author: Andrews, Ch. J.

text:
    Jacob Hirshfield, App’lt, v. John Bopp et al., Resp’ts.

      (Court of Appeals,

      Filed February 26, 1895.)

    1. Corporation—Stockholder—Liability.
    A creditor of a banking corporation, seeking to charge a stockholder under the statute, must aver the performance of conditions precedent, or set forth facts which in law excuse their performance.
    3. Same.
    The complaint must state facts showing that the debt was payable within two years from the time it was contracted, that suit thereon against the corporation was brought within two years after it became due and that judgment had been recovered therein and execution thereon returned unsatisfied or, in the alternative, the facts which excuse the bringing of such suit and the recovery of a judgment.
    3. Same—Excuse
    A judgment in a People’s action, dissolving the corporation and restraining creditors from suing will, it seems, excuse the conditions precedent of recovery of judgment against corporation and return of execution unsatisfied.
    4. Same—Banking Law.
    _ The provisions of the Stock Corporation Law, which relate to the liability of stockholders in corporations, are to be considered as incorporated in § 53 of the Banking Law, and the words “except as prescribed in,” are to be construed as though the language was “subject to the limitation in.”
    5. Same.
    The Banking Law, while it changes in some respect the method of enforcing the liability of stockholders, does not change its essential character from what it was under the prior law, and imposes no new liability.
    '6. Same.
    The act is not unconstitutional as applicable to stockholders who became such prior to its passage.

      I. Same—Pleading.
    It is not necessary to allege, in a complaint against stockholders, that, they became such after the passage of the act.
    Appeal from judgment of the general term of the supreme court in the first judicial department, entered upon an order which affirmed an interlocutory judgment in favor of defendants, upon an order of special term sustaining a demurrer to the complaint.
    This action was brought by a creditor of the Madison Square Bank, an insolvent banking corporation organized under the banking laws of this state, now in the hands of a receiver, to enforce an alleged liability of the defendants, stockholders in said bank at. the time of the appointment of the receiver, to the creditors of the corporation under sec. 52 of the Banking Law, chap. 689 of the-Laws of 1892. The plaintiff sues on his own behalf and in behalf, of all other creditors similarly situated. The defendant Kursheedt and others demurred to the complaint on the ground that it did not state facts sufficient to constitute a cause of action. The demurrer was sustained at special and general terms and from the judgment sustaining the demurrer this appeal is taken. The complaint alleges that the Madison Square Bank was a domestic banking corporation, but does not allege when it was organized. It alleges that on the 1st day of August, 1893, the People commenced an action in the supreme court against the bank for its dissolution, on the ground, among others, of insolvency, and that November 24, 1893. judgment was entered thereon dissolving the corporation and forfeiting its corporate franchises and providing "for the distribution of its assets among its creditors, and restraining its several creditors from instituting any action against it, and appointing receivers with the usual powers of receivers in such cases, and that the receivers had duly qualified and entered upon-, the performance of their duties. It alleges that the bank issued its capital stock of $500,000, which was divided into 5,000 shares of $100 each, and that at the time of the commencement of the People’s action and the rendition of the judgment therein, the defendants were stockholders holding respectively the number of shares specifically set forth in the complaint. There is no allegation as to the time when the several defendants became stockholders or whether they were stockholders at or prior to the enactment of the Banking Law of 1892. It alleges that prior to the commencement of the People's action the plaintiff had deposited with the bank moneys belonging to him amounting to $5,334.41, for which the bank was indebted to him on that day, and that no part of the same has- been re-paid except the sum of $1,309.85, and that there is now due and owing to him from the bank the sum of $4,024.56, with interest from August 10, 1893 (the day of the commencement of the People’s action), although payment has been often requested of said bank. There is no allegation of the time when the deposit was made, except the allegation that it was prior to the commencement of the People’s action, nor of the terms of the deposit, whether special or otherwise, nor of the time when a cause of action against the bank accrued. It alleges that the assets in the hands of the receivers are wholly inadequate to pay the creditors of the bank in full, and that after the application of all the assets to the payment of the debts, there will remain a deficiency owing to creditors, exceeding the sum of $500,000. The complaint then sets forth that by reason of the premises the stockholders (defendants) have become individually responsible to the plaintiff, and the other creditors of the bank equally and ratably, and not one for the other, for all the contracts, debts and engagements of the corporation to the extent of the amount of stock severally held by them at the time of the commencement of the action, at the par value thereof, in pursuance of the provision of the statute in such case made and provided. It alleges that the-receivers (who are joined as defendants), although requested by the plaintiff to institute an action to enforce the liability of the stockholders, had declined so to do, on the ground that the right to enforce such liability did not vest in them as receivers. The-complaint demands judgment against the several stockholders on the statutory liability alleged, and for an adjustment of the claims of the respective creditors and for the payment of the fund received to the receivers for equitable distribution, and for such other and further relief as should be equitable.

      Louis Marshall, for app’lt; Joseph Fettretch, for resp’ts.

      Affirming 63 St. Rep. 317.

   Andrews, Ch. J.

Section 52 of “The Banking Law” of 1892 is prefaced by the words, “ Individual liability of Stockholders,” and then proceeds as follows: “ Except as prescribed in the Stock Corporation Law, the stockholders of every such (banking) corporation shall be individually responsible equally and ratably and not one for another, for all contracts, debts and engagements of such corporation to the extent of the amount of their stock therein at the par value thereof, in addition to the amount invested in-such shares.” The next and final clause of the section defines the term “ stockholder ” as including every owner of stock, legal or equitable, although not standing in his own name on the books of the corporation, but not a person who holds such stock as collateral security for the payment of a debt. The complaint is based on this statute, and no other ground of liability has been claimed on the argument, nor so far as we know, is there any other legislation which imposes liability upon stockholders of banks for the-debts of the corporation, other than the statute of 1892. ' The liability imposed by art. 8, sec. 7 of the Constitution is limited to stockholders in banking corporations or associations, “issuing bank notes, or any kind of paper credits to circulate as money.” It is well known that state banks, while invested with the power of banks of issue on complying with certain conditions, are by the operation of the provisions of the United States laws relating to national banks, practically prohibited from the exercise of this power, and not only is there no averment in the complaint that the Madison Square Bank was engaged in “ issuing bank- notes or any kind of paper credits to circulate as money,” but there can be no reasonable doubt that it was not so engaged. The con-stitututional provision has, therefore, no application, and the liability of the stockholders rests exclusively upon the statute of 1892.

