text:
    Adolph Wimpfheimer et al. v. The Prudential Insurance Company of America et al.
    [Filed March 17th, 1898.]
    1. A subsequent encumbrancer, who was a party to the foreclosure suit on a prior mortgage, cannot after foreclosure sale, and a purchase by the prior mortgagee, redeem from the prior mortgagee, without setting the sale aside as to all parties thereto.
    2. Where the right to redeem is disputed between two subsequent encumbrancers, the prior mortgagee may decline to allow either to redeem except by decree in a suit to which the claimants are parties.
    3. A sale under a decree foreclosing the equity of redemption of all the defendants thereto vests in the purchaser not only the rights of the mortgagee under whose mortgage the premises were sold, but all rights of the defendants in the suit.
    4. One having merely the right to redeem a mortgage is not entitled to a conveyance of or subrogation to the rights which the prior mortgagee has as purchaser under foreclosure sale, in addition to his rights as mortgagee.
    5. On confirmation of a foreclosure sale by the court, the deed issued to the purchaser relates back to the time of the sale.
    6. In a suit to set aside a foreclosure sale for the purpose of redemption, all the parties to the foreclosure proceedings who would have been proper parties to the suit to redeem if there had been no sale, and all intervening encumbrancers, must be made parties.
    On bill to redeem.

      Mr. Thomas N. McCarter, Jr., and Mr. Richard V. Lindabury, for the complainants.

      Mr. James E. Howell and Messrs. Guild & Lum, for the defendant Prudential Insurance Company.

      Mr. Adrian Riker, for the defendant Edelhof.
   Emery, V. C.

This is a bill to redeem, filed by the judgment creditor of the mortgagors against a prior mortgagee, who purchased the mortgaged premises at a foreclosure sale made under its mortgage, and in proceedings to which the judgment creditors and others were parties. The defendants’ mortgage was executed prior to the recovery of complainants’ judgment against the mortgagors, and three other mortgages on the premises, which mortgages are now held by the McCall Hat Company as assignee, were also executed and delivered by the mortgagors prior to the recovery of the complainants’judgment. The mortgagors also, on May 2d, 1895, two days prior to the recovery of complainants’ judgment (May 4th, 1895), made an assignment to the defendant. Edelhof for the benefit of their creditors under the statute; but this assignment was not recorded until May 6th, 1895, two days after the recovery of complainants’ judgment. These intervening mortgagees and their assignee, and the assignee for the benefit of creditors, were also made parties to the foreclosure suit on tlio prior mortgage, together with other creditors who had recovered judgments or claimed interests subsequent to the judgment obtained by the present complainants. The mortgagors and their wives were also made parties defendant to the foreclosure suit. In this foreclosure suit, the facts above stated as to the order and priority in point of time of the encumbrances and conveyances of the equity of redemption were set out in the foreclosure bill, but no other facts relating to respective priorities of the defendants were set out, and the bill to foreclose alleging simply that these respective defendants claimed some interest in the premises, charged that all such interests were subsequent to its mortgage. The prior mortgage was not disputed by any defendants and a decree pro oonfesso was taken against all the defendants, including the present complainants.

Rule 24, regulating the practice in such cases, is as follows:

“Where the bill in a foreclosure suit shall be ordered to be taken as confessed against a defendant, no report or decree shall be made by which his rights or claims are postponed to those of any other defendant, unless the priority of the rights or claims of such other defendant, and the facts upon which it depends, are distinctly set forth in the bill, and any controversies between such defendants may be settled upon application for the surplus moneys.”

The foreclosure bill was taken as confessed against all of the defendants, and the master’s report in the cause found the amount due the insurance company, the complainant in foreclosure, on its mortgage, on April 2d, 1897, to be $26,979.19, and on April 5th, 1897, final decree was duly entered in the foreclosure suit in the usual form, directing sale to be made of the mortgaged premise's by the sheriff of Essex county, to pay the complainant’s debt with interest and costs, and to pay the same to complainant, and to bring the surplus, if any, into court, unless otherwise disposed of. The final decree contained also the following usual clause:

“And it is further ordered, adjudged and decreed that the defendants stand absolutely debarred and foreclosed of and from all equity of redemption of, in and to the said mortgaged premises when sold as aforesaid by virtue of this decree.”

At the time of the filing of this bill of foreclosure and at the time of the decree a suit was pending on a bill filed by the McGrall Hat Company, the assignee of the three mortgages subsequent to the first mortgage (together amounting to over $72,000), for the foreclosure of these mortgages, to which suit the first mortgagee was not made a party, but in which the present complainants were defendants, and in which as such defendants they attacked the validity of these second mortgages and claimed priority over them, notwithstanding their priority in date. This cause had been heard, but decision thereon had not been rendered, and pending decision the sale under the first mortgage foreclosure suit had been adjourned from time to time until the day previous to, the sale, when the conclusions of the vice-chancellor by whom the case was heard were sent to counsel, and were received on that day by the present complainants’ counsel. The conclusions reached affirmed the validity of the mortgages which were contested by the present complainants. Complainants’ counsel thereupon applied to the first mortgagee, through its solicitor and officers, for a further short adjournment of the sale in order to communicate with his client, who was temporarily absent, but this was refused, and against complainant’s protest the sale proceeded on July 13th, 1897, and the premises were then struck off and sold to the complainant for the amount of its decree. The complainants were allowed, under the rule (205), five days to object to the confirmation of the sale, which is now required to be made under that rule, but they made no objections, and the sale for $26,852.50 to complainant was duly confirmed by order dated July 24th, 1897, and the sheriff was thereby directed to execute a good and sufficient conveyance to the present defendant company for the premises sold. The present complainants on the day after the sale, but before the confirmation, tendered to the defendant company the amount of its decree for costs and interest for the redemption of the premises. The defendant refused to accept the tender, and the complainant, on July 22d, 1897, one day before the expiration of the time for confirmation of the sale under the rules, filed this bill to redeem against the defendant, it being the only party defendant to the original bill. The defendant company was served on July 23d, 1897. At the hearing an amendment was made to the bill by consent, making Edelhof, the assignee for creditors, a party defendant, alleging that he has no funds to redeem the mortgage, and asking that complainants, if not entitled to redeem for their sole benefit, may be permitted to redeem on behalf of themselves and other creditors of the assignors who may file claims with him within the time required by law. An answer by the assignee admits the lack of funds for redemption.

