Opinion
Submitted February term, 1936.
Decided May 14th, 1936.
1. A preliminary injunction should not issue unless there be urgent necessity, nor if the facts necessary to entitle complainant to relief are controverted under oath, nor if the right is not clear as a matter of law. But where the denial lacks those essential qualities, and upon the entire showing from both sides it appears reasonably probable that the complainant had the right claimed, the injunction may issue.
2. Mere fears and apprehensions are not the basis upon which the award of a temporary injunction is sustained. The acts against which protection is sought must not only be threatened but must be such as will, in all likelihood, be committed to the injury of the complainant, and that injury must be of irreparable character.
3. Where, as in the instant case, the material facts upon which the petitioners base their right to preliminary relief were met by a full, explicit and circumstantial denial under oath, the general rule is that a preliminary injunction will not issue.
4. The right to make contracts is both a liberty and a property right and is within the protection of the guarantee against the taking of liberty or property without due process of law. Neither the state nor federal governments may impose any arbitrary or unreasonable restraint on the freedom of contracts.
5. The certificate holders appointed a protective committee to represent them long before the chancery court appointed the petitioners as substituted trustees. The right of the certificate holders to organize and contract among themselves cannot be challenged.
6. Although the deposit agreement of the certificate holders in this case was couched in strong language and gave broad powers to the protective committee, the court of chancery cannot make an agreement for the parties different from the one they made for themselves. Contractual rights cannot be disturbed where, as here, the agreement involved no question of public policy and could not, therefore, tend to the public injury.
7. Order of the chancery court restraining members of the protective committee from soliciting further deposits of certificates under the deposit agreement in question, and directing an investigation into the merits of the deposit agreement, and an investigation into the financial interest and qualifications of the members of the committee, modified. An official inquisition must have a legitimate end — otherwise the means is not justified. There is no legal basis shown for an investigation of the sort directed by the order.
In the interest of clarity as to the parties and issues involved, a prefatory statement of the factual situation is advisable. Irene A. Sneath is the holder of guaranteed first mortgage certificates, in the amount of $57,000 of the Cliffside Park Title and Guarantee Trust Company, a banking corporation of New Jersey. This corporation, for the sake of brevity, shall hereafter be referred to as "trust company."
These certificates were part of two issues, totaling $1,181,360. These issues were based on two agreements (January 18th, 1927, and July 12th, 1928), between the "trust company" and Erich C. Lehsten, Ahrend Nagel and Theodore Vogt, named as trustees therein.
On January 21st, 1935, Irene A. Sneath filed a bill in chancery for herself and in behalf of all other holders of like certificates who desired to become parties thereto and who contributed to the expense thereof, for the removal of the trustees named in the two agreements aforesaid; the appointment of substituted trustees and general equitable relief. It will serve no particular purpose to restate, even in most general fashion, the charges upon which the relief was based; they are not involved on this appeal. Suffice it, to mark the fact the relief sought was granted. The trustees were removed and Messrs. Thomas R. Armstrong and Joseph W. Marini were appointed, first, as temporary trustees (February 1st, 1935), and finally, as permanent trustees (July 1st, 1935).
At the time of the appointment of the substituted trustees, and for some time prior thereto, there was, and still is, an organized group who hold certificates of the "trust company." They organized on or about November 15th, 1934, and are called "Certificate Holders Protective Committee of Investors in Guaranteed First Mortgage Certificates of Cliffside Park Title and Guarantee Trust Company." This group, also for the sake of brevity, shall hereafter be referred to as the "Committee." The members of that "Committee" were defendants below as representatives and in lieu of all certificate holders, and are the appellants in this cause.
Notwithstanding the appointment of the substituted trustees and the failure of the bank, this "Committee" did, on April 22d 1935, in accordance with the wishes of that group, enter into a "Deposit Agreement" (Schedule A annexed to the petition) with the United National Bank of Cliffside Park. This agreement is comprehensive and gives the "Committee" very broad powers. It is sufficient for present purposes, without setting out the detailed provisions thereof, to observe that the "Committee" was given plenary power "to prepare and adopt any plan looking to a reorganization of the affairs or purchase of all assets in the hands of the trustees and likewise to prepare, receive, consider and adopt any other plan or plans which may be substituted in the interest of certificate holders * * *."
On September 16th, 1935, the substituted trustees filed a petition in this cause. The vice-chancellor made an order thereon. From this order the "Committee" appeals. The allegations of the petition, in substance, set forth the essence of the "Deposit Agreement" and charged that it did not protect the interest of certificate holders; "that the members of the committee are vested with title to the certificates deposited, and with absolute discretion in the incurring of obligations and expenses; that said Committee is unbonded, and accountable to no one; that the members of said Committee * * * are liable only for the willful misconduct and not for mistake of judgment, errors, omissions, torts or negligence of employes; that any losses sustained by the Committee or its members, other than those arising through willful misconduct, are chargeable upon depositors and a lien upon certificates so deposited."
