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    Margaret Patterson v. J. D. Loiseaux Lumber Company et al.
    [Decided April 25th, 1921.]
    1. In contract for sale of lands, where time is not made of the essence of the contract, vendee is entitled to decree for conveyance, notwithstanding her default in performance on the date fixed for consummation, provided vendee tenders performance within a reasonable time thereafter. Under the circumstances of this case—Held, that two months was within a reasonable time.
    2. Where vendee under a contract for sale of lands was unable to perform on the date fixed, but was ready and willing and offered to perform within a reasonable time thereafter, being met by refusal and statement from vendor that the premises had been sold to a third party, vendee is entitled to decree for conveyance, notwithstanding she made no actual legal tender of performance.
    3. Where vendee, under contract for sale of lands, wherein time is not of the essence, is unable to perform on the date fixed, vendor cannot cut off vendee’s right to the lands until after the expiration of a reasonable time, and then only by tendering deed and demanding performance, or tendering back the part payment and notifying vendee of rescission.
    4. Neither waiver or estoppel is proven as against vendee where the acts which might otherwise constitute proof of such waiver or estoppel, are, presumably, the result of a belief in the truth of a false representation by vendor.
    o. Where' vendee under contract of sale of land is in actual occupancy of the premises, a subsequent purchaser from vendor is not a purchaser without notice of vendee’s rights or claim of rights.

      6. Where a contract of sale of lands provides for a bond and purchase-money mortgage as part of the consideration, without specifying the period of maturity or rate of interest, or that payment shall be postponed, it will be deemed payable immediately and with legal interest.
    . 7. Where a contract of sale of lands provides for the execution and delivery by vendee of purchase-money mortgage securing payment of bond as part of the consideration, though vendee be a married woman, yet the contract being for the benefit of her separate estate may be enforced in equity against her; hence, the objection of lack of mutuality is no bar to a decree of specific performance against vendor.
    8. In suit for specific performance, where conveyance has been made by vendor to a subsequent purchaser and consideration received in whole or in part, if specific performance be decreed, the decree should provide for the adjustment of all the equities among the several parties.
    On final hearing.

      Mr. Robert Newton Grane, for the complainant.

      Mr. William Nemcorn, for the defendants.
   Buchanan, V. C.

Complainant's suit is as vendee for specific enforcement of a contract of sale of a house and lot known as No. 228 Emerson street, situate in Plainfield, New Jersejb In addition to the vendor, J. D. Loiseaux Company, there are two other defendants —Joseph Nathanson, to whom vendor made a subsequent contract to sell the premises in question, and Plainfield Bealty Wall Paper Supply Company, a corporation in which Nathanson was interested, and to which, in consummation of the second contract of sale, conveyance of the property was made before bill filed.

The terms of the contract sued on are evidenced by a letter of February 4th, 1920, from vendor to vendee, which reads as follows:

“Plainfield, N. J., Feb. 4, 1920.
Mrs. David Patterson,
888 Emerson Ave.,
Plainfield, N. J.
Deaf. Madam :
We acknowledge having received $130 from you on February 3d, to' apply as follows: being the rent on the house for the month of February, and $100 being a payment on account of the principal of $3800 for the house and lot known as No. 228 Emerson Ave.
Our understanding- is this—that you will pay $30 each month until we are able to give you a free and clear title, the result of the foreclosure which we are now proceeding with. So soon as we are able to do this, you agree to pay us $3700 in the manner following: $3000 by raising this amount by mortgage on the above mentioned property, and $700 in cash, which we understand you are to raise by second mortgage, and the above when carried out is satisfactory to us, but if for any reason you are unable to carry out the above provisions, you agree, upon being requested, to vacate the property, leaving it in first class condition, and all that you have paid in to be counted as liquidation of any damages we might sustain.
If any of the above you do not fully concur, please advise at once, so that there can be no misunderstanding.
Very respectfully yours,
J. D. Loiseaux Lumber Oo.,
(Signed) J. D. Loiseaux,
JDL/DC By Treasurer.”

By the terms of this contract, the date of consummation— that is to say, the date when the vendor should convey and when the vendee should pay—was to be as soon as vendor obtained and could convey a free and clear title, as the result of a foreclosure suit then being carried on by vendor. That date in itself was indefinite and uncertain. Being- within the control of the vendor, it was obligated to- proceed in its foreclosure suit with reasonable diligence and dispatch. In other words, the time for' performance by bath parties was fixed as a reasonable time after the contract. Time was, obviously, not of the essence as to this. The vendee had been put in possession (she desiring the place as a home), and vendor was receiving, and was to continue to receive, adequate and satisfactory rent at a rate fixed by itself, during whatever time should elapse before the clearing up of the title. Apparently, vendor had title, but there was an encumbrance thereon to be cleared away by the foreclosure. (See Exhibit D-2.) The exchange of deed and purchase price was postponed, upon terms equitable to both parties, until that should have taken place.

It may be noted here that it appears by the entire correspondence that the negotiations were begun November 13th, 1919, and, indeed, the arangement for the sale and purchase agreed to about December, 1919. The vendee inquired the price of the house and accepted the price fixed, without haggling. The vendor, prior to fixing the price at $3,800, said (Exhibit D-2) it had been “practically” offered $3,800 for the house, and thought it should get $4,000. Obviously, therefore, the price of $3,800 was a fair price, and the element of friendships which, undoubtedly, existed in the case, did not—as, indeed, it could not properly in a corporation’s affairs—figure in a financial way to any appreciable extent. It further appears from the correspondence that the first idea of the vendor was that the vendee should pay down the $800, take possession, and pay the $3,000 balance (to be raised on mortgage loan) after the clearing up of title. The vendee’s letters show that she apparently was, or could have been, ready to pay the $800 about January 1st, 1920. The arrangement was later changed to a down payment of $100 on taking possession and the payment of $30 a month rent while waiting for the freeing of title. Why this change was made does not appear, but it certainly was more beneficial to vendor than the earlier plan, although perfectly equitable to the vendee.

The precise time that the vendor acquired its cleared title, and thereby fixed the time for performance, is a little uncertain. It could not have been until after May 24th (the date of the deed to vendor). From the testimony of Mr. J. D. Loiseaux and of complainant, and the letter D-13, I fix June 1st as the approximate date when notice was given to or acquired by complainant that the vendor was now able to convey. There had thus been a lapse of about six months from the time of the original oral agreement and of four months from the letter which was the written evidence of the modified agreement (prior to the writing of which the foreclosure had been commenced). Reference to the record and proceedings of that foreclosure suit on file in this court shows that the bill was filed December 26th, 1919, and that no unusual speed was exercised b}r vendor’s agent, the solicitor for complainant therein. For instance, there was a lapse of six weeks between the decree pro confesso and the filing of the master’s report.

June 1st, then, became, and was, the date for the consummation of the sale by conveyance and payment. But here, again, time was not made the essence of the contract by provision in the contract, 'nor by force of the circumstances. Hence, even if the dale bad been fixed and certain in advance, and the vendor bad attended and made tender of deed, the vendee, in equit3r, if payment were made or tendered within a reasonable time thereafter, would have been entitled to conveyance. Saldutti v. Flynn, 72 N. J. Fq. 157. But the vendor did not make such tender, nor attempt to hold the vendee to a strict performance as to time. The correspondence and dealings which ensued between the parties are further evidence (though none is necessary) that time was not of the essence in the transaction. True it is that the vendor repeatedly sought to speed performance by the vendee, but the actuating reasons therefor appear from the evidence to have been simply the desire. of businessmen to complete an unfinished transaction, and the desire, or, at least, the hope, of getting rid of the Patterson contract so as to enable greater profit to be realized from a sale to other parties who were willing to pay more money.

The latter motive is, of course, one which in nowise appeals to a court of equity. In equity the vendor is considered a trustee of the property for the vendee from the time of the making of the contract. Saldutti v. Flynn, supra; King v. Ruckman, 21 N. J. Eq. 599; Haughwout v. Murphy, 22 N. J. Eq. 531.

From the evidence I find the fact to be (as explained more in detail hereafter) that the vendee was ready to perform on July 30th. I further find that this delay of two- months was not an unreasonable delay under all the circumstances. Admittedly, all but the last two or three days of this delay was acquiesced in or waived by the vendor. This time was being spent by the vendee in actual endeavors to raise the $700 balance to pay the vendor (which, in the meantime, as Mr. Loiseaux testifies, had agreed to take the $3,000 first mortgage itself, as part of the purchase price), having been disappointed in the arrangements which she had originally made in that behalf.

The facts in the case at bar are, in the majority of particulars, remarkably similar to those in the case of Cranwell v. Clinton Realty Co., N. J. Eq. 540—so much so that the opinion of Vice-Chancellor Garrison in the latter case might serve almost equally well for the present issues. Here, as there, there was no unreasonable delay; no effort by vendee to obtain undue advantage or to speculate upon the property; no disposition by vendee to abandon the contract, but, on the contrary, continuous effort to perform; vendee having gone into possession of the property and expended some money and labor thereon; no tender at any time of deed by vendor; no return or tender by vendor of the part payment of purchase price which had been made by vendee. This case is a little stronger in vendee’s favor than the Cranwell Case, because here vendee was keeping vendor free from any loss by payment of adequate rent during the, interim, and because here the vendor was, to a certain extent, endeavoring, for its own advantage, to get rid of the contract. As to the $100 part payment, it does appear that vendor in its letter of July 27th spoke of returning this, on certain conditions, but no tender was ever made. Its right, under the original contract, to this $100, or any part thereof, was only as to- damages vendor should sustain by a breach. Here, if the contract were breached by vendee, it would sustain no damage, for it contemplated sale to the subsequent purchaser for a much higher price; and if it desired a rescission instead of a claim of breach, it was, of course, incumbent upon it to return the purchase-money.

