author: Gummere, Chiee-Justice.

text:
    Mary E. McGuinness, respondent, v. Thomas McGuinness, appellant.
    [Argued November 28th, 1906.
    Decided January 8th, 1908.]
    1. A wife sued for divorce, for the custody of the children, and for alimony. The husband, a non-resident, was only brought in by publication and personal service out of the state of a notice of the pendency of the suit. He did not appear. A decree as prayed for was granted. His property in the state was sequestered to enforce the decree. He filed a petition attacking the validity of the decree for lack of jurisdiction, and prayed for the vacation thereof, for the setting aside of the writ of sequestration, and for the dismissal of the bill, and for “other and further relief.”—Held, that his appearance for this purpose was not a general submission ■ to the jurisdiction of the court, and did not operate to give validity to the adjudication against him of which he complained.
    2. An award of alimony, in a decree for divorce, whether absolute or from bed and board, is.void against a defendant who has not been served with process within the state and has not entered an appearance in the suit; and is not enforceable against property of defendant within the state.
    On appeal from an order of the court of chancery, reported in 71 N. J. Eq. (1 Buch.) 1.

      Mr. Howard Carrow, for the appellant.

      Mr. Clarence Kelsey, for the respondent.
   The opinion of the court was delivered by

Gummere, Chiee-Justice.

On July 7th, 1899, the complainant, Mrs. McGuinness, filed a bill in the court of chancery against her husband, seeking a decree divorcing them a mensa et thoro, and awarding to her the custody of their children, and requiring him to provide suitable support and maintenance for herself and her children and to pay a proper amount for counsel fees during the suit. The husband, a resident of the State of Pennsylvania, was brought in, not by service of process, but by publication, and a personal service, out of the state, of a notice of the pendency of the suit. He did not appear to the suit and a decree ex parte went against him, granting the complainant the relief prayed for by her bill and directing him to pay to the complainant the sum of $1,890, being an amount equal to the payment of $19.23 per week from the time of the filing of the bill to the date of the making of the decree (which was May 18th, 1901), and also to pay her the sum of $19.23 per week from the date of the decree until the further order of the court for the support and maintenance of herself and their three children. The defendant, having failed to comply with that part of the decree which directed the payment of moneys by him, a writ of sequestration was issued against him, under which certain properties belonging to him in the city of Jersey City were sequestered and the income therefrom appropriated to the payment of those moneys. The defendant then filed a petition setting out that he was, at the time of the institution of the suit, a resident of the State of Pennsylvania; that no jurisdiction had been obtained over him by the court in the suit for divorce, and that he had no knowledge that the bill of complaint praj’ed for the permanent alimony or counsel fee until after a decree had been signed in the case. The petition then alleged that for those reasons the final decree should not have been made and that the writ of sequestration should not have been issued, and prayed

“that the enrollment in said cause be opened; that the final decree and all orders therein be opened and vacated, and that the subpoena ad respondendum and the service thereof, together with the writ of sequestration, be set aside, and that the complainant’s bill be dismissed, and for such further and other relief in the premises as may be agreeable to your honor.”

After hearing, the petition was dismissed by the chancellor; and from the order of dismissal this appeal is taken.

The sole ground upon which the relief sought by the petition was asked by the defendant was the lack of jurisdiction of the court of chancery. The conclusion reached by the chancellor was, that so far as the question of the jurisdiction of the court for the purpose of granting a divorce a mensa et thoro against the defendant was concerned, it had been obtained over him by the service upon him, out of the state, of the notice of the pendency of the suit; that for such purpose it was not necessary there should be an actual service of process; that reasonable notice, given to him outside of the jurisdiction, affording him an opportunity to come in and defend, was all that was necessary in order to make a valid decree of divorce against him, and that this he had received. He further considered that the power to decree a divorce, and so break up the family relationship, carried with it as a necessary incident the power to adjudicate with relation to the custody of the offspring of the marriage, and award such custody to either the father or the mother, as the interests of the children should require. I concur in the view of the chancellor that, to the extent indicated, jurisdiction was obtained over the defendant by service of notice out of the state and in the reasons which led him to that conclusion, as expressed in his opinion.

Having reached the conclusion that the court had acquired jurisdiction over the defendant for the purpose of decreeing a divorce of the parties and awarding the custody of their children to the complainant, the learned chancellor proceeded to consider whether the defendant was entitled to a revocation of so much of the decree as imposed upon him the payment of the moneys specified therein, and of the subsequent proceedings had for the purpose of enforcing that part of the decree, and concluded, that even if the court was without jurisdiction to decree alimony against the defendant at the time when the decree was made, its annulment should be denied him, for the reason that by seeking to have vacated, not merely the order for alimony and its incidents, but the whole decree, and all the proceedings which led up to it, including a dismissal of the bill of complaint, and by praying “for further and other relief,” the defendant had submitted himself to the jurisdiction of the court upon the whole case. The doctrine upon which this conclusion is rested is thus formulated by the learned chancellor: “A defendant, who, claiming that the court in which a suit against him is pending, has not acquired jurisdiction over him, attacks the jurisdiction, even under a special appearance, will be held to have submitted himself to the jurisdiction if, under such appearance, he seeks some relief upon the merits.”

The doctrine appealed to, it will be perceived, applies in terms only in cases where the defendant has appeared in a pending litigation, but it was considered by the chancellor that the reason upon which it rested was equally applicable where the defendant sought to challenge the validity of a judgment already entered, upon the ground that jurisdiction had not been acquired over him; and the numerous cases cited by him in support of this view fully bear him out.

I have no criticism of the rule which declares that a defendant, who in one breath challenges the jurisdiction of the court in a pending suit, and, in the next, asks relief against the plaintiff on the merits in the same litigation, submits himself generally to the jurisdiction, for I can imagine no more potent act of submission by a party defendant in a pending suit than the asking that affirmative judicial action be taken in his behalf for meritorious reasons. And, indeed, as the chancellor points out in his opinion, this court has already committed itself to the doctrine in the case of Polhemus v. Holland Trust Co., 61 N. J. Eq. (16 Dick.) 654. The view, however, that the effect of an application to set aside a void judgment for meritorious reasons, which is refused consideration by the court, operates to give life to the judgment, and converts it into an outstanding obligation against the defendant, seems to me of doubtful soundness. When a defendant, over whom the court has not acquired jurisdiction, appears in a pending suit and seeks relief upon the merits, he afterward has his day in court; he may contest the plaintiffs claim, and if the form of the litigation permits it, may even have an affirmative judgment in his favor. His appearance confers upon the court jurisdiction to proceed to judgment. But a defendant who appears in court for the purpose of obtaining relief against a judgment which is coram non judice, and seeks that relief both upon jurisdictional and upon meritorious grounds, never has had his clay in court, if a hearing on the meritorious question is denied him. The judgment at the time when he appears is a nullity. If he seeks to have it declared void solely upon the ground of want of jurisdiction in the court to pronounce it, the court must so declare it. If he further asserts that on the merits of the case the judgment should never'have been rendered against him, and asks to have it vacated, and an opportunity afforded him of being heard on the merits, on what theory of law is it to be said that he has, by this act, given life to a judgment which before had no legal existence, and by the same act has forever barred himself from the right to have it opened, no matter how complete a defence he may have had to the suit upon the merits ? I am inclined to think that, in order to render jurisdiction complete, there must be not only the offer of the defendant to submit himself to the jurisdiction by praying relief from the void judgment upon-meritorious grounds, but also acceptance of the offer on the part of the court by a consideration and determination of the meritorious question presented.

But, as I view the present case, it does not involve a determination of the soundness of the view upon which I have commented, and any declaration upon it would be obiter. The defendant challenged the proceedings which he sought to have set aside upon the sole ground of lack of jurisdiction; and he asked for no relief upon any other ground, either meritorious or non-meritorious. His appearing in court for the specific purpose of challenging the jurisdiction, was, under the cases, not a general appearance to the suit, and that without regard to whether his challenge was successful or not. If altogether successful he would have been entitled to a nullification of all proceedings subsequent to the filing of the bill. If altogether unsuccessful his failure would have been due to the fact that the court had already acquired jurisdiction over him for all purposes of the litigation, and his appearance could not, therefore, operate to confer jurisdiction. The fact that his challenge was well founded as to a part of the decree and ungrounded as to another part could, it seems to me, no more operate to validate that part of the decree which it was beyond the jurisdiction of the court to pronounce than to invalidate that portion of the decree which the court had power to make against him. Legal rights are not destroyed by the mere assertion that they are more extensive than they afterward turn out to be upon investigation.

Concluding that the defendant is not barred by his course of procedure, there remains the question whether an award of alimony in a decree of divorce a mensa et ihoro is void against a defendant who has not been served with process within the territorial limits of tire state and has not entered an appearance in the suit. It has been frequently held, since the decision of Pennoyer v. Neff, 95 U. S. 714, that an award of alimony contained in a decree for absolute divorce is void under such circumstances, and for the reason that it is a judgment in personam within the meaning of that decision. But it is suggested that the peculiar character of a proceeding for a limited divorce, which leaves the marital relation unbroken, and recognizes the right to enforce the husband’s duty to support his wife and family, takes an award of alimony made therein out of the rule of Pennoyer v. Neff, at least to the extent of rendering it enforceable within the state. The suggestion does not commend itself to me. The allowance of alimony in a suit for divorce, whether the divorce sought be a vinculo or a mensa et ihoro, is made, as is stated by Justice Pitney in Lynde v. Lynde, 64 N. J. Eq. (19 Dick.) 751, 752, “as a means of enforcing the continuing duty of support which the husband owes to the wife, and of which he is not permitted to absolve himself by his own misconduct, even though that misconduct results in a dissolution of the marriage.” By our statute, as is pointed out in the same case (at p. 754), “alimony on a divorce a vinculo is placed on the same basis as that which is allowed on a divorce a mensa et ihoro. Both are provided for by the same section of the act, and both are placed within the discretion of the court of chancery so far as concerns their adjustment, from time to time, according to the vaiying circumstances of the parties.” The personal character of the judgment is as marked in the one case as the other.

