author: Walker, Chancellor.

text:
    William Allfather v. Peter Schlicher et al.
    [Decided March 31st, 1916.]
    1. Certain persons organized a railroad corporation under the forms of law, but did not subscribe and pay in the amount required by the then existing General Kailroad act. Gen. Stat. p. 2688 § 2. The amount required by the act was not paid to the directors for deposit with the state treasurer, hut was raised upon a promissory note, made or endorsed by the stockholders and directors for the accommodation of the promoter of the enterprise, under an agreement that they were not to be liable for anything upon any account. This was a fraud upon the statute, and, therefore, an illegal transaction as between the parties to it.
    2. One of the parties participating in the organization of a railroad corporation, without the bona fide stock subscription and payment required by the statute, who was compelled to pay more than his proportionate share of loss following in the wake of the enterprise, has no standing to recover from the others concerned with, him sums which he paid in excess of those which they paid, in order to equalize losses between them.
    3. The law will not aid either party to an illegal contract, but will leave them where it finds them.
    On bill for contribution.

      Mr. Harry J. Able, for the complainant.

      Mr. Alan H. Strong, for Peter Schlicher.

      Mr. Barton B. Hutchinson, for the estate of James C. Robbins, deceased.

      Mr. Peter Backes, for the estate of William H. Martin, deceased.
   Walker, Chancellor.

William Allfather paid $623.31 more than his proportionate share of an amount secured by a promissory note upon which he, William H. Martin, Peter Schlicher and James C. Robbins were endorsers. The note was one of a series, the first one of which originated in the way hereafter mentioned. .

A certificate of incorporation of the Trenton, Lakewood and Atlantic Railway Company was made and executed March 4th, 1903, by thirteen persons who became subscribers to its capital stock; among them were William Allfather, William H. Martin, Peter Schlicher and James C. Robbins. In the articles of association the corporators certified over their signatures that they had formed themselves into a company under the act of the legislature for the purpose of constructing, maintaining and operating a railroad for public use, when, in fact, they had no intention of constructing, maintaining or operating a railroad. This, company was organized under the then existing General Railroad law of 1873. Gen. Stat. p. 2638. Section 2 of that act, as amended March 4th, 1879 (P. L. 1879 p. 78; Gen. Stat. p. 2649), provided:

“That such articles of association shall not be filed and recorded in the office of the secretary of state until at least two thousand dollars of stock for every mile of railroad proposed to be made is subscribed thereto and paid, in good faith and in cash, to the directors named in said articles of association, nor until the said directors shall have deposited the said money so subscribed and paid to them with the treasurer of the State of New Jersey, who shall be the custodian of the same, and shall hold the same, subject to be repaid, * * * nor until there is endorsed on such articles of association, or annexed thereto, an affidavit, made by at least five of the directors named in said articles, that the amount of stock required by this section has been, in good faith, subscribed and paid in cash as aforesaid, and that it is intended, in good faith, to construct * * * the road mentioned in such articles of association, which affidavit shall be recorded with the articles of association as aforesaid.”

The length of the railroad was certified to be forty miles, as nearly as' could be estimated, by the corporators. This required that at least $2,000 of stock for every mile, making $80,000 in all, should be subscribed and paid in good faith and in cash to the directors for deposit with the state treasurer. Fot a dollar was so paid, but the required $80,000 for deposit with the state treasurer was raised upon a promissory note upon which the stockholders and directors were parties, for the accommodation of George O. Vanderbilt, one of their number, who was the promoter of the enterprise. The company was conceived and exploited by Mr. Vanderbilt, and treated by him as his individual property, in which the stockholders and directors acquiesced. He promised and agreed with them upon the organization of the company that they were not to be liable for anything upon any account; that he was going to have a survey and profile made, and whenever he sold the road he would give each of them $1,000, the rest to be his. He also told them that he had no intention of building the road and wished them to aid him by the use of their names. It was entirely a speculative enterprise on his part.

The affidavit required by the act was made by the' defendant Peter Sehlicher, and by William H. Martin and James C. Robbins, whose personal representatives are defendants in this suit. The complainant, although not one of the affiants, was one of the corporators and certifiers to the untrue statement of the purpose for which the company was organized, and who, with the others, did not make any payment on his subscription for stock. This transaction was clearly a fraud upon the statute.

Vice-Chancellor Van Fleet, in Jersey City Gas Co. v. Dwight, 29 N. J. Eq. 242, held that a subscription in good faith to corporate stock must be real, actual and honest, as distinguished from fictitious, pretended and deceptive. These words aptly describe the condition of the pretended subscription to the non-paid stock of the Trenton, Lakewood and Atlantic Railway Company. And (at p. 246) the vice-chancellor said that any attempt to acquire corporate functions by a pretentious or evasive compliance, no matter what the papers might say on their face, must be denounced as a fraud upon the law. It is true that Vice-Chancellor Van Fleet, in Jersey City Gas Co. v. Dwight, went further and held that an attempt to acquire corporate functions by a pretentious or evasive compliance with the law will be declared abortive on the ground of fraud, and he enjoined the defendant in that case from exercising certain corporate powers. The doctrine and decision just mentioned appears to have been overruled by the court of errors and appeals in National Docks Railroad Co. v. Central Railroad Co., 32 N. J. Eq. 755, although the Jersey City Gas Company Case was not mentioned in the opinion of the court of last resort. That court’s decision, as just stated, was, however, adverted to and acknowledged by the same vice-chancellor in his later opinion in Elizabethtown Gas Light Co. v. Green, 46 N. J. Eq. 118, 130, as having the effect which I have ascribed to it. But in the National Docks Case there is no repudiation of the doctrine enunciated by Vice-Chancellor Van Fleet, to the effect that anjr attempt to acquire corporate functions by a pretentious or evasive compliance with the statute is a fraud upon the law. It is plain that that fraud will not ipso facto operate to destroy the corporation, or authorize the court of chancery to enjoin its exercise of corporate functions, the proper remedy being by quo warranto, or information in the nature thereof, instituted by the attorney-general in the supreme court. But it is equally clear that as between the individual parties to the fraud the unreversed doctrine of the Jersey City Gas Company Case applies.

