text:
       Cumberland Lumber Company et al. v. Clinton Hill Lumber and Manufacturing Company et al.
    [Filed June 21st, 1915.
    Decided September 20th, 1908.]
    1. A corporation issued forty shares of its stock to K., Sr., forty shares to K., Jr., and two shares to G. W. K., and after its insolvency, and on its receiver’s application in 1899 for an assessment against them to pay the corporation’s debts and the expenses of administration, they alleged that there was no incorporation, no issue of stock, and no transfer of property to the corporation. There was evidence that the stock had been issued as paid-up stock for a total of $8,200 in consideration of the transfer of a stock of lumber to the corporation by K., Sr., which property was appropriated to a payment by each stockholder; that the stock of lumber was said to be worth $10,186, and at least worth $8,200, and sufficient to pay forty per cent, of an assessment previously made on the stock, and that K., Sr., had himself sold the stock of lumber without accounting therefor. A decree was made assessing sixty per cent, of the unpaid subscription against the stockholders, with the right to enforce payment by suit, but without prejudice to the rights of any person named in the petition or order to any defence to any action, legal or equitable, on the alleged stock subscription. The stockholders’ appeal, on the ground that the decree did not protect their legal rights, was dismissed, and the receiver by action collected of IC, Jr., G. W. K., and G. W. K. as administrator of K., Sr., the amount of the assessments. — Held, on the administrator’s application to open the original decree of assessment to allow the defence of payment of the intestate’s entire subscription, that in view of the intervening equities, the misapprehension of counsel as to the legal scope and effect of the hearing on the application for assessment, or of j;he decree made thereon, as to the scope of the defences, was no ground for opening the decree for a new hearing.
    2. In such ease the failure to appeal from the decree on the application for assessment within the time limited by law left the' decree final and conclusive, so that after the expiration of the time limited for appeal it could not be opened or modified.
    8. Final decrees are opened by bill of review, which cannot be filed after three years, except for new evidence discovered after the decree.
    4. An order for the assessment of stockholders, made in insolvency proceedings in the course of administration of the assets of the insolvent corporation, is an interlocutory decree rather than a final decree, although as between the parties it finally settled the issues litigated and involved on the hearing for tlio order.

      5. Such interlocutory order might in a proper case be opened by petition, rather than by bill of review, though the petition must be filed within forty days, and the lapse of over three years, the time limited for a bill of review ón -final decrees, was fatal.
    On petition to open decree for assessment of stockholders.

      Mr. Frank E. Bradner and Mr. Chandler W. Riker, for the complainants.

      Messrs. Coult & Smith, contra, for the receiver.

       Affirmed 78 N. J. Eq. 294.

   Emery, V. C.

On November 9th, 1899, the receiver of the insolvent corporation applied to the court for an assessment against the original subscribers to the capital stock of the corporation, to pay in so much of their respective unpaid subscriptions as might be necessary to pay the corporate debts, with expenses of administration. The application was by petition filed in the cause against four of the five original subscribers, William S. Ketcham, Jr. (one hundred shares), George W. Ketcham (five shares), Frank D. Holloway (one hundred shares) and Edward E. Campfield (one hundred shares), and against said George W. Ketcham, as administrator of his father, William S. Ketcham, deceased, the remaining original subscriber, for one hundred shares. In the petition stock was alleged to have been actually issued to William S. Ketcham for forty shares, William S. Ketcham, Jr., forty shares, and George W. Ketcham, two shares, eighty-two shares in all. No further shares were issued to any of the stockholders, and the subscribers Holloway and Campfield were alleged to be insolvent. The respondents, William S. Ketcham and George W. Ketcham, individually, and as administrator of William S. Ketcham, Sr., filed a joint answer to the petition denying (among other things) the existence of the. corporation, or any subscription for the stock. A previous assessment against the same stockholders had been reversed on their appeal, because there did not appear on the record to have been any judicial inquiry, ascertaining the proportion of unpaid subscriptions needed to meet the liabilities. Cumberland Lumber Co. v. Clinton Hill Lumber Co. (Court of Errors and Appeals, 1898), 57 N. J. Eq. 627, 629. On the application made in 1899, and following the practice indicated in the opinion of the court of errors and appeals, a hearing took place as to the amount of debts and expenses to be paid, and the amount of unpaid subscriptions. On this hearing evidence was given which showed, or tended to show, that the eighty-two shares of stock actually issued to the three Ketchams was issued to them respectively as paid-up stock, upon the transfer of certain personal property (a stock of lumber) by Holloway to the company, in consideration of Holloway’s indebtedness to William S. Ketcham, Sr., the intestate, and that for this transfer the Ketchams were to receive, and did receive, paid-up stock for $8,200. Holloway’s indebtedness to intestate was claimed on the bearing, by the administrator, to be $10,136.77, but William S. Ketcham, one of the respondents, called as a witness on their behalf, testified that the lumber and tangible property conveyed was at the time of its transfer by Holloway to the company estimated as worth at least $8,200, and enough to pay for all the Ketchams the forty per cent, assessment made then or about that time upon the stock.

On this hearing no claim was made by or on behalf of William S. Ketcham, Sr., that by reason of the transfer of this property to the company, he was entitled to credit for all of this amount upon his own subscription. No payment on account of any of the eighty-two shares - of stock issued was shown otherwise than by the transfer of the Holloway property to the company, and in the absence of other proof the contemporaneous issue of the stock to the three Ketchams as paid-up stock would seem to conclude all of them from asserting against the company or the receiver any other appropriation or division of the payment. The substantial defence made by all of the Ketchams jointly on this hearing was, that there was no actual incorporation, that the stock had never been actually issued or delivered, and that no property had been transferred to the company. And they abo proved that the intestate had afterwards taken the entire tangible property conveyed by the bill of sale and converted it to his own use on account of Holloway’s indebtedness to him-elf, and had not accounted for it to the company. As a result of the hearing, a decree was made fixing the total amount of corporate debts and the administration expenses at $6,344.97, and directing that for their payment an assessment should lie made against the subscribers and holders of the stock. And Holloway and Campfield being found to be insolvent, it was further decreed that the receiver assess and collect the said sum, with interest, from said George W. Ketcham, George W. Ketcham, administrator of William; S. Keteham, deceased, and William S. Ketcham, Jr., out of their respective subscriptions which had not been fully paid up, but not to exceed sixty per cent, thereof, and to enforce payment of the assessment and call by suit, if necessary, against each of the said delinquent subscribers and stockholders. The order, however, was declared “to be made without prejudice to the rights of any person named in said petition or in this' order to any defence which they may have to any action, legal or equitable, on such alleged stock subscription.” The qualification as to the effect of the order followed the practice then in force (see form in Barkalow v. Totten (1894), 53 N. J. Eq. 574), and one special purpose in mind was to leave open to the respondents a number of defences set up by them at the hearing, upon which I considered that I had no jurisdiction to pass. For these, defences in detail I refer to my memorandum of decision filed in the case and printed. 64 N. J. Eq. 517. The respondents had insisted on the right to pass upon all of the defences on the application for assessment. None of these defences, however, touched the question of the amount unpaid on the subscriptions. From this decree, dated June 9th, 1903, a joint appeal, as appears by the record, was taken by George W. Ketcham, as administrator and individually, and by William S. Ketcham, Jr., but not until December 26th, 1906, and one of the grounds of appeal specially stated in the petition of appeal (No. 11) is that the condition at the foot of the decree did not protect their legal rights. At the March term, 1906, this appeal was, on motion of the receiver, dismissed, because not taken within the time allowed by law. The decree for assessment was apparently considered an interlocutory and not final decree. By the decree the cause was also remitted to this court for such decree as might be equitable and just. Before the appeal was taken, and in September, 1903, the receiver brought an action at law against William S. Ketcham, Jr., to recover an assessment of $3,095 made on his stock pursuant to this decree, and recovered judgment against him in the Essex circuit court, which judgment was affirmed by the court of errors and appeals November 28th, 1905. McCarter v. Ketcham, 72 N. J. Law 247. In this suit some of the defences not considered by me were set up and overruled. After this judgment of affirmance, the joint petition of appeal on behalf of, or in the name of, all the stockholders assessed was filed, as above stated, on December 26th, 1905, and on January 16th, 1906, an order was made in the cause, on application of William S. Ketcham, Jr., staying proceedings in the judgment against him pending the appeal, upon his paying into court an amount sufficient to pay judgment, costs, &c., $3,885. Upon the dismissal of the appeal an order was made July 24th, 1906, to pay to the receiver the judgment and costs out of this money in court, and this has been paid.

