author: Emery, V. C.

text:
    Charles W. L. Roche v. Caroline D. Hiss et al.
    [Decided March 12th, 1915.]
    1. A transaction whereby complainant procured for defendants an option on land under an agreement providing for its purchase by a company to be organized, the issue of two hundred and fifty shares at $100 each to defendants for $24,000 cash and $1,000 for their assignment of the option to the company, and the defendants’ advance of an additional $15,000 for working capital, in consideration of which complainant was to develop and sell th'c property, and providing that defendants should sell him forty-nine per cent, of the stock so acquired by them, payable within ten years, with the privilege of taking over all or any of the stock at par, to cancel the agreement as to any part of the stock not paid for within one month after notice of non-payment of interest, was not a “loan,” which is the previous or contemporaneous advance of money, and the subsequent continued existence of a debt to be repaid in money.

      2. Such transaction was simply an agreement for the purchase and sale of stock belonging to the defendants.
    3. Under such agreement even if construed as a loan to complainant of money payable in ten years or sooner at his option on the condition that, on thirty days default in interest, the whole principal might, at the lender's option, become due, a court of equity could not deprive the lender of the benefit of the contract for prompt payment of interest but must enforce it in the. absence of mistake, accident, or defendant’s own default, and this would be true even if the lender was obliged to ask the equitable assistance of the court in proceedings to collect the entire principal sum as due because of the default, since the right to enforce such provision for prompt payment of interest is part of the real security for the loan.
    4. Complainant, party to an agreement with defeñdant for the purchase and sale of stock belonging to the defendant, in a suit to enjoin defendant from forfeiting or canceling the agreement, whether treated as a purchaser or as a borrower from defendant, could ask equitable relief against the legal contract only to work out real.and substantial equity; and where his substantial equity as purchaser was that of specific performance of the contract, and his equity as borrower was to have the stock returned to him on his payment of the purchase price, his bill, not offering either to carry out the contract and complete the sale or to pay the purchase price of the stock was fatal to the right to enjoin defendant’s enforcement of the forfeiture provision of the agreement, or to have it canceled.
    On application for preliminary injunction. Heard on bill and affidavits and answering affidavits.

      Mr. Borden D. Whiting, for the complainant.

      Mr. Charles A. Reed, for the defendants.
   Emery, V. C.

Complainant's bill is filed for relief against the forfeiture or cancellation of a written agreement, dated February 18th, 1909, for the purchase of stock in a company organized by the parties to the agreement. Complainant, Charles W. L. Roche, was an operator in the development of suburban real estate, and Dr. Philip Hanson Hiss, Jr., and his wife, the other parties to the agreement, advanced, or agreed to advance, capital for the purchase, development and putting into market a seventy-acre tract of land near Short Hills, and the defendant company, the Short Hills Realty Company, was organized for the purpose of carrying out this mutual agreement. Complainant had procured for Dr. Hiss an option to purchase the property. This agreement provided for the purchase by tire company of the tract for $16,-000, $51,000 of which was to remain upon mortgage, the capitalization of the company at $125,000 (one thousand two hundred and fifty shares at $100 each), the issue of two hundred and fifty shares to Dr. and Mrs. Hiss for $24,000 in cash and $1,000 for the assignment to the company of the option for purchase, and the further advance by Dr. and Mrs. Hiss of $15,000 additional for working capital. The affidavits on both sides agree that it was supposed at the time that this would be a sufficient amount for working capital. Complainant was not to advance money to the company or purchase from it any stock, but was, under the agreement,

“to use his best efforts, as an officer or employee of said corporation, in assisting said corporation to develop and sell said property and in promoting the interests and welfare of said corporation.”

The agreement, however, provided for the sale of part of their stock by Dr. Hiss and wife (parties of the first part) to complainant (party of the second part) as follows:

“1st. The said first parties agree to sell to said second party, and the said second party agrees to purchase from said first parties, forty-nine per cent, of all the shares of stock of said corporation acquired by them in the manner hereinabove specified, in consideration of a sum equal to the par value thereof, to be paid by said second party on or before the expiration of ten years from and after the date of this agreement, subject, however, to the other conditions and covenants herein contained, the intention of 'the parties being to enable said second party to purchase, subject to the conditions of this contract, forty-nine per cent, of the said four hundred shares of stock, or of so much thereof as they may jointly acquire in the manner indicated.
“2d. The said second party shall have the privilege of taking over all or any portion of the said shares so to be purchased by him at any time during said period of ten years upon paying to said 'first parties a sum equal to the agreed price of such shares, as hereinabove stated, with all interest accrued and unpaid upon such sum at the time of such payment.”

Interest was to be paid on April and October 1st, on the unpaid purchase-money; the title to the shares agreed to be sold, with the right to vote, was to remain in the vendors until paid for, when the title was to be transferred, and a provision for cancellation was made as follows:

“6th. It is, however, provided and agreed that the parties of the first part shall have the right to cancel the agreement to sell herein contained as to any portion of said shares so agreed to he sold and not paid for at the expiration of said ten-year period, or as to any portion thereof not paid for within one year after the death of said second party within that period, or as to any portion thereof not paid for within one month after a written notice to said second party of his non-payment of the interest falling due on any of the days hereinabove stated for the payment of interest on said purchase price, or upon the second party’s severance of his active connection with said corporation as its officer or employee, or upon his failure without just cause, to use his best efforts, as an officer or employee thereof, in assisting said corporation to develop and sell said real property, and in promoting its welfare and interests, or upon the assignment by said second party of any of his interest in this agreement, or upon his transfer of any portion of the stock acquired by him hereunder, except as collateral security for a loan or other obligation, whether said assignments occur by the act of said second party or by operation of law; and no other act upon the part of said first parties shall, in any of such cases, be necessary so to cancel said agreement than a written notice of their election so to do to the second party, or his legal representatives.”

And the agreement contains this further provision, which may-have a bearing upon the effect of controlling the right to cancel:

“8th. It is further mutually agreed between the parties that neither party, during the ten-year period above stated, shall sell any of the stock acquired by him or her under this agreement, without first giving to the other party the right, for thirty days, to purchase the same at the same price at which such party may contemplate a sale thereof.”

The company was organized under the agreement, and complainant became its president and the manager of its business at a salary of $150 per month. Dr. and Mrs. Hiss advanced, not only the $40,000 for the purchase of the stock under the agreement, but also an additional $40,000. Dr. Hiss died in February, 1913, leaving his wife his executor.

By parol arrangement between the parties after the agreement, the date of interest payments was made the 1st day of July and January, instead of April and October. Complainant’s payments were not made promptly, and when delayed, he seems to have voluntarily paid compound interest, in consideration of the accommodation.

In February, 1913, he paid the interest due up to January 1st, 1913, but the money for this payment was procured on a loan by complainant from a third person, guaranteed by Mrs. Hiss, and according to Mrs. Hiss’s account, this was obtained while her husband was ill, and in order to relieve him from worrying over the non-payment of interest by complainant. No payment of interest was made in July, 1913, and on November 5th, 1913, Mrs.- Hiss, as executor and individually, by letter to complainant, notified him that the interest had not been paid to her since January 1st, 1913, and she therefore demanded payment at once.

On November 10th complainant replied to this demand, saying:

“If my back salary, as owing me by the Short Hills Realty Company, was paid me, I could send you a check for the deferred interest, and will be glad to do so, but my powers to pay this has been more or less taken from me by' those who seem to have been placed in charge of the management of the Short Hills Realty Company, as I understand the Treasurer has been directed not to sign any check for my salary.”

On November 12th Mrs. Hiss replied, stating “as to the question of salary, the Short Hills Realty Company has no money to pay any, and it was at ini'- request that they were discontinued, as I am unable ip advance anything for tire same.” This correspondence took place before the expiration of the thirty-day limit fixed by the agreement, the complainant in the meantime continuing his connection with the company as president. Dr. Hiss, during his lifetime, was vice-president and treasurer. Mrs. Hiss was not an officer or director of the company, but as the executor of her husband, and in her own right is now the holder of the entire capital stock issued, excepting one share held by complainant. On December 15th, 1913, Mrs. Hiss, individually and as executrix, served a written notice upon complainant, referred to in the bill and set out in defendants’ affidavits in full, as follows:

“New York, December 15th, 1913.
“Charles W. L. Roche, Esq.,
165 Broadway,
New York, N. Y.
“Dear Sir — Under a certain agreement entered into with you by Philip Hanson Hiss, Jr., and myself, which agreement bears date the 18th day of February, 1909, we agreed upon certain conditions therein set forth to sell to you certain shares of stock of The Short Hills Realty Company.
“Under said agreement you contracted to pay to the said Philip Hanson Hiss, Jr., and myself, on the first days of April and October in each year, as interest on the agreed purchase price of said shares, a sum equal to six per cent, per annum upon such portion of the total purchase price of said shares as should remain unpaid upon such days.
“X hereby notify you that in view of the fact that you have failed and neglected to pay the amount due under said agreement as interest on the first days of April and October, 1913, and that more than one month has elapsed after a written notice to you of your non-payment of such interest, I, the undersigned, Caroline D. Hiss, individually and as executrix of the Last Will and Testament of Philip Hanson 1-Iiss, Jr., have exercised the right given to said Philip Hanson 1-Iiss, Jr., and myself under said agreement, and have cancelled the agreement therein contained to sell said shares of stock of The Short Hills Realty Company not paid by you.
“Very truly yours,
“Caroline D. Hiss,
“Individually and as Executrix of the Last Will and Testament of Philip Hanson Hiss, Jr.”

