. At a directors’ meeting in 1897, at which it is not shown that Skinner was present, the following resolution was passed:

“Mr. Noclen offered the following resolution which was seconded by Mr. Ross and adopted unanimously:
“Resolved, That the secretary be and he is hereby directed to serve notice on the subscribers who are in arrears on their subscription for stock, requiring payment of the same.”

It is testified that the following letter was thereupon addressed to Skinner, but there is no evidence that he received the same:

“196 Schermerhorn St.,
“Brooklyn, N. Y., March 15th, 1897.
“James R. Skinner, Esq.,
825 Putnam Ave., Brooklyn, Neto York:
“Dear Sir — In compliance with the instructions contained in a resolution of the directors of the New York and Eastern Telegraph and Telephone Company, at a meeting held on the 11th inst., you are hereby notified that you are in arrears of the second' and third assessments of ten per cent, each on your subscription for fifteen shares of the capital stock of the said New York and Eastern Telegraph and Telephone Company, payment of which has been heretofore duly called for, and the same remains unpaid.
“There is due from you a sum of $150 on each of said assessments, amounting- to $300 in all, which sum please remit to James Ross, Esq., Brooklyn, New York, without delay, and in default of such payment the matter will be placed in' the hands of counsel for such action as he may deem within the rights of the company. Prompt or immediate attention to this matter is respectfully and urgently requested.
“Yours very truly,
“Samuel H. Mildenbukg.
“General Manager and Secretary.’’

Subsequently, and on April 3d, 1891, tlie directors passed a resolution in the absence of Skinner, reading as follows:

“Whereas, James R. Skinner, to whom fifteen shares of stock, represented by certificates Nos. 6 and 13, has failed to pay his subscription therefor, after due notice given to him, and more than sixty days having expired since the service of such notice; npw, on motion of James Ross, seconded by R. Noden, it is
“Resolved, That the said shares of stock be and the same is hereby declared forfeited, and that the certificates issued therefor be canceled.”

On the 14th of September, 1899, the directors, in the absence of Skinner, passed a resolution as follows:

“The subscription for fifteen shares of stock represented by certificates Nos. 6 and 13 not having- been paid, and the certificates not having been delivered and having been canceled, and the company being indebted to E. H. Benn, attorney and counsel for the corporation, for counsel and professional services, in the sum of $1,500, on motion of James Ross, seconded by William Griffithsf'it was
“Resolved, That new certificates for fifteen shares of stock be issued to Erastus H. Benn in payment of said sum due him.”

The rights of Skinner, whatever they are, were acquired by' Mildenburg, and in 1906 were sold to Taylor. The rights of Benn, if any, as a stockholder, were retained by him down to about the same period when they were sold to Eeynolds. Each of these two persons claims to be the stockholder of these fifteen shares, Eeynolds claiming through. Benn and Taylor through. Skinner.

There is some question as to whether the original certificates for these fifteen shares were ever actually delivered to Skinner, but I think this is an immaterial detail. It is unquestionably the law that a certificate is merely evidence and does not itself constitute the right of a stockholder. Benn undoubtedly acquired physical possession of the certificates which were issued in 1899 under the resolution above quoted.

The contention of Skinner is that he never received any notice of any sort, and, therefore, has not lost whatever rights he had as a stockholder under his original subscription in the certificate of incorporation for fifteen shares. The contention of Reynolds is that Skinner was in default on a call, and while it is not claimed that the proper procedure was taken to forfeit the stock of Skinner, still the company did pass a resolution stating that the stock was forfeited, and Skinner did not do anything, which conduct on his part, it is argued by Reynolds, shows either acquiescence in the forfeiture or abandonment of his interest in the corporation, and upon this alleged acquiescence or abandonment Reynolds bases his claim to be a stockholder by reason of the stock issued to Benn in place of that to which Skinner was entitled.

It may be useful to quote two sections of our statute (P. L. 1896 p. %81i) concerning the forfeiture of stock:

“23. If the owner of any shares shall neglect to pay any sum assessed thereon for thirty days after the time appointed for payment, the treasurer, when ordered by the board of directors, shall sell, at public auction, such number of the shares of the delinquent owner as will pay all assessments then due from him, with interest, and all necessary incidental charges, and shall transfer the shares sold to the purchaser, who shall be entitled to a certificate therefor.
“24. The treasurer shall give notice of the time and place appointed for the sale, and of the sum due on each share, by advertising the same three weeks successively, once in each week, before the sale, in some newspaper published in the county where the corporation is established, and by mailing a notice thereof to the delinquent stockholder, if he knows his post-office address.”

And with respect thereto it is not useful to refer to other authorities than the one in our state which clearly holds that where stock has once been rightfully issued, even though nothing has been paid on it by the subscriber, it can only be forfeited in the mode prescribed by the statute, and the procedure therein prescribed must be strictly followed. Downing v. Potts, 23 N. J. Law (3 Zab.) 66 (Supreme Court, 1851).

I do not understand that counsel for Reynolds claims an estoppel. There is some slight testimony, lacking certainty upon the very point, of a conversation between 'Reynolds and Skinner many years before Reynolds purchased the stock from Benn, in Avhich conversation (the very holding of which is denied by Skinner) Reynolds alleges Skinner made certain statements concerning his interest or lack of interest in the corporation. There is, however, no pretence that the essential elements of estoppel were present, nothing to show that Skinner made any statements to Reynolds upon which he anticipated or had any right to anticipate that Reynolds would rely in taking action with respect to the stock of the corporation.