Here, also, as in the Cranwell Case, there was an attempt by vendor to rescind or terminate the contract, and a question arises as to the effect of that which' was done in that behalf. On July 27th, vendor, through Mr. J. D. Loiseaux, wrote to vendee as follows:

“Plainfield, N. J., July 27, 1920.
Mrs. Margaret Patterson,
888 Emerson Ave.,
Plainfield, N. J.
Dear Madaii :
According to the writer’s call on you last Friday evening, you will remember you agreed that Tuesday morning, the 27th. you would call at our office to make payment of the balance of the $800.00 or at that time the property would be given up by you.
No doubt your party has disappointed you, for which we are indeed sorry, as we expected you were going to take this property over and make it a home, but as we have been waiting for you for many months, we are sure you cannot End fault with us, as the previous correspondence shows how the matter stands. Although we told you formerly .that if you did not pay the balance, the $100.00 you paid would be forfeited, yet we do not want to take advantage of this, and if you can give possession on the first of August, we will return you the $100.00 you have deposited, less, however, the unpaid rent, but if you cannot give possession the first of August, it will be satisfactory for you to live there until the first of September, at which time we can make the adjustment on your deposit.
Very respectfully yours,
J. D. Loiseaux Lumber Company.
Treasurer.
JLL/H J. D. Loiseaux.”

It will be noted that the first paragraph of this letter speaks of an agreement between vendor and vendee that the latter would pay the $700 on the morning of the 27th, or that at that time the property would be “given up” by vendee. There is no other evidence in the case of any such agreement—Mr. Loiseaux did not testify as to anjr such agreement. This letter, in itself, is, of course, no evidence in that behalf, but the fac-t that Mrs. Patterson in her reply made no denial or contradiction of the statement in Mr. Loiseaux’s letter might be evidence from which the making of such an agreement could be found as a fact. However, I find myself unable to give any such effect to this letter and Mrs. Patterson’s reply of July 29th, which reads as follows:

“228 Emerson Ave.
Plainfield, N. J.
July 29th, 1920.
Dear Mr. Loiseaux:
Your note I received yesterday afternoon, which was characterized as all your treatment towards us has been, namely, with great fairness.
Mr. Loiseaux that has been mainly why I have wanted this house so much to make a home [using your own phrase],
Mr. Chas. Schwab has not paid Mr. Tebbs as yet [he is having a big summer home built for himself and is very busy]. However, Mr. Patterson called on Mr. Eeickert of the State Trust Co. and he will advance the amount for us, by Mr. Tebbs signing for it to be paid at a stated time, which Mr. Tebbs is willing to do for us.
I know this has all been a great source of annoyance to you, Mr. Loiseaux, and I am just miserable over it all, but the before stated reason has made me anxious to carry on.
Mr. Patterson will call into the office Mr. Loiseaux on or around Saturday, kindly grant us just that much longer.
Gratefully yours,
Mabst. Patterson.”
“P. S. Enclosed you will find $30.00 rent for July.”

In the first place, the finding of such a fact, as already noted, can only be reached bv an inference from Mrs. Patterson’s failure to contradict. Such an inference is not by any. means a necessary or conclusive inference—and in the present case it is rebutted. Eor one thing it is pp-rfectly obvious from Mrs. Patterson’s reply that she did not consider the contract terminated—she was “carrying on” and expected to get the money by Saturday (the 31st). The relationship of practically employer and employe which had existed between Mr. or Mrs. Loiseaux and Mrs. Patterson, and the other circumstances, would naturally lead her to couch her reply as she did, rather than to make a contradiction. It is very significant in this behalf that she did not contradict his statement that “we have been waiting for you for many months”—a statement that was clearly untrue, for they had been waiting for Mrs. Patterson only a scant two months at most. It may further be noted that Mr. Loiseaux in his testimony says that he, “during May to July,” told vendee that vendor had contractéd to sell to an Elizabeth party for more money—statements which were obviously not true, since the other contract was not made till August 10th.

Again, even if it should be assumed that the agreement mentioned in Mr. Loiseaux’s letter had been made, the agreement by Mrs. Patterson, as stated, was, “I will, pay the balance of the $800 on Tuesday morning, the 27th, or I will, at that Lime, give up the property.” It does not appear that there was any consideration for the promise—and, certainly, she did not “give up the property.” If it be regarded as a notice from vendor to vendee, then the answer is, as pointed out in Cranwell v. Clinton Realty Co. (at p. 549) (citing Hubbell v. Von Schoenig, 49 N. Y. 327, and the opinion in the court of errors and appeals in McTague v. Sea Isle, &c., Association, 57 N. J. Law 428), that neither rescission nor termination was accomplished because there was neither return of the part paj'ment nor tender of the deed.

It will further be noticed from a careful reading of vendor’s letter of the 27th that it by no means constitutes a statement or notice that vendor considers the contract terminated or rescinded —much less, that it is going to act upon that assumption. There is nothing in the letter which, concludes anything—the letter still leaves it open, for anything to the contrary therein, for the vendee still to pay at once and get the deed. There had been prior “riltimatums” (see the letters of June 22d and of July 9th) which had not been enforced, nor attempted'so to be. And Mr. Loiseaux, in his testimony, says, speaking of July 30th, that if the $700 had been offered “at any time” the company would have accepted it. In Mr. Loiseaux’s letter of July 29th, he refers to Mrs. Patterson’s promises “to be in on the 25th,” but makes no claim that she had agreed to’ rescind or terminate.

Still, further, and of perhaps even greater significance, not only was nG claim made by Mr. Loiseaux in his testimony that a rescission or termination had been made by agreement, nor any such claim made in the vendor’s pleadings, or by its counsel in oral argument or brief (the point was not adverted to by either counsel), but, on the contrary, the vendor, in its answer, specifically says that it made repeated demands on the vendee for her to fulfill the contract, from May 24th, 1920, to August 10th, 1920.

From all of these considerations, therefore, it is clear to me that there was in fact no agreement to terminate or rescind, and that there was no termination nor rescission prior to July 30th.

The letter from vendor to vendee of July 29th, mailed late that night and not received until the afternoon of the 30th, seems of no great materiality, since it was not received until after the conversation between Mr. Patterson and Mr. Loiseaux on the morning of July 30th. ' On that morning, Mr. Patterson testifies, he went to Mr. Loiseaux at the company’s office with tho $700 (which was in the form of a treasurer’s check of the State Trust Company to Mr. Patterson’s order), in order to make the pavement- for the house; that he told Mr. Loiseaux he had come with the money to fix up on the house and “for my deeds right away;” that Loiseaux said, “Patterson, I am sorry, the hou.se is sold to another party in Elizabeth for more cash; can you move out before the first of September?” that he replied, “I have nothing to do with the people in Elizabeth—I have the money to pajr you for the house;” but Loiseaux did not give the deed nor-take the $700.

Mr. Patterson made a favorable impression as a witness; his credibility was not attacked, nor is it impeached by anything in the ease. He has an interest in the suit, it is true, but his testimony is corroborated by a disinterested witness, Mr. Smith, who, on July ,29th, obtained Mr. Tebbs’ signature to the note (from the discount of which the $700 was obtained), and who was with Patterson at the bank early in the morning of the 30th, saw him get the check, and immediately drove him tO' the Loiseaux office, and saw him tailring to Loiseaux, although he did not hear the conversation. The check and the note were produced in evidence. Mr., Loiseaux admits that he was at the Loiseaux company’s place that day—he cannot deny that he saw Patterson there that morning, or that he told Patterson that the house had been sold to another party for more cash. He does deny—and this is the extent of his denial—that if he saw Patterson at that time, Patterson offered to pay the $700. He says if Patterson had made such an offer “I would have accepted it in a minute.”

From all this evidence it is impossible to conclude otherwise than that Patterson did go there on that morning with the $700 check to pay to vendor and talked with Loiseaux. I also find in fact that Loiseaux told him at that time that the house had been sold to the Elizabeth party for more money and refused to perform the Patterson contract. Mr. Loiseaux’s failure to deny this, coupled with his letter to Mrs. Patterson of July 29th, make this practically certain, to my mind. As to just what Mr. Patterson did by way of tender is less clear. There is no testimony that Patterson physically tendered the check, or that he even showed it to Loiseaux. Patterson says he told Loiseaux “I have come with the money to fix up(on the house,” and “I have the money to pay you for the house.” It may well be that Patterson did not make clear to Loiseaux that he then and there had the money with him;' it may be that Loiseaux did not understand Patterson’s statement that he had the money, or that Loiseaux did not give Patterson a chance to make it clear'. I am satisfied, as I said, that Patterson had the money and intended then and there to make the payment. Having gotten the money as he did, and gone with it to Loiseaux for the purpose of paying, it is incredible but that one of two things necessarily happened— either he offered it to Loiseaux, or if he did not, such failure was occasioned by Loiseaux’s refusal and statement that the house was sold to the other party. Whichever of these be the fact, it seems to me makes no particular difference. Loiseaux’s refusal was not the result of any misrepresentation or misstatement by the Patterson’s, but it was a definite refusal by vendor to perform, and it was an actual misstatement of fact by Loiseaux to Patterson, inasmuch as the sale to the other party was not made until August 10th.

The next question that arises is as to the effect of the letter of July 31st, from Mrs. Patterson to Mr. Loiseaux, which reads as follows:

“July 31st, 1920.
228 Emerson Ave.
Plainfield, N. J.
Saturday morning.
Dear Mr. Loiseaux :
Mr. Patterson called into the office yesterday afternoon, but did not find you there.
Should your buyer wish to rent to us I feel that $35 a month should be plenty, in the event of his not renting, how could it have been possible for us to give possession on August 1st. even September is only a 30 day notice, and you will remember how fair I wished to be with Mrs. Henry, surely I deserve what I gave.
I am grateful to you, and thankful that you wish to return me the $100.00 deposit, it is quite an item to me, and of course of little account to you. ■
But I would add Mr. Loiseaux that we have done numerous little things around here and the -property has not deteriorated any since we came into it. I am,
Respectfully,
Margaret Patterson.”