A suit was also brought by the receiver against George W. Ketcham to recover the assessment made against him pursuant to the decree of June 9th, 1903, and a judgment in favor of the receiver was affirmed on writ of error. The effect of the reservation in the order was considered by the appellate court in this second action (McCarter v. Ketcham (August 8th, 1907), 74 N. J. Law 825), and it was declared that this reservation was not intended to nullify the previous determination of the court of chancery with respect to essential matters, 'but only to reserve defences that were not concluded by the decree. The third suit brought against the administrator to recover an assessment of $3,095, made at the same time on the intestate’s stock, under the order of June 9th, 1903, was brought in November, 1904, and in this suit the administrator, defended by the same counsel, in addition to the defences set up in the two previous suits, set up a plea of payment of the subscription of William S. Ketcham by the transfer of Holloway of the goods and chattels worth $10,000, and accepted by the company in payment of the intestate’s subscription. By this offer the whole value of the goods was apparently to be appropriated to the payment of the intestate’s subscription, and it ignored the fact that their value had already been appropriated in part to the payment of the subscriptions of William S. Ketcham, Jr., and George W. Ketcham. The trial judge finding this payment to be established, and that there was no question for the jury, directed a verdict fox defendant. On error this judgment was reversed. The court of errors and appeals held that the reservation in the decree could not be construed to affect the conclusiveness of the decree as to the facts that the intestate was a subscriber to the stock, and that his subscription remained unpaid to the extent of sixty per cent. March 5th, 1908, 74 N. J. Law 829. This cause being subsequently brought to trial again, the trial court refused to permit the evidence of payment offered in the first trial, and directed verdict for the receiver, upon which judgment has been entered.

Application is now made by the administrator to open the original decree of June 9th, 1903, and to allow him to put in the defence of payment of the intestate’s entire subscription by the transfer of Holloway to the company. The general ground upon which the application is based, is the erroneous view of petitioner’s counsel, at the time of the hearing, as to the legal scope and effect of the proceedings for assessment on this question of payment, and as to the conclusiveness of any order or decree which might be made in such proceedings. And it is further claimed that the view then taken by counsel was the view taken by the court itself, and expressed in the reservation. An examination of the whole record, evidence and conclusions on this hearing shows, I think, that so far as the particular defence of payment of the subscription was concerned, there was no substantial question made on behalf of any of the respondents, that if the transfer by Holloway was in fact accepted by the company as a consideration for the issue of paid-up stock, it was issued in payment of the eighty-two shares of stock issued to the three Ketchams for $8,300. There was no claim at the hearing that so far as the issue of stock was concerned, more than this amount was to be then issued as full paid, or that the intestate was to have the full benefit of the transfer as payment. The order allowing the payment of forty per cent, to all the Ketchams by this transfer, and finding that not more than sixty per cent, of the respective subscriptions of any of them remained unpaid, was taken as the result of the evidence — part of it submitted by the respondents themselves — and the decree concluding the receiver against recovering more than sixty per cent, against any of them, was based on this evidence. It is not now claimed that, on the evidence then produced, any different or other decree should have been made in reference to this question of the payment and its appropriation, nor is any fault found with the decree on this score, but application is now made to open the decree for the purpose of allowing the petitioner to show, by other and additional evidence, that the value of the goods transferred to the company by Holloway was at least $10,000, and that the intestate’s entire subscription of $10,000 was paid by the transfer, accepted by the company as such payment. Manifestly, the court, by the order of assessment, intended, so far as it could, to give effect, and, finally, to the matter of how much had been paid by the transfer, and for whom the payment had been paid. No question of fact on either of these points having been made by the respondents, whose substantial defence was that there were no valid or legal subscriptions or payments whatever, the reservation would be most fairly and properly construed as not intended to affect the defences or matters of fact, as to which no decision was intended to be made and referred to in the memorandum filed at the time. A decree specially reserving these defences, not intended to be passed on, would, perhaps, have been a preferable form of decree, but had such special decree been proposed, it would not have been either equitable or proper to have reserved in such decree the right to the petitioner to claim either that more than forty per cent, of the intestate’s stock had been paid by the transfer, or that the stock issued to his sons for forty per cent, of their subscriptions had not been paid by the transfer. The whole equity of the decree on this matter of payment by Holloway’s transfer, not only as between the receiver and the stockholder, but the equity as between William S. Ketcham, Sr., and Holloway, and between the three Ketchams themselves, was involved, and intended to be decided by the adjudication that forty per cent, of the subscriptions of the Ketchams had been paid by Holloway’s transfer of chattels, on which the senior Ketcham had a claim or lien for Holloway’s debt to him. And, supposing the court to have the power of declaring defences reserved, the defence now proposed to be offered could not, upon the proofs produced, have been equitably'reserved had application therefor been made at the time of the hearing. Had it been suggested at the time of decree, the only equitable method of dealing with it would have been to withhold any decree allowing the credit on the subscription of the other stockholders, and open the proofs for hearing of all the parties interested (Holloway included) on this point, before making order for assessment of any of them. But, independent of this equity relating to the order itself, the change in the situation of all the parties interested which has taken place since the decree, and in reliance on it, renders the application for the opening of the decree for the purpose indicated inequitable for additional reasons. The receiver, accepting on his part the decree of the court finding payments of the forty per cent, on the stock of William S. Ketcham, Jr., and George W. Ketcham, made assessments on the balance onty as unpaid, and has collected them from these stockholders. These proceedings are final as between them, and the receiver could not now assess or collect as against either of them any part of the forty per cent, which by the order has been declared to be paid. These parties had an equity in the decree which cannot now be disturbed, after the time of appeal has passed. The proceedings for assessment, if opened at all, must be opened for all persons who may ’be affected by a rehearing, and the proceeding would be by a new hearing for another assessment, to which all persons parties to the original hearing (or at least all whose rights were in any way fixed by the decree) must be parties.

Another change in the status of the petitioner since the making of the order has an important bearing on the equity of the application to open or modify the decree. On the hearing which resulted in the making of the order, not only did the administrator, in common with William S. Ketcham, Jr., and George W. Ketcham, insist that the issue of the eighty-two shares of stock to the Ketchams was not a completed transaction as between. the company and them, but it was also proved that subsequent to the bill of sale from Holloway to the company, and the issue of this stock, the intestate, though William S. Ketcham, Jr., took into his own possession all the stock of lumber and tangible property covered by the bill of sale and converted the same to his own use, realizing about $6,000 therefor, which he appropriated on account of Holloway’s debt to him and never accounted for to the company. By reason of this proof, it was claimed at the hearing, that if the stock was in fact issued, as claimed by the receiver, in consideration of the bill of sale, then the goods when converted by the intestate, or the proceeds of sale belonged to the company and the company had a valid claim against the intestate for the value of the goods converted, which claim was an asset, which the receiver should collect before making an assessment on the subscriptions. This contention was overruled upon the ground that in the absence of indemnification by the stockholders, the receiver, having no assets for the prosecution of this claim, which the stockholders did not admit, but disputed, could not be required, on behalf of the creditors, to prosecute the claim, and that under the Insolvent Corporation law he was authorized to call for the unpaid subscriptions, giving to the stockholders the right, if they desired, to prosecute for their own indemnification thereafter, and in the receiver’s name, if necessary, any claim the company might have against the intestate’s estate for the value'of the goods converted. Supra, N. J. Eq. 520. An action at law for this conversion which took place before the filing of the original bill in the cause (April, 1895) is outlawed, and one practical effect of now opening the decree to allow petitioner to prove that the subscription for the stock of the intestate was entirely paid by this transfer, would be to allow the petitioner to retain the consideration now alleged to have been paid for all his subscription and stock. The petitioner could not, in any event, be equitably entitled to open this decree for the purpose of proving the new and inconsistent defence, that payment of his entire subscription (and of his alone) was made by Holloway’s bill of sale to the company, except upon the condition that he account to the receiver for the value of the goods converted, which was a sum more than sufficient to pay the debts, and the other stockholders who have paid the assessment and have rights by reason of the order and their payments under it, would also seem to be entitled to resist the opening of the decree, except upon the terms that they be reimbursed out of the proceeds of the company’s goods to be accounted for by the administrator, for their payments of the assessment. Manifestly, the equities now-existing between the parties interested in a new assessment, on the basis of the proofs now proposed by petitioner, could not be adjusted without a rehearing in the presence of all the parties originally interested, of the whole matter involved on the original hearing, as well as this collateral and independent question of the intestate’s liability to account for the value of the goods conveyed to the company, as being one of its assets. In view, therefore, of the substantial equities appearing on the merits of the whole case, I conclude that this decree should not be opened for the purpose of allowing a new assessment to be made, and I dispose of the application on this ground, irrespective of the other objections made by the receiver’s counsel, based on the purely legal aspect of the application. These are — first, that the misapprehension of counsel as to the legal scope and effect of the hearing on the application for assessment, or of the decree made thereon (even if it existed, which is denied), is no ground for opening the decree for a new hearing; second, that by the failure to appeal from the decree within the time limited by law, the decree became final and conclusive, and, after the expiration of the time limited for appeal, the decree cannot be opened or modified. Final decrees are opened by bill of review, and the rule in this state is settled that such bill cannot be filed after three years, except for new evidence discovered after the decree. Watkinson v. Watkinson (Court of Errors and Appeals, 1905), 68 N. J. Eq. 632, followed in Cook v. Weigley (Court of Errors and Appeals, 1905), 69 N. J. Eq. 836. The order for assessment in insolvent proceedings, like the order appointing a receiver, is an order made in the course of administration of the assets of the insolvent corporation, and both orders have been held by the court of errors and appeals to be interlocutory rather than final decrees. The fact that the order for assessment settles finally.and conclusively as between the parties the issues litigated anti involved on the hearing for the order, does not of itself make the order for assessment a final decree in the cause, within the meaning of the appeal acts. Such order, like the order appointing a receiver, is only one step in the administrative part of the proceedings, and as an interlocutory order may in a proper case be opened by petition rather than by bill of review. Franklin Electric Light Co. v. Fort Wayne, &c., Co. (Court of Errors and Appeals, 1899), 58 N. J. Eq. 543. But, following the rule applied to final decrees, it would seem that the petition must be filed within forty days. The lapse of over three years, the time limited for a bill of review on final decrees, would certainly seem to be fatal.