The trustees further charged, inter alia, in the words of the learned vice-chancellor, that the "Committee," and its agents, "have willfully and intentionally and falsely represented to the certificate holders, that petitioners would receive eight per cent. of the assets of the trust estate from this court as fees, and that there would be nothing left for certificate holders if petitioners continued the administration of the estate; and that such certificate holders who failed to deposit their certificates with the committee, would not receive the same consideration as those who did deposit their certificates; and that unless a deposit was made, a certificate holder would lose the money which he had invested in his certificates; that certificate holders who had in fact not deposited their certificates had done so; that petitioners were spending certificate holders' money, and that certificate holders were being mulcted by petitioners; that unless petitioners were removed as trustees, the entire estate would be dissipated; that petitioners are in possession of funds belonging to certificate holders which could be distributed to certificate holders upon the removal of petitioners and that petitioners were not independent trustees, but were in fact, under the control and directions of other interest adverse to those of certificate holders."
Petitioners further charged "that their good faith and honesty have been impugned by the aforesaid representations; that as trustees and officers of this court, petitioners believe they are charged with the duty of protecting the said trust estate and the interest of its beneficiaries; that in discharge of their said duties, petitioners believe it is encumbent upon them to bring these facts to the attention of this honorable court, so that proper and adequate steps may be taken to conserve said estate and prevent the possibility of injury thereto; petitioners further charge that the methods employed by said Committee and the members and agents thereof, and the soliciting of said Deposit Agreement, tend to destroy the confidence of certificate holders and the public in the integrity of this honorable court, and of petitioners, and call for investigation and examination."
The petition concluded with this prayer: "Petitioners therefore pray that this honorable court investigate and examine the method employed by said Committee, its members, agents, servants and employes in soliciting certificate holders to assent to said Deposit Agreement; that the merits of said Deposit Agreement and the protection afforded thereby to certificate holders be scrutinized and investigated; that the said Committee, its members, agents, servants and employes be restrained and enjoined from soliciting for its deposits under said Deposit Agreement, until the further order of this court."
On the return of the rule to show cause, allowed on the petition of the trustees, the members of the "Committee" met all material facts, set forth in the petition and affidavits, by a full, explicit and circumstantial denial, under oath. In addition to a categorical denial of the acts of alleged wrongdoing on their part they also denied that they had employed or authorized any one to obtain signatures to their "Deposit Agreement." It appears that they sent a copy of the proposed agreement to each certificate holder and attached a letter thereto in which it was stated, among other things, "* * * it is urgently requested that you read this Agreement thoroughly and, if necessary, secure the advice of your attorney in connection therewith, to the end that if you deem it advisable, you deposit your certificates with the United National Bank of Cliffside Park * * *." Their affidavits went farther. They disclosed their activities in the premises, in detail, from the very beginning. They disclosed especially that on January 14th, 1935, the "Committee" was given power of attorney by some ninety-six certificate holders, to take any proceeding in law or in equity they deemed fit and advisable in connection with their certificates; that these certificates totaled in amount $318,000; that although the members of the "Committee" held certificates totaling $11,000 only, nevertheless, by September 13th, 1935, they had procured and had on deposit with the United National Bank, their depository, certificates totaling $603,480; that the members of the "Committee" worked hard, without compensation, and financed all expenditures incident to their undertaking in the premises; that they were making every effort to conserve the property for the benefit — as they saw it — of their certificate holders, who, as stated, were materially and substantially so concerned.
At this posture of the proofs the vice-chancellor made the following order (recitals omitted):
"It is, on this 26th day of September, 1935, ordered that this matter be referred to William F. Burke, one of the Masters of this Court, to ascertain and report upon the matters contained in said petition; to investigate and examine the methods employed by said Committee, its members, agents, servants and employes, in soliciting the deposit of certificates under said Deposit Agreement; to examine and investigate the merits of said Deposit Agreement, and the protection afforded thereby to the holders of certificates, and the financial interest and qualifications of the members of said Committee, and that said Master report thereon with all convenient speed.
"It is further ordered that William B. Robinson, William Volz, Theodore Riel, Valentine Reinzer, Katherine O. Berls, Edward J. Flynn, Margaret P. Flynn, and Lola Kingsley, members of said Certificate Holders' Protective Committee as aforesaid, their agents, servants and employes, be and they are hereby, each and every one of them, restrained and enjoined from soliciting further deposits under said Deposit Agreement, until the further order of this Court."
