author: Stevenson, V. C.

text:
    Emily M. Baiz et al. v. Coro and La Vela Railroad and Improvement Company.
    [Decided May 11th, 1917.]
    1. Under the evidence in this case, the claim- of the United States of Venezuela is not a preferred claim' on the funds in the hands of the receiver. The bonds held by it are not equitable liens on that fund, but only represent a general indebtedness.
    2. Venezuela is obliged in equity to put in hotchpot the dividend which she received on her claim through bankruptcy proceedings in her court.
    On appeals from the adjudication of the receiver of an insolvent corporation in respect, to the. allowance of claims, and on application for a counsel fee for services rendered in the recovery of assets by the receiver and for the enforcement of an equitable assignment of or other equitable claim to a share of such assets.

      Mr. Thomas L. Raymond and Mr. Francis P. Pace (of the New York bar),.for the Republic of Venezuela. ' .
    ‘ Mr. líaximilian T. Rosenberg, Mr. Edgar J. Nathan and Mr. Michael H. Caa'dozo, Jr. (of the New York bar), for the executors- of Baiz.

      Mr. Charles D. Thompson, for Frank S. Bright.

      Mr. Charles L. Carricic, receiver pro se.

   Stevenson, V. C.

There are in this proceeding three separate matters which have been to a large extent heard together. It will be the function of this memorandum to set forth, as briefly as possible, the conclusions which I have reached and state the principal reasons for 'such conclusions.

1. The first case to be considered is presented by the appeal of the Hnited States of Venezuela from the action of the receiver, in disallowing its claim to- a preferred charge amounting to $114,700, and interest to a large amount thereon, under a mortgage alleged to cover the entire fund in the receiver’s lands. I am not certain whether the receiver rejected this claim in toio, ox allowed it as a general claim, but rejected it as a preferred claim under the mortgage referred to. However that may be, the evidence satisfies my mind that the appellant holds one hundred and thirty-nine mortgage coupon bonds of the Coro and La Vela Bailroad and Improvement Company of $1,000 each, and that these bonds constitute valid obligations of this corporation, and that through bankruptcy proceedings in Venezuela $25,300 of this bonded indebtedness was paid, leaving the balance ($114,700) with a large amount of interest due and unpaid and entitled to payment out of the fund in the receiver’s hands, either preferentially or concurrently with the general claims which have been proved.

The only question to be considered in relation to this claim of Venezuela is .whether it stands as an encumbrance upon the fund in the receiver’s hands. My conclusion is that it does not, and the reasons for this conclusion require some statement of the facts.

(1) On December 12th, 1892, the original concession contract for the construction of the Coro and La Vela railroad in Venezuela was granted by the government of Venezuela to “Manases Capriles and to his partners, associates or successors.” This concession or contract does not appear to have been approved as required by law until March 26th, 1895. By assignment dated July 8th, 1895, from the administrator and next of ldn of Manases Capriles, who was then deceased, and his original “associates,” this concession was transferred to Abram W. Naar. Jacob Baiz, of New York City, appears to have been the promoter or the principal original promoter of this Venezuela railroad enterprise, and for the purpose of its proper exploitation a corporation was created under the laws of New Jersey entitled the Coro 'and La Vela Railroad'and Improvement Company, among the objects of which was the construction and operation -of this railroad.

On August 12th, 1895, a month after Naar had acquired the concession from the Capriles syndicate, he assigned it to this New Jersey corporation, the Coro and La Vela Railroad and Improvement Company.

By the tenth article of this original concession it was provided that

“the grantee, his associates or his successors, will have the right to transfer or convey .this concession to another party, or to a national or foreign corporation with the same rights, conditions and obligations that are established, complying with the formalities of the law, and giving due notices to the government.”

There are grounds for arguing, as will' hereinafter appear, that this express provision contemplated the assignment of the concession to a national or foreign corporation or other party capable of carrying out, and intending to carry out, the work of constructing the railroad for the promotion of which the concession was made. The evidence bearing upon this question is in an unsatisfactory condition. I think, however, that we may assume, for present purposes only, that this original concession expressly provided that it might be assigned by way of mortgage to secure money to a foreign corporation not expressly authorized to construct railways in foreign countries, and not intending to engage in such work.

On August 29th, 1895, the Coro and La Vela Railroad and Improvement Company executed in the usual form a mortgage to-the Farmers Loan and Trust Company of New York City, as trustee, to secure an issue of one hundred and fifty thousand bonds of $1,000 each. The one hundred and thirty-nine bonds above mentioned held by the appellant, upon which its claim is based, are a part of "this issue. The mortgage covered all the tangible property of the corporation, and also expressly included the concession contract, and used terms which will be mentioned hereafter, to extend its scope as an equitable mortgage to after-acquired property of a certain description.

On May 18th, 1896, while the railroad, as I understand the situation, was in process of construction, there was a law or decree passed bjr the government of Venezuela permitting the granting of subsidies under certain conditions, to its concessionaires engaged in the construction of railroads at given rates ■“for every section of ten kilometers finished.” This new law, in article 16,.'provided as follows :

“The concessions cannot be transferred either totally or partly to foreign governments. Transfers between private individuals, syndicates ■or companies must be previously approved by the liational executive in •ordfer to be valid.”

This new law of Venezuela was approved May 27th, 1896.

On May 18th, 1897, the government of Venezuela, pursuant to the provisions of the last-mentioned statute or decree, entertained the application of an.agent of the Coro and La Vela Eailroad and Improvement Company for the “addition of an article” to the concession contract of 1892 “for the construction of a railroad between the port of La Vela and the city of Coro, granting a subvention from the national treasury of twenty thousand bolivars for each kilometer of road,” and thereupon granted such subvention, payment thereof to be made “at the completion of each ten kilometers.” This supplementary concession of 1897 recites that the railroad was then in process of construction. There can be no doubt that this subvention was made to the Coro and La Vela Eailroad and Improvement Company which was then engaged in completing the railroad.

On February 18th, 1898, the amount of the subsidy which was due from the-government of Venezuela to the Coro and La Vela Eailroad and Improvement Company was ascertained, according, to law, by the proper officers of the Venezuelan government and “liquidated” at the sum of two hundred and seventy thousand bolivars. No part of this money was paid except in pursuance of the award hereinafter mentioned.

The history of this railroad enterprise in Venezuela for some years after the liquidation of the subsidy in 1898, is very slightly touched upon in the evidence. It is a matter of history that Venezuela became involved in difficulties with foreign governments, and that her custom houses were seized, and that, largely through the intervention of the United States, an adjustment of the financial claims held by citizens of the United States and other countries against Venezuela was effected through a “mixed commission” created by the United'States of America and the Republic of Venezuela. The claim of the Coro and La Vela railroad against Venezuela for the ascertained amount of the subvention had been diligently pressed on behalf of the railroad company by the direction of Mr. Jacob Baiz, who seems to have stood behind the whole enterprise as its chief promoter and chief creditor. Mr. Bright, whose claim to compensation will hereinafter be considered, kept urging this claim through the diplomatic agencies at Washington, under the direction of Mr. Baiz until his death in 1899, and after that under the direction or in the name of his .personal representatives 'or the railroad company itself.

The railroad company at some time before or after the death of Mr. Jacob Baiz—probably some time after—became insolvent, or for some other reason incapable of continuing its business, and the status of its property in Venezuela is only vaguely indicated by the evidence in. this case. It is alleged that the government of Venezuela took possession of all the railroad property and proceeded to operate tire railroad. It may be surmised that whoever held and operated this railroad made no profit thereby.

On May 2d, 1900, the governor of New Jersey by proclamation declared the charter of the Coro and La Vela Railroad and Improvement Company void on account of the non-payment of taxes due the state for the year 1897. Previous to the making of this proclamation the corporation had been enjoined by the court of chancery of New Jersey from the transaction of any ■further business "on account of the non-payment of said taxes. "Whether the directors of the corporation at the time of its dissolution by proclamation, made any effort to obtain or administer the assets of tbe corporation does not appear, but the inference seems to be warranted that these directors took no steps in that direction.

In May, 1903—there being a prospect that the “Mixed Commission” might make an award in favor of the claim which Mr. Bright had been urging—the present suit was brought in this court by Emily M. Baiz and others, executors of 'Jacob Baiz, deceased, against the Coro and La Vela Bailroad and Improvement Company and its directors, praying that a receiver be appointed of all the assets of the corporation, and that the directors be enjoined from transferring or in any way interfering with the same, and thereupon such injunction was granted and Mr. William G-. E. See, now deceased, was appointed receiver.