It is now contended by the vendor’s counsel that complainants by their conduct, “after receiving notice of the rescission, have estopped themselves from equitable relief at the hands of this court.” The first-sentence of the letter refers to a call by Mr. Patterson at the Loiseaux office on the aft&nwm of the 30th. This, obviously, is not the call of the morning of the 30th. What the purpose of the afternoon call was does not appear; it may have been to make a further attempt to conclude the purchase, or it may have been to the same purport and effect as Mrs. Patterson’s letter of the 31st. The testimony is that on the return of Mr. Patterson from the morning’s call on Mr. Loiseaux-—he told his wife of the circumstances of that call—and of Loiseaux’s refusal and statement that the property had actually been sold to another. This letter is obviously based on that information, accepting that statement as true. If that statement had been true, the letter might be deemed an acquiescence and waiver of vendee’s rights. If there had been no misstatement of fact by the vendor, and the vendor had acted on the faith of that letter, interpreting it as an acquiescence’ and waiver, vendee might well be estopped. But the statement was not'true, and the letter based upon a belief in the truth of that untrue statement by no means justifies the inference of a waiver and acquiescence if she had known the truth, and I do not see how it can be so construed. Neither can I see any justification for any argument of estoppel—not only because of the fact that the letter was predicated upon vendor’s misrepresentation (and in this connection, it worild be no answer to say that vendee’s rights were not legally cut off by a sale to a third party, if she knew that as matter of law she might, nevertheless, have preferred to waive; her rights rather than to insist upon them, if there had actually been a sale to a third person) but also because there is no evidence whatever that the sale which was thereafter made to a third party was the result of the alleged waiver and acquiescence of vendee. On the contrary,.it appears clearly from the evidence that the sale had been previously determined upon by vendor, and was not in anywise the result of Mrs. Patterson’s letter. Mr. Loiseaux says the negotiations by his company for this other sale had been commenced while he was in Canada—-the middle of June—only two or three weeks after the company had acquired title.

' Neither can it be said that vendee’s waiting to file her bill of complaint until August 26th amounts to waiver, acquiescence, estoppel'or laches. The effect of vendor’s misstatement of fact would continue in this behalf until vendee was informed or learned of its falsity. Vendor does not show when that occurred, nor does -it appear from anything in the case, although it may be argued that it occurred at Nathanson’s call about August 10th. There is no evidence whatever that vendor relied upon vendee’s failure to- sue in concluding the contract and subsequently consummating the sale. And even if it had so relied, it could not avail itself thereby, for it could not equitably rely upon or take advantage of conduct resulting from its misrepresentations. ' . :

I conclude, therefore, that as between the vendor and vendee, vendee is entitled to a decree for specific performance. Now, as to the rights and liabilities of the other defendants—Nathanson and the Plainfield Bealty Wall Paper Supply Company. For the purposes of this suit these two ■ defendants may be deemed identical—Nathanson being the agent of the Plainfield company and negotiating the contract for its benefit.

Quoting from Cranwell v. Clinton Realty Co., supra (at p. 550):

“The rule is well established that a purchaser with notice of a prior equity, superior to the rights of his grantor, takes the place of the grantor and is bound to do that which he was bound‘in equity to do. Such a purchaser can be compelled specifically to perform the agreement by conveying the land in the same manner and to the same extent- as the grantor would have been compelled to do had he retained the legal title. Young v. Young (Chancellor McGill, 1889), 45 N. J. Eq. (18 Stew.) 40, 41; Haughwout v. Murphy (Justice Depue, Court of Errors and Appeals, 1871), 22, N. J. Eq. (7 C. E. Gr.) 547; Brinton v. Scull (Vice-Chancellor Grey, 1897), 55 N. J. Eq. (10 Dick.) 747.

“And to be a bona fide purchaser without notice, the defendant must not only have agreed to purchase without notice of the complainant’s previous agreement, but he must also have actually paid the purchase-money and taken his deed without such notice. Dean v. Anderson (Chancellor Bloomfield, about 1810), 34 N. J. Eq. (7 Stew.) 503; Brinton v. Scull, supera."

The subsequent purchasers by their answer dény that they had any knowledge of the Patterson contract. But at the time of the Nathanson contract, August 10th, and at the time of the deed, August 24th, and, indeed, at all' times, the vendee was in actual possession and occupancy of the premises. It is well settled, therefore, that Nathanson and the Plainfield company are chargeable with notice of the legal or equitable interest which the Pattersons claimed in the premises—with notice of every fact and circumstance which they might have learned by making inquiry of the persons in possession. Losey v. Simpson, 11 N. J. Eq. 246 (at p. 255); Wanner v. Sisson, 29 N. J. Eq. 141 (at p. 150); Wood v. Price, 79 N. J. Eq. 620.

The testimony shows that in the forepart of August, just prior to the execution of the second contract on August 10th, Nathanson came to the house with Kenyon, an employe of the Loiseaux company, told her that Nathanson was going to buy the house and wanted to see it; went through and looked at the downstairs part, and went out, and as they went out Nathanson said to her, “Your rent will be $45 a month,” but did not stop for any reply from her. This is Mrs. Patterson’s testimony. Nathanson testidtes to some additional conversation with Mrs. Patterson, which might be contended to be sufficient inquiry as to her rights 'or claims, or an estoppel. But I am satisfied that this alleged conversation did not take place. Mrs. Patterson denies it; Kenyon, called as a witness by Nathanson, did not corroborate it; and Nathanson did not make a favorable impression on me as a witness—he was evasive and in several instances made replies to questions which proved on further pressing to be untrue.

Nathanson called later on with McIntyre. It is not clear whether this was after the deed had passed or not, but even assuming it to have been prior to the deed, I find that nothing occurred to raise an estoppel against Mrs. Patterson. She denies the conversation as related by Nathanson and McIntyre, and I believe her. Nathanson I have already commented upon. McIntyre was a close associate of Nathanson’s, and both he and Nathanson say that on this occasion Mrs. Patterson said she could have bought the property but “couldn’t raise the money.” This is impossible for me to believe. It is absolutely certain from the evidence that she not only could, but did, raise the money. That being so, she certainly would not have made the alleged statement. The probability is that Nathanson believed she couldn’t raise the money, and believed that she had no rights except as a monthly tenant—but that that information came from the Loiseaux people.

I cannot find any waiver by vendee. It is elemental that waiver means an intentional relinquishment of-rights, and this necessarily involves a knowledge of the rights which it is alleged were intentionally abandoned. The Patterson testimony is that they did not know their rights until they consulted a lawyer, which was at the time the deed passed. There is no reason to doubt this—observation of them and consideration of all the evidence makes it certain. Furthermore, until the call of Nathan-son, about August 10th, she had no knowledge of the fact that the Loiseaux company had not already sold to Nathanson or another. Yendor’s refusal was on July 30th and the bill was filed August 26th.

Estoppel in pads is, of course, different from waiver, and might arise even in the absence of a knowledge of rights. But I do not see how any such arises here from Mrs. Patterson’s failure to consult counsel or to bring suit, or to notify Nathanson of her claim, between August 10th and August 24th. It was incumbent upon Nathanson to inquire of her as to her rights or claim, and this he did not do. Furthermore, there has been no damage occasioned to Nathanson; he has made no improvements or alterations in the property; he can be restored completely to the statu quo ante by the returning to him from the Loiseaux company of his money with interest. Neither is the latter damaged —it has had the use of Nathanson’s money. The only result of a specific enforcement of the Patterson contract is that the Loiseaux company and Nathanson are prevented from acquiring profits out of this house which in equity belongs to Mrs. Patterson, which equity I find she has not waived nor lost by estoppel.

I will, therefore, advise such decree.

The contract does not specify the term or interest rate of the $3,000 bond and mortgage to be given, nor that payment shall be postponed. It will, therefore, be payable on demand and with legal or six per cent. interest. Green v. Richards, 23 N. J. Eq. 32, 536.

Complainant is a married'woman and a conveyance by her is not valid without her acknowledgment (Chassman v. Wiese, 90 N. J. Eq. 108), nor without her husband joining in the same. Corby v. Drew, 55 N. J. Eq. 387. In the present case the husband is not a party to the suit, hor did he sign the contract, nor is there any contract acknowledged by the wife. Cf. Goldstein v. Curtis, 63 N. J. Eq. 454. Specific performance will not be decreed where, at the time of the decree, both parties are not bound—where complainant could not be compelled to perforin the obligation on her part. Richards v. Green, 23 N. J. Eq. 32; affirmed, Ibid. 536; Woodruff v. Woodruff; 44 N. J. Eq. 349; Ten Eyck v. Manning, 52 N. J. Eq. 47. There is, of course, no difficulty on this score as far as payment of money by the vendee is concerned. Moore v. Baker, 65 N. J. Eq. 104. The evidence shows that she agreed to buy and pay the agreed price. There may be no written memorandum of this signed by her, but if that were necessary it was supplied by the filing of her bill, under the principles mentioned in the cases last cited. Is there any difficulty by reason of the fact that her obligation is not merely to pay money but is to pay part in money and execute a purchase-money bond and mortgage for the other part ? I see no obstacle on that score. The contract is one for the benefit of the wife’s separate estate, and, under such circumstance, if a bond and mortgage be given by a married woman, invalid because of nonjoinder of the husband, or lack of acknowledgment by the wife, although the invalid mortgage creates no lien, yet thé court will decree a lien from the circumstances, and a lien thereupon arises from and by the decree. Insurance Co. v. Marshall, 32 N. J. Eq. 103; Armstrong v. Ross, 20 N. J. Eq. 109; Perrine v. Newell, 49 N. J. Eq. 57; Cf., also Wilson v. Brown, 13 N. J. Eq. 277. And where a married woman holds the property as trustee, equity will decree that she convey; the decree is self-executing and the questions of joinder by husband or acknowledgment by her raise no obstacles. Fee v. Sharkey, 59 N. J. Eq. 284; affirmed, 60 N. J. Eq. 446; Goldstein v. Curtis, 63 N. J. Eq. (at p. 461).