Complainant was not elected as director Sr officer of the company at the annual election subsequently held in January, 1914-, and since that time has had no connection with - the company. On January 16th, 1914, complainant (as appears by his affidavit, not contradicted by Mrs. Hiss) tendered the interest to her,- and she rejected it.

Complainant’s sole excuse for non-payment of the interest, as given by his bill, is financial inability. He gives as one cause of this, the failure of the company to pay his salary of $150 a month, after July 1st, 1914, a financial condition similar to that of the defendant, who swears that the company, from which she has never received any return whatever, had no money for payment of salary, unless she advanced it, and that she on her part was unable to advance any more.

Inability to pay interest at the time agreed on can of itself have no more bearing on the equitable right to extension than on the legal right. Mrs. Hiss was not required (unless she chose) to advance money to the company to pay complainant’s salary, and complainant within the thirty days’ limit fixed bjr the contract for terminating the agreement was notified that, so far as Mrs. Hiss, or her advice to the officers was concerned, he could not rely on her advancing any more money. Up to the tfine of writing this letter of November 10th, 1913, complainant does not seem to have considered his salary from the company as at all in the nature of an offset for the interest, for he seems to have received and expended all of his salary from January 1st, 1913, up to July 1st, 1913, without paying the interest due on the latter date. And it further appears that complainant, by his connection with the brokers through whom the sales of the company’s lands were made, received (but with the knowledge of his associates) benefits from his position as manager of its business in addition to his salary. The amounts estimated to be sufficient for the working capital proved insufficient, and Dr. Hiss and wife, in order to protect their large investment, were obliged to increase their advances, until, as Mrs. Hiss says, they amounted to $40,000, and she can advance no more. So far as excuse or explanation of delay in payment of interest is concerned, the case stands merely on an inability of the complainant to pay, for which the defendants were not responsible, and with which they are not to be affected in the exercise of their equitable rights. Complainant has made no pajments on account of the principal sum of the purchase price.

The question, therefore, is, whether on the affidavits the complainant shows such a case of probable relief by final decree as to entitle him to a preliminary injunction pending the hearing. Complainant prays to be relieved from the forfeiture or right of cancellation given by the agreement for non-payment of the interest, and not only to be relieved from this forfeiture, but to have a decree that the agreement to sell the shares is to continue in force hereafter up to the expiration of the ten years. The bill, it will be observed, does not pray for the specific performance of the agreement.to sell, nor does the complainant, by the bill, offer as a condition or term of relief on this bill, to purchase the stock before the expiration of the ten years, or even at that time, or to give any security that he would do so. Nor did he do so at the hearing, bnt, on the contrary, at the hearing on the 'motion, when this point was suggested, counsel claimed to stand •on this bill, insisting solely on an equitable right to be relieved from the past forfeitures on now paying the interest due, and do have the additional declaration that the agreement is reinstated and now continues, giving him the option under its terms) to call for performance within the ten years, or to wait until the vend of the period, and, so far as this suit is concerned, leaving him then the legal right to perform or not, as he may then elect. Had specific performance of the agreement been now sought, notwithstanding the forfeiture, a case altogether different would be presented, and from defendant’s affidavit such an offer would probably have been accepted.

Complainant claims in his bill (paragraph 7) that the meaning and intent of the contract and of the parties was that the sum representing the par value of the stock to be conveyed to complainant was a loan from Dr. Hiss and wife to complainant at six per cent, per annum, secured by complainant’s stock so held for him by Dr. Hiss and wife. The entire transaction, however, lacks the fundamental basis of a loan, viz., the previous or contemporaneous advance of money and the subsequent continued existence of a debt to be repaid in money. Hnder this agreement there was no advance of money to complainant, and there is no debt or obligation for the payment of money on his part except as arising from the subsequent sale and transfer of stock. It is, therefore, in this respect, purely and simply an agreement of purchase and sale of stock belonging to defendant, and not an advance or loan of money secured by stock belonging either legally or equitably to complainant. But, assuming that the agreement, either upon its face or by evidence which complainant may produce at the hearing, could be construed as a loan, and that the provision for forfeiture is intended and should be treated solely as an additional security for the payment of money loaned or advanced, the complainant in such case stands in the position of having borrowed money from defendant, payable in ten years (or sooner at his option), on the terms that on thirty days default, the whole principal, at the option of the lender, is to become due. Had this been the express written contract, a court of equity could not deprive the lender of the benefit of the contract for prompt payment of interest; and, in the absence of mistake, accident or proof of facts connecting defendant with responsibility for the .default, must give her the benefit of it. And this is the case even when the lender is obliged to ask the equitable assistance of the court by proceedings to collect the entire principal sum as due because of the default. Baldwin v. Van Vorst (Chancellor Williamson, 1856), 10 N. J. Eq. 577, 582; Spring v. Fisk (Chancellor Zabriskie, 1870), 21 N. J. Eq. 175, 178; Arkenburgh v. Lakeside, &c., Association (Vice-Chancellor Pitney, 1897), 56 N. J. Eq. 102, 109; Security Trust Co. v. New Jersey Paper Board, &c., Co. (Court of Errors and Appeals, 1898), 57 N. J. Eq. 603, 607.

The right to enforce such provisions for prompt payment of interest, especially in loans for a term of years, is part of the real security for making the loan, to which the lender is entitled by the mutual contract of loan. Both Chancellor Zabriskie and Vice-Chancellor Pitney, in their respective opinions in the above cases, say the enforcements of such provisions in cases of loans are not strictly forfeitures, but are to be treated as terms of the loan made by contract of the parties, and to be controlled or varied by a court of equity only as other contracts may be varied. Chancellor Runyon, on the other hand, in Wilson v. Bird (1877), 28 N. J. Eq. 352, speaks of the enforcement as a forfeiture. The defendant in this case is not seeking the equitable aid of this court for the collection of a loan, but, treating the contract as an agreement for purchase of stock, claims to have canceled the contract, under the provisions by which time, in regard to payment of interest, was expressly made part of the contract. It is the purchaser, not the vendor, the borrower and not the lender, who is here asking the equitable remedy of the court, and treated either as a purchaser or as a borrower, a complainant can ask equitable relief against a legal contract or status only for the purpose of establishing or working out real and substantial equity. As a purchaser, complainant’s substantial equity is that of specific performance of the defendant’s contract to sell, and except in connection with the enforcement of this substantial equitable right by now offering to carry out the contract and complete the sale, there is no separate equity here which would entitle him to be relieved simply from the effect of the past defaults and to have the contract then continued subject to future like defaults. On the other hand, if he be treated as a mortgagor or borrower, his substantial equity is to have his stock given to him, on his payment now of the purchase price. In either case, the bill should offer now to pay the purchase-money. The omission of this offer from the bill, coupled, as it is, with the admission at the hearing that the whole relief sought and claimed is the revival of the contract and a decree for and continuance under the original provisions, for the full period of ten years at the option of the complainant, without now paying or securing the purchase price, is fatal to ultimate relief on this bill, and if my judgment on this point is correct, complainant is not entitled to a preliminary injunction. Had such offer been made, defendant might have waived any right to cancellation to which she was entitled.

The mere payment of interest for several years was relied on as giving rise to a special equity against the right to enforce the benefit of the forfeiture, but, under the facts shown, this cannot be considered as having such effect, whether the contract is to be treated as a purchase or as a loan. For during the time complainant paid interest, he was also under the contract an officer of the company, and received a salary, and, in addition to this, received benefits by reason of his control or management of the sales of the company. These benefits secured to him a large amount over the interest he agreed to pay, and would of themselves prevent the payment of interest giving rise to any special equity against forfeiture.

The injunction will be denied.


source: Caselaw Access Project

license: Public Domain

text:
      In the matter of J. Edward Smith, a solicitor of the court of chancery of New Jersey.
    [Decided April 29th, 1915.]
    1. An unexplained delay by a solicitor in the prosecution of a suit for his client is not of itself malpractice justifying disbarment.
    2. A mistake by a solicitor in drafting a petition in a suit prosecuted for his client, resulting from oversight, or, at most, from negligence, is not malpractice justifying disbarment.
    3. Evidence held to show that a solicitor, in prosecuting a suit for a client, was guilty of malpractice justifying disbarment.
    4. “Malpractice” by a solicitor comprises any conduct which shows such intentional fraud on the court or client as is evidence of moral turpitude.
    On application for adjudication of malpractice.

      Mr. Nelson B. Gaskill, for the rule.

      Mr. Francis Child, contra.

   Emery, V. C.

