These appeals are before this court by way of certification granted on the-petitions of the several defendants-appellants to review the judgment of the Chancery Division of the Superior Court entered in the cause. The facts, which it is necessary to recount in some detail, present a disillusioning picture of public officials surrendering their independence and abnegating their obligation of public trust under the influence of prominent persons seeking to further their private interests.
I.
This action was instituted on December 3, 1948, by the Governor and the Attorney-General of the State of New Jersey to set aside the acquisition on October 22, 1948, by the Burlington County Bridge Commission of two toll bridges across the Delaware River between points in Burlington County and Pennsylvania. One of these bridges between Burlington, New Jersey, and Bristol, Pennsylvania, is known as the Burlington-Bristol Bridge, and the other between Palmyra, New Jersey, and the Tacony section of Philadelphia as the Tacony-Palmyra Bridge. The construction of these bridges was authorized by separate special acts of Congress, the Burlington-Bristol Bridge by chapter 351, Session I, 69th Congress, 1926 (44 Stat. Part 2, p. 588), and the Tacony-Palmyra Bridge by chapter 56, Session II, 69th Congress, 1927 (44 Stat. Part 2, p. 1024). The pertinent provisions of each of these special acts of Congress are identical, and for convenience they are here set forth at length:
“Sec. 4. After the date of completion of such bridge, as determined by the Secretary of War, either the State of New Jersey, the State of Pennsylvania, any political subdivision of either of such States within or adjoining which any psfrt of such bridge is located, or any two or more of them jointly, may at any time acquire and take over all right, title, and interest in such bridge and approaches, and interests in real property necessary therefor,by purchase, or by condemnation in accordance with the law of either of such States governing the acquisition of private property for public purposes by condemnation. If at any time after the expiration of twenty years after the completion of such bridge it is acquired by condemnation, the amount of damages or compensation to be allowed shall not include good will, going value, or prospectivo revenues or profits, but shall be limited to the sum of (I) the actual cost of constructing such bridge and approaches, less a reasonable deduction for actual depreciation in respect of such bridge and approaches, (2) the actual cost of acquiring such interests in real property, (3) actual financing and promotion costs (not to exceed 10 per centum of the sum of the cost of construction of such bridge and approaches and the acquisition of such interests in real property), and (4) actual expenditures for necessary improvements.
Sec. 5. If such bridge shall be taken over and acquired by the States or political subdivisions thereof under the provisions of section 4 of this Act, the same may thereafter be operated as a toll bridge; in fixing the rates of toll to be charged for the use of such bridge, the same shall be so adjusted as to provide as far as possible a sufficient fund to pay for the cost of maintaining, repairing, and operating the bridge and its approaches, to pay an adequate return on the cost thereof, and to provide a sinking fund sufficient to amortize the amount paid therefor within a period of not to exceed thirty years from the date of acquiring the same.- After a sinking fund sufficient to pay the cost of acquiring such bridge and its approaches shall have been provided, the bridge shall thereafter be maintained and operated free of tolls or the rates of toll shall be so adjusted as to provide a fund not to exceed the amount necessary for the-proper care, repair, maintenance, and operation of the bridge and. its approaches. An accurate record of the amount paid for acquiring the bridge and its approaches, the expenditures for operating, repairing, and maintaining the same, and of the daily tolls collected shall be kept, and shall be available for the information of all persons interested.”
The two bridges were constructed pursuant to these grants of authority from the Federal Government by the Burlington-Bristol Bridge Company and the Tacony-Palmyra Bridge Company, respectively, New Jersey corporations organized and existing under and by virtue of chapter 247 of the Laws of 1925
(R. S.
48 :5-13
et seq.)
entitled “An Act to authorize the formation of companies for the purpose of constructing, maintaining and operating bridges over the Delaware River, and regulating the same.” Section 9 of this act
(R. S.
“The state reserves to itself the right, acting in conjunction with any adjoining state or municipality thereof, to 'acquire any bridge constructed by any such company at the following times and upon the following terms:
a. At the expiration of five years after the opening of any bridge for public use, for the total costs thereof of whatever nature and upon assumption of all obligations or liabilities of the bridge company, for the construction of the bridge, with the approaches thereto and appurtenances thereof, plus fifteen per cent of the cost;
b. At any time thereafter, at such total cost and upon assumption of such obligations or liabilities, plus fifteen per cent of the cost, less two per cent per annum of the total cost for each year after the expiration of five years from the date of the opening of the bridge for public use.
Every company organized under this article consents to the acquisition by the state pursuant to this section of any bridge, constructed by the company.”
While it does not appear that the Secretary of War has ever certified the date of completion of either of the bridges, the Bnrlington-Bristol Bridge was actually completed and opened for traffic on about May 1, 1931, and the TaconyPalmyra Bridge on about August 15, 1929. Since those dates the bridges were continuously owned and operated by their respective companies until the time of their acquisition by the Burlington County Bridge Commission on October 22, 1948.
Some time in 1946 the defendants Eobert I£. Bell, Thomas J. Christensen, Theodore E. Hanff, Tuthill Ketcham, Eichard C. Nongard, Bickard W. Parks, and Clifford E. Powell became interested in purchasing the stock of the Burlington-Bristol Bridge Company, then owned by a small group of stockholders in Pittsburgh, with an eye toward selling the bridge to some public agency. Toward this end they organized themselves into a syndicate with a specific role intended for each. Bell, counsel for the Cape May Bridge Commission, was to render advice with respect to the acquisition,
In December, 1946, Hanff, who had been authorized by the syndicate to offer as much as $1,500,000 for the Burlington-Bristol Bridge Company stock, completed arrangements with the Pittsburgh owners for its purchase at a price of $1,350,-000. This was to be financed by the placing of a $1,000,000 mortgage on the bridge and by giving to the sellers notes for $350,000 secured by a pledge of the bridge company stock. No cash was required to be advanced by the syndicate to meet the purchase price, although subsequently the mortgagee called on it to contribute $35,000 to the company for use as working capital, and in addition some $35,000 was paid
To represent it in the purchase of the bridge, its financing and its resale to Burlington County, the. syndicate retained the firm of Hawkins, Delafield and Wood, New York municipal bond attorneys. In the spring of 1947 Henry E. Russell of that firm called the attention of the syndicate to the fact that there were statutory obstacles to the accomplishment of its plan, namely, that under the Delaware Bridge Companies Act it was doubtful whether a bridge company had the power to sell its bridges or to merge, consolidate, or dissolve
(R. 8.