The bill in this case is not filed to set aside the sale as improvidently or unfairly made simply for the purpose of obtaining a resale of the premises upon the ground that the sale was an improper use of the process of the court, but the relief prayed by the bill proceeds rather on the assumption that the sale, as to all the parties in the original suit except the complainants, must stand. None of these original defendants, except Edelhof, are now made parties to this suit, and the claim as insisted on at the hearing is that on the redemption by complainants they are entitled to be subrogated to the entire rights of the insurance company against the other parties defendant under its decree and execution. And to the special objection made in the answers and on the hearing, that to a bill for redemption of a prior mortgage all the intervening encumbrancers must be made parties, the answer of complainant is that those intervening encumbrancers have no interest, because they have all been foreclosed of any equity of redemption by the sale and by the deed thereunder. The principal question presented at the hearing, therefore, was whether a subsequent encumbrancer who is a party to a foreclosure suit on a prior mortgage, after a sale under foreclosure and a purchase at the sale by this prior mortgagee, may, if he files, a bill before confirmation of the sale, redeem the' prior mortgage without making the intervening encumbrancers or any of the defendants in the foreclosure parties, allowing the sale to-stand as against them. I think a right of redemption of this character does not exist. Up to the time of the sale under the process, and even after decree for sale, the right of. redemption which any subsequent encumbrancer might have would probably continue to exist and might be made effectual by petition in the original suit or by original bill, proper notice being given to those who on the record in the original suit appear to be, as in this instance, encumbrancers prior in point of time or otherwise entitled to claim the right of redemption. But under our practice the final decree in foreclosure suits deals expressly with and disposes of the whole subject of rights of redemption when a sale is made and as long as the sale stands. The language of the decree is that the defendants stand absolutely debarred and foreclosed of and from all equity of redemption of, in and to the said mortgaged premises, when sold as aforesaid, by virtue of the decree. The sale when made, therefore, under the decree does, by the express language of the decree itself, dispose of the very right of redemption or equity which is now sought to be exercised, and if a sale has been made, then, as it seems to me, so long as that decree stands and has been carried out by the sale it must conclude the complainants from any right which is a mere right of redemption.

A subsequent encumbrancer, such as a second mortgagee or judgment creditor, is not, under our decisions, entitled merely as such encumbrancer to redeem a prior mortgage, and unless some special equity exist in the subsequent encumbrancer the prior mortgagee has a right to retain his security and may refuse to surrender it. Bigelow v. Cassedy, 11 C. E. Gr. 557. And where the right to redeem is disputed between two subsequent encumbrancers, the prior mortgagee would, as it seems to me, where he has notice of this dispute, be justified in declining to allow either claimant to redeem except by decree in a suit to which the claimants were parties. Without such decree the redemption would be at his risk. The right to redeem by either claimant could then be so controlled by decree, if necessary, as not to exclude the other from the right to redeem, if eventually established in his favor. Any person having the right to redeem a mortgage is entitled to a subrogation to the mortgagor’s rights under the mortgage and decree, but not to the conveyance of any other rights nor to any other rights than those which the mortgagor has under his mortgage, and the reason why it seems to me that, under our practice, a redemption cannot be made after a sale under the usual decree, is that the sale, when made under the decree, and so long as it stands against the defendants, vests in the purchaser, as purchaser, not only the rights of the complainant under his mortgage and decree, hut also all the rights of the defendants in the suit. Baldwin v. Howell, 18 Stew. Eq. 519, 538; Mount v. Manhattan Company, 16 Stew. Eq. 25, affirmed on appeal, 17 Stew. Eq. 297. A defendant standing on an alleged right of redeeming the prior mortgage is not entitled to a conveyance of or subrogation to the rights which the prior mortgagee has as purchaser under the sale in addition to his rights as mortgagee. The defendant company in this case, at the time of the tender, did not occupy the position merely of the holder of a prior encumbrance secured by mortgage and decree thereon, but was a purchaser of all the rights of redemption of all the defendants in the mortgaged premises, including the present complainants’ right to redeem, and was bound by its contract of sale as such purchaser not only to the present complainant, but to all of the defendants in the suit. By the contract of sale the purchaser became at once subject to the obligations of purchaser, which could be enforced against him, upon the confirmation of the sale, either by petition in the suit or bill for specific performance. Silver v. Campbell, 10 C. E. Gr. 465; Bowne v. Ritter, 11 C. E. Gr. 456. On sales by sheriff under execution, at common law, the deed, when delivered, relates back to the time of sale. Morse v. Hackensack Savings Bank, 2 Dick. Ch. Rep. 279, 281 (Errors and Appeals, 1890), and cases cited. On the principle of these cases the equitable rights of the parties are fixed by the contract of sale, subject only to confirmation by the court, and, if confirmed, the deed, as to the rights conveyed, must relate back to the time of sale. In the present case the confirmation of the sale is proved, but although a deed is alleged in the answer to have been delivered, no deed was offered at the hearing. The case, therefore, is now to be disposed of on the basis of the defendant company’s equitable rights as purchaser under a sale confirmed, by which it is at any time entitled to a deed from the sheriff conveying to it the rights of all parties to the suit, complainant and defendant, as if the deed had been delivered on the day of sale. The present application of the complainants by tender after the sale and when these additional rights and obligations of the defendant company had thus become those of the purchasers also of the equities of redemption, instead of mere prior encumbrancers, is practically, therefore, an application to compel the purchaser to assign the benefit of its bid to them. And at the hearing this is in effect the actual claim made. The amount bid in this case by the purchaser was the amount due on its mortgage and decree, but if a right of redemption on the part of one defendant in a foreclosure decree, and of the character now asserted, exists, I fail to see why a complainant or any other prior encumbrancer who happens to be a purchaser at the sale for any amount more or less than his debt cannot be compelled by a tender of his debt after sale and a bill filed within ten days before confirmation to give up the benefit of his purchase in order that a defendant may, if he chooses, exercise a right of redemption which was expressly purchased at the sale by force of the decree. In my opinion the complainants’ right of redemption was cut off by the sale which was subsequently confirmed, and relief based merely on this right could not be given at all without setting aside the sale as to all parties. And in a suit to set aside the sale for the purpose of redemption, it seems clear that in any event all of the parties to the original suit who would have been proper parties to a suit to redeem,if there has been no sale, must be made parties. According to the authorities, on a bill to redeem a prior mortgage, the intervening encumbrancers must at all events be parties. Story Eq. Pl. § 185 et seq.; 1 Dan. Ch. Pr. (6th ed.) *212. And-where upon a record a disputed second mortgage is prior to a subsequent judgment, the latter, on applying to redeem the first mortgage, must bring in the second mortgagee for the protection of the first mortgagee, as the second mortgagee otherwise would be entitled to redeem the first mortgagee. This is according to the principles settled in Hicks v. Campbell, 4 C. E. Gr. 183; Wilson v. Bellows, 3 Stew. Eq. 282 (Errors and Appeals, 1878).