My present view is that each of these objections is well taken, but I prefer to place tire decision on the substantial merits of the application, and as the. order was originally made, talcing into consideration special equities in relation to the alleged payment of forty per cent, proved to exist between the several stockholders, including Holloway, as well as the three Ketchams, and the order has since been accepted and acted on by the receiver and the other stockholders, I conclude that the petitioner has no standing to destroy these equities then settled, and after this lapse of time have a rehearing and reassessment on new and contradictory evidence and defences.


source: Caselaw Access Project

author: Emery, V. C.

license: Public Domain

text:
    Charles McCausland v. Roseville Trust Company et al.
    [Decided June 30th, 1915.]
    1. Evidence Held to show that when a trust company discounted notes for the payee as endorser and passed the proceeds to his credit, it was under an agreement that the proceeds should not be drawn against pending maturity of the notes, and that on failure of the makers to pay the notes at maturity, they should be charged to the payee’s account, and on the insolvency of the company the payee was entitled to relief by equitable application of securities based on the right to require securities held for the payment of debts to bo applied for that purpose.
    2. Such special agreement was for the benefit of the trust company, and was valid without a formal approval thereof, by the board of directors, especially where the company had the benefit of the agreement for two and one-half years, and neither the company nor its liquidator in insolvency could repudiate it to the payee’s disadvantage.
    Heard on bill, amended bill, answer, replication, stipulation and proofs.

      Mr. W. Howard Demarest, for the complainant. *

      Mr. Arthur T. Vanderbilt, for the defendants.
   Emery, V. C.

The substantial issue in this case is one of fact. This question of fact is whether in relation to discounting of certain notes for the complainant, as the endorser thereof, by the trust compairy, and passing the proceeds to the credit of his account with the trust company, there was in substance an agreement between him and the trust company that the proceeds of these notes should' not be drawn against, pending the maturity of the notes, and that at maturity, the notes, if not paid, should be charged to his account.

Complainant, claiming that such agreement as to his deposit account was made in 1910, and was acted on by both parties from about February, 1911, and that upon his part it was always substantially performed, had on deposit with the trust company on August 14th, 1913, the date of its failure, $5,251.55, in which was included the proceeds of the discount of thirteen notes not yet matured, amounting to $1,846.07, endorsed to and discounted by the trust company, and the proceeds of which had not been drawn on, because of the agreement. The trust company is insolvent, and the authorities liquidating it under the statute declined to charge the notes to complainant’s account, or to accept his cheek on his account for the amount and deliver the notes to him, which would effect substantially a set-off, but insisted on their right to recover the amount of the notes from the makers and leave complainant a pro rata creditor for the full amount of the deposit. Complainant’s claim on his bill and amended bill is that by the agreement made, the deposit to the extent of the notes discounted was in equity held as security for the payment of the notes, and that under the jurisdiction over the equitable -application of securities he is entitled to relief.,

Complainant is an insurance agent, or broker, and these notes were notes taken by him from clients in the course of obtaining for them liability insurance. These notes which were made by his clients or customers to complainant’s order, represented the amount of payments for premiums to the insurance company, and, as between client and agent, these amounts were paid or assumed by complainant upon receiving the notes. But as the amounts ultimately payable for premiums on such policies were subject to future adjustments, credits oh the notes for payments, or otherwise, were arranged between the customer and the agent before the maturity of the notes. Such notes were therefore as between the customers and the agent and in the hands of the agent negotiable securities of -a somewhat special character. Complainant, who had not previously taken up or proposed to take up the line of liability insurance, did so in tire month of November, 1910, and at that time made an arrangement with Raymond E. Smith, treasurer of the trust company, in reference to obtaining discount on a line of these notes. As to the formal method of discounting the notes, and the legal status of the trust company in taking them, there is no dispute, the evidence of both Smith and complainant being that Smith agreed that when complainant sent the notes in, the notes should be taken and discounted for his credit. They also agree that the discount charged by the bank should be six per cent., and further, that at their interview the allowance to Smith of two per cent, on the balance of his account was spoken of. Complainant says that it was then definitely further agreed between him and Smith, in reference to these notes, that he should not draw on the proceeds of discount of these notes, and that at maturity they should be charged to his account, and that he was to be allowed two per cent, on his balance. This balance included the proceeds of discount. As between complainant and his clients, the makers of the notes paid the entire discount of six per cent., so that under this arrangement, as stated by complainant, the trust company received four per cent, on the notes, while retaining the monejq and complainant received two per cent., besides the incidental advantage of a continuing line of discount, enabling him to carry on this kind of insurance, and also the advantage of prompt collection of the notes by reason of their discount by a bona, fide holder. Smith’s account of the arrangement between them differs from complainant’s account. Smith says, first, that according to his recollection there was no other arrangement tiran that all notes not paid by the makers should be charged to complainant’s account. But, in his account of the interview, he further sar^s that complainant made the remark “that the notes he would have discounted for his credit, or placed to his credit, would not exceed at any time his balance in the bank,” to which he (Smith) made no comment. As to the interest on his balance, and complainant’s request for two per cent, on it, Smith saj^s that he told him that would he referred to the executive committee, as it was not customary in many cases to allow interest on borrowing accounts, and that complainant also mentioned that if at any time any of those notes were not paid at maturity, “I could charge them up to his account,” and that he (Smith) told complainant that was customary with all paper of that description, meaning, as afterwards appears by his examination, paper endorsed by and discounted for the customer. Complainant understood the conversation between him and Smith to include on his part a special agreement not to draw against the proceeds of discount pending the maturity of the notes. Smith denies any such special agreement, but the fair conclusion from his evidence is, that he is denying the existence of what he now on the witness-stand calls a “special agreement” on this deposit. Complainant’s statement, as admitted by Smith in the course of the negotiations, that the discounts would not at any time exceed his balance, and that the notes if not paid at maturity were to be charged to his account, were material considerations to the trust company, and disadvantages to complainant, and were material terms of the discount being arranged for, and Smith, on the part of the trust company, was entitled to the benefit and to hold complainant to -them, unless he in some way let complainant understand that he did not hold him to them. .Smith, by his silence, accepted or induced complainant to rely on his acceptance of this promise as to the amount of his balances to be left with the company, and. as to the payment from his account at maturity.

In law and equity there was here the mutual consent, evidenced by what the contracting parties said in the interview, and their actions thereon, making an agreement that complainant should not draw on these proceeds of discount and that (subject to approval of the executive committee) the interest of two per cent, should be allowed to complainant on the whole amount of' his deposit account. Complainant so understood the agreement and acted on it, and, in my judgment, the proofs show that the trust company also acted as if this agreement had been made and it controlled substantially the status of the account until the failure of the bank. The notes being sent in, the executive committee, through Smith, who had charge of initially discounting them, their discount by Smith was from time to time approved, and interest was allowed at two per cent, on his balance. After the agreement this balance, including the notes, was usually more than double the amount of the notes. Over one hundred notes were discounted after the making of this agreement, or arrangement, and, with the exception of a few days, as to which an explanation is offered, the complainant always kept the notes protected by leaving the amount of the discount in his account. These omissions were not of such a character as to show that on either side the arrangement originally made for security was abandoned or was. not in force at tire time of the failure. The only substantial deficit was for a few daj^s in January, 1913, and was occasioned by the transfer from complainant’s account to his wife’s account with the trust company of the sum of $1,000, which also, by the arrangement between complainant and his wife, was to remain on deposit. Eor a few days interest at four per cent, on this sum was credited, instead of two per cent., as it would have been if in complainant’s own account. This discounting of notes continued from February, 1911, up to August 14th, 1913.

Mr. Munroe, the attorney of the trust company, and also one of the directors and a member of the executive committee, and the witness whose evidence is entitled to great weight, confirms complainant’s statement as to the understanding between the company and Smith in reference to the deposits, and says that the understanding ivas that at all times complainant would have enough money in the bank to meet the face of the notes, and that if the customers did not take care of them, he would, and that Smith so explained the arrangement to the executive committee and the board. No formal report to either this committee or the board or formal action on this agreement made by Smith with complainant as to the deposits seems to have been taken, and this circumstance perhaps explains somewhat the evidence of two or three other directors at the hearing, that there ivas no “special agreement” with complainant about leaving the deposits. These directors, or some of them, had previously signed affidavits on the application for preliminary injunction that there was such special agreement, and the difference between the contradictory oaths of these business men probably arises to some extent from what, in their minds, comprised or constituted a “special agreement” at the time of the oaths.

