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    Henry I. Dittman et al. v. The Distilling Company of America et al.
    [Filed March 28th, 1903.]
    1. Under Rev. L. of 1875 p. 6 § 10, providing that corporations may be organized for certain specified purposes, “or any lawful business or purpose whatsoever,” and Corporation act of 1896 (P. L. of 1896 p. 294 § 51), providing that corporations organized thereunder are authorized to hold shares of stock of any other corporation, a corporation created for the purpose of holding stock and controlling the operations of other corporations was organized for “a lawful purpose,” and was entitled to purchase and hold such stock.
    2. Where it was alleged that a corporation organized for the purpose of purchasing and holding stock in other corporations was illegal, as organized to create a monopoly, but such monopoly, if any existed, arose from the exercise of the powers conferred on the corporation by its charter or certificate of organization, such question could not be determined in a court of equity at the suit of a stockholder, but could only be considered on quo wmranto, on relation of the attorney-general, to oust the corporation from its franchises.
    3. Where it was alleged that a corporation authorized to purchase and hold stock in another corporation had created a monopoly, but such monopoly, if it existed, arose from the exercise of the corpora’tion’s power, expressly granted in its charter, to make contracts for the purchase of such stock, the exercise of such power could not be enjoined.
    4. Where certain property of a corporation which' was merged in another corporation, created for the purpose of holding and controlling the stock of such corporation' and others engaged in the same line of business, was mortgaged to secure bonds, which were thereafter pledged to- secure a loan on its becoming impossible to sell the bonds, which loan was negotiated to provide a working capital for all the constituent companies, and thereafter the holding company issued its own collateral bonds to raise money for the same purpose, a part of which had been loaned to the merged corporation as working capital, and on payment of which such corporation was entitled to a return of the bonds issued on security of the mortgage so executed, an allegation in a stockholders’ action that the assets of the merged corporation were being improperly diverted, by reason of such mortgage, for the benefit of the holding company, was not sustained.
    5. Where a corporation organized to hold and control the stock of other-corporations negotiated a loan tO' obtain a working capital for the corporations merged, one of the constituent companies, to which a portion of the money so raised was loaned, was properly charged with its proportion of the expenses incurred by the holding company in negotiating the loan.
    6. Where money was loaned by a corporation holding a majority of the stock of various constituent corporations to one of such companies, neither the latter company nor its stockholders, prior to the repayment of the debt, was entitled to allege that the holding company had illegally charged such company with usury, in the form of additional expenses incident to making a loan and interest thereon.
    7. Where, under an agreement between the holder of an option on certain distilling companies, which were to be sold to the K. company, the option-holder was entitled to apportion the consideration received from the K. company among the different grantors, and, under such reservation, a payment in cash and stock of the K. company was delivered to one of such grantors, such payment could not be questioned in a subsequent suit against a corporation into which the K. company was subsequently merged, on the ground that it constituted a misappropriation or a diversion of the K. company’s assets.
    8. Where a corporation was authorized to manufacture and sell whiskey and spirits, either at wholesale or retail, and to purchase the stocks of other corporations for such purpose, it had power to organize and hold the stocks of corporations in other states, through which it sold its manufactured product.
    9. In the absence of evidence to the contrary, it must be presumed that the laws of West Virginia are similar to the laws of New Jersey, so as to authorize a corporation formed in New Jersey to exercise in West Virginia the powers conferred upon it by its charter and the laws of New Jersey.
    10. Where a bill was brought against a corporation organized to hold and control the stock of other corporations to dissolve the same for illegality, and against the- corporations whose stock was so held, a requested amendment to the bill alleging' that complainants, as preferred stockholders of one of the constituent companies, were entitled to receive a stated quarterly dividend from the net profits of its business, and that such dividends had been accumulated, but not paid, and praying payment thereof, could not be allowed, since, as it affected but one of the parties to the suit, it would have rendered the bill multifarious.
    Heard on bill, amended bill, answer, replication and proofs.

      Mr. John 0. II. Pitney, Mr. Lindsay and Mr. Kremer (of the New York bar), for the complainants.

      Mr. Richard V. Lindabury, and Mr. Mayer (of the Chicago bar), and Messrs. Alexander & Gh'ee-n (of the New York bar), for the defendants.
   Emery, Y. C.

In this ease an original hill was filed August 17th, 1900; an amendment to the bill on March 6th, 1902, and on the argument, at the close of the proofs, an application for a further amendment to the bill was made. This application to amend is opposed. The issues raised upon the pleadings and proofs are substantially as follows: Complainants are owners and holders of preferred stock of the Kentucky Distilleries and Warehouse Company, organized under the laws of this state on February 3d, 1899. On July 11th, 1899, the Distilling Company, of America was organized, also under the laws of this state. Among the designated objects for which this latter company was formed was (Article Third (i)) the purchase and holding of the shares of stock or property of other corporations of this state or elsewhere, and the operation of such properties, exercising the rights of owners of the stock, including the right to vote thereon. Although one of the objects for which it was organized was to manufacture, sell and distribute whiskey and spirits, the distilling company has not, in fact, engaged in such manufacture or sale, but is altogether a company holding the stocks of several constituent companies, thus managing or controlling the business of all the companies. These constituent companies are five in number, all engaged in the manufacture, sale or distribution of whiskies or spirits. They are the Kentucky Distilleries and Warehouse Company, the Spirits Distributing Company, the Standard Distilling and Distributing Company, three companies organized under the laws of New Jersey; the American Spirits Manufacturing Company, organized under the laws of New York, and the Hannis Distilleries Company, organized under the laws of Maryland. All of these companies are parties-defendant to this suit, except the Hannis Distilleries Company. The distilling company is the owner of over ninety per cent, of the capital stock of each of these companies and of substantially all of the stock of the Hannis company. It became such owner by issuing its own shares for the purchase from the individual holders of the stock of the constituent companies, the relative values of the stock of the several companies and the amount of distilling company stock issued therefor being fixed by an agreement dated June 21st, 1899, called the “Deposit Agreement,” under which stockholders in each of these companies desiring to sell their stock deposited it with a trust company, through which the deliveries or exchanges were carried out upon the subsequent incorporation of the distilling company. Complainant and other stockholders of the Kentucky- company to the amount of about four thousand shares have not consented to exchange their preferred stock, but complainants have exchanged their common stock for like stock of the distilling companje

The grounds for relief set up in the original and amended bill which were relied on at the argument on final hearing may be classified as follows:

First. That the distilling company is not authorized, under its certificate of organization or rmder the laws of the State of Few Jersey, to purchase and hold the stock of the Kentucky company or the other constituent companies for the purpose of controlling their operation-

Second. That one of the objects of the organization of the distilling company and of the transfer to it of the controlling interest in the stock of the constituent companies was the creation of a monopoly in the manufacture and sale of spirits, alcohol and whiskies; that .such monopoly has been, in fact, created; that such monopoly is unlawful and renders the Kentucky company liable to the pains and penalties of the laws in restraint of monopoly and endangers its property.

Third. That the assets of the Kentucky coinpany have been unlawfully and improperly diverted for the benefit of the distilling company.

Fourth. That the directors of the Kentucky company have unlawfully diverted its assets and property, by the organization and management of subsidiary companies, to which the Kentucky company has conveyed portions of its assets in consideration of stock in the subsidiary companies.

In reference to the first question, the authority of the distilling company to hold the stock of the Kentucky company and of the other constituent companies, and to act merely as a holding or operating company, the status of our legislation and decisions is as follows: Previous to 1893, corporations organized under the General Corporation law [Revision of 1875] had no express statutory authority to purchase or hold the stock of other corporations or to vote thereon. This revision of 1875 (section 10) specified the numerous purposes for which corporations might be organized, adding at the end of the specified purposes “or any lawful business or purpose whatever.” In Ellerman v. Chicago Junction Railway Co., 4 Dick. Ch. Rep. 217 (Vice-Chancellor Green, 1891), it appeared that the junction company was incorporated to purchase, hold, sell, &c., and deal in the stock of a company called the transit company, incorporated under the laws of the State of Illinois, and also, in the promotion of its corporate business, to purchase the stock of any corporation, and in respect to it, exercise the rights and privileges of ownership. The stock of the transit company, to the extent of about one hundred and thirty thousand of the entire one hundred and thirty-two thousand shares, was purchased by the junction company for about $22,600,000, the money being raised by the issue of bonds of the junction company (secured by the transit stock purchased) and the sale of about $12,500,000 of the entire capital stock ($13,000,000) of the junction company. Ellerman, a stockholder of the junction company, filed a bill, attacking the validity of an agreement made by the junction company with Armour and others subsequent to the acquisition of his stock, one objection being that the company agreed to purchase the stock of a certain other company, the Tolleston company, a corpqration of the State of Hew Jersey. Vice-Chancellor Green held (at p. 245) that inasmuch as by its certificate of organization the corporate business-of the Junction company was to acquire and deal in stock of the Transit company, and to do anything authorized by its charter to increase the value of this stock, and inasmuch as the purchase of the Tolleston stock was shown to have been for the purpose of increasing the value of the Transit company’s business^ it was within the power contemplated by the charter certificate. The right of the Junction company to purchase and hold the shares of the Transit company, the principal object of the creation of the company, was not questioned in the Ellerman suit (opinion, p. 231), and the validity of. this purchase seems to have been, assumed by complainant as the basis of his own claim (opinion, p. 239) that the right to purchase stock was by the certificate limited to stock of the Transit company and could not be extended to the stock of the Tolleston company. In the subsequent suit brought by another stockholder of the Junction company (Willoughby v. Chicago Junction Railway Co., 5 Dick. Ch. Rep. 656 (October, 1892), attacking the validity of the same agreement which had been sustained in the Ellerman Case, complainant attacked the validity of the incorporation of the Junction company upon the ground that the purchase and holding of the stock of another company and the control of such company was invalid and contrary to law. The conclusiveness of' the decree in the Ellerman Case, affirming the validity 'of the agreement, was impeached by reason of the alleged collusive character of that suit. Unless so impeached, the court held the decree in the Ellerman suit to be conclusive upon this and other points involved. Vice-Chancellor Green (at pp. 675, 676) and Vice-Chancellor Van Fleet, who sat with him '(at p. 701), declined to consider the question of the right to organize a company for the purpose of holding stock of another company, upon the grounds (1) that as a rule such questions can only be presented by the attorney-general acting on behalf of the state; and (3)'that the failure to raise this question in the Ellerman suit (which was based on the validity of the incorporation) was certainly not evidence of collusion in the Ellerman suit. The decree in the Ellerman, suit was therefore held to be conclusive on the question as to all of the stockholders, as I understand .the opinion. After these decisions, and on March 14th, 1893, a supplement to the Corporation act was passed (P. L. of 1893 p. 301) authorizing corporations organized under the act to purchase and hold shares of stock of any other corporation of this or any other state, and to exercise while such owners all the powers, including the right to vote thereon, which natural persons, as owners, could exercise. This provision was included in the revision of 1896 as section 51 of the Corporation act, and is the law now in force. In this revision of 1896 the previous Corporation act was repealed, the specification of the purposes of incorporation made in the previous acts was omitted, and incorporation was authorized “for any lawful purpose or purposes whatever other than savings banks,” and other specified purposes, such as railroads, canals, &c., not important for present purposes.