The doctrine of fraud upon the law is illustrated by the supreme court in Plantner v. Ryan, Executor, 76 N. J. Law 239, wherein it was held that an assignment by a plaintiff without consideration, solely for the purpose of qualifying the .assignor as a witness against the estate of a deceased party, could be defeated by appropriate action in the given case; and that to permit the real, though not nominal, plaintiff to testify would be to connive at a fraud upon the Evidence act.

There is a line of cases of which Volney v. Nixon (Court of Errors and Appeals, 1904), 68 N. J. Eq. 605, is an example, which hold that it is the settled policy of the courts of this state not to aid in the enforcement of contracts having an illegal purpose, even though the objectionable feature has- been accomplished and there remains only the distribution of the proceeds-among the contracting parties.

The case at bar presents a scheme whereby the parties clothed themselves with corporate powers for the purpose of perpetrating a fraud — that is, organized a railroad corporation without the bona fijde stock subscription and payment required by the statute, for the sole purpose of permitting one of their number, a promoter, to exploit the corporation, who promised to give the others a certain gratuity each in case he effected a sale of the company’s property and franchises. Such a transaction falls directly within the doctrine of Volney v. Nixon, supra, and, as stated above, cannot be enforced inter partes. Therefore, he who was compelled to pay more than his proportionate share of loss following in the wake of the enterprise under review, which proved unsuccessful, has no standing to recover from the others concerned with him, sums which he paid in excess of those which they paid, in order to equalize losses between them.

The law will not aid either party to an illegal contract, but will leave them where it finds them. If the contract be executory it will not be enforced, and, if executed, the price paid will not be restored. Ellicott v. Chamberlin (Court of Errors and Appeals, 1884.), 38 N. J. Eq. 604.

This view renders it unnecessary to decide the mooted question whether or not one of the parties, William H. Martin, since deceased, whose estate issued, was insane at the time he obligated himself by endorsing the note in question.

The bill will be dismissed, but without costs. See Ellicott v. Chamberlin, supra (at p. 612).


source: Caselaw Access Project

author: Emery, V. C.

license: Public Domain

text:
    Mary B. Gabriel v. Francis Carl Gabriel.
    [Decided April 4th, 1916.]
    1. Under the statute delaying for six months the final decree of divorce upon decree nisi, defendant in a divorce suit, who believes he has a defence, cannot delay presenting it until the case against him has been first presented before a master and decree nisi entered thereon, and then open such decree by setting up his claim of defence, or let final decree be taken, at his option.
    2. In-an ordinary civil case, an interlocutory decree, regularly obtained, after defendant’s failure to put in defence, and after giving additional time therefor, will not be opened except upon proof of surprise or mistake, as well as merits.
    3. On application to open a decree nisi of divorce, regularly obtained after defendant’s failure to put in defence, defendant has no right beyond a decision of his application on the affidavits presented on both sides.
    4. On application of defendant to open decree nisi of divorce, evidence, as presented by the record and affidavits, Held to confirm the charge of desertion in the petition established by the proofs before the master and his report thereon.
    5. Where there is no question of any collusion or imposition on the court, or any other reason why the court, in its control over divorce, should in the public interest direct or allow inquiry or proofs as to the defence, defendant’s application to open a decree nisi, entered after his failure to defend, will be denied.

      On petition for divorce. On application to open decree nisi. Heard on petition and affidavits.

      Mr. Sidney W. Eldridge, for the defendant.

      Mr. Samuel Sclileimer, for the petitioner.
   Emery, V. C.

The application to open the decree nisi will be denied. The main object of the provision of the statute, delaying for six months final decree upon decree nisi, was to afford some opportunity for protection of the court and the state against decrees which were collusive or fraudulent -decrees. It was not intended by this provision for the two decrees to give a defendant who really believed he had a defence the advantage of delaying it until the case against him had been first presented before a master and decree nisi thereon, and then give an opportunity for making the entry of the final decree on the decree nisi a matter of option with defendant, by allowing him, after decree nisi, either to appty to open it on setting up his claim of defence, or to let final decree be taken if he chose. Such a course of practice, under the Divorce act, would give the defendant not only an undue advantage in reference to making his defence, but also such an option of interposing his defence or not, after decree nisi, as might be most unconscionably used.

There can be no' suspicion in this case of any collusion between the parties. The decree nisi has been regularly obtained after defendant’s failure to put in n defence, and after additional time was given to put in defence, and upon sufficient proof before the master of defendant’s desertion. In an ordinary civil case such decree would not be opened except upon proof of surprise or mistake as well as merits. Here the failure to put in a defence was deliberate, and for financial inability, defendant says, but, if necessary, it might have been put in in forma pauperis. Whether he is in any better financial position now his affidavit does not show. Hnder the circumstances disclosed by the affidavits as to the failure to put in a defence, the application is one therefore bearing exclusively on the rights of the parties inter sese, rather than one where the court, by reason of the affidavits presented, has any duty with special reference to the protection of the public interests of the state, to see that the defendant should now have the option of setting up the defence even on the ground that the propriety of the decree has been made a matter of fair question. Defendant, on an application made under the present circumstances, can certainly have no right beyond that of a decision on his application, on the affidavits presented on both sides. On these affidavits, I conclude that defendant has failed to make out a defence to the charge of desertion made in the petition, or to show a case entitling him to open the decree in order to further contest it. His own affidavit admits that he left the home, and, as he then told his wife in the presence of her brother, because she would not consent to sell the home, title to which was in her name. She was not obliged to consent, and her refusal (for good reasons, if her affidavit is true) was no reason for deserting the home. He never afterwards provided, or offered to provide, any other home, or contributed anything to his wife’s support, and she has been largely dependent on relatives, except during the time when she supported herself by taking boarders at the home until it was destroyed by fire.

The affidavits of the defendant, his wife and others, seem to establish that he was a speculator in stocks, that his financial difficulties during the marriage resulted from this, and that he owes .the petitioner’s relatives considerable sums. The wife’s refusal to sell the home was, as she says, because, on the sale of a previous home, he lost the money in speculation, and he wanted the second home- sold to get the money for the same purpose, which she refused to consent to.