The 52d section of the Banking Law does not purport to impose an absolute and unconditional liability upon the stockholders of state banks. The imposition of such a primary liability, without requiring creditors to first exhaust their remedy against the corporation, would be a reversal of the policy of prior legislation prescribing the liability of stockholders of banks or other corporations. The almost uniform practice has been to make the liability of stockholders for the debts of the corporation subsidiary and consequent upon the inability of creditors to secure payment of their debts from the corporation itself. The act of 1849 (Chap. 226), “ to enforce the liability of stockholders in banking corporations,” prescribed a system by which the liability was enforced through the receiver in case of the insolvency of the bank. There was some obscurity in the act in respect to the point whether ¡stockholders could be compelled to respond before the receiver had collected and applied the assets in his hands, and the court in the case In re Reciprocity Bank, 22 N. Y. 9-14, held .that the stockholders could not be called upon to contribute until the whole available assets of the bank had been collected and applied upon the debts of the bank. This was regarded as the just rule in view of the secondary character of the liability of stockholders and a construction was given in conformity with it. The act of 1849 was in substance incorporated into the revision of the Banking Laws in 1882 (Chap. 469), and the same principle prevailed thereafter under that act as under the act of 1849, that the assets ¡should be first applied and a deficiency be ascertained before the liability of stockholders could be enforced. The act of 1882 was repealed by sec. 216 of the Banking Law of 1892, and the system which prevailed under the acts of 1849 and 1882 was not reenacted. It is said that the revisers who reported the Banking Act of 1892 also reported a “ receivers’ law ” covering the subject, "but for some reason it was not adopted by the legislature. It will be generally found that where, by legislation in this or other states, stockholders have been subject to liability for the debts of corporations, after the stock has been fully paid in and certified, this liability is regarded as secondary and not primary, and can only be enforced after the remedy against the corporation has been exhausted. In construing section 52 of the Banking Law of 1892, this principle founded in reason and justice must be remembered, and very clear indication of a legislative intention to disregard it should be found, before reaching a conclusion that the section operates to impose upon stockholders in banks a primary liability which may be enforced without resorting in the first instance to •the corporation, and irrespective of other limitations which have usually been attached as conditions precedent to the liability of ■stockholders. The words in section 52 of the Banking Law, and with which the section commences, “Except as prescribed in the ¡Stock Corporation Law,” manifestly incorporate into the section such •provisions of the Stock Corporation Law, having general applicatian, which relate to the liability of stockholders in corporations. It was very justly said by the general term that banking corporations were included in the general sections of the Stock Corporation Law. Section 52 of the Banking Law expressly refers to the Stock Corporation Law, and the whole scheme of legislation relating to corporations contained in the three acts, “The General Corporation Law,” The Stock Corporation Law,” and “The Banking Law,” all passed on the same day, show that many of the general provisions in the “Stock Corporation Law" are applicable to banking as well as to other corporations. Sec. 55 of the “Stock Corporation Law,” entitled “Limitations of Stockholders' Liability,” aExes three conditions to the liability of stockholders to an action : (1) The recovery of a judgment against the corporation for the debt, and the return of an execution thereon unsatisfied in whole or in part; (2) that the debt was payable within two years from the time it was contracted; (3) that the action against the corporation for the debt is brought within two years .after it became due, and if the action is brought against the stockholder after he ceased to be a stockholder, it must be brought within two years after that time. The language "of the section is .general. It declares that “No action shall be brought against a stockholder for any debt of the corporation until,” etc. The section is dealing with stock corporations, in which a banking corporation is included, and the limitations apply to the stockholders in such a corporation. These limitations are consistent with the general purpose of the prior legislation requiring proceedings to be first taken to collect the debt of the primary debtor, although they extend to the stockholders in banks exemption founded upon the period of credit and the time of commencing the action against the corporation, not given by the Laws of 1849 and 1882. Reading section 52 of the Banking Law in the light of section 55 of the Stock Corporation Law, we think the words of section 52, “Except as prescribed in the Stock Corporation Law,” are to be construed as though the language was “Subject to the limitations in the Stock Corporation Law, the stockholders of every such corporation shall be individually responsible," etc. It is insisted that the words in section 52 refer to section 54 of the Stock Corporation Law, and not to section 55. This contention is inadmissible. Section 54 is a section imposing, and not limiting liability, and relates to stockholders in other than banking corporations. The liability of stockholders in banking corporations is prescribed in section 52 of the Banking Act. The general policy of legislation in respect to the liability of stockholders in other corporations has been to make them liable to general creditors until the whole amount of capital stock of the corporation has been paid in, and no longer, and to make the liability absolute as regards debts owing by the corporation to laborers, servants and employes. This liability is declared in section 54. If section 54 is held to apply to stockholders in banks, they are to a great extent released from the liability which since 1849 has been imposed upon them. It is not reasonable to suppose that this co.uld have been the intention of the legislature, and such a construction of section 52 is inconsistent with its broad language. We think the liability imposed by section 52 of the Banking Law is limited by section 55 of the Stock Corporation Law.

A creditor seeking to charge a stockholder under the statute, ist bound to allege and on the trial to prove all the facts upon which the liability depends. He must aver the performance of conditions precedent, or set forth facts which in law excuse their performance. Cuykendall v. Corning, 88 N. Y. 129, 137. The complaint neither avers that any judgment has been recovered against the corporation for the debts owing to the plaintiff, nor that any action has been brought thereupon against it, and there is noaverment as to the time when the debts owing by the bank were contracted, nor that they were payable within two years from that-time.

In respect to the objection that the complaint does not show that the precedent condition that judgment should first be obtained against the corporation for the .debt and execution issued and returned unsatisfied, it is claimed in behalf of the plaintiff' that its performance was excused by the judgment in the People’s action, dissolving the corporation and restraining creditors from suing. On the other side it is insisted that the liability of stockholders beingpurely statutory, performance is a necessary condition, without which no action can be maintained, and that no disability to sue the corporation, whether arising from the act qf the law, or-from any other cause, can excuse its performance. The question was argued in this court in the case of Shellington v. Howland, 53 N. Y. 375, which was an action against a stockholder in a manufacturing corporation organized under the general act of 1848, brought by a creditor to enforce the liability imposed by that act. The statute in question in that case required that a suit should be first brought against the corporation to recover the debt, and execution returned unsatisfied. Handy v. Draper, 89 N. Y. 335. In Shellington v. Howland, the plaintiff relied upon" the fact "that by force of the Bankrupt Law of the United States the prosecution of an action against the corporation was prevented and the performance of the condition became legally impossible. The plaintiff prevailed in this contention, and although it appeared that the-defendant had by his own act procured the adj udication in bankruptcy, Judge Allen was of opinion that, irrespective of this fact, performance of the condition was excused whenever by the intervention of the law its performance became impossible. The same learned judge re-asserted this view in Kincaid v. Dwinelle, 59 N. Y. 548, although not essential to the decision rendered. In Hardman v. Sage, 124 N. Y. 25-32 ; 35 St. Rep. 54, the question was considered, and Follett, Oh. J., expressed 'an opinion in accordance with the view of Judge Allen, but the case was decided against the plaintiff on another ground. But in the case of Hunting v. Blun, recently decided in this court, 143 N. Y. 511; 62 St. Rep. 804, the question was necessarily involved and expressly decided, and it was held that a judgment sequestrating the property of a corporation and appointing a receiver, accompanied by an injunction restraining creditors from suing the corporation, ex-«used a creditor in a suit brought against a stockholder, from the performance of the precedent condition that suit should first be brought against the corporation and an execution returned unsatisfied. The decision in Hunting v. Blun puts at rests the question. If it was necessary to find reasons supporting this decision, they are obvious. The liability imposed upon stockholders, although varying in extent under various statutes (the liability in case of some corporations being more stringent than in others), is imposed for the benefit of creditors. This security would be of little practical value under the opposite doctrine. The insolvency of a corporation and the appointment of a receiver, accompanied by a restraint upon creditors, are facts which in most cases become known to creditors only when the final act is consummated and a receiver has been appointed. The situation which makes a resort to the liability of the stockholders essential to the creditor, would become known to him in most cases when it is too late to enforce it, if it should be held that a disability imposed by law does not excuse the bringing of a suit against the corporation. Morever, in many cases the debt may not be due, so that an action could not be brought by the creditor against the corporation prior to the insolvency and the falling of the bar which makes the bringing of an action legally impossible. The object of the provision requiring the creditor to exhaust his remedy in the first instance by judgment and execution against the corporation, is to protect the stockholder against being called upon until an effort to collect of the principal debtor is shown by legal proceedings to be unavailing. But when insolvency has been judicially declared and the whole assets of the corporation are in the custody of the law for equal distribution among creditors, an action in equity brought in behalf of all the creditors against the stockholders to enforce their liability, in which the receiver is joined as defendant, would seem to be a just and reasonable method of ascertaining and having finally determined their respective liabilities. The whole matter is before the court and it can mould its decree according to the equity of the case. We are of opinion, therefore, that under proper allegations in the complaint setting forth the grounds of excuse, the fact that no suit had been brought against the corporation would not be an insuperable difficulty in the way of the plaintiff.

The complaint alleges nothing in terms as an excuse for the non-performance of this condition. It does not state whether a suit had been brought or judgment recovered. The fact that the debt had become due before the People’s action was commenced, and that suit might have been brought upon it before that time, would not-we conceive prevent the plaintiff from interposing the insolvency proceedings and judgment dissolving the corporation as an excuse for non-performance of the condition, provided the right to sue continued and existed when the decree of dissolution was entered. The complaint does allege the rendition and terms of the decree in the People’s suit, but the situation of the plaintiff’s claims before or at the time of the decree is left to vague inference. The. complaint should have stated when the plaintiff’s debt was contracted, whether it was presently due, or, if credit was given, the time of the credit, and why the bringing of a suit against the corporation was prevented. In short it should have stated facts showing that the debt was payable within two years from the time it was contracted ; that suit thereon against the corporation was brought within two years after it became due, and that judgment had been recovered therein and execution thereon returned unsatisfied, or in the alternative the facts which excused the bringing of such suit and the recovery of a judgment. The demurrer was, we think, well taken for the omission to aver in the complaint these essential facts.

The additional' claim is made that it should have been shown by the complaint that the defendants became stockholders in the corporation subsequent to the passage of the act of 1892, on the ground that if they became stockholders prior to that.time, the act imposing liabilities would, as to them, be unconstitutional. See Comm. v. Cochituate Bank, 3 Allen, 42; Wheeler v. Frontier Bank, 23 Me. 308 ; In re Oliver Lee & Co.'s Bank, 21 N. Y. 20-22 ; 2 Morawetz on Cor. §§ 1078, 1099. It is a sufficient answer that the statute of 1892, while it changed in some respects the method of enforcing the liability of stockholders in banks, did not change its essential character from what it was under the statutes of 1849 and 1882. The statute of 1882 remained in force until 1892, and was repealed by the same act which embodied the liability contained in section 52 of the Banking Law. Urider both acts stockholders are liable to the same extent, and a change in the methods of enforcing it is not the imposition of a new liability.

Upon the grounds stated the judgment of the courts below should be affirmed, with leave to the plaintiff to amend on payment of costs in all courts.

All concur.