It is further argued that although unenforceable outside of the state, a decree for alimony is enforceable within our jurisdictional limits against property of the defendant by force of the provision of our statute which authorizes the sequestration of such property for the purpose of raising the moneys awarded by it. But clearly if a judgment in personam, rendered against a person over whom the court has not obtained jurisdiction, violates the fourteenth amendment of the federal constitution, as was declared in Pennoyer v. Neff, and is for that reason absolutely void even in the state where rendered, as is declared to be the ease in Haddock v. Haddock, 201 U. S. 567, no legislation of that state can operate to give it life.

The order appealed from will be reversed.

For reversal—The Chief-Justioe, Garrison, Hendrickson, Swayze, Trenoi-iard, Vredenburgi-i, Vroom, Green, Gray, Dill—10.

For affirmance—None.


source: Caselaw Access Project

author: Garrison, J.

license: Public Domain

text:
    The Vulcan Detinning Company, appellant, v. American Can Company et al., respondents.
    [Argued November 22d, 1906.
    Decided July 2d, 1907.]
    1. The maxim, “One who comes into equity must come with clean hands,” is based upon conscience and good faith, and the bad faith or the unconscionable conduct that will justify the application of this maxim must be based upon actual knowledge or willful fraud. The fraud of an agent that is by mere imputation chargeable upon a complaint will not render the hands of the latter unclean within the meaning of this maxim.
    2. “Unclean hands,” within the meaning of the maxim of equity, is a figurative description of a class of suitors to whom a court of equity, as a court of conscience, will not even listen, because the conduct of such suitors is itself unconscionable in the moral sense that imports actual knowledge.

      3. The complainant purchased from a concern in Holland a process for the successful detinning of tin scrap which was unknown in this country, the secret of which is zealously guarded. After the success of the process had boon demonstrated, one of the complainant’s original directors, charged as such with the duty of secrecy, and who moreover held in individual trust for the complainant a copy of the formula of its process, became the president of the defendant corporation, and, with the assistance of certain discharged employes of the complainant, installed for the defendant corporation, as a competitor of the complainant, the process so purchased by the latter. Upon a bill filed to enjoin this inequitable competition, and to restrain the further publication of the complainant’s process—Held, (1) that the quondam director of the complainant should be enjoined because of his breach of trust; (2) that the defendant corporation should be enjoined because the knowledge of its president was imputable to it; (3) that the discharged employes of the complainant should be enjoined under the rule laid down in this court in the case of Stone v. Cross, 65 N. J. Bq. (20 Dielo.) 756. Held, also, that, assuming that the complainant had not acquired a title to its process that was good as against the discoverer thereof, and also that the process itself was not absolutely a secret one, the complainant, upon general principles of equity, is entitled as against its wrong-doing trustee, and others chargeable with notice, to protect the qualified secrecy of such process that arose from such relation of trust and confidence. —.
    4. The knowledge of an agent, casually obtained, is chargeable to a principal by whom he is afterward employed whenever the principal, if acting himself, or (if a corporation) when acting through some other agent, would in the natural course of events have acquired the knowledge or have been put upon such inquiry as was the equivalent of notice.
    5. The case of State v. Sooy, ¡¡1 N. J. Law (12 Yr.) 391/ approved and applied. The case of Willard v. Denise, 50 N. J. Bq. (5 Dielo.) J/83, overruled.
    6. If a trustee purchase a title that cures or completes one that he holds in trust, the presumption in equity will be that the later purchase was made in aid of the former trust.
    On appeal from a decree of the court of chancery, advised by Vice-Chancellor Bergen, whose conclusions are reported in 70 N. J. Eq. Robb.) 588.

      Mr. Robert H. McCarter, attorney-general, and Mr. Henry Woilman and Mr. Albert 8. Seidman (of the New York bar), for the appellant.

      Mr. Richard V. Lindabury, for the respondents.
   The opinion of the court was delivered by

Garrison, J.

The bill of complaint in this case was dismissed by the court of chancery upon the sole ground that the complainant did not come into court with clean hands. The facts upon which this determination rests, as stated in the conclusions of the learned vice-chancellor, are briefly these: The process which it was the object of the complainant’s bill to enjoin the defendants from using or making public was the discovery of the Goldschmidt Brothers of Germany, and was as early as the year 1891 in successful operation at their factory in Essen, Germany, where it was guarded by its discoverers as a secret process. A large part of the tin scrap used by the Goldschmidts at this factory was shipped to them from New York by the firm of A.'Kern & Company, of which Adolph Kern was the head. As early as 1892 the advantages of the erecting of a detinning plant in this country were seen by Mr. Kern and led him to enter into an extended correspondence upon the subject with the Goldschmidts, which culminated in the submission to them of a proposition looking to the establishment of their process in this country under a corporate enterprise in which they should take stock. After considerable correspondence this proposition was definitely declined by the Goldschmidts by a letter of May 7th, 1897, the concluding paragraphs of which are as follows:

“When one considers further that detinning is much dearer in America than here, as wages are higher and chemicals more expensive, it is clear that an establishment in America cannot compete with those in this country. I consider, under these entirely changed conditions, the establishment of a factory over there is a mistake, and not able to exist, and consequently I will not take any part whatever in such an enterprise.
“Very respectfully,
“Tn. Goldschmidt.”

In the course of this correspondence Dr. Goldschmidt had in a letter of May 16th, 1896, stated that his process was being used at Ylissingen, Holland, by a concern called the Tinfabriek which had been organized for this purpose by one Laernoes, who had clandestinely obtained the secret of the process. It does not appear that Kern ever communicated this piece of information to anyone except to Laernoes himself some two years later. From this time both of these detinning plants, namely, the Goldschmidts at Essen and the Tinfabriek at Vlissingen, drew upon this country for their shipments of tin scrap, and as a great part of this refuse material was obtained by Kern from the tin can factories near New York, the attention of the proprietors of these factories was also directed to the desirability of having a detinning plant of their own if the process of its successful operation could be obtained. This community of interest brought together Kern and these manufacturers, and resulted in a tentative agreement for the promotion and financiering of such a project, provided the process used by their foreign customers could be obtained by negotiation. This matter was entrusted to Kern, who, knowing from his correspondence with the Goldschmidts that they regarded the enterprise as entirely unfeasible, went directly to Vlissingen (of which the English name is Flushing) and there met Laernoes and ascertained from him the terms upon which the co-operation of the Tinfabriek could be had. This was in 1898. An ojDtion embodying these terms was secured by Kern, who, after visiting other factories at Kempen and ITerdingen where less productive processes were used, went to Essen in a final endeavor to enlist, if possible, the Goldschmidts in the American venture, but without success. The net results therefore of Kern’s visit to Europe was his option with the Tinfabriek, which, upon his return to New York, he accepted in the name of A. Kern & Company, with whom it had been made, and later transferred to the Vulcan Metal Refining Company, a corporation of this state, and one of the underlying companies of the present complainant.

Under the terms of this executed option the Tinfabriek installed the process in question at two factories of the complainant in this country, receiving therefor in cash and capital stock a sum approximating $200,000.

To restrain the defendant Assmann (who was one of the original corporators who made this purchase) and the defendant corporation of which he is president from using or making public this process in violation of an alleged trust between Assmann and the complainant is the main object of the present bill.

i'Eroin these circumstances and others detailed by the learned vice-chancellor lie reached the conclusion that the process used by the Tinfabriek was a fraud upon the Goldschmidts, of which Kern by reason of his correspondence with Dr. Goldschmidt in 1896 had knowledge, and that when Kern, in 1898, became the agent of the corporators of the complainant through whom the Tinfabriek process was acquired, the prior knowledge Kern had thus casually obtained must be imputed to the complainant under the decision of this court in the ease of Willard v. Denise, 50 N. J. Eq. (5 Dick.) 482. Having reached this conclusion as to the imputation of Kern’s knowledge to the complainant, the vice-chancellor further concluded that the effect of such imputation was to render the hands of the complainant unclean within that maxim of equity by which a deaf ear is turned to a suitor in a court of conscience regarding a matter in respect to which his own conduct has been unconscionable.

