American Dock & Improvement Co. v. Trustees for the Support of the Public Schools

The opinion of the court was delivered by

Depue, J.

By the ninth section of a supplement to the charter of the Passaic Valley and Peapack Railroad Company, passed February 29th, 1872, it was provided “ that any lands of the state under tide water, or that have heretofore been under tide water, which shall happen to come within the location of the route or of the depots, stations, or other works of the company, or shall be needed therefor, shall be paid for by the company to the trustees of the school fund of this state; and the boundaries and price thereof shall be fixed by the riparian commissioners on application for that purpose to them, and shall be paid as aforesaid, prior to any filling or improvement thereon herein authorized ; and on such payment thereof the title to such land shall vest in said company in fee simple, and a deed therefor may be made by said commissioners, governor and attorney-general, in the name and under the great seal of the state.” P. L. of 1872 p. 312.

The corporate name of the company was, by the act of February 15th, 1870, changed to that of the “New Jersey West Line Railroad Company.” P. L. of 1870 p. 160.

The New Jersey West Line Railroad Company having located its route, representing that certain lands, in part under tide water and in part theretofore under tide water, happened to come within the location of the route of the depots, stations, and other works of said company, and were needed therefor, applied for a grant of the same. On the 19th of March, 1872, the governor,. attorney-general and riparian commissioners, pursuant to the ninth section of the act of 1872 above mentioned, executed a grant to the New Jersey West Line Railroad Company for the said lands, for the consideration of the sum of $125,000. The premises granted were described as follows : “ Commencing at a point in the east line of Warren street extended southerly at the southwesterly corner of the land granted to the Morris Canal and Banking Company, by an act of eighteen hundred and sixty-seven, and from thence running westerly and parallel with Grand street, in Jersey City, twenty-eight hundred feet; thence northerly, at right angles with Grand street, five hundred feet; thence westerly and parallel with Grand street, to the original high-water mark on the west side of Communipaw bay or cove; thence returning to the place of beginning, and running easterly and parallel with Grand street, four hundred and forty feet along one of the southerly lines of the grants made to the Morris Canal and Banking Company, as aforesaid, to the centre line of Washington street extended southerly; thence southerly along said centre line of Washington street extended southerly, which is one of the westerly lines of said grant to the Morris Canal and Banking Company, and at right angles with Grand street, five hundred and thirteen feet; thence -westerly and parallel with Grand street, about thirty-six hundred and fifty feet, more or less, to a point in line with the centre line of Jersey avenue, in Jersey City, if the same were extended southerly to said point; thence southwesterly, in line with the said centre line of Jersey avenue, one hundred and sixty-five feet; thence westerly and parallel with Grand street, in Jersey City, about five hundred feet, more or less, to the original high-water mark on. the west side of the Communipaw bay or cove; thence northeasterly along said original high-water mark at Communipaw bay or cove, to the mouth of Mill creek; thence crossing said creek in a straight line and continuing northeasterly along said original high-water mark, until it intersects the end of the third course of this tract.”

The grant was in fee simple, absolute and unqualified. For a portion of the consideration of the grant, the company gave to the trustees for the support of public schools, the joint bond of the company and Asa Packer for $82,000, secured by a mortgage on the premises granted.

Interest being in arrear and unpaid, the trustees for the support of public schools, on the 26th day of April, 1875, filed a bill in the court of chancery for the foreclosure of the mortgage, and a decree for the foreclosure and sale of the mortgaged premises was obtained on the 22d day of October, 1875. Under this decree a sale was made on the 26th day of'December, 1878. The sale was set aside on application to the chancellor, on the ground of surprise and irregularities in conducting the sale. Trustees &c. v. N. J. West Line R. R. Co., 3 Stew. Eq. 494.

Neither of the complainants was a party to the foreclosure suit, and in this condition of affairs they filed their bill, which gave rise to the decree appealed from.