Upon the appointment of Mr. See, as receiver, Mr. Bright, in May, 1903, presented to the proper United States officials, at Washington, a memorial from the receiver setting .forth that the Coro and La Vela Bailroad and Improvement Company had completed the railroad from La Vela to the city of Coro, in accordance with its contract, and.that the amount of the subvention had been liquidated by the Venezuelan officers at two hundred and seventy thousand bolivars, and that no part of this money had been paid. The memorialist prayed that the claim be presented by the agent of the United States to the “Mixed Commission” according to the protocol, &c., and that the agent of the United States be directed to insist- upon payment.

In June, 1903,.the “Mixed Commission” rendered its judgment awarding the sum of $61,104.70 in United States gold coin “in favor of said claimant,” who is referred to as the Coro and La Vela Bailroad and Improvement Company, and directed that the said sum should be paid by the government of Venezuela to the government of the United States of America in accordance with the provisions of the convention under which the award was made. No money was received by the United States on this claim for a number of years owing, mainly, I understand, to the preference which was given to the payment of certain other claims of great magnitude. The entire amount has now been collected from the United States government by a series of receivers, and the present receiver has in hand the sunr of $51,000 for distribution pro rata among six or eight parties who have presented their claims under oath to one or another of these receivers, or for distribution pro rata among the holders 'of the mortgage bonds. It will be seen that- if the mortgage, is held to be a valid encumbrance upon this money, the United States of Venezuela will take about fourteen-fifteenths of the fund. If, however, the mortgage is not an encumbrance upon this money, then, as I have found, the bonds to be valid obligations of the insolvent corporation, the United States of Venezuela, will take a smaller but still very large share of the fund, the amount of which will depend upon the aggregate amount of other claims which are allowed. It may be noted in passing that it appears from a statement of the claims presented to the receiver; that if the appeal of Venezuela from the allowance by the receiver of the claim of the estate of Jacob Baiz, amounting to over $75,000, should be finally sustained, the result would be that Venezuela would not be greatly interested in securing the establishment of the mortgage as a lien on the fund. If, however, the Baiz claim is finally allowed, the dividend of Venezuela will be reduced from about fourteen-fifteenths to about two-thirds-—the other claims allowed besides these two large ones being for comparatively Small sums.

I have referred to the obscurity in which the evidence leaves the status of the'railroad, which seems to have been to a large extent completed by 1898, during the eight or ten years which followed» The sole ’purpose of the present suit in this court seems to have been to procure the appointment of a receiver through whom the claim for the two hundred and seventy thousand bolivars could be presented to the “Mixed Commission,5'’ and b]r whom any money awarded on account of that claim could be received. The first receiver, Mr. See, appears to have made no effort to discover any assets in Venezuela. In whose possession these assets were in 1903, and thereafter until 1908 we are not definitely informed, although, as I have said, it is alleged that the railroad property in Venezuela had been seized by the government of Venezuela.

Continuing the history of this South American railroad enterprise, it appears that .however the railroad may have been then held or operated, in December, 1907, the Eepublie of'Venezuela filed a petition in bankruptcy in one of her courts against the Coro and La Vela Eailroad and Improvement Compan]', and thereupon i promptly the court made an adjudication of bankruptcy against the company. The judgment of the court found, in accordance with the allegations of the petition filed on behalf of the Eepublie of Venezuela, that Venezuela was a creditor of the bankrupt as the holder of one hundred and forty of the said issue of mortgage bonds. And further found, in accordance .with the allegations and prayer of the petition, that the mortgage was invalid under the laws of Venezuela as to all property situate in that country. The bankruptcy proceedings seem to have corresponded with similar proceedings in rem under bankrupt laws of other nations, but include a judgment invalidating the mortgage, although the inference is that the mortgagee, the Farmers Loan and Trust Company of New York, was not noti-. fied of the destructive claim which was made against its mortgage, and in no way appeared, or was represented in the proceeding. The important fact, however, to be noted is that Venezuela procured this decree adjudicating in her court that she was a creditor as the holder of these mortgage bonds, that the mortgage which secured these bonds, and which covered practically all the property of the mortgagor, and all of which was situated in Venezuela, was, under the laws of Venezuela, invalid as to such property. The administration of the assets of the bankrupt then proceeded in a manner corresponding with such proceedings in our own courts. The decree of bankruptcy directed that creditors residing in Venezuela should present their claims within fifteen days, “plus the traveling time,” and that creditors residing out of Venezuela be notified of the adjudication of bankruptcy, and that such creditors should prove their claims within certain periods prescribed according to the location of the creditors. Whether the estate of Jacob Baiz was treated as resident in Venezuela, or’ whether it.was treated as resident in New York, and therefore entitled to five months’ notice, does not appear. It does appear that the claim of the Baiz estate was not proved in this bankruptcy proceeding.

On October 26th, 1908, the Venezuelan bankrupt court made an order for the sale of the railway, telephone line, real estate, buildings, machinery, rolling stock, &e., of the bankrupt, and in describing the property sold expressly enumerated the “stock of tools, implements and other personal property for the use and service of the railroad enterprise situate at its stations at Coro and La Vela ’and in the workshop.” It is plain that the liability of Venezuela under the award of the “Mixed Commission” made five years before this bankrupt sale, was not included in the assets of the bankrupt which were inventoried and sold. This liability had been merged in an award in the nature of a judgment requiring Venezuela to pay an amount of money to the United States of America on account of the claim of the Coro and La Vela Railroad and Improvement Company, and the bankrupt court of Venezuela made no attempt to collect or sell the award. The decree for the sale of the assets of the company recognized the claim of Venezuela^ as.the holder of one hundred and forty of the mortgage bonds, to an amount with interest then ascertained to be over a million bolivars. The aggregate amount of the claims of thirteen other creditors was found by the decree to be nearly seventy thousand bolivars. Venezuela, therefore, was found entitled to about fourteen-fifteenths of the entire proceeds of the bankrupt estate. The decree further adjudicates, a sale having been held and the assets apparently having been bought in on behalf of Venezuela, that the United States of Venezuela was the owner of the assets “for the price of one hundred and thirty-nine thousand ninety four bolivars, the said property to form part of the private dominion of the United States of Venezuela.” It may be noted that this final decree of October 26th, 1908, adjudicates again that the mortgage of the Farmers-Loan and Trust Company

“was not known to the Venezuelan law, could not produce the consequence of creating in favor of the holders of said bonds any liens or special rights over the properties situated in Venezuela as are those that are being sold in this proceeding,”

and that the purchaser would take free from all encumbrances.

It may be also noted in passing as one of the curious and interesting features of these Venezuela bankrupt proceedings, in 1907, that it does not appear that the Coro and La Vela Railroad and Improvement Company had been doing- any business in Venezuela or elsewhere for at least four years. In 1900, this New Jersey corporation was enjoined by the court of chancery of New Jersey from prosecuting any business on account of the non-payment of taxes and was dissolved by proclamation according to law, and, subsequently, in 1903, its entire - property, so far as the State of New Jersey could control the same, was placed in the hands of a receiver subject, of course, to valid liens.

(2) Proceeding now to the examination of the question whether the mortgage of the Farmers Loan and Trust Company ever was a valid encumbrance upon the original concession contract, there seem to be strong grounds for answering this question adversely to Venezuela. The mortgagor was located in Venezuela. Apart from raising money and purchasing material, there is no evidence that it ever transacted the business of constructing or operating a railroad anywhere else. It was created for the purpose of constructing and operating for forty years this railroad in Venezuela. This New Jersey company not only established itself in business in Venezuela, but accepted a concession contract under Venezuelan law, and that contract expressly permitted its transfer to another party “with the same rights, conditions and obligations that are established, complying with the formalities of the law and giving due notice to the government.” 'Whether the “formalities of the law” were complied with and notice was given to the government when this assignment by way of mortgage was made to the Farmers Loan and Trust Company, are 'matters upon which the evidence gives little, if any, information. The express provision for an -assignment of the concession under conditions seems to imply the exclusion of assignments without those conditions. Moreover, the purpose of the article permitting an assignment seems to have been to permit an assignee to come in and construct and operate . the railroad under the terms of the concession. We are certainly far away from such an assignment when we are presented .with this mortgage made to secure money and given to a trust company located in tire city of New York, which could hardly be expected to stand readjr to go down to Venezuela, construct this railroad and tiren operate it for forty years.

In view, however, of the unsettled questions of fact relating to. this branch of our inquiry, and the unsettled questions of Venezuela law pertaining to it, I have concluded to pass this fundamental and possibly fatal objection to the establishment of this mortgage as an encumbrance upon the right of the Coro and La Vela Eailroad and Improvement Company to receive this award of money 'now in the hands of the receiver, which award was based upon a recognition and enforcement of this right.