In reaching this last conclusion the learned vice-chancellor fell, we think, into the error of ascribing an unconscionable status to the complainant by force of a presumption of remedial law that in its most extreme application affects only the legal rights of parties and not at all their moral standing. That the knowledge possessed by an agent, but not acquired by him while acting for his principal, will under certain conditions be imputed to the latter, is in the nature of a presumption indulged in by courts in working out the rights of litigating parties. It is never a rule of evidence by which the actual possession of knowledge by the principal can, in point of fact, be established. On the contrary, an essential part of the presumption in question is that the principal is ignorant of the knowledge that has been casually acquired by his agent; hence, by the hypothesis, the principal is not only ignorant of the knowledge thus acquired, hut if such knowledge involves a fraud, the principal is innocent of such fraud. True, he may'be bound by it in the sense that his legal rights may be determined with reference to the knowledge with which he is thus chargeable, but his conscience is void of offence, and hence it cannot with any propriety be said that his hands are unclean, for “unclean hands” -within the meaning of the maxim of equity is a figurative description of a class of suitors to whom a court of equity .as a court of conscience will not even listen because the conduct of such suitors is itself unconscionable, i. e., morally reprehensible as to known facts. The entire ineptitude of the presumption respecting imputed knowledge to relegate the complainant in the present case to this reprobated class must, we think, be apparent. As was said by the Kentucky court of appeals, speaking through Mr. Justice Burnham (afterward chief-justice) : “The maxim, ‘one who comes into equity must come with clean hands/ is based upon conscience and good faith.” American Association v. Innis, 109 Ky. 595.

Upon the ground stated we think that the learned vice-chancellor committed error, without regard to the pertinence of the maxim of clean hands, to the knowledge that he imputed to the complainant or to the propriety of such imputation.

Our conclusion as to this branch of the case leads to the reversal of the decree below, unless the respondents are entitled to hold the decree upon the merits of the ease which the court below because of its ruling as to the complainant’s status did not find it necessary to pass upon, but which on this appeal counsel on either side have had the prevision to argue with great fullness.

The testimony taken in the case although very considerable in extent does not present any especial difficulty as regards the material facts. Stated succinctly and in unargumentative form the facts as we find them to be from the testimony are these: Prior to 1898 the detinning of tin scrap had not been successfully carried on in this country for the reason that the process by which such waste material could be so treated that both the iron and the tin, of which it is composed, could be separated and made commercially profitable was unlcnow here. Such a process was, however, in successful operation at Vlissingen, in Holland, by a concern called the Tinfabriek, a fact that was known to shippers and dealers in tin scrap in this country, among whom were Adolph Kérn, a shipper,, and Franz A. Assmann, a manufacturer, and to others in the same line of business. These dealers also knew that detinning was carried on at Essen, in Germany, but Kern alone knew, from the private sources already referred to, that the Goldschmidts claimed that they were the originators of the process and that the Vlissingen concern had pirated their secret. The legitimate profits of detinning, at a home plant, the tin scrap that was thus being exported to Europe induced these American dealers in that material, in the year 1898, to agree amongst themselves to subscribe the necessary capital to financier such an undertaking in corporate form, if the secret of the process that was being successfully operated abroad and the right to use it could be obtained. This mission was entrusted to Kern, whose visit to Europe, on this errant, has already been alluded to. The practical result of Kern’s mission, so far as the promoters of the proposed corporation are concerned, was that it was successful and was followed up immediately by the execution of the option that Kern had obtained with Tinfabriek and the installation by that concern of two detinning plants for the American corporators, for which the Tinfabriek received in cash and capital stock, that was soon worth more than par, a sum that fell little short of $300,000. The rights of the two corporations, for which these plants were originally installed, have since been acquired and are now represented by the complainants. Of the good faith of the American corporators in the transaction which involved the payment of this large sum of money no legitimate doubt is raised by the testimony. Whether the prior knowledge possessed by Kern made liis conduct fraudulent as to the Goldsclimidts so that in a suit brought by them such fraud would be imputable to these corporators is a question that does not concern this present controversy. It should be noted, however, that there is a wide difference between the absolute secrecy which the discoverer of a process has the legal right to protect and the qualified secrecy which the complainant claims the equitable right to secure. That the complainant carefully guarded such secret as it had acquired is amply proved in the case; that Assmann as one of the original promoters and one of the first directors of the complainant was especially impressed with the importance of so guarding the process is shown in the testimony in many ways, one only of which need now be mentioned, namely, that he himself became, individually, the depository of a copy of the formula of the process for the express purpose of guarding it for the mutual benefit of himself and his associates. The enterprise conducted upon these lines was from the very first a success, both practically and commercially, and so continued until the year 1901, in which year Assmann transferred his personal business as a manufacturer of tin cans to a corporation created in that year, namely, the American Can Company, the defendant corporation in the present suit. Upon the organization of this company, Assmann became its president, sold out all of his holdings of stock in the two detinning companies, resigned his directorship in each, and became the leading spirit in the installation for the American Can Company of two plants using a process of detinning similar to the complainant’s, having called to his assistance for this purpose three former employes of the complainant, who, together with Assmann and the American Can Company, are the defendants to the present bill.

The testimony admits of no other rational conclusion than that the detinning plants that thus came into existence in competition with the complainant’s are employing the process originally purchased by the complainant, which Assmann had undertaken to safeguard in its interests. That this result was brought about by a breach of confidence upon Assmann’s part toward his original associates both as regards the use of the process itself and the enticement of the former employes of the complainant into his scheme is also the only legitimate inference that can be drawn from the proofs; that in both of these respects he was acting directly on behalf of the defendant corporation, of which he was both president and agent, follows as a necessary deduction.

Having reached these conclusions as to the effect of the testimony, the question arises whether, upon these facts, the complainant is entitled to any relief and if so to what extent and of what nature. Counsel for the defendants, with much confidence, argues that the complainant is entitled to no relief because the secret process it seeks to enjoin the defendants from using is not in fact a secret, and secondly, because if it is a secret the legal title to such secret is not in the complainant. The pertinence of these propositions to the present controversy depends, to a great extent, upon the precise nature of the equitable relief the complainant is warranted in claiming. When the complainant’s bill was filed in the court of chancery, it was immediately challenged by the defendants by a demurrer upon the claim that no grounds for equitable relief were disclosed by the bill. The pleading thus directly attacked was sustained in a carefully considered opinion by Vice-Chancellor Reed, an examination of which will show that the propositions now relied upon by the respondents were substantially the grounds then advanced and disposed of in the court below. Vulcan Detinning Co. v. American Can Co., 67 N. J. Eq. (1 Robb.) 243.

The conclusion set out in the opinion of Vice-Chancellor Reed need not be here rehearsed, since it is sufficient for present purposes to say that their general purport was that inasmuch as neither party stood in the shoes of the discoverer of the secret process, and as the complainant was not claiming under the Goldschmidts but under the Tinfabriek, the rights that the former might set up would not avail the defendants to justify a breach of trust toward the complainant respecting a matter that, so far as the parties before the court were concerned, was traceable to a common source—in fine, that the equity of the bill rested upon principles generally applicable to trusts and not upon rights peculiar to the discoverer of a secret process. After this conclusion was filed, namely, June 13th, 1904, an assignment and license from the Goldschmidts to the defendant corporation, dated October 17th, 1904, was made. The effect of this instrument was, of course, not directly involved in the decision in question, but as far as it went the decision was the law of the case and placed the equity of the bill upon an alleged breach of confidence respecting a secret process and not upon any inherent property in such process.

Looking now a little more closely at the nature of the relief called for by the complainant’s case, which we are not enabled to do in the light of the issues that have been actually tried, we shall see, I think, that too much emphasis has perhaps been placed upon the element of absolute secrecy in the process, and that not enough stress has been laid upon the inequitable character of the defendant’s conduct in making a use of such process that was inimical to the complainant’s interests.

What I wish to point out is that the real gravamen of the complainant’s bill, as amplified in the proofs, is not that the defendants are threatening to destroy the value of an absolutely secret process by imparting it to the public, but that the defendants, while keeping the secret of the process to themselves, are making a use of it that is inequitable as to the complainant, as shown by the testimony, and the complainant ought to be protected from the inequitable competition to which it has been exposed by a breach of confidence. Incidental to this relief, and resting upon the same equitable jurisdiction, is the restraining of the defendants from publishing the process itself, of which, however, there is no proof of any present threat or intention. Indeed, as long as the present state of affairs exists, such publication would be equally injurious to both parties and for the same reason, namely, because of the competition to which it would expose the business in which each is at present engaged. I am not suggesting that the complainant is not entitled to an injunction enjoining publication, for I think that it is, but I am now saying that the main ground for relief disclosed by the complainant’s case is the existence of inequitable competition arising from a breach of trust, and hence referable to general principles of equity and not to those special doctrines by which unpatented secrets are protected. In the application of these general principles the secrecy with which a court of equity deals is not necessarily that absolute secrecy that inheres in discovery, but that qualified secrecy that arises from mutual understanding and that is required alike by good faith and by good morals. It is proper to say here that the plea that absolution should be granted by courts of equity from the observance of such private obligations whenever the public will thereby be the gainer cannot for a moment be entertained. The language of Justice Brown, cited in the brief of counsel, namely, “It is as important to the public that competition should not be repressed by worthless patents as that the patentee of a really valuable invention should be pro: tected in his monopoly,” has, as I read the case of Pope Manufacturing Co. v. Gormully, 144 U. S. 224, no such import in the context in which it stands in Mr. Justice Brown’s opinion. The notion that the multiplication of worthless patents inflicts as great an injury upon the public as the multiplication of worthless citizens would do can never, I fancy, be accepted by a court of equity as a sound proposition on which to base a doctrine absolving trustees from the observance of their trusts.