In the present case it will he noticed that, on the bill in the foreclosure suit, the three McGall company mortgages appear as liens prior in time to the complainants’ judgment, and the present complainants did not, by any answer or other proceeding in that suit, give notice to the prior mortgagee that so far as the right of redemption was concerned their right was prior to the McGall company mortgages. The prior mortgagee, on the record as it stood, and without regard to the decision adverse to the complainants in the other cause, would have been justified in declining without further order in the cause to allow the complainants the right to redeem after final decree for sale in the suit, arid a direction to pay the surplus money into court. As between the McGall company and the complainants, the right to redemption was a right which, although prima fade belonging to the McGall company, was, in fact, a disputed equity of redemption, and the precise case exists referred to in the statutes relating to redemption of mortgages by the mortgagor. These statutes (Gen. Stat. pp. 2102 et seq.) providing for redemption of mortgages by order of courts of law; and when no bill to foreclose was pending, expressly provided (§ 3) that the right of redemption, with order to assign the mortgage, should not extend to any case where the right of redemption was controverted between different defendants in the same cause. Upon redemption by the mortgagor, the mortgagee must reassign or convey his rights as mortgagee in the premises to the person redeeming, and the qualification expressly made on redemption under order of courts of law was intended to leave the right of redemption, when disputed, to the disposition of a court, of equity.

I think, therefore, that relief to complainants based on their present bill purely as a bill to redeem against the purchaser for their own benefit, and while allowing the sale to stand as against the intervening mortgagees and the other parties to the suit, must be denied.

When the necessary parties are all before the court, the complainants are entitled to an adjudication upon the case made in their bill for setting aside the sale as made by surprise and for an inadequate price, and if it should be so set aside then to have an adjudication upon their right to redeem. But where it appears by the record itself that the complainants’ right to redeem, if the same be set aside, is disputed, then the right of complainants to redeem, if allowed, must be finally settled, as it seems to me, on terms equitable to all parties claiming or interested in the right of redemption, and after hearing. This must, in the present case, be upon a bill to set aside the sale altogether and as against all parties, and then to redeem, to which suit the intervening mortgagees, the assignee for creditors, and, as it now appears to me, the mortgagors, as persons interested in the claim to redemption, are necessary parties. At the hearing application was made to amend for the purpose of adding parties to a redemption suit if thought necessary, and therefore, instead of dismissing the bill, without prejudice to the filing of a new bill adding the necessary parties, the cause will be directed to stand over, with liberty to complainants to bring in such parties, by amendment or supplemental bill, within a time to be fixed by the order, and, on their failure so to do, the bill will be dismissed. 1 Dan. Ch. Pr. (6th ed.) *294, notes *4®1-

This direction is based on the complainants’ bill and case as presented at the hearing, treated as a bill purely for the ultimate purpose of redemption. Relief by way of setting aside the sale and ordering a resale was not prayed by the bill nor asked at the hearing, but the bill contains a prayer for general relief; and, if complainants’ counsel desire, I will, before advising decree, hear them on the question whether on the bill and proofs, as they now stand, they are entitled in this suit, and with the present parties, to a decree setting aside the sale, as to all parties to the original suit, and ordering a resale, and, if so, upon what terms.


source: Caselaw Access Project

author: Emery, V. C.

license: Public Domain

text:
    Delaware, Lackawanna and Western Railroad Company v. Henry L. Breckenridge et al.
    [Filed April 8th, 1898.]
    The court directed complainant to bring an action at law to try title to land, which action was tried and judgment rendered for complainant, and defendants sued out a writ of error. On complainant’s petition for an injunction, as prayed for in his bill, the court ordered that the hearing of the cause stand over to a day to be fixed, pending the hearing of the writ of error in the law case; and that in the meantime no injunction issue. The practice of the court of chancery in such case explained.
    On bill for injunction, &c.

      Mr. Sherrerd Depue and Mr. Chauncey G. Parker, for the complainant.

      Mr. Henry S. Harris and Mr. Joseph M. Roseberry, for the defendants.
   Emery, V. C.