48:5-18), and that the act reserved to the State of New Jersey, acting in conjunction with the State of Pennsylvania, the right to acquire the bridge at a cost prescribed by a statutory formula
(B. 8.
48:5-22). To remove these obstacles to the planned resale of the bridge, the syndicate had Russell prepare for introduction in the New Jersey Legislature a bill, the purpose and effect of which, among other things, was to deprive the State of its right of acquisition when and if a bridge became the property of a public body. In due course, but not without the intervention of Powell on its behalf, this legislation was enacted into law in the form of an amendment to
B. 8.
48:5-18 and became effective on Jidy'2 as chapter 401 of the Laws of 1947. In the same legislative session a bill was passed (Senate Bill No. 44) amending
B. 8.
27:19-28 so as to permit a county bridge commission to acquire or construct interstate bridges without the consent of the other state involved, preventing the construction or transfer of ownership of any other bridge within a ten-mile radius thereof without the consent of the commis
The syndicate next turned its attention to the TaconyPalmyra Bridge which is considerably larger and more heavily travelled than the Burlington-Bristol Bridge. From 1940 to 1942 Robert M. Sherritt, who was engaged in the business of buying and selling bridges and other public utilities and who operated through the Sarjem Corporation, an Illinois corporation of which he was the president and principal stockholder, had been interested in the acquisition of the Tacony-Palmyra Bridge. In late 1947 he again became interested and actively began to negotiate for the purchase of the stock of the Tacony-Palmyra Bridge Company, which was then held by some 1,300 persons scattered over a wide area. This activity by Sherritt was noted in financial circles and was also the subject of rumors within Burlington County. It so happened that I-Ianff, the newly elected president of the Burlington-Bristol Bridge Company, early in 1948 also became a stockholder of the TaconyPalmyra Bridge Company and that for years both .Ketcham and Nongard had been personally acquainted with Sherritt. While it appears that the syndicate must have contemplated the acquisition of the Tacony-Palmyra Bridge for some time previously, the testimony is that it.was not until May, 1948, that Ketcham first discussed with Sherritt the purchase of the Tacony-Palmyra Bridge Company and arranged for HanfE to introduce Sherritt to the president and principal stockholder of the company. In the following months plans
During the period in which Sherritt and Ketcham were negotiating for the purchase of the stock of the TaconyPalmyra Bridge Company, the members of the syndicate were at work making plans and arranging the details for the sale of both bridges to a Burlington County Bridge Commission. Senate Bill No. 44, which had been vetoed by the Governor in 1947, was reintroduced in the 1948 legislative session through the efforts of the syndicate and was again passed by the Legislature, but this time it was approved by the Acting Governor, becoming chapter 388 of the Laws of 1948 effective August 8, 1948. In March, 1948, Ketcham and Nongard, through the office of their Chicago attorneys, Winston, Strawn, Shaw, and Black, retained David M. Wood of the New York law firm of Wood, King and Dawson, New York municipal bond attorneys, to prepare the legal documents relating to the bond issues which they explained to him would be involved in the sale of the two bridges to a bridge commission to be created in Burlington County. By the
It was not until September 7, 1948, that the syndicate breathed a word of its plans to any public official in the county. On the evening of that day Powell mentioned to Freeholder Frank A. Snover, while the two of them were riding home together from a political meeting, that he had “a business transaction which would be of benefit to Burlington County.” Although he gave no details as to the nature of the transaction—Snover testified that Powell did not even tell him it involved the bridges—Powell nonetheless took care to caution Snover “not to talk about it” even to his col
At the same time that the ground work for the imposition of the syndicate’s plan on the county was being laid by the taking of Freeholder Snover into its confidence, the legal and financial arrangements were being completed to the last minute detail for the consummation of the entire transaction on October 22, 1948. A final agreement was reached with Sherritt on the purchase of the Taeony-Palmyra. Bridge Company stock. Wood completed the preparation of the voluminous legal papers required for the closing, even to the extent of haying the names of two of the three members of the proposed bridge commission—these names he had received from Powell in advance of their appointment—inserted in the bond resolution prior to the document being sent to the printer. On October 2, B. J. Van Ingen, president of the Hew York bond house bearing his name, was requested to form a syndicate for the sale of the bridge commission revenue bonds, and by October 13, 1948, his firm had completed a preliminary draft of the prospectus. A preliminary appraisal report was received from the American Appraisal Company expressing the opinion that the fair value of the two bridges, including both tangible and intangible assets and an initial working capital of $400,000 (which exceeded by $325,000 the working capital which the commission by its contract was to acquire), was not less than $13,000,000 under the ownership of a tax* exempt authority. This preliminary appraisal report did not reveal, however, what method was utilized to arrive at this valuation, nor did it include any figures showing the breakdown of the appraisal as between the two bridges or as between tangibles and intangibles. The subsequent final appraisal report, which was not received until after the entire transaction had been consummated,
The Burlington County Board of Chosen Freeholders held meetings on October 7 and October 15. Although Freeholder Snover liad previously been told about the selling syndicate’s proposition by Powell on September 7 and had had it ex-. plained to him in detail by Hanff, Ketcham and Powell in Philadelphia on October 3, and although he had been in almost daily .contact with Powell thereafter and knew that
That evening four of the five members of the board of freeholders, Snover, Church, Clarence C. Price, and Stanley I. Russ—-Freeholder Albert C. Jones was absent and testified that no effort was made to get in touch with him—assembled at Snover’s house. Before beginning to confer, however, they awaited the arrival of Powell who, along with Snover,
Before the end of the meeting the discussion turned to the selection of bridge commissioners. Snover proposed the names of Ered C. Norcross, Jr., and Howard R. Yocum. Norcross had previously been a freeholder, but had resigned to serve in World War II and upon his return had gone to the freeholders and requested that he be considered for some future political appointment. Yocum, an attorney, was interested in polities and had been proposed for political office by his local political organization. More important, Yocum was known to Powell, having served as Powell’s personal military aide for over a year while both were on active duty with the army in World War II. Snover had previously discussed the subject of appointments with Price—without, however, revealing that a bridge commission was involved— and with Powell and they had decided on these two men: in fact, their names were already printed in the bond resolution of the still-to-be-ereated bridge commission. This document was among the papers distributed to the freeholders that night. Begley pointed out that, under the statutes one of the three bridge commissioners had to be a member of the opposing political party, and so it was mutually agreed that Daniel Lichtenthal, a former county prosecutor, would be the third appointee. It was decided that Powell was to notify Norcross and Yocum of their selection and that Snover would notify Lichtenthal. Powell informed the freeholders that there would be a meeting in Philadelphia on the following day, and with an admonition to secrecy the meeting concluded.