The conclusion to which the foregoing considerations lead is that entirely aside from the technical secrecy of the process or the abstract question of property therein, the complainant is entitled to have its trustee, his associates and their servants restrained from using against the interests of the complainant the very process with which its trustee was entrusted for its benefit. It is further worthy of note upon this question of the secrecy of the process that apart from the peculiar rights of its discoverer, the secrecy of a process may be viewed in two aspects, first, as having for its object the keeping of the public in ignorance of the nature, source or composition of a commercial product that is put upon the market; and second, as having for its object the prevention of competition by rivals in production. The first of these aspects has sole regard to the public as prospective purchasers, the second has reference solely to rivals in probable competition. In the case before us publication by the complainant’s trustee would, of course, violate the obligation of secrecy in each of these respects, but as regards the second, namely, prospective competition, such trust is equally violated if the trustee himself uses the secret to engage in such competition, even though, as would clearly in that case be to his interest, he sedulously kept the secret to himself excepting so far as his selfish use of it required the co-operation of associates and servants. To this the trustee might indeed answer, “It is true that I agreed to keep your secret from others, but I did not agree that I would not myself make use of it in competition with you.” But it is not likely that a court of equity would regard such answer as in anywise ingenious or exculpatory. The present case rests, as it seems to me, largely upon the distinction thus indicated. The secrecy maintained by the original purchasers of the process in question was not in order that the public might not know what it was buying, but that the profits of production should not be cut by rivals. It was unquestionably to this end that the process was sedulously guarded by Assmann and his original associates and b3r Assmann as a personal trustee of its formula. When therefore Assmann severed his connection with the complainant and installed the process in question for the defendant corporation as a competitor in production, it is the same in equity as if without having severed such prior connection he had broken faith with his fellows by imparting to a rival the secret which he had promised to preserve. The jurisdiction of equity in such case, whether the breach of trust be actually beneficial to the wrong-doing trustee or only injurious to his cestui que trust, is too familar to justify the citation of authorities.

This being so, as to the defendant Assmann, the complainant contends that the same facts and the same equitable doctrine require that the same relief be decreed against the defendant corporation, for whom Assmann was acting when he did the acts that constitute his breach of trust with the complainant. This contention is undoubtedly correct if the defendant corporation knew or had notice that Assmann'held the secret of the complainant’s process in a confidential or trust capacity, for in that .case it became itself a trustee for the complainant, at least to the extent of being enjoined from using the process or making publication of it. It is all but impossible to avoid the conclusion that the directors of the American Can Company had actual knowledge of sufficient facts to constitute such notice. The community of interest in the tin scrap trade, the sudden cessation of the wholesale exportation of such scrap, the new domestic market opened for it by the establishment of the complainant’s plants, the fact that the complainant, alone in this country, was able, successfully, to treat the scrap, and the personal knowledge of the actual facts by some of the leading spirits in the organization of the defendant company, almost compel the conclusion that the history of tire complainant’s process and of Assmann’s connection with it were known to the management of the American Can Company when it ventured its capital in the enterprise engineered by its president. It is all but impossible to demonstrate, by direct proof, that a corporation has knowledge apart from tlie knowledge possessed by tlie agencies through which its functions are performed; hence, the mere fact that the complainant is unable to adduce any corporate resolution of the defendant expressly asserting its knowledge of the complainant’s secret and of Assmann’s connection therewith does not prevent our reaching the conclusion that the defendant had such knowledge, if such is the inference to which the testimony, by irresistible weight of probability tends. Had these facts been found by the court below, where the witnesses were orally examined, and the testimony reviewed in extenso b]r counsel, I can see no ground upon which such finding could be reversed. The circumstance that we are now required in the first instance to find this important fact from a mass of printed testimony, occasions the only hesitation I feel in deciding this question adversely to the respondents without first looking at the case as it would stand if proof of actual notice were admittedly lacking.

The doctrine invoked by the complainant upon this latter assumption is that a constructive trust arises where one receives trust property without actual notice of the trust, but also without paying for it a valuable consideration. By force of this doctrine it is claimed that the defendant corporation became a trustee of the complainant because it did not pay a valuable consideration to Assmann for the secret process he installed for it. The difficulty in the way of applying this doctrine to the facts of the; present case is that, while the American Can Company did not pay anything to Assmann, it did expend large sums of money in exploiting the process he secured for it, and this expenditure if innocently made, that is, if made without notice, would constitute an equitable consideration that would take the case out of the doctrine that is thus invoked. So that upon the assumption that the can company did not have actual notice of the circumstances that constituted its president’s breach of confidence with the complainant, it is not amenable to the relief tlie complainant now seeks, unless by force of Assmann’s agency in procuring the process for it, such knowledge as he possessed is by imperative presumption to be imputed to the defendant coiporation. The nature of this presumption has been incidentally referred to in an earlier part of this opinion, where, however, it was found necessary to say no more than that being a rule of remedial law, such presumption had no application to the maxim of clean hands. Now, however, in applying this presumption to the remedy claimed by the complainant against the defendant corporation, we are called upon to consider it in its proper function.

The scope, and to some extent, the theory of the presumption of imputed knowledge has been the subject of two decisions in this court which are not in accord. I refer to State v. Sooy, this N. J. Law (12 Vr.) 394, and Willard v. Denise, 50 N. J. Eq. (5 Dick.) 483. The latter of these cases which was also the later in point of time, laid down the rule that

“Where information is casually obtained by an agent of a corporation, the corporation is not charged with notice from the mere fact of its agent’s knowledge, but if the corporation act through such agent in a matter where the information possessed by him is pertinent, the knowledge of the agent will be imputed to the principal.”

Under the rule thus stated the defendant corporation is clearly chargeable with notice of all the pertinent information possessed by Assmann and used by him in its behalf. We are not, however, willing to rest our decision of this matter upon the case of Willard v. Denise. In the earlier ease of State v. Sooy, the rule stated in the syllabus of the opinion, delivered by Mr. Justice Dixon, is this:

“The knowledge of the agent is chargeable upon his principal whenever the principal, if acting for himself, would have received notice of the matters known to the agent.”

This rule, it will be observed, is far more favorable to the respondents in the present case than that of Willard v. Denise, and is, in our judgment, the rule to be applied whenever the presumption of imputed knowledge becomes pertinent to the rights or remedies of litigating parties. By force of this rule and of the reasoning upon which it rests, the American Can Company is chargeable with the knowledge possessed by Assmann only in case the principal, that is, the can companjq if acting for itself in the acquisition of the complainant’s process, or (being a corporation) if acting through some other agent, would have received notice of the material matters known to Assmann. In applying this rule we think it is reasonably certain that if the board of directors of the American Can Company, when they contemplated going into competition with the complainant in the detinning business, by use of its process, has set about the acquisition of a practical knowledge of the construction and working details of such process, either as a board of directors or by the employment of agents not already possessed of such knowledge, they must inevitably have run up against the barrier of secrecy maintained by the complainant for the express purpose of heading off such competition. In that case they would either have failed to obtain the secret of the complainant’s process except with its knowledge and consent,- or if they did obtain it clandestinely from someone who held it in confidence, would have done so under circumstances that would have put them upon inquiry, and hence, have charged their corporation with whatever knowledge such inquiry would have led to. This is the test established by the case of State v. Sooy (as applied to a corporation) and the conclusion to which it leads is that the defendant corporation holds the fruits of Assmann’s agency in its behalf, with the burden of so much of the knowledge possessed by him as would have come to it if it had acted for itself or through an agent who was not already possessed of such knowledge.

Being chargeable with this notice, the defendant corporation is amenable to the same decree touching competition and publication as that already accorded to the complainant with respect to Assmann individually. The inadequacy of the protection afforded to principals generally and to the defendant corporation in this ease by the rule stated in Willard v. Denise, having been necessarily considered by us in reaching the conclusion that the doctrine of the case of State v. Sooy should by preference be adopted, the former case must be deemed to be overruled.

Any consideration of the defence set up under the assignment* to the defendant corporation of the Goldschmidt process would clearly have been premature as long as the equitable rule applicable to the case was undetermined. This assignment was dated October lfth, 1904, that is to say, it was after the filing of the opinion of Vice-Chancellor Reed overruling the defendant’s demurrer and before the filing by the defendants of their supplemental answer. At the time the assignment was thus taken the defendants were fully apprised by the bill of complaint, if in no other way, of the precise nature of the complainant’s claim to relief. The decision we have reached carries with it the defence that is thus sought to be set up under this assignment, upon the doctrine that if a trustee purchases a title that cures or completes one that he holds in trust the presumption in equity will be that the later purchase was made in aid of the former trust. McCormick v. Ocean City Association, 45 N. J. Eq. (18 Stew.) 561.

The complainant’s counsel goes so far as to claim that under the rule thus stated the defendant corporation should be decreed to assign the Goldschmidt license to the complainant upon the payment by it of the $10 paid to Goldschmidt for such grant. Whether such relief should be decreed in a suit to which the Goldschmidts are not parties need not be now decided. It is sufficient to hold in the present case that such assignment is of no avail to the defendants.

If further relief in this behalf becomes necessary application for that purpose may be made to the court of chancery.

The case against the defendants, Sehmaal, Bauman and Egbert, as servants of the defendant corporation, follows the decision against that corporation- as far as a continuance of its inequitable competition is concerned. In regard to future abstinence from both competition and publication, these defendants, as former employes of the complainant, are brought by the testimony within the rule laid down by this court in the case of Stone v. Goss, 65 N. J. Eq. (20 Dick.) 756.

Against all of the defendants therefore the relief prayed for in the complainant’s bill should be decreed by the court of chancery with the single exception of the prayer for an accounting, which matter not having been argued before us may, with greater propriety, be disposed of in the court below upon the remission of this record.

To this end the decree of the court of chancery is reversed.

