[1] The covenants, in so far as they concern the location of buildings as a part of the community scheme, created an implied eq other lot owners, binding upon her grantees, direct and remote, who took with notice and enforceable upon the principle of preventing one having knowledge of the just rights of another from defeating such rights. Brewer v. Marshall, 19 N. J. Eq. 537, 97 Am. Dec. 679. As part of a general improvement scheme, such agreements have been repeatedly enforced in this court at the instance of other lot owners. De Gray v. Monmouth Beach Club House Co., 50 N. J. Eq. 329, 24 Atl. 388, and the line of authorities citing this case in Shepard's Annotations. The agreement is not a whit less enforceable because the restriction was not incorporated in the deed. The practical utility of embodying it in the conveyance naturally commends itself, but it is not essential if notice is otherwise brought home to the parties sought to be bound. Kirkpatrick v. Peshine, 24 N. J. Eq. 206; Wootton & Dynes v. Seltzer, 83 N. J. Eq. 163, 90 Atl. 701; Id., 84 N. J. Eq. 207, 93 Atl. 1087. Nor, as was suggested, rather than argued, was the "bond of agreement" necessarily merged in the deed. 13 Cyc., 617. But that point need not be decided, because the restriction was reiterated in the agreement made contemporaneously with the deed. ings, chiefly residential, and all except 5 or name for Hannah, her husband acting as 6 are erected in conformity with the regula-agent in the transaction, and that she took tion. In two or three instances the invasions the title subject to the burdens entailed by were accidental. Compliance with the tree- the agreements. planting and other requirements has added much to the tone of the town. Landis avenue is the main thoroughfare, part of which is devoted to business. The defendant, New-uitable servitude on her lots in favor of the comb, owns the piece of land at the southwest corner of Landis avenue and Seventh street, on which is and for years has been erected a store building, set back from the streets the required distance. The complainant, Winslow, owns the lot facing on Seventh street, immediately adjoining the defendant's in the rear, on which his home is built, and which, like all others on that street, sets back 20 feet. Adjoining his store building and between it and Seventh street the defendant, at a cost of $1,500, has erected a one-story glass inclosed building 12 feet wide by 38 feet in depth, with a second story extension in the rear, of the same width and 16 feet in length, inclosed and windowed, reaching almost the height of the adjacent building. This structure shelters an outside stairway leading to the second floor of the store building, the upper portion of which is used as a landing for the stairway and the lower portion usable for a fruit stand or like occupation. Eliminating the second story extension, it is somewhat similar to a stand erected on the opposite corner and one at the corner of Sixth and Landis; the difference being that this one has a concrete foundation and is more substantial and of a permanent character. On the rear portion of his lot, 11 feet from the complainant's dwelling and within 15 feet of the [2] The question to be determined then is: street line, the defendant put up an unsight- Did the defendant purchase with notice acly one-story inclosed shed 12 feet wide by tual or of such circumstances which upon 26 feet in length, completely shutting off the reasonable inquiry would have informed him complainant's view to the northward. The of the situation? He denied having any restricted area includes the 20 feet from the knowledge or information whatever of the side of Seventh street, as well as that given agreements, and, admitting that he made space on Landis avenue. Chelsea Land & no inquiry, explained that he assumed that Improvement Co. v. Adams, 71 N. J. Eq. 771, section 17 of the act establishing the town66 Atl. 180, 14 Ann. Cas. 758; Henderson v. ship of Landis (P. L. 1864, p. 180), which Champion, 83 N. J. Eq. 554, 91 Atl. 332. provides, among other things, that it shall Both structures are undoubtedly infractions be within the power of the township commitof the common scheme and of the covenant tee to make it unlawful "to build any house, entered into by the defendant's predecessor barn, or other outhouse, nearer than twenty in title, the original grantee of Landis. Sam-feet of the side of any street or avenue in the uel Gifford purchased lots 11 and 12 of block town plot of Vineland as recorded in the 26 of the easterly district of