The ownership of stock and control of corporations by means of such ownership by either an individual or partnership is in general a lawful act, and the organization of a partnership for the purpose of such ownership and control, either alone or in connection with other objects, is unquestionably a lawful object or purpose of association of individuals. The only theory upon which the formation of corporations for the purpose of holding stock of other corporations can be held not to be a “lawful purpose,” within the meaning of the act, is that an authority to own the stock and control the management of other corporations must be given expressly and in terms in the section authorizing the formation of companies in order to be lawful. This power to own and control stock of other corporations is expressly given, by a subsequent section, to all corporations when organized, and to the same extent as individuals; such ownership of stock is therefore a lawful act. This legislative declaration as to the lawfulness of the ownership of stock by corporations precludes the courts, as it seems to me, from declaring that such ownership cannot be included within the “lawful purposes” for which a corporation may be formed merely for the reason that it is not expressly and specially authorized in the section of the act defining the purposes of incorporation. What purposes are “lawful” within the meaning of this section must be ascertained by reference to the scope of the laws in force declaring the lawful character of acts, and taking the whole scope of the act it would seem that the ownership of stock in other corporations, either alone or in connection with other objects as the purpose of the corporation, is a purpose of incorporation authorized by the act.

I have considered this question as one which the complainants had the right to raise, on the assumption that, as owners of the Kentucky company stock, they might have the right to question the control of the Kentucky company by another corporation which had no right to hold or vote upon its stock. The status of the complainants may be different from that of the complainants in the Ellerman and Willoughby suits, and these cases may, perhaps, not control this case upon this point.

But there are undoubtedly very grave difficulties as to the trial or settlement of this question in a suit like the present, or as to giving herein the appropriate relief, if the holding of the stock and control of the Kentucky company by the distilling company had been found to be illegal, and in this decision I do not intend to pass upon this question.

The second claim for relief is that one of the objects of the organization of the distilling company and of the transfer to it of the controlling interest in the stock of the constituent companies was the creation of a monopoly in the manufacture and sale of spirits, alcohol and whiskies, and that such monopoly has been created. This claim is not well founded, and for two reasons—first, the proofs fail to establish the monopoly charged, and second, the monopoly, if any exists, arises from the exercise of powers given by the charter or certificate of organization. Where no right of property in complainant is at stake, a court of equity has no power to declare unlawful the exercise by a corporation of the powers conferred by its charter, even though the purpose of the organization may have been unlawful. The right of the attorney-general, on behalf of the state, to question, in a court of equity, the exercise by a corporation of its powers under its charter for the purpose of creating a monopoly was expressly denied by Vice-Chancellor Reed, in Attorney-General v. American Tobacco Co., 10 Dick. Ch. Rep. 352, 369, &c. (1897), and his opinion was adopted on appeal. S. C., 11 Dick. Ch. Rep. 847 (1898). In this suit also the right of an individual to equitable relief was denied. S. C., 10 Dick. Ch. Rep. 378.

The reason upon which this decision, as to want of equitable jurisdiction, is based is that any order or decree of a court of equity restraining a corporation exercising private, and not public or quasi public, franchises from acts which are within the powers conferred by its charter or certificate of incorporation is, pro tanto, an annulment of its charter. It is therefore, to that extent, an ouster from its franchises, and such ouster is rightful and legal only when made by judgment upon quo warranto, a proceeding brought to test the very question on behalf of the state in the supreme court, which has, under the constitution, exclusive jurisdiction. Attorney-General v. American Tobacco Co., 10 Dick. Ch. Rep. 367. This rule does not prevent a court of equity from restraining quasi public corporations from acts beyond their corporate powers, where such acts involve a public nuisance or other public injury. Ibid., 366. This decision is conclusive upon the right of the complainants to raise the question that the effect of the charter and acts under it are to create a-monopoly-

If, however, it should be considered that this question is now properly before the court for determination, the decision of the court of errors and appeals in Trenton Potteries Co. v. Oliphant, 13 Dick. Ch. Rep. 507 (1899), would seem to be fatal to the complainants’ contention. It was expressly decided in that case (see pp. 524, 525) that where a monopoly results, or may result, from the exercise of the powers of making contracts expressly granted by the legislature to corporations, such exercise of .powers cannot be enjoined. This is upon the ground that the legislature granting the powers must be taken to have made a final and authoritative decision upon the question of public policy as to the creation of the monopoly thus resulting.

The third claim for relief is the unlawful and improper diversion of the assets of the Kentucky company for the benefit of the distilling company. The only specific charge of such diversion of assets made in the bill was in paragraph 12, which charged that the directors of the Kentucky company, acting under the control of the. distilling company, on or about January 1st, 1900, caused a mortgage or trust deed of $5,000,000 to be executed'by the Kentucky company upon all its property and assets, present and future, to secure bonds of that amount, and that, contrary to the usual course of business and contrary to the interests of the Kentucky company, considerable portions of these bonds were hypothecated by the directors of the Kentucky company (five of its seven directors being also> directors of the distilling company), and have been pledged in the proportion of $1,000 of bonds to secure $100 of loan; that no proper occasion existed for borrowing money for the Kentucky company, and that the execution and pledging of the bonds was part of the general scheme for a diversion of the assets of the Kentucky company, and the purpose of executing this deed and making these loans was to bring about the foreclosure of the mortgage on a comparatively small loan, so that the -interests of complainants and other stockholders ■ of the Kentucky company might be cut off. The answer claims that this mortgage or trust deed did not cover the whiskey, book accounts and personal property of the Kentucky company-—worth many millions of dollars; that the mortgage was duly authorized by two-thirds of each class -of stockholders, as required by the articles of association, and that, with the exception of $1,500,000, all the bonds were, at the time of the answer, still in the possession of the Kentucky company; that the bonds and deed were authorized to provide additional working capital, which was necessary; that the bonds could not be sold at a satisfactory price, and therefore part of the bonds were used as collateral security for loans, not over $1,500,000 being deposited at any time,' and that amount is held as collateral security for a loan of $500,000, made February 16th, 1900, to run for two years, payable by the Kentucky company at any time on thirty days’ notice. It appears by the proofs that this loan of $500,000 has since been paid off, and that the $1,500,000 bonds were returned to the Kentucky company. Subsequently, and on the recommendation of a committee of the stockholders of the distilling company, called the protective committee, a plan for securing necessary working capital for all the constituent companies was recommended and carried out, under which the distilling company issued its own collateral trust bonds for $5,000,000, and has disposed of something over $4,000,000 at eighty cents on the dollar. The proceeds of the -sale of these bonds have been turned over to the distilling company, which has loaned to the Kentucky company for working capital over $3,500,000, which is still unpaid. The $5,000,000 bonds of the Kentucky company constitute a portion of the collateral for the collateral trust bonds of the distilling company. The collateral trust agreement or' mortgage, however, provides that, when the Kentucky company pays off what it owes to the Distilling Company of America, these $5,000,000 Kentucky 'bonds are to be returned to the Kentucky company. As the $5,000,000 Kentucky company bonds were originally deposited with the distilling company to secure money due and to become due to it from the Kentucky company, this company would seem to be fully protected against the diversion of any of its assets covered by the mortgage to pay any other loans or indebtedness than its own indebtedness to the distilling company for money borrowed and used for its own purposes. The questions to be considered at the hearing as arising out of this transaction were therefore reduced to two. The first is whether the loan from the distilling company to the Kentucky company was within the proper exercise of the judgment and discretion of the directors of the Kentucky company acting for the. interest of the company and all its stockholders, or whether it was an abuse of their authority and control exercised for the benefit of the distilling company only. The proofs fail to establish any case of the abuse or fraudulent exercise of the directors’ powers in the management of the company in making this loan, or to show any reason for interference by this court with their judgment, which appears to have been made with entire good faith. The second objection to this loan is one made by the amended bill, after the facts relating to the mortgages and loan had been developed. This is that, in addition to six per cent, interest on its loan to the Kentucky company, the distilling company has charged to the -Kentucky company the sum of $217,591.35 for expenses on procuring the loan, and that the Kentucky company is still liable to pay a further large amount, between $400,000 and $500,000. This item of $217,591.35, as appears by the answer and the evidence, is the proportion of the entire expense of obtaining the loan on the distilling company collateral trust company bonds (about $292,000), which is chargeable to the Kentucky company on the basis or proportion of the amount of the proceeds received by the Kentucky company. The latter company has not as yet paid to the distilling company any portion of this amount of $217,500. The $4,000,000 bonds issued by the distilling company were sold at eighty per cent.; were payable in ten years; $500,000 are redeemable each year, and, by the arrangement or accounts of the loan kept between the companies, the Kentucky company is to be charged with its proportion of the price paid, over eighty per cent., for redeeming the bonds, and to be credited with the proportion .of the price paid under eighty per cent, for the redemption. Up to the time of the hearing none had been, redeemed under eighty per cent., and the additional sum of $15,000 had been charged as the Kentucky company’s share of the expense of redeeming the bonds payable during the first year. It is claimed that these charges against the Kentucky company are usurious, inequitable and unfair.