Judgment affirmed.


source: Caselaw Access Project

author: Haight, J.

license: Public Domain

text:
    Charles E. Hovey, as Survivor, etc., App’lt, v. George Elliott et al., as Executors, etc., et al., Resp’ts.

      (Court of Appeals,

      Filed February 26, 1895.)

    1. Contempt—Jurisdiction.
    The provision of § 725 of the United States Revised Statutes limits the power to the modes of punishment for contempt specified and operates as a negation of any other method.
    2. Same.
    Such provision applies to the Supreme Court of the District of Columbia.
    3. Same.
    Congress may restrict and limit the exercise of the power of such court in the respect specified, though it may have given it general jurisdiction in law and equity.
    4. Same.
    Such provision applies to civil as well as to criminal contempts.

      5. Same.
    After an answer has been interposed in said court, it has no power to strike out such answer as a punishment for cbntempt of court and order judgment,without a trial of the issues presented.
    6. Same.
    Purchasers pendente lite of the subject matter of the action took the risk of the litigation then pending, but, in doing so, did not assume the risk of any punishment that might be inflicted upon the vendors in an independent proceeding.
    Appeal from judgment of the general term of the superior court of the city of New York, entered upon an order which affirmed a judgment in favor of defendants entered upon the-report of a referee dismissing the complaint.

      Herbert B. Titus, for app’lt; Everett P. Wheeler, for app’lt John Seldon and William G. Choate for resp’ts.

       Affirming, 48 St. Rep. 399

   Haight, J.

This action was brought to have the defendants’' testator adjudged to be .a trustee of certain bonds for the benefit, of the plaintiffs and that they have a lien thereon and that the de-' fendants account to them therefor.

In September, 1873, the mixed commission on British and American claims, sitting at the city of Washington, awarded to-one Augustin R. McDonald the sum of $197,000 in satisfaction of his claim for cotton destroyed during the war of the rebellion. In the following October the plaintiffs filed in the Supreme Court of the District of Columbia a bill in equity against McDonald and one William White, his assignee, for the sum of $49,297.50, alleging therein that McDonald was indebted to- them under an agreement whereby, in consideration of services to be rendered in the prosecution of such claim, they were to receive a sum - equal to twenty-five per centum of the amount that should be recovered and that they have a lien to the extent of such sum upon the award in his favor. Such proceedings were thereafter had that one George W. Biggs, a banker in the city of Washington, was appointed receiver, and one-half of the sum so awarded was paid over to him as such to meet the claim and lien of the plaintiffs. As such receiver and pursuant to the directions of the court, he invested the funds in certain bonds of the District of Columbia.6 guaranteed by the United States and payable at its treasury. The defendants then interposed a demurrer to the plaintiffs’ bill, which was sustained, and on the 24th day of June, 1875, a decree was entered dismissing the plaintiffs’ bill, with costs. On the same day the plaintiffs entered an appeal from the decree to the general term of the Supreme Court of the District of Columbia.* On June 28th, 1875, another decree was entered in precise conformity with the former decree, but supplemented by a direction to the receiver to pay to the defendants McDonald and White the funds in his hands as such receiver. On the same day McDonald and White called upon the receiver and demanded the bonds in-question. He thereupon first consulted with the judge holding the court in which the decree was entered, and, after being advised by such judge that the_ bonds should be surrendered, he delivered them over to McDonald and White, who on the same day sold and delivered the bonds for full value to the banking firm of Riggs & Co., of which the receiver was a partner. Riggs & Co. then surrendered the bonds to the treasury of the United States, receiving new bonds therefor, which were thereafter sold and delivered to various purchasers.

On July 2d, 1875, the plaintiffs took an appeal to the general term of the Supreme Court of the District of Columbia from the decree of June 28, 1875, and on March 4, 1876, that decree, as well as the one that preceded it, was reversed and the cause was remanded to the special term, with leave to the defendants to answer. An answer was then interposed, and upon the issues raised thereby testimony was taken at divers times during the years 1876 and 1877. On the 15th day of June, 1877, plaintiffs obtained an order from the Supreme Court of the District of Columbia, requiring the defendants McDonald and White to pay over to the registry of the court the sum which had been delivered to them by the receiver. This order was not complied with, and .thereupon the plaintiffs moved that the defendants McDonald and White show cause why they and each of them should not be punished as for a contempt; and such proceedings were thereupon had that they were adjudged to be guilty of a-contempt, and that the answer filed by them in the cause be stricken out and removed from the files of the court. Judgment was thereafter entered against them -pro confessa adjudging that the plaintiffs had a lien upon the bonds.

This action is based upon the judgment so entered, and is prosecuted upon the theory that notice to Riggs of the pendency of the action was notice to all of his partners. Weetjen v. St. P. & P. R. R. Co., 4 Hun, 529: 3 Kent Com. 105. The defendants’ testator resided in the city of New York, and was one of the members of the banking firm of Riggs & Co. He only was served with summons in this action.

The referee has found, as conclusions of law, “first, that in order to enable the plaintiffs to sustain this action the decree rendered by the Supreme Court of the District of Columbia must. „be a valid decree, binding upon the defendants; second, that from the operation of that decree the defendants in this action enjoy exemption and immunity under section 725 of the Revised Statutes of the United States; third, that from the effect and operation of the decree the defendants enjoy immunity and exemption under that provision of the fifth amendment to the Constitution of the_ United States, which prohibits the deprivation of property without due process of law; fourth, that the Supreme Court of the District of Columbia had no jurisdiction to render the said decree and that the same was and is null and void,” etc.

As to the first conclusion of law the parties agree. The controversy is in reference to the other three. The third conclusion is based upon the fifth amendment to the Constitution of the United States, which prohibits the deprivation of persons of property without due process of law. Inasmuch as the consideration of what is due process of law will to some .extent be involved in the determination of the validity of the judgment upon which this action is based, we only deem, it necessary to consider the second .and fourth conclusions of law found by the referee. We shall also, for the purpose of this review, assume, without deciding the question, that Riggs & Co. were purchasers of the bonds pendente ■lite, with knowledge of the existence of the suit, although it appears that the purchase was made after judgment, for full value, in good faith-, under the supposition that they had the right to purchase freed from all liens, and that they had no notice that an .appeal had been taken. Considering - them as such purchasers, were they bound by the determination made in the action then pending? Section 725 of the United States Revised Statutes provides that:

“The said courts (referring to the courts of the United States) shall have power to impose and administer all necessary oaths, and to punish, by fine or imprisonment, at the discretion of the court, ■contempt's of their authority: Provided, that such power to punish contempts shall not be construed to extend to any cases except the misbehavior of any person in their presence, or so near thereto as to obstruct the administration of justice, the misbehavior ■of any of the officers of said courts in their official transactions, and the disobedience or resistance of .any such officer, or by any party, juror, witness or other person, to any lawful writ, process, order, rule, decree or command of the said courts;”

Under this statute the referee has reached the conclusion that the supreme court of the District of Columbia had no power to punish the defendants for a' contempt by striking out their answer and adjudging that the plaintiffs had a lien upon the bonds.

In ex parte Robinson, 19 Wall. 512, Field, J., in delivering the opinion for the court, says: “ The power to punish for contempts is inherent in all courts. Its existence is essential to the preservation of order in judicial proceedings and to the enforcement of the judgments, orders and writs of the courts, and consequently to the due administration of justice. The moment the courts of the United States were called into existence and invested with jurisdiction over any subject they became possessed of this power, but the power has been limited and defined by the act of Congress of March 2, 1831. The act in terms applies to all courts. Whether it can be held to limit the authority of the supreme court, which -derives its existence and powers from the Constitution, may, perhaps, be a matter of doubt, but that it applies to the circuit and district courts there can be no question. These courts were created by an act of Congress. There powers and duties depend upon the act calling them into existence, or subsequent acts extending or limiting their jurisdiction. The act of 1831 is, therefore, to them the law specifying the cases in which summary punishment for contempt may be inflicted. It limits the power of these '-courts in this respect to three classes of cases. * * * The law happily prescribes the punishment which the court can impose for contempts. The 17th section of the judiciary act of 1789 declares that the courts shall have power ■ to punish contempts of their authority in any cause or hearing before them, by fine or imprisonment at their discretion. The enactment is a limitation upon the-manner in which the power shall be exercised, and must be held to be a negation of all other modes of punishment. The judgment of the court disbarring the petitioner, treating it as a punishment for a contempt, was, therefore, unauthorized and void.”

In Anderson v. Dunn, 6 Wheat. 204-227, Johnson, J., says “ It is true that the courts of justice of the United States are vested by express statute provision with power to fine and imprison-for contempt. * * * It is a legislative assertion of this right as incidental to the grander judicial power, and can only be considered authority-as an instance of abundant caution, or a legislative declaration that the power of punishing for contempt shall not extend beyond its known and acknowledged limits of fine and imprisonment.”