The complainants’ bill was filed on the 1st day of March, 1879. It claims title in the complainants, or some one of them, (1) as riparian owners; (2) under the wharf act of 1851; (3) under the act of 1860, authorizing the extension of the Central railroad from Elizabeth to some point or points on New York bay; (4) under the act of 1864, incorporating the American Dock and Improvement Company; and also, title by estoppel arising from expenditures in improvements made by tacit consent and sufferance of the state. In addition to a claim of title derived from these sources, the bill sets up a right in the Central Railroad Company, under a covenant contained in a grant made by the riparian commissioners to the Central Railroad Company on the 12th of November, 1874. By that instrument the riparian commissioners granted the company several .tracts of land under water, within designated boundaries, for the consideration of $300,000, excepting out of the same, among other things, whatever premises and privileges may have been granted to the New Jersey West Line Railroad Company by the supplement to its charter, and the grant made by the riparian commissioners in pursuance thereof, describing the premises by metes and bounds, in full, the same as contained in the grant to the West Line company of March 19th, 1872. Then follows the covenant in question, which is in these words: “ As to the premises included in the said grant to the New Jersey West Line Railroad Company, it is agreed as follows: that in case the said state had not the right and power to vest the title in the said New Jersey West Line Railroad Company, which is, in and by the ninth section of the act approved February 29th, 1872, entitled, ‘ A supplement to an act entitled, An act to charter the Passaic Valley and Peapack Railroad Company, approved March 29th, 1865/ and in and by the aforesaid grant, in pursuance thereof, provided to be vested in that company, which right and power the said state claims to have had, and the Central Railroad Company of New Jersey claims that the said state did not have, then and in such case the said state shall, for the consideration of one dollar,-and for no other or further' consideration tobe paid to the state therefor, release to the Central Railroad Company of New Jersey, free from any encumbrance thereon by mortgage given to the state, all its right, title and interest in the said premises mentioned and described in the said ninth section of said act, and in said grant to the said New Jersey West Line Railroad Company.”

In this immediate connection the bill contained averments that the grant of the riparian commissioners to the West Line company was not within the purview of the ninth section of the act of 1872, as not being a grant of lands which “ happened to come ” within the location of the route of its railroad, because of the fraudulent character of such location. But the allegations on this head are foreign to the contents of the covenant in question. The condition expressed in the covenant, on which it is stipulated that the state shall release to the Central Railroad Company its right, title and interest in the premises, free from encumbrance, is dependent exclusively on the event of the state not having the right and power to vest the title in the West Line company, and not on the capacity of the West Line company to receive the grant. The grantee, having applied for and accepted the grant, could not, on the foreclosure of the consideration-money mortgage, set up the invalidity of the grant on the ground of its incapacity to receive it; nor does the covenant in the grant to the Central Railroad Company contemplate a release of the rights of the state in the event simply of the grant to the West Line Company having been ineffective.

The bill adds an averment that the complainants are, and for a long time have been, in the peaceable possession of the premises, and have placed valuable and extensive improvements thereon.

The complainants’ bill is an original bill. The state is not made a party to it; nor is there auy prayer for a conveyance by the state pursuant to the covenant. The parties made defendants are the Trustees for the Support of Public Schools, the New Jersey West Line Railroad Company, and William Z. Lamed, its receiver; Asa Packer, and the purchaser at the sheriff's sale, which has been set aside; and sundry mortgage and judgment creditors of the West Line company. John Taylor Johnston is also made a defendant, but his interest is with the complainants as trustee of a title which he holds for their benefit. The prayer of the bill is, that the lands and premises comprised within the so-called West Line grant may be declared, by decree, to be free from the cloud or encumbrance of the trustees’ mortgage — that the title of the West Line company and of the trustees be decreed to be invalid — that the trustees be restrained from proceeding to sell the mortgaged premises, and that peaceable possession thereof by the complainants may be preserved; and for an injunction to restrain the sale of the mortgaged premises and the disturbance of the complainants’ possession thereof.

Upon filing the bill, the chancellor allowed a rule to show cause why an injunction should not issue, in accordance with the prayer of the bill, and enjoined all proceedings on the execution, which had been issued on the decree, until further order should be made. Answers were filed by the trustees, and by the executors of Asa Packer, in denial of the complainants’ right to relief. Upon the bill, and these answers, and the affidavits annexed to the bill and answers, the argument of the rule to show cause was had. The chancellor discharged the rule, vacated the interim restraining order, and denied the injunction prayed for in the bill. From this order of the chancellor the complainants appealed.