The objection as to tire equity of the charge appears to be unfounded, and I can see no equitable reason, under the circumstances disclosed by the evidence, why the Kentucky company should not pay its proportion of the expenses incident to loans made for its benefit as well as that of the other companies, and which it has secured and used for its own purposes.

It must be borne in mind that since the act of April 3d, 1902 (P. L. of 1902 p. 459), corporations can no longer set up the plea of usury on any obligations executed by them, even if this transaction between the companies comes within the scope of the Usury acts. But these questions as to the liability of the Kentucky company for interest alleged to' be usurious, or for charges for expenses claimed to be inequitable, are plainly premature. None of these charges or expenses has been in fact paid, and the Kentucky company has not yet paid or offered to pay its loan of $3,500,000, the money actually received, with legal interest, all of which is undoubtedly due, and until it does so, all questions as to the legality of charging additional expenses or additional interest before returning the bonds or other evidences of debt to the Kentucky company are premature. When the Kentucky company has in fact paid, or offers to pay, the admitted debt, with legal interest, the question whether any additional payments or charges can be enforced against it by the distilling company, or, if actually made by the Kentucky company, should be returned to it, may perhaps be brought in question, in appropriate proceedings brought to test the question, but until payment of the admitted debt is made or tendered, decision upon the question is premature and therefore unnecessary.

By the amended bill two other classes of diversion of assets of the Kentucky company are alleged. One is that in 1899, and shortly after the organization of the Kentucky company, this company paid over to the American Spirits Manufacturing Company more than a million dollars in money or in the capital stock of the Kentucky company; that this was done in anticipation of the organization of the distilling company, which organization was then contemplated by the persons now controlling the three corporations, in order that the distilling company, as the owner of the large majority of the stock of the spirits manufacturing company, might secure the benefit of this misappropriation of the assets of the Kentucky company. These allegations of misappropriation or diversion are denied in the answer which sets out at length the particulars of the transaction, which are, in my judgment, sustained by the proofs. The payments which are complained of—$400,000 in cash and $700,000 in stock of the Kentucky company—which were paid for two of the distilling properties which the Kentucky company was formed to purchase, were portions of the entire payment agreed to be made by the Kentucky company (about $29,000,000 in stock or cash) to one Stoll, who had options or controlled the properties (over fifty in number) as the vendor for the entire properties, to be conveyed according to the prospectus and under-writing agreement to which complainants were parties. As against the purchaser (the Kentucky company), Stoll, as the vendor, retained under the arrangement the right to apportion or divide the consideration among the different grantors, and it was under this reservation to Stoll, the vendor, that the spirits manufacturing company, the owner of two of the fifty or more properties conveyed, received the payments 'now questioned on making the conveyance to the Kentucky company. To require now the spirits manufacturing company or its directors to account for or repay this portion of the entire consideration to the Kentucky company, which has received the properties and retains them, would be in effect to make a new bargain for the purchase and in the absence of Stoll. This-suit is not appropriate for the trial of a question of this character, and the charge that the alleged diversion was the result of any fraud or breach of trust on the part of the directors of the Kentucky company, for the benefit of the distilling company or its directors, is not sustained by the proofs.

The remaining question, as to diversion of assets of the Kentucky company, charged by the amended bill, arises out of the following facts, appearing by the answer and proofs:

The Kentucky company has organized, under the laws of West Virginia, two subsidiary companies, for the purpose of selling and distributing some of the whiskies which it manufactures to retailers. It conveyed to each of these companies a portion of its stock of whiskey; to one company, whiskey valued at $75,000; to the other, an amount valued at $900,000, for which it has received full-paid capital stock of the respective companies to these amounts. These sums are the entire capital stock of the companies, and this stock in both companies is owned by the Kentucky company and is controlled by it through its nominees, who are employes subject to removal. The company with the capital of $75,000, called the “Y” company in the proofs, was formed for the purpose of selling to the retail trade direct a particular brand of whiskey manufactured by the Kentucky company, and according to the evidence of Mr. Bradley, the president of the company, it has been successful and profitable—the Kentucky company selling to the “Y” company its whiskies at a profit, and in turn making a reasonable profit upon the capital of the “Y” company. With the “Z” company, capitalized at $900,000, business of the same character is transacted, but on a larger scale, and at present it supplies the largest outlet for the product of the Kentucky company, distributing about fifty thousand barrels a year, upon which both the manufacturers’ and retailers’ profits are made. The Kentucky company is also the owner of another distributing company, which was previously organized, called the “W” company, the stock of which it purchased and controlled. The “W” company distributes for the Kentucky company annually between twenty thousand and thirty thousand barrels, about one-seventh of its entire product, and is doing now a business of about $100,000 monthly. -The business and property of the “W” company, including its good will, were purchased for about $150,000. As appears by its certificate of incorporation, the Kentucky company was formed for the manufacture, sale and dealing in whiskies, and also for the purpose of carrying on any part of its business, to invest in all kinds of property, real or personal, within or without the State of 3STew Jersey, including the shares of stock of other corporations. The right of the Kentucky company, under the charter and under the laws of the state, to purchase the stock of tire pre-existing company, the “W” company, for the purpose of its business, was not contested at the hearing. It cannot be questioned, I think, that the method of distribution of its products by the machinery'of subsidiary companies, considered merely as a matter of business management, is one with which this court will not interfere, nor will it attempt to control the business judgment of the directors, which appears to have been honestly exercised. The only question is that of power of the Kentucky company to invest its capital and organize such companies for this purpose. The doctrine of ultra, vires, where it concerns purely a matter of business management of the corporate property by the directors or by the company, and where the power is called in question by a stockholder, must be applied reasonably and not unreasonably. The rule applied in these cases is the one announced by Lord Selbourne in the house of lords in Attorney-General v. Great Eastern Railway Co., 6 App. Cas. 572, 49 L. J. (N. S.) Eq. 545, 547 (1880), and approved by Vice-Chancellor Green in Ellerman v. Chicago Junction Railroad Co., 4 Dick. Ch. Rep. 217. This rule is, that whatever may be fairly and reasonably regarded as incidental to, or consequential upon, those things which the legislature has authorized, ought not (unless expressly prohibited) to be held by judicial construction to be ultra vires.

The legislature has here expressly authorized the manufacture and sale of a product, and this sale may undoubtedly be either at wholesale or retail; it has also (by the certificate) authorized the purchase of stocks of other corporations for the purpose of this business of selling, and by the express provisions of the Corporation act (section 51) has also authorized the purchase of the stock of corporations of other states. Considering this fifty-first section of the statute to be subject to the implied limitation that the purchase and ownership must be for the purposes of the business, this condition is complied with in the present instance, for the purchase and ownership is exclusively for the promotion of the business of the sale or distribution of the product manufactured by the company.

The ownership of stock of other corporations for the purpose of the corporate business is the substantial thing authorized in these provisions, and, in the case of a private business corporation, exercising' no public franchise of any kind, the method of acquiring such ownership of stock is incidental only. The second section of the Corporation act of 1896 expressly, authorizes corporations to exercise all the powers contained in the act, so far as the same are necessary or convenient to the attainment of the objects set forth in the charter or certificate. Tinder this provision no question is or can be raised as to the power of purchasing stocks of existing companies for the purpose of accomplishing the distribution of the product, and, -in my judgment, the organization of subsidiary companies for the same purpose and with the same object may be fairly and reasonably regarded as incidental to^ or consequential upon, the business which is expressly authorized and convenient for the attainment of its objects, and should not, by a judicial construction, be held to be ultra vires.