The bill in this cause was filed to compel the removal of pipes laid by defendants under lands to which the complainant claimed a legal title, and to enjoin the transportation of oil through these pipes by the defendants. The defendants by their answer also claimed the legal title to the lands for the purpose of laying these pipes therein, and for the transportation of oil through them for the purposes of commerce. At the final hearing, the cause appearing to be one where the complainant’s right to equitable relief depended at the outset upon its establishing a legal title to the lands in question, no final decree was made, but leave was given to complainant to bring an action at law against the defendants within sixty days (not including the time consumed by appeal from the order), and the cause was directed to stand over until after judgment in the action, or until further order, with leave for either party to apply for further directions. On appeal this order was affirmed. Complainant, within the time limited, brought an action of tort in the nature of trespass quare clausum fregit in the supreme court against defendants, which was tried at the Warren circuit in January, 1898, and on the trial a verdict for the plaintiff in the action was directed by the justice before whom the cause was tried, and final judgment on the verdict was entered in the action on January 12th, 1898. Bills of exceptions to the rulings and directions for verdict were taken by the defendants, and a writ of error to the court of errors and appeals was sued out on January 13th, 1898. Complainant then applied to this court by petition, in which, after setting out the record of the judgment, including the declaration and plea (which was the general issue only), and that by the judgment the legal title had been settled in its favor, and that the defendants had no right to lay or maintain the pipes for transporting oil or other purposes, an injunction was prayed according to the prayer of the original bill, restraining the use of the pipes for the transportation of oil, &c., and for such relief as complainant might be entitled to under the petition and the practice of the court. An order to show cause was granted on this petition with its accompanying affidavits, and, in the answer to the petition filed on the return day of the order, the defendants set up the pendency of the writ of error, and denied that the complainant’s legal title to the lands was settled by the judgment, as claimed by complainant. In view of this denial by the answer, that the legal title to lay the pipes for the transportation of oil was settled by the judgment, leave was given to the complainant to file rebuttal affidavits and copies of the stenographic report of the trial, for the purpose of showing the issues tried, and the defendants have also filed affidavits in reply. Complainant now applies on the petition for a final decree for injunction under the bill. The first question which arises on the application is one of practice, and relates to the proper method of bringing before this court for further proceedings the judgment in an action at law which has been directed, and the formal status of the cause in chancery when the judgment is obtained. Under the former English practice, where an action was directed upon the hearing, the cause in chancery was, at final hearing, usually directed to stand over until a day fixed in the order. In 2 Sm. Ch. Pr. (1st Am. ed.) *90 et seq., this earlier practice is given in detail. In Rodgers v. Nowill, 6 Hare 334, 338, the form of order was given. If the action had not been determined by the day fixed, the time might be extended on application. Smith v. Earl Effingham, 10 Beav. 589, 596. When judgment had been entered in the action at law, then the practice was to apply by petition to set the cause down for further hearing, and the petition set out the proceedings in the action at law. For the purpose of bringing the cause again before the court of chancery, after the trial of the action at law, the formal proceeding was usually the same as when an issue at law was directed and the postea was returned into chancery, the cause in either form of proceeding being set down for further directions in chancery. 2 Smith Ch. Pr. 90, 91.

Following the analogy of this established practice in this proceeding, the petition (in the absence of a day fixed for hearing by the original order) should now be treated as applying for further directions, and the cause should be considered as now before me for further hearing upon the original evidence and upon the petition, answer and affidavits. Where an issue is raised, as here, by the petition and answer as to the scope and effect of the judgment at law, and evidence dehors the record of the action is necessary in order to show the scope of the judgment, such evidence, for the purposes of a final decree, must, on well-settled principles, be offered in open court, and cannot be based upon ex parte affidavits unless they are used by consent as evidence taken on hearing. Such ex parte affidavits might, in a proper case, afford a basis for an interlocutory injunction to be granted pending final decree; but not for the final decree for injunction on the bill, which is the special relief now sought. In eases where testimony is necessary to show that the judgment in the action settled the question of legal title involved in- the chancery suit, the proper course, therefore, would seem to be that indicated by Chief-Baron Alexander, in Wing v. Murrell, McClel. & Y. 620, 622, as the proper course in all cases, viz., to continue the cause for hearing and give the judgment in evidence' at the hearing. Evidence to show the issues actually tried would then be admissible in connection with the judgment record. Regularly, therefore, and in view of the issues raised by the petition and answer, and in the absence of any consent that the ex parte affidavits used on this application may be used as evidence taken on the further hearing or on a hearing upon the equity reserved, I think the only order relating to the proceeding in the cause which can now be properly made upon this application is that the cause be now set down for further hearing. '

Defendants’ counsel- contend that the judgment at law should-be brought before the court by supplemental bill, in accordance with the general rule as to setting up matters occurring subsequent to the filing of the original bill. But this principle is not applicable, as it seems to me, to the present case, where the action at law and its result are to be considered as simply one step taken in the conduct of the cause and for the purpose of proceeding to decree in the cause. The action at law is only the method of trial by which the issue as to the legal title originally contested in the bill and answer in the cause is finally settled for the purposes of the equitable relief to be asked thereon. In the case relied on by counsel (Blakemore v. Glamorganshire Canal Co., 1 Myl. & K. 154), the action on which the supplemental bill was based was not directed by the court, but seems to have been an action brought by complainant pending suit, and was, therefore, strictly supplemental to the bill (p. 171).

Counsel on both sides, however, without abandoning the question of formal practice, have, on this application, argued very fully and exhaustively the whole cause, as if the ex parte affidavits and the stenographic notes of the proceedings at the trial presented the whole cause now for final adjudication, and, as no important dispute as -to facts arises, I am disposed to indicate now the view which I'take as to the proper order or decree to be made, considering the cause as now before me again on final hearing and on application for further directions, upon proofs as to the judgment at law and its scope. The affidavits and the notes of trial established that the right to lay the pipes was an issue which was tried and was settled adversely to the defendants, and this status of the proofs relating to the judgment was not seriously questioned by defendants at the argument after the rebuttal affidavits and the report of the trial were filed. The main question now is whether, under the circumstances of the case, a final decree upon the action at law should be rendered pending the review of the judgment upon writ of error. Complainant claims that the judgment by the court of law must, for the purposes of final decree in this suit, be now taken as finally establishing the legal title, notwithstanding the writ of error and that the final decree based on the judgment must now be made. This practice of entering final decree in chancery after the judgment at law was taken in Hagerty v. Lee, 3 Dick. Ch. Rep. 98 (Vice-Chancellor Bird, 1891), where the vice-chancellor dismissed a bill for injunction upon the complainant’s failure to establish his title in the action at law, which action resulted in the defendant’s favor. No writ of error was pending, however, at the time of this application, nor was any reference made in the opinion to the effect of one,if taken out. A writ of error was subsequently taken out, upon which the judgment of the inferior court of law was reversed (25 Vr. 580, June Term, 1892), and an appeal being taken from the decree of Vice-Chancellor Bird dismissing the bill for injunction, this decree was reversed at the succeeding term. S. C., 5 Dick. Ch. Rep. 464 (November, 1892). The opinion stated that the questions involved on the appeal from the decree dismissing the bill were in no respect different from those adjudicated in the action at law, and the decree was reversed for the reasons given in the opinion reversing the judgment at law. The precise question now raised was not considered either by Vice-Chancellor Bird or in the court of appeals, for this question is whether a final decree in the chancery suit must proceed at once on the basis of the finality of the judgment in the action at law pending a writ of error, and it would seem that if the court of chancery is obliged to proceed to such decree pending the writ of error, and has no right to wait for the decision on error, then a decree based on the existing judgment is not erroneous and could not be reversed as based on an invalid judgment in the action.