So, in the present case, the mortgage is to be security for the unpaid part of the purchase price; the vendor has a lien for that in any event—and a lien which is prior to any interest which the husband could take in the property. It might be said that under the agreement the complainant on receipt of the deed would immediately hold the property as trustee in favor of the vendor, to the 'extent of the mortgage promised, and a self-executing decree that she execute and deliver such mortgage might be made against her ; at any rate a decree establishing the vendor’s lien could be made which would have the same effect.

I think that under the circumstances of the case it is only equitable that the vendee should pay the interim “rent” up to the time of performance specified in the decree (which may be ten days after the date of the decree). It does not appear clearly from the evidence whether those payments have been kept up or not, but, inferential^, they have not. If the parties cannot agree on the amount (if any) due in this respect, I will hear testimony 'on any motion day, on five days’ notice.

The decree should provide for the complete adjustment of the matter among all the parties. Cf. Saldutti v. Flynn, supra. In addition to providing for the conveyance by the defendant realty company to complainant, and the payment of the purchase price, plus unpaid rent, by complainant, as above mentioned, it should also provide for the return by the Loiseaux company to the realty company of all moneys paid by the latter on account of purchase price, together with interest thereon at six per cent, from the dates of such payments; also sudh taxes as have been paid by the realty company with interest. The Loiseaux company is paid for these taxes out of the “rent” from complainant. Allowance is also to .be made by the Loiseaux company to complainant on account of taxes for the current year. Cf. P. L. 1918 p. 847 § 514. It would appear from the second agreement of sale (D-29) that there is a mortgage of $2,400 on the property held by outside parties. This, if still outstanding, must be satisfied and cancellation procured by the Loiseaux company, unless the parties are willing that complainant assume payment in lieu pro tanto of the $3,000 mortgage to be given by her under the contract.

The form of the decree can be settled on notice. Complainant is entitled to costs.


source: Caselaw Access Project

author: Buchanan, V. C.

license: Public Domain

text:
    Nathaniel E. Smith et al. v. Mary A. Reidy.
    [Decided May 9th, 1921.]
    In a suit for specific performance of a contract of sale, wihere the issue is as to whether or not the lands are subject to certain restrictive building covenants, depending upon the ascertainment of the true construction and legal operation of an ill-expressed and inartificial instrument, specific performance will not be decreed against vendee unless the court be satisfied beyond all reasonable doubt that the lands are free from the alleged encumbrance.
    On bill, &c. On final hearing.

      Mr. Samuel Koesiler, for the complainants.

      Mr. John J. Steamier, for the defendant.
   Buchanan, V. C.

Complainants, as vendors, file their bill for specific performs anee of a contract of sale to defendant of a certain lot located at or near Elizabeth, New Jersey. The contract was duly acknowledged by the complainant wife, as required by the statute. Deed has been tendered and refused.

The mitten agreement provided that complainants should convey free of all encumbrances. The complainant husband acquired title to the lot in question (which is part of a large real estate development tract) from the El Mora Land Company by bargain and sale deed without covenants or recital of any encumbrances. The El Mora Land Company was the grantee of the entire tract from one Doolittle, to whom it had been conveyed by the Old Colony Land Company.

In the deed from the Old Colon3r Land Company Doolittle bound himself, and his successors in title, to his grantor, and its successors in title, by certain restrictive covenants. This deed was duly recorded, and the covenants are therefore, to the extent of whatever force and effect they may have, binding upon complainant and constitute encumbrances, at least prima facie, upon the title which complainants offer to defendant. For this reason defendant refused to accept the deed and pay the purchase-money, and now contends that decree of specific performance should not be made against her.

The deed to Doolittle refers to a map of the tract laid out in blocks and lots, numbered, and specifically describes the premises thereby conveyed as

“Lots numbers 1 to 12, both inclusive, in block number 30;

“Lots numbers 1 to 30, both inclusive, in block number 36;

* * * * * * * *

“Lots numbers 1 to 22, both inclusive,'in block number 49;

“Also a gore of land of triangular shape formed by the intersection of Colonia road, Westfield avenue and Princeton road, said gore being opposite block number 36.”

It is this last-mentioned “triangular gore” which is the lot comprised in the contract now before the court.

The covenants in question provide that neither Doolittle nor his successors in title shall cause or suffer the erection on any part of the said premises of any building except a dwelling-house (and stable or garage) of a certain specified size and cost; that the front line of the house shall not be within thirty feet of the front line of the lot, and the foundations of the stable or garage not within one hundred feet of the front line of the lot; the shortest street line of a lot abutting more than one' street was to be deemed the front line of such lot. The covenants conclude with a specific provision that “the restrictions herein shall not apply to lots which are not at least one hundred feet deep and fifty feet wide,” except that on none of such lots shall any nuisance be earned on, nor any manufacture or sale of liquor.

The defendant has not objected to the restrictions against nuisances, or the manufacture or sale of liquor, and by her answer consents to accept title subject to those restrictions, her objection to the title being to -the building restrictions.

It seems very doubtful that any of the restrictions were intended to apply to the triangular .gore—for one reason, because the restrictive covenants specifically refer to “lots” and “blocks” and “lots numbered so and so” in “blocks numbered so and so,” all as shown on the map-—whereas the triangle is not numbered on. the map either as a block ór a lot, and is not referred to in the deed as a lot or block, but separately and expressly as “also a gore of land of triangular shape,” &e. ' In addition, this triangle was, at the date of the deed to Doolittle, in actual use by the Old Colony Land Company for business purposes, namely, the purposes of its real estate business, and had on it a building which did not at all conform to the restrictions, either as to character or location; and this office building was'continued in the same way by the new El Mora Land Company from that time (1905) down to a year or two ago, when-it was accidentally destroyed .by fire.

■ Furthermore, as to the building restrictions (which are the only ones which need be considered in this case), the deed expressly says that they shall not apply to any lots which are not at least one hundred feet deep and fifty feet wide. The triangular gore is fifty-six feet wide at the base and, approximately two hundred and fifty feet deep from the base to the point of the triangle.—so that, in one sense, it might be called a lot at least one hundred feet deep and fifty feet wide—but it certainty does not come within the description of a lot one hundred feet deep and fifty feet wide, as it would be understood by the ordinary man. Such a lot would naturally and commonly be understood to be a lot fifty feet wide throughout an entire depth of one hundred feet. The triangle in question does not comprise or contain any §uch rectangle of fifty by one hundred. Its width, at a distance of one hundred feet back from the front line, is only about thirty-five feet. •.

I think there can be no doubt, therefore, that if defendant had taken title, and the present suit had been brought by a neighbor seeking an injunction against the breach of these covenants, such relief would be denied. It is thoroughly well settled that “courts of equity do not aid one man to -restrict another in the use to which he may put his land, unless the right to such aid is clear;” and that where there is any doubt, from the language of the cove-' nants, or from any other reason, whether the restrictions contended for actually apply to the lands in question, equitable' relief will be denied. Fortesque v. Carroll, 76 N. J. Eq. 583; Howland v. Andrus, 81 N. J. Eq. 175; Underwood v. Herman, 82 N. J. Eq. 353.

It does not necessarily follow, however, that because equitable relief would be denied in the enforcement of a doubtful covenant, a vendee who has contracted for a title without encumbrances will be compelled to accept a title where doubt exists as to whether or not it is subject to restrictive covenants. In the ordinary case a vendor must tender a marketable title; and a title that- is defective or doubtful is not a marketable title and equity will not compel the acceptance thereof • by the vendee. On the same principle, it is obvious that where a vendee contracts for an unencumbered title, and there is doubt as' to whether' the title is encumbered b3r' a restrictive covenant, equity will not compel the acceptance thereof. On the other hand, the doubt must be a real and rational doubt, not merely colorable or fanciful. There must be at least a debatable question. Zelman v. Kaufherr, 76 N. J. Eq. 52, and eases cited.

In Van Riper v. Wickersham, 77 N. J. Eq. 232 (at p. 233), the court of errors and appeals of this state quotes Pom. Spec. Per. § 198:

“In suits by a vendor the purchaser will not be forced to complete the contract unless the title is free from reasonable doubt. * * * If, however, there arises a reasonable doubt concerning the title, the court, without deciding the question, regards its existence as a sufficient reaspn for not compelling tihe purchaser to carry out the agreement.”

And goes on to say:

“So, it is the uniform rule in this state to decline to decree specific performance where such doubt exists, though rested on grounds merely debatable, but which might visit upon the purchaser litigation in that regard, and that, too, where at law the title might in fact be declared good.”

In Doutney v. Lambie, 78 N. J. Eq. 277, the same court quotes Fry Spec. Per. § 253 et seq.:

“The vendor must prove that his title is good beyond a reasonable doubt and will not expose the defendant to litigation.”

And also quotes from its own prior opinion in Tillotson v. Gesner, 33 N. J. Eq. 313:

“The purchaser should have a title which shall enable him not only to hold his land but to hold it in peace; and if he wishes to sell it, be reasonably sure that no flaw or doubt will come up to disturb its marketable value. The court cannot satisfactorily or conclusively settle a title in the absence of parties who are not before them in the suit to assert their estate or interest in the lands.”