As to companies in which New Jersey companies may hold stock and the states in which subsidiary companies may be organized, it may be that the late decision of the court of errors and appeals, in Coler v. Tacoma Railway Co. (March, 1903), limits the power of New Jersey companies to hold stock of corporations of other states to the stock in companies organized in states whose laws authorize their own domestic corporations to hold stock in and control their owm domestic companies. In the Goler Gase the court of errors and appeals, on the application of the stockholder of a New Jersey company, which owned a railroad in the State of Washington, enjoined the sale of the railroad to a Washington company, in consideration of stock of the Washington company, one ground being that, under the statutes of Washington and the decisions of the Washington courts, a Washington corporation had no power to purchase or hold the stock of a Washington company, and that it must therefore be concluded by the courts of this state that the ownership of the stock of a Washington corporation by a foreign corporation was against the public policy of Washington, and this holding and control being thus against the public policy of the State of Washington, it should be enjoined in Yew Jersey.

In the present case there is no proof as to the statutes or decisions of the State of West Virginia upon the question of the right of a West Virginia corporation or of a foreign corporation to hold stock in a West Virginia corporation, and it must, in the absence of such proof, 'be assumed, under the laws of evidence as well as of comity, that the laws of West Virginia are similar to our own laws, and authorize the Kentucky company, formed under our laws, to exercise within the limits of West Virginia the powers conferred upon it under our statutes and its charter. The law of comity, settled in American jurisprudence by the decisions to which I referred at some length in my opinion in Coler v. Tacoma Railway Co., 19 Dick. Ch. Rep. 117, is that a corporation of one state of the Union may exercise within another state all the powers of its charter to the extent that its exercise thereof has not been prohibited in such other state or affirmatively declared by the constitution, statutes or decisions of such other state to violate its own public policy. Such violation of the declared public policy of a foreign state must be proved and cannot be assumed.

The questions above considered are all of the claims for relief raised by the bill or amended bill, which were, relied on at the argument, or briefs on final hearing, and the only remaining question is the application of complainants to amend the bill. This application, which was made after the closing of the proofs and at the time fixed for argument of the cause, is resisted. Eb application is made to open the proofs, and the general rule applicable to amendments applied for under such circumstances is that amendments may then be made, if necessary and proper, in order that issues which have been, in fact, tried by the parties, arid upon which both parties have been practically and fully heard, may-be formally set out in the pleadings, so that the pleadings may conform to the proofs. Story Eq. Pl. § 905; cases cited in Ogden v. Thornton, 3 Stew. Eq. 569, 573, &c. But complainants cannot amend at the hearing in order to present a new or inconsistent case. Pasman v. Montague, 3 Stew. Eq. 385, 393 (Chancellor Runyon, 1879); 1 Dan. Ch. Pr. (6th. Am. ed.) 418, note “a.” The amendment sought is to add a claim that complainants, as the preferred stockholders of the Kentucky company, under the certificate of incorporation, are entitled to receive a stated dividend, payable quarterly, from the net profits arising from the business of the company; that net profits applicable to such dividends have been accumulated, but have not been paid. A prayer is added that such dividends may be directed to be declared and paid by the Kentucky company to the complainants. It is manifest that this cause of action concerns the Kentucky company and its directors alone, and that the parties to this suit, other than the Kentucky company and its directors, have no interest in this litigation. This amendment would make the bill multifarious. This claim also is for the specific performance of the contract to pay dividends, based on the valid continuous existence and management of the Kentucky company as a going corporation. It is therefore inconsistent with the case and claim for relief set up in tire bill, which are based upon tire supposed illegality of the management of the company, and pray for its dissolution and winding up by this court, and for the repayment to complainants of the amounts paid for their stock. It is also a claim as to which no notice was given in the issues made up on tire pleadings, and to which no evidence has been specially directed, and upon which the Kentucky company and its directors have not been heard. The application to amend is denied, and. the bills must be dismissed.


source: Caselaw Access Project

author: Emeby, Y. 0.

license: Public Domain

text:
    Samuel H. Grey, attorney-general, ex rel., informant, v. Morris & Cummings Dredging Company.
    [Filed May 16th, 1903.]
    1. Equity has jurisdiction of an information by the state to annul a lease of its lands under water on the ground that the lessee was not the owner of the shore front, but, with knowledge of the facts, had suppressed them, and that the lease was conditioned to be void if he was not such owner.
    2. Where one, at the time of receiving a lease from the state of its land under water, was the owner of the shore, and so entitled to the lease, the state cannot avoid it because another afterwards acquired.title by adverse possession to the shore.
    3. AVhere one selling land reserves a strip along the shore, above which ordinary high water does not come, his right, as against his vendee, to a lease from the state of the land under water is not lost by the ordinary high-water lino rising above such strip.
    4. Evidence in an action by the state to annul a lease of lands under water on the ground that defendant was not the owner of the shore front—Held, to show that ho was such owner.
    5. AVhere the state makes a lease of lands under water, conditioned to be void if the lessee is not the owner of the shore front, it may be avoided, he not being- such owner, though, by his deed of the shore front, he had reserved the water rights, even if he is entitled to obtain a lease of such lands as against his vendee.
    On information, answer, replication and proofs.

      Mr. James E. Rowell, for the attorney-general.

      Mr. Lindley M. Garrison, for the defendant.
   Emeby, Y. 0.

The attorney-general, on behalf of the state, files this information for the purpose of annulling a lease of the state’s lands under water in Few York bay, made to the defendant by the riparian cpmmissioners under the Riparian acts. The application for the grant or lease made by the defendant, dated April 11th, 1881, covered a shore front of about two thousand five hundred feet, the whole of which was alleged to belong to the defendant in fee and to be in its possession. Upon this application a grant was made by the riparian commissioners on April 30th, 1881, for the lands under water in front of the whole lands, of which defendant claimed to be shore owner. The lease was perpetual, for the annual rental of $4,233.00 for the entire lands, with a purchase-price of $64,080, as compensation for conveyance, free from rent. The lease recites defendant’s ownership of the shore in front of which the leased lands lay and the application for a lease to it as shore owner under the Riparian acts. It contained covenants on the part of the state not to give any grant or license to any other person or corporation affecting the lands leased. This proviso, however, followed the covenants and concluded the terms of the lease:

“jProvided also nevertheless, that if the said party of the second part is not the owner of the lands adjoining the lands under water hereby conveyed, then and in that' case this conveyance and lease, so far as the same binds the state and all covenants herein on the part of the state, shall be void.”

The information alleges that as to a shore front of about two hundred and forty feet of shore, in front of which lands under water were included in this grant, the defendant was not the shore owner, but that one Joseph W. Hancox, under whom relator -claims, was the shore owner, and that the grant or lease was made to defendant, without notice to Hancox, as required by the Riparian acts. Hancox conveyed the tract claimed to be on the shore front to the relator on September 1st, 1882, and this information, on its relation, was filed on October 11th, 1899. The information alleges that Hancox was the owner of this portion of the shore, in front of which the lands were leased; that the defendant had no right or title or interest therein; that its representation in the application that it was the owner of all the shore lands was not true, and that the defendant, with full knowledge of the facts as to ownership, suppressed them. The grant is alleged to be void and a cloud upon the title to the lands under water included therein; and the information prays a decree that the lease may be declared null and void and the cloud on the státe’s title to the lands therein described may be removed. The information appears to claim the avoidance of the entire grant, and not merely of the portion in front of the lands claimed to belong to relator. Ho allegation is made in the information as to the payments of rents under the lease, neither is there any tender or offer to return any portion of the rents received. The answer denies Hancox’s ownership of the shore front, as claimed by the relator, and asserts its own title as shore owner, at the time of the lease, to the entire shore in front of which the lands under water were leased. It sets up, also;, the payment by defendant to the state of over $78,000 as rentals for the property, and the expenditure by defendant of large sums of money in filling in the lands under water. The knowledge of Hancox and of the relator, for many years, that the riparian lease in front of the lands claimed by relator had been made to defendant, and that defendant was paying the rentals and the expense of filling in the lands, is further set up as an estoppel or bar against questioning the lease. As to the right of Hancox or relator, as shore owners, the defendant further sets up that in the deed to Clement D. Hancox, the predecessor of Joseph Hancox in title, conveying to him on July 1st, 1863, the tract of land which relator claims to bound on the shore, it was agreed between the grantee, Clement D. Hancox, and his grantor, George W. Howe, who then owned all the shore front subsequently acquired by the defendant, that the grantor reserved to himself and his legal representatives the water rights in front of said lands in Hew York bay, and the right to dock out and reclaim the same, as far as they might desire, to their own use, benefit and behoof forever. These water rights, it is alleged, have been expressly reserved in all of the subsequent deeds and mortgages of the lands conveyed to Clement D. Hancox, and were reserved in the conveyance to relator. Defendant claims to have succeeded to-all of Howe’s rights, and that at the time of Howe’s conveyance-to Hancox, on July 1st, 1863, the line of the shore did not reach the tract conveyed.