I assume that the bill is adapted to obtain relief under the act entitled, “ An act to compel the determination of claims to real estate in certain cases, and to quiet the title to the same,” (P. L. of 1870 p. 20, Rev. 1189); for it was so considered by the chancellor, in his opinion. Independent of the covenant contained in the grant by the riparian commissioners to the Central Railroad Company, of November 12th, 1874 (which will presently be considered), the bill was designed to put the respective titles of the complainants, and of the West Line company, in a train for judicial determination. To a bill of such a scope, only, the state is not a necessary or proper party, for the state had parted with its entire title to the premises in dispute, by its grant to the West Line company, in 1872. It will also be observed that the order appealed from was one simply dissolving an interim injunction, and denying an injunction to stay a sale by the trustees under their foreclosure decree until the question of title should be determined. The complainants’ bill was not dismissed, and the subject-matter of the litigation between the rival claimants to ownership of the property remains in the court of chancery, still undisposed of.

On this presentation of the case the sole topic for discussion is whether the trustees, in the situation of their foreclosure suit when this bill was filed, should, under the circumstances, be stayed from proceeding to a sale under their decree until a determination of the disputed title may be obtained. Except so far as shall be needful to decide the issue raised by the appeal, none of the interesting and important questions discussed so thoroughly by counsel will be adjudged or considered.

The trustees for the support of public schools are a board constituted for the administration of so much of the public revenue as is appropriated for the maintenance of public schools. It consists of the governor, the president of the senate, the speaker of the house, the attorney-general, the secretary of state, and the comptroller, for the time being. These public officials are constituted trustees of the fund for the support of public schools arising from appropriations made for that purpose, and it is provided that they should be known by the name, style and title of “ The Trustees for the Support of Public Schools.” They are required to hold the public stocks and moneys appropriated by the state for the support of public schools, in trust — the interest and dividends arising therefrom to be applied by them, or a majority of them, for the support of public schools, as prescribed by the legislature from time to time, and for no other use or purpose whatsoever. The investment of the fund is directed to be made by the treasurer of the state under their direction, and in the name of “The Trustees for the Support of Public Schools.” P. L. of 1867 p. 360, Rev. 1081. How far this public body is amenable to suits was given a prominent place in the discussion of counsel.

By the common law, no suit or action can be maintained against the sovereign; the remedy is by petition of right. 2 Dan. Ch. Prac. 131; In re Baron de Bode, 2 Phil. 85. But if the attorney-general, as the representative of the crown, files an information for the collection of crown revenues, he may be proceeded against by cross-bill for discovery and relief in aid of the defence. Deare v. Attorney-General, 1 Y. & C. Exch. 197. A foreign government cannot be sued in an English court; but if it files a bill in an equity court for the enforcement of a right, in such a suit the defendant may file a cross-bill for discovery touching the matters for which he is sued, and for relief by way of defence. King of Spain v. Hullet, 1 Cl. & Fin. 333; Prioleau v. United States, L. R. (2 Eq. Cas.) 659; United States v. Wagner, L. R. (2 Ch. App.) 582; Republic of Liberia v. Roye, L. R. (1 App. Cas.) 139. In certain cases where the interests of the crown are incidentally concerned, the attorney-general may be made a defendant to a bill in equity. In a suit between private individuals to subject goods of a debtor who had been outlawed to the payment of his debts, the attorney-general is a necessary party; and if he be omitted, a demurrer will lie or the cause be directed to stand over until he can be made a party. - v. Bromley, 2 P. Wms. 269; Balch v. Wastall, 1 Id. 445. In Stokes v. Holden, 1 Keen 145, a bill was filed to recover a legacy; the legatee had been convicted of felony; the attorney-general was made a party to the bill for the purpose of having the question decided whether upon the conviction the legacy did not. pass to the crown by forfeiture. In Dolder v. Bank of England, 10 Ves. 352, the court refused to order dividends of stock purchased by the old government of Switzerland to be paid into court on the application of the new government, until the attorney-general was made a party, in view of a possible claim that the property passed to the crown as property derelict. In Barclay v. Russell, 3 Ves. 424, the controversy was over bank stock purchased by the government of Maryland before the American war; and, as appears on page 435 of the report of the case, the attorney-general was made a defendant and filed an answer. In Baker v. Sutton, 1 Keen 224, the attorney-general was made a party defendant to a bill filed to determine the validity of a charitable bequest. In all cases of charitable bequests, except where the bequest is to an officer of an established institution, the attorney-general is a necessary party to the bill, because the king, as parens patriae, superintends all such charities and acts by the attorney-general, who is his proper officer in this respect. Wellbeloved v. Jones, 1 Sim. & Stu. 40. When the attorney-general, as an officer of the crown, is made a defendant, the bill, instead of praying process against him, prays that he may answer it upon being attended with a copy. Story’s Eq. Pl. § 44, note.