(3) But we are not dealing with the original concession of May 12tlr, 1892. For present purposes, we may assume the mortgage to have been a valid encumbrance upon all the rights of the Coro and La Vela Eailroad and Improvement Company under that concession. We are dealing with the subsidy granted by what is in effect a supplemental concession in 1897, nearly two years after the mortgage was made to the Farmers Loan and Trust Company to secure this issue, of $150,000 of bonds, and one year after a new law had been passed by the government of Venezuela permitting such subsidies to be granted. When the mortgage was made, not.only was there no subsidy provided for, but there was no law under which any such subsidy could -be granted. It might be argued that the mortgage of the original concession of 1892, especially in view of the words contained in the mortgage with respect to after-acquired property, would operate as an equitable mortgage upon supplementary articles which might be added from time to time by agreement between the contracting parties, Venezuela and the mortgagor. Ulrfortunately for this argument, when we examine the law of Venezuela passed in 1896, permitting subsidies to be provided for in concession contracts like this, we find the above-quoted express provision constituting article 16 of the statute:

1 “The concessions cannot be transferred either totally or partly to foreign governments. Transfers between private individuals, syndicates or companies must be previously approved by the National' Executive in order to be valid.”

There is no pretence that the alleged equitable or anticipatory transfer made in 1895 to the Farmers Loan and Trust Company of New York was ever “previously approved” or at any time approved by the national executive of Venezuela as is expressly required by the law of 1896 under whichIhe subsidy was granted to the Coro and La Vela Eailroad and Improvement Company. If it is worth while to infer or surmise as to the reasons of this limitation upon transfers, in view of tire plain language of the law, it may be noted that the manifest object of Venezuela in' providing by law for these subsidies to railroad companies was to secure the construction of railroads. Great evils can, I think, be pointed out resulting in the prevention of the construction of a subsidized railroad if the concession and the right to receive a subsidy, under it could be mortgaged to a foreign trust company. In view, however, of what seems to be the plain prohibition of the law above set forth, any further discussion of the purpose and object of the law in order to- aid in -its interpretation seems to be unnecessary.

In considering the question of the'assignability of the original concession of 1892, and the supplementary concession of 1897, it must be borne in mind that while the original concession was assigned to Abram W. Naar¿ and it does not appear that such assignment was permissible,' or in fact was valid under the laws of Venezuela, or, if valid, was. made in accordance with the express terms of the concession itself, the subsequent assignment 'by Naar to the Coro and La Vela Eailroad and Improvement Company was recognized in the most solemn manner by Venezuela, and the subsidy was made directly to that company. 'It is the transfer of rights under the concession to a trust company in a foreign state' by means of an instrument operating as an equitable mortgage to secure loans of money with which we must deal and to which wé must apply these provisions of the Venezuelan contracts and Venezuelan laws.

In my judgment this mortgage of 1895 purporting to cover the concession of 1892, if valid as to that original concession, could not possibly operate as an equitable mortgage upon the' after-acquired subsidy under the law of 1896, when that law expressly prohibits such a mortgage.

(4) If we assume that the Coro and La Vela Railroad and Improvement Company in 1895 could make a valid mortgage of this, possible right to a subsidy, which possibly might arise in the future under a new law which Venezuela might possibly enact, and a supplementary concession which Venezuela might grant, my examination of the terms of the mortgage itself leads me. to the conclusion that it could not and did not at any time operate as an equitable assignment or mortgage of the right of the mortgagor to receive this subsidy, which right could not have' been lawfully created when the mortgage was made, and in fact did not come into existence until two years afterwards. The rule is well settled which compels a somewhat strict construction of these railroad mortgages when ascertaining their effect as equitable mortgages upon after-acquired property. The limits of this memorandum, if it is to have any, will not permit a!'discussion of the phraseology of this mortgage which must be reviewed for a minute investigation of its interpretation and application to the subvention. The mortgage undertakes expressly to convey the grant and concession of 1892 and all property .that might thereafter be acquired by the mortgagor “for u'se in .connection with its business as a railroad corporation.” The authorities, I think, lead to the limitation of this description of after-acquired property to what may be so acquired in connection with the operation, -not the construction, of the railroad. The habendum which counsel for Venezuela thinks favors Mis view of the case, defines the tenure of the mortgagee as including the said property and the premises, real and personal, rights, &c.,

“hereby granted, assigned and conveyed, or intended so to be, with all and singular the reversion, remainders, income, tolls, revenues, rents, issues and profits arising out of or from the operation of said railroad, or any part thereof, and privileges, benefits and appurtenances now or hereafter belonging. 'Or in anywise appertaining thereto.”

' In my opinion the habendum clause, the function of which it .is to define the tenure of the grantee, indicates that the mortgage did not. contemplate the acquisition of a subsidy or subvention under a law which might thereafter be enacted, but only moneys which might be acquired from the construction of the railroad. 3 Cook Corp. ed.) §§ 856, 857; Humphreys v. McKissock, 140 U. S. 304; 35 L. Ed. 373; New Orleans Pacific Railroad Co. v. Parker, 143 U. S. 42; 36 L. Ed. 66; Smith v. McCullough, 104 U. S. 25; 26 L. Ed. 637; Emerson v. European and North American Ry. Co., 67 Me. 387.

(5) -If we assume that the mortgage contains language which should be construed as creating under certain conditions an equitable encumbrance upon this after-acquired right to the subvention, I think that the authorities will not permit the establishment of such an equity in favor of the mortgage under the circumstances proved in this case. In the first place, it should be noted that no attempt has been made to argue that the mortgagee could have taken possession of this sum of two hundred and seventy thousand bolivars if upon the liquidation of the subvention at that sum the money had been paid by Venezuela. The most that has been argued, and as I think can possibly with any show of reason be argued, is that upon the mortgage coming due or default in its covenants being made, the equity of the mortgagee in respect of this money would arise. That the mortgagor before the mortgage fell due could collect the two hundred and seventy thousand bolivars and expend them in any legitimate way cannot be doubted.

The mortgage following the usual form provides that until default, &c., the mortgagor should be entitled “to remain in the full possession, use and enjoyment and control” of all the property mortgaged or intended to be mortgaged, and also should be entitled to manage the same and to receive and use the income,” &c., and “all moneys payable and receivable or derivable therefrom.”

The mortgage further provides that in case of default for six months to pay, &c., the mortgagee might take possession of the mortgaged property and conduct “the business operations” of the mortgagor and exercise its franchises and collect the revenues, &c., and after deducting the expenses apply the residue of the money to the payment of the amount due on the bonds.

The mortgage also provided that in case of default, &c., the entire mortgage debt might be declared to be due and thereupon the mortgagee might sell the mortgaged property at public auction in the manner prescribed. Provision was also made in the mortgage for the appointment of a receiver upon the commencement of any judicial proceedings to enforce the rights of the mortgagee and the bondholders.

I think under the provisions of this mortgage the most important of which are above set forth, the right of the mortgagee and the bondholders to have this instrument of mortgage enforced as an equitable mortgage upon this subsidy, the right to which did not exist when the mortgage was made, does not appear to have been contemplated as liable to come into existence by the parties to the mortgage, and in fact came into existence two years afterwards—a right pertaining to the construction of the railroad and not to its future operation—can only be asserted after some form of seizure of the subsidy or the property with which it was connected, or the institution of some proceeding to enforce the mortgage. While the mortgagee was standing aside and making no effort in any way whatever to enforce its mortgage .even upon the tangible projierty of the mortgagor, and was leaving the mortgagor, so far as it (the mortgagee) was concerned, in full possession and control of all its property, including this subvention, the mortgagor had full power as against it (the mortgagee) to make or suffer any lawful transfer of this subvention, this right to receive the subsidy. Gilman v. Ill. and Miss. Telegraph Co., 91 U. S. 603; 23 L. Ed. 405; American Bridge Co. v. Heidelbach, 94 U. S. 798; 24 L. Ed. 144; Freedmen's Savings and Trust Co. v. Shepherd, 127 U. S. 494; 32 L. Ed. 163; Zartman v. First National Bank, 189 N. Y. 267; Smith v. Eastern Railway Co., 124 Mass. 154.

In this situation of affairs in 1900 the corporation was enjoined from prosecuting any business, and in 1903 all its assets, so far as the State of New Jersey controlled such assets, were vested in a receiver appointed by a New Jersey court. Moreover, this receiver forthwith proceeded to assert his right as the successor of the Coro and La Vela Railroad and Improvement Company to the only assets which he seems to have noticed, viz., the right, under the subvention from Venezuela and the ascertainment of the amount thereof by the proper Venezuelan officers, to recover through the “Mixed Commission” the amount' of the subvention, viz., two hundred and seventy thousand-bolivars. The receiver asserted his own right, not the right of the mortgagee whom he disregarded, and the mortgagee and the bondholders stood b3r and allowed him to recover and ’receive the moneys.