Three questions were argued at the hearing, and are to be considered—first, whether this court has jurisdiction to annul the grant in a proceeding of this character; second, whether the relator’s predecessors in title were the owners of the shore front, as claimed, either in 1863, at-the time of the original severance of the title to the riparian lands, by the deed from Howe to Clement D. Hancox, or at the time of the riparian grant in 1881, and third, the effect of the reservation of water rights to the grantor Howe upon the lease in question. Hpon these points I reach the following conclusions:

First. The question of jurisdiction in equity to annul grants of this character, alleged by the state to have been obtained by a person not shore owner and by a willful suppression of facts or false representation, is discussed and decided by Chancellor Magie in Attorney-General, ex rel. City of Elizabeth, v. Central Railroad of New Jersey, 16 Dick. Ch. Rep. 259 (1901). The jurisdiction is maintained, and the only further observation to be made is that, in the present ease, there is the additional circumstance that, by the proviso, the lease is expressly declared to be void, as against the state, if the lessee is not the owner of the lands adjoining the lands under water. This proviso concludes defendant as to the materiality of the representation of ownership, and as to the right of the state to' avoid the lease by reason of its falsity. If the method or proceeding selected by the state to carry into effect its right of avoiding the lease is a bill in equity to annul the lease, the state may, under this method, be subject to the application of equitable rules applicable to private suitors, as to the terms upon which relief may be granted, including repayment of rentals or other disbursements, but these equities, if they exist, are matters for adjustment by final decree, and do not touch the question of jurisdiction. Attorney-General v. Central Railroad Co., supra. A bill or information in equity by the state to annul a grant or patent is a proceeding more favorable to the grantee than an annulment of the grant by the making by the state of a subsequent grant to another, in the exercise of its claim, and is the usual method followed in such cases in the American courts, where the state itself contests in legal proceedings the right to annul the grant. United States v. Stone, 2 Wall. 525; United States v. Budd, 144 U. S. 154; People v. Colgate, 67 N. Y. 512; 22 Am. & Eng. Encycl. L. (1st. ed.) 67. In the present ease the riparian commissioners, on the application made to .them by the relator, in March, 1899, for a riparian grant as shore owner of the lands in question, declined to make the grant because of the previous grant to the defendant as shore owner, and declined to decide this disputed question of fact. The evidence submitted at this hearing in relation to the shore line and the ownership of the shore clearly illustrates the propriety of this action of the commissioners in refusing to decide this question.

I conclude, therefore, that, upon the facts alleged in this information, that the court has jurisdiction to decide whether the defendant, at the time of the lease of the lands under water, was the riparian owner to whom the commissioners were authorized, under the statute, to make the lease, and whether the representation of ownership (as to the portion of the lands claimed by the relator) was false in fact. If the relator or its predecessor in title wras the riparian owner, then, under the Riparian act of March 31st, 1869, section 8, it was, as such owner, entitled to six months’ notice of the application, and no notice having been given, the grant "would have been ultra vires and void. Attorney-General v. Central Railroad Co., supra. This provision as to six months’ notice to the shore owners, under the eighth section of the Riparian act, is still in force, and the act of March 27th, 1874 (Gen. Stat. p. 2791), operates only to change thfe eighth section, by changing the number of the officers authorized to make the grant and the powers of the commissioners as to fixing compensation. The supplement of March 27th, 1874, has full operation by this construction, and is not to be construed as repealing the provisions of the eighth section requiring notice to the 'shore owners before grant to any other applicant. It is admitted that no notice of the defendant’s application for a lease was given to relator’s predecessor in title, and the next question, therefore, is whether the relator was the shore owner of portion of the lands as alleged in the information.

Second. The dispute as to the shore front covered by defendant’s lease extends only to the portion thereof claimed to be the easterly boundary of a lot or tract owned by the relator. This tract was conveyed ton Clement D. Haucox, relator’s predecessor in title, by George W. Howe, by deed dated July 1st, 1863. The tract lies on the southerly side of a public street, called Chapel avenue, running from the Morris canal easterly to New York bay, and at the end of the street there was then a wharf or dock extending into the bay. At the time of the conveyance Howe was, and since November, 1854, had been, the owner of the lands between the Morris canal and the New York bay, on both the north and south sides of Chapel avenue.

Howe’s deed to Clement D. Hancox of July 1st, 1863, conveyed a rectangular lot on the south side of Chapel avenue, one hundred and sixty-nine feet front by two hundred and seventeen and one-half feet deep. The easterly boundary was, according to the description in the deed, one hundred and sixty-nine feet from and parallel with the western boundary with which the description commenced, and the first question on this branch of the case is 'whether, when properly located according to the description in the deed, the easterly boundary of the lot ran to the edge of a bulkhead then erected on the property, or whether the easterly line was located within the bulkhead and six feet therefrom. The bulkhead itself, although then in existence and a well-defined monument, was not referred to in the description. There was also in existence at the time of the conveyance a small building on the south side of Chapel avenue, on or near the line of the avenue, and this building is the only monument on the ground expressly referred to in the deed as fixing the location of the westerly line of tlie lot. The full description was as follows:

“All that certain lot, piece, tract or parcel of land and premises situate, lying and being in the township of Greenville, in the county of Hudson and State of New Jersey, butted and bounded as follows: Commencing on the southwesterly side of Chapel avenue at a point where the easterly corner of a small building which adjoins said avenue and lies southeasterly of the Morris canal and running from thence southwesterly along the southeasterly side of said building a course south fifty-two degrees and eleven minutes west 217 feet 5 inches to the westerly comer of a building-standing on the land hereby conveyed; thence south thirty-eight degrees and twenty-seven minutes east one hundred and sixty-nine feet; thence north fifty-two degrees and eleven minutes east two hundred and seventeen feet five inches to the southwest side of Chapel avenue; thence north along the said avenue thirty-eight degrees and twenty-seven minutes west one hundred and sixty-nine feet to the place of beginning. Being part of the premises which the said parties of the first part purchased from Peter H. Dwyer and easterly of the Morris canal.”

This small building fixed for the beginning corner was removed subsequent to the purchase, and shortly after the subsequent purchase by Clement D. Hancox from Howe on December 1st, 1863, of.the lot of land lying on the west, upon which the building stood. The building referred to as at the end of the first course.in the deed has also disappeared, but this building is not referred to- as on the line of the lot, or fixing its western boundary at any other point than the end of the first line. Evidence as to the precise location of tire small building on Chapel avenue is offered by the production of the transit notes of a surveyor, now deceased, Garret I. Yan Horne. These notes appear to have been made by him for Captain Howe, the grantor, on June 25th, 1863, a few days before the conveyance. This survey shows a small building very near Chapel avenue, a larger building at or near the southerly and westerly corner of the lot, and the Palisades along the easterly boundary, both the top and the bottom lines of the Palisades being shown. This survey appears on its face to be a survey of the entire tract lying south of Chapel avenue, between the Morris' canal and Hew York bay, of which Captain Howe was then the owner, the line of the bay being shown by a sinuous shore line lying outside of the Palisades, and at no point nearer than thirty feet. Whether this line is at high or low water is not shown. The entire tract extends on Chapel avenue two hundred and ninety-seven and two-tenths feet from the line of the Palisades, and this tract is divided.into- two lots, the eastern lot, toward the bay, being one hundred and seventy-five feet, and the western lot being one hundred and twenty-two and two-tenths feet. On the line dividing the lots are two buildings, the small building on Chapel avenue, located on the western lot, and the southerly or southeasterly side of which is apparently the dividing line of the two lots, and another larger building located on the eastern lot, whose westerly side is also apparently on the dividing line. The description lays the western line of the easterly lot along the southeasterly side of the small building, but not along the westerly side of the large building, which is referred to only to fix the end of the lot. The. first course in the deed is south, fifty-two degrees eleven minutes west; in the survey it is “S 51° 06" W abt.,” a variation of about one degree. The location of the eastern corner of the small building is fixed by measurement to an “offset stake,” described in the survey as being “13.1 from E cor. of house,” and apparently on a line with the southeasterly side of the house. By the survey, the northerly side of the small building is very near, but does not actually touch, the line of the highway. If the beginning point of the description be fixed as the intersection of the line of the southeasterly side of this building and the side of Chapel avenue, the entire frontage of the eastern lot shown in the survey up to the line of the Palisades is one hundred and seventy-five feet, and a lot fronting one hundred and sixty-nine feet would fall within this line> and approximately the easterly boundary of this lot would be a dotted line shown on the survey six feet to the west of the Palisades. If this be the true line intended by the deed, Howe, the grantor, retained title for six feet west of the Palisades and remained shore owner 'without any question. Another survey and map of the property have been offered in evidence by the defendant, made by Soper & Brittin on May 5th, 1865, for Clement D. Hancox, after his purchase of both tire eastern and western lots shown on Van Horne’s survey. These surveyors, Soper & Brittin, are also deceased, but their transit notes and map have been offered in evidence. The small building on Chapel avenue, shown on the Van Home map of 1863, does not appear on the Soper & Brittin survey or map of 1865. As appears by the evidence, the building had been used as servants’ quarters in connection with a hotel once on the lot sold to Hancox in July, 1863. The hotel had been burned down prior to ITancox’s purchase and he erected a residence on its site, using part or all of its foundation. The Soper and Brittin survey and map indicate, however, two stakes on or near the south side of Chapel avenue, each marked on their map “old stake G. I. Y. H.” . One of these stakes is at the line of the Palisades, and the other one hundred and seventy-five feet westerly therefrom, and approximately near where, by .the evidence of witnesses, the small building stood. The latter stake is claimed to be the “offset stake”'of the Yan Iiorne survey, and its location is, on the Soper & Brittin survey, fixed by measurements or distances from the walls of the residence erected by Hancox. This residence and the walls are still standing on the same location, and, although the “offset stake” has disappeared, its location can now be accurately fixed on the ground by the measurements on the Soper & Brittin survey. And if the stake designated in their survey as.the “old G. I. Y. H. stake” is the offset stake of Yan Horne’s survey, the easterly side of the building and the westerly line of the lot can now be accurately located. The Soper & Brittin survey also shows that the distance between the old stakes, called the G. I. Y. H. stakes, was about one hundred and seventy-five feet, and 'that if the lot was only one hundred and sixty-nine feet wide, the easterly boundary fell within the Palisades and left the .ownership of the shore in Howe. Upon the question of the location of the lot by its description in the deed, I consider the Yan Horne and Soper & Brittin surveys to be the most satisfactory, if not the controlling evidence upon the point, that the easterly line of the lot conveyed did not in fact reach to the Palisades. The criticisms of counsel upon the Yan Horne survey relate to points which do not, in my judgment, affect their reliability upon the main question now involved, viz., the location of the southeasterly line of the small building which was the westerly line of the lot, and the frontage of the lot on Chapel avenue. This line and this frontage, one hundred and sixty-nine feet, seem to me to be satisfactorily made out by the Yan Horne map, confirmed as it is by the Soper & Brittin map and survey, and to show that the title of Clement D. Hancox, under whom the relator claims, did not reach to the Palisades. If the'survey of Yan Horne and Soper & Brittin be rejected, the evidence shows no means of fixing' accurately the westerly line of the lot, by reference to the side of the small building on Chapel avenue, and both parties have attempted the location of the easterly line of the lot by reference to the Dwyer deed, referred to in Howe’s deed to Han-cox. At the end of the description it is'stated that the lot conveyed to Hancox is part of the property conveyed to Howe by Dwyer. Dwyer’s title was derived from one Benjamin H. Broom-head, who, in 1849, was the owner of all the lands east of the canal and on both sides of Chapel avenue. At this time a map of the premises, called Bacot’s map, existed, and the sales to Dwyer were made by reference to this map, which cannot now be found. On this map a block was laid out, bounded on the west by Canal avenue, north by Chapel avenue, south by Marion avenue, and east by an avenue called Ocean avenue. Dwyer purchased fourteen of these lots, numbers 16 to 22 and 30 to 36, seven fronting on Chapel avenue one hundred and seventy-five feet, and seven immediately in the rear and fronting on Marion avenue, altogether, according to the map and description, a tract one hundred and sevent3^-five feet on Chapel and Marion avenues, and two hundred and sixteen feet deep. Dwyer finally received title to' all of these lots by a single deed from B. H. Broomhead, dated Eovember 1st, 1852, but he had previously received title to twelve of the lots from Broomhead by deeds dated respectively Eovember 12th, 1849, for lots 16 to 21, fronting on Chapel avenue one hundred and fifty feet; April 24th, 1850, for lots 31 to 36, in the rear, fronting on Marion avenue, and July 9th, 1850, for the sixteen-foot strip between the twelve lots. After these three deeds to Dwyer, Benjamin H. Broom-head, by deed dated September 25th, 1850, combed to' John Broomhead the lots immediately west of Dwyer’s purchase, numbers 22 and 30, fronting twenty-five feet on Chapel avenue and running through two’ hundred and sixteen feet to Marion avenue, and by this deed he also' conve3red to' John Broomhead