the town plot of Vineland (defendant's lots) November 3, 1863, for $200, payable in installments, and execut ed a "bond of agreement" on that day. On May 21, 1864. Landis conveyed the lots to Hannah M. Gifford, who on that day executed the agreement demanded by him of all purchasers, as already related. It is observed that neither Samuel nor Hannah M. Gifford personally executed the agreements. They were signed "per C. Chester Gifford," the husband of Hannah. What relation Samuel bore to either does not appear, but clerk's office at Bridgeton," was responsible for the rigid adherence to the 20-foot line by the inhabitants of the borough. His positive denial is not at all satisfactory, nor does his explanation appeal to me as sincere. Nearly 50 years ago, when the town was in its infancy, the defendant moved to Vineland, studied law in the office of Mr. Landis' counsel, was admitted to the bar in 1870, and has practiced his profession there ever since. During that time Mr. Landis, in developing his enterprise, gave great prominence and [4, 5] Quite a number of dwellings have overhanging open porches and some have bay windows extending into the prohibited area, which it is contended are in violation of the building regulation and relieve the defendant from an observance of the restriction. The few bay windows do not evince an abandonment (Righter v. Winters, 68 N. J. Eq. 252, 59 Atl. 770; Morrow v. Hasselman, 69 N. J. Eq. 612, 61 Atl. 369), and as, in the porches were doubtlessly contemplated, and inasmuch as the restriction has been thus almost universally interpreted and acted upon, they cannot be regarded as infringements. Ocean City Land Co. v. Weber, 83 N. J. Eq. 476, 91 Atl. 600; Id., 84 N. J. Eq. 505, 94 Atl. 1102. form and local newspapers. It is remarka-1 N. J. Eq. 389, 87 Atl. 158. The shed was ble, if true, that of the 16 and more exhib- commenced the day before the bill was filed, its distributed far and wide by the thou- and its completion hastened. The complainsands, shown to the defendant at the hear- ant acted with promptness, and as to it he ing, he never, as he said, saw any. It is al- is entitled to relief. so inconceivable that he did not gain a knowledge of the agreements while in the office of his preceptor, or that they did not come to his notice at some and oft times while he was engaged in active practice and in intimate and close association with the lot holders of this small and slow-growing community. The defendant is now advanced in years, and it is possible that he has forgotten, but this impairment of memory, if that is the case, did not relieve him from making | formulation of the building scheme, open inquiry, and inquiry of almost any of his fellow citizens, especially of the older and prominent men of the town, who in their earlier days aided Landis in his promotion, would have readily led to the source of knowledge. The uniformity of the house lines was sufficiently attractive to stimulate a failing memory and to put the defendant on his guard, and he must be held charged with notice of that which reasonable inquiry would have furnished. An examination of the official records of title in the clerk's office was not a conclusive investigation under the circumstances. Nor can it be contended with any degree of plausibility that the defendant was misled into a conviction of security and confidence, and was thus ab solved from further inquiry, by the legislative act above referred to. That statute simply gave the township out of which the borough of Vineland was later formed power to regulate, which power was never exercised by the borough; and this to the knowledge of the defendant. The burden of proof that he was a bona fide purchaser for value without notice, and that the mesne holders of the title occupied a like position, is upon the defendant, and this burden he has not sustained. Murray v. Ballou, 1 Johns. Ch. (N. Y.) 566; Jones v. Thomas, 3 P. Wms., 244, 24 Eng. Reprint, 1016; Atlantic City v. New Auditorium Pier Co., 67 N. J. Eq. 610, 59 Atl. 158. [3] While I hold that the terms of the agreements were obligatory upon the defendant, it does not follow that they are to be enforced against him. The work on the concrete foundation of the fruit stand building was begun in September, 1915, and the superstructure in the early part of November, and completed on the 8th day of January following. The bill in this case was filed January 12, 1916. During that time the complainant daily observed the progress of the building without interference, and it is now too late to hear his