Who in 1903 were the holders of this issue of bonds we are not informed. Venezuela appeared in 1907 as the owner of fourteen-fifteenths of them. Whether or not some time during a period of eight or ten years which preceded the bankruptcy proceedings in Venezuela in 1907 the valuable assets of the railroad .were seized by Venezuela or some other party, we are obliged to infer that the mortgagee and the bondholders did not make the slightest effort to assert any rights under the mortgage in any way whatever. The entire effort to enforce the subvention and collect the amount thereof through the “Mixed Commission”, was mácle by the New 'Jersey receiver without the slightest aid from the mortgagee or the bondholders. This successful operation of the receiver to recover money alleged to have been mortgaged for more than the amount thereof, seems to have been the plainest possible assertion of a’ right in the receiver in derogation of any alleged right or claim of the mortgagee. Except in certain cases a receiver of a dissolved or insolvent corporation administers only the equity of mortgaged properties. It would be a strange result, it seems to me, if this so-called equitable mortgagee could be allowed to stand by, assert no right in any way to this subvention, and their when the receiver primarüy representing the general creditors had effected a recovery of the amount of the subvention, a sum amounting to over $60,000, come into a court of equhy and have its mortgage established as an equitable mortgage upon the $60,000 under the terms of the mortgage relating to after-acquired property.

(6) The Republic of Venezuela, through its representative and attorney, as we have seen, instituted the proceedings in bankruptcy against the Coro and La Vela Railroad and Improvement Company in 1907, ignoring the fact, that long before the cor-’ porate existence of the alleged bankrupt had been terminated under the laws of New Jersey, under which the bankrupt corporation was created, and also ignoring the fact that the New Jersey court of chancery had placed this New Jersey corporation under an injunction restraining it from doing any business, and undertaking under the statute of New Jersey to place all the assets of said corporation,- wherever situate, in the possession of a receiver then'appointed. In the petition which the Eepublic of Venezuela filed in these bankrupt proceedings, she asserted that the mortgage to the Farmers Loan and Trust Company was invalid as to property situate in Venezuela, and procured an adjudication to that effect. Seasons may be surmised why Venezuela in 1907 and 1908, being the holder of one hundred and thirty-nine or one hundred and forty of these bonds, preferred to have the mortgage declared void, and the Farmers Loan and Trust Company excluded, from consideration, provided the bonds themselves were adjudged valid obligations representing a valid debt, but in regard to this matter the evidence is unsatisfactory.

The point to be brought out is that Venezuela in 1897 and 1898, in the most solemn manner in her own court, asserted the invalidity of this mortgage as a mortgage of property situate in Venezuela, and procured in that court an adjudication to that effect, and subsequently received ás a general creditor holding one hundred and forty of -the mortgage bonds, the great bulk of the proceeds of the assets of the bankrupt administered in the Venezuela court, which assets were described in and were attempted to be covered by the mortgage; and now having secured this result, Venezuela comes forward in the court of chancery of New Jersey and seeks to establish the validity in New Jersey of this same mortgage, and, have this court enforce the mortgage as an equitable mortgage covering the proceeds of this subvention as after-acquired property. Of course there is no inconsistency in the claim of Venezuela that this mortgage was inoperative upon property in Venezuela under Venezuelan law, but was valid and operative in respect of property situate in New Jersey under New Jersey law. The inconsistency, however, is made manifest when we consider the legal situs of the right of the Coro and La Vela Bailroad and Improvement Company to receive this subvention of two hundred and seventy thousand bolivars under the. supplemental concession made by Venezuela, in pursuance of its law enacted in 1896, a year after the mortgage was made. The Coro and La Vela Eailroad and Improvement Company was transacting its business as a railroad corporation wholly in the State of Venezuela. The Venezuelan decree of bankruptcy declared that the corporation had its. de fado domicile in that country, and as such was amenable to legal proceedings including bankrupt proceedings in (the Venezuelan courts. Is it not plain that this right under the supplemental concession of 1897 to a subsidy from the State of Venezuela had its situs as property in that state where all money due under its terms was payable? The right to receive this money arose under a contract which was made between parties domiciled in Venezuela and which was to be-wholly performed in Venezuela.

It seems to me that it only makes confusion of thought to consider the situs of this money in the hands of the New Jersey receiver. This money was never mortgaged. This money represents an asset of the insolvent corporation which at all times had its situs in Venezuela. The government of the-United States through a treaty with Venezuela procured an award from arbitrators sitting in Europe for the payment of a sum'of money to the United States in satisfaction of the original claim of the Coro and La Vela Eailroad and Improvement Company, which was established and "liquidated” at two hundred and seventy thousand bolivars in 1898 by the officials of Venezuela acting in that state. The mortgage either covered the after-acquired right to a subsidy or it did.not. If the mortgage became equitably extended so as to cover this right to a subsidy, it must have covered that right when ' such right had its situs as property exclusively in Venezuela. If when the amount due under the subvention, was liquidated the obligation of Venezuela to pay that amount created an indebtedness, it still remains that the mortgagor' "acquired” this indebtedness as property while domiciled in Venezuela, such indebtedness being payable in Venezuelan money in the State of Venezuela and by the sovereign state itself, which was and' is located permanently within its territory. . Notwithstanding the rules which in some respects are conflicting in regard to the legal situs of debts for various purposes, in my judgment this indebtedness of Venezuela to the Coro and La Vela Railroad and Improvement Company should be considered for the purposes of this mortgage, as having its situs in' Venezuela. Venezuela, however, procured an adjudication in her court that the mortgage.was void in Venezuela as to all property situate in that state. Such adjudication necessarily includes the proposition that the mortgage was void as to this indebtedness under the subvention, or, to state the matter otherwise, that under the laws of Venezuela this mortgage could not be allowed any force or effect whatever in its relation either to the subvention or the liquidated indebtedness under the subvention, both of which the Coro and La Vela Railroad and Improvement Company “acquired” long after the mortgage was made.

The fact that this money has come into the possession of .the New Jersey receiver while giving the New Jersey court full jurisdiction over it, does not affect its relation to’ the mortgage as an equitable mortgage of after-acquired property. The receiver might be a resident of another state or ev.en of Venezuela. Such a thing is legalty possible.

The inconsistency of the claim of Venezuela in this court consists, I think, in the fact that having procured in her own court a decree that this mortgage was absolutely void as to all property covered by it which was situate in Venezuela, she now endeavors to get a decree from this court precisely to the com traiy. It is true counsel for Venezuela has made ¿no argument and presented.no theory 'in regard to the situs of the asset of this insolvent corporation represented by the fund in the receiver’s hands. His argument seems, however, to assume that this fund represents property acquired by the mortgagor after the mortgage was given, situate'in tlie State'of New Jersey, or, at any rate, not situate in Venezuela.

It has not been argued that there has been any change of the situs of the original after-acquired subvention. Until this New Jersey corporation was dissolved by-proclamation and its assets were vested in a receiver, and it was enjoined from acquiring property by the decree of this court, there certainly was no transfer from A7enezuela to New Jersey or any other state of the situs of the subvention under the supplemental concession of 1897, or of the indebtedness of two hundred and seventy thousand bolivars which was ascertained to be due under the subvention in 1898. AVhen under a treaty between the United States and Arenezuela the “Mixed Commission” awarded the payment of the two hundred and seventy thousand bolivars with interest thereon in satisfaction of all claims under the subvention, such payment was directed to be made to the United States government and the United States government then turned over the money to the New Jersey receiver. The Coro and La A7ela Kailroad and Improvement Company never “acquired” this money when it was paid to the United States government or when it was transferred to the New Jersey receiver. Years before the first payment by "Venezuela on account of the award was made to the United States government, the Coro and La AAla Kailroad and Improvement Company had been dissolved by proclamation and had been rendered incapable of acquiring any property and a receiver in New Jersey of all its assets had been appointed. The fact that in the award the ('Aro and La Arela Kailroad and Improvement Company is men'tioned as the claimant, is a matter of no consequence; if at that-time the right to this money was an asset within the jurisdiction of New Jersejq such asset was vested in the receiver and it was the receiver that appeared as the actor in the memorial addressed to the “Mixed Commission” presenting the claim held originally by the Coro and La A7ela Kailroad and Improvement Company.

Tt is evident, I think, that A7enezuela in order to sustain her claim to a preferential payment on account-of this mortgage, must necessarily take the position that the mortgage equitably "covered this indebtedness of two hundred and seventy thousand bolivars, the situs of which was in Arenezuela when the .right to receive it was “acquired” by the Coro and La A7ela Kailroad and In-qrovement Company, notwithstanding -that A7enezuela succeeded in procuring a decree in -her own court that the mortgage as l-> all property situate in Venezuela was invalid.

(7) I state the conclusión without argument and with a mere citation of a few authorities to sustain it, that in this case the claimant (Venezuela) is obliged in equity to put in hotchpot' the dividend which she received on .her claim through the bankruptcy proceedings in Venezuela. The other creditors whose claims have been presented to the receivers in this case, and have been sustained, are entitled to stand on a level with the Republic of Venezuela. Wharton Conf. of L. § 798; Phillips v. Hunter, 2 H. Black 402; Banco de Portugal v. Waddell, L. R. 5 App. Cas. 161; In re Bonnaffe, 23 N. Y. 169.