In U. S. ex rel. D. & N. O. Ry. Co. v. Atchison, T. & S. F. Ry. Co., 16 Fed. R. 853, McCrary, J., says : “ The povfer of the court is limited to the punishment of the party charged with contempt, and under the provisions of section 725 of the Revised-Statutes of the United States such punishment must be by fine or imprisonment. ' That section provides that circuit courts shall have power to punish by fine or imprisonment, at the discretion, of the court, contempts of their authority. This enactment, says the supreme court, is a limitation upon the manner in which the power may be exercised, and must be held to be a negation of all other modes of punishment.” Citing Ex parte Robinson, supra.

In U. S. ex rel South. Ex. Co. v. Memphis & Little Rock R. Co., 6 Fed. R. 237-239, Hammond, J., says: “Obedience to an injunction against privileged persons and corporations was sometimes enforced by sequestration, which placed, the property of thcontemnor in custody until obedience was given. 2 Daniell Ch. Pr. [5th ed.] 1685, 1687; 2 Bish. Cr. L. [6th ed..] §§ 241, 273 ; Spokes v. Banbury Board of Health, L. R. [1 Eq.] 42, and cases cited by these authorities. Our Revised Statutes, taken from the act of March 2, 1831, c. 99, and prior acts of Congress have prescribed the mode of punishment, and directed that it shall be by fine or imprisonment, and this operates as a negation of all other-modes. of punishment.” See, also, In re Cary, 10 Fed. R. 622, 625; In re Graves, 29 id. 60; Interstate Commerce Com. v. Brimson. 154 U. S. R. 447-489; Ex parte Bradley, 7 Wall. 364.

It may be that the cases above referred to are not in strict accord with the rule recognized in this state in which a court of equity may refuse to a party in contempt the benefit of proceedings pending in it when asked by him as a favor until he has-purged himself-of his contempt. Brinkley v. Brinkley, 47 N. Y. 40; Walker v. Walker, 82 id. 260; Gross v. Clark, 87 id. 272. But in this state the supreme court on its equity side is vested by the Constitution with all the power and authority that formerly existed in the high court of chancery in England, the common law remaining in force excepting so far as it has been changed by statute. The legislature in this state, therefore, may not be abiete limit or deprive the supreme court of any of its jurisdiction or powers.

Has the supreme court of the District of Columbia like jurisdiction and powers ? It was created by act of Congress and not by the Constitution. It consequently follows that Congress, which gave it life and invested it with power, may restrict and limit its exercise, and this notwithstanding the fact that it may have given it general jurisdiction in law and equity. To Congress is given the exercise of exclusive legislation in all cases whatsoever over such disrict as may by cession of particular states and the acceptance of Congress become the seat of government of the United States. U. S. Const, art. 1, § 17. It may, therefore, create, empower, limit and remove. In creating the supreme court of the District of Columbia it was provided that it “ shall possess the same powers and exercise the same jurisdiction as is now possessed and exercised by the circuit court of the District of Columbia, and the justices of the court so to be organized shall severally possess the powers and exercise the jurisdiction now possessed and exercised by the judges of said circuit court.” Act of March 3, 1863, 12 U. S. St. 762, ch. 91. The circuit court of the District of Columbia and the judges thereof prior thereto had been invested with “ all the powers by law vested in the circuit courts and the judges of the circuit courts of the United States.” 2 U. S. St. ch 15, § 3, p. 105. And by the judiciary act of 1801, Feb. 13, it was provided “ that the circuit courts shall have and hereby are invested with all the powers heretofore granted by law to the circuit courts of the United States, unless where otherwise provided by this act.” 2 U. S. St. ch. 4, § 10.

By the Judiciary Act passed September 24, 1789, it was provided that “the Circuit Courts shall have original cognizance, concurrent with the courts of the several states, of all suits of a civil nature, at common law or in equity, where the matter in dispute exceeds, exclusive of costs, the sum or value of $500, and the United States are plaintiffs or petitioners, or an alien is a party, or the suit is between a citizen of the.state where the suit is brought and a citizen of another state. 1 U. S. St. ch. 20, § 11, p. 78. This provision was re-enacted in the revision of 1873. U. R. S. S. § 629. In 1871 "it was provided that “the Constitution and all the laws of the United States which are not locally inapplicable shall have the same force and effect within the said District of Columbia as elsewhere within the United States.” 16 U. S. St. ch. 62, § 34, p. 426; § 93 E. S. of Dist. of Col. By section 760 of the Revised Statutes of the District of Columbia it is provided that “the Supreme Court shall possess the same powers and exercise the same jurisdiction as the circuit courts of the United States.”

It is thus apparent that the Supreme Court of the District of Columbia and the circuit courts of the United States are placed upon the same footing and invested with the same jurisdiction and powers, except as to the residence of parties. They are each given jurisdiction of suits of a civil nature at common law or in equity. Heither have common-law jurisdiction except that conferred by statute, and consequently, each is controlled by subsequent legislation.

In 1801 the laws of Maryland were continued in force over that portion of the District of Columbia ceded to the government by that state, but this statute only remained in force in so far as it was not inconsistent with other statutes or not modified or repealed. R. S. of Dist. of Col. § 92; 2 IT. S. St. eh. 15, sec. 1, p. 104.

Does section 725 of the Revised Statutes apply to the District of Columbia? Our attention has been called to no rule of the Supreme Court of the District of Columbia, or statute, that is in conflict with its provisions. It is not locally inapplicable, and under section 93 of the statute above referred to we see no reason why it is not given the same force and effect within' the district that it has elsewhere within the United States. It may be that other sections of the same chapter may not apply to the District of Columbia, but it is because they are either locally inapplicable, or there are local rules or statutes covering the same subject-matter. See Hovey v. McDonald, 109 U. S. R. 150, construing section 1007 of the U. S. R. S. We consequently are of the opinion that section 725 of the Revised Statutes of the United States is in force in the District of Columbia, and as construed by the United States courts, it restricts the Supreme Court of the District, in its punishment for contempt, to either a fine or imprisonment.

Was the decree entered in the action against McDonald and White void or was it merely voidable, and are the defendants in this action bound thereby ? In 12 Am. & Eng. Ency. of Law at page 1470, under the head of judgments, it is said that “It is an axiom of the law that judgments entered without any jurisdiction are void and will be so held in a collateral proceeding, and there is a strong and growing tendency in all the courts to hold that although a court had jurisdiction over both the person and the subject-matter, but did not have jurisdiction to enter the particular Judgment entered in the case, such judgment is void and may be collaterally impeached.” See note 3 thereunder, and note 1 on page 247.

In McVeigh v. The U. S., 11 Wall. 259-267, a libel for information was filed in the District Court for the district of Virginia for the forfeiture of certain real and personal property of one William McVeigh. The libel alleged that he held an office under the Confederate government, and that he had taken the oath of allegiance to support that Constitution of that government. He appeared by counsel, made a claim to the property and filed an answer. The attorney for the United States moved that the claim, answer and appearance be stricken from the files upon the ground that he was at the time a resident of the city of Richmond within the Confederate lines and a rebel. The motion was granted, and subsequently his default was taken and a decree rendered pro confesso for the condemation and sale of his property. The judgment was reversed in the supreme court. Justice Swayne, in delivering the opinion, says: “In our judgment the district court committed a serious error in ordering the claim and answer of the respondent to be stricken from the files. As we are unanimous in this conclusion our opinion will be' confined to that subject. The order, in effect, denied the respondent a hearing. It is alleged that he was in the position of an alien enemy, and hence could have no locus standi in that forum. If assailed there he could defend there. The liability and the right are inseparable. A different result would be a blot upon our jurisprudence and civilization. We cannot hesitate or doubt on the subject. It would be contrary to the first principles of the social compact and of the right administration of justice.”

In Windsor v. Mc Veigh, 93 U. S. R. 274, the same question was again brought before the court under an action of ejectment to recover certain real property which had been acquired under the decree mentioned in the former easel Justice Field, in delivering the opinion of the court, says: “ The doctrine inv.oked by counsel, that, where a court has one'e acquired jurisdiction, it has the right to decide every question which arises in the cause, and its judgment, however erroneous, cannot be collaterally assailed, is- undoubtedly correct as a general proposition, but, like all general propositions, is subject to many qualifications in its application. All courts, even the highest, are more or less limited in their jurisdiction. They are limited to particular classes of action, such as civil or criminal, or to particular modes of administering relief, such as legal or equitable. * * * Though the court may possess jurisdiction of a cause, of the subject-matter, and of the parties, it is still limited in its modes of procedure and in the extent and character of its judgments. It must act judicially in all things, and cannot then transcend, the powe'r conferred by the law. If, for instance, the action be upon a money demand, the court, notwithstanding its complete jurisdiction over the subject and parties, has no power to pass judgment of imprisonment m the penitentiary upon the defendant. If the action be for libel, or for personal tort, the court cannot order in the case a specific performance of a contract. If the action be for the possession of real property, the court is powerless to admit in the case the probate of a will. Instances of this kind show that the general doctrine stated by counsel is subject to many qualifications. The judgments mentioned, given in the cases supposed, would not be merely erroneous, they would he absolutely void, because the court in rendering them would transcend the limits of its authority in those cases.”