The "Committee" attacks the order on the following major grounds:
1. There was no evidence before the court to warrant it in making the said order.
2. The order of the court of chancery violated the constitutional rights of appellants. (Liberty of contract.)
On appeal from the court of chancery.
Mr. George J. Kauper ( Mr. Samuel Spingarn, of counsel) for the appellants.
Messrs. Platoff Platoff, for the respondent.
We think that the order requires modification.
First — It is the well established rule that a preliminary injunction should not issue unless there be urgent necessity; nor if the facts necessary to entitle complainant to relief are controverted under oath; nor if the right is not clear as a matter of law. Citizens Coach Co. v. Camden Horse Railroad Co. ( Court of Errors and Appeals. 1878), 29 N.J. Eq. 299; Kellett v. Local No. 274, c., Canada ( Court of Errors and Appeals, 1933); 114 N.J. Eq. 107, 109; A. Hollander Son, Inc., v. Jos. Hollander, Inc. ( Court of Errors and Appeals, 1935), 118 N.J. Eq. 262, 264. But where the denial lacks those essential qualities, and upon the entire showing from both sides it appears reasonably probable that the complainant had the right claimed, the injunction may issue. Ideal Laundry Co. v. Gugliemone ( Court of Errors and Appeals, 1930), 107 N.J. Eq. 108. Mere fears and apprehensions are not the basis upon which the award of a temporary injunction is sustained. The acts against which protection is sought must not only be threatened but such as will, in all likelihood, be committed to the injury of the complainant, and that injury must be of irreparable character. Rissler v. Plumbers Local No. 326, c., ( Court of Errors and Appeals), 109 N.J. Eq. 91.
It may well be that petitioners became fearful and apprehensive of the results accomplished by the "Committee" in obtaining the signatures of the number of certificate holders, and the amount represented by that number, to the "Deposit Agreement." But how, if at all, the action of the "Committee" in obtaining the signatures of certificate holders to their "Deposit Agreement," or how the results accomplished by the "Committee" threatened injury or damage of an irreparable character to petitioners, or the res which they were allegedly seeking to protect, in their official capacity, is not disclosed by the record before us.
We are, therefore, of the opinion that where, as here, the material facts upon which petitioners base their right to preliminary relief were met by a full, explicit and circumstantial denial under oath, the general rules is that a preliminary injunction will not issue. That rule was applicable, and should have been followed, in the case at bar. Citizens Coach Co. v. Camden Horse Railroad Co., supra; Meyer v. Somerville Water Co., 79 N.J. Eq. 613; Schlemm v. Whittle, 86 N.J. Eq. 415; Brunetto v. Town of Montclair, 87 N.J. Eq. 338; Rissler v. Plumbers Local No. 326, supra. Second — Does the order trench upon the federal and state constitutional guarantees against the taking of liberty or property without due process of law? We think it does.
It is an unchallenged fact that the certificate holders appointed the "Committee" to represent them long before the substituted trustees were appointed. Nor is the right of the certificate holders to organize and contract between themselves now challenged. Indeed, it could not be done successfully. The practice is a common one. It is practical, businesslike and has been followed frequently without objection in cases of substantially like character. Compare Unger v. Newlin Haines Co. ( Court of Errors and Appeals), 94 N.J. Eq. 458; Kipp v. Fidelity Title, c., Co., 116 N.J. Eq. 409; affirmed, 117 N.J. Eq. 588. It is the terms of the "Deposit Agreement," the methods employed in obtaining signatures of certificate holders thereto, the financial responsibility of the members of the "Committee," which are challenged.
It is well settled that "the right to make contracts is both a liberty and a property right and is within the protection of the guarantee against the taking of liberty or property without due process of law. Neither the state nor federal governments, therefore, may impose any arbitrary or unreasonable restraint on the freedom of contracts." 12 C.J. 1200. See, also, 6 R.C.L. 269.
In the case of Chicago, Burlington and Quincy Railroad Co. v. McGuire, 219 U.S. 549; 55 L.Ed. 328, Mr. Justice Hughes, fully and carefully discussed the subject, and on pages 338, 339, of 55 L.Ed. says:
"* * * the right to make contracts is embraced in the conception of liberty as guaranteed by the constitution. Allgeyer v. Louisiana, 165 U.S. 578; 41 L.Ed. 832; 17 Sup. Ct. Rep. 427; Lochner v. New York, 198 U.S. 45; 49 L.Ed. 937; 25 Sup. Ct. Rep. 539; 3 A. E. Ann. Cas. 1133; Adair v. United States, 208 U.S. 161; 52 L.Ed. 436; 28 Sup. Ct. Rep. 277; 13 A. E. Ann. Cas. 764. * * *."