On the afternoon of the next day, October 31, the newly selected bridge commissioners-to-be journeyed in accordance with instructions to the Hotel Barclay in Philadelphia, where they were joined by Freeholder Price—the other freeholders were too preoccupied with other matters to attend—Uounty Solicitor Begley, Syndicate Members Bell, Hanff, Ketcham and Powell, and Wood, the syndicate’s attorney. This was
At 10:30 o’clock the next morning, Friday, October 22, the board of chosen freeholders met for its scheduled public meeting. As the first order of business and without discussion it unanimously adopted a resolution creating the Burlington County Bridge Commission, appointing Yocum, ETorcross and Lichtenthal as members thereof and fixing their combined annual salary at $9,000, to be divided among them pursuant to statute. This action was taken notwithstanding the fact that three of the freeholders had first learned of the plan at the meeting at Snover’s house only 36 hours before, and even though Freeholder Jones, who had been absent at that meeting, had not learned of the plan until a few minutes .earlier when the freeholders had met in caucus. The willingness of Jones to “follow the leader” without exercising his own judgment and discretion is well indicated by the fact that when presented at the caucus with the various reports pertaining to the bridges he said, “I do not have time to digest all of these, but if these gentlemen say it’s a good deal,
The syndicate’s plan was carried out with unparalleled speed. The prospective bridge commissioners, together with Begley, -Keteham, Powell and Wood, were already assembled in the Court House adjoining the Administration Building where the board of chosen freeholders was in session. When they received a certified copy of the board’s resolution creating the bridge commission and appointing themselves as commissioners, they immediately and without discussion proceeded under the supervision of Wood to do that which they had' been briefed to do the night before. They elected Yocum chairman, Lichtenthal vice-chairman, and Nor cross secretary-treasurer of the commission. They at once adopted by-laws and a host of resolutions, reports and agreements which had been prepared for them in advance by the syndicate’s attorneys. They appointed the selling syndicate’s firm of traffic engineers, Coverdale and Colpitts, to be their own without their having been in touch with it or even being advised as to its fees, and they adopted the firm’s report on traffic revenues which had been prepared for the sellers. They appointed Prank Masters of the firm of Modjeski and Masters as their consulting engineer, and adopted the report which he had made to the sellers on the value and condition of the bridges. They adopted a resolution providing for the acquisition of the bridges by the issuance of revenue bonds-—-without even stating the purchase price—and asking the board of chosen
By 2 p. it. .on October 22 the bridge commissioners had reached the Chemical Bank in New York and were prepared to be led through the intricacies of the closing of the transaction for the purchase of the bridges. The closing took until midnight and was attended by some 30 or 40 persons. Among those present, in addition to the bridge commissioners, were Begley, Wood, Mulligan, some members of the selling syndicate, and representatives of the Chemical Bank, of the
While it is not necessary to trace the maze of technicalities through which the parties were guided at the closing, it is important to take account of the results of the events that transpired during the afternoon and evening of October 22. The Sarjem Corporation realized a gross profit of $212,500 for its efforts in securing options on the stock of the TaconyPalmyra Bridge Company. The members of the selling syndicate and their nominees shared
fro rata
by virtue of the sale of their stock in the Burlington-Bristol Bridge Company a gross profit of $3,050,347, which resulted in a net profit of $1,894,637, after the pajunent of $700,000 to cover the fees and expenses incurred in promoting the transaction, after the payment of $355,710 for bond discount to Ketcham and Nongard, and after the placing of $100,000 in escrow to cover possible tax liability. In addition, by the contract to purchase the stock the bridge commissioners had agreed to return to the sellers, as soon as the amount could be determined by the accountants, certain excesses in the net current assets of the bridge companies at'the time of the closing. Cheeks in payment oí this
sum,
which
came to
$550,000 and would increase the net profit of the selling syndicate by that amount, were made out and distributed by the bridge com- . missioners on October 26, but the checks were returned by' the recipients on the commencement of legal proceedings. It is interesting to note that Yocum testified that it was during the closing at the Chemical Bank that he first realized that the Commission had contracted to refund this money. It is also to be noted that the bridge commission did not purchase the bridges directly but rather purchased all the stock of the Burlington-Bristol Bridge Company, which in the course of the closing had itself acquired all the stock of the Tacony-Palmyra Bridge Company and had liquidated and dissolved it. The commissioners then proceeded to elect
The closing completed, the burden then fell upon B. J. Yan Ingen & Co. to organize a syndicate for the disposal of the bonds. Those invited to participate as members of the bond syndicate along with B. J. Yan Ingen & Co. were Ketcham and Nongard, Blair & Co., R. W. Pressprich & Co., Equitable Securities Corp., John Nuveen
&
Co., Stranahan,
On Monday, October 25, those invited to participate in the bond syndicate met in New York to discuss the bond issue and the terms of participation. At this meeting they had their
A second meeting of the bond syndicate participants was held on the next day, October 26, and on the morning of October 27 they affixed their signatures to the formal contract setting forth the terms of their participation. By this contract they appointed B. J. Yan Ingen & Co. and Ketcham and Nongard as syndicate managers and authorized the substitution of the note of the bond syndicate for the notes of Ketcham and Nongard and B. J. Yan Ingen & Co. then held bjr the Chemical Bank along with the bonds themselves as security for the loans in the amount of $12,422,866.40 made by the bank to those firms to enable them to purchase the entire bond issue. Accepting this arrangement, the Chemical Bank made a new loan to the bond syndicate,
On October 26, the day following the first meeting of the bond syndicate, Harry S. Haines and Richard Lippincott, opposition candidates for freeholder in the election then in the offing, instituted a taxpayer’s suit against the Burlington County Bridge Commission, the board of chosen freeholders, and their respective members to set aside the .sale, and they secured a temporary restraint against' the payment by the bridge commission of any moneys except for necessary operational expenses and the appointment of. a receiver. While the bond syndicate met for the second time on October 26 and did not sign the formal agreement for the purchase of the bonds until the morning of October 27, so far as the record shows none of its members were aware of the commencement of this action until the afternoon of October 27 when it came to their attention by way of a newspaper account. There is testimony, however, that prior to the final execution of the syndicate participation agreement one of -the participants, Tripp, received a telegram from an official of the State with respect to the bond issue, although unfortunately the record does not disclose either the contents of this telegram or the name of the official who sent it. On appeal from the interlocutory order entered by the trial court in the action instituted by Haines and Lippincott the Appellate Division of the Superior Court continued the restraint but vacated the order appointing the receiver,
Haines v. Burlington County Bridge
Commission, 1
N. J. Super.
163
(App. Div.
