Consol. Elec. Storage Co. v. Atl. Trust Co.

• Decision Date: 17 May 1892
• Citation: 50 N.J.E. 93,24 A. 229
• Parties: CONSOLIDATED ELECTRIC STORAGE CO. v. ATLANTIC TRUST CO.
• Court: New Jersey Court of Chancery

24 A. 229

50 N.J.E. 93

CONSOLIDATED ELECTRIC STORAGE CO.

v. ATLANTIC TRUST CO.

Court of Chancery of New Jersey.

May 17, 1892.

(Syllabus by the Court.)

Suit by the Consolidated Electric Storage Company against the Atlantic Trust Company to recover certain shares of stock. Decree for complainant by default. On application by defendant to open the decree. Application granted.

Thomas N. McCarter, for application.

Theodore Runyon, opposed.

VAN FLEET, V. C. 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 60,000 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 30,000 of the 60,000 shares, and commands the trust company to deliver them to the complainant; and it also adjudges that the complainant is entitled to the other 30,000 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 at 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 defense; 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 defense, had expired, a decree pro confesso was entered against it, and subsequently, on proofs taken ex parte, the decree in question was made. 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, (Revision, 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 defense 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 defense, 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 defense, 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, (Revision, 109,) no decree, affecting the rights of a defendant, could be made until he had appeared and answered. If he was contumacious and refused to answer, he could be compelled to do so, and in certain cases the court might order an appearance to be entered for him; but until he had appeared to the suit, in the one mode or the other, no decree could be made affecting his rights. Brinkerhoff v. Franklin, 21 N. J. Eq. 334, 336. Now, however, by force or the statute just mentioned, if a defendant fails to appear and make defense, the chancellor may treat his failure as a confession of the truth of the facts stated in the complainant's bill, and may thereupon make such decree as shall, upon the facts stated in the bill, be deemed equitable and just; or he may order the complainant to take testimony to prove the allegations of his bill, or he may examine the complainant under oath to ascertain their truth, and then, in either case, make such decree as he shall think equitable and just upon the facts stated in the bill. But decrees so made are subject to be opened, for cause, at any subsequent time. This statute, by proviso, expressly declares "that, to prevent fraud or mistake, the chancellor may, at any time, upon notice and sufficient cause shown, grant a rule stating proceedings and to open such decree." Precisely similar power is given to the chancellor over an absent defendant, who, after being brought into court by notice pursuant to an order of publication, makes no defense, but allows a decree pro confesso to be taken against him. That is to say, the chancellor may, on the confession arising out of the default of such a defendant, or on testimony, or on the complainant's oath, make such decree against him as shall be equitable and just upon the facts stated in the complainant's bill. Revision, p. 106, § 18.

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 no decree can be founded on it which will be equitable and just; and, if a decree should be made on a bill thus fatally defective, it would, as it seems to me, stand, in point of legal efficacy, precisely where a decree stands which is founded on a cause of action not stated in the bill. The doctrine is firmly settled that such a decree, or any judgment which is entirely outside of the cause of action specified in the pleadings in the suit in which it is pronounced, is invalid, and will be treated, even in a collateral proceeding, as a nullity. Such a judicial sentence is absolutely void, and will be held to be a nullity everywhere. Munday v. Vail, 34 N.J Law, 418; Reynolds v. Stockton, 140 U. S. 254, 11 Sup. Ct. Rep. 773. In my judgment, no distinction, founded on either reason or justice, can be made between a decree founded on a bill which discloses no ground of action and a decree founded on a cause of action which is not averred in the bill. In each case it will be noticed that the fundamental defect is that there is nothing in the bill to support the decree, and hence each is, so far as the record shows, without the least foundation.

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 60,000 shares of the complainant's own stock. Those shares constitute the subject-matter of the suit. The following are the material...