This is a proceeding against a solicitor of this court alleging malpractice, and is based upon an affidavit of the client relating to the solicitor’s conduct in the prosecution of a suit for divorce against the client’s wife. The affidavit is not drawn in the shape of a formal charge, but sets out the client’s statement of facts relating to the employment and conduct of the solicitor. Upon this statement an order was issued, directing the solicitor to show cause why he should not be adjudged guilty of malpractice in the matters set forth in the affidavit. ’ Upon this affidavit and order the matter was referred to me for hearing by the chancellor, of his own motion, and also to advise the order or decree to be made. On the oral hearing before me the solicitor has appeared and testified, and his counsel have been heard. No formal answer has been filed nor application to file one made by the respondent or his counsel. The affidavit shows substantially an employment of the solicitor in May, 1911, to conduct for his client an action for divorce against his wife for the sum of $150, of which the client had paid $92; that the petition was filed on June 28th, 1911, and a citation then issued, but that nothing further was done until March 4th, 1912, when another citation was issued and returned by the sheriff, not served because of non-residence in the state; that on April 15th, 1912, Advisory Master Biddle filed a memorandum in the case, calling attention to a defect in the petition, apparent on its face, and stating that an amended petition should be filed at once so as to avoid delay. The affidavit of the client, sworn to on May 16th, 1914, further charges that since the filing of this memorandum no further action had been taken by the solicitor in the prosecution of the cause, and that upon learning of this failure of the solicitor to proceed with the cause, he refused to pay him any more money; that in the early part of April, 1914, the solicitor demanded of him the payment of $25 to go to Trenton and revive the cause, which he refused to pay.

The client and the solicitor were the only witnesses examined, and by the evidence these facts appear: The solicitor was employed in May, 1911, to prosecute this action for divorce, and agreed to do so for the sum of $150. This amount, however, was not to be paid at once, but as the suit progressed. Twenty-five dollars was paid about the time of the employment, May 20th, 1911, and a further sum of $25 before the filing of the petition, June 28th, 1911. At the time of filing the petition the client was a resident of Newark, and had been for about two years. His wife resided in Massachusetts. The marriage had taken place in Massachusetts in 1899, and the ground for divorce was adultery in May, 1905, with a'man named Grace, committed in the State of Rhode Island. At the time when this cause of action for divorce arose, in 1905, the client resided in New York City, and removed to Newark in June, 1909. These jurisdictional facts were set out in the petition, but following them was the further allegation (paragraph 3) “that adultery by either of the parties to a marriage is recognized as a valid cause for a divorce from the bonds of matrimony by the laws of the State of Rhode Island.” The defect in the petition to which the advisory master called attention was, that under the Divorce act of 1907, section 7b, where the petitioner became a resident of this state after the cause of action arose, the petition must show that the cause alleged was a ground of divorce in the state where the petitioner then resided — that is, New York — and not where the offence was committed, and that the law of New York, rather than that of Rhode Island, should have been pleaded. He advised an immediate amendment to avoid delay.

This defect could have been cured immediately, as it required no change in the facts stated in the petition except as to the state whose law was applicable to the cause of action stated. But a delay of ten months had already occurred, and in the meantime the client had paid the solicitor $25 in October, 1911, $15 on March 16th, 1912, and a further sum of $2, making in all, $92. On July 25th, 1911, nearly a month after filing the original petition, a citation returnable August 26th, 1911, was issued, and by the solicitor mailed to the sheriff on July 25th, 1911, with information as to defendant’s residence in Massachusetts, for affidavit on return. The sheriff’s affidavit, taken on July 27th, was annexed to the citation. This citation and return was not, however, returned to the clerk’s office. It was produced on this hearing by the solicitor, and his explanation of the failure to return is that the citation had been lost in the sheriff’s office or mislaid. It appears, however, that on October 7th, 1911, another payment of $25 was made without apparently any steps to procure the return or to issue a new citation until March 4th, 1912, when another citation was issued, returnable April 6th, and mailed by the solicitor to the sheriff on March 14th, with the same information as to residence of defendant in Massachusetts, as had been given on the original citation. To this return by affidavit dated March 14th, 1912, was made. Two days later, on March 16th, another payment of $15 was made an amount sufficient to cover costs of advertisement on publication. In April, 1912, and before April 15th, the solicitor sent to the clerk the order for publication, and upon application for this order, the defect in the petition above referred to was called to the attention of the solicitor. In the meantime the client had left his residence in Newark, 285 Peshine avenue, and the solicitor writing to liim at his Newark address, his letters were returned. One oí these letters, dated May 28th, 1912, refers to a letter written three weeks before, to which he had received no reply, and says, "It is necessary that you see me if you wish to continue your case, also I asked you for a remittance.” This letter gave no information about the ease, or the point which had arisen. On May 30th, 1912, the client wrote to the solicitor, stating that he was too busy to see him when he got the letter, inquiring how his case stood, as it had been a year since it began, and wished to know when he would get his papers. He said be would pay the balance of the money just as soon as the papers were ready. On or about June 28th, the client did see his solicitor in Newark, and an amended petition was sworn to on that day by the petitioner, before a master in chancery, at Newark. This petition differs from the first petition only in the third paragraph, and in changing the words "laws of the State of Rhode Island” to "the laws of the State of New York in 1905.” The residence of the petitioner in the amended petition as sworn to was still alleged to be the city of Newark, since June, 1909. This amended petition, although sworn to, was never filed, and from the evidence of both solicitor and client, it is evident, I think, that in connection with the filing of this petition, and .going on with the cause, there was conversation upon the subject of the residence of the client in New Jersey during the continuance of the suit. The client says that his solicitor told him that all that was necessary was that he should have an address in New Jersey, and that Jersey City was suggested as a convenient place for the address. The solicitor, on the other hand, says that he told the client he must continue to have a bona fide residence in New Jersey till he got his decree. The solicitor, at the time of procuring this amended petition, stating that the petitioner then resided in New Jersey, had, as he says, doubts about the filing of the petition. But he at no time explained, or claims to have explained, to the petitioner that the amendment of the petition was made necessary by his own mistake, and that the failure of the proceedings to procure a divorce on the original petition was due to his own mistake. Notwithstanding this situation arising :from his own mistake, which hazarded the loss of all the money previously paid, tire solicitor continued to demand further payments than those already made in connection with the proceedings, even on the amended petition, which would fail unless a bona fide residence for the two years before filing it were proved. This was apparently not possible to prove. By the letter of May 28th, 1912, above referred to, he asked for a remittance, and by another letter, written on October 24th, 1912, to his. client at the address given in his letter of May 30th, 1912 (1006 Inter-vale avenue, Bronx), he encloses another petition to be sworn to before a New Jersey lawyer and returned to him, “as I shall have to taire same to Trenton next week; also send me, by post-office order, $25 to be used in the case. Also keep me informed from time to time where you are.” This letter was returned to the sender. Under the rule 163a, the amended petition sworn to on June 28th, 1912, not having been filed within eight days, could not be filed without special order of the chancellor. After the return of this letter, no further effort seems to have been made by the solicitor to procure any amended petition to be* sworn to, nor was any ever filed. The client did, however, subsequently see the solicitor about the case in April, 1914. At this time, at an interview in the solicitor’s office in Newark, the* solicitor, according to the client’s statement, said that he was going to drop the case because “I had not done what he wanted me to do — that he could not find me when he wanted me, and that if I wanted to revive the case I would have to give him $25.” The solicitor’s account of this interview is that he went' over the whole case with his client and then told tire client (who-came over to see him with another young man) that if he wanted him to carry on the case properly, he must stay here in this state- and make it his home, that he had said he was a bona fide resident of New Jersey. In that interview the client said, “I will come back to New Jersey and stay here.” “I said, ‘All right, I will revive the case. You send me $25, and when we reach the* special master you can pay the balance,’ ” to which the client: said, “All right, I will move to New Jersey.” The solicitor says that after writing two or three times and getting no reply, “I finally gofa reply that he was living on Summit avenue, Jersey City.” This letter produced by tire respondent is as follows:

“As yon told him that I must retain an address in Jersey City, I am giving you a Jersey address.
“618 Summit Ave., Jersey City,
“Care of Mr. Wilson.”

This letter is dated 9/14, prohahly April 9th, and in reference to the requirement necessary for a New Jersey residence, seems to corroborate the statement of the client that he was told (or understood that he was told) by the solicitor that an address in New Jersey was all that was necessary. It was written for the client by a woman friend.

On April 8th, 1914, the solicitor wrote to the client that it would not be necessary for him to come over now, unless' he wished to — “just send the P. O. order for $25. I will take care of the rest. You cannot help things by coming here now — the money is what I need to send to Trenton.” On the 14th of. April, 1914, he again wrote as to changing his office and added, “Am waiting for that P. O. money order.” The client, shortly. after the receipt of this letter, and without again seeing the solicitor, wrote letters to public officials in reference to the ease which resulted in these proceedings taken on his affidavit.

The substantial charge of malpractice made by the affidavit is that the solicitor having received a large part ($92) of the payment on account of which he agreed to prosecute the action, took no proceedings beyond the issuing of a citation shortly after the filing of the petition, and, after the subsequent delay of nearly three years, refused to proceed further with the case until an additional $25 was paid. The further statement in the affidavit that the client refused to pay this sum is not true if it meant that he refused to pay it when demanded or asked, for the proof-is, both by his own evidence and the solicitor’s, that at this time he agreed to pay it, and the failure to do so was the result of inquiries subsequently made which led him to doubt the solicitor. This statement, however, is not material to the charge of mal-' practice in demanding or requiring the payment of the $25 before proceeding with the case.

