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    Patrick O’Brien v. The Paterson Brewing and Malting Company.
    [Submitted February -, 1905.
    Decided May 10th, 1905.]
    1. In a suit to restrain the enforcement of a note and mortgage given to defendant brewing company as a part of a transfer of a saloon business to complainant, evidence held to establish a parol agreement at the time such securities were executed that defendant company would not enforce them so long as complainant purchased his beer of it.
    2. Where defendant’s agent, as a part of a sale of a saloon to complainant, agreed that complainant would not be called on to pay a note and mortgage given for prior indebtedness of the former occupant of the saloon to defendant so long as complainant bought his beer of defendant, and the latter accepted the benefits of such contract, it was not thereafter entitled to deny its agent’s authority to make such collateral agreement.
    3. Where, as a part of an agreement for the transfer of a saloon business to complainant, he executed a note and chattel mortgage on the fixtures to defendant brewing company for an amount larger than the value of such fixtures, which amount represented an indebtedness of the prior occupant of the saloon to defendant for beer, &c., parol evidence, in a suit to restrain defendant from collecting such note and enforcing the mortgage, that defendant’s agent orally contracted that the note and mortgage should not be enforced against complainant, but was required merely as a convenience of bookkeeping on defendant’s part, and was intended merely to compel complainant to purchase beer from defendant, was not objecti&nable as tending to vary the terms of the contract.
    4. Complainant purchased a saloon located in a building the lease to which was subject to termination on short notice, having no valuable good will, agreeing to pay in cash the value of the stock on hand, and to give a mortgage to defendant brewing company for the amount of an indebtedness owing by the seller of the saloon to defendant for beer, advances, &e., the amount of which was largely in excess of the value of the fixtures, under an agreement that the securities should not be enforced so long as complainant purchased beer from defendant.—Held, that complainant, on ceasing to purchase defendant’s beer, was entitled to restrain the enforcement of the note and mortgage on tendering to defendant the reasonable value of the fixtures.
    On final hearing on bill, answer and proofs.

      Mr. J. Herbert Potts, for the complainant.

      Mr. J. Merritt Lane, for the defendant.
   Pitney, Y. C.

The complainant, Patrick O’Brien, by his bill, asks the court to restrain the defendant, the Paterson Brewing and Malting Company, from enforcing, in an action at law, a promissory note, dated July 9th, 1903, made by the complainant to the order of the defendant, for $2,902.65, payable on demand.

The ground of the complainant’s relief in equity is that the note was given under circumstances and upon assurances given by the defendant which render it inequitable for it to enforce it.

The circumstances are these: Por several years prior to 1892—the precise time is unimportant-—one Moran had been proprietor of a liquor and beer saloon at 101 Hudson street, Jersey Cit3r, of which he was a mere tenant from year to year. The establishment was not successful.

The fixtures had been put in by a firm of liquor dealers upon the usual terms that they expected the tenant (Moran) to buy his supply of liquors from them, and, presumably, they held a chattel mortgage for the cost. About the time mentioned (1892), one Christy Kau, who had been a bartender for Moran, undertook to start up the business.

The Paterson Brewing Company, the defendant herein, with the view of promoting the sale of its beer, bought out the interest of the liquor company in the fixtures, for about $2,400, and placed Kau in possession, with the usual understanding that he was to buy his beer of it.

He continued in the place until 1902, selling defendant’s beer, but running behind in his accounts continually, till he was largely in debt.

At that time (1902) the place stood in debt to the defendant $2,902.65, consisting partly of the cost of the fixtures and partly for the arrearages due for be.er furnished Kau.

The fixtures, by reason of wear and tear, were really worth not over $500, and the good will of the place was of no value, for it had never been prosperous.

Eau had no pecuniary responsibility.

Whether he had ever executed a chattel mortgage and a-promissory note to the amount of the indebtedness does not fully appear.

One difficulty in managing the place with success was that the owner was unwilling to give a long lease upon it, but- reserved the right to sell and convey at any time and terminate the tenancy on short notice.

In this condition of affairs, on the 29th day of April, 1902, a Mr. Oscar Sommers, a man without any pecuniary responsibility, either then or later, was induced to buy Mr. Ivau’s interest in the saloon. The nominal price paid was $2,902.65, for which a new chattel mortgage and promissory note was made by Sommers to the defendant.