For affirmance—Swayze, Bogert, Vroom, Green—4.

For reversal—The Citiee-Justice, Garrison, Fort, Hendrickson, Pitney, Reed, Trenohard, Vredenburgi-i, Gray, Dill—-10.


author: Pitney, J.

text:
    Richard Siegman, complainant-respondent, v. Electric Vehicle Company and Rudolph H. Kissel, defendants-appellants.
    [Argued November 26th, 1906.
    Decided March 4th, 1907.]
    1. The prohibition of section 30 of the General Corporation act (P. L. 1896 p. 886) that “no corporation shall make dividends except from the surplus or net profits arising from its business, nor divide, withdraw, or in any way pay to the stockholders, or any of them, any part of its capital stock, or reduce its capital stock, except according to this act,” is to be read in connection with the provisions of sections 27 and 29 respecting a decrease of capital stock, and deals with the payment of a dividend out of capital as amounting in effect to a reduction of capital stock.
    2. While it is a function of the board of directors of a corporation to determine whether net earnings or surplus exist applicable to the payment of dividends, they cannot, by an erroneous determination of this point, confer either upon themselves or upon the corporation the power to make dividends out of capital.
    3. The approval of a majority of the stockholders does not validate the declaration of dividends out of capital.
    4. Neither the directors nor a majority of stockholders can waive the right of the company, under section 30 of the General Corporation act (P. L. 1896 p. 886), to recover from the directors the amount of dividends made out of capital.
    5. The rule that courts will not ordinarily interfere with the internal management of corporations has no application to transactions that are •ultra -vires the company or prohibited by positive law.
    On appeal from an order of tbe chancellor, advised by Vice-Chancellor Stevens, whose opinion is reported in 71 N. J. Eq. (1 Buch.) 123.

      Mr. Bichará V. Lindabwy, for the appellants.

      Mr. James E. Howell, for the respondent.
   The opinion of the court was delivered by

Pitney, J.

This is an appeal from an order overruling a plea interposed by the defendants to the complainant’s bill of complaint.

The defendant corporation was formed under the General Corporation act of 1896. P. L. 1896 p. 277. Complainant, a stockholder therein, seeks in behalf of himself and of every other stockholder to require the defendant Kissel, who was formerly a director of the company, to pay to the company the amount of certain dividends that were unlawfully declared and paid out of the capital of the eompanjr, basing his action upon section 30 of the Corporation act as construed by this court in Appleton v. American Malting Co., 65 N. J. Eq. (20 Dick.) 375.

The bill sets out that in the year 1899, while Mr. Kissel was a director, two dividends aggregating about $325,000 were declared and paid, not out of the surplus or net profits arising from the business of the company, but out of its capital, and that Mr. Kissel voted to declare these dividends with knowledge that they were paid out of capital.

The plea, without denying this, sets up that in the year 1903, when the complainant made a demand upon the company and its directors and officers that they should take legal proceedings against the former directors (including Mr. Kissel) to recover the dividends in question, no member of the board of directors who were in office at the time of the declaration of the dividends was a member of the board; that the board of 1903 referred complainant’s demand to a committee for investigation and report; that this committee made a thorough investigation, and thereupon reported that the claim of the complainant of illegality in the declaration of dividends was without substance; that in the judgment of the committee no action should be brought by the company or in its behalf to recover back the dividends; that in their opinion such an action could not be maintained, and that if it could it would be unfair to the directors and detrimental to the best interests of the company. The plea further sets up that the directors examined this report and the documents showing the history and affairs of the company, and, being satisfied from such examination that the dividends complained of were reasonably made, in the light of what was known and believed at the time they were declared, that they were declared fairly and in good faith, and that it was not for the interest of the company that suit should be brought, thereupon resolved that complainant’s demand be refused unless and until such suit should be ordered by a majority in interest of the stockholders other than the former directors, and that unless so ordered no suit should be brought by the company or o’n its behalf to recover said dividends. The plea further sets up that afterwards, on request of the complainant, the directors called a meeting of the stockholders and submitted to them the question whether or not suit should be brought; that at this stockholders’ meeting the stock of the former directors was excluded from voting, and that of the stock actually voted one hundred and twenty-four thousand seven hundred and fifty-nine shares were against bringing suit, while only six hundred and fifty shares were voted in favor of it. That the directors and stockholders of the company, in thus refusing to bring suit to recover from the former directors (including Mr. ICissel) any of the dividends so declared, acted in good faith and according to their best judgment for the benefit of the company.

Tn the court of chancery the plea was overruled and an order made requiring the defendant to answer the bill.

Upon a consideration of the very learned and ingenious argument presented in this court in behalf of the appellant, it is obvious that its entire force depends upon the assumed basis that no question of ultra vires arises with respect either to the original act of declaring dividends or to the act of the present directors in refusing to sue. It is insisted that the declaration of dividends is within the power of business corporations; that while they are not to be declared, except out of earnings or surplus, it is for the board of directors to determine whether such earnings or surplus exist, and if in making such determination they reach a wrong conclusion, either innocently or fraudulently, their act cannot be said to be ultra vires; and that the action of the present board in refusing to bring suit cannot be deemed ultra vires, because the bringing of actions to redress injuries to the corporation is a part of the internal management of corporations peculiarly within the province of the directors.

It would seem that'a similar line of argument may have been presented to the learned vice-chancellor who heard the cause below, for in Ms opinion he deals with the right of the courts to interfere with the management of corporations in matters that are properly within the discretion of the directors, and where judicial interference is to be justified only on the ground that *the discretion has not been fairly exercised. He holds that since upon the pleadings the right of recovery against Mr. Kissel is clear, some good reason should have been given for not suing him, and that the plea is bad for not giving such reason.

Without at all disputing the cogency of the vice-chancellor’s reasoning, -we prefer to base our affirmance upon grounds that are more fundamental. In our opinion the entire argument for the appellant rests upon a false basis. By the General Corporation act the powers of directors to declare dividends is limited to the distribution in this mode of the accumulated profits of the company. The matter is regulated by section 47, which, prior to the amendment of 1901 (P. L. 1901 p. 246), read as follows:

“47. The directors of every corporation created under this act shall, in danuary in each year, unless some specific day or days for that purpose be fixed in its charter or by-laws, and in that case then on the days so fixed, after reserving, over and above its capital stock paid in as a working capital for said corporation, such sum, if any, as shall have been fixed by the stockholders, declare. a dividend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on demand; provided, that the corporation may in its certificate of incorporation, or in its by-laws, give the directors power to fix the amount to be reserved as a working capital.”

Not only are the powers of the directors thus limited, but the corporation itself is disabled from making dividends from capital except on observing the formalities and procedure prescribed by the act with respect to the reduction of the capital stock. The prohibition is contained in the thirtieth section, which reads as follows:

“30. No corporation shall make dividends, except from the surplus or net profits arising from its business, nor divide, withdraw, or in any way pay to the stockholders, or any of them, any part of its capital stock, or reduce its capital stock, except according to this act, and in case of any violation of the provisions of this section, the directors under whose administration the same may happen shall be jointly and severally liable, at any timé within six years after paying such dividend, to the corporation and to its creditors, in the event of its dissolution or insolvency, to the full amount of the dividend made or capital stock so divided, withdrawn, paid out or reduced, with interest on the same from the time such liability accrued; provided, that any director who may have been absent when the same was done, or who may have dissented from the act or resolution by which the same was done, may exonerate himself from such liability by causing his dissent to be entered at large upon the minutes of the directors at the time the same was done, or forthwith after he shall have notice of the same, _and by causing a true copy of said dissent to be published, within two weeks after the same shall have been so entered, in a newspaper in the county where the corporation has its principal office.”

It will be observed that this section recognizes that the payment of a dividend out of capital amounts in effect to a reduction of capital stock. It deals with such a dividend as only one mode of reducing capital, and it prohibits any such reduction “except according to this act.” The provisions referred to in this exception are those contained in sections 27 and 29, with respect to a decrease of capital stock, authorizing it to be done after the board of directors pass a resolution declaring it to be advisable and calling a meeting of the stockholders to take action thereon, the meeting to be held after notice to the stockholders, and if two-thirds in interest of each class of stockholders having voting powers shall vote in favor thereof, a certificate to that effect, duly authenticated, together with the written assent of two-thirds in interest of each class of stockholders, is to be filed in the office of the secretary of state, and the certificate is to be published for three weeks successively at least once in each week, in a newspaper published in the county in which the principal office of the corporation is located. Taking the three sections together, they are designed to make sure, firsl, that capital shall not be reduced by indirection nor without deliberate and considered action taken for that avowed purpose, first by the directors and afterwards by two-thirds in interest of the stockholders, each stockholder having reasonable notice of the meeting and of the purpose for which it is called, and secondly, that formal written evidence of the action taken is to be lodged with the secretary of state and published in a newspaper, to the end that all the world may be apprised thereof.'

Under this statutory scheme it is manifest that while it is a function of the directors of a corporation to determine whether net earnings or surplus exist applicable to the payment of dividends, they cannot, by an erroneous determination of this point, confer either upon themselves or upon the corporation powers that by the Corporation act are withheld, nor make lawful that which the act has prohibited. If this were permissible, then by the same logic a court that is called upon to pass on the question of its jurisdiction over a given subject-matter might, by an erroneous determination, enlarge its jurisdiction.