Exemption from liability to be sued is the personal privilege of the sovereign; and if there be any officer of the government who is its representative with respect to the particular matter of the suit, he may be made a party to the suit, though the litigation concerns the public revenues. Practical illustrations of the application-of this principle are common. In State on the prosecution of the M. &. E. R. R. Co. v. Yard, a suit was prosecuted against the commissioner of railroad taxation, an officer of the state, to restrain the collection of taxes assessed, and a decision was had by the supreme court of the United States that the assessment was invalid as against the prosecutor. 8 Vr. 228 ; 95 U. S. 104.

The property in the fund set apart for the support of the public schools is by law vested exclusively in the trustees to hold on the trusts declared by the statute. They are made custodians of the fund, free, by constitutional provision, from even the control of the legislature, except in the designation of the mode of application to the support of public schools. The investments of it are required to be in the name of “ The Trustees for the Support of the Public Schools.” Mortgages are taken by their statutory title, and suits are prosecuted in that title for the foreclosure of such mortgages. For the purposes of the administration of the fund of which they are made . custodians, and of the rights and remedies upon or against the securities in which it is invested, the trustees are constituted the representatives of the state. Suits brought in the name of the trustees for the foreclosure of mortgages are subject to the same defences by answer or cross-bill as like suits by other mortgagees. In a suit such as the complainants have brought, a mortgagee of the owner of the adverse title is a proper but not a necessary party. Though the complainants may not be able, as against the trustees, to present some of their grounds for relief, for the reason that the trustees are not the proper parties to litigate them, the trustees were properly made parties to this bill, and the relief prayed may, if the grounds of it are otherwise sufficient, be decreed against them.

The complainants seek the relief prayed for on two grounds:

First. The complainants rely on the covenant contained in the grant made by the riparian commissioners to the Central Railroad Company. The bill construes this covenant as an agreement by the state to release the premises, to discharge the mortgage in question, and that it would not dispose of the title to the premises by foreclosure dr otherwise until it should be determined whether said title is valid as against the title of the Central Railroad Company and those holding under them. The covenant is executory in terms and legal effect, and can only be executed by a bill for a specific performance. To such a bill the state is a necessary party, and the trustees are not its representatives in such a litigation. In the next place, the covenant, if the riparian commissioners were competent to make it, is inoperative and void as against the trustees’ mortgage. By the constitution, “ The fund for the support of free schools, and all money, stock and other property which may hereafter be appropriated for that purpose, or received into the treasury under the provision of any law heretofore passed, to augment the said fund, shall be securely invested, and remain a perpetual fund; and the income thereof, except so much as it may be judged expedient to apply to an increase of the capital, shall be annually appropriated to the support of public schools for the equal benefit of all the people of the state; and it shall not be competent for the legislature to borrow, appropriate or use the said fund or any part thereof for any other purpose, under any pretence whatever.” Art. IV. § 7 ¶ 6. By an act passed on the 6 th of April, 1871, entitled “ An act to increase the school fund of the state,” it was enacted that “ all moneys hereafter received from the sales and rentals of the land under water belonging to the state shall be paid over to the trustees of the school fund, and appropriated for the support of free public schools, and shall be held by them in trust for that purpose, and shall be invested by the treasurer of the state under their direction in the same manner as the funds now held by them are invested ; the same to constitute a part of the permanent school fund of the state, and the interest thereof to be applied to the support of public schools in the mode which now is or hereafter may be directed by law, and to no other use or purpose whatever.” P. L. of 1871 p. 98; Bev.p. 1081 § 67. By the ninth section of the act of 1872, under which the West Line grant was made, it was provided that the consideration of the grant should be paid by the company to the trustees of the school fund. Instead of receiving the consideration-money in cash, the trustees, for part of it, took a bond secured by this mortgage. The mortgage was executed, delivered and accepted by the trustees. The appropriation of the money secured by it was consummated, and it became a part of the perpetual school fund, within the meaning of the constitutional provision, and is protected by it. The legislature could not borrow, appropriate or use it for any other purpose than that for which it was set apart.