And again:
"* * * There is no absolute freedom to do as one wills or to contract as one chooses. The guarantee of liberty does not withdraw from legislative supervision that wide department of activity which consists of the making of contracts, or deny to government the power to provide restrictive safeguards. Liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community. Crowley v. Christensen, 137 U.S. 89; 34 L.Ed. 621; 11 Sup. Ct. Rep. 13; Jacobson v. Massachusetts, 197 U.S. 11; 49 L.Ed. 643; 25 Sup. Ct. Rep. 358; 3 A. E. Ann. Cas. 765. * * *."
And further:
"The right to make contracts is subject to the exercise of the powers granted to congress for the suitable conduct of matters of national concern; as, for example, the regulation of commerce with foreign nation and among the several states. Addyston Pipe and Steel Co. v. United States, 175 U.S. 228, 231; 44 L.Ed. 142, 144; 20 Sup. Ct. Rep. 96; Patterson v. The Eudora, 190 U.S. 174, 176; 47 L.Ed. 1006, 1007; 23 Sup. Ct. Rep. 821; Atlantic Coast Line Railroad Co. v. Riverside Mills, 219 U.S. 186, ante, 167; 31 Sup. Ct. Rep. 164; Louisville N. Railroad Co. v. Mottley (decided this day), 219 U.S. 467, ante, 297; 31 Sup. Ct. Rep. 265."
"It is subject, also, in the field of state action, to the essential authority of government to maintain peace and security, and to enact laws for the promotion of the health, safety, morals, and welfare of those subject to its jurisdiction. * * *."
The "Deposit Agreement" was a private one between the certificate holders. It may well be said of this agreement, as was said of the agreement in the case of Unger v. Newlin Haines Co., supra, that it "could not be couched in stronger language or broader power to effectuate its purpose." But, as was held in the Unger Case, the court of chancery cannot make an agreement for the parties different from the one they made for themselves; and "contractual rights cannot be disturbed."
Moreover, the issues before the court below were not whether any particular plan of reorganization of the trust company should or should not be approved, or whether the members of the "Committee" were rich or poor. The issues were free from questions of public interest; public order and common good. In short, they involved no question of public policy, and, therefore, could not, obviously, tend to public injury. Cameron v. International, c., Union No. 384 ( Court of Errors and Appeals, 1935), 118 N.J. Eq. 11. It was a valid and legal private contract, and chancery was, and is, without power either to usurp or deny a jurisdiction which would affect the rights and obligations of the respective parties thereunder. Grobholz v. Merdel Mortgage Investment Co. ( Court of Errors and Appeals), 115 N.J. Eq. 411. Third — As to the financial investigation of the members of the "Committee." To that which has already been written may be added that which the supreme court of the United States said in the recent case of Jones v. Securities and Exchange Commission (No. 640, October term, 1935), 56 Sup. Ct. Rep. 654, wherein it especially held:
"* * * An official inquisition to compel disclosures of fact is not an end, but a means to an end; and it is a mere trueism to say that the end must be a legitimate one to justify the means. The citizen, when interrogated about his private affairs, has a right before answering to know why the inquiry is made; and if the purpose disclosed is not a legitimate one, he may not be compelled to answer. * * * Dissociated from the only ground upon which the inquiry had been based, and no other ground being specified, further pursuit of the inquiry, obviously, would become what Mr. Justice Holmes characterized as `a fishing expedition * * * for the chance that something discreditable might turn up.' ( Ellis v. Interstate Commerce Commission, 237 U.S. 434, 445) — an undertaking which uniformly has met with judicial condemnation. In re Pacific Railway Commission, 32 Fed. Rep. 241, 250; Kilbourn v. Thompson, 103 U.S. 168, 190, 192, 193, 195, 196; Boyd v. United States, 116 U.S. 616; Harriman v. Interstate Commerce Commission, 211 U.S. 407, 419; Federal Trade Commission v. American Tobacco Co., 264 U.S. 298, 305, 307."
There was no legal basis for an investigation into the financial interests and qualifications of the members of the "Committee."
To the extent, therefore, that the order restrains the "Committee" from soliciting further deposits under the "Deposit Agreement," and directs an investigation into the merits of the "Deposit Agreement," and directs an investigation into the financial interest and qualifications of the members of the "Committee," it is modified.
We have considered all other points argued and consider them to be without merit.
The cause will be remitted, the challenged order will be modified in conformity with this opinion; and as so modified is affirmed, without costs to either party.
For affirmance — HETFIELD, RAFFERTY, JJ. 2.
For modification — THE CHIEF-JUSTICE, LLOYD, CASE, BODINE, DONGES, HEHER, PERSKIE, DEAR, WELLS, WOLFSKEIL, JJ. 10.