After his desertion the husband made no effort to see his wife or to terminate the separation brought about by his wrongful act, nor does he claim to have made any such effort. The single meeting with his wife, after the separation, was at the house of her sister, and, so far as they were concerned, was not intentional. In his petition the defendant states that he has always been ready to live with her and provide for her “in keeping with his financial circumstances,” but he has never since given, or offered to give, her anything, and was not even able, as he says, to pay a lawyer a retaining fee to defend the suit. The amount asked for the retainer is not stated, but it probably was not large, and if this was his financial situation after two and a half years of separation, ntf weight can be given to this statement as an offer to provide a home or support.

The petition to open decree specified no defence other than a denial of the desertion, but the affidavits filed on petitioner’s behalf contain statements intended to reflect on the conduct of the wife in receiving prolonged visits at her home from another man more than two years after the husbapd’s desertion. These affidavits relate not to what the affiants themselves know or saw, but mainly to alleged admissions of the petitioner, and have been fully met by the counter affidavits, both as to the admissions themselves as well aa the visits. No defence or counter-claim of adultery is made in the petition, and these statements have no relevancy merely as a defence to a charge of desertion, which was completed before they occurred. The denial of the desertion is the only defence set up in the petition filed June 31st, 1915, which alleges his continued readiness and willingness to live with his wife. In his own affidavit he admits that after the proceedings commenced, and he was served with process, he told petitioner’s brother it would be impossible for him and his wife to live together, in view of the fact that the intimacy of petitioner with this other man had been started, and that petitioner had probably started proceedings to free herself. This admission would seem to justify a conclusion 'that this delayed defence has not been made in good faith, for the purpose or with the desire of establishing his innocence of the charge of desertion or to show his continued readiness and ability to restore the marriage relation and the home.

On examination and consideration of the whole record and the affidavits on this application, I conclude that the charge of desertion made in the petition, which was established by the proofs before the master, and his report thereon, has been further con-finned, and that considered as an application to be disposed of on the rights of the parties inter sese, the decree nisi thereon should not be opened.

And it appearing also to be a case -where there was no question of any collusion, or of any imposition on the court, or any other reason why the court in its control over the proceedings should, in the public interest, direct or allow further inquiry or proofs as to defence, the application to open the decree nisi should be denied, with costs.


author: Stevens, V. C.

text:
    Aubrey H. Martin et al. v. Charles E. Kimball, trustee, et al.
    [Decided February 2d, 1916.]
    1. Where lands are conveyed in trust, with directions to pay the income to one for life, with remainder over, taxes on the land, including that which is unimproved, are payable from such income.
    2. Where a will devised land in trust, with directions that the rent be paid to testatrix’s husband for life and after his death to her children, there was no notional conversion of the property at her death, notwithstanding a provision of the will vesting in the trustees a discretionary power, thereafter exercised by them, to sell that part of the land which was unimproved.
    3. A notional conversion of land will not be referred to a time anterior to the time when conversion is directed by the will.
    4. The presumption of a notional conversion will not be indulged in where the will clearly shows testatrix’s intention in respect thereto.
    5. A provision of a will authorizing the trustees to advance to minor life tenants a portion of the principal bequeathed, whenever the trustees should deem it expedient in view of their “necessities, comfort or welfare,” did not authorize an advance of $5,000 from the principal to the mother of the minors, where it did not appear but that the share of the income being received by her and her other resources were sufficient to properly support and educate the minors, and it appeared that an annual allowance of the amount requested would, in a few years, dissipate the money given to the minors.

      Mr. Alonzo Church and Mr. James B. Sloane, of New York, for the complainants.

      Mr. Stuart A. Young, pro se, and as guardian for Elizabeth Brown and Margaret Brown.

      Mr. William Byrd, pro se, and as guardian for Julia K. Martin, Aubrey H. Martin, Jr., and Mary E. Martin.

      Mr. Corra N. Williams, for the trustee.
   Stevens, V. C.

This is a bill based upon the provisions of the will of Mary T. Martin, a resident of Summit, who died in October, 1894. It seeks a decree requiring the trustee to pay to complainants certain sums of money which it is alleged have been wrongfully withheld because the will has been erroneously interpreted by the parties. It also asks that the court empower the trustee to pay certain sums of money out of the principal of the estate, under a discretionary power that might have been exercised by the original trustee, but can now be exercised only by the court itself.

The will was, as to some of its provisions, before this court in Dillingham v. Martin, 61 N. J. Eq. 276, and was construed by Chancellor Magie, but not in the respects here considered.

The testatrix, after giving various legacies, provided as follows:

“Siwth. All the rest, residue and remainder of my estate of every name and nature and wheresoever the same may be situate, of which I may die seized or possessed or which at my death I may be entitled to, I give, devise and bequeath to my husband Archer N. Martin and Charles E. Kimball, to have and to hold the same to them or the survivor or successor of him or them or their or his heirs forever; but in trust nevertheless to and for the following uses and purposes, to wit: to convert the same into cash and invest and reinvest the same from time to time at their discretion or at the discretion of the survivor or successor of them, in such manner and in such securities or investments, real or personal, as to them or him may seem best and to take, collect and receive the rents, issues, interest, income, dividends and profits thereof and pay the same over to my said husband for and during his natural life to be used and employed by him wholly at his discretion for the benefit of himself and the comfort, education and support of my children.”

She then makes a provision of considerable length designed to protect her property against her husband’s creditors, and proceeds as follows:

“And I hereby grant to my said trustees the right and power to advance to my said husband, from time to time at his request, from the principal of said trust, such sums as they in the exercise of a liberal discretion may deem proper to advance to him.”
“Seventh. I hereby empower my said husband to dispose of the trust fund mentioned and referred to in the foregoing sixth section or so much thereof as shall remain in the hands of said trustee at his death by his last will and testament in such manner as he shall deem best but in the event that he shall fail to exercise said power of disposition, I direct that then said trust fund be divided into equal shares, one for each of the children, I shall leave and one for the child or children as the case may be of any and every of my children who may then have died leaving child or children living at the time of the death of my said husband; and I empower the Trustee who shall survive my said husband to designate and set apart and invest and reinvest one of said shares for each of my surviving children and one for the child or children as the case may be of any deceased child or children of mine (a share for the child or children of each deceased child) and to pay over the rents, income, issues and profits of each share accordingly, to the person or persons for whom the same shall be so designated and set apart for the natural life of the said pei’son or persons and at the death of said person or persons the share is to go to the next of kin of such person or persons and I give the same accordingly.
“And I hereby grant to said trustees and the survivor of them the broadest discretion as to the property or securities in which to make investment and I hex’eby authorize and empower them to advance a portion of the principal of the share to the person or persons for whom the same may be so set apart and designated whenever said Trustees or the survivor of them, shall deem it expedient in view of the necessities, comfort or welfare of such person or persons-.”
“Eleventh. I hereby grant to my executors and Trustees hereunder full power of sale of any and all my estate upon credit or for cash and I hereby empower them to execute such proper deeds, assignments or conveyances as shall be necessary or proper to enable them to execute such sale or sales, and I hereby further grant to them full power, authority and discretion to use any part of the principal of either or any of the funds herein granted to them for the purpose of improving real estate devised by me or for the purpose of maintaining the same in good condition and I hereby grant to my said trustees, right, power and discretion to change investments from time to time and to invest the funds submitted to their care in safe interest bearing or dividend paying securities or on bond and mortgage or in improved real estate."