On the whole evidence there can be no reasonable doubt, I chink, as to the conduct of the solicitor. On his own evidence, and that of his own letters to his client in October, 1912, and April 8th. and 14th, 1914, it is clear that he intended to have his client understand that he would not proceed further with the cause until he received an additional $35, and that the filing of the amended petition (in October, 1913), or the revival of the cause, as he called it (in April, 1914), waited on this receipt of this further payment in addition to what had been paid. The question is, was this demand made on the client in April, 1914, under the circumstances of the case, malpractice? I conclude that it must be so considered, and for the reason that this demand cannot be fairly considered as having been then made with ajiy intention to proceed in the cause in good faith. Neither at that time, nor at any time since April, 1913, when the solicitor’s attention had been called to the defect in the petition,_ would it -have been possible to proceed in the cause except upon an amended petition. The solicitor understood this and prepared his amended petition as early as June, 1913, and then had it sworn to by his client. The amended petition, like the original, asserted the petitioner’s residence in New Jersey since June, 1909, and the solicitor at that time understood the necessity, under the Divorce act, for such continued residence up to at least the time of filing the amended petition. From information received from his client, such continued residence from some months after the filing of the original petition was questionable, while on this point the original petition could not be questioned. The solicitor apparently gave no intimation to his client that 'his mistake or oversight in the draft of the original petition had; by reason of tire client’s removal from the state, raised a question about ultimately succeeding on the amended petition, because of the change of residence, and by his promise to go on with the suit he induced the client to believe that this suit could be further prosecuted — “revived,” as the solicitor called it, and made the further advance the condition of going on with it. The request made by the letter of October, 1913, enclosing an amended petition to be sworn to and returned, is entirely consistent with an intention to prosecute the suit in good faith on the solicitor’s part. But the failure subsequent to this time to take any steps to amend the petition (which was the only way to further proceed), or to suggest this to his client, either by his letters or in his interview in April, cannot, in my judgment, be reconciled with any honest intention to take any further proceedings in court in the cause. And the solicitor’s statements in his letters of April 8th and April 14th, 1914, as to the proceedings intended to be taken, and the method proposed, confirm this conclusion, that he had no intention then of filing an amended petition. On April 8th, he says: “Send me the P. O. order for $25. I will take care of the rest. You cannot help by coming here now; the money is what I need to send to Trenton.” The thing, and the first, if not the only, thing, needed at that time to proceed with the cause, as the solicitor well knew, was the amended petition, and for this the client was needed, and needed at the solicitor’s office in New Jersey, where apparently he was ready to come, and for the filing of the amended petition, or any other expenses, no further money was needed to be furnished by the client for “sending to Trenton,” as the solicitor also knew. In the letter of April 14th, 1914, another request for the post-office order is made, and like the other, still without any intimation that an amended petition signed by the client or any other act of the client was essential before the suit could go on, or any further money be honestly taken on the promise of proceeding with his suit. On the whole evidence, I cannot avoid the conclusion that when the solicitor, in April, 1914, made this request for the additional payment, he did not do so with the intention of going on with the suit, and in making the request or demand for payment as a condition for going on with the suit, he was guilty of malpractice.

There was, undoubtedly, an unexplained delay in the prosecution of the suit up to the time of the issuing of the second citation, but this of itself was not malpractice. And while the mistake in the drafting of the original petition was also chargeable to the solicitor, this also might have resulted from oversight, and was at the most negligence, not amounting to anything like malpractice. But having been informed of the necessity of commencing proceedings anew, as the result of his own oversight or mistake, the solicitor, when he was confronted with the new difficulty on the point of residence, which must arise on the amended petition by reason of his client’s removal from the state after the filing of the original petition and before the discovery of the error, undertook at first (without any explanation to his client of his own share in giving rise to this new obstacle) to carry on the proceeding by amended petition, but subsequently abandoned any necessary steps in this direction. Yet, during the whole time, he continued from time to time to press for further payments to be made on account of the original bargain, and on the faith of the original suit going on to a conclusion by amendment, or otherwise. By the solicitor’s mistake in the draft of the original petition, in connection with the client’s removal from the state after the filing of the petition, the proceeding on the basis of this original petition, and the facts stated therein, was probably made wholly nugatory, and the money already paid to the solicitor was practically lost. The demand or request for further advances, even on account of the continuation of the suit, if in good faith, intended to be continued by amending the petition, would have been very questionable, in view of the character of the evidence as to the petitioner’s residence in New Jersey. And a demand or request continued, as I find it to be, without intention to continue the suit by amendment, cannot, in my judgment, be characterized by any term milder than malpractice.

Malpractice, according to our decisions, comprises any conduct which shows such intentional fraud upon the court or a client as shows evidence of moral turpitude. In re John Francis Cahill, 66 N. J. Law 527.

I will advise a decree finding the respondent guilty of malpractice on the matters charged.

The foregoing conclusions and report, after being sent to the chancellor, were afterwards considered at a conference of the chancellor and vice-chancellors, called by the chancellor, at which the finding that the respondent was guilty of malpractice in the matters complained of was unanimously concurred in, and the chancellor and vice-chancellors were also unanimously of opinion that the respondent should be disbarred.

My own ground of advising disbarment is that the facts proved dearly show that the solicitor is unworthy of the confideuce of clients, or to be trusted with the duties and responsibilities of solicitor. No circumstances appeared which would justify any expectation that a suspension for a limited time would, in this case, be likely to - afford to any future clients the protection to which they would- be entitled, and therefore disbarment is the proper remedy.


text:
    Bridget McGrail v. The Jersey Central Traction Company.
    [Decided May 12th, 1915.]
    1. Evidence on a bill to set aside complainant’s release and to enjoin its being set up as a defence to her suit against a carrier for personal injuries, on the ground that she was unaware of its contents until it was pleaded, and that when she signed it it had been explained to helas a payment to her sister for time she would be compelled to leave her work and attend to complainant — Held, to show that the release was read and explained to complainant and her sister, and that they were told that it would prevent the recovery of any further sum on account of the injury.
    2. Where complainant, a woman of thirty-five, injured by the starting of defendant's trolley car, resulting in bruises and severe nervous shock, which prevented her from attending to her regular work when weakened by the injury, and without advice or understanding of her rights on a single interview by defendant’s superintendent and claim agent, signed a release in full, in consideration of $35 covering compensation only for her lost time and that of her sister who was attending her, and not for the injury itself, though it was mentioned in the release, induced by the claim agent’s statement of the physician’s opinion that the injury was slight, there was such undue haste and pressure that it would be set aside as being an unfair and inequitable advantage against complainant.
    Heard on bill, answer, replication and proofs.

      Mr. Michael J. Tmsey, for the complainant.

      Mr. Warren H. Smock and Mr. Henry D. Brinley, for the defendant.

      Messrs. Wilson & Smock, solicitors.
   Emery, V. C.

On Sunday, May 24th, 1908, the complainant was injured by the starting of a trolley car operated by the defendant while she was boarding the car. Five days later she executed a release by which the receipt of $35 and the payment of the physician’s bill rendered, and to be rendered, was declared to be in full settlement for all claims and demands in any way connected with this accident, from which, as stated in the receipt, bruises and nervous shock resulted, and the company was released from any further liability as a result of tire accident. After a return of the $35 which the company refused to retain, and in January, 1909, complainant brought suit against the company to recover $5,000 damages for the accident, and in this suit the company pleaded the release in bar of the action, setting out the same in full by its plea. This bill was filed in December, 1911, to set aside the release and enjoin its being set up as a defence to the suit. By its terms, it covers the claim sued on. It was signed by the complainant making her mark thereto, and, as ground for setting aside the release, the bill alleges (1) that until it was set out in the plea, complainant was wholly unaware of its contents, that at the time it was signed by her mark it had been explained to her as being for the payment of $35 to her sister, with whom she lived, for the time the sister would be compelled to leave her work and attend to her, and to pay in addition the doctor’s bill for herself. As a further ground she alleges (2) that she was induced to sign this release by representations then made to her by two officers or representatives of the company who procured it, as to the statements and opinion of Dr. Hoagland, the physician of the company, who had been called in as to her condition and the nature of her injuries, which statements were found to be false after she had signed the release. These statements were that they had seen Dr. Hoagland who said-she would he well and able to work in ten days; that the nervousness had come on her suddenly and would be apt to leave her just as suddenly;- that he had been to see her twice, and after his third visit on that day expected to have to come three days more. And, as another ground for setting aside the release, the complainant alleges (3) that at the time of its execution, she was seriously ill, both in body and mind, rjnable to sign her name or even to make the signature by mark; that she was,.unable, to comprehend the effect of this document signed by her; - and that being in this condition the company’s representatives urged anti procured its execution before she could obtain proper counsel anfl advice.