Some matters that are ultra vires the directors may be intra vires the corporation; some matters that are ultra vires the corporation may be so, simply because they are unauthorized; other matters may be ultra vires the corporation because prohibited by law. The matter we are dealing with comes within the latter category. Not only it is not within the express or implied powers of a corporation to distribute its capital among the stockholders in the guise of dividends as from profits, but the doing of this is expressly and with emphasis prohibited. In Appleton v. American Malting Co., supra, this court pointed out that the impairment of capital resulting from the unlawful payment of dividends not only renders the corporation less able to conduct its business and to meet its obligations, but tends to the injury of innocent investors by decreasing the actual while increasing the apparent value of the stock, and likewise to the injury of the very stockholders who innocently participate in the distribution, because they are led to treat dividends as income and expend them as such, while in truth they are unwittingly exhausting their principal.

The prohibition of section 30 of our Corporation act is addressed not merely to the directors but to the company. It is the corporation that is in plain language disabled from making dividends except from surplus or net profits. And the personal liability to make restitution is imposed' not merely upon those directors who vote to approve the unlawful dividend, but upon all the directors under whose administration the same may happen, unless they expressly dissent and cause their dissent to be entered upon the minutes and to be published in a newspaper of the county where the principal office of the corporation is located.

Manifestly nothing less than the unanimous voice of the stock-1 holders can sanction the violation of a statutory prohibition, even when the prohibition is intended for the protection of the stockholders only. Where it is intended for the protection of the public as well, or is otherwise dictated by public policy, it is not easy to see how even the unanimous consent of the stockholders may give sanction. This question, however, is not now raised.

It needs no further argument to demonstrate, as we think, that the approval of the unlawful dividends by a majority of the stockholders as set forth in the plea before us does not validate the declaration of the dividends out of capital.

And for the same reason it follows that no conclusive efficacy can be accorded to the resolution of the stockholders approving the action of the present directors in declining to sue the former directors for restitution.

Conceding that with respect to matters that are by law confided to the judgment of the board of directors, their determination with respect to the commencement of an action may, under ordinary circumstances, be binding upon a dissenting stockholder; and that with respect to matters ultra vires the directors, but intro vires the corporation, the approval by a majority of the stockholders of the action of the directors may, in some cases, amount to a ratification; yet in our opinion, neither a board of directors nor a majority of stockholders can, by ratification, make valid that which the corporation itself is by law prohibited from doing; nor can such ratification be accomplished indirectly under the guise of a refusal to bring an action.

In United States Steel Corporation v. Hodge, 64 N. J. Eq. (19 Dick.) 807, 811, referring to a by-law of the corporation that provided for the submission of any contract of the directors to a meeting of the stockholders for their approval, Mr. Justice Van Syekel, speaking for this court, said: “This by-law cannot amplify the powers of the corporation or operate to validate any act ultra vires the corporation, but it enabled the stockholders, by a majority vote, to ratify any contract which the entire body of stockholders or the corporation might lawfully make.”

Section 30 of the Corporation act not only prohibits dividends from capital, but prescribes a direct method by which the treasury of the company is to be made whole at the expense of the parties responsible. To say that any final discretion is reposed in the directors, or in the majority of stockholders, with respect to waiving such a cause of action, is to say in effect that the same body may, by indirection, confirm the dividends from capital which the law has distinctly prohibited.

It is unnecessary to review the numerous citations from textbooks and reported cases to which we are referred by the learned counsel for the appellants. Cl. & M. Corp. § 544; Morawetz Corp. §§ 244, 249; Cook S. & S. § 750; 4 Thomp. Corp. § 4487; Lord v. Governor and Company of Copper Miners, 2 Phil. 740, 751; MacDougall v. Gardiner, 1 Ch. Div. 13, 21, 25; Burland v. Earle, L. R. App. Cas. (1902) 83, 93; Dodge v. Woolsey, 18 How. 331; Hawes v. Oakland, 104 U. S. 450, 460; Corbus v. Gold Mining Co., 187 U. S. 455; Leslie v. Lorillard, 110 N. Y. 519, 532, 535, 536; Gamble v. Q. C. W. Co., 123 N. Y. 91, 99; Dunphy v. Traveller Newspaper Association, 146 Mass. 495; Ellerman v. Chicago Junction Railways Co., 49 N. J. Eq. (4 Dick.) 217, 232; Edison v. Edison United Phonograph Co., 52 N. J. Eq. (7 Dick.) 620. The effect of these authorities is that courts will not, in ordinary circumstances, interfere with the internal management of corporations acting within their powers; but without exception the same authorities recognize, either expressly or by necessary implication, that this rule has no application to transactions that are ultra vires the company or prohibited by positive law.

The order under review should be affirmed, with costs.

For affirmance—Ti-ie Chiee-Justioe, Garrison, Fort, Garretson, Hendrickson, Pitney, Swayze, Reed, Trenohard, Bogert, Vredenburgh, Vroom, Green, Gray, Dill—15.

For reversal—None.


author: Swayze, J.

text:
    Abram Speer, respondent, v. Erie Railroad Company, appellant.
    [Argued November 28th, 1906.
    Decided March 4th, 1907.]
    In a conveyance of land to a railroad company, the grantee agreed to make and maintain the necessary fences on both sides of the tract conveyed, and to provide the grantor with a suitable and convenient road crossing. At the time of the conveyance the land was farmland, and the road crossing connected the portions of the farm severed by the railroad. Pences were built with sliding bars at the road crossing, and both parties acquiesced in this arrangement for many years.—Held, that the crossing was a farm crossing only.
    On appeal from a decree advised by Vice-Chancellor Stevens, whose opinion is reported in 70 N. J. Eq. (4 Robb.) 318.

      Mr. Ilalsey M. Barrett, for the respondent.

      Mr. Gortlandt Parker and Mr. Richard Wayne Parker, for the appellant.
   The opinion of the court was delivered by

Swayze, J.

In accordance with the decree made pursuant to the opinion of this court in 68 N. J. Eq. (2 Robb.) 615, the complainant has elected to submit the question of damages to the court of chan eery, and the ease has been heard in that aspect. The vice-chancellor found, that the complainant had sustained damage by reason of the destruction of his crossing to the amount of $3,000. The defendant complains of the amount of this award. The correctness of the vice-chancellor’s judgment depends upon the character of the crossing to which the complainant was entitled. The vice-chancellor held that if it had been a mere farm or agricultural crossing $500 would be adequate compensation for its destruction; that it was, however, a crossing which the complainant would have the right to use to connect two public streets which he might dedicate, one on either side of the railroad, thus affording access from the present public highway to the complainant’s land, which might thus be developed for villa sites. The vice-chancellor recognized the difficulty in this method of development which was presented by the decision of this court in Marino v. Central Railroad Co., 69 N. J. Law (40 Vr.) 628. In his view it was practicable for the complainant to escape the effect of that decision by giving to each purchaser of a lot a right of way along the whole course of the roads to be opened, or by dividing the land, over which the roads might be laid out on either side of the railway, into as many undivided shares as there were lots, and granting one of these shares with each lot, so that the grantee would own in fee-simple on both sides of the railway. The legality of such a method of development depends upon the extent of the complainant’s right of crossing. This right was reserved in a grant by the complainant’s ancestor at a time when the land was used only for farming purposes. The terms in which the right was reserved in the deed are as follows:

“The party of the second part [the railroad company] doth, for itself and its successors, agree to make and maintain the necessary fences on both sides of said tract of land, which shall be built before the work of grading on said tract is commenced, and shall provide the party of the first part with a suitable and convenient road crossing across the track of said railway where the party of the first part may direct.”

In accordance with this reservation the railroad company built the fences and put sliding bars at the point where there had been an old wagon road, a crossing was constructed which seems to have been not more than twelve feet in width, and this was treated by the complainant and his predecessor in title 'as a compliance with the terms of the deed up to the time of the destruction of the crossing by the enforced elevation of the company’s tracks.

It was well said by Sir George Jessel, in Cannon v. Villars, L. R. 8 Ch. Div. 415; 47 L. J. Ch. 597 (at p. 599) : “As I understand it, the grant of a right of way, per se, and nothing else, may be a right of footway, or it may be a general right of way—that is, a right of way not only for people on foot, but for people on horseback, or people in carts, carriages and other vehicles. Which it is, is a question of construction of the grant, and that construction will, of course, depend on the circumstances surrounding the execution of the instrument so to say. Now, one of those circumstances, and a very material circumstance, is the nature of the locus in quo over which the right of way is granted.” Other cases are cited in Jones Easem. §§ 385, 389, and the principle has been recognized by this court in Cooper v. Louanstein, 37 N. J. Eq. (10 Stew.) 284 (at p. 301). We held, when the case was here before, that the crossing involved was a mere wagonway connecting portions of the complainant’s land. It was not then necessary to decide as to the extent to which this wagonway might be used. Upon a consideration of that question, we think the facts of the ease show that it was intended to reserve nothing more than a farm crossing as the vice-chancellor originally held, in 64 N. J. Eq. (19 Dick.) 601 (at p. 602). The use of the land at that time was for pasture, and there seems to have been no present likelihood of a development for villa sites, nor was there any such development for thirty years thereafter. Neither terminus of the crossing was in a public street. The width was but twelve feet—the width of a mere lane—not suggesting at all a street for public travel. The deed required the company to maintain fences, undoubtedly to prevent the landowner’s cattle from straying upon the railroad tracks. To make this purpose effective, and to make the fences of any value to either party, it was necessary that they should be continuous, and this continuity was secured by providing sliding bars. As late as 1900 tbe complainant regarded the land as pasture land, and desired tbe railroad company to repair the fence, as he wanted to turn his cattle into pasture, adding “as it is now it is not safe.”