I stop here to say, by way of explanation,'that this practice of proprietors of breweries owning the fixtures of beer saloons— holding a chattel mortgage thereon—when they do not hold the title to the same and sometimes having a long lease therewith, is very common, the object being to enable the brewer to compel the saloonkeeper to purchase his beer from the brewer, and so long as he does-that, and keeps up a good trade by selling a good deal of beer and paying for it, it is well understood among saloonkeepers that the mortgage and the debt which it secures will not be -enforced. And that was the understanding in this case of Sommers’ note and mortgage. He was á man of no personal responsibility and never expected to be called upon to pay anything on the mortgage so long as he was loyal to the brewery and bought his beer of it. The indebtedness of that kind is understood to be the indebtedness of the place and not of him who keeps it-, and Mr. Sommers swears that he was told by G-erken that it was necessary for him to give the note and mortgage in order to keep the books of the brewery straight.

During these years Mr. Diedrich Gerken was the selling agent and manager for the defendant in Jersey City.

Sommers was no more successful than Eau. He loyally purchased his beer from the defendant, but was not able to make prompt payment for it, much less to pay anything on account of either interest or principal of his promissory note and morígage, or to keep his rent paid, and the place-was losing money, and, of course, the good will was worth nothing.

Sommers’ license expired on one of the last days of May, 1903, and it was not renewed. This was probably due to his inability to pay the license fee and to the defendant’s unwillingness to pay it for him. Sommers, however, kept the place open, but, as he swears, sold no liquors or beer.

In the early part of July, 1903, Mr. Gerken called on the complainant, who was a prosperous saloonkeeper at 249 Warren street, Jersey City, and asked him to undertake 101 Hudson street-also, and the complainant agreed to do so and run it for defendant.

At that time Sommers was indebted to Gerken for $175 for rent paid for him, and for further arrears of rent, and he had only between $80 and $100 worth of liquors and cigars on hand.

Complainant agreed to advance money enough to pay the arrears of rent and for the liquors on hand, so as to satisfy both Sommers and Gerken, and in the end paid in cash $275 as the amount agreed for that purpose. Then, according to complainant’s account, Gerken said to him that it would be necessary for him to give a note and chattel mortgage for the amount of the old indebtedness, but that lie (the complainant) would never be called upon to pay it. Gerken denies this. In fact, as I interpret his evidence, Gerken denies that any discussion was had at any time between him and complainant upon the subject of the latter’s personal liability. Nevertheless, the whole negotiation must be treated as being subject to the custom in vogue between beer sellers and brewers before referred to. And defendant’s counsel, at the hearing, frankly admitted that had complainant continued to buy his beer of defendant he never would have been called upon to pay the note.

The terms being agreed upon, the parties—complainant, Ger-ken and Sommers, with Mr. Peshall as counsel for Sommers— proceeded to the office of Mr. Potts to have the papers drawn.

There had been no previous conference between the complainant and Mr. Potts, or any other counsel, as to the affair. It does not appear even that Mr. Potts was complainant’s standing counsel, and lie appears to have known nothing about the circumstances of the present affair.

He was instructed to prepare a bill of sale from Sommers to complainant, and a chattel mortgage from complainant to defendant, and a promissory note for $2,902.65, which he did, and when the papers were ready for execution he asked the complainant, so complainant swears, if he understood what he was signing, to which complainant responded that he did, and that it was all understood between him and Gerken, and thereupon, and before signing the papers, Gerken arose and said that it was all understood between them, and that complainant would never be called upon to pay a cent. In this he is corroborated by Mr. Sommers and Mr. Potts. The latter’s evidence is quite explicit. He understood when the parties came that they had been to the office of another lawyer and had not found him in. The instructions were given by Mr. Gerken, and also by, he thought, Mr. Peshall, to draw the papers mentioned. After he had prepared the papers and after Sommers had signed the bill of sale, his testimony proceeds:

“I says to O’Brien—I hadn’t heard the details what it was about—X said to O’Brien. ‘O’Brien, do you know what you are doing?’ Mr. Gerken jumped up—he was sitting right in front of the long table I had in my room—and he says, ‘O’Brien and I understand each other; O’Brien, you will never haye to pay that note or mortgage,’ and thereupon O’Brien signed the paper; I didn’t know then about the details of it at all—in fact, I didn’t know what it was about, or what they had arranged.
“Q. Xou knew it was for the beer saloon?
“A. I knew it was for a saloon because I put in the schedule about it.”

