Freehold and New York Railway Co. v. Hodgsou.

petition, and has appealed from the order awarding execution and sale. John N. Whiting, the other appellant, to whom the mortgage was made in trust for $200,000 to secure bondholders, has also appealed from this order, to save the rights of those whom he represents.

The property of the insolvent company having been sold by the receiver under the act of 1866 (Rev. p. 192 § 84) clear of encumbrances, it is first argued that this decree, owned in part by Hodgson, has been thereby canceled, and that the only claim he can have is upon the proceeds of sale in the court, or in the hands of the receiver. But Hodgson was not made a party to the bill filed by Emson, as an individual, but only as president of the Monmouth County Agricultural Railroad Company. Lowrey assumes to act on settlement with the receiver, not only as representing the one-half of the decree which had been transferred to him by Schultze, but also for Hodgson's half, which is claimed in these proceedings. It is obvious that Hodgson could not be bound by a decree in the action, wherein he was not made a party, nor could the fact that he was made such, as the presiding officer of the insolvent corporation, affect his private and individual interest, or take away the encumbrance of his share of the Rue decree. Parties having adverse interests must be made parties in action. Wade v. Miller, 3 Vr. 296; Middleton v. N. J. West Line R. R. Co., 10 C. E. Gr. 306; Williamson v. N. J. Southern R. R. Co., 10 C. E. Gr. 13; Kirkpatrick v. Corning, 11 Stew. Eq. 234.

But Lowrey did not act without some show of authority in settling this decree, for, at the time, he was negotiating with Hodgson for the purchase and transfer of the latter's interest in it. Both were promoters of the railroad, and had shown great interest in its success. The formal offer for the purchase of the railroad was made by Lowrey to the receiver on March 15th, 1876, and on March 16th, 1876, he had written to Hodgson these words:

"I have arranged as respects all the debts known to me, except the Rue judgment, of which, as I understand, you own one-half. Please tell me, at your earliest convenience, exactly what interest you have in this judgment, and what amount you will take in discharge thereof."

Freehold and New York Railway Co. v. Hodgson.

On May 29th, 1876, he again wrote to Hodgson that he had completed the matter of the transfer to him of all the properties which were of the Monmouth County Agricultural Railroad Company, and requested to see him for a short time in connection with that matter, and asked that he would stop in the office and see him. Shortly after, and in the latter part of May, or prior to June 3d, 1876, he did call, and, as Lowrey testifies, he fully stated to him the then exact position of affairs, and showed and read to him the proposition he had made to the receiver, Dickinson, and Hodgson agreed to look over his situation with respect to the railway company, and communicate with him, what he wished to have done, with respect to his interest in the affair. Before June 3d he called again, and presented a paper written by himself, which was offered in evidence, showing his account with the company, including what he had paid on stock, his share of the Rue judgment and sundry amounts paid by him for the company, amounting in all to $15,086.50. This sum was divided in half in the statement, showing a product of $7,543.25, and opposite this was written "seventy-six shares stock." On June 2d, 1876, a letter was written by Lowrey to Hodgson, stating, among other things:

"I propose that you shall assign to me all your claims and rights of every nature upon the old company, including moneys advanced, the Rue judgment, and everything, upon my agreeing to cause to be issued to you upon the actual organization of the new company, not later than September 15th next, seventyfive shares of $100 each, of the capital stock of the new company, upon a basis of a capital of $200,000, or in that proportion, in whatever sum the capital may be fixed."

On June 15th, 1876, Hodgson replied by postal card:

"I was to see you to-day, but you were out; will arrange the contract you sent as you wish, and bring it over soon."

On July 13th, 1876, Hodgson again wrote:

"In regard to the assignment of my claim &c., I will have it arranged, and bring it over before long."

Freehold and New York Railway Co. v. Hodgson.