Applying these principles to the case at bar, can it be said, under the circumstances shown, that the freedom of vendor’s title from these building restrictions is evident beyond a reasonable doubt; that the true construction and legal effect of the covenants in the deed are not even debatable questions; and that defendant, taking title and acting on the belief that the lot is not subject to the restrictive covenants, will not be exposed to litigation ?

In the present case the questions affecting the title are purely questions of law. It is contended by complainant, therefore, that they can be settled and determined by this court in this suit; that such determination must needs be to the effect that the lot is not subject to the building restrictions; and that therefore specific performance should be decreed.

I take it, there is no distinction in principle between a case where the doubt or alleged doubt in regard to the title rests on matters of fact and a case where it rests on matters of law. The question to be determined is, Is there a reasonable doubt? Is there a debatable question? Is there any reasonable likelihood of defendant having to litigate after taking title?

Whether this court can in this suit, therefore, settle the question of law constituting the alleged doubt as to the title, depends upon whether, in determining that question of law, it can say that the determination is such a necessary result from principles of law so well established, that there can be. no reasonable doubt but that any and every court would reach the same result.

Vice-Chancellor Emery set forth in his opinion in Lippincott v. Wikoff, 54 N. J. Eq. 107 (at pp. 114 et seq.), the results of a very careful and thorough investigation of the law on this subject, including the English cases, to which exposition reference may here be made in toto rather than unnecessarily to lengthen these conclusions by the addition of excerpts therefrom. It may be noted, however, that if, indeed, in England the field of cases wherein equity will determine the questions of law giving rise to the alleged doubt has been'broadened by reason of the decision in Alexander v. Mills, L. R. 6 Ch. App. 124, that result seems not to be followed in this state, in view of the language in the cases of Van Riper v. Wickersham, supra, and Doutney v. Lambie, supra; and, furthermore, the present case, involving the ascertainment' of “the true construction and legal operation of some ill-expressed and inartificial instrument” comes within the exception of the language in Alexander v. Mills. See also Wilson v. Vogel, 87 N. J. Eq. 584 (at p. 585).

In Lippincott v. Wikoff, the legal questions giving rise to the alleged doubt as to the title rested, first, on a general principle of law, which the court held to be so well and firmly established as not to be open to question, and second, on the construction of a statute, which the court held to be so clear in language and meaning as to preclude any argument. The present case is by no means analogous, although, on the other hand, the grounds for deeming the question of defective title to be rationally debatable are by no means as strong as in Wilson v. Vogel, supra. It lies between the two.

' In my own opinion, the lot in question is not subject to the building restrictions, but I find myself unable to say that that proposition is not open to any rational debate—that it is a conclusion beyond any reasonable doubt. My own view rests upon my belief that a lot one hundred feet deep and fifty feet wide means a lot one hundred feet deep throughout its breadth and fifty feet wide throughout its depth; and also upon the legal principle that restrictions placed upon the use of lands conveyed in fee are always to be construed strictly, and ambiguities and uncertainties a.re to be resolved in favor of the owner’s unrestricted use of the land. Marsh, v. Marsh, 90 N. J. Eq. 244; Underwood v. Herman, supra; Howland v. Andrus, supra; Walker v. Renner, 60 N. J. Eq. 493. But, as against my views of the construction of the language of the covenant, it is certainly true that the triangular lot in question is literally over one hundred feet deep and over fifty feet wide, and I cannot say that another court or another judge might not be persuaded, by arguments developed by parties having an interest in maintaining the restrictions (no such parties being before me or involved in the present suit), to a conclusion at variance with mine. And, as to tire legal principle—while it is absolutely well settled in equity suits, and while it would seem clear that, being a rule of construction, it would be equally applied at law as in equity, and while I know of no decisions or dicta to the contrary, yet, on the other hand, such search, as I have had opportunity to malee, discloses no decision at law in this state where the rule has been laid down. Moreover, the language . (“the above-described premises, or any part thereof”) of the covenant imposing the restrictions is certainly broad enough to include the triangle, the language relied on to take the triangle out of the restrictions being in an exception to the general prohibition, and there is another well-known rule of construction which would require it to be made clear that a thing clearly within the general prohibition, but claimed to be excepted therefrom, does, in fact, come within the meaning of the exception clause.

Finally, I cannot sajr that defendant would not be exposed to litigation if she took title and then built upon the lot in contravention of the provisions of the restrictive covenants. It will be noticed that the language of the court of errors and appeals in the Van Riper and Doutney Cases, quoted earlier herein, is “exposed to litigation”—not “exposed to the hazards of litigation”— as is said in some of the cases. Of course, in one sense, each of us is always exposed to litigation; suit may be brought unjustifiably against any one, through ignorance or malice. What is meant, however, is, I take it, the possibility that a reasonable man advised by ordinarily competent counsel, might sue in respect of these covenants, in the expectation or belief that a successful outcome was not beyond the bounds of reasonable possibility. Tested by that standard, there would be no danger of suit in equity, as I have hereinbefore pointed out, but the same cannot be said as to a suit at law for damages for breach of the covenant.

The case is very close to the line, indeed, but I do not feel that specific performance should be decreed and will advise a decree dismissing the bill.


text:
    Great Council of the Improved Order of Red Men of the State of New Jersey v. Mohican Tribe, No. 64, Improved Order of Red Men, alias Mohican Tribe, No. 1, American Order of Red Men.
    [Decided May 23d, 1921.]
    1. One cannot become a member of a corporation without his consent, express or implied.
    2. An unincorporated association cannot, by resolution or other act of the members present at a meeting, become changed into a corporation, there being neither authority therefor by statute nor even in the contract of association.
    3. The members of an unincorporated association present at a regular meeting adopted a resolution to incorporate the association. The officers of the association executed and filed a certificate of incorporation under 1 Oomp. Stwt. p. 125. At a subsequent • regular meeting the members present adopted a resolution of ratification. No prior or subsequent notice of the intended or attempted action was given to the members, and the action was without statutory or contractual authority.—Held (1), that such action in nowise affected the existence or property of the association; (2) that the new corporation was a distinct entity from the guosi-entity of .the association;. (3) that no member of the association, could, or did, become a member of the corporation without his knowledge and consent; (4.) that a member of the association who did become a member of the corporation did not thereby lose his membership in the association nor his interest in the association’s property. .
    4. Where, after the circumstances given above, the association’s trustees, holding legal title to the association’s property, resigned.as trustees of the association and were elected trustees of the corporation, the title to the property still remained vested in them in -trust for the members of the association. . ;

      o. Where, after the circumstances given above, officers of the corporation are elected believing the association to have been changed into the corporation, and the corporation has possession of the association’s property, and the association is left without officers or agents, the court will direct the calling and holding of a meeting of the association, under the supervision of a master, to organize and choose officers, trustees and agents in conformity to the articles of association and by-laws, and will appoint a receiver meanwhile to take and hold possession of the association's property and deliver it to the persons so chosen by the association.
    On final hearing.

      Mr. William Neivcorn, for the complainant.

      Mr. William T. Boyle, for the defendant corporation, Mohican Tribe, No. 1, American Order of Red Men.

      Mr. Charles A. Cagan, for the defendant’s association, Mohican Tribe, No. 64, Improved Order of Red Men, et al.
   Buchanan, V. C.

The Improved Order of Red Men is a fraternal benefit order composed of numerous local organizations, called “tribes,” all of the tribes in each state being co-ordinated under the jurisdiction and authority of a state organization known as the “Great Council” of the particular state, and the several Great Councils of the states being in turn co-ordinated under a common head or organization known as the “Great Council of the United States.”

Under due authority from the national body, and from the Great Council of the State of New Jersey, a local tribe or branch was organized at Haddonfield, New Jersey, in 1883, under the name of “Mohican Tribe, No. 64, Improved Order of Red Men.” This body was an unincorporated association and will be hereafter referred to as “the association.”

At the time of the formation of the association, the several members thereof agreed to be bound by the constitution and laws of tire order then in force, or which should thereafter be duly enacted by the state council or the national council. Each new member thereafter admitted bound himself by the same agreement.

Under the general scheme and laws of the order, each tribe was, as to the “benefit” side of its affairs, locally self-contained. It paid out sick or death benefits only to its own members and did not contribute, directly or indirectly, toward the payments of benefits to any others than its own members. The funds out of which such benefits were paid arose solely from dues, assessments or contributions from its own members; no part thereof was received from members of other tribes nor-from the state or national organization. Such fund was therefore a trust fund for the benefit of its members, or their representatives, primarily, irrespective of whether or not the state or national bodies would by virtue of the laws of the order have any claim to the fund upon the local association becoming “defunct.” Cf. State Council v. Enterprise Council, No. 6, 75 N. J. Eq. 245.

The Haddonfield association, or tribe, functioned in all respects as a subordinate tribe of the order until 1916. In May of that year, at a meeting thereof, a resolution was passed to the effect that the tribe should become incorporated under the laws of this state as a corporation not for pecuniary profit. The resolution was passed by a majority of the twelve or thirteen members present—the total membership at the time being about one hundred and fifty. No notice of the proposed change was sent to the members, nor any subsequent notice of the action taken.

There was no purpose or intent to dissociate from the order nor to change in anywise the relationships theretofore existing between that tribe and the other tribes, or the state or national council. It appears that no one had any idea that any change in those relationships would or might result from the incorporation of the tribe. All that was had in mind was that the incorporation would be advisable because the tribe desired to purchase and hold a building (for its meeting place, &c.), and because incorporation would limit possible liability on the part of the body to the corporate assets and prevent possible individual liability of the several members.