The mortgage was made in 1872; the grant to the Central Railroad Company was not made until 1874. The riparian commissioners had no power in 1874 to release or discharge a mortgage which before that time was an investment of part of the school fund. The legislature, itself could not impair the security or discharge the mortgage except by passing an equivalent into the treasury for the benefit of the school fund. The title of the trustees, and of any purchaser at the sale of the mortgaged premises, may fail because of its inherent infirmity, but it cannot be impaired by a covenant with respect to the mortgaged premises, made by the riparian commissioners after the mortgage was executed and delivered.

Second. The other ground for relief is a claim of title in the complainants anterior to the grant to the West Line and to the mortgage of the trustees. If the title claimed by the complainants is clothed with the qualities and circumstances set forth in the bill, a sale in the foreclosure suit will not affect it. The complainants were not parties to the foreclosure suit and would not be concluded by the record; the purchaser at the foreclosure sale, though not a purchaser pendente lite with respect to the suit, would take his title with notice actual or constructive of the complainants’ rights, and may be made a party to this suit for the purpose of litigating the title of the West Line company under its grant. If the complainants are entitled to restrain a sale under the trustees’ foreclosure suit, it must be in virtue of some collateral equity which would justify such a measure of relief.

Before discussing this subject, it will be appropriate to consider for a moment, the claim put forth by the complainants’ counsel, on the argument, for relief, under the answer of Larned, the receiver of the West Line company. This answer appears in the record sent up to this court, but was not before the chancellor on the hearing on which the order appealed from was made. It was not filed until the 9th of February, 1880. Larned, in his answer, affirms the validity of the title of the West Line company, but charges that it would be inequitable to dispose of the title by foreclosure, or otherwise, until its validity as against the claim of title by the complainants should be determined, suggesting an equity in the mortgagor to have the foreclosure sale made upon an unclouded title. Aside from the fact that this answer was not before the chancellor when he made his order, it cannot avail the complainants on this appeal. If a mortgagor be entitled to have a sale under foreclosure proceedings delayed, until it may be made under circumstances advantageous to his interests, he should seek the indulgence in the foreclosure suit. In the next place, the complications which may have cast a cloud upon the mortgagor’s title, arose before this mortgage was made. The mortgagor took its title from the state, with full knowledge of the situation of the premises granted. A mere defect in the title conveyed would have afforded no defence in the foreclosure suit, though the mortgage had been given directly for the purchase-money. O’Brien v. Hulfish, 7 C. E. Gr. 471. The covenant in the grant by the riparian commissioners, in 1874, to the Central Railroad Company, could not impair or affect the mortgagor’s title, if title passed under the grant of 1872. If the covenant was made inconsiderately, and tends to impair the salable value of the mortgaged premises, it was an act for which the mortgagees are in nowise responsible. A mortgagor who mortgages an embarrassed title, or whose title has subsequently become clouded, cannot, in the absence of fraud, have the foreclosure proceedings held back on account of an apprehension that the mortgaged premises will not bring full value at a foreclosure sale. His remedy is by redemption.

In searching for an equity to entitle the complainants to an injunction to stay a sale until the validity of the contested title is settled, it must be borne in mind that the titles of the contestants, respectively, are legal titles. Even the rights of the complainants, claimed in the bill, as derived by estoppel, must be considered as a legal title — a title acquired by a riparian owner by reclamation. It can have no other foundation as against the state. Independent of the statute, a court of equity has no jurisdiction over the subject-matter of the dispute. The statute confers a jurisdiction of this character to settle the title to lands only where the complainant is in peaceable possession, and no suit be pending to enforce or test the validity of the adverse title, claim or encumbrance. Rev. p. 1189. I do not propose to discuss the question whether the bill was properly filed against the West Line company under this statute. Such a discussion is not necessary to the subject under review— whether the chancellor should have enjoined the mortgagees from a sale under the decree of foreclosure.

The decree was regularly obtained in the orderly prosecution of proceedings for foreclosure. The stay of execution and sale under the decree is sought by parties who were not parties to the foreclosure suit, and against whose claim of title a sale will be destitute of all legal force. A court of equity will ordinarily not interfere to enjoin a sale of lands under an execution against one person, the title to which is claimed by another, for the manifest reason that the sale will not prejudice the rights of the latter, and the question of title is properly triable in a court of law. Freeman v. Elmendorf, 3 Hal. Ch. 475; S. C. on appeal, Id. 655. To warrant resort to the restraining power of the court, the case, must present some recognized ground for equitable relief — fraud, or irreparable injury.