In Ex parte Lang, 18 Wall. 163-176, the prisoner had been convicted of the crime of stealing mail bags. He was sentenced to one year’s imprisonment and to pay a fine of $200, and was on the same day committed to jail in execution of his sentence. On the following day he paid the fine. The statute authorized imprisonment or fine. It did not authorize both. On the next day the prisoner was brought before the court and an order was entered vacating the former judgment and the prisoner was again sentenced to one year’s imprisonment. Mr. Justice Miller, in delivering the opinion of the supreme court, says in reference thereto: “We are of the opinion that when the prisoner, as in this case, bv reason of a valid judgment, had fully suffered one of the alternative punishments to which alone the law subjected him, the power of the court to punish further was gone. * * * It is no answer to this to say that the court had jurisdiction of the person of the prisoner and of the offense under the statute. It by no means follows that these two facts make valid, however erroneous it may be, any judgment the court may render in such case. If a justice of the peace, having jurisdiction to fine for a misdemeanor, and with a party charged properly before him, should render a judgment that he be hung, it would simply be void. Why void ? Because he had no power to render such a judgment. So, if a court of general jurisdiction should, on an indictment for libel, render a judgment of death, or confiscation of property, it would, for the same reason, be void. Or if, on an indictment for treason, the court should render a judgment of attaint whereby the heirs of the criminal could not inherit' his property, which should, by the judgment of the court, be confiscated to the state, it would be void as to the attainder, because in excess of the authority of the court and forbid by the Constitution.” Ex parte Fiske, 113 U. S. R. 713-718 ; In re Bonner, 151 id 242 ; In re Mills, 135 id. 263-270; Ex parte Terry, 128 id. 289-304; Ex parte Reed, 100 id. 13-23; In re Frederick, 149 id. 70-76 ; Bigelow v. Forrest, 9 Wall. 339. See, also, note entitled “Want of Authoiity under Jurisdiction Conferred,” in Morrill v. Morrill, 11 L. R. A. 157.

We have examined, but do not here refer to, the cases in which irregularities only appear in the judgments entered, in which it has been held that they are voidable only and cannot be attacked collaterally. The question presented may be close and upon the border, but we are inclined to the view that as to Riggs & Co. the judgment is void; that after the answer had been interposed by the defendants the court had no power to order judgment without a trial of the issues presented. In the language of Justice Field, above referred to, the court, although having jurisdiction of the case and of the parties, “ is still limited in its modes of procedure and in the extent and character of its judgments.”

Assuming that the members of the firm of Riggs & Co. purchased the bonds with notice of the pendency of the action, and that they took the same subject to the determination therein to be made, they had the right to have the question at issue determined upon the merits. McDonald and White were, as to them, assignors for value, and they had no power, by acts or declarations thereafter done or made, to impeach the title so transferred to Riggs & Co. McDonald and White could not, by fraud or collusion with the plaintiffs, impair their title, or, by a confession of judgment, deprive them of their rights to the bonds. Riggs & Co. were not parties to that action, and it does not appear that they ever had notice of the proceedings in contempt. As purchasers pendente lite Riggs & Co. took the risk of the litigation then pending, but in so doing did not assume the risk of any punishment that might be inflicted upon McDonald and White in an independent proceeding. Conner v. Reeves, 103 N. Y. 527-532; 4 St. Rep. 216; Ferguson v. Crawford, 70 id. 253.

It is contended that the decree striking out the defendants’ answer was not based upon the proceedings in contempt; but the proceedings, orders and decree do not support this contention. If the answer was not stricken out as a punishment for the contempt <of which the defendants had been convicted, then by what authority were the defendants deprived of their right to a trial and a determination of the issues involved ? Again, it is said that § 725 of the Revised Statutes has reference to criminal and not civil contempts, but no such distinction is found in the statute, or is •made by the authorities construing the same.

The judgment appealed from should be affirmed, with costs.

All concur.

Judgment affirmed.


text:
    In the Matter of the Judicial Settlement in the Accounts of Thomas J. Mullon et al., as Administrators, etc.

      (Court of Appeals,

      Filed February 26, 1895.)

    1. Executors—Payment of debts.
    An administrator, who has regularly proceeded by notice to creditors, is justified in using the assets to pay claims presented, and a creditor who has neglected to present his claim has no cause to complain of such payment.
    3. Same.
    Upon the payment of all debts, legacies and charges against the estate, the title to the remaining assets will at one vest in the residuary legatee under the will without any formal transfer, even though the administrator with the will annexed is such residuary legatee.
    3. Same.
    A creditor, having an unpaid debt against a decedent, not barred by the statute of limitations, is not precluded, by mere omission to present his claim pursuant to notice, from establishing his debt and demanding an ac counting at any time before the' executor or administrator is formally discharged from his trust.
    4. Same,
    Where an executor or administrator, proceeding in good faith and being also residuary legatee, applies to his own use the assets remaining after the payment of all the claims under the will and all claims presented in usual course pursuant to the notice, he cannot be held accountable except for the actual value of the assets which formed a part of the testator’s estate, nor can he be charged with the profits of a business into which he puts money or property of the estate.
    6. Same—Inventory.
    The inventory and appraisal, though prima facie evidence, are not conclusive of the extent or value of the assets.
    6. Same—Accounting.
    Upon an accounting, the burden is on such creditor to show that articles were omitted or that they realized a larger sum than the appraised value.
    7. Same.
    This burden is not met by showing that five years after the testator’s death the administrator embraced in a single sale, which purported to be a sale by him as an individual, some of the property specified in the inventory and also property which never belonged to the estate, for a gross sum exceeding the inventory value of the articles of the estate included in the sale, in the absence of any evidence of the consideration allowed for the former, or that its actual value exceeded its inventory value.
    Appeal from judgment of the general term of the supreme court in the third judicial department, entered upon an order which reversed a decree of the surrogate of the county of Albany upon an accounting by Thomas J. Mullon and Jacob H. Mullom as administrators with the will annexed of John Mullon, deceased., and granted a new trial.

      Marcus T. Hun, for app’lt; John A. Stevens, for resp’ts.

       Affirming 56 St. Eep. 347.

   Andrews, Ch. J.

The fundamental error in the decree of the surrogate, rendered on the accounting, is the assumption that the ice business carried on by Thomas J, Mullon and Jacob H, Mullon, from the death of their father, John Mullon, was carried on by them as administrators of his estate. Upon this assumption the surrogate reached the conclusion that the sale made by them to Sherman of the ice business and the property connected, therewith was a sale of the business and property of the estate of John Mullon, and that the administrators are accountable as such for $20,250, the consideration of the sale.

The result reached subjects the administrators to a liability much beyond the value of the assets as inventoried which came to their hands on the death of their father, and involves the implication that for nearly five years subsequent to his death the sons devoted their time and labor in carrying on the business for the benefit of the estate. The assumption made by the surrogate is unfounded in fact and in law, There can be no doubt upon the evidence-that in form the sons carried on the business for themselves as co-partners from the death of the father. They took possession of and used in the business the horses, wagons and equipments-which had been used by the testator. But they carried on the business in their own names, and in the bill of sale to Sherman they described themselves as “ trading and doing business as co-partners under the firm name and style of John Mullon's Sons/'' Moreover, they had no reason to suppose that in so doing they were in any way defeating or prejudicing the rights of the creditors of the testator. They were the residuary legatees under his will. The executors having renounced, they were appointed administrators with the will annexed. They procured an inventory of the estate to be made and filed October 20, 1886, m which the whole personal estate was appraised at $9,426.20, including therein the property and stock used by the testator in- his ice business of the appraised value of $6,582. On the 80th of March, 1887, pursuant to the order of the surrogate, they caused notice for the presentation of claims to be duly published, and they paid in full all the claims presented. They paid the legacies and fuheral expenses, and the payments on account of the estate exceeded the whole appraised value by more than $2,000. Ho claim was presented by the petitioner until about the commencement of the present proceedings for an accounting in October, 1892. The claim then made was on account of a deficiency judgment, obtained against the administrators of John Mullon for $3,811.70, October 5th, 1892, in an action for the foreclosure of a mortgage-for $6,000, given by John Mullon in 1881, payable five years from date, to the estate which the contestant represents. Although" the mortgage became due soon after the death of the mortgagor, no proceedings appear to have been taken to collect it until several years after his death, and so far as appears no claim was made or notice given to the administrators that such a debt was outstanding or that a deficiency would be likely to arise, prior to the sale to Sherman, February 28th, 1891.