1949). On November 23, 1948, B. J. Van Ingen
&
Co. instituted an action in the Eederal District Court naming the bridge commission and Haines and Lippincott as defendants and seeking a declaratory judgment to de
In the meantime, on December 3, 1948, the Governor and the -Attorney-General of New Jersey instituted the instant action seeking a rescission of the entire transaction, the appointment of a receiver and such other and further relief as the court might deem just and equitable. Named as defendants in this proceeding were the Burlington County Bridge Commission and its members, individually and officially, the Board of Chosen Freeholders of Burlington County and its members, individually and officially, County Solicitor Begley, the two bridge companies, the stockholders of these companies at the time of the sale to the bridge commission, the individual members of the selling syndicate, the Sarjem Corporation and Sherritt its president, the firms of Ketcham and Nongard and B. J. Yan Ingen & Co., the Chemical Bank, and the various participants in the bond purchasing syndicate. Immediately after the commencement of this action it was removed to the Federal District Court on the petition of two of the defendants on the ground that it was a matter arising under acts of Congress regulating commerce. The cause, however, was remanded to the Superior Court on the motion of the plaintiffs, the federal court stating: “The search here reveals as basic, real and substantial the issues of -whether there was a fraudulent and illegal organization of the Bridge Commission and whether its acts were invalid. The provisions of the federal acts furnish no essential element of those issues and the construction or effect of the federal acts will not determiné the basic issues,”
Driscoll v. Burlington-Bristol Bridge Co.,
82
F. Supp.
975, 995
(Dist. N. J.
1949). In June, 1949, the
Haines
action and the instant case were ordered consolidated and on February 2, 1950, all proceedings in the
Haines
action were stayed and decision therein was deferred until the disposition of this case brought by the Governor and the Attorney-General. In addition, the re
In .due course the action brought by the Governor and the Attorney-General and the counterclaims and cross-claims were pretried and tried, and on December 5, 1950, the trial court filed its decision,
Driscoll v. Burlington Bridge
Co., 10
N. J. Super.
545
(Ch. Div.
1950). Finding that the bridge commissioners were derelict in the performance of their public duties and that their contracts, except the contract for the sale of the bonds, were against public policy and void, and concluding that the various holders of the bonds had either participated in or had knowledge of the illegality of the transaction so as to prevent their being holders in due course, the trial court granted the plaintiffs extensive relief. (1) The bridge commission was ordered to restore all that it had received by reconveying the bridges to the Burlington-Bristol Bridge Company, by retransferring the bridge company’s stock to its former owners, by repaying to the bondholders the $400,000 received by way of working capital together with net revenues since the time of acquisition, by paying into court the $550,000 of excess net .current assets owned by the Burlington-Bristol Bridge Company at the
On talcing these steps the bridge commission was to be relieved of any obligations under its contract with the defendant. .(2) The Burlington-Bristol Bridge Company and its former stockholders, the individual members of the selling syndicate and their nominees, were ordered to repay to the bondholders all moneys received from them, each to disgorge the part of the purchase price received. (3) The bondholders were subrogated to the rights of mortgage or other lien holders as of October 22, 1948, to the extent that the money of the bondholders was used to discharge the same, and in addition they were granted a lien on all revenues of the bridges until the bonds should be repaid, subject, however, to the right of the State to acquire the bridges. (4) All parties were directed to take such action as might be necessary to carry out the order of the court. (5) The right of the State to acquire the bridges upon the terms provided in applicable statutes was held, to be unaffected by virtue of the fact that the bridges were being returned to private ownership. (6) The action was dismissed as against Sherritt and the Sarjem Corporation for lack of proof that they participated in the illegal transaction.
A judgment was subsequently entered to give effect to the trial court’s decision. It provided, in addition to the relief above mentioned, for the appointment of receivers to collect the judgment against members of the selling syndicate and to pay over -the sums collected to the bondholders; for the vacation of the previous temporary restraints to the extent that they were inconsistent with or unnecessary for the enforcement of the judgment; that the judgment against Eitzgerald & Co. “shall be valid and enforceable to the extent that it is collectable out of its assets and property within the jurisdiction of this Court”; and that Walter D. Van Riper, originally one of the plaintiffs and subsequently counsel for the plaintiffs, be allowed a fee of $50,000, to be paid by the
All defendants, with the exception of the Sarjem Corporation and Sherritt, petitioned this court for certification to review the judgment of the Chancery Division of the Superior Court and we granted their petition.
II.
The facts as herein summarized clearly prove that the acquisition of the bridges by the bridge commission was fraught with -fraud and 'corruption, and the lengthy record which we have reviewed page by page and from which this statement of the facts has been condensed demonstrates even more conclusively the viciousness of the transaction. We are in complete accord with the determination of the trial court that the purchase of the bridges was accomplished in a manner plainly contrary to public policy and therefore illegally.
The members of the board of chosen freeholders and of the bridge commission are public officers holding positions of public trust. They stand in a fiduciary relationship to the people whom they have been elected or appointed to serve.
Rankin v. Board of Education,
135
N. J. L.
299, 303
(E. & A.
1947);
Trist (Burke) v. Child,
88
U. S.
441, 450, 22
L. Ed.
623, 625 (1875);
Edwards v. City of Goldsboro,
141
N. C.
60, 53
S. E.
652, 653
(Sup.
1906);
Tuscan v. Smith, 130 Me.
