Kean v. Union Water Co.

• Decision Date: 04 March 1895
• Citation: 31 A. 282,62 N.J.E. 813
• Parties: KEAN et al. v. UNION WATER CO.
• Court: New Jersey Supreme Court

31 A. 282

62 N.J.E. 813

KEAN et al.

v. UNION WATER CO.

Court of Errors and Appeals of New Jersey.

March 4, 1895.

(Syllabus by the Court)

Appeal from court of chancery; Pitney, Chancellor.

Bill by the Union Water Company against John Kean, Jr., and others. From a decree for complainant (27 Atl. 1015), defendants appeal. Reversed.

R. V. Lindabury, F. Bergen, and F. W. Stevens, for appellants.

A. V. Schenck, for respondent.

BEASLEY, C. J. On the part of the appellants, who were the defendants in the court of chancery, it is insisted on this appeal that the subject of the suit is not within the cognizance of a court of equity. In the process of deciding the case a jurisdictional objection of this nature must, of necessity, have precedence. Looking at the bill before us in its general aspects, it presents to our view neither more nor less than a controversy between two rival sets of directors of the corporate defendant, each claiming to be its legal representative, having as such the right to exercise the functions appertaining to their office. This is the sole ground on which jurisdiction over the case in hand can be claimed, for there are no other facts stated in the bill which even tend to strengthen, in this particular, the complainant's position. Indeed, such additional facts as are there exhibited must be deemed rather to impair than to add force to the contention that this contest is susceptible of equitable cognizance. The averments are to this effect: The complainant alleges that many years ago the commissioners named in its charter organized it in due form, and that subsequently certain persons were chosen directors, who still continue to be such; that a number of years after such organization, as the appellants contend, these same commissioners convened and received subscriptions for stock, and that the persons so subscribing elected the appellants to be directors. They also deny the legality of the election of the directors who are represented in this suit by corporate body. The status of these parties is this: Each contends that the election of directors relied upon by his opponent is invalid for the want of a legal organization of the corporate body at the time of choosing, respectively, such officers. No one who examines the case with the least care can have any doubt upon this subject. There is no ground nor hint of any adventitious circumstance laying a further jurisdictional foundation. If, therefore, the court of chancery had rightful cognizance of the controversy before us, it was because that court has the power to arbitrate between rival claimants to corporate office. A jurisdiction resting on this single basis was asserted and exercised in the present case in the inferior court, and the Inquiry now arises, can that course of law be vindicated? It does not seem possible to doubt that this conclusion Just stated stands opposed to everything that had preceded it in the shape of judicial decision and judicial declaration. The rule as decided and expressed was that a court of equity could not inquire into the legality of an existing corporation, except when such Inquiry arose collaterally in a case within its cognizance, and that a dispute touching the election of directors did not per se constitute such a case. This doctrine is not only explicitly stated, but is just as explicitly enforced, by decree in the case of Owen v. Whitaker, 20 N. J. Eq. 122. The nature of the controversy in that instance was not merely similar to, but was in all respects identical, with that now present in this appeal, so that, if the present decision should be affirmed by this court, as an inevitable concomitant the reported decision would be repudiated as a precedent.

The facts to which the adjudication now referred to applied have been carefully collected and stated in the elaborate and very lucid brief of the counsel of the appellants, and may be thus summarized, viz.: By the act incorporating the Sussex County Railroad Company 16 persons were nominated as incorporators and commissioners. The capital stock of the company was fixed at $175,000. The commissioners gave notice, opened books, and received subscriptions to an amount exceeding $175,000, and thereupon apportioned the stock among all the subscribers. A controversy arose as to the right to make such apportionment. The persons who subscribed for the first $175,000 of stock claimed that they were entitled to the full amount of their respective subscriptions, and that all the subscriptions made in excess of such amount were void. The two classes of stockholders thereupon elected two boards of directors, and a bill was filed by one class of stockholders and directors against the other class of stockholders and directors to ascertain which party were the true stockholders and directors. It will be observed from this statement that the issue was whether a court of equity was the appropriate tribunal to adjudge of the legality of these two several elections, and that is precisely what has been done in the present case. Nor is there a particle of doubt with respect to what Chancellor Zabriskie, who decided the case, considered the Issue before him, nor with respect to the rule that was applied in disposing of such Issue. He thus certainly, in very plain terms, states the problem he is called upon to solve. He says: "The first question in the cause is whether the court has jurisdiction to determine whether an election of the directors of a private corporation has been legally held, and whether certain persons claiming to be and acting as directors are such;" and in deciding this question he declares emphatically: "This court has no jurisdiction to determine the validity of this election, or the right of the directors elected to hold and exercise the office of directors; and therefore can grant no relief that Is merely incident to that power, such as to restrain the directors from acting as such." It has not been observed how it can be reasonably deemed that this decision is as applicable to the facts now before this court as it was to the facts which led to It As we think, the two cases are not to be differentiated by the existence of immaterial distinctions with respect to mere forms of procedure. The circumstances that in the reported case, unlike the present proceeding, the corporation was not the complainant, and some of the prayers of the bill are variant from these in the...