complaint. The rule applied in equity is that to protect restrictive building covenants legal proceedings must be taken before there has been a serious expenditure of money. Smith v. Spencer, 81 The complainant is entitled to a mandatory injunction in accordance with these views, with costs. (87 N. J. Eq. 550) FIDELITY TRUST CO. v. FEDERAL TRUST CO. et al. (No. 41/114.) (Court of Chancery of New Jersey. March 26, 1917.) FOLLOW 1. TRUSTS ~358(1) - RIGHT TO Where moneys loaned by one corporation to an individual and by him loaned to another corporation were by the second corporation commingled with other moneys and their identity completely lost, and are not represented by investments in property, the first corporation could not proceed against the second corporation on the theory that it had received the benefit of a trust fund, since, unless such trust fund can be identified, there can be no relief on such theory. [Ed. Note.-For other cases, see Trusts, Cent. Dig. §§ 523, 553.] 2. TRUSTS 354 RECEIVERS RIGHT TO FOLLOW TRUST PROPERTY. In such case the trust res, if any exists, being the claim of the individual against the second corporation or his interest in that corporation purchased with such moneys, the receiver of the first corporation takes such claim in the position he finds it subject to the fact that it has been satisfied in whole or in part and estoppel existing in favor of particular rights. [Ed. Note.-For other case, see Trusts, Cent. Dig. 88 527, 528.] 3. MONEY RECEIVED 9-RIGHT OF ACTION. and received is predicated upon the broad rule Although the right to sue for money had that, where the defendant had received money from a third person, although under claim of title to it in opposition to plaintiff's right, if he had by law authority to receive it from such third person, and in equity the plaintiff ought to have it, a count for money had and received can be sustained, the first corporation could not proceed against the second corporation for money had and received. [Ed. Note. For other cases, see Money Received, Cent. Dig. § 31.] 4. CORPORATIONS 428(11)-LOANS TO OFFI- | for receiver of J. H. Halsey & Smith. Pitney, CERS AND STOCKHOLDERS-NOTICE. Hardin & Skinner, John R. Hardin and The second corporation was not charged Frank H. Sommer, all of Newark, for Federwith knowledge that the moneys it received from the individual or from the first corporation al Trust Co. and Mechanics & Metals Nat. on account of the individual did not properly Bank. Wolber & Blake, of Newark, for come into his possession, for the reason that American Nat. Bank. the first corporation had no authority to make loans, and the statute forbids the advance of money by a corporation to its officers and directors, although the individual was a stockholder or officer in both corporations, but the two corporations must be treated as separate and distinct. [Ed. Note.-For other cases, see Corporations, Cent. Dig. § 1760.] 5. CORPORATIONS 76, 472-SALE OF STOCK AND BONDS-OFFER AND ACCEPTANCE. The actions of the individual as president of the second corporation at meetings of its board of directors and its stockholders in calling attention to outstanding bonds of the corporation and to the indebtedness in question and suggesting the issue of more bonds and an increase of the capital stock amounted to an offer by him to receive such increases in liquidation of his account and the actions of the directors and stockholders in taking such action amounted to an acceptance of his offer. [Ed. Note.-For other cases, see Corporations, Cent. Dig. §§ 197-209, 213-218, 1837, 1839, 1841.] LANE, V. C. [1] First. Does the relation ship of creditor and debtor exist as between J. H. Halsey & Smith and the Newark Advertiser Company? I have not changed my mind that the original intent was that J. H. Halsey & Smith should advance the moneys that it did to James Smith, Jr., and that James Smith, Jr., should advance them to the Newark Advertiser Company, and that no express contract relation existed between the two corporations. It is now said that the relation of creditor and debtor exists by reason of the fact that J. H. Halsey & Smith was without authority to make the loans to James Smith, Jr.; that the loans were made for the benefit of the Newark Advertiser Company, and the Newark Advertiser Company, having received the benefit of the trust fund, became a debtor of J. H. Halsey & 94-ISSUE OF STOCK-Smith. The legal theories upon which these NECESSITY OF CERTIFICATE ISSUE. 6. CORPORATIONS To effectuate an issue of stock, it is not necessary that a certificate issue. [Ed. Note.