As was pointed out in Black v. Delaware and Raritan Canal Co., 9 C. E. Gr. 455, 483, by the court of errors and appeals, the' question on review in the appellate court is whether the decree was right on the case as presented in the court below and on the facts then existing, and any equities arising subsequently to the decree would, on this theory, be regularly brought to the attention of the court below by application after the decree, and would seem to be properly the basis for a bill of review or bill in the nature thereof based upon matter arising after decree. Story Eq. Pl. 412. The pendency of a writ of error at the time of the application for further directions and final decree on the judgment is, as it seems to me, one of vital importance. Where a cause stands over in equity for the purpose of determining a legal question upon the settlement of which the further equities of the parties depend, the parties to the suit at law are bound to proceed with reasonable diligence and are not entitled to suspend the further action of the court of equity in the cause until the limit of time allowed by the common-law procedure.

This principle was applied to the plaintiff’s obligation to proceed with his action in Arnold v. Thomson, 32 L. J. Ch. 40 (Vice-Chancellor Wood, 1863), and must also be applied to the prosecution of a writ of error by a defendant against whom a judgment at law has been obtained in the action directed to be brought. If, therefore, at the time when the cause is set down for further directions or hearing, the party defeated in the action at law has made no effort for review of the proceedings in the court of law, and no application for new trial or writ of error in the action at law is pending, the court of equity is entitled to proceed to final hearing at once, and on such hearing is obliged to treat the judgment as final for all the purposes of the hearing. But where a writ of error is pending and is being prosecuted without delay, then, as it seems to me, the decision of the question whether, for the purposes of making at once a final decree, the judgment or verdict at law should be treated as final, involves additional considerations. Where the court of chancery itself directs an issue of fact to be tried by a jury, the verdict, with the postea, is returned into the court of chancery, and the party against whom the verdict goes is always afforded an opportunity to apply to set aside for either error of fact or error in law at the trial. And where, on the other hand, an action at law instead of an issue is directed, the defeated party in the action at law cannot review the proceedings in the action by application to the court of chancery, but proceedings in the action are reviewable only in the court of law by application for new trial or bill of exceptions for error in law. The distinction in this respect as to the forum of review is clearly pointed out by Mr. Justice Depue in American Dock and Improvement Co. v. Trustees, &c., 10 Stew. Eq. 266, 269 (Errors and Appeals, 1883), with a reference to the authorities, Hope v. Hope, 10 Beav. 581, 586, being one of the leading cases. And the cases further show that where the court of chancery directs an issue at law and the postea is returned into chancery, it does not proceed to final decree on the verdict thereon without affording an opportunity to the party defeated on the issue at law to be heard as to errors of fact or law occurring at the trial. They also establish, in my judgment, that where an action at law is directed, the court of chancery, in declining to review any alleged errors in the proceedings in this action, does so not because the party is not entitled to any review before a final decree is made, but because the right of review is given by the proceedings at law and should be there pursued. For it must be observed that the sole purpose of directing the action at law is that the contested legal title may be settled by a court of law in such a manner that a court of equity should treat it as final between the parties as a basis for settling the ultimate equities of the cause arising on the settlement of the legal title. If at the time fixed for further hearing in equity an application for a new trial is pending in the court of law, then, as was said by Lord Langdale, master of the rolls, in Smith v. Effingham, 10 Beav. 589, 596, motion must be made to retain'the bill.

The pendency of proceedings to review alleged errors in law by writ of error would seem to be equally good reason for directing the hearing in equity to stand over, at least where such proceedings are not manifestly taken for delay. Ordinarily,, therefore, and in the absence of any special circumstances in the cause which would make it necessary or proper for the protection of the equitable interests of the parties that an injunction should go pending the review in the court of law, this court is-not obliged, necessarily, to regard the judgment of the inferior court of law, upon which a review is pending, as final for the-purpose of making a final decree for injunction in the suit, but may, pending a decision upon error, direct the final hearing to-stand over. If this court is not so obliged, now and pending the writ of error, to treat the judgment as final for the purpose of final decree in this suit, the present case is one where, under the circumstances, the'final decree should be reserved until a decision upon the writ of error.

The questions of law involved are fair ones for the decision of the highest court; the case was tried by the parties with the evident intention on each side of taking it up by writ of error in case of adverse decision ; the writ is taken bona fide and has been prosecuted without delay, and the damage to the complainant, by reason of the withholding of the injunction, is small, if not trifling, in comparison with the injury to the defendants, if the injunction should be granted and the judgment at law be reversed. The case, therefore, is not one where, on the principles usually applied, the injunction now asked for would be granted pending the trial of the right, and in this respect the status of the case pending the final settlement of the legal right by the court of errors and appeals is the same as at the time of the order originally made at the hearing.

The review of the proceedings at law by the writ of error should, for the purposes of the present application, be considered as a continuation of the trial of the legal right in the action at law, which was directed by the original order. No circumstances appear which make it necessary to issue an injunction pending this review, and I will, therefore, advise an order that the hearing of the cause do now stand over to a day to be fixed. Such order is within the scope of the prayer for general relief made in the petition on which this hearing proceeds.


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    Henry Lang’s Executor v. William F. Lang et al.
    [Filed April 28th, 1898.]
    1. Where the income of a fund invested in shares of a corporation is bequeathed to one for life, remainder over to another, the remainderman is entitled to the actual value of the shares, including accumulated surplus or undivided earnings at the time of testator’s death, which forms a capital, the income of which, whether in the nature of dividends or otherwise, belongs to the life tenant from that time.
    2. A testator’s son was entitled, under the will, to the income of a fund invested in shares of a corporation, which. testator directed to be sold to the best advantage, and otherwise invested, after his death; and this was not and could not be done until dividends had been declared upon the stock. — Held, that the direction did not require an immediate sale, and that the stock should be treated as a legal investment pending the conversion, and the declared dividends as income, to which the son was entitled as life tenant.
    On final hearing on bill, answer, replication, exceptions to report of Hon. Frederic Adams, master, and further proofs.