This rule of equity and equality,, which applies to the case of a creditor who has already received a dividend in foreign bankruptcy proceedings, is in somewhat clumsy language declared and enacted in the present United States Bankrupt act, section 65d.

. 2 Tire appeal of the Republic of Venezuela from the adjudication of the receiver allowing the claim of the Baiz estate, is not sustained. I do not recall that there is any question as to the amount of that claim. If there is such question the matter can be determined upon settlement of the decree. The proof establishes the claim as something over $70,000.

It is unnecessary to consider the status of the five bonds al-' leged to be held by the Baiz estate as collateral to its claim, because of the conclusion which I have reached that the bonds are not equitable liens on the fund but only represent a general indebtedness. These five bonds, therefore, do not increase the claim of the Baiz estate amounting to over $70,000, nor do they give to the Baiz estate any greater right or equity than that which the estate holds as an established general creditor.

3. The claim of Mr. Bright has received so much attention from court and counsel that an extensive discussion of it seems quite unnecessary. This claim was the subject of an oral opinion rendered upon its first presentation some time ago. My conclusion in regard to this claim has virtually been announced and the grounds therefor have been indicated.

I may say briefly that this whole recovery from the Venezuelan government through the “Mixed Commission” is the product of the industry, skill and zeal of this Washington lawyer, Mr. Bright, who originally took hold of the matter upon a somewhat indefinite but contingent retainer under an arrangement with Mr. Baiz in his lifetime acting for the Coro and La Vela Railroad and Improvement Company. To ignore Mr.. Bright’s sub- ■ stantial claim and to turn over to these creditors the asset which he recovered under the circumstances proved, would in my judgment, be a flagrant violation of the plainest principles of equity and justice. If Mr. Bright had not succeeded he would have lost the fruits of all his protracted labors. My conclusion is that in tffldition to the sum of $6,000 which heretofore was allowed to him, he is justly entitled to the reduced sum which his counsel asked for on his behalf, viz.,' $9,000.

If theré are any matters overlooked in this somewhat complex mass of litigations disposed of by this memorandum, they may be brought to my attention upon settlement of the decree which will be upon notice.


source: Caselaw Access Project

author: Leaming; V. C.

license: Public Domain

text:
    Amelia Henrietta Moore et al. v. Mary F. Wears et al.
    [Submitted March 19th, 1917.
    Determined March 24th, 1917.]
    1. A bill for partition by devisees should not be entertained if the substituted trustee of the property in question has a power of sale over said property.
    2. In this case the trustee has, by implication, the power to sell the realty in question.
    On hearing on motion of defendants to strike out complainants’ bill for partition.

      Mr. Edmund II. Beeves, for the motion.

      Mr. Walter II. Bacon, contra.

   Leaming; V. C.

The bill is filed by certain devisees of Isaiah C. Wears, deceased, and is filed for partition of real estate owned by coni- ' plainants’ testator at his decease.

Other devisees of testator now move to dismiss the bill on the ground that the will and codicil of testator confer upon the trustee who has been substituted for the trustee named in the will power of sale of the real estate of which partition is sought.

It is obvious that the bill should not be entertained if t the substituted trustee is clothed by the will with a power of sale of the real estate described in the bill. Cahill v. Cahill, 62 N. J. Eq. 157; Story v. Palmer, 46 N. J. Eq. 1; Condict v. Condict, 73 N. J. Eq. 301. This is conceded by complainants.

Nor am I able to dpubt that the will and codicil of testator clothe the substituted trustee with power of sale of testator’s real estate.

By the will and codicil of testator one-third of the net income, rents, issues and profits of his entire estate (except certain personal property specifically bequeathed) is given to his widow for life, such net income to be paid to her quarterly by testator’s executors. Subject to this provision in behalf of the widow testator’s entire estate—consisting of real and personal property—is devised and bequeathed to a trustee in trust that the trustee shall keep the same safely invested and pay the net income of one-third 'thereof to each of testator’s three daughters during their respective lives in equal quarterly payments, and at the decease of each of them to pay_over one-third of the principal of the trust estate to the child or children of the one so dying; as to two of the daughters of testator the will further provides that in case of their decease without issue, the trustee shall pay over the one-third of the' principal so held in trust' for such daughter to certain specified persons in proportions specifically statecl The will also provides that the trustee “shall have the right from time to time as often as it becomes necessary to change the investments.”1 The two of the daughters whose shares are directed to be paid to certain collaterals in the event of the death of these daughters, without issue are now deceased and both died without issue; the other daughter is alive.

It does not appear by bill that the .widow of testator is deceased; but it has been stipulated by counsel that she is now deceased and that the bill shall lie' treated as containing that averment.

It thus appears that the fee of all of the real estate of testator is vested in the substituted trustee for the purposes of the trust, and that by reason of the decease of the widow of testator the duties of management and distribution of the entire estate, have fallen to the substituted-trustee.

In defining the duties of -the trustee in behalf of each of two of the daughters of testator the language of the will is that “her said one-third share to be kept safely invested and the 'net income thereof to be paid to my said daughter for and during all the term of her natural life in equal quarterly payments;”—and at her decease “to pay over the principal [one-third of the entire estate] of said trust estate to the child or children of my said daughter”—“but in case my said daughter shall die without leaving any issue surviving her, then upon the further trust to pay over 'the said principal of said one-third as follows Similar duties of the trustee are imposed as to - the one-third share of the other daughter but in language less significant in determining whether testator intended to confer upon the trustee a power of sale of the real estate. The clause' of the will expressly giving to the trustee the right “from time to time as often as it becomes necessary to change the investments” has relation to the entire trust estate.

The authorities in this state are uniform to the effect.that trust duties of the nature of those imposed by the will here in question necessarily carry with them an implied power of sale. The fee is given to the trustee; the trust property comprises real and personal property; the trustee is directed to keep the property “safely invested,” and is expressly given the right to change the investments from time to time; at the death of each of the three life beneficiaries the trustee is directed to “pay over” the principal of one-third of the estate to the issue of the life beneficiary so dying; as to two of the three life beneficiaries the trustee is further directed to “pay'over” one-third of the principal to other specified persons in the event of the death of the life beneficiaries without issue; and as to one fractional'share so to be paid over in the event of the death of one of the life beneficiaries without issue the trustee is directed to retain'it in trust for the person named until he arrives at the age of twenty-one years. These duties to keep the property safely invested and to change investments and to divide and pay over fractional parts of the principal in various contingencies, when imposed upon a trustee to whom blende'd real and personal property is thus given, clearly indicate an intention that the real estate is to be converted, because the duties imposed upon the trustee in the execution of the trust are inconsistent with the existence of the property in the form of real estate; there is accordingly an authority to sell bestowed upon the trustee by implication. Belcher v. Belcher, 38 N. J. Eq. 126, and Cook v. Cook (N. J. Ch.), 47 Atl. Rep. 732, are conclusive to that effect.

It follows that complainants’ bill for partition cannot be entertained.


author: Beaming, Y. C.

text:
    Bowman S. Cox v. Albert Brown and Edgar L. Wike, administrator, et al.
    [Submitted May 31st, 1917.
    Determined June 15th, 1917.]
    1. Where real estate was bought with partnership funds, and was allowed to stand in the name of one partner for a long time, this is not in equity necessarily a bar to a decree that the real estate was partnership property.
    2. Under the circumstances in this case the laches is excusable, and such decree will be made as is most conformable to right and justice.
    On final hearing on bill for'partition.

      Mr. Austin H. Swaclchamer, for the complainant.

      Mr. David 0. Watkins, for the defendants Anna R. Cox and others.
   Beaming, Y. C.

The only controversy in this suit is whether a certain tract of land, which is described in the bill as tract No. 1, is the property of the heirs-at-law of Isaac G. Cox, deceased, or is the property of a certain co-partnership1 which was composed of the said Isaac G. Cox and his brother Bowman S. Cox at the date of the decease of Isaac.

The record title to tire property stands in the name of Isaac G. Cox, but the proofs in the case have established with a certainty amounting practically to a complete demonstration that the property was purchased at the instance of the two partners for the partnership with assets of the partnership, and that for convenience the title was taken in the name of Isaac for the benefit of the partnership, and that since the purchase until the death of Isaac the property has at all times been treated by the two partners as partnership property. The evidence so clearly establishes these facts that any discussion of the details of the evidence seems unnecessary.

The. only hesitancy in advising a decree to the effect above stated, arises from a claim upon the part of defendants that complainant—the surviving partner—has allowed the legal title to stand in the name of his brother for so long a time that a court of equity should not, as against the heirs of Isaac, at this late date decree that the property is a partnership asset.