Mr. Peshall swears that he did not hear Mr. Gerken make the declaration to which Mr. Potts swears, but does recollect that Potts asked O’Brien if he knew what he was doing, and that he heard O’Brien say that he understood it—that he and Gerken understood all about it. To this extent he corroborates the complainant. And it may be here remarked that Peshall’s whole interest there was to see that Mr. Sommers got his payment in cash, and had his $2,900 note delivered up to him.

How, this evidence of Mr. Peshall, who was called by the defendant, to the effect that complainant said that the matter was understood between him and Gerken, is significant as showing that there had been an understanding of some sort between the persons just named. And the fair inference is that it was an understanding in regard to the liability incurred in signing the note.

Mr. Gerken denies that he made any such declaration, and, as I have before observed, denies that there was any such arrangement between him and O’Brien as the latter swears to.

The clear weight of the evidence in this matter, as far as witnesses go, is in favor of the complainant.

It is to be observed that it is not a case of the misunderstanding, by different witnesses, of the tenor and details of the conversation, or the intention and effect of it, in which witnesses are liable to differ in their recollection and understanding; but it is an assertion by three witnesses, including the complainant, that Gerken, the defendant’s agent, at a particular moment, rose from his seat and made a particular and special declaration, of great importance and pertinent to the very matter in hand.

It is quite difficult to believe that Mr. Potts and Mr. Sommers invented this incident and declaration, as they must have done if they did not actually, hear it; while, on the other hand, it is quite easy to conceive that Mr. Peshall may either not have heard it or not have paid such attention to it as that it made any impression on his mind or memory.-

But let us look at the probability of the thing. The complainant was an experienced saloonkeeper and was a good judge of the value of the fixtures in 101 Hudson street. He also knew that tire saloon had no good will. He also knew that he must procure a license for it, and he also knew that it'was not worth any such money as $3,000. Is it at all likely that he would knowingly bind himself absolutely to pay such a sum of money for it? I think not.

In order to believe that the complainant was willing to obligate himself to pay such a sum of money over and above his $275 actually paid, it is necessary to believe that he was lacking in the ordinary prudence and caution which a man able to take care of himself in the ordinary paths of life must possess. Moreover, a man of the business capacity which the complainant is charged.by the defendant with possessing would naturally inquire as to the lease upon the premises—whether it. could be obtained and on what terms as to rent and occupation—and such an inquiry would have shown him that the only security for continuing the possession was to purchase the fee, and that by so doing he could oust the present tenant.

And here, it must be observed, that the amount of the promissory note was precisely the same, to a cent, as that given by Mr. Sommers fifteen months previously. There was no new accounting; there was no inventory or appraisement made of the fixtures, and it was admitted at the hearing that they were not worth over $500, and so I find it impossible to believe that the complainant signed the note with any expectation that he would be called upon to pay it.

Another small circumstance was that the $275 actually paid went directly to Gferken, and out of it he paid Sommers $100 for his stock of goods, and the balance was applied toward paying an indebtedness to defendant or Gerken for rent actually paid by one of them for the premises.

I therefore conclude that the complainant has made out that part of his case and that the transfer was made and the note accompanying the chattel mortgage was given with the distinct and express understanding that he was not to be called upon personally to pay it.

In this case there was no express agreement on the part of the complainant to purchase beer from the defendant, and the defendant’s agent does not allege that there was any such condition annexed to his promise that the complainant should not be called upon to pay his note, for he denies in the most emphatic manner that there was any such promise or understanding, either express or implied, nevertheless, the complainant must have understood that the defendant expected him to buy his beer of it.

These papers having been signed and delivered, Sommers vacated and complainant took possession of the premises on which were situate the mortgaged chattels. Eo lease was executed to the complainant by the owner, although the evidence shows that the defendant agreed to procure a lease to the complainant. But such lease was of no consequence, because, as already observed, the owner, who was a real estate company, was unwilling to grant a lease except upon terms of being ended at any time, upon short notice, when it should make a sale.

The complainant took Out a license and was assisted therein bjr the defendant. Whether the assistance was of any value does not appear and is immaterial.

Now, the question arises, what, at that period of time, were the relative rights and duties of these parties towards each other, according to the principles of right between man and man as viewed and recognized by a chancellor.