The husband of testatrix died in December, 1894 — that is, within three months after testatrix died. Her son Aubrey, who had, by codicil, been substituted for Mr. Kimball, acted as trustee until December, 1896, when he was replaced by Mr. Dillingham, who acted until October, 1909. Then Mr. Kimball was appointed, and is now acting.

The complainants mahe two contentions — first, that the taxes on real estate should have been paid out of the proceeds of the land sold and not out of income; second, that the proceeds of the sale of the unimproved real estate actually sold should have been apportioned between the life tenants and the remainderman on the theory of a notional conversion of the land into money immediately upon testatrix’s death.

The yearly accounts filed with the surrogate of Union county by Mr. Dillingham show, first, a capital account and then a separate income account of moneys received and expended. The taxes therein appear to have been paid out of income, and this practice continued from 1896 to 1909 without objection by anyone. The net income alone, after mailing such payments, was distributed among the children. I presume that Mr. Kimball’s practice was the same, but his accounts are not before me. On this it is contended, on behalf of the infant children of the life tenants, first, that the taxes were properly paid out of income, and secondly, that the life tenants are now, in any event, es-topped by the allowance by the orphans court of the accounts stated in that way, from contending otherwise, on the principle that the matter is res adjudícala. It seems to me so plain that, under our decisions, the taxes are payable out'of income that it is unnecessary to discuss the second question. Holcomb v. Holcomb, 27 N. J. Eq. 473; 29 N. J. Eq. 597; Cadmus v. Combes, 37 N. J. Eq. 264; Brearley v. Molton, 62 N. J. Eq. 345; In re Morton, 74 N. J. Eq. 797.

The contention that the proceeds of sales of real estate should be apportioned merits a more extended consideration.

Mrs. Martin appears to have been a woman of considerable means. Her personal estate was inventoried at $113,639. Her real estate may have been worth four or five hundred thousand dollars. The unsold portion is valued by Mr. Kimball at $280,-000. The property lies on the western slope of the hill northwest of and adjoining the built-up portions of Summit. It was, no donbt, until recently, farm1 land, or land adapted to a gentleman’s country residence. At the time of Mrs. Martin’s death, at least ten houses had been built upon it, and the accounts of Mr. Dillingham show that he, properly or improperly, spent large sums in developing it, so as to make it suitable for residences of the better kind. The trustee has sold many lots at high prices and all but three of the houses. Erom the little evidence, gleaned from the accounts filed and from what Mr. Kim-ball says on the witness-stand, it is fairly inferable that at the time of Mrs. Martin’s death, the land regarded as a country place may be said to have been improved and regarded as town lots, as far as unbuilt upon it may be said to have been unimproved.

Now, what the court is asked to decide is, that the unimproved lots actually sold should have been regarded as having been converted into money at the time of Mrs. Martin’s death; and that so regarded, the' price paid should have been treated as, in part, interest or income, and distributed as such.

The principle invoked is that which, under certain conditions, is applied to personal property and is thus stated in 1 Lew. Trusts 303:

“Where at the death of the testator, the property is not in the state in which it is directed to be, the tenant for life is, before the conversion, entitled, as the court has now decided, not to the actual produce, but to a reasonable fruit of the property from the death of the testator up to the time of the conversion, whether made in the course of the first year or subsequently. If the conversion has been postponed either through the fault of the trustee or because he could not convert sooner, that ought not to vary the respective rights of the life tenant and the remainderman.’’

A similar rule, in the case of unimproved real estate, has been adopted by the courts of Massachusetts and New York, where the direction to sell is imperative and the conversion not to be postponed. Edwards v. Edwards, 67 N. E. Rep. 659; Lawrence v. Littlefield, 109 N. E. Rep. 612. Whether this be the present English rule may be open to doubt. In re Searle (1900), 2 Ch. 829.

In Yates v. Yates, 28 Beav. 637, a testator left unimproved real estate to trustees for the benefit of his wife with remainder to others, but with absolute discretion to the trustees as to whether they should or should not sell. In the course of his judgment, the master of the rolls said: “The principle of the court I apprehend to be quite clear where a testator gives property to trustees, with an absolute trust for conversion and with a discretion as to the time at which the conversion shall take place, if from any cause whatever arising from the exercise of the discretion and judgment of the trustee the conversion is delayed, then the tenant for life is not to be prejudiced by that delay, but is to have the same benefit as-if the conversion had taken place within a reasonable time of the death of the testator which is usually fixed at twelve months from that period.” This passage was criticised by Mr. Justice Kekewich in the case In re Searles, supra, so far as it applied the rule of notional conversion to cases in which the sale was not improperly postponed. The statement of the master of the rolls was, in fact, mere dictum as applied to such cases. What he actually decided was that as the will gave an absolute discretion to the trustees as to whether they would or would not sell at all, there was no conversion, notional or otherwise, until sale. It may, I think, be safely asserted that notional conversion will not be referred to a time anterior to the time when conversion is directed. If, in my will, I direct that my property shall not be sold until ten years after my death, it cannot be deemed converted as of the time of my death.