36, 153
A.
289, 294
(Sup. Jud.
1931);
State v. Naumann,
213
Iowa
408; 239
N. W.
93, 99
(Sup.
1931);
In re Marshall,
It is urged on us that speed and secrecy in the purchase of the bridges was necessary and salutary and that there is no statutory requirement that bridges be purchased on notice to the public. Indeed, it is even argued that R. S. 27:19-35 expressly provides that there need be no notice. There is no merit to these contentions. We cannot subscribe to the philosophy of Wood, the selling syndicate’s attorney, that the idea of “open covenants openly arrived at” is merely an impractical theory. Moreover, R. S. 27:19-3 5 does not have the connotation which the defendants would attribute to it. That statute deals with the advertisement for bids and the award of contracts on bridges. It specifies that contracts in excess of $2,500 for the construction, repair or maintenance of bridges shall be awarded by a bridge commission to the lowest responsible bidder following advertisement for bids. Then follows the provision that “Contracts for the purchase of bridges may be made and executed without advertisement.” This, the defendants claim, constitutes a declaration of “legislative policy with regard to secrecy applicable to the very type of transaction in question.” This claim is a patent perversion of the plain language of the statute. The statute quite obviously is not a legislative sanction of secrecy. It is merely an exception to the requirement that substantial contracts be let after advertisement to the lowest bidder, a necessary exception, moreover, for if an existing bridge is to be purchased it can only be purchased from its owner and an advertisement for bids would be a futile gesture. There is nothing in the statute from which it can be inferred that the Legislature was authorizing or approving clandestine and precipitous transactions.
The position of the members of the selling syndicate is equally culpable if not more so than that of the freeholders and the bridge commissioners whom they manipulated. The citizen is not without obligation to his government and to its officers. Just as a public officer owes a fiduciary
“The foundation of a republic is the virtue of its citizens. They are at once sovereigns and subjects. As the foundation is undermined, the structure is weakened. When it is destroyed the fabric must fall. Such is the voice of universal history. * * * The theory of our government is, that all public stations are trusts, and that those clothed with them are to be animated in the discharge of their duties solely by considerations of right, justice and the public good. They are never to descend to a lower plane. But there is a correlative duty resting upon the citizen. In his intercourse with those in authority, whether executive or legislative, touching the pierformance of their functions, he is bound to exhibit truth, frankness and integrity. Any departure from the line of rectitude in such cases is not only bad in morals but involves a public wrong.”
See also Hume v. United States, 132 U. S. 406, 414, 33 L. Ed. 393, 397 (1889). One cannot read the- record in the instant case fairly without being forced to the conclusion that the members of the selling syndicate through the medium of their political influence or professional prestige knowingly and intentionally for their private profit and without regard to their obligations as citizens induced the chosen freeholders and the bridge commissioners to violate their public trust by blindly agreeing to the syndicate’s proposal.
In view of the fact that the transaction giving rise to the issuance of the $12,400,000 of revenue bonds was contrary to public policy, and so illegal and therefore voidable, the question next arises as to the rights of the participants in the bond syndicate who are the owners of the bonds and of the Chemical Bank which holds them as pledgee. It is clear
To qualify as a holder in due course, R. S. 7:2-52 requires, among other things, that a holder take an instrument “in good faith and for value” and “That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” R. S. 7:2-59 provides that “every holder is deemed prima facie to be a holder in due course” and R. S. 7:2-56 provides that “To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of * * * such facts that his action in taking the instrument amounted to bad faith.” In interpreting this last section of the • Negotiable Instruments Law, our courts have consistently adhered to and frequently quoted the rule expressed in Rice v. Barrington, 75 N. J. L. 806, 807 (E. & A. 1908) :
“* * * proof of circumstances calculated merely to arouse suspicion will not defeat recovery on a negotiable note taken for value before maturity. Bad faith, i. e., fraud, not merely suspicious circumstances, must be brought home to a holder for value whose rights accrued before maturity, in order to defeat his recovery on a negotiable note upon the ground of fraud in its inception or between the parties to it.”
Eor other decisions of our former court of last resort to the same effect see
National Bank of Republic v. Young,
41
N. J. Eq.
531
(E. & A.
1886);
Aldrich v. Peckham,
74
N. J. L.
711
(E. & A.
1907);
Davis v. Clark,
85
N. J. L.
696
(E. & A.
1914);
Hudson County, &c., Bank v. Alexander Furs, Inc.,
133
N. J. L.
256
(E. & A.
1945). Municipal
Applying these statutory provisions as interpreted by our courts to the facts here before us it at once appears that the firm of Ketcham and Nongard by virtue of their role as a member of the selling syndicate cannot qualify as holders in due course. They not only had knowledge of but actively participated in the illegal transaction which resulted in the issuance of the bonds. They are, therefore, not entitled to the protection afforded by the Negotiable Instruments Law. However, since Ketcham and Nongard were bound to purchase the entire bond issue from the bridge commission and in fact did actually purchase one-half of the entire issue, their interest was contrary to the interest of the other participants in the bond syndicate to whom they transferred for value the bulk of their holdings. Because of this conflict of interest and because the bond syndicate participants if acting on their own behalf would not have acquired the knowledge had by Ketcham and Nongard, it is well established that their knowledge of the fraud in the issuance of the bonds cannot be imputed either on the theory of agency or of partnership to the other participants in the bond syndicate or to the bank. “Common experience condemns any such presumption” of disclosure, Bridgeton National Bank v. Hepner, 104 N. J. L. 7, 9 (Sup. Ct. 1938); Sooy v. State, 41 N. J. L. 394 (E. & A. 1879); Graham v. Orange County National Bank, 59 N. J. L. 335 (E. & A. 1896); Vulcan Detinning Co. v. American Can Co., 72 N. J. Eq. 387 (E. & A. 1907); Hanford v. Duchastel, 87 N. J. L. 205 (E. & A. 1915); American Surety Co. v. Conway, 88 N. J. Eq. 370 (E. & A. 1917); Borough of Deal v. Sieling, 102 N. J. L. 585 (E. & A. 1926); 2 Am. Jur., Agency, § 379, p. 2 98.