An examination of the authorities will disclose that the effect of delay in the assertion of rights in a court of equity is not only peculiarly interwoven with and dependent upon the special circumstances surrounding the individual case, but.is also measurably dependent upon the nature of the primary right asserted and also upon the nature of the relief sought..

In administering the remedy of specific performance and cancellation of instruments the period of delay which will be fatal to the relief sought does not depend upon the statute of limitations, but will be considered and determined with reference mainly to the circumstances and effect of the delay in the particular case, and the suit may be dismissed for delay less than the period feed by the statute limiting the pursuit of legal remedies. Lutjen v. Lutjen, 64 N. J. Eq. 773, was a suit of the latter nature, and the rule there defined recognizes that a period of delay less than the statutory period may be fatal when it is operative to render the court unable to feel confident of its ability to ascertain the truth as well as it could have done when the subject for investigation was recent and before' the memories of those who had knowledge of the material facts had become faded and weakened by time.

On the other hand, where the substantive right asserted is’ the enforcement by a cestui que trust of an express and subsisting trust, neither lapse of time nor the statute of limitations will ordinarily be allowed to defeat the relief sought. Stimis v. Stimis, 54 N. J. Eq. 17. But even that rule A subject to exceptions arising from conduct of the parties in relation to the trust property. See Starkey v. Fox, 52 N. J. Eq. 758 (at p. 768).

Again, where the suit is to establish and enforce a .resulting trust the statute of limitations may afford a bar to relief. McClane’s Administratrix v. Sheperd's Executrix, 21 N. J. Eq. 76 (at p. 79). The present suit is of that nature, for the equitable title of .the partnership to the property in question results from the purchase of the property b}r a partner with partnership assets. But in this suit the statute of limitations has not been pleaded, and to render that statute available as a bar it should be pleaded. 3 Dan. Ch. Pl. & Pr. 2116 note 1; 1 Ibid. 781.

' But relief may be denied in equity in all cases of the nature above referred to when the claim asserted is a stale claim, and that defence need not be pleaded. In Sullivan v. Portland and Kennebec Railroad Co., 94 U. S. 806, the rule touching the enforcement of stale claims in a court of equity is stated as follows:

"To let in the defence that the claim is stale, and that the bill cannot, therefore, be supported, it is not necessary that a foundation shall be laid by any averment in the answer of the defendants. If the ease, as it appears at the hearing, is liable to the objection by reason of the laches of the complainants, the court will, upon that ground, be passive,'and refuse relief. Every ease is governed chiefly by its'own circumstances; sometimes the analogy of the statute of limitations is applied; sometimes a. longer period than that prescribed by the statute is required; in some cases a shorter time is sufficient; and sometimes the rule is applied where there is no statutable bar. It is competent for the court to apply the inherent principles ,of its own system of jurisprudence and to decide accordingly ”

The most recent general statement of the rule touching laches is to be found in Soper v. Cisco, 85 N. J. Eq. 165, 174, as follows:

“The general rule is well settled that he who, without adequate excuse, delays asserting his rights until the proofs respecting the transaction, out of which he claims his rights arose, are so indeterminate and obscure that it is impossible for the court to see whether what is asserted to be justice to him is not injustice to his adversary, has • no right to relief. McCartin v. Traphagen, 43 N. J. Eq. 324; affirmed, 45 N. J. Eq. 265."

The authorities above cited sufficiently disclose the great extent to which the circumstances surrounding the individual case necessarily enter into and control the force of the defence of laches in a court of equity.

In the present case, the partnership was formed by the two brothers when complainant, the younger brother, was yet a minor; the legal title to tire property in question was obviously taken in the name of the older brother for that reason. The legal title was allowed to so remain for over forty years, when the older brother died. But during all that time the partnership and the most intimate and confidential, social and business relations of the two brothers continued unchanged. The residence on the property in question was occupied by the older brother, but the remainder of the property, including the foundry where the firm business was conducted, was occupied by the firm. Another residence property, admittedly belonging to the partnership, was occupied by the younger brother, and no rent was paid by either brother for the dwellings occupied by them, and no rent was taken into account for the occupancy Df the foundry, and the evidence clearly discloses that at all times during the life of the partnership the'entire property now in question was treated by both partners as firm property. While much of this evidence relates to a period of such an early date as.to invite the most careful scrutiny as to its accuracy, most of it is of a nature to practically demonstrate its truth. At the conclusion of the testimony no substantial doubt could be said to exist that the property was originally purchased for the partnership with partnership funds and had always been regarded by-both partners as partnership property. The failure to have the legal title transferred to the partnership was obviously merely a matter of neglect arising primarily from the mutual confidence of the partners and their absorbing engrossment in their life work of making money in their joint enterprise.

No rights of creditors are involved; the single question is whether the property belonged to the elder brother at the time of his death or to the firm. There has been no unreasonable delay on the part of complainant since the death of his brother in asserting the title of the firm. It will be thus observed that the title now asserted by complainant is not a title in himself in his own right, but a title in behalf of the partnership. That circumstance is not without force in considering the effect to be given to the claim of laches, for if the property was firm property it was at all times during the life of the partnership equally the duty of both partners to have the legal title transferred to the partnership. A similar duty of a trustee may be said to exist in all cases of resulting trusts; but where a partnership is.the equitable owner rights of creditors are involved and both partners owe to firm creditors the duty to manifest the legal title in the partnership. The laches which is now urged against the surviving partner is* accordingly laches of the partnership in which both partners have been equally negligent. In that view I think the consequences of neglect in the performance of that duty cannot be equitably visited upon complainant to the same extent as might be done for the failure to seasonably assert, an equitable title in himself.

As the evidence is convincing that the property was originally purchased with the firm money, and the legal title taken in the name of the older brother for the firm, and that there has at no . time been any claim upon the part- of the older brother to the contrary, or any adverse holding on his part, and that both brothers have at all times during the life of the partnership treated the property as firm property, I am convinced that a decree to that effect cannot be properly denied by reason of the long period of time during which the legal title has been allowed to stand in the name of the older brother. I will, accordingly, advise a decree to the effect stated.


author: Lewis, Y. C.

text:
    Augusta Wix et al. v. Samuel Frankel et al. Ida M. Otz et al. v. Samuel Frankel et al.
    [Decided March 13th, 1917.]
    1. The Mechanics’ Lien act charges the property of one man with the debt of another, and ^it is necessary for the lien claimant to bring within the jurisdiction of the court all those parties ;whose interests he desires to subject to the judgment.
    2. It is an act not remedial in its character, and in some cases requires a strict construction.
    3. In proceedings under the act it is requisite that the assignee of the mortgage should be made a party, to charge him with any default cf the assignor.

      On bill to foreclose.

      Messrs. Whitehead & ■Appleton, for the complainants.

      Messrs. Hudson & Joelson and Mr. George 8. Hilton, for the defendants.
   Lewis, Y. C.

The two actions above named were brought against the defendants to foreclose two mortgages, one of eleven thousand dollars ($11,000), made by the defendants, the Frankels, to the Passaic Mortgage Company, and the other of fifteen thousand dollars ($15,000), made by the Frankels and one Annie Meyers, to the said company. The mortgage for eleven thousand dollars ($11,000) was given to secure that sum and bears date February 15th, 1913. The mortgage for fifteen thousand dollars ($15,000) bears date February 25th, 1913, and was assigned to the complainants, Augusta Wix and others, on March 10th, 1913. Proceedings in foreclosure were begun on the 20th of Ma'rch, 1914, on the $15,000 mortgage, and oii June 20th, 1914, on the $11,000 mortgage. The ground for proceeding on the $15,000 was that the interest had not been paid, and on the $11,000 that the taxes had not been paid.

The Frankels had other transactions with the Passaic Mortgage Company, and had secured through it loans reaching an amount of forty thousand five hundred dollars ($40,500). No controversy, however, existed between them as to the other loans than the one under consideration.

On October the 8th, 1913, the John Agnew Company, a corporation doing business in Paterson, filed a lien claim upon the building on which the $15,000 loan had been granted. The Agnew company had furnished materials for this building. The parties defendant in the suit brought by this corporation were Samuel Frankel, Pepi Frankel and the Passaic Mortgage Company. Augusta Wix and others were not made parties by the Agnew company in their lien claim suit, either at the time of filing of the lien claim of the institution of the suit. An examination of the records of Passaic county discloses that the mortgage was assigned by the Passaic Mortgage Company to Actgusta TVix and others on March 10th, 1913. The lien claim was not filed until October the 8th, 1913, nearly seven months thereafter.

The 'primary question, therefore, which the court in this case has to deal with is the situation of the judgment lien of the Agnew company as it affects the mortgage lien of the complainants. The Mechanics’ ’ Lien act charges the property of. one man with the debt of another. It is necessary for the lien claimant to bring within the jurisdiction of the court all those parties whose interests he desired to subject to the judgment. It is an act not remedial in its character, and requires, in the case under consideration, a strict construction; to construe it otherwise would require the assignee of the mortgage to be charged with any default of the assignor, without having had his day in court. The Agnew company has proceeded regularly as against the owner, and has brought the assignor in, but the assignee of the mortgage was not made a party to the proceedings and knew nothing of them.