“all the upland and land under water between Chapel and Marion avenues, on the Bacot map, to the eastward of lots Nos. 16 to 36, conveyed to Dwyer, together with the water rights and privileges in New York bay.”

Benjamin Broomhead, on March 1st, 1851,- conveyed to Corwin & Arbuckle, by reference to another map, called a map of Clark & Bacot, filed by him on that day, eight lots fronting on Canal avenue and being one hundred and ten feet on Chapel avenue and eighty feet three inches on Marion avenue, according to this map. This map shows Canal avenue as a street forty feet wide, lying directly east of the Morris canal. On March 4th, 1851, John Broomhead reconveyed to Benjamin the lands purchased by him on September 25th, 1850 (which included lots 22 and 30 on the lost Bacot map), and on March 25th, 1851, Dwyer reconveyed to Benjamin Broomhead all the lots conveyed to him, numbers 16 to 21 and 31 to 36, on the Bacot map, and with the same reference to this map, but with no reference to the Clark & Bacot map filed March 1st, 1851. Benjamin Broomhead was thus reinvested with the title to all of the land south of Chapel avenue, except the land conveyed to Corwin & Arbuckle on March 1st, 1851; and on November 1st, 1852, Broomhead re-conveyed to Dwyer, by the same reference and description to the lost Bacot map as was contained in Dwyer’s deed to him, the lots he had received from Dwyer (lots 16 to 21 and 31 to 36), and also then conveyed to Dwyer lots 22 and 30 on the Bacot map, extending from Chapel avenue to Marion avenue—twenty-five by two hundred and sixteen feet—“and adjoining the east line of the tract heretofore conveyed by Broomhead to Corwin & Arbuckle,” &c. This deed of November 1st, 1852, therefore conveyed to Dwyer one hundred and seventy-five feet on Chapel avenue east from the Corwin & Arbuckle line, which east line, according to their deed and the Clark & Bacot map, was one hundred and ten feet from the corner of Canal avenue and Chapel avenue. On October 26th, 1854, and while Dwyer owned the lots east of them, Corwin & Arbuckle conveyed to George W. Howe the tract conveyed to them by Broomhead, and by the same description and reference to the Clark & Bacot map, and refer also to a 'map of Irvingville lots filed in the clerk’s office. This deed conveyed also the lands north of Chapel avenue which had been convej^ed to Corwin & Arbuckle bjr Broomhead and were also laid out in lots on the “Irvingville map.” The Irving-ville map also showed that the Corwin & Arbnckle tract began at the corner of Canal avenue and Chapel avenue and extended one hundred and ten feet along Chapel avenue. Canal avenue appears on this map to be forty feet wide and to extend to the towpath of the Morris canal. As appears by the evidence, the towpath at this locality was at the foot of a slope. On November 1st, 1854, Dwyer conveyed to George W. Howe all the premises conveyed to him by Broomhead’s deed of November 1st, 1852, and by the same reference and description as contained in his deed to the lost Bacot map. On the same day Benjamin H. Broomhead conveyed b> Howe all the lands remaining to him between the canal and the bay, and Howe thus became the owner of all the lands east of the canal and including the adjoining Corwin & Ar buckle and Dwyer lands. Kef erring to the deed from Dwyer to Howe, it will be seen that the description of the lands in this deed are tied to the intersection of Morris canal and Chapel avenue, and taking the three descriptions in this deed together, the westerly line of Dwyer’s tract is fixed at a point one hundred and fifty feet from the crossing of the canal and Chapel avenue. This would allow forty feet for the width of Canal avenue, one hundred and ten feet for the width of the tract eonvejred to Howe by Corwin & Arbuckle, and Howe’s whole frontage on Chapel avenue from the corner of Canal avenue, as designated in the maps referred to, would be, according to the deeds to him, two hundred and eighty-five feet to the easterly line of the Dwyer lots. Canal avenue, although laid out on tire maps, up to the time of Howe’s purchase, does not appear to have been in fact laid out, neither was Marion street or avenue laid out, and after Howe’s purchase, in 1854, no reference to either Canal avenue or Marion avenue is made in any of the conveyances. The evidence shows that after Howe’s purchase there was a fence along the western boundary of his lands, or lands claimed by him, and measuring the width of Canal avenue as forty feet from the towpath at' the bottom of the slope, the fence would seem to have been located about twelve feet west of the easterly line of Canal avenue, as laid out on the Clark and Bacot and Irvingville maps. George W. Howe, on December 1st, 1863, conveyed to Clement Hancox the remaining lands owned by him south of Chapel avenue and west of the tract conveyed to Hancox by the first deed of July 1st, 1863, but the description in this deed contains no reference to either Canal avenue or Marion avenue. The description in this deed of December 1st, 1863, is as follows:

“Commencing at a point in the southeasterly side of Chappie street where the northerly corner of the land of the party of the second part [Hancox] strikes said street and intersects with the easterly corner of the lot hereby intended to be conveyed, and running from thence south fifty-two degrees and eleven minutes- west 217 feet 6 inches, thence north thirty-eight degrees & twenty-seven minutes west 89 feet 6 inches, thence north forty-three degrees and forty-two minutes east 220 feet to the southeasterly side of said Chappie avenue, thence southwesterly twenty-eight degrees and twenty-seven minutes east 122 feet to the. point or place of beginning, containing 23,000 square feet of ground.”