1 The other participants in the bond syndicate likewise qualify as holders in due course. They had no part in the negotiations leading up to the acquisition of the bridges, were not represented at the closing at the Chemical Bank on October 22, and had no knowledge of the transaction or the issuance of the bonds until Yan Ingen got in touch with them on October 25 and invited them to join the syndicate for the disposal of the bonds to the public. Their suspicions as to the legality of the issuance of the bonds should most certainly have been aroused, however, despite the unqualified opinion of Wood as to the validity of the bonds, by the knowledge that the formal phases of the transaction occurred on a single day, by their reading in the newspapers that the Governor was about to commence an investigation into the acquisition of the bridges and was going to make it impossible to market the bonds, and by the mysterious telegram relating to the issuance of the bonds which was received by one of their number from an official of the State. It would appear that they relied too heavily upon the representations of the members and representatives of the selling syndicate which had engineered the entire transaction with such stealth and finesse. But, as we have previously indicated, “proof of circumstances calculated merely to arouse suspicion will not defeat recovery on a negotiable note taken for value before maturity',” Rice v. Barrington, supra, 75 N. J. L. 806, 807 (E. & A. 1908), and “mere notice of facts, such as would have put a prudent person upon inquiry, is not sufficient to impeach the title of the holder of negotiable paper taken for value before maturity,” National Bank of Republic v. Young, supra, 41 N. J. Eq. 531, 538 (E. & A. 1886).
The firmly established rule in this State that requires us in the circumstances here present to hold all of the bond
As holders in due course the Chemical Bank, B. J. Yan Ingen & Co., and the other members of the bond syndicate with the exception of Ketcham and Nongard are entitled by both the law merchant and the Negotiable Instruments Law to enforce the bonds according to their tenor.
R. 8.
7:2-57 provides that “a holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.” Under the mandate of this statute, which codifies the common law on the subject, and by the applicable decisions of our courts it is settled that want of power to issue bonds is the only defense that is available to a municipal corporation after it has put on the market bonds purporting to be issued with due formality and after they have passed into the hands of innocent holders for value. Negotiable municipal bonds are enforceable in the hands of a holder in due course, even though the bonds were wrongfully disposed of by public
The holders of the bonds also contend that they are entitled to protection by virtue of their reliance on certain recitals and representations appearing on the face of the bonds. Since the bridge commission is authorized by
R. S.
27:19-26
et seq.,
as amended by chapter 318 of the Laws of 1946, to determine the existence of the facts and conditions prerequisite to the issuance of the bonds, it is argued that its recitals are conclusive as to all such matters and that the plaintiffs are'estopped from asserting against the holders any defect in connection with the issuance of the bonds. The doctrine of estoppel by recital is uniformly recognized by the decisions of the courts of this State and of the United States. The doctrine is rooted in the essential need for assuring the marketability of municipal securities coupled with the recognition by the courts that those who purchase these securities in good faith and for value and who rely on
We are of the opinion, therefore, that the holders of the bonds, with the exception of ICetcham and Nongard, are entitled to the protection of the doctrine of estoppel by recital, although in the circumstances it would appear that the protection afforded them by the doctrine is merely cumulative to that afforded them as holders in due course by the Negotiable Instruments Law. As
bona fide
purchasers of the bonds for value they have the right to enforce them according to their terms and in equity their interest must override that of those attacking the transaction giving rise to the bonds, at least to the extent that the interests are conflicting. See
United States v. Stinson,
197
U. S.
200, 205,
Another important issue presented to us relates to the power of the State to acquire these two bridges by condemnation. At the time the bridges were constructed there existed two procedures whereby the State could acquire them by condemnation at a price fixed by a statutory formula. The first method was provided by R. S. 48:5-22. It required the State of New Jersey to act in conjunction with the State of Pennsylvania or a subdivision thereof and could be pursued only at or after five years from the date of completion. By chapter 401 of the Laws of 1947 the State gave up its right to acquire bridges under this method in the event they came into the ownership of a public body. Moreover, by chapter 318 of the Laws of 1946 amending the Self-Liquidating Bridge Act the State covenanted that it would not “in any manner impair, alter or abrogate” any of the obligations of a bridge commission to the holders of its bonds. Therefore, although the necessary compacts between New Jersey and Pennsylvania lfave been entered into pursuant to appropriate enabling legislation in the two states and are now before Congress awaiting its approval, it would appear that any condemnation of the bridges pursuant to the method provided by R. S. 48:5-22 is precluded if the title to the bridges is left in the bridge commission. We are not unmindful of the fact that in their amended complaint the plaintiffs prayed for a declaration as to the constitutionality of chapter 401 of the Laws of 1947, but the point has not been raised, briefed or argued on these appeals and so we assume that it has been abandoned and we therefore decline to pass upon it.
The second method for the acquisition of the bridges pursuant to a statutory formula is to be found in section 4 of each of the special federal acts authorizing their construction, which section is set forth at length in our
We are accordingly of the opinion that the State may not condemn the bridges while they are owned by the bridge commission either under B. 8. 48:5—22 or under the special federal acts authorizing the construction of the bridges. If the purchase of the bridges by the bridge commission is rescinded and the bridges are returned to private ownership, the right of the State to condemn the bridges at the state or federal formula price would, of course, be restored, since chapter 401 of the Laws of 1947 would then be inapplicable. In the event of such a rescission and condemnation, however, the covenants set forth in chapter 318 of the Laws of 1946 would necessitate the State making adequate provisions for the holders in due course of the bonds issued by the bridge commission.
Next to be considered is the question of the right of a bridge commission to operate at a profit, and more
“The rate of tolls to be charged for the use of any bridge constructed or purchased under the provisions of this article shall be so fixed and adjusted as to comply with any contract or agreement of the commission relative thereto and, in any event provide a fund sufficient to pay the interest and principal of any bonds issued under this title, and to provide* an additional fund to pay the cost of maintaining, repairing and operating such bridges.”
No mention whatever is made of providing a profit for the enrichment of a county. Moreover, in view of the fact that
Likewise without regard to law were the contemplated payments by the bridge commission in lieu of taxes to the municipalities of Burlington and Palmyra.