In the case in hand, the will gives the property to trustees in trust to convert the same into cash and invest and reinvest, from time to time, at their discretion. If the will stopped here I should have no hesitation in holding that immediate conversion was directed; but there are other clauses which negative the idea of such conversion. The will provides that the husband of testatrix and his co-trustee are to take and receive (inter alia) the rents, issues and profits of the property for and during the natural life of the husband. If testatrix intended her husband to enjoy the rents, that negatives the idea that she intends him to enjoy notional income. If she give him rents she cannot be deemed to contemplate a condition of the property in which there will be no rents. No court has held that he can have both. But the testatrix goes further: she gives the rents to her children after her husband’s — the first life tenant’s — death. She, therefore, contemplates that they too may enjoy rents. In the eighth clause she gives her trustees full power, authority and discretion to use any part of the principal “for the purpose of improving the real estate devised by her or for the purpose of maintaining the same in good condition.”

This direction negatives the idea that she intends an immediate conversion; especially an immediate conversion of her unimproved land, for the authority is not to improve real estate that might, under the authority contained in the sixth clause;, be purchased as an investment, but to improve real estate devised “by me,” and to maintain it in good condition.

How long property so improved might be kept and maintained I need not now consider. It is difficult to fix any limit short of the period of the life tenancies. The fact that she authorizes the trustees' to invest the proceeds of the sale of her real estate in other real estate proves that she was not averse to investment in land. The cases of Edwards v. Edwards and Lawrence v. Littlefield, supra, were cases of land wholly unimproved, and cases, too, in which no authority was given to improve or to postpone the sale at the discretion of the trustees — in which, in the words of Chief-Justice Knowlton, the will did not “indicate an intention that the time for establishing the fund should be postponed.” The case in hand more nearly resembles Yates v. Yates and In re Searles, supra, than it does those cases.

I do not see how, in a case circumstanced as this is, the improved and unimproved portions of the land can be, notionally, separated. As the testatrix has not separated them, I do not see how the court can. Putting it most strongly for the life tenants, the property is at least partially improved. No cases have been cited that show that notional conversion is dependent upon the quantity of rent received. Indeed, it is not shown by any evidence, outside of the meager indications to be obtained from looking over the accounts filed, that the property is not still one whole. There is scarcely anything to indicate that it may not have been one whole at testatrix’s death.

The presumption of a notional conversion is only resorted to where the will does not speak. The will, of course, controls; and if it appear that what testatrix intended was that the life tenants should have rents only up to the time of conversion, and thereafter the income derived from the sale, the court must give effect to her intention. Here, whether we look only at the provisions of the will itself or read it in the light of the surrounding circumstances, it seems clear that as long as the property remains unconverted, the life tenants are to have such rent only as it yields, nothing more. And this is the practical construction put upon the will by the parties themselves for over twenty years. The administration of the estate has proceeded and the accounts have been audited and settled on this basis.

As the will is drawn, the construction thus placed upon it does not bear harshly upon the life tenants; for it authorizes the trustees to advance a portion of the principal to the children whenever the trustees shall deem it expedient, in view of their “necessities, comfort or welfare.” Hnder this clause Mrs. Brown now asks an advance. She is receiving as her share of the income about $2,000 a year. She asks for an advance of $5,000. It was decided by Chancellor Magie, in the Dillingham Case, supra, that this part of the, trust did not devolve upon the substituted trustee but must be executed by the court. It appears that Mrs. Brown has two daughters, ten and thirteen years old. Their education at present is being paid for by their father, who is living separate from his wife, and is, she says, financially embarrassed. While living together in or near Baltimore they lived in an expensive way. Mrs. Brown says her husband’s family is prominent, socially, in Baltimore — that she has moved in the best society and expects her children to do likewise, and she thinks $5,000 would be a proper support.

If this sum should be taken year by year out of her and her children’s share of the principal, it is apparent that in the course of fifteen or twenty years, there would be nothing left and the money given to the children would be dissipated. This court could not, in the proper execution of the trust, authorize the payment of such a sum. It would not be for her own welfare or that of her children as long as her husband is able or can be made to educate his children, that the capital fund should be depleted for educational purposes. Nor can it be impaired to enable Mrs. Brown to keep1 up the style of living to which she has been accustomed. She says that she has had a nervous breakdown, caused, I suppose, by her marital troubles, and that she has spent about $3,000 in consequence; that she now owes about $600 on that account and is still under her physician’s care. She says that she owes, in addition, $800 for money borrowed. The trustee has already advanced her $1,000. In view of all the circumstances, I think she may have a further allowance of $2,000, but this will not be a precedent for any future' allowance, based merely on the ground that she has incurred other debts.


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    Edwin B. Goodell, substituted administrator, v. G. Rowland Munroe et al.
    [Decided February 26th, 1916.]
    1. Where an executor assigned a mortgage to himself individually and then individually assigned it to a bank, the president of which was one of the mortgagors, as security for money which he represented he was borrowing to pay legacies, the bank was not obliged to see to the application of the money loaned any more than the president would have been had he paid it in cash, and the substituted executor is not entitled to recover possession of the mortgage from the bank after the original executor had misappropriated the proceeds.
    2. If the assignment of the mortgage by the executor to himself individually was void,- he still held it as executor and as such could assign it to anyone advancing money for the better administration of the estate.

      Mr. Edwin B. Goodell, pro se.

      Messrs. Wolber.& Blake, for the defendants.
   Stevens, V. C.

Andrew S. Taylor was the surviving executor of the estate of Anna A. Burnet. He was removed by the orphans court because he was unfaithful to his trust, and the complainant was appointed in his stead. I have to some extent described the situation in an opinion just filed in the case of Goodell v. Taylor, and I need only now say that the estate of Miss Burnet was quite large, that it consisted chiefly of personal property and that she gave legacies to a large number of legatees.

Andrew S. Taylor as executor held a mortgage given by one James J. Fitzsimmons for $5,000. It had been made payable to “Lewis P. Taylor and Andrew S. Taylor, executors under the last will and testament of Anna A. Burnet, deceased” and secured a bond of even date given by Fitzsimmons and Emile C. Bataille. Andrew S. Taylor, after the death of his co-executor, informed Bataille, who was president of the American National Bank and who had become the owner of the property mortgaged, that “it was of great importance that he receive the money” (on the mortgage) “with as little delay as possible, because the legatees were clamoring for their money.” Bataille referred the matter to Mr. Munroe, the bank’s attorney. Mr. Munroe’s statement is as 'follows: Taylor said that it was arranged between him and Bataille that the mortgage should be used as collateral to obtain a loan from the bank.