Mr. High, speaking on this subject, says : “ While the cases on this subject are far from reconcilable, the clear weight of authority is in favor of the proposition that, in the absence of fraud or gross injustice and irremediable injury, courts of equity will not entertain jurisdiction in restraint of judicial sales under executions against third persons having no title to the property sold.” High on Inj. § 266. Another principle which enters into the consideration of the matter presented by this appeal is, that courts interfere with great reluctance with the collection of the public revenues. Jersey City v. Lembeck, 4 Stew. Eq. 465, is an illustrative precedent: The city had laid an assessment on the complainant’s lands, which, by the city charter, was an encumbrance ; the assessment was invalid; no suit was pending in which the validity of the encumbrance could be tested. The complainant filed a bill under the statute against the city to settle the title to the land and determine the validity of the encumbrance. This court denied relief, on the ground that the complainant might have had relief by a writ of certiorari, which he had lost by his own laches. To justify resort to a court of equity to stay the collection of public revenues, the party must make a case strictly within the bounds of equity jurisdiction— an injury otherwise not remediable; and he must seek and prosecute his remedy with promptitude.

The trustees’ mortgage is an investment of a fund, the interest of which the statute and the constitution contemplate shall be applied annually to the support of public schools. The amount due on the mortgage when the decree was signed, by the accumulation of interest unpaid, had reached the sum of $99,345.80.

On the 8th of January, 1870, an information was filed in the court of chancery by the attorney-gen eral in the name'of the state, against the Central Railroad Company, complaining of encroachments upon lands of the state which included the parcel afterwards granted to the West Line company. In this suit the title of the complainants might have been presented for determination. On the 24th of December, 1870, the attorney-general filed a petition supplemental to the information, asking an injunction, on which a rule to show cause was granted, and a temporary injunction was allowed restraining the Central Railroad Company from making improvements' on the premises. This injunction order was continued by consent until a final-hearing should be had. The act authorizing the grant to the West Line company was passed February 29th, 1872. By this act the trustees were authorized to require payment in cash of the consideration of any grant that might be made under its provisions. In lieu of cash they consented to accept for part of the consideration the mortgage in question as an investment for the benefit of the school fund. The West Line grant, although it bears date on the 19th of March, 1872, was not in fact executed and delivered until about the 21st of May, 1872. On the 25th of May, 1872, formal notice of the grant was served on the officers of the Central Railroad Company by the West Line Company; and on the 27th of February, 1873, the Central Railroad company filed its answer to the information of the attorney-general, in which, while denying the power of the state to make the West Line grant, it set up the grant in bar of the right of the state to proceed with the information.

The foreclosure bill was filed April 26th, 1875, and a final decree taken October 22d, 1875. On the 10th of January, 1876, Mr. Johnston, to whom the complainants had made conveyance of the premises for the purpose of giving the federal courts jurisdiction over this controversy, filed in the circuit court of the United States for the district of New Jersey a bill of the same import as the bill in this case, asking substantially the same relief and an injunction staying a sale under the foreclosure decree, which injunction, not having been renewed at the next succeeding term, expired by force of the rules and practice of the federal courts, and was, on the 30th of November, 1878, discharged on motion of 'the attorney-general. The complainants’ bill was not filed until the 1st of March, 1879.

By reason of delays consequent on this litigation, down to this period, the trustees have not been able to realize the interest on this fund, which by law should have been applied annually to the support of the public schools. The mortgaged premises will now bring at a sale the amount due on the decree, although, with interest and costs, it nearly equals the price for which the premises were sold to the mortgagor. There is no reason to suspect that the trustees are permitting the decree to be used in the interest of either of the principals in the litigation, or are pressing the sale from any other than the laudable purpose of securing the money for the public treasury, and enabling them to receive and apply the interest which may accumulate upon it to the use to which it is devoted. These public officers, in the execution of the trust confided to them, have a well-fortified claim that they shall be permitted to administer this fund and apply it as the law prescribes, and that investments of it should not be subjected to the delay and vicissitudes of a litigation that promises to be uncommonly protracted, with a possible result that at the end the morgaged premises may be inadequate to satisfy the decree and accumulated interest, or their mortgage title be entirely defeated.