Complainant’s injuries resulting from the accident are alleged to have been very serious and such as to confine her to the bed and house for more than two years, and permanently incapacitate her for work, and make her dependent on her relatives.-for support; and further, that she still continues to require constant medical attention, the charges therefor up to the time of filing the bill being over $500, which she is without means to pay. The defendant’s answer admits the accident, but denies the severity of the injuries, and denies that its agents, at the time of the release, represented that they had seen Dr. Hoagland, who said she would be well and able to work, or that he expected, to come three days more, but admit that Dr. Hoagland said this nervousness had come upon her suddenly and would be apt to leave her just as suddenly. The answer denies the allegations of the bill, as to the complainant’s mental and physical condition at the time of the execution of the release. As to statements 'made by its agents in reference to Dr. Hoagland at and about the time of the release, the answer undertakes to set out specially what did occur and substantially as follows:

“On Thursday, the day of the first call of Dimick and Brinley upop the complainant, she declined to talk to them about the accident or a settlement, in the absence of her sister, and they then told her Dr. Hoagland would be there that night to see her, and she would -be'in a better position to talk settlement because of this; that on the next day (Friday) when Dimick and Brinley called, Dimick stated that he had seen Dr. Hoagland that day (Thursday) and that the Doctor had said to him that as far as he could see at that time, complainant was suffering from no serious injury and no vital organs had been affected; that in his opinion complainant had received a severe nervous shock; that lie could not tell how long complainant would be ill, but that he saw no reason why her recovery should not be rapid anil that the nervous shock was likely to leave her as quickly as it had come.”

The answer then states:

“That negotiations were then entered into for settlement, in which the complainant’s earning capacity was discussed, the number of days she had been and probably would be ill, the amount of the physician’s bill, the likelihood of suffering or pain extending into the future were discussed, and after conversation of half hour or more, an agreement to adjust the matter on the payment of $35 cash and the physician’s bill was reached, and the release was then prepared by Mr. Brinley, read aloud by him, then handed to complainant’s sister, who was present, examined by her and pronounced all right, and was then .offered to complainant, who was lying on a couch, to read.”

The answer further says that before it was presented to the complainant to sign, Mr. Brinley explained to her that the writing was a release, which freed the company from any liability thereafter except the payment of the doctor’s bill; that complainant could never get any more money from the company on account of her injuries, and stated further that the length of her illness necessarily was unknown, that she might get up in a day or two, and in that event complainant would have the better of the bargain, or that she might be ill longer than was estimated, and in that event the company would have the better of the bargain, but, in any event, no matter whether complainant vyas sick a dajq a month or a year, the doctor’s bill would be paid. As to signing the release by mark complainant alleged her arm was too sore for her to write, and that Mr. Brinley, .thinking she did not know how to write, consented to the making of her mark, which she did by taking hold of the end of the pen, held by Mr. Brinley. The answer further discloses that a bill of $64 for Dr. Hoagland’s services has been paid, and that Dr. Coole}'-, who was subsequently employed, has presented a bill for $500.

The first claim of the bill, that the complainant was not aware of the contents of the release and that it was explained to complainant and her sister as given for the payment of $35 only for the lost time of her sister in attending her, has not been made out. This statement is made by both sisters in their evidence, but is denied, circumstantially, and in detail by both Dimick and Brinley, and I credit the evidence for the defendant on this point rather than that for the complainant.

I am satisfied, on the proofs, that the release was in fact read and explained, and that both complainant and her sister were informed as to its contents, and were also told by Mr. Brinley that the effect of it would be to prevent the recovery of any further sum from'the company on account of this accident. The question is whether either of the other claims in the bill, attacking the release by reason of its having been procured by misrepresentation of Dr. Hoagland’s opinion as to complainant’s injuries, or by haste and pressure for settlement at once, and without further advice, in complainant’s weakened physical condition, is well founded.

As to the character and extent of the injury, the evidence establishes that the severe nervous shock which at the time of the settlement was admitted on all hands to have occurred, has turned out to be much more serious and permanent in its results than any of the parties negotiating about the settlement apparently contemplated at the time. According to the account of all the witnesses, the release was based on the anticipation that the physician who had made three or four visits would only be required to make about the same number and that complainant would be able to return to her usual work in a few days. But Dr. Hoagland continued his visits until about June 1st, and then another physician, Dr. Cooley, was called in, by consent of the defendant, and has since attended her. Dr. Hoagland died before the hearing of the cause. Dr. Cooley’s opinion is that there was concussion of the spine at the time of the injury, the serious effects of which subsequently developed. On all the evidence, I think it appears clearly and satisfactorily, that at the time of the settlement, compensation to the complainant herself as for any serious permanent personal injury was not expressly spoken of by either party and suggested as to be paid for, and that the payment of the physicians’ expenses for necessary attention in the future, and the allowance for a short loss of time, was the only provision intended to be made for the complainant’s compensation for the injury.

The terms of settlement and release were agreed on in the presence of four persons, two of them representatives of the company upon one side, Mr. Dimick, its superintendent at the time, and Mr. Brinley, an attorney, its claim agent, and complainant, and her sister Mary McGrail, on the other. These-women, aged, respectively, about thirty-hive and thirty-eight years, lived together in very moderate circumstances and supported themselves in their home, mainly by'light farm work, bunching asparagus, gathering berries, &c., in the summer, and needlework in the winter. Their ordinary wage at farm work was not over two dollars a day each. They were not familiar with business or with legal documents of this kind, or with their execution, and had and asked no aid or advice of counsel or others in the settlement of the claim, which was effected at a. single interview, lasting probably less than an hour. The disparity between the parties, and the circumstances attending the-settlement, were such as to require the release to be scrutinized with extreme care, under the rule laid down by the court of errors and appeals in Dundee Chemical Works v. Connor (Court of Errors and Appeals, 1890), 46 N. J. Eq. 576. It was further-said by Mr. Justice Magie in that case (at p. 582) :

“It is only when the contract is got from the illiterate, the-weak-minded or distressed party, under circumstances which indicate that it was procured by artifice or deception, or by undue-pressure and importunity inducing action without advice or time-for deliberation, or by advantage taken of distress, or for no or an inadequate consideration, or is otherwise inequitable, that it will come under condemnation.”

This statement expresses the further rule to be applied in this ease.

[Here follows a statement and discussion of the evidence.]

Upon consideration of the evidence, I conclude that there was a settlement of an undisputed claim for damages for an injury occurring five days before, resulting in bruises and severe nervous shock, which disabled complainant from performing her usual work necessary for her support; that this settlement, and the agreement upon the small sum ($35) actually paid to complainant by way of personal compensation for the injury, was based upon negotiations directed by the company’s agents and which covered a compensation only for complainant’s lost time and that of her sister’s in attending her, about eight or ten days in all; that the payment of personal compensation to complainant for any injury from the severe nervous shock itself, beyond the loss of time for her work, ten days only, was not taken into account or considered by the complainant as a subject for compensation, although it was specially in the minds of the agents of the company, and was specially mentioned in the release; that the agents of the company (or one of them), by statements of the complainant’s physician’s opinion as being given to him, relating to tire temporary character of the injury from nervous shock, and of his (the agent’s) opinion thereon, procured this omission in the negotiations of any special consideration of the effects of this nervous shock beyond ten days’ loss of work, in fixing the consideration for the settlement; that the complainant was at the time in such a weakened condition from the injury that she was not able to protect herself in the terms of a settlement that involved this injury from nervous shock, without assistance and advice, and that neither she nor her sister, who was her only adviser, was either able or competent to realize the position or rights of complainant in reference to an immediate settlement of complainant’s claim for all injury from the nervous shock, on the faith of these representations as to the physician’s opinion, and a release based on them, without at least giving-complainant opportunity to consult the physician; that undue haste and pressure were used in obtaining the immediate execution of this release, based on the agent’s statements of the physician’s opinion; and I further conclude that, upon the whole evidence relating to the negotiations for settlement and the execution of the release, it appears that such an unfair and inequitable advantage was taken by the company’s agents, that the release must be set aside.

I will advise a decree setting aside the release and an injunction against proving it in tire suit at law.

Upon settling decree, I will liear counsel upon the question whether conditions shall be imposed either as to the return of the money paid or of physicians’ fees paid.


author: Stevens, V. C.

text:
    Clifford W. Smith v. Bedell Brothers, a corporation.
    [Decided November 6th, 1914.]
    Upon a bill for an account with respect to the profits of the defendant corporation, evidence Held to sustain the master’s' report upon exceptions thereto, save as to certain specified particulars.

      Messrs. Coult & Smith, for the exceptants.

      Mr. Jacob L. Newman, for the defendant.
   Stevens, V. C.

This case comes up on exceptions to the master’s report; the bill being for an account.