At the hearing, the impression I received from their evidence on this point was, that in denying any “special agreement” relating to the notes, they had chiefly in mind the matter of any agreement which would, to their knowledge, prevent the trust company from holding these notes with the same rights as they usually discounted or purchased notes.. That there was any special agreement of that character is not proved, for, as against maker and endorser, the trust company held 1116 notes discounted for value, and there is no proof that such rights were given up. The real question is whether in addition to these general and usual rights which the trust company as a solvent going concern had against the parties to the notes, there was not also a special agreement by which a special security as against the endorser was arranged for on these notes. And I think it is clear, from the evidence of all these directors who have denied any special agreement, that they all understood, pending the discounts of these notes, that complainant’s balances were unusually large, and that this fact was relied on in the discounts. This additional special agreement with the endorser and customer for security was an advantage to the trust company, provided it continued its business, and had the complainant become insolvent or bankrupt, the trust company would have been entitled to hold the deposit as security, to the extent of the notes, against an assignee claiming the whole account. And the fact that the banker instead of the depositor has become insolvent does not change the character of their respective rights in reference to the application of the deposit.

In my judgment, the agreement set out in complainant’s amended bill is substantially shown by the evidence to have been made between him and Smith, and afterwards substantially acted on both by complainant and the trust company for the benefit of the trust company and to complainant’s disadvantage, viz., that the proceeds of the discount of these notes should not be drawn pending the maturity of the notes, and that upon the failure of the makers to pay a.t maturity, the notes should be charged to complainant’s account.

The objection is made that this special agreement as to the deposits was not formally approved by the executive committee or board, and was not therefore binding on the trust company. Had the agreement been one which in the ordinary course of carrying on its business imposed a burden on the trust company, the objection might have some weight, but the agreement was one for the benefit of the trust company, viz., the securing or arranging security for the payment of notes discounted, and this would seem to be within the ordinary power of the treasurer, who was the active manager (so long as illegal security was not t.aken), and the formal approval of the board was either not required or would be assumed. But being acted on by the trust company, who have had the benefit of it for two and a half years against the complainant, neither the trust company nor the liquidator in insolvency can now repudiate it, to the complainant’s disadvantage.

A decree for complainant will be advised.

The case is disposed of under the equitable jurisdiction based on the right to require security .agreed to be held for the payment of debts qr obligations to be applied for the purpose, or accounted for, and without considering the mere question of right of set-off, a right not purely equitable in its character. This question was raised at the argument, but not by the pleadings or on the record, and it is a question which appears to be purely a legal question and for the courts of law. It is one upon which courts of law, especially in late decisions, have differed, and it is not now considered.


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    Anton F. Muller v. Charles Brautigan.
    [Decided July 1st, 1915.]
    1. Where a contract for the sale of land was defective as uncertain in reference to the description of the lands to be conveyed, specific performance according to its terms could not be granted.
    2. Where the answer, signed by defendant’s solicitor, in a suit for the specific performance of an oral contract for the sale of realty, admitted such contract, and did not claim the benefit of the statute of frauds, such answer was a sufficient writing or memorandum to satisfy the statute.
    3. Where the original contract for the sale of realty extended credit to the purchaser, and where a substituted agreement, to correct the defective description of the land in the first contract, whereby the seller agreed to accept the desóription as corrected by the buyer, and to convey without mutually beneficial restrictions which had been considered between the parties, the premises being adapted to and held for building and residential improvements, was made in consideration of the agreement of the buyer to pay the balance of the purchase price in cash, and the expectation induced by his statement that he expected to build without delay in a manner within the proposed restrictions, the time of payment was of the essence of the substituted contract, and the buyer’s refusal to pay upon tender of the deed, claiming a credit extension similar to that under the original contract, which he still claimed at the hearing of his suit for specific performance, precluded him from maintaining such suit.
    Heard on bill, answer, replication and proofs.

      Mr. Charles Hood, for the complainant.

      Messrs. Wolber & Blake, for the defendant.
   Emery, V. C.

The original contract signed by the complainant and defendant is the only contract in writing binding both parties under the statute of frauds. This contract is defective or uncertain in reference to the description of the lands to be conveyed, and its specific performance according to its terms would therefore not be equitable and could not be granted. The description was afterwards corrected by oral agreement between the parties, and the description to be inserted in the deed in lieu of the description in the written agreement was orally agreed on between the parties. The only written evidence of the agreement set up in the bill, and of which specific performance is sought, viz., the agreement to convey by the corrected description, is the defendant’s answer in this casq. This answer admits the subsequent oral agreement to convey by the corrected description set out in the bill, and without any restrictions, but says that this agreement was made after subsequent negotiations, including the matter of restrictions not contained in the original agreement, and was in consideration of the agreement of complainant to pay defendant $1,700, the entire balance of the purchase-money, upon the delivery of the deed. At the time of this subsequent parol agreement, the time of credit fixed by the original contract had expired. At the time of signing the original contract $150 was paid on account of the purchase price, but no possession of the premises was given. Under the statute of frauds the answer, signed by defendant’s solicitor, may be taken as a sufficient writing or memorandum, and if, as in this case, the benefit of the statute is not claimed by the answer, the agreement, as evidenced by the answer, may be enforced. Gough v. Williamson, 62 N. J. Eq. 526.

But the only contract which can be enforced against defendant is the contract of which written evidence exists, i. e., an immediate cash payment to be made for a conveyance without restrictions. The evidence shows that the defendant was ready to convey on July 18th, 1911, when the parties met for the purpose, on receiving this cash payment. The complainant, however, declined to pay cash, but insisted on the same extension of credit for the unpaid purchase-money as had been provided by the original agreement of February 21st, 1910. Defendant also proves satisfactorily, I think, that pending the subsequent negotiations, restrictions had been considered between the parties, which would have been mutually beneficial, in case complainant erected a residence, and that the final agreement,on defendant’s part to accept the description as corrected by complainant, and to convey without restrictions, .was based on the cash payment of the balance of-the purchase-money, and the expectation induced by complainant’s statement, that he desired and expected to build without delay, in a manner within the proposed restrictions. By this express agreement for immediate payment, made under these circumstances, the time of payment became of the essence of the contract for conveyance, and under the answer as evidencing the agreement, and the circumstances proved, I think the case was one where the condition as to cash payment should have been complied with, and the cash should have been then paid or tendered. The complainant, after this refusal to pay cash, subsequently claimed right to performance without offer to pay cash, and claimed a credit extension similar to that under the original contract, and still claims it at the hearing. The contract concerns premises adapted to and held for building and residential improvements, and, in my judgment, the complainant is not now equitably entitled to the performance of the subsequent oral agreement, inasmuch as he did not comply, or offer to comply, with the terms upon which it was granted.


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    William S. Ketcham, Jr., v. George W. Ketcham, administrator of William S. Ketcham, Sr., et al.
    [Decided June 17th, 1915.]
    1. The intestate, who was plaintiff’s father, made considerable advances to a lumber dealer, and, being unable to collect, a corporation was formed, and the dealer transferred his stock of lumber to the corporation. The stock was worth about $8,200, and forty shares each were issued to complainant and the intestate. Subsequently it was claimed that the corporation had not been completed according to law, and complainant took possession of the property as custodian. He sold it and lent the proceeds to the intestate, who gave him a note which was intended to protect complainant in case the creditors of the corporation and of the lumber dealer established claims against him. The intestate died, and the note was presented as a claim against his estate. Defendant, the administrator, made objections to the claim to its full amount, and, the claim being a matter of discussion under a partial distribution, the administrator and heirs agreed to complainant’s statement that the note was given him as security against any loss which he might suffer in suits by the receiver of the insolvent corporation who was seeking to charge stockholders for the benefit of corporate creditors and in suits by creditors of the lumber dealer. — Beld, that under ordinary circumstances such agreement estopped defendant from relying on the statute of limitations, and also estopped complainant from asserting he was entitled to the full amount of the note.
    2. In such case, as deceased had a good claim against the lumber dealer and the lending of the assets of the corporation was not a mere attempt to appropriate such assets to the exclusion of others entitled, the parties are entitled to the aid of a court of equity by enjoining any plea of limitations, and are not to be left to their strictly legal remedies.
    3. In such case, as complainant had paid the assessments levied against him as a stockholder and discharged pro rata the corporate debts, he should, to obtain equitable relief, sue for the benefit of the corporate receiver, and upon collection of the amount of the note he will be reimbursed for his expenditures and the rights of the several stockholders will be adjudicated; the mere payment of his proportion of the debts not giving complainant the right to sue directly for his own benefit.
    Heard on bill, answer, replication and proofs.

      Mr. Jerome T. Congleton, for the complainant.

      Mr. Scott German, for the defendant.
   Emery, V. C.