But if in judgment o£ law the business conducted by the sons-of John Mullon, after his death, was the business of the estate, and all the property used therein and sold to Sherman was the property of the estate, the understanding and intention of the persons in whose name it was carried on would be immaterial, and the administrators would be bound to accóuntfor the consideration of the sale, however harshly such a conclusion might operate against them. They have charged themselves in the account with the appraised value of the ice plant, tools and machinery,,as stated in the inventory. It was not shown that any personal property belonging to the testator was omitted therefrom. Ho direct evidence was given and no attempt was made to show that any article in the inventory was appraised at less than its full value. But it is insisted that as no accounting was had, and the administrators continued the ice business, and used therein the articles used by the testator, without apy formal transfer of the title from themselves as administrators to' themselves as individuals, the business, its profits accretions and proceeds belonged to the estate. The petitioner, therefore, sought to surcharge the account rendered by the administrators with the difference between $6,582.00, the inventoried value of the ice fixtures and property, and the sum of $20,250.00, the consideration of the sale to Sherman. The decree proceeds substantially on this claim. The injustice of this-result is very obvious. It appears from the bill of sale that it embraced the good will of the business of “John Mullon’s Sons all the personal property connected therewith, including many things purchased after John Mullon’s death ; existing contracts for the sale of ice ; about 9,000 tons of ice collected and stored by the firm in 1890 and 1891 on premises which the firm held under a lease, and in which the testator, John Mullon, never had any interest; and the bill of sale contained a covenant on the part of the vendors, jointly and severally, that they would not for ten years engage in the ice business in the counties of Albany and Rensselaer without the consent of Sherman.

We think the administrators were not in law bound to account for the proceeds of the sale to Sherman. It is not disputed that, the sale included many articles which belonged to John Mullon at his death, and which are entered in the inventory. The administrators held the assets of* the estate as trustees for creditors; and legatees, and this relation, at the time of the sale, had not been terminated by any decree or judicial proceeding. The administrators having regularly proceeded by notice to creditors, were justified in using the assets to pay claims presented, and other creditors who had neglected to present their claims had no cause-to complain of such payments. Erwin v. Loper, 43 N. Y. 521.

Upon payment of all debts, legacies and charges against the estate, the title to the remaining assets would at once vest in the residuary legatees under the will, without any formal transfer from themselves as administrators. Blood v. Kane, 130 N. Y. 518; 42 St. Rep. 549. In the present case, although the administrators appear to have proceeded on the assumption that all claims against the estate were discharged, and thereupon treated the assets remaining as belonging to them individually, this was a mistake. Some years later, and before the administrators had' applied to be discharged of the trust, the claim in question was presented: It cannot be doubted, we think, that a creditor having an unpaid debt against'a decedent, not barred by the statute, is not precluded, by mere omission to present his claim pursuant to notice, from establishing his debt and demanding an accounting at any time before the executor or administrator is formally discharged from his trust. But where an executor or administrator proceeding in good faith, he being also residuary, legatee, applies to Lis own use the assets remaining after having paid all the claims under the will and all claims presented in usual course pursuant to notice, he cannot, we think, be held accountable, except for the actual value of the assets which formed a part of the testator’s estate, nor can he be .charged with the profits of a. business into which he puts thé money or property of the testator or intestate. The inventory and appraisal are not conclusive of the extent or value of the assets, although prima facie evidence. Forbes v. Halsey, 26 N. Y. 53. The creditors on an accounting may show that articles were omitted or that they realized a larger sum than the appraised value. In the present case the articles connected with the ice business contained in the inventory were of a nature capable of identification and separate valuation, and the burden was upon the contestant to surcharge the account. This burden was not met by showing that five years after the testator’s death the administrators embraced in .a single sale, which purported to be a sale by them as individuals, some of the property specified in the inventory and also property which never belonged to the estate, for a gross sum exceeding the inventory value of the articles of the estate included in the sale in the absence of any evidence of the consideration allowed for the former, or that its actual value exceeded the inventory value.

We think the decree of the surrogate was properly reversed by the general term, and judgment absolute is, therefore, directed in favor of the respondents on the stipulation.

All concur.

Judgment accordingly.


author: Finch, JU.

text:
    The People, Resp’t, v. Anthony Girard, App’lt.

      (Court of Appeals,

      Filed February 26, 1895.)

    Yoon—ADULTERATION.
    The adding of a foreign and artificial ingredient to a food product, even for the purpose of color merely, is in effect, an adulteration, and the legislature has power to prohibit such act.
    Appeal from judgment of the general term of the supreme court in the fourth judicial department, entered upon an order, which affirmed a judgment in favor of plaintiff entered upon a verdict directed by the court.

      F. G. Fincke, for app’lt; C. D. Adams, for resp’t.

      Affirming 56 St. Rep. 47.

   Finch, JU.

The argument in this case concedes the undoubted rule that the police power of the state may be exerted to protect ■the public health or prevent a fraud upon the people, but that the law professing to intend that result must indicate by its terms that such was its real and actual purpose, and exhibit a capacity to operate in the asserted direction. The defendant sold vinegar containing artificial coloring matter in violation of the law of 1889 (Oliap. 515, § 4), which provides that “no person shall manufacture, produce, sell or keep for sale, or offer for sale, any vinegar which shall contain any preparation of lead, copper, sulphuric acid, or other ingredients injurious to health, or any artificial coloring matter.” J.t is evident that the last clause has relation to the prevention of fraud, not only because of the form and mode of expression, but also because, if limited to an effect upon the public health, it would become a mere useless repetition. Any ingredients so injurious had already been prohibited, and the further limitation.must be assumed to have a further purpose and relate to the prevention of fraud in the production and sale of vinegar. It must be also assumed that the legislature acted with knowledge •of this particular food product, of its appearance, and the modes of its manufacture. Everybody is familiar with cider vinegar, for it goes into all households. Its color and appearance are as well understood as its taste. But another vinegar has come upon the market made by a distillation from grain. It is said to be entirely healthy and safe as a food product, and that may be granted. Ho law forbids its manufacture and sale. The markets of the state are open to it freely, and without restraint, and the only prohibition is against the fraud of a false color. Its natural color when honestly made is much lighter than that of cider vinegar, and gives it rather a resemblance to water with some faint trace of color, or to a white wine. Purchasers had a natural preference for the old familar article and were more or less averse to an experiment with the new. They could tell the difference at a glance by the marked difference in color. The new product probably" made its way slowly for that reason, and the greed of profit, which has adulterated or disguished almost every article of food, led to the device of coloring itso as to change its appearance from almost white to a brown or amber color, which is that of the ordinary cider vinegar. Thus changed, the new product might easily deceive purchasers. They would accept it supposing it to be cider vinegar when, if its natural color had remained, they would have refused it. Obviously, the artificial coloring matter is used for some purpose. It adds to the cost and labor of preparation, and such expense would not be incurred unless it improved the salable quality of the article. The coloring matter does not affect the taste or actual quality of the vinegar when, as here, it is burnt sugar or carmel which is used, but it does change the appearanee. It masks the truth; it effects a disguise ; it naturally deceives and is intended to deceive; for the new color is that of cider vinegar and enables the substituted product to be foisted upon those who prefer and seek the old. We can ^ee how it operated in the case before us. The defendants were Italians. They say they knew nothing about cider vinegar and that such an article is not found in Italy. They were good subjects for the manufacturer to use. They bought a barrel of vinegar and got the distilled product having an artificial amber color. A purchaser comes and asks-for cider vinegar. The sellers give him the new, claiming that vinegar is vinegar, and very possibly not appreciating the word cider as a qualification. But whether they were the mere tools of the manufacturer or themselves cognizant of the situation, it is apparent that the vinegar was colored for purposes of deception and to defraud the buyer. The legislature had a right to forbid that device and put a stop to the fraud, but how were they to do so? They might forbid specially the use of a coloring matter creating a resemblance to cider vinegar, or accomplish the same purpose by forbidding the use of any coloring whatever. By the first process-they would remit the question of imitation to a jury ; by the-second they would decide it themselves conclusively and once for all. So far as the present facts are concerned, either form of prohibition effects one and the same precise result, for there is no proof that distilled vinegar is ever colored or even likely to be colored in any other way than so as to resemble cider vinegar ; and the form of the law, judged by the situation it was framed to meet, is identical in its results in either case. But beyond that, the legislature might make the prohibition absolute for two reasons : One, the difficulty of enforcing a special provision limited narrowly to an imitation with intent to deceive, in which event there would always be a question of fact more or less hampering the effective execution of the law ; and the other, that any tampering with food products which adds ingredients not natural or essential is fraught with danger to thp public health, or, at least, involves the intent and result of a fraud upon the community. Food should be pure, absolutely and unquestionably pure. No tricks should be played with it, The legislature may resolutely protect it. No artificial color can ever be added to distilled vine•gar for any good or honest purpose that I can imagine. Counsel say it might be colored blue or green so that no-purchaser would take it for cider vinegar, and yet the law is broad enough to forbid that. I grant it. The case is imaginary, but assume it to be real. The blue or green color would, at least, disguise the actual product, and permission to color at all opens the door to coloring matters which might well be dangerous to health. Must the legislature wait for the experiment and until some number of people are made sick or die of it? In so serious a matter as the absolute purity of food we ought not to say that a general law, which simply compels that absolute purity, is beyond the power of the legislature.