In the first place, while I do not understand that anything was said upon the subject, I think, as already observed, that it may be assumed, as a matter of common knowledge, that the new mortgage was taken and the complainant put in possession upon the understanding that the mortgage would not be enforced so long as complainant continued to buy his beer of the defendant. The practice of brewers either owning or controlling by a chattel mortgage the fixtures in a beer saloon, and using such control for the purpose of making sale for their.beer, is so well known as to be almost a matter of common knowledge.

The avowed object of the defendant in inducing the complainant to undertake the running of the saloon was to make an increased market for its beer.

But, then, on the other side, the complainant was not under any obligation to purchase his beer from the defendant, unless he found it to his advantage to do so, and that involved the quality and gratefulness of the beer to the taste of consumers.

No doubt, also, the defendant expected and hoped that complainant, by reason of his experience and skill* in the business, would be able to build up a large trade. But I think it had no right to feel that complainant was under any obligation to give the defendant the benefit of that increased business. As before remarked, the good will of the establishment was of no value. The trade had long been at a point which produced no profit. Complainant was under no obligation to' build up the trade for the benefit of the defendant.

Without the control of the building and room itself, either by ownership or long lease of the fee, it is plain that the mere ownership of the fixtures gives the hrewer blit a slight hold upon the retailer. On the other hand, the complainant took 'possession of these fixtures, knowing all the circumstances and knowing the expectations of the defendant, and he was under obligation not to act in such a manner as to injure or depreciate the value of the fixtures.

They were put there by the consent of the owner of the real estate, who had the undoubted right, in a reasonable manner and after a reasonable notice, to require the defendant to remove them, but I do not think the complainant had that right under the circumstances of this case, even though he was subrogated to the rights of the owner.

Now, it is common knowledge that fixtures put in the way in which those were may, and usually do¡, include many matters which are incapable of removal, such as decorations and articles of ornamentation, so that the value of the fixtures for use must be held to be much greater than what they are for removal.

My conclusion is that complainant’s duty was, if for any reason he desired to stop purchasing beer of the defendant, to offer to pay to the defendant a fair and reasonable value for the fixtures as they stood.

Now, what happened was this: Complainant did purchase beer of the defendant for a short time—a few weeks or months— but found, as he swears, and he is therein uncontradicted, that the beer was distasteful to his customers, and that he could not build up a trade upon it, and that he thereupon, for that reason, ceased buying the defendant’s beer and purchased elsewhere.

This, I think, he was entirely justified in doing, whether the beer was good-selling beer or not; but I must take the complainant’s evidence upon that subject as reliable.

Surely any understanding between the parties that complainant was to buy defendant’s beer and build up a trade upon it was conditioned on the beer being grateful to the taste, and in that sense marketable.

I say that the complainant was entirely right in ceasing to buy beer of the defendant, but he should have offered to purchase the fixtures at a fair valuation, and the defendant should have been satisfied to accept such an oiler, for it was all the interest it had in the premises.

' This the complainant swears he offered to do. As I understand his evidence, he swears he offered to pay the defendant what the fixtures were fairly worth, and finally offered $500, all before the fixtures were removed. And I understand Gerken’s evidence to be to the effect that that is what he considered them to be worth, and what the defendant, who bought them in at the foreclosure sale, finally realized for them, and he admits the complainant made the offer.

The complainant’s offer, however, was on condition that his note should be delivered up to him.

But this offer the defendant refused to accept, or to negotiate on the basis of the value of the fixtures and the return of the note, and determined to stand upon its legal rights and proceeded to foreclose the mortgage.

The result is that I come to the conclusion that complainant’s conduct has been in strict accordance with equitable rules.

There is another view of the case which has not escaped me, though not put forward by defendant’s counsel, and that is, that the promissory note in question, though given for many times the value of the property which formed its whole consideration, may be, from a legal standpoint, considered in the nature of a joenal sum mentioned in a bond given to secure a certain course of conduct on the part of the obligor. I think I remarked, during the hearing, that the personal obligation, in cases like the present, was held by the brewer as a sort of club in its hands by which it could compel the maker to continue to purchase his beer, and that the moment he ceases to do so the brewer.is entitled at law to enforce it to the last cent. I have given this subject careful consideration and am unable to yield it any force beyond imposing on the party the equitable duty which I have already cited. I see no reason to doubt his statement that he attempted to make a success of selling defendant’s beer and failed. But granting that his conduct in that respect was not in good faith, the case still stands as one where the gwasi-obligor is entitled to come into equity to be relieved from the penalty, upon- making the defendant whole .for such damages as he has suffered by the complainant’s default; and the question arises at once, what damages has it suffered? Clearly only such prospective profits as it would have realized from the beer sold, and it seems to me hardly necessary to cite authority for the proposition that prospective profits cannot be considered for that purpose.