Complainant, William S. Ketcham, Jr., on December 28th, 1908, brought suit against George W. Ketcham as administrator of the estate of their father, William S. Ketcham, Sr., upon a note given by the intestate to complainant for $6,666.64, dated August 6th, 1895, payable to the order of complainant with interest on demand. William S. Ketcham, Sr., died September 25th, 1896, and on October 20th, 1896, the administrator took out the usual rule to limit creditors, upon which an order barring creditors was entered July 21st, 1897. Complainant presented to the administrator a claim upon this note, dated and sworn to on July 20th, 1897, and claiming the entire amount, with interest, as due to him from his father’s estate. One plea in the suit at law was that the claim was not presented within the time limited and was therefore barred. Another plea was that of the statute of limitations, and that the causes of action did not accrue within six years before the commencement of the suit (December 20th, 1908). To this plea the complainant as plaintiff replied:

First, that the cause of action did accrue within the six years, and second, that the defendant, on July 20th, 1897, being indebted to complainant on this note, by memorandum, in writing, then signed, promised to pay the moneys due on it

“when plaintiff should be compelled to pay any sum of money by reason of a certain subscription to the capital stock of the Clinton Hill Lumber and Manufacturing Company, which plaintiff had entered into at the request of the intestate, as his agent,”

and that within six years before the suit he had been compelled to pay “a large sum of money,” and therefore plaintiff claimed judgment. The judgment claimed was apparently for the whole amount of the note, and not merely to the extent of the amount plaintiff was compelled to pay, the claim being, apparently, that, on the contingency of the payment named, whenever it might be, the administrator’s promise was to be treated as a promise to pay the entire amount, of the note. The administrator denied the subsequent promise. , On the trial, the plaintiff, as proof of the subsequent promise in writing by the administrator, produced a letter signed by the administrator, dated July 21st, 1897, relating to the claim, as presented under oath, objecting that this amount was not truly owing. This letter is set out in full in the bill, and states substantially that plaintiff’s claim should be stated differently, and as being a claim only in case plaintiff was obliged to pay any demand that might be made against him personally by creditors of one Holloway, and also suggesting a form of claim to be put in. On the trial at law the circuit court judge left to the jury the construction of this document and the determination of the question whether it amounted to a new promise by the administrator. Under these instructions, the jury returned a verdict for the plaintiff on this issue of subsequent 'promise, and upon the other issues joined, and for the whole amount of the note, with interest, being then $12,510.33. The amount paid by plaintiff on account of his liability on the claims of the Holloway creditors was, however, only $3,658.99, paid in or about July, 1906. This was proved in the suit at law.. On application for new trial before another circuit judge, this verdict was set aside upon the ground that the construction of the letter or memorandum as being a subsequent promise of the administrator, in writing, was for the court, not the jury, and that error was committed in leaving this question of construction of the instrument to the jury, Circuit Judge Adams saying, that the defendant was, as his substantial right, entitled to the decision by the court, and of this construction as a legal question, and was therefore-entitled to a new trial, even though the jury might have, in his opinion (as lie expressed it to be), properly construed the instrument. Upon the new trial being directed, the plaintiff filed this bill to enjoin the defendant from setting up the statute of limitations, -and other matters and dealings between the complainant and the defendant as administrator relating to the claim which had been put in and his claim for indemnification against liability as subscriber or stockholder of the Clinton Hill Lumber and Manufactoring Company, have been set up and proved at length. At the hearing, and on the proofs complainant claims to 'be entitled to further prosecute the suit at law, asking aid from this court only to enjoin the defence of the statute of limitations, and that this equitable relief should be granted, leaving the plaintiff then in position to prosecute at law the claim against his father’s estate upon the note and as for the entire amount. This was the claim and its extent as prosecuted by complainant for his own benefit on the trial, and for this he obtained a verdict on a claim as legally entirely due to him and payable from the estate.

On the hearing of this cause the evidence took a very wide range, embracing the series of litigations referred to in the bill, extending from 1893 to 1908, together with the records in these suits and proceedings.

The facts, so far as they bear upon the question as to complainant’s right to the special equitable relief, which he prays, or to his status for any equitable relief of any kind upon his claim, are substantially as follows:

A company, called the Clinton Hill Lumber and Manufacturing Company, was organized in January, 1893, for the purpose (among other things) of taking over the stock of lumber of one Holloway and carrying on the lumber business. All or most of the capital for the business of Holloway had been furnished by or on the credit of William S. Ketcham, Sr., and one object which the Ketchams and Holloway had in view in the organization of the company to take over .the business, was to pay or secure this indebtedness of Holloway to William S. Ketcham, Sr. By bill of sale dated January 23d, 1893, Holloway transferred this lumber and other property to the company, the lumber in the transfer being valued at least $8,200, and full-paid shares for that amount were issued to the three Ketchams, decedent and complainant each receiving forty shares and George W. Ketcham two shares. They had subscribed, respectively, for one hundred shares, one hundred shares and five shares, but no further shares than the eighty-two shares were issued to any persons, nor was any further money paid in. The lumber, after this transfer to the company, was in the actual custody of complainant, who was one of its directors and officers.

Subsequently, all of the Ketchams claimed that the incorporation had not been completed according to law, and, under a resolution of directors of the company on February 6th, 1893, complainant was appointed, with one Camfield, custodian of the property. Camfield did not act. The company not going on with its business, later on Holloway himself claimed the property; decedent also claimed an interest in it, under claims against Holloway, and Holloway’s creditors claimed it from the Clinton Hill company by the suit above referred to, which was commenced on March 16th, 1893. Complainant now says he thought it well to sell the lumber and saw no harm in loaning the ¡proceeds of sale to his father and taking his note. By arrangement between the three Ketchams, the property was to be sold and disposed of by complainant for the benefit of decedent, and this was actually done shortly after. The complainant sold the lumber and applied the proceeds, $6,666.84, to the use of the decedent, except about $250. All of these appropriations had been made, as appears by complainant’s statement and letter of December 20th, 1900 (Exhibit D3), between April 18th, 1893, and April 10th, 1895, and before the giving of the note in question. As to the consideration and circumstances of giving the note, the complainant’s further statement in his answers to interrogatories in this suit is, “that my father executed and delivered to me the note in question to secure the moneys which I had received from the sale of the lumber and loaned to him.”

The suit in chancery commenced March 16th, 1893, was brought by judgment creditors of Holloway (including the Cumberland Lumber Company) to set aside this bill of sale and transfer to the Clinton Hill lumber company, and it was set aside as a fraud on these creditors by decree November 14th, 1893, affirmed on appeal, 52 N. J. Eq. 576 (1894). To this suit William S. Ketcham, Sr., was a party, and a receiver was appointed to take possession of the property of the Clinton Hill lumber company to satisfy the debts decreed to be paid. A further decree was entered in the suit on April 1st, 1895, that the receiver be directed to commence suit against the company and William S. Ketcham, Sr., to recover the property or its proceeds of sale. This suit was commenced on May 13th, 1895, against the company as an insolvent corporation, and Mr. T. N. McCarter, Jr., was appointed receiver. On June 17th, 1895, the receiver applied for an order for assessing stockholders for unpaid subscriptions to stock, needed to pay the debts proved, amounting then only to $3,359.01. To this proceeding William S. Ketcham, Sr., the complainant, and George W. Ketcham, were parties, and .they appeared and answered the petition on June 22d, 1895. Pending these proceedings, and before any order therein, the note in question was given, and this note was for an amount much more than sufficient to pay all the debts proved against the insolvent company, and, if applied for that purpose, to have relieved all the stockholders from assessment. The existence of this note was not disclosed pending this proceeding, but these three stockholders united in resisting the making of the assessment. An order for assessment was made on November 7th, 1895, but this was subsequently reversed as irregularly made by a decree on appeal in 1899. In the meantime, and on September 25th, 1896, William S. Ketcham, Sr., died, and George W. Ketcham was appointed administrator. Subsequently, a new application for assessment was made on November 9th, 1899, and an assessment was directed on June 9th, 1903, to pay the sum of $6,344.97, with interest. The making of this assessment was contested by the complainant and the defendant George W. Ketcham, as administrator and in diva dually, and, among other grounds set up, was the claim that suit should be first brought against the estate of William S. Ketcham, Sr., to recover the value or the proceeds of sale of the property in question, but the existence of this note, which equitably belonged to the company, was not disclosed to the receiver or to the court by the complainant or any of the respondents. All of the. stockholders assessed, including complainant, resisted the payment of the assessments in suits at law brought for their collection, but, after long litigation, the complainant on or about July 20th, 1906, paid $3,658.99, tire amount due on his assessment.