-For other case, see Corporations, Cent. Dig. § 435.] 7. CORPORATIONS 77, 472-ISSUE OF STOCK AND BONDS. As the bond issue and stock increase were issued against the indebtedness, the proceeds thereof other than the amount used to take up the prior issue of bonds should be credited against the claim of the assignee of the individual existing on the date of the approval of the bond and stock issue by the stockholders; any indebtedness created after that date not being affected in any manner. [Ed. Note.-For other cases. see Corporations, Cent. Dig. 88 210-212, 219-243, 455, 1837, 1839, 1841.] 8. CORPORATIONS 477(8)-MORTGAGES-IMPROPER RECORD-EFFECT. Where bonds issued against the indebtedness of a corporation to its only creditor, who was also its sole stockholder and president at the time they were issued, indicate on their face that they were intended to be secured by a mortgage which would be effective as against general creditors, and both parties dealt with the securities upon this assumption, the assignee of such creditor is estopped to assert the invalidity of the mortgage because of its improper record, since a mortgage is valid as between mortgagor and mortgagee, and neither the creditor nor his assignee can take a position inconsistent with that previously assumed by the creditor to the prejudice of his pledgees. [Ed. Note. For other cases, see Corporations, Cent. Dig. § 1869.] Suit by the Fidelity Trust Company, receiver, against the Federal Trust Company and others. Decree ordered in accordance with the opinion. Francis Lafferty, of Newark, for complainant. Louis Hood, of Newark, for assignee James Smith, Jr. Hugh B. Reed, of Newark, contentions are predicated are the right to said: Un "It is now a well-settled doctrine that the cestui que trust who can trace the trust funds into a particular property may assert a right to that property and its proceeds, if sold. if the proceeds remain traceable and are found in the hands of those who can assert no better right thereto." See, also, First National Bank of Freehold v. Thompson, 61 N. J. Eq. 188, 48 Atl. 333; Bohle v. Hasselbroch, 64 N. J. Eq. 334, 51 Atl. 508, 61 L. R. A. 323; James v. Aller, 66 N. J. Eq. 69, 57 Atl. 1091. [2] Under the circumstances, therefore, the trust res, if any exist, is the claim of James Smith, Jr., against the Newark Advertiser Company, or his interest in that company as holder of the increased stock hereafter noticed. If this is the sole trust res then the receiver of J. H. Halsey & Smith is bound to take the claim in the position that he finds it. If it had been satisfied in whole or in part, or if there is an estoppel existing in favor of particular rights, the receiver takes the claim subject to these. [3] The right to sue for money had and received is predicated upon the broad rule expressed by the Supreme Court in Spengeman v. Palestine Building Association of Hudson County, 60 N. J. Law, 357, 37 Atl. 723: "Where the defendant has received money from a third person, even though he received it under a claim of title to it in opposition to the plaintiff's right, yet if he had by law authority to receive it from such third person, and in equity the plaintiff ought to have it, this count for money had and received can be sustained." But the circumstances of that case and this are entirely different. There the defendant, a real estate agent and officer of the plaintiff corporation, agreed with the corporation that if it would purchase Tompkins' land he would allow his commission to the association and thus reduce the price. Relying on this agreement, the association bought the land at the price of $8,750, paid that sum to Tompkins, who thereupon paid part of it to the defendant. The statement of facts, I think, indicates the inapplicability of the case to the conditions existing in the one at bar. [4] It is unquestioned that J. H. Halsey & Smith had no authority to make the loans it did to James Smith, Jr. Earle v. Amer ican Sugar Refining Co., 74 N. J. Eq. 751, at page 762, 71 Atl. 391. It might, however, have legitimately paid these sums of money to James Smith, Jr., for James Smith, Jr., might have loaned money to J. H. Halsey & Smith, and the moneys advanced by J. H. Halsey & Smith might have been repayments. As matter of fact when the moneys were first advanced there was a credit balance on the books of J. H. Halsey & Smith in favor of James Smith, Jr. The Newark Advertiser Company is not charged with knowledge that the moneys it received from James Smith, Jr., or from J. H. Halsey & Smith on