The bond taken by the chancellor on setting aside the former sale is no answer to the urgency of the trustees that the property shall be again sold. Ample as the sureties on the bond are, it is no equivalent for a vendible mortgage estate which, in the market, will bring the money. For one contingency the bond is no security whatever. Its condition is, that on a resale the premises shall bring the amount then due on the execution for debt, interest and costs, together with the lawful expenses. The condition does not apply in the event of the complainants’ success in this suit in obtaining the injunction prayed for, perpetually enjoining a sale. It leaves the hazard of that result upon the mortgagees. Nor does the bond fulfill the purposes for which the collection of the mortgage-money is urged. The trustees are entitled to have the money invested so that the interest may be available for use annually in the support of the public schools.

The surety on the trustees’ bond has equities, too, that cannot be lightly regarded. Plis estate has no indemnity for his liability on the bond except the vendible value of the mortgaged premises, and the obligation of a bankrupt corporation in the hands of a receiver. Now the indemnity from the first source is ample. A sale of the mortgaged premises will pay the debt. His executors have filed an answer praying a sale of the mortgaged premises for the purpose of securing a release of the estate of the deceased from liability on the bond. They submit to the court that, if the title asserted by the complainants should turn out to be superior to that granted by the state to the West Line company, the complainants have no equity as against the estate of their decedent to hinder, delay or prevent a sale of the mortgaged premises. The force of this prayer seems to me to be undeniable. It presents considerations of pre-eminent weight on an application to a court of equity for a discretionary writ, which is never allowed except on a clear preponderance of equity on the side of the applicant.

Against the equities of the trustees and the surety on the bond, the complainants oppose equities derived from two sources. First, they say that if the premises are sold in the foreclosure suit, and are purchased by other parties, the Central Railroad Company will lose the improvements made upon them, in case the West Line grant proves to be valid. Inasmuch as the title of the Central Railroad Company might have been tested and determined in the information suit of 1870, which was pending when the West Line grant was made, this contention has little weight as against the mortgagees and the surety on the bond. The complainants may dispel the risk of an issue unfavorable to their title by redemption of the mortgage, or by purchasing at the sale. Having delayed, if not evaded, a trial of title in the information suit, the complainants, after the mortgagor has become insolvent and the foreclosure suit has been prosecuted to a final decree, have no equity to subject the surety to delay, and the consequent risk that the mortgaged premises may finally be inadequate to satisfy the mortgage debt, or to cast upon the mortgagees the risk of an unfavorable termination of this litigation.

The other ground of the complainants for equitable relief is based on the covenant contained in the grant of the riparian commissioners to the Central Railroad Company in 1874. I have shown that this covenant is legally inoperative against the trustees’ mortgage. The defendants’ counsel push this matter further. They contend that the covenant is invalid as against the state, for want of power in the riparian commissioners to bind the state by covenants not annexed to the lands actually granted. A discussion of this problem at this time would lead beyond the bounds proposed by this opinion, and is not necessary to the question proposed to be decided; for the complainants’ counsel place their argument on this head on matters collateral to the grant, and independent of the validity of the covenant. They say that for the grant the Central Railroad Company paid into the state treasury the sum of $300,000, which went into and became part of the school fund. Upon this fact they contend that the trustees are equitably estopped from repudiating the covenant and selling away the premises, so that the execution of the covenant by a grant of the premises in compliance with it would be made impracticable.

The equitable doctrine invoked is that a party who accepts a benefit must take it eum onere. He cannot have the advantage of one part of a transaction which enures to his benefit and repudiate other parts which are advantageous to the other party. If he voluntarily accepts a benefit from the transaction with knowledge of its import, he ratifies it as a whole, and he cannot repudiate its obligations without first restoring the consideration he has received. He must elect between entire repudiation, with a restoration of the benefits received under it, and complete adoption of the proceeding with all its obligations. The equity of a party who relies on an equitable estoppel to give validity to an inefficient contract is not to have his contract made binding, but to put his adversary to an election between performance of the contract and repudiation of it upon equitable terms.