      Messrs. Guild & Lum, for the complainant.

      Mr. Charles A. Reed, for the defendant William Lang.

      Mr. Sherrerd Depue, for the infant defendants.
   Emery, V. C.

This bill is filed by an executor and trustee for directions as to the disposition of money in his hands, paid to him as a dividend, declared after the death of testator, upon shares of stock owned by the testator at the time of his death. The testator died February 18th, 1896, and owned at the time of his death six hundred and thirty shares (out of one thousand five hundred total paid-up shares) in the Henry Lang Company, a manufacturing company organized in 1892 by the testator and others, with an original paid-up capital of $101,000, which capital was increased to $150,000 by a stock dividend of $49,000, declared in January, 1896, previous to testator’s death. The testator received his proportion of the stock dividend, so that the entire holdings at his death were six hundred and thirty shares. On July 1st, 1896, the company declared a dividend of forty per cent, in cash, being $25,200, on the six hundred and thirty shares, and this dividend has been paid to the executor, who holds.it as part of the residuary estate of testator under a trust (in substance) to pay the income (after certain deductions) to the defendant William Lang during his life, and, on his death, to convey the principal to his children, the infant defendants.

The question raised in the case is whether this cash dividend received after testator’s death is principal to be held by the executor for the benefit of the remaindermen, or income to be paid to the life tenant. The general rule applicable in such cases was settled in this court by Chancellor Zabriskie in Van Doren v. Olden, 4 C. E. Gr. 176 (1868), where he adopted the rule sometimes called the Pennsylvania rule, as first settled in Earp’s Appeal, 28 Pa. St. 368. This rule, as stated by the chancellor, is (at p. 179) “that where trust funds, of which the income, interest or profits are given to one person for life, and the principal bequeathed over upon the death of the life tenant, are invested either by the trustees, or, at the death of the testator, in stock or shares of an' incorporated company, the value of which consists in part of an accumulated surplus or undivided earnings laid up by the company, as is frequently the case, such additional value is part of the capital; that this, as well as the par value of the shares, must be kept by the trustee intact for the benefit of the remainderman; but the earnings on such capital, as well as upon the par value of the shares, belong to the life tenant.”

I understand this principle or rule to mean that the actual value of the shares at the time of the death of the testator, so far as the same can be ascertained, is the capital or principal intended by the testator for the remaindermen. This value at testator’s death is evidenced in part by the book assets, including the accumulated surplus account standing on the books at that time, and in eases where the stock has a market value (as in Earp’s Case) this also is evidence of value. It is the intrinsic value of the shares to be ascertained from the amount and value of the assets at the death of the testator, and at the time of the increase of stock, which governs in the apportionment of the surplus profits. The market value may aid in the- ascertainment of the actual value, and is, therefore, properly received in evidence on that issue.” Appeal of Smith, 140 Pa. St. 344.

In Van Doren v. Olden, the learned chancellor further says (at p. 180) that when an extra dividend is declared out of the earnings or profits of the company after testator’s death, such extra dividend belongs to the life tenant, unless part of it was earnings carried to account of accumulated profits or surplus earnings at the death of testator, in which case so much must be considered as part of the capital.” The learned chancellor did not, however, by this further statement mean to change the rule previously stated, but meant, as I understand, that if the dividend was declared and paid in part or whole out of the accumulated surplus, as it existed on the books at the death of the testator, and the payment of the dividend reduced the amount of surplus below what it stood at on-the books at the .testator’s death, it was as between tenant for life and remainderman to that extent a payment out of the capital existing at testator’s death. If the subsequent payment of the dividend did not trench on this surplus and the surplus after the payment continued to be as large as at testator’s death, then the payment was from income and not from capital. The trustee in the latter case after the payment still retains, and evidently as capital, at least the par value and a surplus as large as at testator’s death. The order of reference directed in Van Orden v. Olden (at p. 180) shows clearly, I think, that this is the proper construction to be placed on the expression “ dividend declared out of earnings carried to account of surplus profits,” and that the learned chancellor did not intend to deprive the life tenant of the dividend unless the earnings out of which it was paid had not only been carried to the account of surplus profits during the lifetime of the testator, but also the dividends had been actually paid, wholly or in part, by an appropriation of part of this surplus after exhausting surplus subsequently carried to the account. The order of reference directed (at p. 180) that if the per cent, of the accumulated profits held at the filing of the bill was equal to the per cent, held at the death of testator, the life tenant was entitled to the whole dividend; if not, so much of the extra dividend as would make the original stock and present surplus, equal to the stock and surplus at the death of the testator, should be retained and the excess paid to the life tenant.

The general rule declared in Van Orden v. Olden has never been questioned in this state, but has been approved in Ashurst v. Field’s Administrator, 11 C. E. Gr. 11 (Chancellor Runyon, 1875); Pratt v. Douglass, 11 Stew. Eq. 516, 541. (Errors and Appeals, 1884); and the doctrine first settled in Earp’s Case has, it may be further stated, been at last so thoroughly and generally established in the American courts that it may now be called the general American rule, as distinguished from the English and Massachusetts rules. 2 Thomp. Corp. Off. §§ 2193 et seq.; Appeal of Smith, 21 Atl. Rep. 438 (1891); McLouth v. Hunt, 154 N. Y. 179 (Court of Appeals, November, 1897), and cases cited.

In the present case the amount of surplus profits at testator’s death still remaining after charging off the $49,000 stock dividend in January, 1896, was $69,596.65. On July 1st, 1896, being the end of the fiscal year of the company, a further credit to the surplus account was made of $123,743.68 for the profits of the entire preceding year, making the total credit at that date $193,117.13. From this total the dividend in question, $60,000, was declared and paid in July, 1896. This payment of $60,000 must, under the rule as above explained, be considered as made not from the earlier item of $69,373.45 standing to the credit of the profit account at testator’s death, but, as between the present contestants and for the purposes of testator’s will, be considered as made from the profits or earnings above the $69,373.45 and subsequently added, there being a sum abundant for this. On the facts, therefore, in the present case the source of the dividend now in question is the income and not capital under the above rule. The report of the master finding it to be income is therefore approved and the exceptions are overruled. Whether for the purpose of final settlement between the remainderman and tenant for life, on the sale of the shares, the surplus, as it existed on the books at testator’s death, is to be taken conclusively as the value or amount of capital to be invested, or whether the principal is entitled to be increased by a proportion of profits of the year which were or may have been earned to that time, although not yet carried to the surplus account, if this proportion can be ascertained, is not now directly involved and is not passed upon. Where stock has a continuous market value this element of doubt' is largely eliminated, but in the present case the stock has not been sold on the market at all and has no fixed market value which could be taken, as it was in Earp's Case, as a basis for fixing value at the time of testator’s death and at subsequent periods.