I find it'impossible to relieve the defendant from the condition which it actually occupied. It owned these fixtures in a building belonging to another party, who had the right to remove them at his.pleasure after reasonable notice, and hence they were worth to the defendant no more than their removal value, and that was no more than $500, and this the complainant offered to. pay it, but I am willing to give the defendant an opportunity to prove that they were worth more than that to the complainant, and to give it the benefit of such excess.

After the foreclosure and removal of the fixtures the complainant purchased the fee, taking the title in the name of his wife, who, he swears, furnished the money to. pay for it. I am unable to see how that purchase weakens his standing in this court.'

One other part of the evidence requires notice before considering the only difficult question of law or equity in the case.

The president of the defendant company swore that the agent, Gerken, had no authority to make the pledge, which I am entirely satisfied he did make, as to the liability of the complainant on the note, and Gerken swears to the same thing, and from this want of authority it is argued that the defendant is not bound by the stipulation. But the plain answer is that the defendant is suing on a contract procured by its agent by means of the very pledge in question, and must therefore take the contract subject to that pledge. It cannot approbate and reprobate.

We now come to the only difficult point in the case.

Against any relief is urged the time-honored rule that parol evidence cannot be used to vary or contradict the terms of a written contract.

. Without stopping at' this moment to enumerate and classify the numerous exceptions to that rule, especially in a court of equity, it. is sufficient to say that the evidence here relied upon does not tend to vary the terms of the contract. There is no contention that the complainant did not understand that he was signing an absolute promissory note in favor of the defendant, payable one day after date, and negotiable in its terms. Whatl he does contend is that it never had any binding effect upon him in equity.

To show this by parol is no more a breach of the rule invoked than it is to prove that an absolute deed is given as a mortgage, or that a promissory note is given by the maker to the payee without consideration and as an accommodation to. the latter, or that it was given for a consideration that had wholly failed, or was a mere gift, as in Metler v. Metler, 18 N. J. Eq. (3 C. E. Gr.) 270, and affirmed on appeal, 19 N. J. Eq. (4 C. E. Gr.) 457.

In that case the bill was filed to enjoin a recovery on a promissory note given by the intestate to his mother, upon the understanding that it should be returned to the maker in case he returned from a trip' to the oil regions, which he did, and the note was not delivered up to him.

The real question for consideration in this case is whether, under the circumstances, it is equitable that the defendant should recover upon the note, and that is always the question in cases like this.

Shall a payee who has procured from the maker a promissory note for a sum of money which the maker does not owe him, upon a pledge that he shall not be called upon to pay it, be permitted, in equit)^, to recover upon the note at law?

It is true that the note was given as part of a transaction with a color of consideration, so that it is highly probable, if not certain, that no defence can be made to it at law, but it is still true that tire complainant did not owe the defendant any such sum of money.

The only real value received by complainant for the note was the fixtures in the beer saloon. They were, indeed, carried on the books of the defendant at about $2,400, but they were not worth any such sum of mone3r, -as we have seen, having undoubtedly very much depreciated during the many years they were in use. And against their value must be credited so much of the $275 paid by the complainant as was not represented by the stock of cigars and liquors on hand.

All above that value represented an old debt for beer sold to Kau, assumed by Sommers and inserted in the note of the complainant.

Now, to the extent of the value of the fixtures as they stood for the purpose of the use that was being made of them, complainant became justly indebted to the defendant, and the question is whether, under these circumstances, having signed his note under the express pledge that it would not be enforced, it is equitable and just that it should be enforced.

It is to be observed that the note had an actual place in the transaction without giving it validity as a personal obligation. The usual mode of giving a mortgage, whether on realty or chattels, is to have it accompanied by a personal obligation, and oftentimes -it is done without proper consideration of its effect in case of a deficiency of the pledge to pay the debt. So far has this gone that several years ago the legislature intervened and limited the liability of the makers of bonds secured by mortgages upon real estate.