Immediately after the passage of the resolution, five persons, who were members of the association, executed and filed a certificate of incorporation under the “Act to incorporate associations not for pecuniary profit.” By the terras of the certificate the five incorqrorators became such corporation, under the corporate name of “Mohican Tribe, No. 04; Imp’d O. R. M.” This name, it will be noticed, is precisely the same as the name of the association, except for the fact that it is partly abbreviated—and such abbreviations are the customary abbreviations of the association’s name. The purposes of the corporation are specified in the certificate as follows:

“The purposes for which this corporation is formed is to accumulate a fund by contributions of its members and the payments of dues and assessments, or by donations from others, to be used in case of sickness or disability, and to provide for the interment of deceased members, or the deceased wives of members, and granting assistance to such members as may be in need, and any and all features that tend toward benevolent and fraternal associations.”

The purposes of the association were as set forth in the constitution of the national Great Council:

“To perpetuate the principles of free government; instill into the hearts of our members a higher love and a holier veneration for the flag of our common country; cultivate a spirit of fraternal and brotherly love; care for the sick members and provide for the widows and orphans of our deceased members.”

At the next meeting of the association (about the same number of members being present, and largely the same persons as at the prior meeting) report of the incorporation was made, a copy of the certificate of incorporation presented and the action “ratified.” The persons who were trustees of the association (and as such held the property of the association) resigned as such trustees and were re-elected or elected as trustees, the purpose and object of this being to conform to the provisions of the statute last referred to, which required, or was deemed by them to require, the election of trustees to serve for one year, whereas under the association the trustees were elected in rotation, one each six months to serve two and a half years.

Except for this, and for the fact that a copy'of the'certificate of incorporation, at a few subsequent meetings, hung on the wall of the meeting-room, everything thereafter proceeded exactly as before. No notice was sent out to the members or to the state or national council that there’had been any change (although there is evidence that the state council acquired informal notice of the fact of incorporation); meetings were held at the same time and place and under the same regulations and procedure as theretofore; minutes thereof were kept in the same minute-book; the books and records were kept in, use; dues collected in the same way and same amounts and from the same persons; dues paid and reports made to the state council; delegates sent to the state council; the seal of the old association was used—in short, there was practically nothing whatever to indicate to any one that any change whatever had been made or attempted to be made in the organization or affairs of the tribe. Finally, in the middle of the year 1920, those who actively participated’ TnHhe lodge work and"niéétings' became dissatisfied’ with an increased tax levied by the Great Council1 (this was a small per capita, tax on the several local lodges to provide funds for the expenses of the Great Council), refused to pay the increased tax, or any tax, and the Great Council of the state notified them by letter of July 30th, 1920, that because of the non-payment of the tax, the charter of the tribe had been suspended and the members deprived of all their rights, privileges and benefits of the order. This was wholly in accordance with the laws of the order. The letter further demanded that all the property, effects and money of the tribe be turned over to the Great Council, under the provisions of article 8 of the general laws of the Great Council of New Jersey. (That regulation provides for such turning over of property and money when a tribe shall become “defunct.” Another provision is to the effect that a tribe shall not be dissolved or defunct as long as there are seven members willing to continue it.)

The local tribe (whether association or corporation) did not comply with this demand. On the contrary, Herbert W. Letts, Jr., and Herbert W. Letts, Sr., who were the then president and secretary at the meetings regularly held as aforesaid, filed, August 9th, in the Camden county clerk’s office, and on August 13th, in the secretary of state’s office, a certificate of change of name of the corporation “Mohican Tribe, No. 64, Imp’d O. E. M.,” to “Mohican Tribe, No. 1, American Order of Eed Men.”

Immediately after learning of this, complainant, the Great Council of New Jersey, filed its bill of complaint August 24th, 1920, against “Mohican Tribe, No. 64, Inrproved Order of Red Men, alias Mohican Tribe, No. 1, American Order of Eed Men,” asldng that defendant be restrained from exercising any of the franchises and privileges under the charter from the complainant, from using the.rites and ceremonies of the order, from disposing of any of the property, paraphernalia and moneys of the tribe; that defendant be adjudicated a duly-suspended branch of the order, and that by reason thereof all its property became vested in complainant; that an accounting be made by defendant as to such property and assets, and that it be decreed to turn over the said property and' asséts to complainant.

An order to show cause, with temporary restraint, was issued, and on the return thereof was continued. At the hearing on such motion it appeared that there were members of the original association who claimed to have had no part in, or knowledge of, the incorporation, or change of name, or refusal to pay dues, and who desired to continue the tribe as originally constituted. Leave was given for such to inteiwene as loarties defendant, and to counter-claim, and such an answer and counter-claim was. filed by “Mohican Tribe, No. 64, Improved Order of Eed Men”' (the unincorporated association), and some twenty-nine individuals claiming as members of the association as- against the defendant corporation.

The real contest now is between the old association and the new corporation. The laws of the order and the constitution of' the local tribe provide that the “tribe shall not be dissolved as long as seven members are willing to continue it.” There are. more than seven members of the association willing and desirous of continuing the old association, as a part of the order, and loyal to its laws. The complainant, therefore, • does not seek to restrain them from so doing, or to obtain the property from them, but believes them entitled to continue and to have the property, and is willing and anxious that such should be the-result. It claims only to be entitled to the property as asked by its bill, in the event that the issue between the association .and the corporation should be decided in favor of the latter, although it still claims the right to enjoin the corporation’s use of the name “Red Men.”

It is unnecessary, therefore, to go into any question of property rights as between complainant, on the one hand, and defendants on the other, because I deem it_entirelyj3lgg.r that ,the association never lost title or right to the property, which Consists 'of certain paraphernalia, a little cash and about $12,000. of securities.

1 The property was the property of the members of the association as such. This is true, in equity, whether the legal title be deemed to be in the several members, or in certain officers or agents, as trastees for the members. Each member has an interest in the property so long as he is 'a member, even though he cannot assign or convey such interest, and loses it on his ceasing to be a member.

The nature, extent and limitations of the interests of the members in the property are dependent upon the “articles of association” oil agreement under which the association was. formed. In the present instance that agreement is found in the “constitution and by-laws” .agreed to by the original members, and by each subsequent member on his admission. By the terms of the constitution the general laws of the order are also made a part of the agreement. .All of these together, therefore, constitute the contract between or among the several members themselves, and between the association as a whole and the several members. 5 C. J. 1341.

Article 8 of the general laws of the order provide as follows:

“Funds.
“Section 1. A11 wampum or funds of a Tribe are trust funds of the Order, created for the advancement and best interests thereof as a whole, and shall never be expended for any other object or purpose than the-following, to-wit:
“(a) The necessary expenses of the Tribe economically administered! and as determined by the Legislative and Judicial Departments of the' Order.
“(b) The payment of per capita taxes, sick and funeral benefits and for charitable pux’poses.
“(c) The purchase of real and personal property for Tribal use, or as investment, if permissible by law.
“(d) The loaning of same at interest; provided, That no loan shall be made to any member of the Tribe making the loan.
“(e) For social purposes, not to exceed ten per cent, of the total income of the Tribe.
“Sec. 2. The dues and other sources of revenue may be placed in separate funds for certain and specified purposes, as by the laws provided.
“Sec. 3. Upon a Tribe becoming defunct, all property, effects and wampum in its possession or belonging to it shall thereupon at once vest in and become the property of the Great Council having jurisdiction, and the same shall be delivered to the Great Incohonee or the Great Sachem upon demand, as the case may be.”

I need scarcely say that an association and a corporation are very different organizations. They are not, and cannot be, the same. One man may be a member of an association and also of a corporation; the same one hundred and fifty men might constitute the entire membership of an association and the entire membership of a corporation, but still the association and the corporation would be separate and distinct things. This, of course, is admitted by defendant corporation, indeed, it must necessarily be admitted by the defendant corporation when it contends, as it does, that the association became a corporation in. 1916, and by and because of so becoming and being a corporation, it from then on was no longer bound by the laws of the order. It is obvious that a corporation is bound by the laws of the state relative to corporations, which do not relate to and are iir. nowise controlling upon associations.

By their contract above mentioned, the members had agreed and were obligated to be and continue an association, bound by all the terms and parts of that agreement, and bound by state statutes relative to associations; and that the property accumulated by them should be held for the association-and themselves as members of the association, in accordance with the tribal constitution and by-laws and general laws of the order as aforesaid.

It jvould seem 'elemental that this contract could nojNbe changed without the consent of all the members, unless there were some provision in the contract, or in the law of this state, providing for such change upon less than the consent of all, and under certain procedure and conditions. It would also seem elemental that a man cannot become a member of á corporation without his consent, at least, implied, if not expressed. It follows, as a necessary corollary, that an association cannot be .incorporated—cannot be changed into 'a corporation instead of an association without the consent of every one of the members— at least, unless there be in the contract-of association, or the statute law of the state, some provision enabling it to be done without the consent of all.

I have examined carefully the tribal constitution and by-laws and the general laws of the order, and I have been able to find no such provision enabling less than all of the members to change the contract in any of its fundamentals, in the way it was attempted to do and is now contended was done. There are provisions that the local by-laws may be amended on a two-thirds vote on certain procedure (which was not followed in the present case), but the by-laws may not contravene the constitution or general laws, and the latter may only be changed by the Great Council of the state. There is nothing that I can find in the law of the order in the shape of provisions for the incorporation of a tribe. There are provisions -(article 14 of the general laws) as to consolidation of two or more tribes; as to this it is provided that a resolution for consolidation shall be offered, and shall lie over for two weeks, and that- in the meantime notice shall be sent to each member of the proposed consolidation and of the date when the resolution will be acted upon. Surely, nothing less than this would suffice for the changes sought to be made in the ease sub judice.

Now, as to any authority from the statutes of this state. Neither the act of 1898 (1 Comp. Stat. p. 125, amended P. L. 1914. p. 152), under which the incorporation of defendant corporation took place, nor any other statute of which I am aware provides for the incorporation in tolo of a previously existing association. The provision of that statute runs to “any five or more persons, societies, associations or clubs who shall desire to associate themselves,” &c.