In the meantime, and after the first irregular assessment, and before the second, and after the death of William S. Ketcham, Sr., complainant, on July 20th, 1897, presented to his brother George, the administrator, a sworn claim on this note, claiming the whole amount thereof as due to him from the estate, and upon his brother objecting by letter of July 21st, 1897, to receiving this claim as an absolute claim, and that there was then no such claim; and further, that the claim should have been stated as to be pressed only in case he was forced to pay an illegal demand in the Holloway case, or any portion of it,- suggested a form of claim to be put in. This letter is the letter referred to in the law suit by plaintiff as the memorandum of July 20th, 1897, and is relied on as the written promise of the administrator, saving the statute of limitations. Following this suggestion complainant put in another claim (not under oath), or rather made a written statement, dated July 22d, 1897, that his claim on this note having been presented to the estate for payment,

“it is presented on the following conditions, viz.:
“1st. No payment is demanded except in the contingency of any 'loss or payment being demanded of me, by reason of my relations to the Clinton Hill Humber and Manufacturing Co.;
2d. No payment of said note to b^ demanded in case said estate shall otherwise guarantee me, against any loss or payment by reason of connection with said company.”

No objection was made to the claim as thus presented. In December, 1900, a distribution of the estate was desired, and the pending claim of the complainant preventing this, further correspondence took place between the brothers in reference to the status of this claim, in the course of which the administrator suggested a statement (Exhibit C 8) that the note represented sales of lumber turned over to their father by Holloway, made by complainant as agent of his father, and the proceeds of which sales were applied to payment of notes loaned by their father to Holloway as they came due, and that as during the disposal of the lumber the father had been served with papers in several suits, and complainant’s connection with the sale which was merely that of agent and at the request of his father, might render him liable to suit for the value of the lumber, his father agreed to secure him against any loss resulting to him personally, and so gave the note. Complainant declined to accept this statement as explaining all the facts and gave a counter statement signed by him December 22d, 1900, stating that the note was given to him as security against any loss in suits referred to, being suits pending in chancery or that might be brought against him by reason of his connection with the Clinton Hill lumber company, and further agreeing that on being released from all claims that might be adjudged against him by reason of these suits, that he would destroy the note, and no payment should be demanded.

A partial distribution of the estate was made after the receipt of this statement, which, as will be observed, was about four years after the intestate’s death, and while proceedings upon the second assessment against complainant and the estate were pending. Had the complainant in those proceedings disclosed in his own defence the existence of this note held by him against his father’s estate for the proceeds Of sale of' the company’s property, and tendered it to the receiver, who was entitled to it, the receiver would, I think, have been entitled to have affirmed the sale of the assets and to have collected it, to the extent needed, and complainant would at once have been relieved from liability. In these proceedings, which were commenced in November, 1899, complainant and the administrator and George W. Ketcham were all parties, and complainant was allowed payment to the extent of forty per cent, upon his stock subscribed for by reason of the company’s ownership of this property as transferred to it by Holloway. It was objected in these proceedings that the receiver had a claim against the estate of decedent for the conversion of these chattels to his own use, and that this right of action should be exhausted before an assessment could be made. But this objection was overruled upon the ground that, as the case then appeared upon the evidence, this claim, so far from being admitted, was disputed by the estate, and the receiver had no assets for its prosecution (64 N. J. Eq. 520), and it was then further said that the stockholders paying the assessment might be entitled to prosecute in the receiver’s name any claim against the decedent for the conversion. No disclosure was then made on behalf of complainant as to the true condition of affairs, viz., that complainant, as the custodian in charge of the company’s property, had sold the company’s property and loaned the proceeds to the decedent, taking for his protection decedent’s note for the amount of the loan. Had this been disclosed and the note been tendered to the receiver as part of the assets of the company, the assessments would probably not have been directed, as this subsequent production of assets sufficient to pay the debts would have' barred the proceedings. And this seems to have been the complainant’s own view of his silence on this point, for in a letter to his brother of December 8th, 1907 (Exhibit D 1) , he says:

“I was elected treasurer of the C. H. L. Co. and later when it was about determined not to proceed with the company I was elected custodian (Camfield resigning) of the property of the Co. — here I was legally in possession of the same. I sold the goods and banked the proceeds and at father’s request loaned him the money by paying some of his outstanding notes, &c. In return and as security for his loan I received his note,”

and in the postscript:

“You forgot to see what the outcome might have been had I turned over to the receiver the note and let him collect it, but I worked with all the rest to have the matter settled by the court first as to the rightful owner.”

In the proceedings for assessment the "rightful owner” of the property was held to be the company, and the complainant was given the benefit of this ownership by treating his forty shares as paid.

I do not think the conclusion can be resisted that it was the intention of all of the parties not to disclose the existence of this note to the receiver, but to suppress all information as to it, and in -the meanwhile to resist to the utmost the collection of the assessments upon their stock to pay the company’s debts, which was the only other source for payment. The assessment was directed by decree on June 9th, 1903, from which a joint appeal was taken by complainant and the administrator. In September, 1903, action was brought against complainant by the receiver to recover his assessment, upon which judgment was obtained and affirmed by the court of errors and appeals November, 1905. On December 26th, 1905, an appeal was taken from the order of June 9th, 1903, which was dismissed, and after this dismissal and about July 24th, 1906, the complainant’s assessment was paid to the receiver. Litigation upon the suit by the receiver against the decedent’s estate for the recovery of his assessment was pending in the meantime and continued until about 1908. A subsequent application was made to this court 'On behalf of the administrator to modify the order for assessment against the decedent, on the ground that the whole value of the property transferred should have been applied toward payment of the subscription on his stock alone, and in the course of these proceedings complainant notified the administrator by letter of May 5th, 1909, that he thought he would be the principal witness, if evidence was taken on the application, and that the position he would assume would depend upon how the case was to be fought, and that he was intending to protect his individual rights so far as that is consistent with the facts in the case — the modification, if allowed, would be a second assessment on himself and his brother and the whole burden practically on him. He then insists on his claim against the estate (on the note) and that the estate would finally have to pay the whole bill for both assessments. Complainant at this time was insisting upon the estate indemnifying him for his assessment, and claiming that the note was given as security against this claim also and was not merely held to secure him against claim for the property sold. The administrator, on the other hand, claimed that he had no right to pay the complainant’s assessment from the estate, and that the note was given only to secure complainant in case he should be held personally liable for the proceeds of sale. There is no question that the estate paid the entire expenses of the litigation in reference to all these assessments, and the whole course of proceedings shows that all parties intended that complainant’s assistance in de-' fending these proceedings for assessment should be accomplished with the concealment or suppression on his part, as well as of the respondents', of the existence of this note until the receiver’s litigation was terminated. On this termination complainant, not being able to bring about the payment of his assessment by the administrator, who conceived that he had no right to pay it, commenced suit on the note, and in his suit claimed the entire amount thereof, with interest, as belonging to himself. In the suit at law the entire amount of the note was apparently treated as due to the complainant from his father’s estate, and the conditional promise to pay, in case plaintiff was held liable on the Holloway claim, set up against the administrator, was treated at law as a promise to pay the entire amount on the happening of the condition, and not limited to the amount plaintiff was obliged to pay, as being the true consideration of the note as between the parties thereto.

Upon the partial distribution of the decedent’s estate, made in December, 1900, above referred to, the status of complainant’s claim was a matter of discussion between him and the administrator and other persons interested, and such partial distribution was made after complainant had made and signed a statement relating thereto, dated December 22d, 1900, that the note had been given him as security against any loss in the suits therein 'referred to, being suits then pending in the court of chancery, or that might be brought against complainant by reason of his connection with the Clinton Hill Lumber and Manufacturing Company, and that on being released by the heirs from claims that might be adjudged against him by reason of these suits, he would destroy the note so that no payment shall be demanded on the same (Exhibit C 7). This statement was accepted as satisfactory for-the purposes of the division, as appears by the administrator’s letter of May 5th, 1903 (Exhibit D 9), in which, referring to the division, he says that before division he wanted it put down in black and white that complainant’s paper (the note) was for use only in the contingency of a judgment and, further, “that complainant did this all right.”

This statement was made in December, 1900, and before the statute had began to run, and the plain purpose of the offer and of its acceptance was that of delaying the consideration or settlement between the parties of any claim of complainant’s upon the note until the termination of the litigations referred to. The commencement of a suit thereon, a.t any time before such termination, would or might have required the question of settlement of Ms claim to be taken up at once, and, for obvious reasons, neither party desired such suit pending the contest with the receiver on the assessments. The object of both parties was to resist the collection of the assessments and also hold in addition the proceeds of sale for the benefit of decedent’s estate in which they were all interested. And the procuring and acceptance of this statement, which had and was intended to have the effect of delaying any action or other proceeding on the note until the termination of the proceedings, would, under ordinary circumstances, have the effect of estopping defendant from pleading the running of the statute against suit on the note before complainant had been obliged to pay. Had it been intended that the complainant should be required to admit in writing that tire note was held not for its face value, as an existing debt, but only as security for a contingent liability, and that after having obtained this acknowledgment, the complainant was still expected to sue on the note before it became outlawed, in order to have the benefit of it as security, he was entitled to have been so informed at the time, in order that he might bring his suit in time. The statute had then more than two years to run, and had this necessity of a suit on it within that time, to protect complainant’s rights to the claim as security, been contemplated by the administrator, the complainant should have been notified. Such suit, if brought before the amount for which it was held as security had been determined, must have resulted in a judgment for the whole amount of the note, which would then have been held in lieu of the security, and might have been required to be paid into court, or otherwise held in trust pending the happening of the contingency and the determination of the amount for which the note was held as security. Otherwise, the complainant would be deprived of his security. Neither party to the statement or acceptance contemplated any such suit on the note, in my judgment, before complainant’s liability had been established, but at the time both understood that pending the litigation no such suit should be brought. If this was the understanding, defendant is estopped from setting up the running of the statute during the litigation.