By this description one 'hundred and twentj^-two feet on Chapel avenue is conveyed, and if the westerly boundary in this description is the easterly line of Canal avenue, as it appears on the Clark & Bacot and Irvingville maps, and this line is forty feet from the towpath of the canal, then, by the- two- deeds of July 1st, 1863, and December 1st, 1863, George W. Howe has conveyed to Hancox two hundred and ninety-one feet (one hundred and sixty-nine plus one hundred and twenty-two) on Chapel avenue east of the line of Canal avenue. This is, by measurement, the- distance to the present line of the Palisades from a point forty feet from the towpath of the can'al measured along Chapel avenue. And taking the two deeds together as conveying that amount of land (two hundred and ninety-one feet) east of the easterly line of Canal avenue, as fixed on the old maps, the easterly line of the lot first conveyed to Dwyer by Howe is located twelve feet east of the line fixed by the Yan Horne and Soper & Brittin maps, and at the present line of the Palisades, which is, according, to some witnesses, about six feet farther out than when first built. But the assumption that Howe, in his second conveyance to Plan-cox of one hundred and twenty-two feet on Chapel avenue> intended to make his western boundary of this one hundred and twenty-two feet the easterly line of Canal avenue, as laid out on the old maps, is, as it seems to me, clearly without evidence to .support it. The deed makes no reference to these maps, and the evidence shows that a fence erected on tire western boundary of property occupied by Howe was about twelve feet within the lines of Canal avenue as laid down on the old maps. As the avenue was never opened and all reference to it has been expressly excluded by him in his conveyance, this combined frontage of the' two lots conveyed to Haneox cannot be considered as affording a sufficient basis to fix the easterly boundary of the first lot conveyed to Dwyer at or beyond the then existing line of the Palisades. And, on the contrary, taking the old maps referred to in the Dwyer title and the distances from the canal and from Canal avenue, a's given on these maps, the location of the beginning point of the westerly line of the Dwyer tract first conveyed to Haneox is fixed as being at one hundred and fifty feet from the towpath of the canal, and the westerly line of this tract, as so fixed, practically coincides with the location of the westerly line as shown on the Yan Horne and Soper & Brittin maps. As to the location of this westerly line, I reach the same conclusion therefore, upon the evidence relating to the monuments fixed by the Dwyer deeds, conveying one hundred and seventy-five feet to Howo, and I conclude that the first conveyance to Haneox of one hundred and sixty-nine feet on Chapel avenue reserved to Howe, as part of the Dwyer lot of one hundred and seventy-five feet conveyed to Howe, the six feet on the easterly boundary of the lot adjoining the shore. Howe therefore continued to be the shore owner after the conveyance in 1863, by reason of this reservation. Relator shows, by its evidence, that after receiving his title, under the two deeds, Haneox occupied the land to the line of the Palisades, by laying them out and grading and planting trees, and that this exclusive occupation up to this line has since continued. It is therefore claimed that the line of the Palisades must be taken as the easterly boundary of the lot, on the principle of practical location of boundaries. The rules relating to the practical location of disputed boundaries are not, in my judgment, applicable to the case. The evidence as to occupation would have a decisive bearing if the question of title by adverse possession up to the line of the Palisades were involved, but in this case the adverse possession began not earlier than 1863, and the lease from the state was made in 1881. . If, at that time, the def endant was the owner of the record title to the shore, as I have found it to be, then the state, having made the lease to it, as such owner, under the statute, cannot set up any subsequent adverse possession in the relator or others for the purpose of avoiding in equity its own lease, valid when made.

Having reached the conclusion that the relator’s record title, as against the defendant, did not extend to the line of the Palisades, but was at least six feet therefrom, it will be unnecessary to comment at length upon the large amount of evidence taken in the case as to the location of the “shore” line- at the time of the severance in the title by Howe on July 1st, 1863. It is settled, by the decision of the court of errors and appeals in Ocean City Association v. Shriver, 35 Vr. 550, 557, 560, that, as between vendor and vendee and those who claim under them, the line of ordinary high tide at the time of the conveyance governs upon the question of riparian rights, and that their respective rights as riparian owners, as fixed on the severance of the title, are not affected by subsequent changes in the shore line. Relator claims that ordinary high water came up to the line of the Palisades, except for a small space at the corner adjoining the wharf or dock on Chapel avenue, and many witnesses, including the members of the Hancox family, who lived on the premises from about 1864 or 1865 to 1877, affirm this to have been the reach of the ordinary tides. On the other hand, the sons of Captain Howe, the grantor, who lived in his house north of the avenue, and who were familiar with the property from the time of his purchase (1854) up to 1874, fix the ordinary high-water line from thirty to fifty feet east of the Palisades. They say there was a meadow east of the Palisades and in front of all of it except about twenty feet, where a ravine or gully from the shore reached up to the Palisades. On this meadow salt grass grew, and was, at times, cut and carted away. There is no question, on the evidence' of all the witnesses, that the bay has been filling up .and becoming shallower at this locality since 1863, and that heavy storms, which, in two cases at least, tore away part of the bulkhead, have carried away most of the salt meadow or other upland beyond the Palisades, and, except near the corner where the Palisades touches Chapel avenue, the present line of ordinary high water reaches the Palisades for nearly its whole length. The evidence of the witnesses as to the line of ordinary high tide at the location in question is not altogether satisfactory, because its reliability depends altogether on the standard fixed, and tíre wide variance between the lines of ordinary high tide, as fixed by the different witnesses, shows clearly, I think, that they fix different standards. In my judgment, the existence of solid meadow, which could be driven on and from which grass was cut or soil dug, is entitled to very great weight in fixing the line of the shore. Weighing all the evidence in this case upon this point, I reach the conclusion that tire relator has established, by the weight, of evidence, that the shore line in 1863 extended east of the then line of the Palisades. It follows, therefore, if this conclusion be justified from the evidence, that, as between Howe and Hancox, the former still continued to be the shore owner after the deed of July 1st, 1863, even if this deed be considered as fixing the easterly boundarjr of the lot at the then line of the Palisades. In reference to the weight of evidence and burden of proof in cases of this character, it should be further observed that, in actions brought to enforce forfeitures, where the whole title is sought to be avoided, the wrong from which tire forfeiture results should be clearly and fully-established. Where the purchase-money is also forfeited, this rule, as to the proofs, is applied. United States v. Budd, 144 U. S. 154, 162.

Third. The remaining question relates to the effect of the reservation of the water rights in the deed from Howe to Plancox. At the time of this reservation (July 1st, 1863) the Wharf act of 1851 was the only statute in force regulating the lights of shore owners to- occupy lands below high-water mark. This statute gave the right to the shore owner (but to no one else) to dock o-ut to low-water line, and, on license from the freeholders of the county, to dock out beyond low water. The Eiparian act of March 31st, 1869, repealed the Wharf act, as to lands on Few York bay, and gave the riparian commissioners power to lease lands under water to any applicant, provided that no grant should be made to any other than the riparian owner until after six months’ personal notice to him, and a failure of such owner to apply for the grant on the terms fixed by the proprietors. The effect of this section is to give the shore owner a right of preemption, which is, or may be, a valuable privilege.- This right of pre-emption is one which appertains to the owner of the shore front as owner, and is not a right of a character which can, so far as the state is- concerned, be separated from the ownership of the riparian lands. Merely as between the vendor and vendee of riparian lands, I am not prepared to say that a reservation of this character might not be enforced, in a proper case, by enjoining application to the riparian commissioners or otherwise, in order to make the reservation effective. But the riparian commissioners, as representing the state, have the undoubted right to make the fact of riparian ownership a material circumstance in considering tire propriety of the grant and the price to be paid, and to base their policy as to grants and prices on such ownership. Having, done so in this case, and the grant being, as appears on its face, made on the faith of the -representation of ownership, and its continuance and effect, as against the state, being made conditional on this ownership, the reservation of water rights in the deed of the grantor cannot prevent the state from enforcing its right to avoid the lease. "Whether, if the lease is annulled, the defendant, on another application for a lease for the same premises, but not as shore owner, could enforce the reservation against the relator, and, by'reason thereof, enjoin it from applying for the lease or interfering with defendant’s application, is a question which is not considered or decided.

I will advise a decree dismissing the information, with costs to be paid by the relator. 1


author: Peed, Y. C.

text:
    Abbie I. Henry and The South Bend Chilled Plow Company, of Indiana, as creditors of The Musconetcong Grange, No. 114, as a voluntary association, v. William M. Simanton et al.
    [Filed February 10th, 1903.]
    1. Construction of the provisions of “An act for winding up voluntary associations and associations with partnership liabilities” (P. L. of 1899 p. 485), respecting the constitutionality of the act, who can file a bill or petition thereunder, and the questions to be decided when an answer is filed by a listed member of the association.
    2. A grange was organized for the primary purpose of establishing a store where general merchandise should be sold and exchanged for the benefit of its members. The business was conducted by a superintendent, under his name. The executive functions of the grange were in the hands of three trustees. Several notes signed by the trustees had been given in the course of its business, interest being paid out of the funds of the association. The association became insolvent, and creditors holding notes filed a bill.-—Held, that the court had jurisdiction to appoint a receiver and grant an injunction.
    3. The grange became incorporated under the act of 1876 (Gen. Stat. p. 1644), for the incorporation of granges, but there was no1 effort to become incorporated under any other statute.'—Held, that it did not become a corporation de facto for the purpose of transacting mercantile business.

      Mr. Martin Wyclcof, for the complainants.

      Mr. Irwin W. Schultz and Sylvester G. Smith, for tlie defendants.
   Peed, Y. C.