Counsel for the defendant corporation, in contending that the association had a right to incorporate, cites Pierson v. Gardner, 81 N. J. Eq. 505, and Grand Court, &c., v. Court Cavour, &c., 82 N. J. Eq. 89; also Spiritual Temple v. Vincent, 127 Wis. 93. Neither of the New Jersey decisions is authority for any such proposition. In the Piersom Case the court says: “The members of the local society could have availed themselves of the statute if they had wished to be bound by corporate ties.” In Grand Court v. Court Cavour, the situation dealt with in the opinion is that between a superior lodge and an actually incorporated local lodge—not the situation as to whether a local lodge which is an association can by act of less than all the members turn itself into a corporation. The decision in the Wisconsin case is' reached because of a Wisconsin statute specifically providing the right and method for an association as such to incorporate without the unanimous consent of the separate members.

In the instant case, as has been pointed out, only some twelve or thirteen of the membership' of about one hundred and fifty actually participated in the incorporation. Perhaps as many more may be said to have impliedly concurred therein, by reason of knowledge and acquiescence. There is no pretence that either advance or subsequent notice of the incorporation was sent to the members of the association, and the proofs show that at least a very considerable number of the association members never knew anything about the incorporation until about the time of the commencement of this suit—some, indeed, not until after the suit was commenced.

It is clear, therefore, that while the incorporation proceedings resulted in the creation and existence of a legal corporation— the corporate defendant—the association was not thereby dissolved, nor merged in the corporation, nor did it in anywise lose its existence or change the character thereof. It, likewise, is clear that no change was thus effectuated in the property of the association—either as to the legal or equitable title. Nor is there any evidence or claim that any transfer of title or interest in such property was made, or attempted to be made, by any other means than the alleged operation of law under the circumstances of the alleged incorporation and merger—there were no instruments of conveyance nor resolutions for any such. The title and interest in the property remained just as before—the members of the association had the beneficial interest, and the officers who previously held the legal title in trust for such members, continued to hold it as such trustees. This is true, even if it be held that such officers resigned as officers of the association— for such resignation did not divest them of title or possession— and that legal title would be still held for the benefit of the members of the association, notwithstanding the "trustees” may have committed acts which would justify the beneficial owners in taking steps to deprive them of such title and possession.

Coming, now, to the occurrences in July, 1920, what effect resulted therefrom? Considering these occurrences as acts of the defendant corporation—the act of that corporation in changing its corporate name could have no1 effect on the property of the association. Neither could the act, or attempted act, of the corporation in withdrawing from the main organization—breaking its allegiance to, and its contract relations with, the state Grand Council. The corporation never had any allegiance to, or contractual relations with, the state or national organization— and even if it had had, the breaking of such relationship by it could not affect the property of the association. Considered from the association standpoint, there was no breaking away by the association, for, even assuming for the sake of argument that such action could be taken by the association without the consent of all its members, here, again, there was no pretence of notification to all members so as to bind them by failure to appear. If we consider that a certain number of the members withdrew, that does not constitute a withdrawal of the association, and the utmost that could result would be that the withdrawing members might cease to be members of the local association. The property would still be the property of the association for the benefit of the members remaining.

The corporation has possession of the property. This is admitted in its answer as well as shown by the proofs.

To recapitulate, briefly, then—

The property was the property of the association.

The association as such did not become a corporation; neither did it dissolve or otherwise go out of existence.

A corporation was formed by some of the members of the association.

The association did not, nor did the several members thereof, nor their agents or trustees, convey the property to the corporation.

The corporation took and holds possession of the property.

The association is not barred by laches or estopped from asserting the right to the property.

It follows, then, of course, that the association is entitled to the possession of the property. It is obvious that approximately one hundred and fifty members of the association cannot physically take and hold this property. Neither can the association, considered as a gmsi-entity (any more than can a corporation), physically take or hold possession of property. The possession of the association, or of the members of the association, must be by agents, officers or trustees, chosen, authorized and empowered for that purpose by the members of the association. In the present case there are no such agents or trustees so- chosen and authorized by the association. I take it that the meetings of the "organization," subsequent to the attempted incorporation of the association, were technically meetings of the new corporation. Most of the comparatively few members participating in such meetings believed they were a corporation and were functioning as such, and in the elections held during the succeeding four years intended to vote, and believed they were voting for officers of the corporation, and the nominees elected believed they were accepting office, and intended to accept office as officers of the corporation. The association, therefore, at present has no organization and no agents.. A receiver, however, may be appointed to take possession of the property from the corporation, and hold the same until the association has chosen agents, and then to turn the possession thereof over to the agents so chosen.

There being no organization of the association, and no agents or officers to call and hold a meeting to- organize and choose officers and agents, and there being no provision in the laws of the tribe or order for the calling and holding of such a meeting by any member, or set of members, the decree may provide for the calling of such a meeting and the sending of notices thereof to the members, by a special master, and for the holding of such meeting and election, under his supervision, in full accordance, so far as possible, with the constitution and by-laws of the association.-

Notice of this meeting should be sent to all members on the roll of the association or corporation. There has always been a single aggregation of individuals actually' interested in the property in question and in administering, and participating in, the fraternal benefit features. There is not, and has not been, any difficulty or question as to who composed this aggregation interested in the funds and benefits—the only question has been whether that aggregation was a corporation or an association. Those who believed it to be a corporation—those who created the actually existent corporation, assumed that all the members of the association were members of the corporation—no attempt was made to exclude any one from the organization or aggregation. There is not even at the present time any split in, or attempted secession from, the local aggregation. Some members (those who do the active work) desire that the local aggregation shall be severed from- allegiance to, and connection with, the state and national organization; other members (apparently, the majority of the members) are opposed to this, but there is no desire or intent on the part of either faction of the local aggregation that either itself or the other faction shall part or be excluded from- the local aggregation. The members who created the new corporation have not, under the laws of the tribe or order, lost membership- nor become suspended from membership, in the association by reason of creating the corporation, or taking possession of the association’s property on behalf of the corporation, nor by failing or refusing to pay the per capita' tax to the state council. (They may have rendered themselves liable to penalty or discipline from the association by reason of their acts, but we are not concerned with that in this case, for no such action has been taken, or attempted to be taken, by the association.) The local association has been suspended from the state organization by the state council, but that of course does not suspend any member of the local organization from membership in the local organization. Assuming (as is doubtless the fact), that during the four years, from 1916 to 1920, new members have been elected into- the local aggregation, and assuming that they understood and believed that the aggregation was a corporation, and that the}1- technically, therefore, joined the corporation and not the association—nevertheless, what in fact such new members intended to do, and believed they were doing, was the attainment of membership' in the actual aggregation, whether association or corporation. Equitably, therefore, these new members should be deemed members of the association. They have paid their dues and acted in all respects precisely as they would if there had been no corporation. The members of the association receiving the benefits of the dues paid in by such new members have no cause to complain; and, certainly, the corporation having represented to these new members that they were joining the local aggregation having the property cannot be heard to object.

I see no cause for separating, or attempting to separate, out from the property to be turned over by the corporation to the association any moneys representing dues paid to the corporation by those who created the corporation and knew it to be a corporation. As is the case with the new members, they did not intend to pay to a corporation or other organization distinct and separate from the actual local aggregation; they have received benefits from the actual aggregation, either in the shape of actual benefit payments or “protection,” as it is called, in the language of insurance. Their membership', in the association being preserved they lose nothing; and, furthermore, if there were ho other reason, their dues have become indistinguishably mingled udth the funds of the association in such a way that it would be utterly impractical to separate out any balance as now properly theirs, and this mingling lias been done by their own unlawful acts.

If they hereafter fail to persuade the association to sever itself from the state organization, and thereafter see fit- to withdraw themselves from the local association, that will be their own affair;, we are concerned with no such situation at the present time. They are, as I have said, still members of the association and have lost nothing and will lose nothing by the transfer of the funds to the association. They can only sustain loss by some possible future act.

There remains the question of the use by the corporation of the -name Red Men and of the rituals. It is unlikely that this question will be of any real importance, in view of the result reached as to the matters hereinbefore considered. Inasmuch as; there is the bare possibility, however, that a dissatisfied few may seels: to continue the existence and the acts of the corporation, it is probably advisable to determine that issue. ■

The use of the name is admitted. The use of the rituals is denied, but the proofs show that such use, with only minor modifications', has in fact been actually made after the change of corporate name and suspension by the state council. Subsequent cessation after bill filed will not deprive the complaining parties of the right to restraint. Cf. Kroecker v. Camden Coke Co., 82 N. J. Eq. 373 (at p. 394).

As to the use of the rituals, therefore, the right of complainants and of the local association to a decree restraining the corporation seems clear. The corporation’s only possible claim to the right to use the ritual must be rested upon a claim to be a part of the general organization. It makes no such claim, but, on the contrary, contends that since July, 1920, it has been no part or parcel with the general organization, and does not desire to use, and is not now using, the ritual.

As to the use of the name, it seems likewise clear from the authorities (see Cape May Yacht Club v. Cape May Yacht and Country Club, 81 N. J. Eq. 454, and eases therein cited) that both the state council and the local association would have the right to have the corporation restrained from using the name “Red Men,” unless that right has been lost by acquiescence or laches. The claim of the defendant corporation is that the complainant had knowledge through the knowledge of one of its officers, at the time of the incorporation, that the incorporation had been effected; that the state council had acquiesced, without protest,. during the ensuing four years, in the use of the name-by the defendant corporation, and had therefore lost its right to restrain. I confess that in view of the fact that the use of the name by the defendant corporation during all that time was in nowise hostile to, nor in competition with, the state council, but, on the contrary, in complete subjection to, or cooperation with, the state council, under the belief and representation by the defendant corporation that it was still the same subordinate lodge of the order, I should have great difficulty in finding any acquiescence by complainant; and, inasmuch as complainant immediately filed its bill upon the commencement of the hostile, or competitive use by defendant corporation, it has' not been guilty of laches.