“He explained to me that his first idea was * * * sell the-mortgage to the bank and that Mr. Bataille explained as a national bank they did not and could not hold mortgages except as collateral; that it was then his intention to give a note and give the mortgage as collateral, but when he came to think of it he said he didn’t feel that he had any authority to pledge the credit of the estate in such a transaction, so he was going to assign the mortgage to himself individually, give his ini dividual note and give the mortgage which he had assigned to himself individually as collateral for the payment of the note, and then when Mr. Bataille found it convenient to pay the mortgage one transaction would cancel the other.”

Taylor as executor thereupon assigned the mortgage to himself “individually.” Then, he assigned it to Mr. Munroe as trustee for the bank, and gave the bank a demand note for $5,000. The bank lent the money and Taylor misappropriated the greater part of it. The claim now is that the bank must return the bond and mortgage, for the reason that the transfer from Taylor as executor to himself individually was illegal and that the bank liad notiqe of it. '

The will was admitted to probate in the year 1908. The transaction in question occurred in October, 1912. The principal of the mortgage was due and the executor was asking for it as he had a right to do and as it was his duty to do. If, under circumstances like these, the executor had himself advanced the money and had paid it to the legatees, he certainly could have reimbursed himself out of the mortgage money when paid, and if he had taken the mortgage before it was paid instead of the mortgage money when it was paid, I fail to see how he would have been guilty of a breach of trust.

As the bank viewed the transaction, what was contemplated did not differ in substance from the case supposed, except that payment to the legatees was to follow instead-of preceding the receipt by Taylor of the money. Under such circumstances, why was the bank any more bound to see to the application of the purchase-money than it would have been had he sold the mortgage to it?

But if we assume that the assignment of the mortgage to himself, in the way in which it was attempted was simply nugatory and that he still held it as executor, lie could, as executor,' have pledged it to anyone who advanced money upon it to enable him the better to administer the estate. 2 Wms. Ex. (5th Am. ed.) *840. In the note to the leading case of Elliot v. Merryman, 1 Lead. Cas. Eq. *65, it is said that "it is a general rule that a person who purchases or tailces a mortgage from an executor or administrator is not bound to see to the application of the purchase-mcney.” In whatever way, then, we view the matter it is, as to the bank, valid in law. Under the facts which are not in dispute, the executor sought the money on the ground that he needed it to pay legatees their legacies. The representation was true in fact. There was nothing in the form of the transaction that could have led anyone to suspect that Tajdor was contemplating a misappropriation of the money.

The bill should be dismissed, but under the circumstances I do not think complainant should pay costs. •


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    Thomas C. Lazear et al., executors, v. American Steel Foundries.
    [Decided September 20th, 1915.]
    On January 3d, 1908, it was resolved by the board of directors of a corporation that it was advisable to change and decrease defendant’s capital, consisting of preferred and common stock, to one class and kind without distinction or preference between any of the shares, and that the certificate of incorporation should be amended accordingly, and the formal proceeding was consummated in June, 1908, and was on its face regular. Its validity was not questioned or attacked at any time during its progress, nor was it questioned directly or indirectly until April 8th, 1911, unsuccessfully elsewhere. The complainants did not then attack it directly, but insisted, as they do here, that it did not affect them. They allowed nearly three years to elapse after the filing of the amended certificate before they took even that action. — Held, that the complainants by their delay forfeited the right to raise the question that they were exempted by contract from the operation of the proceedings, especially in view of the doubt thereby thrown over the three millions of debentures issued on the faith of the scheme of retirement, which operated equally upon all holders of stock.'

      Mr. John O. Bigelow and Mr. II. V. Blaxter, of Pennsylvania, for the complainants.

      Mr. J. Edward Ashmead and Mr. Max Pam, _ of New York, for the defendant.
   Stevens, V. C.

The bill of complaint alleges that on July 30th, 1902, the complainants acquired one hundred and two shares of the preferred stock of the defendant company; that it. ceased to pay dividends on this stock after August 15th, 1902, and that on May 15th, 1910, it began to pay and has since continued to pay dividends on the common stock. The prayer was that it be commanded to declare and pay to complainants and other preferred stockholders dividends at the rate of six per cent, per annum whenever the same could be safely paid and that it be enjoined from paying any dividend upon the common stock while dividends upon the preferred stock remained unpaid.

The answer avers that in 1907 the financial condition of the defendant was such that a readjustment and reduction of its capital stock was considered desirable; that a committee of stockholders was appointed and that on their recommendation .it was' on January 3d, 1908, resolved by the board of directors “that it was advisable to change and decrease the defendant’s authorized capital stock which was then $37,650,000 divided into three hundred and seventy-six thousand five hundred shares of the par value of $100 each and consisting of $19,540,000 par value of preferred stock and $18,110,000 par value of common stock, to $17,184,000 divided into one hundred and seventy-one thousand eight hundred'and forty shares of the par value of $100 each, all of one ’class and kind without distinction or preference between any of the shares and that the certificate of incorporation should be amended accordingly; that after several adjournments of the stockholders'" meetings called to act upon this resolution and after due notice to all the stockholders, including the complainants, the plan was on June 12th, 1908, declared effective, by the affirmative vote and written assent of ninety per centum of all the outstanding capital stock, and that on June 29th, 1908, a certificate of the amended certificate of incorporation was filed with the secretary of state together with the resolutions and proceedings of the stockholders.

The answer further averred that no objection was made by complainants to the carrying out of the plan and that in reliance upon the absence of objection the holders of one hundred and sixty-eight thousand three hundred and three shares of preferred stock (out of a total of one hundred and ninety thousand five hundred and forty) surrendered their shares and accepted in lieu thereof the securities and moneys issued and paid by defendants in satisfaction thereof; the securities being common stock to the amount óf seventy-seven per cent, of the face value of the preferred shares, and debentures to the amount of twenty per cent, thereof; together with $3 in cash for each share.

After the filing of this answer, the complainants amended their bill by stating the above proceedings and charging that complainants never assented to them and that notwithstanding the action taken, their preferred shares are still outstanding and a valid obligation of the company.

There is no pretense that this action was not taken in good faith or that it was not, from a business standpoint, advantageous to the company and its stockholders. It was not opposed by anyone and has since been accepted with almost complete unanimity by both classes of stockholders. Even Thomas C. Lazear, one of the complainants, accepted it, as to seventy-one shares held in his own right.