Another ground for declaring the dividend to be capital instead of income was urged, and very ably, by counsel for the infant defendants on the hearing, and involved questions not referred to the master. The testator’s will expressly directed his executors

“to sell my bank stock and also to sell and dispose of, to the best advantage, all my other personal property not hereinbefore bequeathed [including the shares now in question], and to keep the proceeds of such sales and all other' moneys of my estate otherwise received securely invested in bonds secured by mortgage upon improved real estate, the interest thereof, with the other income of my estate, to be appropriated as hereinafter directed.”

After directing certain payments out of the income he then (section 5) directs his executors

“ to pay my son, William, §150 per month during his natural life, and after paying taxes, &c., to also pay him the residue of the income of my estate then on hand during his natural life.”

The contention on behalf of the remainderman is that the will directs the absolute conversion of this stock and a special investment of the proceeds, and that as between the remainder-man and the tenant for life, the life tenant is entitled to receive only so much of the income as would have arisen from the personal estate as interest, if this personal estate had been converted and invested according to the trust within a year after testator’s death, and the trustees cannot be allowed any great payment to the life tenant in passing their account, and must hold any balance as principal. The English rule is stated in this general form. 2 Perry Trusts § 548; Hill Trust. (2d Am. ed.) *387; Dimes v. Scott, 4 Russ. 195 (1827). But the rule as there declared in reference to personal securities is based to some extent upon the fact that the securities are such as the executor or trustee could not under the will or under their rules properly hold as trust investments, but-must be converted at once; and on the question of the application of the rule, great weight is given to the directions of the testator as contemplating immediate conversion or holding longer than the year.

In a late case, Sparling v. Parker, 9 Beav. 524, 526 (1846), there was a bequest to trustees to invest all moneys and all mortgages, shares of stock, &c., as can be immediately sold without disadvantage, and, otherwise, as soon as may be, in the purchase of lands, and a direction that until converted, interest should be paid to one Mrs. P. The question arose four years after testator’s death, as to the right to the income on the property still unconverted. Lord Langdale, master of the rolls, in reference to the claim that the rule was absolute that it was the duty of executors to convert within the year, and that although there were no executors who could sell (owing to a dispute over the probate of the will), yet the accounting must proceed on that basis, says (at p. 529 et seq.) “ that this doctrine has unfortunately given rise to many conflicting decisions of different judges; that each case of this kind must depend on its own peculiar circumstances, and on the intention of the testator as to what should be done with the income until the time of conversion, if this can be ascertained from the will.” And he held in this case that, there being no direction for immediate conversion, and the conversion having been delayed without any fault, and no want of discretion in that respect being suggested, the entire income pending conversion should go to tenant for life. The intention of the testator, as disclosed by his will, in reference to the destination of the income pending conversion, is to be discovered and applied if possible, as it seems to me, in preference to any fixed general rule, and, in ascertaining this intention, it must be borne in mind that unless the will expressly directs a conversion within a limited time, securities held by the testator at his dea,th would.be legal investments of the estate pending the conversion directed by the will. Except for the direction to sell “ to the best advantage,” and then invest in bond and mortgage, the investment might have continued as a permanent investment under our statute. Gen. Stat. p. 2401 § 197.

In this case testator’s stock is to be sold and disposed of by the executors to the best advantage; this does not require an immediate sale, and, as appears in this case, no sale by the complainant executor could have been made before the declaration of this dividend. The executor named in the will did not receive his letters until September 26th, 1896, nearly three months after the declaration of the dividend, a delay due probably to the appointment of an administrator cum testamento annexo. No claim is made that an advantageous sale could have been made before July 1st, 1896, by anybody, and the failure to convert before July 1st was not due to the fault of the executor, nor can it be considered a failure to sell as directed. And inasmuch as the testator gives to his son, William, the entire residue of the income of his estate, it seems to me that, under the terms of the will itself, the whole dividend now in question, received while no conversion could be effected, was income, and that the case does not come within the application of the rule relied on by counsel.

Upon the whole case, therefore, a decree will be advised directing the executors to treat the dividend as income, and pay it .accordingly under the directions of the will.


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    Mary A. Cornish v. Peter Wiessman.
    [Filed August 27th, 1896.]
    1. The use of a portion only of a building for a meat and vegetable store is a violation of the provision of the deed of the lot that the premises are to be used for “dwelling purposes only.”
    2. The provision in a deed of part of a tract in a residence portion of a city that the premises are to be used for dwelling purposes only will be enforced against one purchasing from the grantee with notice thereof, unless it is made clear beyond the possibility of a doubt that the remainder of the tract will not be damaged by its violation.
    Heard on bill, answer, replication and proofs taken orally.

      Mr. Edward Oakes, for the complainant.

      Mr. John R. Hardin, for the defendant.
   Emery, V. C.