There is talk here of interference with the vested rights of the individual. Sometimes it is pertinent and weighty, but in thia case it is neitner. It becomes the assertion of a vested right to color a food product so as to conceal or disguise its true or natural •appearañce; in plain words, a vested right to deceive the public.

This is by no means the first time that the legislature has acted by a general law in seeking to protect the public health and safety. It has provided a fixed standard for the purity of milk, judging for itself, absolutely and conclusively, what that standard should be, instead of leaving it to the varying judgment of different juries. We sustained that law in the case of Cipperly, adopting as our own the dissenting opinion of Judge Learned at the general term, 37 Hun, 319 ; 101 N. Y. 634. There it was claimed that the law was too broad and inflexible; that instead of merely forbidding the sale of impure or unhealthy milk, it prohibited the sale of all below an arbitrary standard of purity; and so, that milk which was perfectly pure and healthy might fall within the prohibition because below the standard. We sustained, nevertheless, the constitutionality of the act and the right of the legislature to judge for itself of the danger and the remedy. The right of the legislature to that effect was well illustrated in Commonwealth v. Alger, 7 Cushing, 96, where the case of a powder mill or slaughter house endangering the safety or health of the people was used as an illustration. The legislature is not bound merely to enact that such a structure shall not be put so near to a city or village as to endanger the citizens, but may judge for itself and decide what is that distance and not leave it for a jury to say. A municipal corporation may in like manner fix athoritatively and by a general ordinance the rate of speed of railroad trains through its streets. These cases are referred to only as showing the right of the legislature to judge for itself of the character and extent of the danger which is shown to exist, and to apply the remedy by a definite rule of prohibition. Every general law may work harshly in a few particular instances. If that were true in the present case it would not determine the constitutional question. Adding a foreign and artificial ingredient to a food product, even for purposes of color merely, is, in effect, an adulteration, and whether it be so described or forbidden by more - specific terms is not material. The present law does not in the least interfere with the honest manufacture and sale of the distilled vinegar. It simply provides that it shall not be falsely colored. I think the legislature did not in this case, and under the circumstances existing, exceed its power.

The judgment should be affirmed.

All concur, except Bartlett and Haight J. J., dissenting, the latter on the construction of the statute.

Judgment affirmed.


author: Finch, J.

text:
    John F. Montignani, as Administrator with the Will Annexed, App’lt and Resp’t, v. Mary Y. Staats Blade et al., App’lts and Resp’ts.

      (Court of Appeals,

      Filed February 26, 1895.)

    1. Will—Construction—Heirs.
    Where the will shows on its face that the person, whose heirs are referred to, is, to the knowledge of the testator, at that time living, the term, “heirs” is not used in its strict technical sense, but means, in the case of land, heirs apparent or those who would be the heirs were the living ancestor deceased, and. in the case of personal property, those who would be next of kin, were the ancestor deceased.
    3. Same—Perpetuities.
    Where the trust is, in substance, for two lives or a shorter period and cannot, in any event, exceed their duration, the bequest is not invalid.
    3. Same.
    The addition of a provision, intended merely to aid and assist in reaching the ultimate result of a satisfactory division of the bequest among the legatees, and not at all to mar or defeat it, does not affect such validity.
    4. Action eor construction oe will—Jurisdiction.
    In an action simply for the construction of a will, the court has no power to go outside of it and construe an independent business agreement.
    Gross-appeals from judgment of the general term of the supreme court in the third judicial department, entered upon an order which modified and affirmed as modified a judgment construing the will of Bernardus E. Staats, deceased, entered upon a decision of the court on trial at special term.
    This action was brought for a construction of the will of Bernardus E. Staats, deceased. The provisions of the will in question are as follows:
    “I hereby bequeath and give to my son, Bernardus E. Staats, all my shares of stock in Wells, Fargo & Company Express, to be held in trust by-my executors ten years from and after my decease, then to be delivered and transferred to him, if deceased do and continue the same to his son William, now in his eighth year of age. The dividends shall be collected, when and as declared, by my executors until transferred and delivered and paid to "my son, or, if deceased, to his son William ; if both are deceased before the ten years have expired, then transfer and deliver the said shares to my daughters, Lydia Ann Staats, and Mary Yates Staats, each share and portion equal. If either daughter is deceased, her portion shall be transferred and delivered to the remaining daughter. If both are deceased, then this bequest shall be given to my daughter-in-law, wife of my son John H. Staats,' or their heirs, and my daughter-in-law Harriet Staats, or her heirs, each share and portion equal.
    “I bequeath and give to my daughter-in-law Harriet Staats, Widow of my deceased son, William Staats, fifty shares of American Express Company stock, to be held in trust seven years from my decease, for my grandchild, her daughter, Bella T. Staats, then to be transferred and delivered to this daughter ; the income,
      i. e., dividends, shall be collected by and paid to either mother or daughter, for mutual support and benefit; if the said daughter is deceased before the expiration of the seven years, then this bequest to her shall be given and transferred to her mother; if both mother and daughter arc deceased before the seven years have expired, then this bequest shall be transferred and delivered to the heirs of rny son, John H. Staats.
    “I hereby bequeath to my daughter, Mary Yates Staats, the house and lot No. 52 Elm street, now occupied by myself, also all the furniture and housekeeping articles and utensils therein, for her own occupancy and use, to be held in trust by my executors seven years from and after my decease. I also bequeath to said daughter all my shares of stock in the New York Central and Hudson River Railroad Company; the dividends, when declared, shall be collected by my executors and paid to said daughter. At the expiration of,the seven years the.foregoing bequests shall be transferred and delivered to said Mary Yates Staats, as and when, so requested by her and practicable. If this daughter is deceased before the expiration of the seven years these bequests shall be delivered to, or disposed of, as my daughter, Lydia Ann Staats, and rny son, John H. Staats, shall request and direct; the proceeds shall he paid to my daughter, Lydia Ann Staats, and my son, John H. Staats, shall request and direct; the proceeds shall be paid to my daughter, Lydia Ann Staats, and my daughter-in-law, Willa F. 0. Staats, and my daughter-in-law Harriet Staats, each share and portion alike, as near as can be done and satisfactory to all concerned.”
    “From the cash funds belonging to myself in the First National Bank, Albany, pay funeral and burial expenses and other just claims against myself, the residue or balance, if any, pay to my daughter, Mary Yates Staats.”

      Eugene D. Flanigan for Harriet Staats el al., app’lt and resp’ts; George H. Stevens for Mary Y. Blade, app’lt and resp’t; Isaac Maynard and Robert G. Scherer for Willa F. C. Staats, app’lt and resp’t; George H. Mallory for resp’t and app’lt.

       Reversing in part 56 St. Rep. 269.

   Finch, J.

This action is brought to settle the construction of the last will of Bernardus E. Staats, deceased. The validity of the first disposing clause, which gives to his daughter Lydia Ann his stock in the Fourth National Bank of New York, is not disputed or open to. any doubt. But several of the bequests following have been declared invalid.

Thetestator’s second bequest is to his son Bernardus, and consists of Wells, Fargo & Co. Express stock, but with the following limitation, viz.: “To be held in trust by my executors ten years from and after my decease, then to be delivered and transferred to him; if deceased, do and continue the same to his son William, now in his eighth year of age. The dividends shall be collected when and as declared by my executors until transferred and delivered and paid to rny son, or, if deceased, to his son William; if both are deceased before the ten years have expired, then transfer and deliver the said shares to my daughters Lydia Ann Staats and Mary Yates Staats, each share and portion equal. If either daughter is deceased, her portion shall be transferred and delivered to the remaining daughter. If both are deceased, then this bequest ghall be given to my daughter-in-law, wife of my son John H. Staats, or their heirs, and my daughter-in-law Harriet Staats or her heirs, each share and portion equal.” The testator drew his own will, and this disposition is, in some respects, awkwardly expressed, and yet is not of doubtful meaning. The special term pronounced the bequest invalid upon the ground that a trust for ten years was created which suspended the absolute ownership of the stock for a longer period than two lives in being. The general term reversed that conclusion and adjudged the disposition to be valid and effectual. The appellate tribunal was clearly right. The suspension was not for an arbitrary or fixed period, nor was the trust so limited. Both were bounded by the two lives of Bernardas, the son, and William, the grandson. Explicitly and in terms it is declared that, if both die within ten years, then the stock is to vest at once in certain named persons. The trust in such event necessarily ends, although the ten years have not expired, and is inevitably terminated by the expiration of the two named lives, both in being when the will took effect. In substance, the trust is for two lives or a shorter period, and cannot, in any event, exceed their duration. It can run for ten years only on condition that one or both of the selected lives continue so long. If they do, the trust ends and the gift vests during such lives, but at the end of the fixed period; if they do not, the vesting at once occurs, although the fixed period has not expired. There is, therefore, no undue suspension of the absolute ownership of the stock as a consequence of the trust created, and the general term correctly decided that the bequest was valid and effectual. Schermerhorn v. Cotting, 131 N.Y.48; 42 St. Rep. 608. The dividends declared upon the stock are to be' collected by the administrator and paid over when collected to the beneficiaries, as directed; to the son Bernardos, if living, and, if not, to the grandson William; such payments to continue during the running of the trust. If at the end of ten years Bernardos is living the stock becomes his ; if he is dead at that date, but the grandson is living, the stock will be his; if both be dead at that date or earlier, it will go absolutely to the remaindermen. The interests of Lydia and Mary appear to be contingent upon their survival respectively at the period which shall end the trust If at that date the one be dead the remainder goes to the other; if both are dead it goes over to the daughters-in-law and their heirs respectively, and in equal shares.