There is also, in my view, an entire lack of any evidence showing that Skinner acquiesced in or ratified the action taken by the corporation in attempting to forfeit the stock of Skinner. There is nothing to show that Skinner ever had any knowledge of any sort as to what the corporation had done in this respect. It is charged in the bill, and admitted in the answer, and conceded throughout the case that all. that the corporation in question ever did was to acquire a franchise for a telephone system in the city of Brooklyn, that it never attempted to operate, that it lay entirely dormant, and that undoubtedly the purpose was to sell whatever it had either to a company independent of the ’there operating company, or to that company if it would purchase.

The real vigor of the argument on behalf of Reynolds, which was able and comprehensive, was directed to' establishing the principle of law that a stockholder circumstanced as Skinner was will be held to have abandoned his rights. Counsel relied for support 'upon numerous authorities, the more important of which are as follows: Pendergast v. Turten, 1 Y. & C. C. C. 98; 62 Eng. Reprint 807; Hart v. Clarke, 6 De G. M. & G. 232; 43 Eng. Reprint 1222; Clegg v. Edmondson, 8 De G. M. & G. 787; 44 Eng. Reprint 593; Rule v. Jewell, 18 Ch. Div. 660 (1881); Garden Gully Mining Co. v. McLister, L. R. 1 App. Cas. 39; Sayre v. Gas Light and Heat Co., 69 Cal. 207; 7 Pac. 437; 10 Pac. 408; Smith v. Maine Boys Tunnel Co., 18 Cal. 112; Baht v. Sevier Mining and Mill Co., 54 Pac. 889; 1 Cook Stock. § 129; 2 Thomp. Corp. 1807; 2 Clark & Marsh. Pri. Corp. 1522 § 495.

It will be observed that they go back to the case first cited, namely, Pendergast v. Turten. By reason of this fact it is necessary to receive these authorities with extreme caution, because the relationship of the parties in Pendergast v. Turten was practically that of partners in a mining venture; in fact, in the English ruling cases (Rule v. Jewell, supra), another mining case, is put under the title “Partnership and Relations Between Partners.” In all of the earlier cases, from Pendergast v. Turten on, the thing in question was a mine, and the method of operation was what is termed the “Cost Book System,” and the relation of the parties, although they may be termed “members” or “shareholders,” is practically that of partners. The business is one exposed to hazard, fluctuations and contingencies of various kinds requiring a large outlay, as is stated in several of the above authorities, and the decision of Pendergast v. Turten, as also stated, was placed upon the peculiar nature of a mining concern, and proceeded upon the principle that the persons who do not respond to a call when they should had no right to stand by and wait until it appeared clearly that it was worth while and then come forward and attempt to assert their rights.

Some of the subsequent and other authorities have applied this doctrine to ordinary corporations; but in the absence of that which amounts to estoppel, ratification or acquiescence, each of which presupposes and requires knowledge, I do not see that this principle should be extended to a stockholder in an ordinary corporation who is ignorant of an attempted forfeiture of his shares, and who is not called upon by reason of any extraordinary circumstances to do more than act when it is incumbent upon him to act.

There is direct authority for the view I have just stated. Morris v. Mettaline Land Co., 164 Pa. St. 326; 27 L. R. A. 305.

Tn the case at bar the only notice which even the corporation claims to have given the stockholder (Skinner), was that there were assessments of $300 against him on these shares which he must pay without delay, and that in default of such payment, “the matter will be placed in the hands of counsel for such action as he may deem within the rights of the company.”

Since the enterprise was, as before stated, entirety dormant, and nothing was being done in the way of construction, and since it is admitted that none of the proper steps were taken or notice given to make a legal forfeiture, I remain of the same opinion as that expressed at the time of the hearing, that the Skinner stock in the hands of the present holder, Taylor, is good, and the Benn stock issued in lieu thereof, or attempted to be issued in lieu thereof, and in the hands of Reynolds, is invalid. Clearly it was invalid in the hands of Benn, the counsel of the company, who took the same for a past-due indebtedness and acquired none of the rights of a bona fide holder for value without notice; and it does not acquire any greater validity in the hands of Reynolds, because, as between him and Skinner, or Skinner’s transferee, Taylor, the stock in question was already vested in Skinner, and had always been; and, therefore, the attempted issue to Benn was from the beginning invalid, and remained so in the hands of Reynolds.

This same holding likewise disposes of another contention of Reynolds which was vigorously pressed upon the court. This was that since Mildenburg, who participated in the issuance of the stock to Benn, and, in fact, urged Benn to take it in settlement of his fee, acquired intermediately Skinner’s stock or rights, the latter in his hands were invalid as against Benn. It may be that by reason of the facts just stated equities arose in favor of Benn against Mildenburg, so that in any issue framed between them as of the time when Benn held his stock and Mildenburg had acquired Skinner’s, Benn could have asserted his equities. But 1 do not think this affects the question to be decided, because whatever equities there were of that character did not affect the stock itself, but only Mildenburg’s relation to it, and the stock itself having always been valid in the hands of Skinner, did not become void in the hands of Mildenburg, and whatever equities against Mildenburg there may have been in favor of Benn while Mildenburg held the stock did not go with it into the hands of Taylor. Eor all that appears in this case, Taylor was a tona fide purchaser for value without notice, and having acquired what I hold to be stock which was valid in the hands of Skinner, is unaffected by equities which might have affected the stock in the hands of the intermediate holder, namety, Mildenburg.

Here, again, as was stated, with respect to another issue, it is probably true that the corporation has rendered itself liable to an action at the suit of Reynols, but it is not claimed that it should be settled in this present proceeding. I will hear counsel, if they so desire, upon the settlement of the decree, as to whether, this controversy being now in this court and all the parties present, the rights of the holders of these certificates which I hold are not valid should be adjudicated as against the company.

I will advise a decree in accordance with the above-stated views.