account of James Smith, Jr., did not properly come into his possession. First Nat. Bank v. Christopher, 40 N. J. Law, 435, 29 Am. Rep. 262. My view is that in this complicated situation the two corporations dealing must be treated as separate and distinct, and as if there were really three parties dealing, entirely unconnected, to wit, J. H. Halsey & Smith, James Smith, Jr., and the Newark Advertiser. Company. By this manner of treatment only do I think a result can be arrived at which will be equitable to the creditors of the two insolvent corporations. The Newark Advertiser Company had power to borrow money from James Smith, Jr., and James Smith, Jr., might, of course, advance It is and was enabled thereby to continue business and incur liabilities. Its creditors must be assumed to have believed the moneys so advanced were being advanced by James Smith, Jr., the sole substantial stockholder of the Newark Advertiser Company. conceivable that if they had understood moneys were being advanced by outsiders they would have acted in an entirely different way. Balancing the equities of the creditors of J. H. Halsey & Smith and the Newark Advertiser Company, I think that the strict rule of law should be applied. That the statute forbids the advance of money by a corporation to its officers and directors I do not think alters the situation; for the only effect would be to permit J. H. Halsey & Smith to proceed against the Newark Advertiser Company either upon the trust theory, or for money had and received, which I hold cannot be done. I do not think that the statute in any way enlarges the rights of J. H. Halsey & Smith as against the Newark Advertiser Company. I conclude, therefore, that any claim that the receiver of J. H. Halsey & Smith may have against the assets of the Newark Advertiser Company must be based upon subrogation to the claim of the assignee of James, Smith, Jr., and is subject to the condition of that claim as it now exists. Whether there is such subrogation I have not determined, as it has not been urged. Second. Must there be credited against any claim of the assignee of James Smith, Jr., (1) the proceeds of a bond issue of $500,000 other than that used to take up a prior issue of bonds, (2) the amount of the increase of capital stock, $100,000 authorized at a meeting of the stockholders June 22, 1912, at the same time the bonds were directed to be issued, or (3) the increase of the capital stock $800,000 authorized at a meeting of the board of directors December 28, 1914? The bonds The bonds were actually delivered to James Smith, Jr., and the $100,000 of the prior bond issue surrendered. were then used by James Smith, Jr., as will hereafter appear. It is conceded that to the extent of the difference between the amount due upon the $100,000, of bonds surrendered and the $500,000 there must be a credit on the James Smith, Jr., claim. At a meeting of the directors of the corporation June 19, 1912, at which James Smith, Jr., was present, he, as president, called attention to the fact of the indebtedness of the company on the outstanding issue of $100,000 of bonds, and for moneys loaned to it and on open account, and it was then determined "for the purpose of refunding the said bonds and of enabling the company to reduce its other indebtedness and secure additional working capital" the company should make a new bond all of its franchises and property, and also were duly taken. The certificates were increase its capital stock to $500,000. The changed so as to indicate that the capital resolution further provided in respect to the stock was $1,300,000. The action of James capital stock that as soon as it had been in- Smith, Jr., on December 31, 1914, clearly increased the officers were authorized to issue dicates to my mind that he considered that and sell any or all of it, and also to use it or the amount of the increase from $100,000 to any part of it in satisfaction or liquidation $500,000 had been issued, and that the inof any part of the indebtedness of the com- debtedness had been reduced by that amount, pany, at not less than the par value. At a and that he, or some one for him, was the stockholders' meeting-and it must be kept owner of the stock. No certificates representin mind that James Smith, Jr., was really ing the increase from $500,000 to $1,300,000 the sole stockholder-the recommendations were ever in fact issued. It is clear that the of the directors were adopted; steps neces- intent was to use the increase for the resary to effect the bond issue and to increase duction of the