The complainant was manager of the Newark store. He was to receive a salary of $2,860 per annum, and in addition ten per cent, of the net profits. By the agreement made with complainant in 1906, when the company began business, it was agreed that Alfred and Walter Bedell, the owners of the company’s stock, were each to receive a salary of $12,000 per annum. I have requested counsel to examine the minutes of the company to ascertain whether these salaries were fixed by a resolution. He informs me that no resolution on the subject can be found. It therefore does not expressly appear whether these salaries were attached to the office of president and treasurer or whether they were arbitrary sums awarded to the owners of the business under the name of salary, for the purpose of determining complainant’s compensation. Being the only stockholders they would have been entitled, to the profits under any name. That the salaries were personal to the owners is fairly to be inferred from the way in which the business was managed. This is what W. E. Bedell says in reference to his brother Alfred’s work:

“Q. As a matter of fact, did your brother do considerable work in connection with the Newark store?
“A. Very little.
“Q. Yery little work?
“A. Yes, sir.
“Q. Did you do the same amount of work in connection with the Newark store as you did previously?
“A. I did extra work.
“Q. You did his very little extra work. Is that it?
“A. That is right.”

The minutes show that when Alfred retired from the business on August 15th, 1913, W. E. Bedell was, by resolution, appointed treasurer in his place, but they do not show that the corporation took any action in reference to his salary. Mr. Bedell said in his evidence that they showed that he was to receive his brother’s salary, but it is conceded that he is mistaken.

As the evidence stands, it would seem that the money value of the services rendered did not exceed $1,000 per annum.

There is a conflict between the evidence of Mr. Smith and Mr. Bedell. Mr. Smith says that after Alfred left he did most of the work Alfred had been doing, and that he knew nothing about Mr. W. E. Bedell’s intention to keep on charging the $13,000 as an expense until after he left defendant’s employ. On the other hand, W. E. Bedell says that complainant’s work was not increased, and that he knew, or had the means of knowing, that he (W. E. Bedell) was going to draw Iris brother’s salary. The burden of proof is on the defendant and I do not think it has sustained it.

The question raised by the first exception is whether in computing complainant’s share of the net profits $34,000 should be deducted, from the gross earnings or only $13,000.

Smith says that the original agreement (made, as I have said, in 1906) was, "I was to receive a compensation of $55 per week, and in addition ten per cent, of the net profits.” The two brothers "were each to draw $12,000 a year salary.” Mr. W. E. Bedell’s testimony is only, that Alfred was to draw $12,000 per annum as treasurer. He does not state the original agreement otherwise than as Mr. Smith states it. We have then these facts: First, an agreement for a percentage of net profits. Then an understanding, had at the same time, that the two Bedells should receive $12,000 each for their services as president and treasurer. Then, a retirement of A. M. Bedell and an election of W. E. Bedell to the treasurer’s office, no salary being fixed. Then, the fact that the value of the service to be performed did not exceed a small fractional part of $12,000; and then the further fact that for the six months period over which the account extends W. E. Bedell drew his brother’s salary without any corporate action giving it to him. Under these circumstances, it would seem that even if we concede that tire corporation could give the treasurer (as against Mr. Smith’s contract fight to have net profits) any sum it pleased, in excess of what his services were fairly worth, the action must at least have been that of the corporation and not that of W. E. Bedell, individually, even though he had the controlling interest. Hnless it be shown that the original agreement was to deduct $24,000 in any event, then, when Alfred withdrew, his salary stopped. Until the company otherwise ordered, the incoming treasurer could only, as against complainant, be entitled to receive what his services were reasonably worth.

The second exception relates to the inclusion of buyers’ salaries in the statement showing net earnings. The Bedells had a business in New York controlled by another corporation. They employed buyers therein who were paid by that corporation, and, up to the last half of complainant’s connection with defendant, by that corporation only. These buyers bought also for the Newark store, which had in addition a buyer of its own. Hp to the time of the last accounting — that is, for a period of seven years, no part of the New York buyers’ salaries had been put into the account. After the complainant resigned, the statement rendered contained, by direction of W. E. Bedell, a charge of oñe-quarter of these salaries. The evidence shows that in computing net profits, there were arbitrary assumptions made on both sides of the account; there had been “an established method of accounting for net profits.” Mr. W. E. Bedell says that from the time complainant entered defendant’s employ until the time he severed his connection with it, there was no change made in regard to any existing arrangement. Now, as the Newark store received a benefit from the services rendered by the employes of the New York store, it would have been quite proper for the defendant company to have agreed to pay the New York concern what their buyers’ services were worth. But they had not done so; and I do not think it was competent for Mr. Bedell alone, without corporate action previously taken, to direct his bookkeeper to charge one-quarter of the salaries that had, up to that time, been paid by the New York store.

The third exception is without merit. The defendant, according to the evidence, had requested complainant to do some extra work in their Brooklyn store and had made a payment to him for this work. It was extra compensation for extra work done elsewhere and has no place in this account.


text:
    John H. Meeker, trustee, v. Katherine G. Forbes et al.
    [Decided March 30th, 1915.]
    1. The words “heirs-at-law,” in a will disposing of personalty, mean next of kin under the statute of distribution, and include a surviving wife.
    2. Where there is a testamentary gift of real and personal property to heirs-at-law, heirs-at-law, properly so called, take the realty, while next of kin under the statute of distribution take the personalty.

      3. Testator gave the income of his residuary estate to his wife for life and after her death in trust to divide the same between his nephews and nieces, and declared that in case any nephew or niece should die before the death of himself or wife the share of the deceased niece or nephew should be divided among his or her heirs-at-law, the same as would have been done if the niece or .nephew had been paid his or her share from the estate. — Held, that, on the death of a niece in the lifetime of the wife, her heirs-at-law took under the will and not from the niece.
    4. Testator gave his residuary estate to his wife for life and after her death in trust to nephews and nieces, and provided that on the death before the death of testator, or his wife, of any nephew or niece, his oilier share should be divided among his or her lieirs-at-law, and gave the trustee authority to sell. A nephew died before testator, leaving a widow and children. Thereafter part of the real estate was sold by the widow. Thereafter other nephews died. — Held, that the children of the nephew dying before testator took the share of the proceeds of the sale of the real estate as if in remained real estate, while the children and widows, of the other nephews dying after the sale took the proceeds as other-personal property.
    5. Where real and personal estate is given to a trustee in trust for a class with discretionary power to convert the whole into personalty, and the trustee makes a total or partial conversion, the beneficiaries will take the property as real or personal property according to the condition in which it is found.

      Mr. John H. Meeker, pro se.

      Mr. Atwood L. DeCoster, for Helen Armitage.

      Messrs. Vredenburgh, Wall & Carey, for Abbie L. Meeker.

      Mr. Auguste Roche, Jr., for Katherine G. Forbes et al.
   Stevens, V. C.

This is a bill for the construction of the will of Charles H. Meeker, who died in October, 1902. Testator gave the income of the residue of his estate, real and personal, to his wife, Mary, and, after her decease, to his nephew, the complainant in trust, to divide the same, both real and personal, into three equal portions, one of which he gave and devised to the children of his deceased brother Samuel A. Meeker; another to tire children of his deceased brother John H. Meeker, and the remaining portion, to the children of Ms deceased sister, Martha A. Halstead.

By clause 7 he provided as follows:

“In ease any child of my deceased brothers and sister should become deceased before the decease of myself or of my wife, I hereby direct that the share of such deceased child in my estate be paid and divided among his or heirs-at-law, the same as would have been done, if such child had been paid or received his or her share from my estate.”

The will gives the trustee “full power and authority to sell” the real estate and distribute the proceeds, but does not, by a mandatory clause, direct him to- do so.

Frederick W. Meeker and Oliver M. Halstead, two of the nephews, died, in the lifetime of testator’s widow, leaving" widows but no children. Samuel, another nephew, died, leaving a widow and two children. Martha M. Mapes, a niece, died, leaving a husband and three children, while Ducie H. Budisch died childless, leaving a husband. The testator directing that the shares of the nephews and nieces thus dying shall “be paid and divided among his or her heirs-at-law,” the question is, who are these heirs ?

It is well settled that when the words “heirs-at-law” are used by a testator in respect of personal property they mean next of kin (Trenton Trust and Safe Deposit Co. v. Donnelly, 65 N. J. Eq. 120); not next of kin in the technical sense of nearest kinsmen, but in the sense of distributees under the statute *of distributions, thus including the widow. Welsh v. Crater, 32 N. J. Eq. 180; on appeal, 33 N. J. Eq. 362; Reen v. Wagner, 51 N. J. Eq. 1; Leavitt v. Dunn, 56 N. J. Law 310. Where there is both personalty and realty, and the testator gives to “heirs-at-law,” heirs-at-law, properly so called, take the realty, and next of kin, in the sense of distributees under the statute, take the personalty. Hayes v. King, 37 N. J. Eq. 1; Ward v. Dodd, 41 N. J. Eq. 414. It was so held in the latter of these cases where, as in the case in hand, there was a simple power to sell. Hence, Abbie Meeker, widow of Frederick Meeker, took such part of the share bequeathed to her husband as the statute gave her at the time of his death. This share vested in her and in the next of kin, in the manner then prescribed by statute. It was not divested by a subsequent change in the law. Shedaker's Case, 74 N. J. Eq. 802. The widow of Oliver M. Halstead took in like manner. The widow of Samuel Meeker shares with her two children.