In Cox v. Flanagan, 2 Atl. Rep. 33, a somewhat similar case, this court in discussing the Lien act says:

“On October 24th, 1884, a summons was issued on each of said, claimants. The complainants then still holding their mortgages were not made parties, as is required by the first section of the act of 1884. Public laws 260," which provides that in every such case every person holding a mortgage of record against the property affected by said lien, whose mortgage would be cut off by a sale under said lien claim should be made a party to said suit. This requirement is imperative and was not complied with. I regard it as an omission which cannot be overcome, and which enables the complainant to proceed in the face of the claim made. This provision is another one of the conditions imposed by the legislature upon lien claimants which they must observe.”

The Agnew company did not bring the complainants within tire jurisdiction of the court by any of the means provided by the statute, and yet they seek now compel them to account for all moneys paid out by the assignor. I do not think that this position can be sustained.- This company having failed to make the complainants parties to their lien proceedings must rely on the judgment against the Frankels, who were properly made parties in that action.

I do not find in any of the recent opinions of our courts a tendency to so construe the Lien act as to practically abrogate its provisions. In the case of McNab & Harlan Manufacturing Co. v. Paterson Building Co., 72 N. J. Eq. 929, Judge Dill, speaking for the court of errors and appeals, referring to the case of Beckhard v. Rudolph, 68 N. J. Eq. 315, 740, 749, points out that the case deals with the construction of section 3 of the Mechanics’ Lien law, and further says:

“The question whether other provisions of our Mechanics’ Lien law should be construed liberally, or otherwise, is not foreclosed by the decision in the Beclchard Oase nor by this decision. It may be argued, and with force, that mechanics’ lien laws are,, as a rule, to be construed strictly against the claimant and in favor of the owner of the land, so far as they require the owner to pay a debt that he did not contract, and for a consideration that he may have already paid to the contractor.”

The proofs offered at the hearing unfold the entire transaction of forty thousand five hundred dollars ($40,500), and as there are admissions on the part of the officers of the mortgage company, and as the statements show a balance due Frankel, while the testimony is silent as to the amount, I suggest that under the circumstances, unless counsel agree without taking such a course, that an accounting should be had for the purpose of ascertaining the true situation.

A decree in accordance with the views herein expressed is advised.


text:
    George H. Heyniger v. Abraham Levinsohn.
    [Decided May 29th, 1917.]
    Where there is a general intention shown on the part of a municipality, and of parties owning land therein, to keep alive and observe building-line restrictions, they will be enforced in a court of equity.'
    . On bill, &c.

      Mr. Ilenry H. Snedelcer ancl Harry R. Cooper, for the complainant.

      Messrs. Patterson & Rhone and Messrs. Durand, Ivins' & Carton, for the defendant.
   Lewis, Y. C.

The complainants in these cases ask that a mandatory injunction be granted, compelling the defendant to tear down or remove so much of his building as is erected nearer the line of Tenth avenue than twenty feet. Both actions were heard together. ■ .

The borough of Belmar includes all of the property originally owned by the Ocean Beach Association. The property of 'this association is located south of Shark river and west of the‘Atlantic ocean. The association laid out the property in building lots, with streets running north and south, and avenues running east and west. The association also caused a map of- its property to be made and filed in the office of the Monmouth county clerk. The streets and avenues on the map are the same to-day in Belmar.

The Ocean Beach Association is now out of existence. It was incorporated on March the 13th, 1873. P. L. 1878 p. 1089. It was authorized to purchase aud sell lands, and was especially empowered to require anjr grantee from it to make and maintain such style and character of improvements on the land conveyed, or on the streets fronting thereon, as' might seem most expedient for securing a uniform system of development and improvement.

The association, on June the 9th, 1873, passed a resolution as follows:

“Resolved, That it is highly important to maintain uniformity in the line of buildings on the main avenues of this Association,. and for securing said object that no building be erected on said avenues nearer the line of the same than twenty feet.”

The association executed and delivered seven hundred and forty deeds, each of which, with the exception of those about to be referred to, contain this covenant:

‘‘Subject, nevertheless, to the covenants, conditions, and restrictions contained in the aforesaid act, entitled ‘An Act to Incorporate Ocean Beach Association’; and the said party of the second part, for himself, his heirs, and assigns, does covenant and agree to and with the said Ocean Beach Association, their successors and assigns, that the said party of the second part, his heirs and assigns, shall not sell, or suffer to be sold, on the said premises hereby conveyed any spirituous or intoxicating liquors, nor violate any of the provisions contained in the said act of incorporation, by laws, rules, or regulations made by the said Association at any time.”

The .only deeds in which the covenant in the above form do not appear are:

Two to the mayor and council .of Belmar for property for public parks;

• Three on land not included in the map .of the Ocean Beach property;

Two are deeds made in accordance with a decree in chancery; one of the property along the ocean, between Tenth and Eleventh ■avenues, for bathing purposes, and one a deed by the sheriff, pursuant to a judgment in an action in which the Ocean Beach Association is party defendant;

• One in which the covenant was omitted, but a prior deed in the chain of title contained it;

One where the covenant appears, and also an additional covenant in regard to the removal of a building;

One where the word “rules” was omitted; and

Two of property for railroad purposes.

Tenth avenue is one of the principal avenues included in the resolution of the Ocean Beach Association. However, all of the avenues have been construed to be main avenues, and the restriction applies to all of them. The general plan to obtain and compel uniformity in the building line for the benefit of every person to whom the said Ocean Beach Association sold a lot has been maintained. The testimony clearly shows this. It is established that most of the houses were erected with the main body of the building located with reference to the building -line. That the restrictive covenant does not apply to open porches, bay windows and eaves, is a construction put upon it by those in authority and the contractors in the borough of Belrnar. The late Yice-Chancellor Emery, in Morrow v. Hasselman, 69 N. J. Eq. 612, held that immaterial violations of the restrictions, not showing an intention to abandon the plan, are no defence to an action. In other words, that slight and immaterial violations of the restrictive covenant would not be considered unless they went to the extent of showing a general abandonment of the restrictions by the owners of the property along the line of the thoroughfare. I do not find from the evidence before me that there has been an abandonment. It is apparent that the original grantor who first imposed the restrictions upon the property has done nothing which would. indicate an intention upon its part to disregard the covenant.

The evidence clearly discloses that the defendant knew of the building restriction. The express covenant in his deed in itself would be sufficient to give him notice; and his testimony shows that before he commenced the erection of his building he had full knowledge of the building-line restriction. He says, in one part of his evidence, that he asked the mayor, Mr. Poole, what he thought about his going over the building line in erecting his structure; and, further, if he would stand, for it he would put it up in that way. He then claims that he obtained permission from the mayor to do so; but this is expressly denied by Mr. Poole. And the fact that he (Poole) immediately had 'a surveyor place stakes oar the lot would seem to negative any consent. The defendant was thoroughly informed about the situation before he began operations on his ground. In fact, he states that he knew of the restrictions before he bought the land, and was familiar with the case of Newbery v. Barkalow, 75 N. J. Eq. 128, ira which the late Vice-Chancellor Howell had the saaaae building-line restriction under consideration arad upheld the right to enforce it. The testimony of other witnesses also shows the defendant’s knowledge of the restrictioaa.

I do not think the complainants have been guilty of laches, for steps seem to have been takeaa by them to enforce the restriction immediately upon discovery of the violation by the defeaadant. The defendant proceeded at his peril, in an apparent disregard of all other’s rights. He took his chances on the effect of his conduct, with- knowledge of the decision in the Newbery Case.

It does not appear, although aaaany new buildings that have been erected on Tenth avenue since the Newbery Case, that any of them have been located with the main foundation wall projecting beyrond the building line. Barring the erection of these new buildings, the conditions remain about the saaaae as at the time the Newbery Case was decided. I cannot find that the complainants .are estopped by the erection of the Buhler pavilion. The evidence does not appear to disclose that it is located oar Tenth avenue; but if it was, and the act of the council in this operated as a bar to the municipality, it could not estop its co-complainants, Wildman and Newman, and the complainant, Heyniger.

There has beeaa shown a general intention on the part of the . borough and of the parties owning land along the avenues to keep alive and observe the building-line restriction, aaad the Newbery Case is binding upoaa me.