Moreover, it is quite clear that this note was not made to be negotiated according to the custom of merchants.

It has been said that the rule sustaining the sanctity of written contracts against parol evidence is as strictly maintained in equity as at law, but I cannot admit the accuracy of that statement.

I have made a careful examination of the authorities upon that subject and find they do not sustain it, except in the matter of the true construction of a contract. But when we come to the inquiring into the objects and purposes of a writing, equity is more liberal, and will not permit a written contract to be used for purposes for which it was not intended.

“If,” says Chancellor Williamson, in Stoutenburgh v. Tompkins, 9 N. J. Eq. (1 Stock.) 332 (at p. 336), “such are the principles by which a court of equity is governed, in the exercise of this branch of its jurisdiction, it follows, that however closely the court may be disposed to adhere to the salutary rule of law that parol evidence is not admissible to vary, contradict or eontrol a written instrument, it must necessarily exercise much mare liberality in admitting evidence in order to reach the equity of the case than would be allowed by a court of law.” And, again (at p. 337) : “But there is a great difference between intro-

ducing parol evidence for the purpose of showing that the writing does not express the true intention of the parties and in introducing it for the purpose of showing the circumstances which make it inequitable and unconscientious that tire intention should be carried out.”

The late Judge Eield, of the supreme court of the United States, in speaking for the supreme court of California, in Pierce v. Robinson, 13 Cal. 166; 2 Lead. Cas. Eq. 1987, said: “Parol evidence is admissible in equity to show that a deed, absolute upon its face, was intended as a mortgage, and the restriction of the evidence to cases of fraud, accident or mistake in the creation of the instrument, is unsound in principle and unsupported by authority.”

“As the equity upon which the court acts arises from the real character of the transaction, it is Of no consequence in what manner this character is established, whether by deed or other writing, or by parol. Whether the instrument, it not being apparent on its face, is to be regarded as a mortgage, depends upon the circumstances under 'which it was made and the relations subsisting between the parties. Evidence of these circumstances and relations is admitted, not for the purpose of contradicting or varying the deed, but to establish an equity superior to its terms. * * * The rule which refuses the admission of parol evidence to contradict or vary written instruments is directed to the language employed by the parties. That language cannot be qualified, but must be left to speak for itself. The rule does not exclude inquiry into the objects and purposes of the parties in executing the instrument.”

Vice-Chancellor Dodd, in Sweet v. Parker, 22 N. J. Eq. (7 C. E. Gr.) 453 (at p. 457), says: “The distinction between parol evidence to vary a written instrument and parol evidence showing facts which control its operation, is employed to reconcile the allowance of such proofs with the statute of frauds and the general rules of common law.” He then refers to Thorn borough v. Baker, 2 Lead. Cas. Eq. *1030, and to the notes commencing at p. 1983 of the fourth American edition.

Other cases are found in the notes to Woollam v. Hearn, 2 Lead. Cas. Eq., commencing at p. 944. at p. 948, the American annotator says that the recent course of English decisions tends to qualify and restrict, rather than enlarge, the operation of the rule that a written contract cannot be varied or controlled by a contemporaneous oral stipulation, citing numerous cases at law in illustration, among others Wallis v. Littell, 11 C. B. (N. S.) 369 (1861).

In that case the suit was brought to enforce a written contract by. a farmer, who held as a tenant of a landlord, to convey his whole tenant right and possession to the plaintiff at a fixed sum. The contract was complete in all its parts. The defendant refused to fulfill on the ground that there was a verbal agreement, made at the time of entering into the written contract, that it was not to be binding unless the landlord consented to it, and this defence was held good and prevailed at law.

To have held otherwise would have added another example to the many which the reports show of the injustice of the universal application of the rule now in question.

In answer to this injustice, judges have said that people must not rely on oral promises, but have everything put in writing.

But the answer to that suggestion is that people do in practice rely on oral promises, and equity and fair dealing require that they should be protected therein.

To the view of a chancellor it is no more equitable and just that a man should not have the benefit of a parol promise of the character here in question, which he has acted upon, than it is that he should not have the benefit of a parol contract to convey lands upon which he has acted in such manner that he cannot be restored. As the court will not permit the statute of frauds to be made an instrument of fraud, so it ought not to permit the rule that parol evidence cannot be permitted to alter or vary a written contract to be made an instrument of fraud.