.The respective husbands of Mrs. Mapes and Mrs. Rudisch take nothing, for the plain reason that they are not distributees under the statute of distributions or heirs under the statute of descent. The former statute puts only wives in the class of next of kin. Husbands are not put in the class of heirs by the latter statute, or by the rules of the common law. They take nothing through their wives; for the interest of their wives was divested at death.

It is, however, suggested that when the trustee was directed to divide the wife’s share among her heirs-at-law, “the same as would have been done if such child had been paid or received his or her share from my said estate,” the direction shows an intent to preserve intact the interest of the daughter, so that it will pass under her will or go to her husband jure mariti. This construction would nullify the clause altogether and might result in giving the share to persons other than her “heirs-at-law.” If the testator had intended to allow the daughter’s share to go to legatees of her appointment or to her husband if she died intestate, he-would have omitted the clause altogether. What he evidently meant was that on the death of the niece, in the lifetime of the widow, her “heirs-at-law” — a well-defined class of persons of her blood — should be substituted, not as her donees, but as his ownj that, in other words, the gift was to proceed from him and not from her. The clumsy phrase, “the same as would have been done if the child had received her share from my estate,” was intended to emphasize this view. It was only heirs-at-law who were to take, and they wore to take just as if the child liad first received the bequest and had died, leaving — not devisees or legatees, but heirs — in other words, had died intestate.

The money realized from the sale of the Carteret lots, sold by testator’s widow in July, 1904, is plainly personalty, as to those whose interests vested after the sale, and should be distributed.as such. Keen v. Plume, 82 N. J. Eq. 527. But Samuel Meeker, one of the nephews, died before testator, and, of course, before the sale; the fact that he died before testator is immaterial, for the will puts his heirs-at-law on the same footing as the heirs of his other nephews and nieces. But the fact that he died before the sale gives rise to another question. Leaving, as ho did, a widow and two children, it is contended that they take their share of the proceeds just as they take the other personalty, and Keen v. Plume, supra, and Kouvalinka v. Geibel, 40 N. J. Eq. 443, are cited as sustaining this contention. As I read those two cases, they do no more than hold that the property is taken in the condition in which it is found at the period of vesting. If it he real estate at that period it vests as real estate; if it be personal property it vests as personal property. Having once vested, its devolution cannot, by any act of the trustee, be changed. The limitation to the heirs of the nephews and nieces is the ultimate limitation, and the title, when it reaches them, is “at home.” It is true that the power to vary the form of the trust property— a power frequently conferred — has been accorded to the trustee in this instance, but the testator has not authorized him to divest that which has, by the explicit language of the will, been finally vested in the heirs.

The rule applicable to the case is thus stated in 3 Lew. Trusts 951:

“If real and personal estate be given to trustees upon trust for a class, with a discretionary and not an imperative power to convert the whole into personal estate, and if the trustees make a total or partial conversion, the objects of the trust will take the property as real or personal estate, according to the actual condition in which it is found.”

This rule is illustrated by Wright v. Rose, 2 S. & St. 323, a case frequently cited. There, a mortgage deed contained a power of sale with a direction that the surplus should be paid to the mortgagor, his executors and administrators. The sale did not take place until after the mortgagor’s death and the contest over the surplus was between the personal and real representative. The vice-chancellor said: “If the estate had been sold by the mortgagee in the lifetime of the mortgagor, then the surplus would have been personal estate of the mortgagor. * * * But tire estate being unsold at the death of the mortgagor, the equity of redemption descended to his heir and he is now entitled to the surplus produce.”

The subject of the effect of conversion on the relative rights of the heir-at-law and next of kin is discussed in the note to the leading case of Ackroyd v. Smithson, 1 L. C. Eq. *872. The distinction is between a direction to convert that is imperative and aii authority that is discretionary. “Whenever,” says Chancellor Zabriskie, in Wurts’ Executors v. Paige, 19 N. J. Eq. 375, “a testator has positively directed his real estate to be sold and distributed as money, it will be considered for the purposes of succession as personal,” but where he simply authorizes and empowers his executor to do so, “the real property could not be considered as converted into personal property until actually sold.”

On this distinction, it seems to me plain that the children of Samuel Meeker take his share of the proceeds of the sale of the Carteret lots as if it were land. The children and widows of those nephews who died after the lots were sold take as they take the other personal property.

There is no evidence going to show how the Florida lands vest under the laws of Florida. Consequen tty, nothing is determined as to their proceeds.


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    William A. Copeland et al. v. United Shoe Machinery Company et al.
    [Decided April 19th, 1915.]
    Upon a bill filed by certain preferred and common stockholders of the United Shoe Machinery Company, for an injunction to restrain the consummation of the proposed merger of that company with the United Shoe Machinery Corporation, after an examination of the respective certificates of the incorporation of these two corporations — Held, a preliminary injunction will issue restraining'the merger until final hearing, first, because the charter of the United Shoe Machinery Corporation confers more extensive primary powers than does the charter of the United Shoe Machinery Company, and that some of the objects of the corporation are not similar to any of the objects of the company and, consequently, they cannot under section 104 of the Corporation act (Comp. Stat. p. 1659) be merged; and secondly, because the terms of the merger are unfair and inequitable to the preferred stockholders in the event of liquidation or dissolution.

      Mr. Frederick J. Faulks, for the complainants.

      Mr. Francis Scott and Mr. Walter Bates Farr (of Massachusetts), for the defendants.
   Stevens, V. C.

The only question before me now is whether the situation is such as to require a preliminary injunction restraining the merger of the United Shoe Machinery Company and the United Shoe Machinery Corporation until filial hearing.

The agreement of merger bears date January 15th, 1915. It has been approved by the directors of both companies. On February 8th, 1915, notice was given to the stockholders of the United Shoe Machinery Company of a special meeting of the stockholders to take action upon it. The complainants, who are preferred and common stockholders, charge in their bill that the United Shoe Machinery Corporation, into which it is proposed to merge the United Shoe Machinery Company, has acquired more than two-thirds of the preferred and common stock of the latter and will, at the meeting so called, unless prevented by injunction, vote in favor of the adoption of the merger.

Two questions are made. It is said, first, that this is an attempt to merge two companies whose business is or may be dissimilar, and second, that the agreement -impairs the legal or equitable rights of the preferred stockholders.

It seems to me that under the case of Colgate v. United States Leather Co., 75 N. J. Eq. 230, I must hold that the charter of the United Shoe Machinery Corporation confers more extensive primary powers than does the charter of the United Shoe Machinery Company.

The primary object of the shoe machinery company is

“to manufacture, buy, sell, lease, operate and deal in and with all kinds of machinery, tools, implements and mechanical devices and contrivances of every name and nature whatsoever and especially to manufacture, buy, sell, lease, operate and deal in and with all sorts of boot and shoe machinery,” &e.

Various incidental powers are conferred, but they seem all to be connected with or incidental to the general object set forth in the above-quoted language.

On the other hand, the charter of the shoe machinery corporation declares that the objects for which it is formed are, inter alia,

“to construct bridges, buildings, machinery, shops, boats, docks, ships, elevators, waterworks, gas works, and electric works, viaducts, aqueducts, canals and other waterways and other means of transportation and to sell or otherwise dispose of the same or to maintain or operate the same, but not to maintain or operate any railroad or canal in the State of New Jersey.”

The concluding .clause of the third paragraph is as follows:

“It is declared that the objects and powers specified and the clauses contained in this paragraph 'third’ shall be in nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this certificate.”

If the above-quoted clause authorizing the corporation to build bridges, boats, cars, gas and electric works and to build and operate railroads and canals anywhere outside of the State of New Jersey confers primary powers, and I do not see how, under the clause last cited, it can, as a matter of construction, be held otherwise, then some of the objects of the corporation are not similar to any of the objects of the company, and, consequently, they cannot, under section 104 of the Corporation act, be merged.

It is said, in the second place, that the terms of the merger are unfair and inequitable. Whether they are or are not will be determined by the terms of the merger agreement as applied to the particular situation involved. The bill does not fully disclose the situation of the company or the value of its capital stock and assets. It bases itself upon the terms of the agreement.

The company’s charter provides that

“in the event of the dissolution of the corporation or the distribution of its assets, the holders of the preferred stock and the holders of the common stock shall share and share alike.”

The merger agreement provides (article 9) that each of the shareholders of the United Shoe Machinery Company

“shall be entitled to receive for each share of the common stock * * * . two and one-quarter shares of the stock of the consolidated corporation and for each share of preferred stock * * * one share of the preferred stock of the consolidated corporation.”

The charter of the corporation, into which the company i? to be merged, provides that in the event of liquidation or dissolution,

“the holders of the. preferred stock shall be entitled to be paid thirty-five dollars per share [the par value being twenty-five dollars] and the unpaid dividends accrued thereon, out of the capital of the corporation or the proceeds thereof before any amount shall be paid therefrom to the holders of the common stock.”

