50 N.J. Eq. 93 | New York Court of Chancery | 1892
This is an application by the Atlantic Trust Company for an order opening a decree made against it on the 26th day of October, 1891. It asks that the decree may be opened, in order that it may show the complainant has no right to the relief which the decree gives. The decree adjudges that the Atlantic Trust Company has no beneficial interest in sixty thousand shares of the complainant’s capital stock, which were transferred to it in 1890, not by the complainant but by other persons; that the complainant has a good present right to thirty thousand of the sixty thousand shares, and commands the trust company to deliver them to the complainant; and it also adjudges that the .complainant is entitled to the other thirty thousand shares, subject, however, to a lien which it is unnecessary, for the purposes of this discussion, to describe. The trust company is a foreign corporation, having been created by a law of the State of New York. No jurisdiction was acquired over it, as a defendant in .this suit, except such as was obtained by service of the notice, prescribed by an order of publication, on one of its head officers, its office in the city of New York. But it is not disputed that the trust company had actual notice of the suit. Indeed, by its own proofs, it appears that, after being served with notice under the order of publication, it retained counsel in this state, more than a month before the time for answering had expired, for the purpose of being advised whether or not it should make defence, and that notwithstanding it was advised that, on the facts stated in the bill, no cause of action was shown against it, yet that it neither appeared to the suit nor defended it. A few days after the time limited by the order of publication, within which the defendant might appear and make defence, had ex
The defendant insists that either one of the three following .grounds entitles it to the order it asks: First, that the bill shows no cause of action in favor of the complainant in respect to the subject-matter of the suit; second,, that surprise and merits have been shown, and, third, that an absent defendant, against whom a decree has been taken by default, has a right, by force of the twenty-first section of the Chancery act (Rev. p. 107), at .any time within three years from the making of such decree, if no notice in writing has been given to him of the decree, and if it has, then, at any time within six months from the service of .such notice, to come in and make defence just as though no decree had been made, and that as against a decree thus obtained he is not required to show that he has a meritorious defence, .or that the decree is, in any respect, erroneous or unjust. No doubt, I suppose, can be entertained that if, on an examination of the complainant’s bill, and assuming every fact alleged in it to be true, it appears that no right of action against the defendant is shown, the decree should not only be opened but vacated. If the complainant has no right of action, it has no right to a decree, .and to allow the decree to stand under such circumstances would not be doing justice, but injustice. To allow this decree to stand, if it be true that it has no foundation in right, would constitute a flagrant abuse of judicial power, for the decree, as will have been observed, takes certain property from the defendant and gives it to the complainant. No court, whose duty it is to administer justice and prevent and correct wrong, can allow such a decree to stand.
The power of this court to open a decree on the ground first urged here, even in a case where the defendant has been regularly brought into court by the service of process, but has failed to make defence and has allowed the complainant to take a decree by default, is free from the least doubt. Prior to the enactment of what is now the twenty-eighth section of the Chancery act (Rev. p. 109), no decree, affecting the rights of a defendant, could
It is thus seen that the power conferred by these statutes is-subject to a highly important and most salutary limitation; the chancellor is only authorized to make such a decree against a defendant who makes default, as shall be equitable and just upon the facts stated in the bill. When the facts stated in a bill do not show, assuming them all to be true, that the complainant has a cause of action against the defendant, which is the proper subject of relief in equity, it is obvious that the bill contains nothing which can be made the foundation of a decree, and consequently
The important question, then, on this branch of the case, is— Is it true that the bill shows no right of action in the complainant in respect to the subject-matter of the suit? The suit was brought to recover sixty thousand shares of the complainant’s own stock. Those shares constituted the subject-matter of the suit. The following are the material averments of the bill: On the 10th day of April, 1890, and prior to the complainant’s organization as a corporation, William Bracken and H. R. Waite held an option for the purchase of an exclusive license to make and sell storage batteries under patents granted to Charles F. Brush; on the date just named, Bracken and Waite made a contract with Robert L. Belknap, in which it was recited, that certain parties, acting in the interest of Belknap, were about to organize the complainant as a corporation -under the laws of this state, with a capital of $3,000,000, divided into one hundred and twenty thousand shares, of $25 each, for the purpose of making and selling storage batteries, and by which -contract Bracken and Waite agreed that, when such corporation was formed, they would convey their option to it, on condition that the com