The position of the complainants is this: We, as executors, made a contract with the company by which we were to be paid cumulative dividends at the rate of six per cent. We have never agreed to any change in it; consequently, it, as to us, remains intact. We do not ask that the proceedings, so far as it respects the assenting stockholders, be adjudged ultra vires, or that it he set aside. We stand merely on our own right. If this position be sound, there are still two classes of stockholders — the preferred, insignificant in point of numbers, -and the common, alorie recognized in the amended certificate.

In support of their position the complainants cite Pronick v. Spirits Distributing Co., 58 N. J. Eq. 97, where it was decided by Vice-Chancellor Emery, that the company had no power to alter the rate of dividend it had agreed originally to pay. The decision was put upon the ground that a general power to amend the certificate of incorporation did not authorize a disturbance of a vested right; that the attempted change impaired the obligation of the stockholders’ contract.

The case was decided upon the provisions of the Corporation act as they stood prior to 1896. By section 27 of the act passed in that year it was enacted that

“every corporation may change the nature of its business, change its name, increase its capital stock, deorease its capital stoch, change the par value of the shares of its capital stock — change its common stock into one or more classes of preferred 'stock, create one or more classes of preferred stock and make such other amendment, change or alteration as may be desired.”

Section 29 provided that, “the decrease of capital stock may he effected by retiring or reducing any class of its stock.” '■

These sections were considered in Berger v. U. S. Steel Corporation, 63 N. J. Eq. 809. Justice Van Syckel says: “The twenty-seventh and twenty-ninth sections of the Corporation act of 1896 expressly provide for the retirement of both classes of stock. The fifth section of the act provides That this act and all its amendments shall be a part of the charter of every corporation, heretofore or hereafter formed under it, except so far as the same are inapplicable and inappropriate to the objects of’-such corporation/ The complainant therefore has no vested right to retain her shares in opposition to any lawful method provided for retiring them.”

From this quotation it is apparent that the case in hand differs from the case of Pronick v. Spirits Distributing Co. in the important particular that in that' case the.contract did not provide for a change and that in this, by statutory enactment, it does. There can be no question but that undqr the power conferred by section 29, any class of the stock of companies organized under the act of 1896, may be retired in toto.

The question, then, is narrowed down to this: If retired, must it be for a money equivalent only? There is nothing in the act itself which, in terms, so provides. Reliance is, however, placed upon the following passage from Judge Yan SyekePs opinion in the Berger Case: “The first two- methods provided for retiring the stock (i. e., the method of retiring and reducing the stock and the method of drawing the necessary number of shares by lot for retirement) are compulsory and if the company had cash assets to retire in those methods, the further provision for retirement by purchase would be unnecessary. The inference is that the draftsman of the twenty-ninth section intended to bestow the power to purchase on credit, cash assets- not being in hand.” It is clear from this, say complainants’ counsel, that the court of errors and appeals understood that preferred stock could be compulsorily retired only for cash.

It is unnecessary for me to decide the question, for I think that complainants must fail on another ground. The power to retire is conceded. It is also conceded that the formal proceeding, consummated in June, 1908, was on its face regular. Its validity was not questioned or attacked at any time during its progress, nor was it questioned, directly or indirectly, until April 8th, 1911, when complainants began suit in the Hnited States district court for the western district of Pennsylvania. They did not then attack it directly, but insisted, as they do here, that it did not affect them. They allowed nearly three years to elapse after the filing of the amended certificate before they took even that action and they did not ultimately prevail in it.

Justice Van Syclcel, speaking of the method of retiring stock that was adopted in the present case, says that it is compulsory and must operate equally upon all holders. The amended certificate of incorporation so provides. It does not and could not save the right of those who do not come into the plan. It constitutes a single class of stock and that unpreferred. /If the court should give judicial recognition to two classes of stock, it would not only disregard the charter as amended, but it would assert in effect that the method adopted was" not compulsory and was not to operate upon all alike. Hence, to declare that it did not bind complainants would be to declare it unwarranted in point of law, and so, among other things, to throw doubt over the validity of the three millions of debentures issued on the face of it, to carry it into effect. The complainant had ample notice of the scheme and ample opportunity to be heard in opposition to it. Hnder these circumstances, it seems to me that the attack upon it, indirect though it be, comes too late. It is not an attack upon the right to retire, but only upon the mode in which it has been exercised. To such an attack delay is fatal. The principle of cases like Kent v. Quicksilver Mining Co., 78 N. Y. 159; Rabe v. Dunlap, 51 N. J. Eq. 40, and Dana v. American Tobacco Company, 72 N. J. Eq. 44; 73 N. J. Eq. 736, applies, and therefore the bill should be dismissed.


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    George M. LaMonte, commissioner, v. Charles C. Lurich et al.
    [Decided December 20th, 1915.]
    1. The general act entitled “An act concerning trust companies (Revision of 1899),” as amended by the act approved April 1st, 1913 (P. L. 1913 p. 282 ch. 171), is not unconstitutional in that it authorizes the commissioner of banking and insurance to take possession of the company’s property and business and to collect and distribute its assets on his own motion and without judicial warrant in case of insolvency.
    2. But the defendants are in no position to raise the objection. The property taken is the company’s, not the defendants’. If anybody is aggrieved it is the company, and the company does not complain.
    3. The trust company sues the defendants for the losses resulting from their negligence. The defendants answer that the company is being managed by one who has a legislative but not a constitutional warrant to do so; whether he has or not is irrelevant to the question whether the directors have failed in their duty. The law is settled that it is only in cases where a statute affects the rights of the parties to the proceeding that courts will pass upon the question of its constitutionality.
    4. The liability of the directors of the Roseville Trust Company is a joint and several liability. The agreement made with those who have settled is not, as far as appears, a technical release; but if it be, it contains a reservation of the right to sue, and so would not operate as a discharge of those who are not parties to it. It would, because of the reservation, still be construed as a covenant not to sue.
    5. That the allegations of the bill are “as circumstantial and definite as the rules of pleading require.” And the bill as a whole presents a clear case of negligence.

      Mr. Roger Hinds, Mr. William A. Kirie and Mr. Edward F. Ciarle, for the complainants.

      Mr. Otto A. Stiefel and Mr. Abram II. Cornish, for the defendants.
   Stevens, V. C.