The decree therefore will be for the coaaaplainant.


text:
    Helen K. Stanford v. Annie F. Cunningham Stanford et al.
    [Decided June 6th, 1917.]
    1. The court of chancery has jurisdiction where both of the parties to a suit are non-residents.
    2. That court also has jurisdiction over all questions where fraud is involved.
    • 3. Where a note has been changed as to the time payable to escape the statute of limitations, and where waivers of notice and protest have been obviously inserted over the signatures of the endorsers, and where the bolder of the note has slept on her rights for nearly a quarter of a century, and has commenced two suits in New Jersey, allowing them to be "dismissed for lack of prosecution, and also attempted to take a technical advantage by bringing suit in New York, these are all circumt stances against enforcing the equities of the holder of the alleged note.
    On pleadings and proofs.

      Messrs. Cortlmdt .& Wayne Pcerher, for the complainant.

      Mr. I. Faerber Goldenhorn, associated with'Jfr. George W. Qarr (of the New York bar), for the defendants.
   Lewis, Y. C.

The bill in this case was-filed for cancellation of a note for $6,500, impounded in this state in the hands of a supreme court commissioner, and to enjoin its being taken to- New York and used in a suit brought thereon by Mrs. Cunningham Stanford against Mrs. Helen K. Stanford, as residuary legatee of her husband, Philip W. Stanford.

March the 1st, 1913, a rule to show cause with temporary stay was granted.

On further hearing upon affidavits by both, parties, injunction was granted October 6th, 1913, but with provisions so as to permit the New York suit to go on to verdict upon Mrs. Cunningham Stanford giving a bond for $1,000 that she will not proceed in the cause, after verdict, without permission of the court of Qhancery, and that the commissioner' might continue to hold the note subject to be produced at the trial of the New York suit.

An appeal thereupon was taken to the court of errors and appeals against so much of the order as permits the suit in New York to proceed," and permits the note to be taken to New York for use in the suit there.

Before the hearing of the appeal counsel on both sides got together and voluntarily absented to the adjudication of the merits in this tribunal, and the cause has been tried before me. It was not an attempt by consent to confer jurisdiction upon the court, for it is well settled that jurisdiction of the subject-matter of a suit in equity cannot be conferred by consent. Hudson County v. Central Railroad of New Jersey, 68 N. J. Eq. 500, and other cases. The situation'is somewhat similar to that presented by the ease of Varrick v. Hitt, 66 N. J. Eq. 442.

The facts, briefly stated, are: That a note for $6,500 is alleged to have been given by Colonel Asa P. Stanford, a brother of Leland Stanford, the founder of a great university of that name. The colonel is alleged to have obtained the signatures of his son Philip and his daughter Mary as endorsers on the note. The note, with its endorsements, reads as follows:

“6500 New York, Aug. 1st, 1893.
“Two years after date I promise to pay to the order of Mrs. A. F. Cunningham, six thousand five hundred dollars ($6500) at Iiaidlaw & Co., 14- Wall Street. Value received.
“Due........No...... A. P. Stanford.
“(Endorsed) :
“Service arid notice of protest is hereby waived.
“Mary E.’ Stanford,
“Philip Stanford.”

The complainant alleges.that the note is false and fraudulent and tainted with fraud and forgery, in that the signature of Philip Stanford was not genuine, but was forged; also that the note lias been changed from a one-yeax note to two years; also that the words “Service and notice of -protest is hereby waived” were placed there many years after the endorsements on the back of the note were made, and that a conspiracy existed between Colonel Asa P. Stanford and the lady who afterwards became his wife, the now defendant, to mulct the estate of Philip.

Philip was educated at Harvard, and at the time he endorsed the. note he was living at Spokane, Washington, afterwards removing to California, and then to Montclair, Essex county, New Jersey, where he died on June 1st, 1898, having executed his last will and testament wherein he bequeathed everything to liis wife and appointed her sole executrix. By the last will and testament of Leland Stanford he left one hundred thousand dollars ($100,000) to each of his nephews and nieces, and also «the same amount to his brother Colonel Asa P. Stanford. The complainant had the will of her husband duly probated, and thereupon Colonel Stanford engaged counsel and took an appeal to the orphans court of Essex county, which was decided against him. An appeal was then taken to the prerogative court, which was discontinued. Colonel Stanford and the defendant in this suit were both traders in stocks. He died practically penniless. His son Philip seems to have been fond of him, and all seems to have gone along pleasantly until the death of* Philip. The fact that Philip did not provide for his aged father’s support by his will, but, on the contrary, left everything to the complainant, Philip’s wife, seems to have aroused the indignation of the old gentleman, who was at that time about seventy-six years of age. Colonel Stanford and the defendant was friends for a great many years. In 1902 he married the defendant, and died in 1903. "

The note was made in New York-and endorsed in the States of Connecticut and Washington. The note was delivered and is payable in New York. The maker, when the note was made and continuously till his death, resided in New York. So far as Colonel Stanford, the maker of the note, is concerned, the note is barred by the statute of limitations. As to Philip, however, the statute of limitations of New York did not apply, as he was out of that state.

In the month of November, 1900, an action was commenced in the supreme court of this state by the present defendant against the present complainant, as executrix on the above note, which note was impounded by order of the court in the hands of a supreme court commissioner who. died, and it was afterwards placed in the hands of another commissioner by order of the court, and it has been held by him ever since. A judgment of non pros, was entered in that action.

A second suit was then brought in the same court between the same parties as to the same subject-matter, except that the complainant was sued as-devisee of her husband, which action the plaintiff discontinued on the 30th of December, 1901.

Some time in December, 1911, the present defendant commenced suit against the present complainant in the New York supreme court for the county of New York upon the same note, alleging that the present complainant was the sole legatee of Philip W. Stanford, and sole executrix, and received his property and assets, and that no will either of Asa P. Stanford or Philip W. Stanford had been proved in New York. Afterwards the present complainant pleaded to that suit, and notice was given to her by the present defendant that an application would be made to the Honorable Francis Swayze, justice of the supreme court of this state,'for an order that said note should be turned over and delivered by Charles D. Thompson, the supreme court commissioner, who held it under the order of the court. Thereupon the present suit was brought in this court for an injunction to stay the suit at law and for the cancellation of the note; and it is nowr submitted to the court under stipulations and order whereby this court is to try the whole case, in order to avoid the trial of the ease in New York.

In the brief of the defendants’ counsel he argues that the court of chancery of New Jersey has no jurisdiction, because both parties are non-resident’s. There is no basis for such a contention, it being the settled law that where both parties are non-residents it will not prevent them from bringing suit or being sued in cases of this character.

It is also the settled law that courts of equity have jurisdiction over all questions where fraud is involved, but, as a matter of practice, where there ois a complete and adequate remedy at law, courts of equity will usually not assume jurisdiction; but where the court has already assumed jurisdiction, as in a mere matter of discovery, it will continue on and deal equity between the parties on the whole case.

In regard to the comity existing between the states, I think that is entirely settled by the stipulation of counsel.

To my mind, this is an unconscionable claim and should not • be sustained except upon the clearest proof of the most satisfactory and unimpeachable character. It is well settled that a court, of equity will not lend its aid to enforce an unconscionable claim. Erie Railroad v. Delaware Railroad Co., 21 N. J. Eq. 283; Suffern v. Butler, 19 N. J. Eq. 202, and other cases. All the circumstances surrounding it are suspicious. The changing of the-date of the note from one to two years, which is apparent on the face of it, and the fact that unless such change had been made the first suit that was brought against the complainant as executrix, at the time, the note was impounded, would have been barred by the statute of limitations; the very obvious insertion of the words “service and notice of protest is hereby waived;” above the endorsements of Mary and Philip on the note, which I am satisfied were made many years after the making of the note—such insertion being made with the privity and consent of the defendant; the sleeping on the rights for nearly a quarter of a century; the commencement of two suits in New Jersey and allowing them to be dismissed for lack of prosecution, and nothing further being done until the commencement of the third suit in New York, where they sought to take advantage of a technical situation under the statute of limitations because of the absence from the state of the defendant; the death of Philip and Mary, who are unable to testify; and the very apparent attempt to mulct the estate of . Philip, are all circumstances against the equities of the holder of the alleged note.

I think that the defendant has not sustained tire burden which the law places upon her—that she has failed to show a legal protest and notice thereof; or if that was unnecessary under the waiver, then she has failed to show that the waiver was part of the contract of the endorsers; and in the absence of clear and convincing proof on either or both of those questions she could not recover in an action in a court of law, and as equity should follow the law, in this respect she cannot recover here.

The protest of the note shows that words were interlined in different ink, and the protest was made on the due day without days of grace, while it should have, been protested on the last day of grace. Days of grace were abolished by the law of New York in 1894, chapter 607, taking effect January 1st, 1895, as to all notes made after the approval of the act of May 9th, 1894. Consequently, if this note were for two years, from August 1st, 1893, it was entitled to days of grace.

According to the Negotiable Instruments law, “where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party, who has himself made, authorized, or assented to the alteration, and subsequent endorsers. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor.”

The prayer of the complainant’s bill for the relief sought will be granted in'accordance with these views.