' The third disposition of the will was pronounced void by the general term for reasons which we are unable to appreciate. Its form is almost exactly like that of the previous bequest which was held valid, and differs only in the fact that the fixéd period is seven years instead of ten. It creates a trust for the benefit of the daughter-in-law, Harriet, and her daughter Bella, and provides that for seven years the income shall be paid to them for mutual support and benefit, but if Bella lives to the end of the seven years the stock goes to her; if she dies before that period it goes to Harriet; but if both be dead before the expiration of the seven years then it vests at once and absolutely in the heirs of the testator’s son John. Here, again, there is no trust which must continue seven years, but one measured by the two lives of Harriet and Bella, at the end of which it will inevitably vest, but may vest earlier and within those lives by force of' the fixed period which terminates the trust, although the selected lives continue. The same considerations which induced the general term to hold valid the prior bequest should have operated to preserve this one which is equally valid and effectual, it is true that the testator in providing for the ultimate vesting gave the stock to the heirs ” of his son John, and since John is living and strictly can have no heirs until his death, it is argued that the vesting is postponed for the further life of John. But where the bequest is of personal property the word heirs is taken to mean those in the line of distribution, or the next of kin; and where the will shows on its face that the person whose heirs are referred to is, to the knowledge of the testator, at that time living, it is obvious that it is not used in its strict technical sense, but means in the case of land, heirs apparent, or those who would be the heirs were the living ancestor deceased, Hearnd v. Horton, 1 Den. 168, and in the case of personal property, next of kin, w ho would be such were the ancestor deceased. Cushman v. Horton, 59 N. Y. 151. In this will the son John is twice spoken of as living, and once in a connection which implies his active interference, and since the intent to vest the remainder absolutely is manifest, we must take the word “heirs,” as used by this unskilled testator drawing his own will, to mean those who, if John were dead, would be his heirs or next of kin. There is thus no difficulty in holding that the absolute ownership was not postponed beyond the required two lives.

The fourth disposition of the will was deemed invalid as creating an unlawful suspension both by the special and general term. With one exception it is framed in the same general manner as the two which immediately precede it. It disposes of the house and lot on Elm street and the furniture therein, and also of testator’s Hevir York Central stock, puts them in trust for seven years, provided the single life of his daughter Mary shall continue so long. The trust, therefore, runs for one life or the shorter period of seven years within that life. If Mary lives beyond that term the house and lot and stock become hers', but it is explicity provided that if she dies before the expiration of the seven years the property shall vest in the daughter Lydia, and the two daughters-in-law Willa and Harriet. Although the testator describes his disposition as bequests it evidently covered the real as well as the personal property. During the running of the trust up to its termination at the end of seven years, or its earlier termination by the death of Mary, she is to have the use and occupation of the house and lot, and the dividends on the stock. If she survives the seven years both become hers absolutely, but if she dies before that period the trust does not continue, but ends at once, and the remainder takes effect. I think that is so notwithstanding an interjected clause, not appearing in the previous dispositions and peculiar to this one alone. The whole limitation of the remainder is in these words : “ If this daughter is deceased before the expira-

tion of the seven years these bequests shall be delivered to or disposed of as my daughter Lydia Anna Staats and my son John H. Staats shall request and direct; the proceeds shall be paid to my daughter Lydia Anna Staats, and my daughter-in-law Willa F. (X Staats, and my daughter-in-law Harriet Staats, each share and portion alike as near as can be done, and satisfactory to all concerned.” Obviously the interjected clause which gives some power or authority to the daughter Lydia and the son John cannot be construed as a power of appointment or as conferring upon them any estate, for that would be repugnant to the disposition which the testator himself proceeds to make of the entire estate in remainder to the three persons named. His use of the word proceeds” and the situation of the property indicate his real meaning. He foresaw that the house and lot, the furniture and belongings, and the Central stock might not be easy of division into-the contemplated thirds. The devisees might disagree as to the value of the land or the terms on which it should be sold, or the division of the Central stock, and as to whether there should be an actual division or a sale and division of proceeds. The testator desired, without affecting his devise and bequest in remainder, which he proceeds at once to make, to put the necessary division under the advice and direction of Lydia and John, making them arbiters of the differences which might arise, and that is the solb effect of the interjected phrase. Their preferences as to the manner of division, if not unfair to the rights devised and bequeathed, should guide the conclusions of the parties or of the court in the event of disagreement, but their choice will not be conclusive-since it is plainly subordinate to an actual and just division between the three, and is a provision intended merely to aid and assist in reaching that ultimate result and not at all to mar or defeat it. The suggestion is in line with many other similar expressions in the will adding the “ request ” of legatees to the fact- and time of payment, and ordering the division into thirds “ satisfactory to all concerned.” The testator desired peace to follow his death and not war, and sought to reach it. There is no just, reason for destroying this fourth disposition, and we hold it to be valid and effectual.

The fifth disposition of the will makes Willa F. 0. Staats residuary devisee and legatee, and is followed by a clause which the general term has construed in a manner which we approve, but accompanied with a further decision which we do not approve. It reads thus: From the cash funds belonging to myself in the First National Bank Albany pay funeral and burial expenses and other just claims against myself; the residue or balance, if any, pay to my daughter Mary Yates Staats.” The extrinsic facts proved were that on the 25th day of November, 1890, the testator borrowed three hundred dollars from the First National Bank of Albany and gave his note therefor. On the 8th of December following he executed, in the usual manner, a formal transfer to Van. Allen, the president, and Rowell, the cashier of the loaning bank, of ten shares of the capital stock of the Central National Bank of New York city, and containing the ordinary power of sale. He sent that by mail to the transferees, accompanied by a letter stating the transfer and adding; “ With the proceeds pay my indebtedness to the First National Bank, Albany, N. Y, and the balance to pay my daughter, Mrs. Mary Yates Blade, wife of Wm. Blade, Jr.” The transfer was plainly intended as collateral to secure the bank for its loan. Early in 1891 he paid up the note, leaving the collateral in the hands of the bank, and soon thereafter borrowed again, presumably upon the security of the same collateral. The last loan has not been paid, but the bank has not sold the stock or resorted to its collateral to enforce payment. Mrs. Blade was testator’s housekeeper, and he was in the habit of giving her money to enable her to meet the current household expenses. There was, at the date of his death, a cash balance of about one hundred and thirty dollars standing to his credit on' the books of the bank. The will was executed in November of 1889, and before the transfer of this collateral. On this state of facts the special term adjudged that an express trust was created for Mrs. Blade covering the stocks transferred as collateral, and which constituted Van Allen and Rowell trustees of such trust property. The trial court also adjudged that the “cash funds belonging to testator in the First National Bank, Albany, were only the sum of $130.84 there on deposit to his credit.” This last was a perfectly correct conclusion, and within the scope of the action, because determining the construction of the phrase “cash funds,” as used in the will. But beyond that the court had no right to go. The action was for the construction of the will, and gave no power to travel outside of it and pass upon the construction of an independent business agreement, and that, too without bringing in the bank, which may have rights' against the stock, or the individuals who are burdened with the trust. That part of the judgment impressing a trust upon the stock should, therefore, be reversed; but in view of the situation of the parties, and in the hope of averting needless litigation, we deem it proper to add that, in our opinion, no trust whatever was created in the stock transferred as collateral ; that Van Allen and Rowell were not made, and did not become, trustees of an express trust, and that the claim of Mrs. Blade cannot be sustained upon that ground, nor as a gift, because unexecuted. Young v. Young, 80 N. Y. 438.

It follows, therefore, that all the dispositions of the will are valid and effectual, that the judgment of the general term so far as it destroys any of them, and so far as it affirms the judgment of the special term impressing a trust upon the stock held as collateral be reversed and judgment be entered in accordance with the conclusions of this opinion, the costs of all parties to be paid out of the estate. The form of the judgment to be entered, in case of disagreement, may be settled before the judge writing the opinion.

All concur.

Judgment accordingly.