debt due to James Smith, Jr. the stock were then taken; certificates of standing upon the books as J. H. Halsey & stock were actually printed; no certificates Smith. The items and the interest had been were actually issued. The substantial in- carefully calculated for the purpose of liqdebtedness of the corporation consisted only uidating the account. The return made to of moneys due to James Smith, Jr., in the the state March 4, 1916, for the purpose of account carried in the name of J. H. Halsey taxation states the outstanding capital stock & Smith. The corporation and its officers as $1,300,000. The treasurer testifies that the recognized the stock as issued; the treas-only reason for not issuing the certificates urer so testified. In March, 1914, he made representing either increase was that James a return for purposes of taxation to the state, reporting the capital stock outstanding as $500,000. This also was the understanding of James Smith, Jr. It appears that he, as president, together with the treasurer, made an income tax return to the federal government stating the stock outstanding at $500,000. At a meeting December 28, 1914, the board of directors declared it advisable to further increase the capital stock from $500,000 to $1,300,000. At this meeting James Smith, Jr., was present. The resolution of increase provided that as soon as it had been increased the president and treasurer of the company should be authorized to issue and sell such additional stock or any part thereof, and “also to use such additional stock or any part thereof, in satisfaction or liquidation of any part of the present indebtedness of the company at not less than the par value of such additional stock so used, provided the stockholders should unanimously approve and ratify such sale or use of such additional stock by their approval or ratification of the resolution." At a meeting of the stockholders December 31, 1914, James Smith, Jr., was present. He called attention to the fact that the company was largely indebted for money loaned to it and on open account, and that it was desirable to take care of said loans and open account, and also stated that $800,000 of said loans and open account could be canceled and discharged by the issuance of new stock of the company for like amount therefor. The minutes state that after a full discussion of the matter it was deemed advisable by all the stockholders for the purpose of procuring the cancellation and discharge of $800,000 of the company's debts for moneys loaned to it and upon open accounts that the capital stock should be increased from $500,000 to $1,300,000. The resolution of the directors was ratified and approved. Smith, Jr., asked him to delay it until he should receive definite advice as to how it should be issued; that he received this instruction at the meetings at which the increases were authorized. He testified that: "It was said, and I think once by James Smith, Jr., it was uncertain how to issue it; he couldn't make up his mind how to issue it." He further testified that it was the purpose to convert the debt which appeared upon the books in the name of J. H. Halsey & Smith into stock. I think that when James Smith, Jr., stated that he was uncertain how to issue the stock he did not mean, as contended for by the Fidelity Trust Company, as assignee of James Smith, Jr., that it was uncertain how much should be issued for cash and how much for indebtedness, but that it was uncertain as to whom to issue it, whether to J. H. Halsey & Smith, T. P. Howell & Co., or James Smith, Jr., or some other nom inee of James Smith, Jr. [5, 6] I think the circumstances and the evidence clearly demonstrate that it was not only the intent to issue these increases in Smith account, but that it was conceded by partial liquidation of the J. H. Halsey & all to be a completed transaction, the me chanical details alone being lacking. I think that the actions of James Smith, Jr., at the two meetings amounted to offers and the actions of the corporation to acceptance. That there was no credit given upon the books of the Newark Advertiser Company is of little significance, because there was no credit given for the difference represented by the increase in the bond issue. The explanation of failure to make entries upon the books is similar to the explanation of failure to actually issue the certificates. There was doubt as to how the account was to be carried, but, however carried, the increases were to be in liquidation of the J. H. Halsey & Smith or James Smith, Jr., account. James Smith, |