In my judgment, it is what is known in equity as a fraud for one person to procure from another his promissory note upon a verbal promise or pledge that it shall not be enforced, and after-wards to invoke the rule in question in order to be able to enforce it.

It has sometimes been suggested and supposed that there must have been a fraudulent intent on the part of the party making the verbal promise or agreement entertained at the time of so making or entering into it—that is, that there should have been fraud in the inception of the affair—but this is not necessary. It is now well settled that the act which excites the jurisdiction of the court, and which the court calls fraudulent, is the setting up of the statute of frauds as a defence to a suit for specific performance, where, according to the notions of the chancellor, it is inequitable and unjust so to do. Such conduct the court classes as fraudulent.

Sir William Grant, in Buckmaster v. Harrop, 7 Ves. 341 (at p. 346), in discussing the part performance necessary to avoid the effect of the statute, says: “For the ground upon which the court acts is fraud in refusing to perform after performance by the other party.” Professor Pomeroy, in his book on Specific Performance 108), says:

“The doctrine of part performance is merely a particular application of the general principle which supports a great part of the equitable jurisdiction—the principle that fraud shall be prevented, relieved against or punished in whatever form or under whatever guise it may appear. It is simply saying that a man shall not be permitted to use a statute more than any other assistant for the purpose of promoting his own fraudulent intent.”

And then, after quoting the familiar language of Lord Westbury, in McCormick v. Grogan, L. R. 4 H. of L. 82 (at p. 97), he proceeds as follows (§ 104) : “The foundation of the docj trine is fraud, not necessarily an antecedent fraud, consciously intended by the party in making the contract, but a fraud inhering in the consequence of thus setting up the statute.” And to the same effect is Lord Justice Fry’s language, in his book on Specific Performance (§§ 562, 563), where he quotes with approbation the language of Lord Cottenham, in Mundy v. Joliffe, 5 Myl. & C. 177, where he says that courts of equity exercise their jurisdiction in such cases “for the purpose of preventing the great injustice which would arise from permitting a party to escape from the engagements he has entered into upon the ground of the statute of frauds,” &c.

Let us examine some of the authorities in this state and elsewhere in this country-. The case of Meyer v. Beardsley, 30 N. J. Law (1 Vr.) 236, was one where the acceptor of a bill of exchange (who occupied the position of maker of a promissory note) accepted it for the accommodation of the drawer of the bill (who occupied the position of endorser of a promissory note) upon condition, as he alleged, that the drawer would indemnify him. The action was at law, and- mere equitable considerations did not intervene. But the payee of the bill received it as a negotiable, mercantile instrument, in payment of an indebtedness due to him from the drawer, occupying the position of endorser. There the acceptor accepted deliberately, before receiving the indemnity, and knew that the draft was held, and in fact presented, by a creditor who was accepting it in payment of his debt. What view a court of equity might have taken of the case it is not necessary to determine.

Then we have the case of Wright v. Remington, 41 N. J. Law (12 Vr.) 48, which was affirmed in 43 N. J. Law (14 Vr.) 451. There a judgment had been entered upon note with warrant of attorney to confess judgment against a husband and wife, in which the wife signed as surety for her husband. This it was lawful for her to do by the laws of the state in which the note was executed. The defence was that the wife had been induced to sign the note and warrant of attorney by representation that she would not be called upon to pay them, and the court held that such evidence could not be used in a court of law as a defence to the judgment. The court recognized the great injustice that often arises out of the strict application of the rule, but approves of the doctrine that it is of great importance to the welfare of the community that the rule should be upheld. In that case, also, the creditor had acted on the strength of the validity of the wife’s signature. What view a court of equity would have taken of the case it is not necessary now to determine.

There is a line of cases in Connecticut which are worthy of remark. Daggett v. Whiting, 35 Conn. 366, was a suit brought by an. administrator of the bearer of certain long-overdue checks, drawn by the defendant on his bank and payable to bearer, and loaned by him to a third party as an accommodation. The third party lodged them as security with the plaintiff’s intestate, a money-lender, by whom they were held for a valuable consideration, and it was held that he could not recover. Here it appears that the defendant deliberately made his checks on the bank, not drawn against cash, and delivered them to his friend to be used for the purpose of sustaining his financial credit. The rule relied upon here was there set up without avail, notwithstanding that upon the defendant’s theory of the case the checks were given and held without any possible useful purpose, for without making some use of them for credit in his business it is difficult to see of what useful purpose their preparation and signing served.