But whatever might be the -situation of complainant in this regard, assuredly, the counter-claimants, the members of the local association, have the right to have the defendant corporation restrained. No acquiescence as to the local association, or, at least, as to the majority of its members, is or can be claimed, for they had no knowledge or notice- that the defendant corporation had been formed and was functioning (whether or not hostile to, or in competition with, the state council and the local association), but, on the contrary, the acts or omissions by defendant corporation were- such as to preclude such knowledge by, or notice to, the members of the association.

The corporation should therefore be restrained from using the name “Bed Men” and from using the ritual.

The form of decree may be settled upon notice.

I have not overlooked the possibility that in order for the decree in this case to afford complete relief, it may be necessary to bring in as parties the “trustees” or persons having the actual legal title to the property beneficially owned by the members of the association, in order that the decree may "provide for a conveyance of the legal title to the property by them to the new trustees to be chosen by the association. The counter-claim of the association members can readily be amended by adding the names of such persons, and the facts as to their holding the legal title, with a prayer for process against them. Doubtless, they would appear and answer at 'a short day, submitting to be bound by the evidence at the hearing already had, since they would have no claim or interest in the property other than as trustees for the association or for the corporation, and the issues in that behalf have been fully considered; indeed, a failure in such indicatecl procedure by them might result in their being visited individually, with costs. On the other hand, it may not he necessary for this course to he taken, inasmuch as the said “trustees” will probably be entirely willing to execute voluntarily the requisite instruments of conveyance to the new trustees to be chosen; and, in the present situation of the case, a decree may be made with no other parties than those already in court, adjudicating the equitable title to the property, inasmuch as the two claimants to such equitable title are before the court.


author: Fielder, V. C.

text:
    Liberty Trust Company v. William J. Haggerty et al.
    [Decided April 14th, 1921.]
    1. The payee of a check has no legal right to exact payment on it by the bank on which it is drawn. The check does not constitute a contract between the bank and the payee and the bank has the right to elect whether to pay the cheek or not.
    2. Payment of a check by a bank on which the check is drawn, under the mistaken belief that the maker of the check has sufficient funds to his credit, is a finality and the bank cannot recover from an innocent payee of the check the amount so paid.
    3. A bank is charged with knowledge of the state of its customer’s account on which a check is drawn when it makes an election whether to pay the check or not, and the fact that the account appeared to be good when actually it was not is immaterial, so that a bank whose bookkeeper falsified an account on which checks were drawn is liable for the acts of its bookkeeper as against an innocent holder of the checks to whom the bank bad paid the amounts they called for and cannot recover such amounts from such holder on any theory that a trust should be declared in the bank’s favor in the amounts so paid.
    On bill, &C.

      Messrs. McGwrler .& English, for the complainant.

      Messrs. Lum, Tamblyn & Golyer, for the defendant Alfred P. Mayhew.

      Mr. David BobJcer, for the defendant Frederick R. Lehibach, trustee.
   Fielder, V. C.

The proofs show that the defendant Haggerty was conducting a sham importing business in the city of Newark, his real purpose being to obtain money from others, ostensibly for investment in his business, or on personal loans on his promise of repayment' with interest at a high rate. Complainant is a trust company doing a banking business, with whom Haggerty kept a checking bank account. He induced a bookkeeper in complainant’s employ to so manipulate the books of the bank that checks drawn on the bank by Haggerty were honored and paid out of an apparent balance to Haggerty’s credit, when in fact he had insufficient funds to meet his checks. The first false bookkeeping entry in Haggerty’s account appears under date of July 24-th, 1918, and not again until August 14th, 1918, from .which latter date to on or about December 9th, 1918, the false entries occur nearly every day, and by means of the conspiracy between Haggerty and the bookkeeper, the former succeeded in obtaining on his-overdrafts a total of nearly $53,000 of the bank’s funds. The falsification of Haggerty’s account was accidentally discovered by one of the bank officials on December 9th, 1918, and Haggerty was arrested the following day. A petition in bankruptcy was filed against Haggerty December 20th, 1918, and he was duly adjudged a bankrupt 'and a trustee in bankruptcy was appointed. The total amount realized on his assets was about $9,500, and upward of $150,000 in claims have been filed with his trustee.

The defendant Mayhew entered Haggertjf’s employ about May 1st, 1918. Shortly prior to that date he had been attracted by the inducements held out by Haggerty and had made loans to him at usurious interest rates. Subsequent to the date of his employment, Mayhew continued to make loans to Haggerty on the latter’s promissory notes, receiving from time to time payments of interest at rates which ran from twenty per cent, to forty per cent, per annum, and partial payments on principal. These payments of principal and interest were made by Haggerty’s checks to the order of Mayhew, drawn on and honored by complainant during the time complainant’s bookkeeper was engaged in falsifying Haggerty’s account and'the amount paid by complainant on these checks, against which Haggerty actually had no funds to his credit, was $19,250.

Complainant seeks to have the money so received by Mayhew impressed with a trust in its favor, upon the theory that the checks given Mayhew by Haggerty and drawn on complainant, were not received by Mayhew as a bona fide holder for value, and that they were not effectual to pass title to Mayhew of money stolen by Haggerty from complainant. In the event that May-hew should not be required to account for such money directly to complainant, the complainant and the trustee in bankruptcy contend that at the time of such payments, Haggerty was insolvent and that Mayhew had reasonable cause to believe that he was insolvent, and that he (Mayhew) was being preferred, and because all the payments to Mayhew were made within four months before the filing of the petition in bankruptcy, they must be repaid to the trustee. Complainant then insists that a trust on such funds should be declared in its favor, for the reason that the bankrupt’s estate should not be permitted to profit by the crime of the bankrupt.

There seems to be no doubt that Haggerty was insolvent at the time he made the payments on account of his -indebtedness to Mayhew, but my conclusion from the evidence is that Mayhew \was not aware of that fact, and had no reasonable cause to believe that he was being preferred as a creditor, and therefore the payments made to Mayhew are not voidable under the Federal Bankruptcy act. I am also satisfied that Mayhew had no reason to believe that Haggerty’s bank account was being falsified and that Haggerty’s checks on complainant to Mayhew’s order were • paid with money Haggerty was stealing from complainant. •Haggerty’s checks came to- Mayhew as payments on account of principal and interest due on Haggerty’s promissory notes which evidenced Mayhew’s loans to Haggerty. On receiving these checks, Mayhew became a bona fide holder for value. Comp. Stat. p. 3738 § 25. As the holder of these checks, Mayhew had no legal right to exact payment on them from complainant, because they did not constitute a contract between complainant and Mayhew and complainant had the right to determine whether to pay them or not. Comp. Stat. p. 3756 § 189; Creveling v. Bloomsbury National Bank, 46 N. J. Law 255; National Bank of New Jersey v. Berrall, 70 N. J. Law 757. In making its election whether to pay or not, complainant was bound to know the state 'of its account with Haggerty. The fact that his account appeared to be good when actually it was not is immaterial. Complainant placed its bookkeeper in a position where he had the opportunity to falsify the account and it must be held accountable for bis acts as against an innocent third party who presented checks received in the ordinary course of business. Having exercised its option to pay or not to pay by honoring the checks, complainant cannot recover the money back from the payee. This is under the general rule that payment of a cheek by a bank upon which it is drawn, under the mistaken belief that the maker of the check had sufficient funds to his credit to pay the check, is a finality and the bank cannot recover from the payee of the check the amount so paid. One of three reasons, and sometimes all three reasons, have been assigned, for the rule —first, because there is no privity between the payee and the bank; second, because the bank always has the means of knowing the state of the depositor’s account by an examination of its books, and therefore the payment is not a mistake within the meaning of the general rule which permits the recovery of money paid under a mistake of fact, and third, because to permit the bank to repudiate the payment would destroy the certainty that must pertain to commercial transactions of this sort and give way to the uncertainty, delay and annoyance which would result if the bank could at some future time call on the payee for the return of money paid him on a check. National Bank of New Jersey v. Berrall, supra; 23 L. R. A. (N. S.) 1092; 33 L. R. A. (N. S.) 1023. So, it has been held, that the certifieation of a check ly a bank upon the mistaken belief that the drawer had sufficient funds to his credit, when in fact the apparent credit was the result of the deposit of a forged check to the credit of the drawer’s account, Awill not excuse, the bank from pajung the certified check (Fidelity Trust Co. v. Baker, 60 N. J. Eq. 170), and it has also been held that where a bank official haring authority to certify checks, certified one for an amount rvhich he knew to be in excess of the drawer’s account, the effect of the certification is payment, precisely as if the bank had paid the mone3r on it instead of making a certificate of its being good and the'bank is estopped'from denying that it has sufficient funds with which to pay the check. State v. Scarlett, 91 N. J. Law 200; 2 A. L. R. 86. And it is the rule that a person receiving stolen money innocentfy in due course of business, in pa3'ment of a pre-existing debt, is a holder for value as against the former owner. Fidelity Trust Co. v. Baker, 60 N. J. Eq. 170, 173; 25 L. R. A. (N. S.) 361; L. R. A. 1917 A, 704 707.

All the checks girren by Haggerty to Mayhew, save one, were deposited by Mayhew in his bank under a general endorsement and were paid by complainant to Mayhew’s bank. It might be argued that when Mayhew deposited the checks in his bank, the amount thereof was credited- to him; that the money so credited was the mone3r of his bank; that the transaction was, in effect, a sale of negotiable paper by Mayhew to his bank; that the money complainant afterward paid was paid to Mayhew’s bank and not to Mayhew, and that the right -to recover money paid by mistake exists only as against the parly to whom the payment was made. But this question' of privity between the parties to this action was not raised and has not been considered.

I shall advise a decree that complainant’s bill be dismissed.