This is a bill-filed by George M. LaMonte as commissioner of banking and insurance on behalf of and in the name of the Roseville Trust Company. It charges that the commissioner, as such, having concluded that it was unsafe and inexpedient for the company to continue its business, took possession of its property and business pursuant to the provisions of an act entitled “An act concerning trust companies (Revision 'of 1899),” as amended by chapter 171 of the laws of 1913. It charges further that the company was insolvent and that the insolvency was produced by the criminal negligence of its directors.

The application is to strike out the bill on the ground (1) that the commissioner of banking is without right or title to bring suit, the act of 1913, under which he is proceeding, being unconstitutional; (2) that the commissioner has released certain of the directors and that his release has enured to the benefit of all; (3) that the allegations of the bill axe not sufficiently specific and that they do 'not state a cause of action.

The first objection is grounded upon the idea that the act of 1913 is unconstitutional in that it authorizes the commissioner to take possession of the property and business of the company and to collect and distribute its assets on his own motion and without judicial warrant. The act (P. L. 1913, p. 282) provides, inter alia, that whenever it shall appear to the commissioner that any trust company has violated its charter or is conducting its business in an unsafe or unauthorized manner,

“the commissioner may forthwith take possession of the property and. business of such trust company and retain such possession until such trust company shall resume business or' its affairs be finally liquidated as herein provided. Upon taking possession of the property and business of such company, the commissioner is authorized- to collect monies due to such trust company and do such other acts as are necessary to conserve its assets and business and shall proceed to liquidate the affairs thereof as hereinafter provided. The commissioner shall collect all debts due and claims belonging to it” and “may in the name of such trust company prosecute and defend any and all suits and other legal proceedings.”

The act further provides that whenever the company, of whose property and business the commissioner has taken possession deems itself aggrieved thereby, it may at any time within ten days after such-taking possession apply to the court of chancery to enjoin further proceedings. This it has not done.

Assuming that the defendants are in a position to take the objection, it is a very narrow one By the terms of section 22 of the act of 1899 (Comp. Stat. p. 5654) under which the company was incorporated, the commissioner was authorized to take the same possession for the same reasons. In the event that he found after investigation that a certain condition of things existed, possession of the company’s property and business was to pass from the directors to himself. This was part of the contract impliedly incorporated into the charter. The precise objection must therefore be that the legislature had no right by amendment, after the trust company had been organized, to provide that to the possession and business so taken should be added the right to preserve it by reducing dioses in action into possession, and by enforcing other claims. Such an. insistment does not seem to me to be even plausible. The company is not thereby deprived of its property without due process of'law or at all. On tlie contrary, the property is all the better secured when those who owe it debts or duties are made to pay or perform them. A similar act has been sustained by the Yew York court of appeals. Carnegie Trust Co. v. Kress, 109 N. E. Rep. 1068.

But the defendants are in no position to raise the objection. The property taken is the company’s not the defendants’. If anybody is aggrieved, it is the company and the company does not complain. If it had felt itself aggrieved, it might according to- the act itself, at any time within ten days after possession taken, have appealed to this court, or if it questioned the right of the commissioner on constitutional grounds, it could have applied to the supreme court.

The trust company sues the defendants for the losses resulting from their negligence. The defendants answer that the company is being managed by one who has a legislative but not a constitutional warrant to do so. Whether he has or not is quite irrelevant to the question whether the directors have failed in their duty. The law is settled that it is only in cases where a statute affects the rights of the parties to the proceeding tliat courts will pass upon the question of its constitutionality. Lang v. Bayonne, 74 N. J. Law 455; State v. De Lorenzo, 80 N. J. Law 500. Here the statute does not in the remotest degree touch the question of the directors’ liability. They are liable to the corporation in the same way and to the same extent whether those who are managing the corporation have cle jure a right to manage it or not; whether the statute be or be not constitutional. Just as well might the defendants object that at the time' the suit was instituted there were two boards, eacli claiming to be the rightful manager — one a de facto board, in actual control, and another a de jure board, entitled to control. This court could not, even in a direct proceeding, determine which was the legal board (Kean v. Union Water Co., 53 N. J. Eq. 813), and much less, as it seems to me, can it, in this proceeding, pass upon the commissioner’s title.

It is next insisted that a release has been given to some of the directors and that this enures to the benefit of all and is a bar to the suit. The paragraph relied upon reads as follows :

“32. That W. P. O., TV. P. (and others named) have made partial restitution of said losses, which your orator has accepted from them respectively in settlement of his claims against them severally on behalf of said Roseville Trust Company, pursuant to an agreement duly made with said directors on December 10th, 1913, and pursuant to the express provisions of the statute, but without prejudice to the causes of action against the other directors as herein alleged.”

In Crane v. Alling, 15 N. J. Law 423, it was held that a release to one of two joint and several obligors is a release to both, but that a covenant not to sue one of the several obligors does not have the effect of a release except to the one to whom it is given. In Bowne v. Mt. Holly National Bank, 45 N. J. Law 360, the court of errors and appeals held that a technical release under seal given to one of several obligors, if it provide that it is not intended to release or discharge the others, will be construed as a covenant not to sue. There has been some conflict of decision on this question elsewhere. McBride v. Scott, 93 N. W. Rep. 243; Dwy v. Connecticut Co., 92 Atl. Rep. 883. But any discussion of it here is out of place; for the question is settled by our own court of last resort.

The liability of the directors of the Roseville Trust Company is a joint and several liability. The agreement made with those who have settled is not, as far as appears, a technical release; but if it be, it contains a reservation of the right to sue and so would not operate as a discharge of those who are not parties to it; it would, because of the reservation, still be construed as a covenant not to sue.

The third objection is that the bill is not sufficiently specific. As to this, a careful perusal of the bill shows that it is drawn according to approved precedents. Halsey v. Ackerman, 38 N. J. Eq. 501; Wilkinson v. Dodd, 42 N. J. Eq. 235, 647. Its allegations are “as circumstantial and definite as the rules of pleading require.” It would answer no useful purpose to go over them, paragraph by paragraph. It is sufficient to say that, taken as a whole, a clear case of negligence is presented. If a bill of particulars “may be justly required,” the court may in its discretion order it. P. L. 1915 ¶. 192 § 32.

I think the application should be denied.