We do not think it necessary to decide the question suggested by the vice-chancellor as to the right of a landowner to maintain gates which obstruct a private way. That broad question is not now before us. The obstruction by bars was acquiesced in for years and was necessary to make effective the performance of the covenant to fence. The provision to this effect in the deed seems to have been originally intended for the benefit of the landowner. With changing circumstances it may have come to be more for the benefit of the railroad company. However that may be, the very fact that the parties agreed upon such an obstruction seems to us conclusive proof that they did not intend that this crossing should form a part of a public street, or rather a connecting link between two public streets. To use it in such a way would in effect enable the complainant to dedicate for a public street land of the railroad company over which he had a mere wagonway connecting two portions of his farm. We think, therefore, that if the complainant attempted to convey undivided rights in public streets opened by him on either side of the railroad, for the purpose of giving his grantees an undivided right in land on either side so that they might have access across the railroad by means of this wagonway, he would be evading the spirit of the grant made by his predecessor in title, and increasing materially the burden upon the railroad company. Such an evasion of the true intent of the deed would not be permissible.

The case differs from the English eases cited by the vice-chancellor—Newcomen v. Coulson, L. R. 5 Ch. Div. 133, 138; United Land Co. v. Great Eastern Railroad Co., L. R. 10 Ch. App. 586; 44 L. J. Ch. 685. In the former case the right of way began at a common highway, and there was a provision that in case the allottees should “street” out the way, the same should remain eleven yards wide. These facts make a very different case from the present, where each terminus of the way was in a field, and the way itself was but twelve feet wide, enclosed by fences.

In United Land Co. v. Great Eastern Railway Co., supra, Lord-Justice James, in the court of appeal, relied upon a special clause in the railway company’s act, that the land should not be taken without the consent of the commissioners of the woods and forests, and that the railroad company should make and maintain such accommodation and communication as the commissioners should require. He said very properly that it was impossible to say that that clause in the act was restricted to such communication as were necessary to the then present state of the land. In the present case the agreement in the deed and the conduct of the parties was such as to negative any anticipated use of the crossing for a public way.

• We think therefore that the vice-chancellor awarded damages upon an erroneous principle, and the decree must be reversed. It is difficult to determine exactly what compensation should be awarded for the destruction of this crossing considered as a farm crossing only. The witnesses vary considerably in their estimate. The vice-chancellor had the advantage of seeing them, and we think his estimate of $500 for the destruction of the crossing, viewed as a farm crossing, is a proper award.

The decree should be reversed and the record remitted to the court of chancery in order that a decree may be entered for the sum of $500.

For affirmance—Hendrickson, Reed, Trenoi-iard, Bogert, Vredenburgh, Gray—6.

For reversal—The Chief-Justice, Garrison, Garretson, Swayze, Vroom, Green, Dill—7.


author: Dill, J.

text:
    Noel B. Martin, complainant-respondent, v. Atlas Estate Company, defendant-appellant.
    [Submitted December 11th, 1906.
    Decided March 4th, 1907.]
    1. Service of a subpoena ad respondendmn upon a domestic corporation, defendant in a foreclosure suit, by delivering the same, at the registered office of the company in this state, to the vice-president, also a director— Held to be service upon the corporation.
    2. The Chancery act (P. L. 1902 p. 511 art. 2 § 5) providing for the method of service of process for appearance upon the defendant does not mention corporations by name, but inasmuch as the name “person” in a statute includes corporations if they fall within the general reason and design of the act, this section of the Chancery act must be interpreted as warranting such service of process upon a corporation defendant as is equivalent to personal service upon an individual.
    3. Service of a subpoena or process for appearance on any officer or agent of a corporation organized under the “Act concerning corporations (Revision of 1896),” whose duty it is, either in his official capacity or by virtue of his employment, to communicate the fact of such service to the governing body of the corporation, is tantamount to personal service in the case of a natural person.
    4. Section 43® of the “Act concerning corporations (Revision of 1896)” (P. L. 1898 p. 410), requiring the public record of an agent “upon whom process against the corporation may be served,” does not provide an exclusive method of acquiring jurisdiction over corporations in this state by the service of process for appearance upon an agent or officer, it creates an additional agent of the corporation upon whom process may—not must—be served.

      On appeal from an order of the chancellor, advised bjr Vice-Chancellor Garrison.

      Mr. Adolf L. Eng elite, for the appellant.

      Messrs. Ilovoe & Davis, for the respondent.
   The opinion of the court was delivered by

Dill, J.

This is an appeal from an order of the chancellor refusing to set aside a service of process in a foreclosure suit against a corporation of this state organized under “An act concerning corporations (Revision of 1896).” The order appealed from discharged an order to show cause, made upon the defendant’s petition, alleging that the court of chancery did not have jurisdiction, because the process of subpoena had not been served upon the registered statutory agent of the defendant corporation.

The subpcena was served by the sheriff, at the registered office of the corporation, upon Harry B. Brockhurst, vice-president and a director thereof. At that time, Adolf L. Engelke was the registered statutory agent of the defendant for the purpose of receiving process pursuant to the provisions of the “Act concerning corporations (Revision of 1896).” After the service of the subpcena, and before the time to answer had expired, the said x\dolf L. Engelke, a counselor-at-law and solicitor in chancery, wrote the solicitors for the complainant that he represented the defendant company in this suit, requesting a copy of the bill of complaint and enclosed a stipulation extending the time for filing an answer, signed “Adolf L. Engelke, solicitor for the defendant.”

The president of the defendant company likewise called at the office of the complainant’s solicitors before the-answer was diie, had certain negotiations with them looking to an adjustment of the suit and also requested an extension of the time to answer.

No answer being filed, a decree pro confesso was taken, and subsequently a final decree requiring the mortgaged lands to be sold.

After final decree a petition was filed by the said Adolf L. Engelke, as solicitor for the defendant, to set aside the decree upon the ground that the service upon Brockhurst, the vice-president and director, was not service upon the defendant corporation, because Broekhurst was not the registered statutory agent of the company.

The sheriff, who had made a return that he had served a subpoena upon Broekhurst, agent of tire company, filed a petition setting forth the method in which the process was served and asking leave to amend his return to the writ of subpoena by striking out the word “agent” after the name “Broekhurst” and inserting in its place the words “vice-president and director.”

Leave was accordingly granted to amend the sheriff’s return, but the defendant’s application to vacate the process was refused.

From the foregoing statement of facts it appears that the defendant is in court by the service of a subpoena upon the viefepresident and director, at the registered office of the company in this state.

Appellant’s counsel contends that the court of chancery was without jurisdiction because such service was ineffectual. He insists that a writ of subpoena ad respondendum must be served “upon the stockholders or the directors or the trustees when convened as a body,” citing Laufman v. Hope Manufacturing Co., 54 N. J. Law (25 Vr.) 70 (at p. 72), or upon the registered statutory agent of the company, citing P. L. 1898 p. 410.

He argued that the Chancery act (P. L. 1902 p. 511 art. 2 § 5) deals only with natural persons and not with corporations; that the Practice act (P. L. 1903 p. 537) is limited to proceedings in courts of law and is not applicable to the court of chancery, and that consequently section 43a of the “Act concerning corporations” (P. L. 1898 p. 410), provides the only method by which the court of chancery can acquire jurisdiction over a domestic corporation by service in this state of a subpoena or process for appearance upon an officer or agent.

This position is untenable.

Without questioning that service “upon the stockholders or the directors or the trustees when convened as a body” would be service upon the corporation, nevertheless, jurisdiction may be acquired by service of a subpama or process for appearance upon an officer or agent of a corporation defendant.

The Chancery act (P. L. 1902 p. 511 art. 2 § 5), providing for the method of service of process for appearance upon the defendant, does not mention corporations by name, but in the absence of statutory enactment the common law principle applies, that “the name 'person' in a statute includes corporations if they fall within the general reason and design of the act.” United States v. Amedy, 11 Wheat. 392.

Consequents, the section of the Chancery act under review must be interpreted as warranting such service of process upon a corporate defendant as is equivalent to personal service upon an individual.

From which it follows that in the ease of a corporation of this state, under the “Act concerning corporations (Revision of 1896),” service of subpoena or process for appearance on any officer or agent of the company whose duty it is, either in his official capacity or by virtue of liis employment, to communicate the fact of such service to the governing body of the corporation is tantamount to personal service in the case of a natural person. This is in accord with the reasoning of Justice Dixon, in Facts Publishing Co. v. Felton, 52 N. J. Law (28 Vr.) 161, and of Justice Depue, in Dock v. Elizabethtown Steam Manufacturing Co., 34 N. J. Law (5 Vr.) 312.

The service, as made in this case, was in accordance with the provisions of the Chancery act thus interpreted, and was therefore service upon the corporation.

The further contention of the appellant, that section 43a of the Corporation act (P. L. 1898 p. 410) which provides for the public record of an agent known as the registered agent, “upon whom process against the corporation may be served,” precludes service of process upon any other officer or agent, is unsound.

The statute reads “upon whom process against the corporation may”-—not must—“be served,” and does no more in this respect than to create an additional agent of the corporation upon whom process may be served. Nickolson v. Wheeling, 110 Fed. Rep. 105.

Dnder the common law rule, also, the court of chancery acquired jurisdiction over the defendant.