Bracken and Waite are not parties to this suit. They, by the terms of the contract with Belknap, were to receive all of the complainant’s capital stock as the consideration for the conveyance by them of their option to the complainant. The contract in this respect has been executed. The bill expressly says, that Bracken and Waite conveyed their option to the complainant, and that the complainant’s stock was issued to Bracken and Waite in accordance with the terms and provisions of their contract with Belknap. The bill thus expressly says, as plainly as words can say, that the whole of the complainant’s stock was issued to Bracken and Waite in payment of the transfer by them to the complainant of their optiou to purchase a license under the Brush patents. By such issue, they become the absolute owners of the stock. The stock thereby became their private and exclusive property. It is not claimed or pretended that the stock was Issued to them for the benefit of the complainant, nor that they hold it in trust for the complainant; on the contrary, it is explicitly stated that it was issued to them as the consideration .for the transfer of their option to the complainant. They sub
But had it been shown that the title to the stock in controversy had been put in Bracken and Waite for the benefit of the complainant, so that Bracken and Waite were simply trustees and the complainant was the owner in equity of the stock, still, on the facts now before the court, I think the defendant would have been entitled to the order it asks. The bill admits that the complainant, before the commencement of its suit, had been informed that the defendant had advanced some money to the United Electric Traction Company on the stock in question and claimed to have a lien on it for its advances. The United Electric Traction Company, it will be remembered, is the corporation that succeeded to Belknap’s rights, and also to his liabilities, under the contract made by him with Bracken and Waite, and it is the same corporation which, the bill says, received, by virtue of
To the extent then of $215,000, it is undeniable, that the consideration, which Belknap agreed to pay for the sixty thousand shares of stock, has been paid. He agreed to pay about $467,000. Two hundred and fifteen thousand dollars of that sum has been paid and the comjfiainant has had the whole benefit resulting from its payment. It acquired the Brush license by means of it. The bill makes no claim that the pledge of the stock to the defendant was unauthorized, or that such use of the stock constituted a fraudulent misappropriation of it. All it says, which refers in the most distant way to tha pledge of the stock, is, that the complainant has been informed that the defendant had advanced some money on the stock and claimed a lien on it in consequence, and then denies that such lien exists. But none of the facts material to the validity of the pledge—as for example, showing fon what purpose the stock had been' pledged, how much money had been raised by its pledge, and what disposition had been made of the money—are alleged in the bill or were proved on the ex parte hearing. And yet, these constituted the vital and controlling facts of the case. They are so fundamental as to make it entirely clear that, without knowledge of them, the court could not make a decree in the case that would do justice and prevent wrong. The result is, that the undisputed facts now before the court make it certain, in my judgment, that that part of the decree under examination, which adjudges that the defendant has no beneficial interest in-the stock in controversy, is not just, nor right, nor true. A defence against the complainant’s claim has been shown, which appears to me to be so strong in its justice and unquestionable in its truth, as to make it the plain duty of the court, even if it had been shown that the complainant was the owner of the stock in question, to give the defendant the opportunity to be heard in its defence, which is granted by the twenty-first section of t-he Chancery act. •That section in substance provides, that in any case where a decree is made against an absent defendant, who has not appeared
My conclusion, therefore, is, that even if it had been shown that the complainant was the owner of the stock in question, the defendant would, nevertheless, on the facts now before the court, have been entitled to an order permitting him to appear and answer the complainant’s bill. But more extensive relief must be given in this case. As the decree in question is founded on a bill which fails to show that the complainant has any cause of action against the defendant, it is plain that nothing short of an absolute vacation of the decree will answer the purposes of justice.
The decree will be set aside.