This bill is Jiled by two' creditors, for themselves and such others as may come in. The relief is sought under the provisions of an act passed in 1899 (P. L. of 1899 p. 485) entitled “An act for winding up voluntary associations and associations with partnership liabilities.” The act provides that whenever a voluntary association, carrying on business Avith partnership liabilities, shall become insolvent, or shall suspend its ordinary business for AArant of funds to carry on the same, it shall be lawful for any creditor or member of such association to apply to the chancellor for a Avrit of injunction and the appointment of a receiver for the winding up of the business and the payment of the debts of such association. It empowers the chancellor to proceed in the manner provided for winding up insolvent corporations under the Corporation act of 1875. It makes it tire duty of the trustees or managers of such association, who are served with subpoena, to file Avith the clerk of this court a verified statement of the names of all the members of the association. After the filing of this list, an order is to be made requiring all such members to show cause why an injunction should not be allowed and a receiver appointed should not be granted according to the prayer of the bill. Any member, upon the return of such notice, may file his or her answer and proceed to a hearing. The remaining parts of the statute deal with the procedure after the receiver is appointed.

In the present case the trustees filed a list of members, and, upon the return of the order to shoAV cause, fifty-five members out of one hundred and six filed ansAvers, and against the remaining fifty-one who failed to file answers decrees pro confesso have been taken.

In addition to the answers, a demurrer Avas interposed to the bill. The first ground taken by the demurrant is that the act of 1899 provides that the chancellor, in this proceeding, may proceed in the manner provided for the winding up of insolvent corporations under the “Act concerning corporations,” approved April 7th, 1875. It is insisted that there is no act concerning corporations now in existence approved April 7th, 1875, because it was repealed by the act of 1896. P. L. of 1896 p. 277.

The act of 1875 is repealed by the act of 1896 only so far as the provisions of the act of 1875 are not expressly re-enacted in the act of 1896. P. L. of 1896 p. 317 § 118. The repealer, therefore, operated only upon those provisions in the act of 1875 which are inconsistent with the provisions of the act of 1896. The methods of procedure, in winding up insolvent corporations, contained in the act of 1875 are substantially re-enacted in the revision of 1896. The effect of the revision was to continue them in force. Sund. Stat. § 161. The act of 1875 was usable as a standard of procedure, and became a legal rule, apart from its own virtue, by reason of the vitality imparted to it by the legislative reference to1 it in the later act.

I am of the opinion, therefore, that this ground of objection to the bill is not tenable.

The second ground of attack is that the bill, while setting out that the association filed a certificate of incorporation at a certain date, does not state whether the debts due to the two complainants arose out of the dealings with the association before or after its incorporation.

The point of this objection is that, unless the debts of the complainants accrued before the date of filing the certificate of incorporation, they are not debts of a voluntary association; and that it was the pleaders' duty to state as a fact that the debts were incurred while the grange was still unincorporated.

But the theory of the bill is that the certificate of incorporation did not protect the members of the grange from liability for debts incurred in the business conducted by the grange, even after its incorporation. The bill asserts that no notice of the intention to incorporate was given at a previous regular meeting of the grange, and further, that these debts were not contracted in the transaction of the corporate business of the grange. If these facts are so, as I must assume them to be, then any debts incurred by the grange, at any time, confers upon the creditor a footing to file a bill.

The third ground taken is that one of the complainants, the South Bend Chilled Plow Company, is shown to be disentitled to stand as a creditor, because the bill describes it as a foreign corporation, without showing that it has become equipped to do business in.this state. Admitting this to be true, this complainant is not the only complainant; there remains another creditor who was entitled to file the bill. But, indeed, it does not appear from the bill that the South Bend Chilled Plow Company is dis-entitled to stand as a creditor. It does not appear from the bill that the contract out of which the debt arose was made in the State of New Jersey; and if it did so appear, a single transaction would not amount to doing business in this state.

For these reasons I think the general -demurrer challenging the equdy of the bill must be overruled.

Upon the hearing upon the bill and answers filed the following facts appeared:

The Musconetcong Grange was organized in Februaiy, 1893. Its primary purpose was to establish a store where general merchandise, such as is usually carried by a county store, should be sold and exchanged for the benefit of the members of the grange. Persons other than members were- permitted to deal at the store, but the members were favored in the transaction of the business. The scope of the business was extended, from time to time, and included the sale of grass seeds, harvest implements, fertilizers, sheep, &c. The grange also operated a mill and conducted a butcher business. The business was conducted by a superintendent, named Wesley Fleming, under the firm name of Wesley Fleming & Company, adopted at a meeting of the members of the grange held March 30th, 1893. The executive functions of the grange were in the hands of three trustees. On January 11th, 1894, the association elected three trustees and filed a certificate of incorporation, under color of the provisions of an act approved April 21st, 1876, to enable grangers of the Order of Patrons of Industry to incorporate. Gen. Stat. p. 1644.

The history of the business of the association, before incorporation, seems to have been this: The store had been in operation before Fleming came to take charge of it. He began the management of the business, under a salary, on April 16th, 1893. A note had already been given to one William M. Simanton for $1,500. Simanton was one of the trustees of the grange trading as AYesley Fleming & Company, and the note was signed by Royal Milro3r, Charles I. Carpenter and Isaac Woolverton, who were, in fact, trustees of the association. Interest was paid on this note out of the funds of tire association after Fleming took charge..

On May 25th, 1893, another note was made to Daniel Williamson & Son for $500, signed by the same makers, as trustees, in the same form as the former note. Upon this note interest was paid in the same manner as upon the former note.

The note to Abbie I. Henry, one of the complainants, was not made until after the certificate of incorporation was filed. It was dated March 31st, 1894, and signed by William M. Simanton, Isaac Woolverton and Absalom Apgar, trustees.

Another note, to William D. Hill for $200, dated April 1st, 1894, was also executed by the trustees.

Still another note was executed March 31st, 1894, -fox $200, to Isaac IVoolverton, and signed by the same trustees and sealed with the corporate seal.

The note to the South Bend Chilled Plow Company, the other complainant, was made on May 1st, 1897, and was signed in the name of the Asbury Mercantile Compaq by the treasurer of the company. . These are the facts disclosed.

To the settlement of what questions are these facts to be presently applied ? Wrhat are the points to be settled at this stage of the proceedings ?

The act, as I have already observed, provides for a subpoena, after filing a bill or petition. This subpoena is to be directed to the trustees or managers of the association, who are to file a list of, members of the association. Then these members are to be broughtjnto court by orders to show cause why the prayer of the petition or bill should not be granted. The appropriate prayer of the bill is for the appointment of a receiver and an injunction. The facts conferring jurisdiction upon the court to grant such prayer are therefore the following:

First. The existence of a voluntary association carrying on business with partnership liabilities.

Second. The fact that such association has become insolvent, or has suspended its business for want of money to.cany on the same; and

Third. The fact that a creditor or member of such association is the complainant who files the bill or petition.

It therefore seems to be clear that one Who has been returned by the trustees as a member can contest only the existence of these facts by his answer; at least, it is manifest that the existence of these facts are alone triable at this stage of the procedure. The defendant cannot try the question whether he ever was a member, or vras such at the time a debt or debts were incurred.

It is, of course, true that each person returned as a member has the right to his day in court, to test his or her personal liability to any creditor of the grange. But, by the scheme provided by the statute, it seems that this must be done by exceptions filed to the report to be made by the receiver of the claims against the association. And as to his liability for any valid debt, the contest must occur when the assessments against each member, in proportion to the debts and expenses, shall be made.

In respect to the three matters to which the present inquiry is confined, I am of the opinion, disregarding, for the moment,the effect of the certificate of incorporation, that it has been proved that there existed a voluntary association, having some members, who, either by direct action or by express or implied assent, did business, in which the borrowing of money was a part, for the common purposes of such members; that there arose, as to such members, a partnership liability for such debts; that this association did business under the name of Wesley Fleming & Company, and afterwards under the name of the Asbury Mercantile Compaq, and that, in 1897, it became insolvent, and also ceased to do business for want of funds to carry it on. It also appears that Abbie I. Henry and the South Bend Chilled Plow Company are creditors of these associated members.

The remaining question is Whether the certificate of incorporation of the grange relieves the individual members from .liability and imposes it alone upon the corporation. The debts of the complainants were incurred after the certificate of incorporation was filed. I will assume that the certificate of incorporation was regular, although the point is raised that no notice was given or entered in the minutes of the grange of an intention to incorporate, and I will assume that the incorporation was one which cannot be attacked by a creditor, who did business with it, because of irregularities of organization. Stout v. Zulick, 19 Vr. 599.

In my judgment the business conducted by the members of the organization was so entirely aside from the power conferred upon the grange by the statute under which the incorporation was affected that the business must be regarded as partnership, and not corporate.

It is perceived that the act under which the incorporation was effected declares that the trustees of the grange shall be a body corporate, with only the ordinary powers incidental to all corporations. The enumerated powers are to have a common seal, to sue and be sued, and to acquire, hold, improve and lease or sell land, and to have a capital stock, and to make by-laws. There is no power granted to transact any mercantile business whatsoever. The corporation is a mere club or society, with power to acquire property for club or society purposes. It has no' more power to transact a business, as a corporation, than has án incor.porated religious society. The entire business transacted was dehors the grant contained in the act. Mr. Cook remarks:

“Where the business for which incorporation is sought is not within the class of business mentioned in the act itself, the attempted incorporation is void, and the participants are liable as co-partners.” 1 Cook Stock. 316 § 236.

Nor was this grange transacting business as a de facto corporation, for while there are statutes under which it might have become incorporated for such purposes, there was no effort made, Iona fide or otherwise, to become incorporated under such a statute.

I shall advise a decree appointing a receiver and granting an injunction.