N. J. S. A.
27:19—33 specifically states that the property of a bridge commission “shall be exempt from all taxes and special assessments by the State or any subdivision thereof * * We recognize that the acquisition of the bridges in question from private owners necessarily resulted in a substantial loss of ratables to the Few Jersey communities in which the bridges are located, but this loss is no justification in law for permitting payments to them in lieu of taxes. The making of such payments by the bridge commission in the absence of statutory authorization would constitute an unlawful diversion of toll revenues, for as previously pointed out the powers of a bridge commission are derived wholly from statute. Therefore, contrary to the representations of the selling syndicate and although the .contract of the bridge commission with the bondholders would permit it, we are of
Another question is presented by the contention of the defendant Pitzgerald & Co., one of the stockholders of the Burlington-Bristol Bridge Company at the time of its purchase by the bridge commission, that the court below never acquired jurisdiction over its person. Pitzgerald & Co. is a Delaware corporation. It was never served with process in New Jersey, but service was made upon it by'registered mail addresséd to it at its New York office and by service of its president there by a person who signed himself as sheriff of the City of New York but whose credentials showed him to be sheriff of the County of New York. It also appears that the summons mistakenly limited the defendant to answer within 20 days and that there was no affidavit of inquiry, no affidavit showing publication, and no order of the court providing for substituted service made or filed in the case. It likewise appears that the defendant Pitzgerald & Co. did not voluntarily appear and consent to the jurisdiction of the court, but rather both by its answer and by appropriate motion pursuant to Rule 3:12 sought to have the action as against it dismissed on the grounds of lack of jurisdiction over its person, insufficiency of process and insufficiency of service of process.
We are of the opinion that jurisdiction was never acquired over the person or the property of Pitzgerald & Oo. through the failure of the plaintiffs to properly serve it. Clearly there can be no relief
in personam
against a defendant who has neither been served within the State nor consented to its jurisdiction,
Pennoyer v. Neff,
95
U. S.
714, 24
L. Ed.
565 (1878);
Smith v.
Colloty, 69
N. J. L.
365
(E. & A.
1903);
Redzina v. Provident Institution, &c.,
96
N. J. Eq.
346
(E. & A.
1924). To secure jurisdiction over a defendant “in an action affecting specific property, or any interest therein, or any
res
within the jurisdiction of the court,”
Rule
3 :4^5 provides that if an affidavit be filed to the effect
The final question of law presented is whether or not the plaintiffs are entitled to an allowance of counsel fees. The judgment below provided: “There is hereby awarded to Walter D. Yan Riper, as counsel for the plaintiffs, the sum of $50,000 as counsel fees for services rendered in this cause commencing Eebruary 5, 1949, said sum to be paid by the Receivers out of the money in their hands when so directed by the Court.”
There are sound reasons, however, weighing against the allowance of counsel fees to the plaintiffs. The plaintiffs’ counsel as the then Attorney-General was himself
‘‘No special counsel shall he employed for the State or for or by any officer, department, board, body, commission or instrumentality of the State Government except by authority of the Attorney-General, and then only with the approval of the Governor, and provided that appropriations have been made therefor, unless the matter be of such an emergency and shall be so declared by the Governor.” A7. J. S. A. 02 :17A-13.
It is apparent from the foregoing that the Legislature contemplated that special counsel for the State, its agencies or officers should bo compensated out of funds appropriated by it and not by the court in a particular proceeding in which special counsel might be appearing. While special counsel appointed pursuant to
N. J. 8. A.
52:17A-13 is not technically a member of the Department of Law,
N. J. S. A.
52:17A-3, he is in fact appointed to carry out one of its functions,
N. J. 8. A.
52:17A-4, and there apjjears no sound reason why he should be permitted to receive and retain an allowance of counsel fees by a court when the members of the department while performing their official duties are expressly forbidden to do so, both by statute,
N. J. 8. A.
52:17A-10, and by the Constitution,
art.
VII,
sec.
I,
par.
3,
Constitution of
1947. In the face of these provisions we
But even if there were no statutory obstacle to the allowance of counsel fees to the plaintiffs, none can be granted in this ease because the allowance of fees is a matter of procedure governed by rule of court and there is here no “fund in court” or other basis within the provisions of
Rule
3:54-7 warranting an allowance. In support of the power of the trial court to award counsel fees on the basis that -there is a “fund in court” within the provisions of
Rtile
3:54r-7(6), the plaintiffs rely upon four cases:
Cintas v. American Car and Foundry Co.,
133
N. J. Eq.
301
(Ch.
1943), affirmed 135
N. J. Eq.
305
(E. & A.
1944), a stockholder’s suit to restrain the payment of dividends to common stockholders out of moneys to which it was claimed the preferred stockholders had prior rights;
Katz v. Farber,
4
N. J.
333 (1950), a dispute as to a wife’s right of dower in certain real estate where the parties by consent had actually deposited moneys in court “subject to the rules of this court”;
Milberg v. Seaboard Trust Co.,
7
N. J.
236 (1951), an action against trustees in liquidation in which the plaintiffs were designated as representatives of all the owners and holders of the outstanding trust certificates and shares of stock and in which the trustees actually paid into court over $300,000; and
Trustees v. Greenough,
105
U. S.
527, 26
L. Ed.
1157 (1882), a suit to preserve the assets of a trust fund for the benefit of bondholders. The facts in the instant ease, however, are not comparable to those in any of the cited cases and they do not constitute authority for the proposition that the court was here empowered to award counsel fees. This action was brought by the Governor and Attorney-General to rescind an illegal purchase made by a public body. It is not an action to create or preserve a fund for the benefit of a class of which the plaintiffs are representatives. The funds in the hands of the receivers are for the benefit of the defendant bondholders whom the plaintiffs quite obviously
The plaintiffs also contend that the allowance of counsel fees by the trial court should not be disturbed since it was consented to by the defendants. This contention is not available for two reasons. First, the parties cannot by consent grant the court authority to do that which under the rules it is precluded from doing. Second, the consent is not by those who would ultimately bear the burden of paying such an allowance. Counsel for the members of the selling syndicate consented to the payment of the allowance out of funds in the hands of the receivers, but those funds are being held not for them but for the benefit of the holders of the bonds who have not consented to any such payment.
On the basis of the facts set forth herein, and of the law as discussed herein we are of the opinion: (1) By virtue of the wrongful conduct of the freeholders, the bridge commissioners and the members of the selling syndicate, the acquisition of the Burlington-Bristol Bridge and the TaconyPalmyra Bridge by the bridge commission was effectuated in a manner contrary to public policy and is therefore illegal and voidable. (3) The Chemical Bank and all participants
III.