Meanwhile, Lowrey entered into possession of the railroad under deed from Dickinson, receiver, dated March 17th, 1876, acknowledged May 17th, 1876, and recorded May 30th, 1876, about which time the deeds appear to have been delivered, having satisfied or paid $71,000 of bonds issued on the $700,000 mortgage, and other outstanding claims amounting to over $115,000, and constructed the railroad from Freehold to Keyport. These were all preparatory to the organization of the new company. The Freehold and New York Railway Company was incorporated June 29th, 1877, and by deed dated July 3d, 1877, James P. Lowrey conveyed to this company the railroad and franchises, reciting therein, among other things, the receiver's deed to him. Mr. Hodgson was an incorporator and director named in the articles of association of the new company, which were signed by him. At the first meeting of the directors, June 29th, 1877, he was present, voted to accept the deed from Lowrey, and for the mortgage to be executed to Whitney, as trustee, to secure an issue of $100,000 of bonds of the company to pay for the road; and he was also present at a meeting of the directors September 19th, 1877, when a report was made of the conveyance by Lowrey and the execution of the mortgage to Whiting, which he voted to accept. Subsequently, in June, 1878, the board of directors of the railroad, of which Mr. Hodgson was still a member, directed, with his knowledge and concurrence, another mortgage to be made to Whiting to secure $200,000 of bonds of the company, whereof $100,000 in amount was to be reserved for exchange for the bonds of 1877; and it was resolved that this mortgage should cover, and be the first lien upon all the property of the company. Shortly before the organization of the new company, on or about June 1st, 1877, Mr. Lowrey executed and delivered to Mr. Hodgson an agreement dated May 15th, 1876, setting forth that, in consideration of the assignment to him of all the latter's claims of every nature against the Monmouth County Agricultural Company, he would cause to be issued to him seventy-five shares of the capital stock of the new company according to the terms of his proposition, above set forth. This paper was received by Mr. Hodgson,

Freehold and New York Railway Co. v. Hodgson.

and has been retained by him without objection as to its terms, and without demand for the shares, or any action by him until the petition in this case was filed on June 9th, 1882. Mr. Lowrey testifies that he has been continuously ready from the time the stock-books of the Freehold and New York Railroad Company were opened, about July, 1877, to deliver to Mr. Hodgson the seventy-five shares of stock in shape of a certificate in his own name, with blank assignment, which he produces and tenders to the petitioner.

Mr. Hodgson went to reside in the state of Tennessee in 1878, where he has since lived, and there has been no communication between the parties since that time. Lowrey now says that he had forgotten that the actual transfer of the seventy-five shares had not been made to Hodgson, and Hodgson testifies that he was easy, supposing his lien was good under the Rue decree and could not be taken from him without some further act or assignment on his part. He seems not to have known, or to have forgotten, that he has so acted as to exclude all evidence of his claim against those who have subsequently acquired rights in this railroad, and that he is estopped by his conduct from enforcing his assigned decree against them in the form sought in his petition, that is, by a sale of a part of the road under execution, which would cut off the deeds of conveyance made by the receiver to Lowrey, and from Lowrey to the Freehold and New York Railroad Company, the two mortgages to Whiting, and the bondholders secured thereby. He had knowledge and participated in the transfer of this title and its acceptance, and in the creation of these securities, which were declared to be first liens on all the property of the railroad, as already appears. He admits that he was present at the meeting of directors, but says he was silent while the board was acting in these matters. But the concealment of his claim of a prior lien by virtue of the Rue decree evidently misled Lowrey, who transferred the title to the new corporation and accepted their bonds in part payment, on the assurance that they should be first liens, and upon the agreement which had been made between them that seventy-five shares of the capital stock of the railway company would be accepted in

Keen v. James.

payment for the share of the decree held by him, and the other indebtedness of the original company. His silence will be presumed, under the circumstances, to have been maintained with the intention that others should act, and if they acted to their detriment and to his advantage, he will be concluded. He was not only silent, but aided by his votes to put them in this position. Whiting, who represents, as trustee, the bondholders secured by mortgage, so far as appears in the evidence, took the mortgage in good faith, supposing it to be the first lien on the railroad, and cannot in this way be affected by the claim of priority of the Rue decree. This decree must be postponed to the rights of the new company acquired without notice of the petitioner's intention to insist on its priority, for he assented that the title should be free from all encumbrances; and to the rights of the mortgagee and bondholders of the new company, who have taken them as first liens on the railroad property, for he consented to this priority. His remedy against Lowrey remains un affected by these proceedings, but his petition for the sale of the land of the company, under execution, must be dismissed. The order for execution and sale will be reversed, with costs.

Decree unanimously reversed.

OSCAR KEEN, complainant and respondent,

υ.

EXECUTORS OF WM. JAMES, deceased, defendants and appellants.

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