The doctrine of equitable estoppel presupposes that the person against whom it is set up has the volition to accept or reject the proffered benefit, and power to restore the consideration if received. The endeavor to apply it to this case springs from a misconception of the relations between the trustees for the support of public schools and the riparian commissioners, and of the powers and duties of the trustees in the management of the school fund. The trustees have no control over the state’s lands under water. Whatever control the state has given over these lands it has entrusted to the riparian commissioners, an independent legislative board. The trustees have no authority to decide what lands under water shall or shall not be sold, or to fix the price or dictate the terms and conditions on which sales shall be made, nor power to rescind contracts of sale made by the riparian commissioners, which they may deem prejudicial to the school fund. They have not even the capacity to determine from what sources the revenues for the support of public schools shall be derived — no choice as to what moneys shall or shall not become part of the school fund. These are matters exclusively within legislative discretion. The powers and duties of the trustees in relation to the school fund are purely executive and ministerial — to invest the fund and appropriate its income annually to the support of public schools. They could not lawfully abstract from the school fund the money needed, on the principles of equitable estoppel, to effect a rescission of the grant to the Central Railroad Company, on the hypothesis that the grant was injurious to the interests of public schools. When moneys accumulated from legislative grants become part of the school fund, the legislature is prohibited by constitutional inhibition from withdrawing them or impairing investments of them, directly or indirectly. The constitutional protection of the school fund would be of little avail if another legislative board, by contracts it might make, could produce the same result by an equitable estoppel, against which the trustees, in whose custody the school fund is lodged, cannot relieve themselves.

The people of this state have shown the utmost solicitude for the integrity of this fund. Considerations of public policy require that the courts should give to the fund the full measure of protection the constitution has placed over it, and should, as far as consistent with the rules of law, resist every effort to impair the investments of the fund, or embarrass the trustees in the administration of it in the manner prescribed by law. It is undeniable that a. stay of the collection of this mortgage until this litigation shall be ended — depriving the trustees of the yearly interest, which should be applied annually to the support of schools — would prevent the .trustees performing a public duty obligatory upon them with respect to this part of the fund. The Central Railroad Company accepted its covenant with notice of the trustees’ mortgage, and of the nature of the trust on which the investment was made — knowing that the covenant was not legally binding upon the trustees, and chargeable with knowledge that it was the duty of the trustees to collect the mortgage whenever the- investment failed to bring in interest for use annually for the support of public schools. Having accepted the covenant with knowledge of the condition of affairs, the company has no equity to interpose the inconvenience and embarrassments that might arise to it from that source between the trustees and the duties these public officers are required to perform. It is said that the state, recognizing its obligation under the covenant made by the riparian commissioners, will make good to the school fund the money secured by this mortgage; but, until that be actually done, I do not see how the anticipation that it may be done can be made to square with the .constitutional provision that the legislature cannot borrow or appropriate the fund to any use other than the purposes for which it is held by the trustees.

But if it should be conceded that, out of this covenant and the circumstances surrounding it, an equity might arise in favor of the complainants as against the mortgagees to have a sale of the mortgaged premises postponed until the title to the premises should be settled, these facts can be of no avail against the personal representatives of the surety on the bond. His obligation was entered into before the covenant was made. Neither he nor the corporation he was interested in, has derived any advantage from it. So far as their interests are concerned, the covenant was designed in hostility to the title of the West Line company, under its grant, to give the complainants a supposed better standpoint from which to controvert its validity.

The covenant will create am equity in the complainants to be allowed to redeem the mortgage and be subrogated to the right of the mortgagees in the decree, so far as to give protection against a sale under it pending this litigation — subject, however, to the equities of the personal representatives of the surety on the bond. The covenant, if it be valid and binding on the state, may serve to confer on the covenantee a standing on which to controvert the power of the state to make a grant of land under water to any other person than the adjacent riparian owner. It may also, in that event, lay the foundation of a claim to re-imbursement by the state of the outlay incurred in the redemption of the mortgage, on the happening of the contingency on which the covenant was made to depend. But it cannot be made available to the complainants against the indisputable equity of the mortgagees and of the personal representatives of the surety on the bond, to have the mortgage and the liability of the surety taken out of this litigation and disposed of in the condition of affairs as they were when the mortgage was given and the obligation of the surety was incurred.

The decree of the chancellor denying the injunction should be affirmed.

Deoree unanimously affirmed.

Case Details

Case Name: American Dock & Improvement Co. v. Trustees for the Support of the Public Schools

Court Name: Supreme Court of New Jersey

Date Published: Mar 15, 1882

Citation: 35 N.J. Eq. 181

Court Abbreviation: N.J.