It is now necessary to determine what relief should be afforded in order to give effect to our findings and conclusions. Three alternatives suggest themselves. Eirst, as was done by the trial court, the purchase of the bridges by the bridge commission might be rescinded and the bridges at once returned to private ownership. While this procedure is not without its merits, especially in rendering the bridges subject to condemnation by the State under statutory formula, we are precluded from adopting it because of the fact that it would substantially prejudice the rights of the holders ,in due course of the bonds of the bridge commission. These bonds as issued are a lien on the revenues of the two bridges. So long as these bridges remain in the hands of the bridge commission they and their revenues are tax-exempt, but if the bridges were restored to private ownership it would be beyond the power of the court to prevent property taxes and income taxes from diverting funds in substantial amounts
It has next been suggested that title to the bridges be left in the bridge commission until sufficient funds are available to retire the bonds, at which time the bridges could be returned to their former owners. Such a conditional or delayed rescission would protect the bondholders since the bridges would be left temporarily in a tax exempt status, but it would be inequitable to the toll-paying public. It would impose upon the public the burden of paying through tolls for the purchase of the bridges a price more than double that at which they could be acquired by condemnation and at the same time deprive the public of the benefit of the purchase by placing the bridges again in private ownership which would be free to continue to collect tolls. This would be contrary to the obvious intent of the Self-Liquidating Bridges Act, R. S. 27:19-26, et seq., as amended, and of the federal acts that once acquired by a public body they are to become toll free as soon as the cost of their acquisition has been paid, except as provided in section 5 of each of the federal acts:
“After a sinking fund sufficient to pay the cost of acquiring the bridge and its approaches shall have been provided, such bridge shall thereafter be maintained and operated free of tolls, or the rates'of toll shall thereafter be so adjusted as to provide a fund of not to exceed the amount necessary for the proper care, repair, maintenance, and operation of the bridge and its approaches.”
To make the public pay an unnecessarily high price for these bridges and then by a delayed rescission to subject them to continued toll charges would be not only inequitable but contrary to the statutes: it would compound the injury already inflicted on the public.
The third alternative, which we conceive to be the most equitable and practical one in the circumstances,
To effectuate the conclusions here reached the judgment appealed from is modified, with costs of this appeal assessed against the members of the soiling syndicate and their nominees jointly and severally, and the cause is remanded to the Chancery Division of the Superior Court for the entry of judgment in accordance with the following directions:
(1) The acquisition of the Burlington-Bristol Bridge and the Tacony-Palmyra Bridge by the Burlington County Bridge Commission on October 22, 1948, was accomplished in a manner contrary to public policy, and is illegal. It is therefore voided, but only to the extent hereinafter provided. ■
(3) The bridge commission shall retain title to the bridges together with all other property of whatever kind acquired by virtue of this transaction and it shall not retransfer or pay out any portion thereof to the sellers.
(4) To the extent that the members of the selling syndicate or their nominees have an interest therein, the entire transaction in all its ramifications is rescinded and they shall repay to the bridge commission the sum of $3,050,347 which represents the gross profit which they received from the sale of their stock in the Burlington-Bristol Bridge Company. The obligation to repay this sum shall be both joint and several as to Bell, Hanff, Ketcham, Eongard and Powell, but shall be several only as against the remaining sellers in the amounts they each received, specifically: Rowland H. Murray—$76,258.68; Thomas J. Christensen— $305,034.70; Irene E. Powell—$122,013.88; Paul A. Powell-—$122,013.88; Mildred P. Meader—$122,013.88; Rickard W. Parks and Gladys A. Parks—$129,939.75. Judgment in the sums indicated, together with interest thereon from October 22, 1948, will accordingly be entered against these defendants and in favor of the bridge commission.
(6) The action shall be dismissed as against Fitzgerald & Co. for lack of jurisdiction. ,
(1) The receivers heretofore appointed shall be continued to collect the judgment against the members of the selling syndicate and their nominees and to paj'' over the sums heretofore collected or hereafter to be collected by them to the bridge commission on direction from the court. Said judgment shall not be cancelled of record in whole or in part except upon further order of the court. The receivers shall also enforce any rights of subrogation which may accrue to the bridge commission against Ketcham and Nongard as the result of the Chemical Bank exercising its rights as pledgee of the 'bonds, as herein elsewhere provided. They shall, moreover, promptly institute an action against Fitzgerald & Co. to recover its share of the gross profit from the sale of the stock in the Burlington-Bristol Bridge Com
(8) The bridge commission shall operate the bridges in strict compliance with all applicable statutes; it shall comply with all its obligations on those of its bonds held by holders in due course or those claiming under them; it shall not recognize any obligation on those of its bonds held by Ketcham and Nongard except to the extent that the Chemical Bank and those claiming under it have an interest therein; it shall recognize all its obligations on any and all contracts heretofore made by it, except those with members of the selling syndicate which contracts are declared null and void; and it shall not make any payments to any municipality in lieu of taxes.
(9) The court shall appoint a certified public accountant to make a quarterly audit and report to the court covering the operation of the bridges and the receipts and disbursements of the bridge commission. The court may require the bridge commission to make such other reports as may from time to time be deemed necessary.
(10) At such time as the obligations of the bridge commission on its bonds shall have been fully met the bridges shall either become toll free or tolls shall be charged to provide a fund not to exceed an amount necessary for the proper care, repair, maintenance and operation of the bridges and their approaches. All funds or other property now owned or hereafter acquired by the bridge commission shall be used solely for purposes related to the bridges. If on retirement of the bonds the bridge commission shall be succeeded by the board of chosen freeholders or other public body, its successor shall similarly be limited in the use of said funds or property.
(11) The bridges shall not be subject to condemnation or acquisition by the State or any other body or person so long as the bonds of the bridge commission remain outstanding, and thereafter tolls may not be charged by the bridge
(12) No allowance of fees shall be made to counsel for the plaintiffs.
(13) The Chancery Division of the Superior Court shall retain jurisdiction over the cause for the purpose of making such further orders as may be necessary to enforce its judgment and for such further relief as may be necessary or appropriate.
For modification—Chief Justice Vanderbilt, and Justices Case, Oliphant, Wacheneeld, Burling and Ackerson—6.
Opposed—None.