By this statement and its acceptance, and the distribution following thereon, the complainant also on his part was equitably estopped from claiming in any suit on the note, or on his claim more than the amount for which the note was held as security, and his recovery in the suit at law for his own benefit further than this was such a violation of tire equitable rights of the administrator, as would disentitle complainant to any purely equitable relief to aid him in his suit on the note, if the further prosecution of the suit related merely to his own rights or property. But the note in his hands is the security or evidence of debt taken on the loan of funds held by him as agent of and in trust for the company, and the equitable rights of all the parties to this suit are based on that ultimate fact.

On the whole evidence as now presented, the ease in equity stands thus: The consideration of the note in question was money of the company loaned to decedent, without authority, by complainant, who had this money in his possession as derived from sales of the property of the company, and in equity any recovery upon this note is for the benefit of the company, or the successors to its rights; legally and equitably, the receiver in insolvency has so succeeded; and (the creditors having been paid in full) the receiver would hold the funds if received by him for the benefit of all the stockholders of the company and for distribution among these stockholders in proportion to their respective interests therein. In such distribution, as it now strikes me, stockholders should be equalized, and those stockholders who have paid their stock subscriptions to the receiver are entitled to have these payments for the company debts refunded proportionately, before any distribution to other stockholders who have not paid. On further consideration these payments of assessments do not now seem to me to be payment of the company’s debts by stockholders who stand simply in the relation of sureties to the company, as I formerly 'suggested in the opinion above referred to. 64 N. J. Eq. 520. And the reason is that these stockholders’ payments are made to and recoverable Irv the receiver as being purely assets of the company, which the receiver recovers as such assets and applies to the payment of its debts, as assets received from any other source would be applied. The equities of the stockholders to reimbursement must therefore, as it now strikes me, be worked out by a preference over the other stockholders on the whole equities between the stockholders, as they stand at distribution of its assets after payment of debts, rather than by a supposed immediate right of subrogation for the definite amount paid as surety and recoverable at once from the company as principal debtor, or its successors in title, without regard to the equities between the stockholders. The practical difference between the theories in the working out of the equities lies in this, that if the equity arises from the subrogation of a surety who has paid the principal’s debts, then the complainant may upon payment have at once an individual action at law or in equity against a co-surety for contribution, and recovery is limited to a proportionate share of the amount paid, and may also as a surety make individual claim in equity against a co-surety for the benefit of securities or assets of the company held by the co-surety for the common benefit of all sureties. This latter claim would be worked out in a suit between all persons interested in the securities as parties. On the other hand, if the equities between stockholders -paying assessments for debts are to be worked out by distribution of the company’s assets between stockholders, then the whole amount to which the company, or the receiver, its successor in title, are entitled, must be paid to the receiver as company assets, and the equities then adjusted between the stockholders on distribution.

In this case the complainant, except to hold the proceeds for the benefit of the receiver as representing the stockholders, has no equitable right to the recovery upon this note, and for the purpose of prosecuting this note merely to recover the whole amount for his individual benefit, as he has hitherto done, he is entitled to no equitable aid of any kind, by injunction or otherwise. An equitable remedy will not be granted where the complainant’s fundamental claim is inequitable. Minzesheimer v. Doolittle (Court of Errors and Appeals, 1899), 60 N. J. Eq. 394, 398.

But this suit, although brought in complainant’s own name, and, as it appears from his letters before bringing the same, brought for his own personal benefit, to recover the full amount, can now, as it seems to me, be dealt with on the basis of the equitable rights of all the persons interested in the fund, which the note represents, and on the line above indicated, viz., as an action requiring all parties to treat it as. brought for the benefit and irse of the receiver for the recovery of assets of the company, and brought upon a note which from its inception belonged to the company as part of its assets, and not to the complainant. And if, in the bringing of the suit at law, complainant had described himself as suing “to the use of the company,” or the receiver, there would be no question, in my judgment, that the receiver or the complainant as suing for him, upon the evidence at this hearing, would be entitled to enjoin setting up the statute of limitations. The conclusion cannot be resisted that both complainant and defendant in the whole course of the litigation relating to the assessment from June, 1895, before the note was given, until 1906, when the assessments were collected, intentionally joined in the suppression of the existence of this note to which the receiver all the while was entitled, and to which he is now entitled. And I think it further appears that it was the intention of both complainant and the defendant, as administrator, with the consent of the other parties interested, that a determination or settlement as between complainant and the estate, of the claim made on this note, should not be made by suit thereon or otherwise pending the litigation on the assessments. The expense of this litigation was in the meanwhile borne by the estate upon all the assessments, including complainant’s. If, therefore, the receiver himself were now suing on this note for the recovery of money needed to pay debts, and the statute of limitations were pleaded, a case appears entitling him to such injunction. As the money, if recoverable in the suit, is, however, for distribution among stockholders onfy, a point of difficulty arises, because the complainant and the defendant being the only stockholders who have paid assessments, had previously thereto, and with notice of the claim on them for assessments, arranged a disposition of all the company’s assets (being money in complainant’s hands from sales of its property) between complainant and decedent, by which arrangement decedent was to receive the money and complainant to secure him on the making of the loan was to receive an individual note to himself for tire whole amount, which note was not to be turned over to the receiver, but to be held pending the litigation. The question now is, whether both these parties, complainant and the administrator, both as to the defences on the note 'and as to the amount recoverable thereon at law, should not be left in the position in which they have voluntarily put themselves, and be remitted to their legal rights, both as to the recovery on the note and the defences thereto. And if it were a matter of intentional fraudulent misappropriation of the company’s funds for their individual benefit, by the loan of its money, and there were no other persons interested, the case would clearly be one, I think, for the refusal of any equitable relief to complainant, against any legal defence, and on the same ground, it might, in case of a recovery of the whole amount for complainant’s own personal benefit, bar defendant’s right to any equitable relief. But, on the whole situation and circumstances relating to the original bona fide claims of the decedent against Holloway, the transfer of the lumber by Holloway to the company, its incorporation and subsequent abandonment and disposal of its property, and the disposition of the proceeds to pay debts incurred by decedent for Holloway, I am satisfied that the appropriation of the company’s money for decedent’s benefit was not in the nature of actual fraudulent misappropriation, but was made under a bona fide claim that there was not in fact a legal corporation, and that decedent had substantial claims on the property and its proceeds for the payment of his claims against Holloway, and that the note was originally given to protect complainant, if he should be held liable for the loan. And, if this be correct, I see no reason why the complainant,'if he be now willing from this time forward to prosecute his suit on the note as brought, to the use and for the benefit of the receiver, should not now have appropriate equitable relief against the plea of the statute.

I conclude, therefore, that the complainant is entitled to an injunction against setting up the statute of limitations as prayed, but only upon the conditions that the suit at law be continued as being to the use of the receiver, and that any moneys recovered therein be paid to the receiver as assets of the insolvent corporation, for payment of distribution under the order of this court. The form in which these conditions should be drawn will lie settled on notice, and I will also then hear counsel as to the making of any other conditions of relief to be imposed on complainant, and also as .to what further order or direction, if any, should be given, to meet the contingency that the complainant declines to accept the conditions, and elects to proceed with the suit at law standing on any alleged legal rights upon the note, as between him and the administrator, to recover the whole amount for his own benefit.


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    Mary J. Craig et al. v. Deborah Smith et al.
    [Decided July 13th, 1915.]
    1. As to unpaid taxes, a purchaser of land at judicial sale can be protected by deduction from the purchase-money.
    2. Until the birth of issue the husband of a woman owning land has no estate by the curtesy initiate.
    3. Under Partition act of 1846 (3 Comp. Stat. 1910 p. 3910 § 44), providing that the court of chancery shall have power to decree the sale of land for partition, the inchoate rights of dower of wives of tenants in common made parties to the suit, as well as any rights of the husbands of the tenants in common, who were also parties, are barred by a sale made under an order requiring the master to execute a convenance operating as a bar to the rights of all persons.
    4. Where a master appointed to sell land for partition failed to advertise and give notice of the sale in the county where part of the lands were situated, the purchaser cannot be required to comply with his bid, the power of the master being only that obtained by strict compliance with the statute.