The object of this bill is to enforce certain restrictions in relation to the use of land which was conveyed by complainant, Mrs. Cornish, to defendant’s grantor, one James R. Schmidt. The deed from complainant to Schmidt conveyed a lot of land in Bloomfield, Essex county, fifty feet front on Broad street by one hundred and fifty feet deep, the conveyance containing the following clause at the end of the description: The above premises to be used for dwelling-house purposes only, with the necessary barn and outbuildings.” This deed was dated September 20th, 1895, and recorded September 25th, 1895. On October 3d, 1895, James-R. Schmidt and wife, for an expressed consideration of $1, and by deed of bargain and sale, conveyed the premises in question to the defendant, Wiessman. In this deed the restrictive clause was omitted. Wiessman has put up a.building on the’ premises, and the front part of the first floor of the building (being all of the front except a hallway) he uses for the purpose of a meat and vegetable market. The upper part of the building and the rear of the first story are used for .the purposes of a dwelling by the defendant; A porch with a wooden awning or roof and.supported by small pillars near the curb line, extends across the whole width of the building over the first story and across the sidewalk. This porch is sometimes .used for displaying or storing the meats. On receiving information of defendant’s intention to use part of the building for this purpose, and before its erection, complainant filed her bill to restrain the use of the premises in violation of the restriction, and upon filing the bill applied for a preliminary injunction but this was denied and the rights of the parties reserved to be determined on final hearing. Pending the hearing, defendant, at his risk, proceeded with the erection of the building according to his plans, and is now carrying on a meat and vegetable market on the first floor of the building, and claims the right to do so, notwithstanding the restriction in the deed to Schmidt, his grantor. It is not claimed that he is not chargeable with notice of the restriction in Schmidt’s deed, for it is conceded that under the doctrine settled in Brewer v. Marshall, 4 C. E. Gr. 537, and Hayes v. Waverly, &c., Railroad Co., 6 Dick. Ch. Rep. 345, 349, the defendant is chargeable with constructive notice of the restriction in the Schmidt deed, which was one of his muniments of title. Upon the question of notice, moreover, I am satisfied, from the evidence in this case, that the defendant, before taking his deed from Schmidt, had actual notice of this restriction in Schmidt’s own deed.

The general rule'in this state in relation to the enforcement of restrictions of this character is thus stated by Chancellor McGill in Hayes v. Waverly, &c., Railroad Co., supra (at p. 348); “It is settled by adjudication in this state, as a general rule, that where a grantor, retaining a portion of the land out of which the grant is made, enters into an express written understanding with his grantee, whatever may be its form, whether covenant, condition, reservation or exception, which restricts the enjoyment of the portion of the land which is conveyed in order to benefit the portion retained, and the restriction is reasonable and consonant with public policy, whether it runs with the land and is binding at law or not, it will be enforced in equity against the grantee and anyone subsequently acquiring title to the land with notice of it, at the instance of the grantor or subsequent owner or owners of parts of the remaining land, when its violation results in material detriment to the portion of the remaining land, which the complainant in the suit holds.”

The lot sold to Schmidt was part of a tract containing over three acres, owned by the complainant. Complainant’s residence was near the centre of the tract, and the whole tract is situated in the residential part of the town of Bloomfield, and is well adapted for residence purposes. There were but few places of business of any kind in the neighborhood, and the restriction was one which, in view of the situation of the remaining tract, was within the right of the complainant to impose as a reasonable restriction, so that the sole question now is whether she is entitled to have it specifically enforced against the defendant, who purchased with notice.

The defendant’s counsel opposes the relief prayed for, on two grounds — first and mainly because, as he asserts, the building is, in fact, defendant’s dwelling-house, and the use of a portion of it as a meat and vegetable store does not violate the covenant. Counsel insists that the house still continues to be a dwelling-house, although a portion may be used for a store or market, and treats the 'case as if the question under the covenant was whether this building may still be considered as legally a dwelling-house, although some portion of it is used for a store or market. Even if the question arose in this shape, I should be inclined to say that, considering the object of the restriction, the building, part of which is occupied as a store, could not be called a dwelling-house only. One plain object of such a covenant is to distinguish between the use for dwelling-house or residence and the use for purposes of trade. But the covenant in this case reaches directly to the use of the building or any part of it.' It is that the premises are to be used for “dwelling-house purposes only.” As it seems to me, it is impossible to say that a “store” or “market” use or purpose is a dwelling-house purpose. The whole of the premises (which will include the whole of any building on the premises) must, under the form of this covenant, be used only for dwelling-house purposes or barn and outbuildings, and, I think, the use of any portion of the building for the purposes of the trade defendant carries on is á clear violation of the covenant. In the next place, it is urged that complainaut has not shown any damage, or at least any material damage, from the violation of the covenant, and the court of equity, therefore, will not interfere. And I am asked to determine the question of her injury, as matter of fact, upon all the evidence, and especially to decide whether the complainant, with the defendant’s meat store where it is, is not better off than before he opened it and when he carried on his business on the opposite side of the street.

The complainant proves by some witnesses that, in their opinion, her remaining property will be damaged for. residential purposes by the continuance of defendant’s market, and I think their judgment is well founded.

The ease is certainly one in which the fact that there is no damage is not so clear that it can be said to be free from all possibility of doubt. The rule to be applied, therefore, is the one stated in Kerr Inj. p. 532, and applied by Chancellor Zabriskie in Kirkpatrick v. Peshine, 9 C. E. Gr. 206 (1873), where a bay window projected over the building line and it was urged that no damage was done.

“ There may be cases in which the damage to arise from the breach of the covenant would be inappreciable and in which the court would refuse to interfere. But the case must be free frCjin all possibility of doubt. It must be clear that there is no appreciable, or at all events no substantial, damage before the court will, upon the ground of smallness of damage, withhold its hand'from enforcing the execution. The mere fact that a breach of the covenant is intended is a sufficient ground for the interference of the court by injunction. A covenantee has the right to have the actual enjoyment of the property, modo et forma, as stipulated for by him. It is no answer to say that the act complained of will inflict no injury on him or will be even beneficial to him. It is for the plaintiff to judge whether the agreement shall be kept, as far as he is concerned, or whether he shall permit it to be violated. It is not necessary that he should show that any damage has been done. It being established that the acts of the defendant are a violation of the contract, the court will protect the complainant in the enjoyment of the right he has purchased.”

The right to enforce building restrictions, and restrictions upon the use of property, is now so clearly settled and so generally recognized, especially as to urban and suburban property, that the whole system of such restrictions would be put in jeopardy if the right to enforce them depended upon the decision of the court in each ease as to the amount of damage or injury. A purchaser deliberately and intentionally disregarding the restriction should make it clear “ beyond the possibility of doubt” that the complainant cannot be damaged. This has not been done here, and the defendant, having proceeded at his peril with the erection, after notice of complainant’s rights and her intention to enforce them, must bear the penalty.

An injunction will be advised restraining the use of the premises or any part of the building thereon for the purpose of his market and from the use of the building except for dwelling-house purposes only.

Complainant is entitled to costs.