It is obvious that whatever be the comparative market value of these respective rights, they are different. If the actual value of the stock, and of the property which the stock represents, should greatly exceed the par value of all the stock, preferred and common, then the stockholder would, as far as can now be seen, lose by the merger; if it should fall short of that par value, he would gain. In two cases recently decided by me (Day v. Faulks, 79 N. J. Eq. 66; Ballentine v. Young, 79 N. J. Eq. 70) it appeared that the stock of the companies, which was the subject of the litigation, was selling at a very large premium. Such an agreement, applied to a stock like that of the Singer Manufacturing Company, worth, at the time, six times its par value, would be manifestly unfair to the stockholder. How far extrinsic circumstances, such as these will or ought to enter into the account, when we have to decide the question of its fairness, I need not now determine. It seems to me that enough is shown, both as to this and the question of the voting power, to warrant a preliminary injunction. As far as I can see, little or no harm will result from preserving the status quo until final hearing.

Other points have been raised, but it is not now necessary to consider them.


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    Catharine Simmons et al. v. The City of Paterson.
    [Decided April 30th, 1915.]
    In a suit for ascertaining damages sustained by owners of riparian lands, evidence Held to show that the owners of a certain property are not entitled to compensation, as riparian owners, when, in a conveyance thereof, the premises are described as lying on the Passaic river “which is overflowed by the raising of the mill dam of the said company (i. e., the Dundee Manufacturing Company), and which contains three-quarters of an acre by the same more or less.”

      Mr. Chauncey G. Parker, for the complainants.

      Mr. Edward F. Merrey, for the defendant.
   Stevens, V. C.

My attention has been called to evidence of Mr. Harder in reference to the Hinchliffe title which I did not consider in writing my opinion in this case, which is reported ante p. 11.

John and Janet Bain, in May, 1837, conveyed to the Dundee Manufacturing Company all that part of her lot tying on the Passaic river “which is overflowed by the raising of the mill dam of the said company and which contains about three-quarters of an acre be the same more or less.” I was under the impression that this conveyance was indicated on the map by the quadrangular piece adjoining the shore line. In this I was mistaken. The land in the vicinity of the stream is low. There are no rocky or abrupt slopes. When the water was raised by the dam, it necessarily covered more or less of the upland on the entire frontage and interposed a strip of varying width between the old river bed and the new shore line. The interposition of this strip, under the cases of Stevens v. Paterson and Newark Railroad, 34 N. J. Law 532, and Simmons v. Paterson, 60 N. J. Eq. 385, deprived the upland, unconveyed by the grantor, of its riparian character. When, in 1839, Janet Bain conveyed the upland to Simmons, she conveyed a non-riparian tract whose character and extent remained unchanged up to 1858, when the Dundee company again raised its dam and overflowed more land. The contention is that inasmuch as a new shore line was then formed, and inasmuch as the water has, for over fifty years, continued to flow over a new bed, and inasmuch as this new bed belonged to the owner of the upland, the upland, as it now is, has again acquired a riparian character entitling the grantees of Simmons to participate in the assessment of damages.

If my opinion, in Doremus v. Paterson, 63 N. J. Eq. 606, had been affirmed in toto, the Hinchliffes, who are the present owners, would have had a stronger case. The upland is apparently riparian; the deeds to the Barneys, who were Simmons’s immediate grantees; as I stated in the opinion already filed, by construction, included the then bed of the lake (if a lake), as far as the Simmons title went, and the injury suffered was and is identical with that suffered by the other riparian owners. But the court of errors and appeals did not concur in my view of the rights of certain of the property owners. 65 N. J. Eq. 711.

'The bill in that case was filed by three classes of persons— “first, by those who were, in the fullest sense, riparian owners, above the ebb and flow of the tide,” To these, the court of errors and appeals gave relief; “second, by those whose lands adjoined, not the river, but the artificially-constructed canal which derives its waters from the river;” “third, by those who were neither owners nor lessees of land fronting on the river or on the canal, but lessees of a certain amount of ‘mill power’ used in their respective factories for driving machinery,” &c. Doremus v. Paterson, 63 N. J. Eq. (on p. 607). Following, as I thought, the. case of Butler Rubber Co. v. Newark, 61 N. J. Law 32, I held that both of these classes were, as far as they were injuriously affected by the pollution, entitled to compensation; that if, as against Newark, the Butler company could demand damages, for the partial taking of its mill power, the lessees of such power and, a fortiori, the owners of land along the line of the new waterway, could, as against Paterson, lawfully claim damages for the pollution of the water to their injury; a pollution depriving them of some of its uses as effectually as if there had been partial abstraction.

The court of errors and appeals, basing itself on the decision of the Stockport Water Works Case, 3 H. & C. 300, held that where a riparian owner conveys land not abutting on a stream and grants water rights to be used thereon, the grantee of these rights (though the grant be valid as against the grantor) cannot sue an upper riparian owner for polluting the water to his injury. The English courts have refused to extend the doctrine of the Stockport Case to the case of an owner whose lands border on an artificial waterway, deriving its waters from a natural stream. In Nuttall v. Bracewell, L. R., 2 Exch. 1, Channell, B., says: “If a riparian proprietor grants to someone, not-such a proprietor, a right to abstract water from the stream, as in the Stockport Water Works Case, I think the grantee can sue only the grantor for any interference with him. If, however, two adjoining riparian proprietors agree to divert the stream, so that it shall run in two channels instead of one, the water passing again into the old stream below their land, and flowing down to the lower proprietors as before, the case is, I think, different. What is done is apparent to all and any use that may be made of the new stream, as to turn a mill, for instance, is as apparent as if the mill were upon the old stream. * * * This distinction is alluded to in the judgment of tire majority in Stockport Water Works Co. v. Potter, where it is said, The case where a riparian proprietor makes two streams instead of one and grants land on the new stream, seems analogous to a grant of a portion of the river bank, but not analogous to a grant of a portion of the riparian estate not abutting on the river.’ In the case of a grant of land on a new stream, the grantee obtains a right of access to the river, and it is by virtue of that right of access that he obtains his water rights. * * * I see no reason why the law applicable to ordinary running streams should not be applicable to such a stream as this, for it is a natural stream or flow of waiter, though flowing in an artificial channel." This case has been approved and followed in subsequent cases. Holker v. Porriit, L. R., 8 Exch. 107; on appeal, 10 Exch. 59; Baily & Co. v. Clark (1902), 1 Ch. 649. It was an authority for giving compensation to landowners whose lands adjoined the canal, but the court of errors and appeals did not follow it.

The matter stands thus: The canal had' existed as a permanent structure from the year 1832 — that is, for over eighty years. During all that time part of the water of the Passaic has flowed over its bed and has been returned to the river lower down. This did not, in tire estimation of the appellate court, make it part of the stream and did not give to those whose lands bordered upon it any title to compensation.

In the case in hand, the old bed of the stream was separated from the upland by the Bain deed. The upland was plainly non-riparian from 1837 to 1858. Then the dam was raised again and more of the upland submerged. It is argued that the land thus submerged having become part of the bed of the stream, and the title to it and to the upland having resided in the same person, the upland has again become riparian. But the submerged portion is a bed just as artificial as that of the canal, with this difference: the water has flowed over the canal bed for eighty years and over the submerged land for less than sixty. If the owner of land along the canal is not entitled to damages, I cannot see how the Hinchliffes can be.

But the case in hand has in it an element of weakness that did not exist in the case of the canal owners. Their land not only touched the water, but they had, as against their, grantor, by express grant, a right to utilize the flow. The Hinchliffes have no such right; not only have they no right as against the riparian owner higher up, but they have no right as against the Dundee company. On April 4th, 1860, Simmons, through whom they derived title, made a deed to thal company giving them

“the right and privilege of overflowing without molestation forever all such and so much of the farm lands and premises of the said James Simmons * * * in, adjacent and near the Passaic river (including the locus in quo) * * * as shall or may at any time be overflowed or caused to be overflowed with water or otherwise injured by means of the erection of the dam and works,” &c.

Neither by this deed nor otherwise has the Dundee company given either Simmons or his grantees any correlative right to the flow of the stream.

In Belknap v. Trimble, 3 Paige 577, Chancellor Walworth says: “The learned commentator on American law lays it down as the established doctrine both here and in England that the exclusive enjoyment of water in a particular way for twenty years without interruption becomes an adverse enjoyment sufficient to raise a presumption of title as against a right in any other person which might have been but was not asserted. * * * I apprehend also that this rule must be reciprocal and that a proprietor at the head of a stream, who has changed the natural flow of the waters and has continued such change for more than twenty years, cannot afterwards be permitted to restore it to its natural state when it will have the effect to destroy the mills of other proprietors below, which have been erected in reference to such change in the natural flow of the stream.”

If, on this principle, the Dundee company had, without permission, continued to overflow the Simmons land for twenty years, it would have acquired the right to do so, .and it may well be that Simmons might, as against it, have acquired the reciprocal right of enjoying and utilizing this flow, if he had notoriously incurred expense in so doing, on the assumption that it would continue. But the company’s right does not depend upon adverse user. It is defined by deed. The deed confers upon the company a privilege of overflow, to be exercised at its option. What is the apparent bed of the so-called lake to-day may be upland to-morrow. The lowering or raising of the water at its discretion was the very thing the company contracted for. There being no right as against the company, how is it possible to raise a right as against Paterson ?

I am, therefore, obliged to conclude that the Hinchliffes are not entitled to compensation.