This statute (P. L. 1898 p. 410) does not abridge the rule that

“the service of such process within the jurisdiction creating the defendant corporation, made on such head officer of the corporation as secured knowledge of the process to such corporation, is good service on the corporation.” 1 Tidd (ed. of 1856) 121; 1 Dan. Ch. Pr. 445; Ang. & A. Corp. (11th ed.) 687; Kansas City, &c., Railroad Co. v. Daughtry, 138 U. S. 298.

But if the rules above stated were not to be applied, still the service should be upheld.

The subpoena was delivered to the vice president, a director, and at the registered office of the company in this s^ate. Before the time to answer expired, knowledge of the process was acquired by the president, who endeavored to negotiate a compromise, and to that end sought an extension of time to answer.

The process also came into the hands of the registered statutory agent, the solicitor of the company, and it is unnecessary, under the circumstances of this case, to inquire by whose hands it was delivered to him.

Eventually, the process was delivered to the solicitor for the company, and he, as such solicitor, and in behalf of the corporation, signed a proposed stipulation, in writing, extending the defendant’s time to answer thirty days.

This justifies the conclusion that the corporation, through its executive officers, had all requisite notice of the process and suit, and before the time to answer expired.

There are other grounds which would also lead to an affirmance, but it is unnecessary to discuss them, as the case may be disposed of upon the grounds urged by the appellant.

The order of the court of chancery is affirmed.

For affirmance—The Ci-iiee-Justice, Garrison, Fort, Garretson, Hendrickson, Pitney, Swayze, Reed, Trenoi-i ard, Bogert, Yredenbcrgh, Yroom, Green, Gray, Dill—15.

For reversal—-None.


author: Trenchard, J.

text:
    Ethel Farrow, respondent, v. William Farrow, Jr., appellant.
    [Submitted November 20th, 1906.
    Decided March 4th, 1907.]
    1. A gift of personal property from husband to wife must be clearly proved. There must be clear and convincing evidence of a delivery of the property by the husband with the intention of divesting himself of all dominion and control of it, and of vesting title in the wife.
    2. The common-law rule that “suitable ornaments and wearing apparel of a married woman, which come to her through her husband during coverture, remain his personal property during his life, and he may sell and dispose of them during his life,” has not been abrogated by our Married Woman’s act (Q-en. Btat. p. 2012), or by any other statutory provision.
    On appeal from a decree of the court of chancery, advised by Vice-Chancellor Grey.

      Mr. Howard Carrow, for the appellant.

      Mr. James M. E. Hildreth, and Mr. Charles H. Edmunds (of the Philadelphia bar), for the respondent.
   The opinion of the court was delivered by

Trenchard, J.

This is an appeal from a decree of the court of chancery.

The bill was filed by Ethel Farrow, the respondent, against her husband, William Farrow, Jr., the appellant, who was living apart from her, for the recovery of the possession or the value of one solitaire diamond ring, one turquoise ring with sixteen small diamonds around it, and one pair of diamond earrings, that were in the .possession of the wife at the time her husband separated from her, and which were then taken by him forcibly, and since have been converted to his own nse. In the bill the complainant averred that these jewels had been given to her by her husband, the defendant, and that he had allowed her to apply them to her separate use.

The prayer of the bill is that the defendant

“may be ordered and decreed to deliver to your oratrix forthwith said personal property, or, in case he has sold or parted with the same, he may be ordered and decreed to pay to your oratrix such sum or sums as shall be a fair value of the same.”

The answer of the defendant denies that the complainant was or is the owner of the said jewels; denies that he gave them to her, and that he allowed her to apply them to her separate use. It avers that the defendant

“bought and purchased the jewelry mentioned in the bill of complaint for the personal adornment of his wife, the complainant, but that he never gave said jewelry, or any part thereof, to his wife, and never parted with his title or possession to said jewelry, and that they are his property and in his possession.”

At the hearing it appeared that the defendant had parted with the jewelry and the court of chancery decreed

“that the defendant do pay unto the complainant, by way of compensation for said solitaire diamond ring, turquoise ring with sixteen small diamonds around it, and pair of diamond ear-rings, the sum of $670.”

On this appeal we are not concerned with that part of the decree which awards compensation for the solitaire diamond ring, because it appeared at the hearing that it was given by the husband to the wife before their marriage as an engagement ring; the gift was absolute, and the property remains hers notwithstanding the subsequent marriage. This is admitted to be the legal situation by the defendant. • To the extent that the decree directed payment for the value of the solitaire diamond ring, which was shown to be $130, it was admittedly proper.

The controversy on this appeal is concerning the propriety of the decree so far as it relates to the turquoise ring and the diamond ear-rings, together valued at $540.

The complainant, the wife, claims that this jewelry was given to her by her husband during coverture; that it was bought on the installment- plan and that a considerable amount of the purchase-money still remained unpaid at the time when the husband took possession of it. This is stated to be the fact by the •wife, who says the unpaid amount was somewhere about $300. She then goes on to say:

“AA'e paid so much a month; we undertook to pay $40 per month; we didn’t always pay that much; we paid what we thought we could; we thought it was money saved to buy the diamonds; that was the agreement between AAU11 and me; that was the reason we bought them.”

In the same connection she says:

“I don't remember any such conversation before Mr. Mdridge. No; we talked about these affairs between ourselves.
“Q. Between yourselves?
“A. Not before Mr. Eldridge.
”Q. Then after you were by yourselves?
‘‘A. Yes, sir ; at times we talked over buying diamonds to save money ; we did; yes.”

The testimony shows, beyond question, that the jewelry tvas purchased with the husband’s money. It therefore was his property, unless it was bestowed by him upon his wife as a gift.

A gift of personal property from husband to wife must be clearly proved. There must be clear and convincing evidence of a delivery of the property by the husband with the intention of divesting himself of all dominion and control of it and of vesting title in the wife. Skillman v. Skillman, 13 N. J. Eq. (2 Beas.) 403; Dilts v. Stevenson, 17 N. J. Eq. (2 C. E. Gr.) 407. See, also, 14 Am. Eng. Encycl. L. (2d ed.) 1033, and cases there cited.

Applying these principles to the case under consideration, we (find nothing to justify the claim of the wife that the jewelry was bestowed upon her by her husband as a gift. The evidence shows that it was purchased by the husband, not as a gift to his wife, but as an investment for their joint benefit, and also for the purpose of ornamenting the wife on suitable occasions; in other words, either it remained the absolute property of the husband, or, at most, it became the wife’s paraphernalia. In either event the husband was entitled to take possession of it and deal with it as he saw fit. Of course, this is true if it became his absolute property, and there remains only to be considered the legal situation if it became the wife’s paraphernalia.

At common law the husband is bound to maintain the wife, and to provide her with suitable clothing appropriate to their degree, and his own circumstances and social position. That common-law obligation still rests upon the husband. As corollary to this obligation, the common law recognizes that articles of clothing and personal ornaments appropriate for the wife, which are purchased with the husband’s money, or upon his .credit, are his property, notwithstanding the fact 'that they are selected and purchased by the wife, or are intended for her personal and exclusive use. The wife’s clothing and ornaments are called her paraphernalia, and' the common-law rule that the ownership thereof during the life of the husband was in him, remains in force in all jurisdictions where that rule has not been abrogated by statute. It has not been abrogated in this state by the Married Woman’s act (Gen. Stat. p. 2012), or by any other statutory provision. Except in cases where the wife herself purchases the paraphernalia with her own separate money or earnings, the rule remains exactly as it stood at common law. In Massachusetts it has been judicially declared that the common-law rule still prevails because of the absence of statutory provision changing it. Hawkins v. Providence and Worcester Railroad Co., 119 Mass. 596. So, too, in Michigan the same rule prevails and for the same reason. Smith v. Abair, 87 Mich. 62.

If, therefore, the jewelry became the paraphernalia of the wife, then the common-law doctrine of paraphernalia applies, and that is this: That

“suitable ornaments and wearing apparel of a married woman, which come to her through her husband during coverture, remain his personal property during his life, and he may sell and dispose of them during his life.” Schoul. Dom. Rel. (5th ed.) 208.

So much of the decree as adjudges that the defendant make compensation unto the complainant for the turquoise ring with sixteen small diamonds around it and for the pair of diamond ear-rings, should be reversed. As the complainant was admittedly entitled to a decree for the value of the solitaire diamond ring, which was $130, she is entitled to costs in the court below.

For affirmance—None.

For reversal—Ti-ie Chief-Justice, Garrison, Fort, Garret-son, Hendrickson, Pitney, Swayze, Reed, T.renoi-iard, Bogert, Vredenburgh, Vroom, Green, Gray, Dill—15.


author: Per Curiam.

text:
    In the matter of assessment of a collateral inheritance tax upon the estate of Simon Rothchild, deceased.
    [Argued November 20th, 1906.
    Decided February 2d, 1907.]
    On appeal from an order of the ordinary, whose opinion is reported in 71 N. J. Eq. (1 Buch.) 210.

      Messrs. McDermott & Enright, for the appellant.

      Mr. Edward D. Duffield, assistant attorney-general, for the respondent.
   Per Curiam.

The order appealed from in this case is affirmed, for the reasons stated in the opinion filed in the prerogative court by the ordinary.

For affirmance—The Chief-Justice, Garrison, Fort, Garretson, Hendrickson, Pitney, Swayze, Reed, Trenohard, Bogert, Vredenburgh, Vroom, Green, Gray, Dill—15.

For reversal—None.