      5. Act of 1906 (4 Comp. Stat. 1910 p. 4686 § 85) gives a purchaser of land at judicial sale the right to object to any defect which would render title unmarketable.
    6. Act February 16th, 1891 (P. L. 1891 p. 24), provides that sales of land made by virtue of an order of court shall be confirmed notwithstanding irregularity in the publication of the advertisement, provided the court be satisfied by affidavit that the- defect or irregularity was not injurious to the parties in interest. A tract of land ordered sold for partition was located in two counties, but advertisement was published in only one county. The portion lying in the other county consisted of about one acre which was wholly occupied by a canal. — Held, that act of 1891 was not repealed because not included in the compiled statutes, and hence the master who sold the land under the defective advertisement could petition under the act to require the purchaser to complete his purchase, the defect in advertisement not being prejudicial.
    On application by special master to compel purchaser at public sale to carry out contract of sale.

      Mr. Joseph M. Roseberry, for the petitioner.

      Mr. Carl Vogt, for the purchaser.
   Emery, V. C.

By a final decree in this suit for partition the special master was directed to sell the lands at public sale “and in all respects conduct the same according to the provisions of the statute in such case made and provided.” The lands to be sold were described in the decree as “situate in the township of Mt. Olive, in the county of Morris and State of New Jersey,” and as containing one hundred and eighty-three and twenty-three hundredths acres, a particular description by metes and bounds being given. The description of the lands in the decree followed that of the bill both as to location and contents. The master advertised the sale by advertisements duly put up in Morris county. No advertisements or notices were made or put up in Warren- county. In point of fact, part of the tract as described, containing about one acre, lies in the county of Warren, the boundary line between the counties crossing a portion of the farm. All of the tract, however, which is located in the county of Warren is occupied by the canal of the Morris Canal Company. The master’s advertisements of sale contained ho referente to this occupation of part of the lands by the canal company, or to the location of any part of the lands in Warren county.

By the conditions of sale, which were read before the sale, it was provided that the property described in the advertisement annexed

“will be sold subject to the confirmation by the court of chancery and subject to the right of way of Morris & Essex R. R. Co. and of Morris Canal and Banking Company and their lessees, and any right which they may have therein.”

These conditions were signed by the special master and the property was struck oil to respondent, John R. Mooney, as the purchaser, for $1,600. Mooney signed the conditions of sale, “I have bid off the property above described for the sum of $1,600 and agree to comply with the conditions of sale.” He also paid to the master $1,000. The sale of the lands as directed in the decree was reported by the master, to which was annexed the required oath that the property was sold by him at the highest and best price the same would then bring in cash, and on the 13th day of August, 1914, the sale was confirmed by order of the court and the master directed to deliver a deed to the purchaser upon his complying with the conditions of sale.

The purchaser failed to complete the purchase and applied by petition to be relieved from his bid upon the grounds (1) that the title was defective by reason of the failure to put up advertisements and notices of sale in Warren county; (2) because certain inchoate rights of dower and certain estates by the curtesy initiate, which' existed in the lands on filing the bill, were not by the decree expressly directed to be sold, and these estates and interests are therefore not cut off by the decree, and (3) that there are unpaid taxes which are on the property and of which no notice was given at the sale.

At a hearing upon the affidavits filed, this application was denied without prejudice. The master then filed a petition against the purchaser, to compel performance of the contract of sale, upon which the purchaser by answer raises the objections of defective title, under the sale, by reason of the failure to advertise the sale in Warren, county, and also by reason of the master’s making the sale at Hackettstown, Warren county. He also claims that he intended and expected to buy the whole tract of one hundred and eighty-three and twenty-three hundredths acres, without deductions “except as mentioned in the conditions of sale,” and that he would not have bought the lands if he had not supposed he was buying the part of the lands in Warren county as well as in Morris county. The answer does not renew the objections of defective title by reason of the inchoate estates of dower and curtesy initiate or of unpaid taxes. These objections are, however, raised in the brief for the purchaser, as is also the additional objection that under the act of 1906 (P. L. 1906 p. 269; 4 Comp. Stat. p. 4686 § 35) the exception from the sale of the rights of the canal company and railroad company should have been included in the advertisements and notices as well as in the conditions.

As to any unpaid taxes, the purchaser can be protected by a deduction from the purchase-money, and under the law of 1906, this is then no .ground for relief from his bid.

The objection as to the failure of the final decree to direct specially the sale of the inchoate estates in dower, or of the estates by the curtesy initiate, and of the advertisements and notices to specify these inchoate or initiate estates as sold is not, in my opinion, well founded. All of the supposed holders of these estates were parties defendant to the suit, were duly brought into court and decree pro confesso was duly taken against all of them in the interlocutory decree which directed a reference to a master to report as to the rights of all the parties. The master in settling the rights reported that the defendants, who were wives of the tenants in common, were entitled to inchoate estates in dower in the shares to which their husbands were respectively entitled; but did not report that the husbands of five of the tenants in common (and who were also defendants in the suit) were entitled to any interest in the lands. The evidence taken before the master shows nothing as to the birth of any children from these marriages, and therefore upon the record, which is all that the purchaser is concerned with, so far as the present object goes, none of them had apparently any interest in the lands. Doremus v. Paterson (Vice-Chancellor Stevens, 1904), 69 N. J. Eq. 188. The master’s report was made at the time and place fixed by the reference to him, and no objections having been made before or at that time, the report was confirmed by the final decree. The final decree also directed a sale of the lands under the twenty-sixth section of the Partition act of 1846 (Rev. Stat. p. 109), which is continued in the forty-fourth section of the Partition act of 1898. P. L. 1898 p. 660; 8 Comp. Stat. p. 3910. This act of 1846 provides that “the court of chancery shall have power upon bill filed in that court for the partition of real estate to decree the sale thereof.”

The special master making the sale was further directed to report the sale for confirmation, and upon confirmation to execute sufficient conveyance to the purchasers for the said real estate upon their complying with the conditions of sale, and the decree then further directed “that such conveyance duly executed be valid and effectual forever and operate as an effectual bar, both at law and in equity, against the said parties, complainant and defendant, and all persons claiming by, from or under them, or any of them.”

This c-lapse in the decree, which declares the effect of the conveyance as a bar, is, I take it, only an express declaration of an effect which, without any such declaration, impliedly and necessarily results from the decree for sale, and a conveyance thereunder, and has this result by reason of the express statutory power of the court to direct a sale upon a bill for partition. My present view, therefore, is that a deed from the master as directed by this decree for sale would bar all parties to the suit who were brought into court and were subject to decree.

As to the objection that the master’s failure to advertise and notice the sale in Warren county, I conclude this is fatal to an application to require the purchaser to receive a deed tendered under the present confirmation of sale. The master in making this sale was exercising a purely statutory power to pass the title of owners who do not themselves personally join either in the condition or agreements of sale, or in the conveyances of their title. The title depends therefore strictly upon the master’s execution of the power as directed. In Osborne v. Tunis (Chancellor Green, Court of Errors and Appeals, 1856), 25 N. J. Law 633, 662, it was said: “The execution of a power to sell lands by public officers must be in strict pursuance of the law, or no title is conveyed,” and a'deed was excluded because proof of advertisement was not made. The foundation of the purchaser’s title in this cause is the public notice and advertisement in the places required by the statute.

An objection to the sale based on the master’s failure to comply with the statutory directions for advertising or notice was valid on general principles, and, before the statute of 1906, a purchaser was not required to complete such sale. Rudderow v. Dudley (Court of Errors and Appeals, 1886), 41 N. J. Eq. 611. The statute of 1906 was intended to give the purchaser the benefit of objecting to those defects of title in the lands existing at the time of the sale, as to which he previously bought at his own risk.

As part of the land was admittedly in Warren county, and no advertisements or notices were made in this, county, the sale prima facie, at least, on the record, must appear to be a defective execution of the power, and not to pass title. And to complete proof of his title under a deed given upon this order of confirmation, the purchaser, if he relied on this deed, and it were then admitted or were proved, as it certainly could be, that portion of the land was located in Warren county, certainly could not sustain this deed as muniment of his title, without the further proof that the land in Warren county was altogether occupied by the canal company, and also that this title of the canal company to the unadvertised portion was a fee-simple. The order of confirmation in this case proceeded as upon a valid advertisement and did not operate to cure this defective execution of the power of sale by the master. So long therefore as the master stands upon the present order of confirmation of sale, the purchaser should not be compelled to take the title. Inasmuch, however, as the other objections do not now seem valid, the master majq if he desires, apply for a confirmation under the act of February 16th, 1891 (P. L. 1891 p. 24), relating to sales where the advertisements are defective. This act covers sales made after its passage, as I held in Polhemus v. Priscilla (1903), 54 Atl. Rep. 141, and Umbach v. Umbach (1914), 82 N. J. Eq. 427, and cannot be considered as repealed because of failure to include it in the compiled statutes. Umbach v. Umbach, supra.

Unless the sale is specially confirmed under the statute of 1891, and so long as his title would depend on the validity of a deed executed on the present sale and order of confirmation, the purchaser should not be required to take the deed and complete the purchase. If such confirmation under the act of 1891 should be allowed, this defect may be cured before the order to accept the deed. Umbach v. Umbach, supra.

The petition should therefore be denied, but without prejudice to such application within a time to be fixed.