In Downer v. Chesebrough, 36 Conn. 39, the action was upon an unqualified endorsement of a promissory note upon which defendant had been duly charged as endorser. The successful plea was that the endorser had been induced by plaintiff to sell certain property to the maker of the note and to take the note in payment thereof, upon the promise bjr the plaintiff that he would accept said note in absolute payment of so much of the debt owing by the defendant to the plaintiff, and that he had endorsed the note over to the plaintiff in pursuance of that verbal contract. In short, it was the defence that by virtue of a parol contract tlie endorsement was without recourse. The defence was sustained as good at law.

In Schindler v. Muhlheiser, 45 Conn. 153, the case was this: The defendant had given the plaintiff his note for certain real estate conveyed to him by an absolute deed by the plaintiff. Held, in a suit on the note, that parol evidence was admissible, on the part of the defendant, to show that the conveyance was not intended as a sale, but was made by the plaintiff for a certain purpose of his own, and upon an understanding with the defendant that the land was afterwards to be conveyed back, and that the note was given at the time under an agreement that it was not to be paid. And judgment was accordingly entered for the defendant. The judge, in delivering judgment, after saying that the plaintiff invoked the aid of a familiar rule of law that parol evidence is not admissible to contradict or vary a written instrument, and going over the facts of the ease, saj^s: “Instead of preventing fraud, such an application of the rule would perpetrate a fraud of the grossest character and bring reproach upon the law and the administration of justice.”

The defendant’s chief reliance is naturally upon the case of Chetwood v. Brittan, decided by Chancellor Pennington, and reported in 2 N. J. Eq. (1 Gr.) 438, on motion for an injunction, and 4 N. J. Eq. (3 Gr.) 334, on final hearing.

In respect to the object and subject-matter of the suit, and the attitude of the parties, the case is substantially on all fours with the present.

It is interesting to observe the operations of the mind of that exquisite equity judge in dealing with that ease. Although the question was fairly raised on the preliminary hearing and the law was plainly laid down by him in his opinion, and all the equity of the bill was clearly and distinctly answered by the answer, and it seemed quite manifest that the complainant could only succeed by a disregard of the rule in question, yet the learned chancellor held the injunction until the final hearing. And when it came to final hearing he allowed the parol evidence to be read, and came to the conclusion that it did not sustain the complainant’s case-—that is, that the complainant did not prove his case, even by parol.

I deem it worth while to restate briefly the facts of that case, from which it will appear that it is quite different from the one before the court. There, Mr. Brittan, the defendant in equity and the plaintiff at law, bargained and sold to a syndicate of real estate speculators a piece of land in Elizabeth at a price agreed upon. There was no doubt about the land being at the time considered to be worth the money which was agreed upon as its price. It was in fact, however, inflated by the wave of speculation then prevalent, hut that circumstance could not affect the fairness and validity of the bargain.. There was not the least hint of overvaluation or fraud on either side. A part of the consideration was to remain upon bond and mortgage. Instead of requiring the bond of all the actual purchasers, Mr. Brittan, at their request, conveyed the property to Mr. Chetwood, and accepted Mr. Chetwood^s bond, secured by a mortgage. The latter accepted the title in trust for his brother speculators and for their convenience in reselling. He was entitled to, but did not exact, indemnity from his cestuis que trustent against danger from giving his individual bond, because all persons supposed that the property was ample security. At the last moment, as he was about to sign the bond, it struck him that he was incurring a personal obligation greater than he should, and so expressed himself, whereupon Mr. Brittan replied, in substance, that he need not be afraid to execute the bond on that account, as he would taire the land at any time for the balance of the debt. The learned chancellor held that was a mere casual 'remark, incidentally made by the defendant, and not intended or understood by either of the parties, at the time, as 'affecting the personal liability of the bondsman. It is further to be observed that the subsequent disposition of the property by the bondsman and mortgagee rendered it impracticable for him to return the land to Mr. Brittan. The case was, after all, without merit on the part of the complainant from any point of view.

The present case, in its facts, is clearly distinguishable from Chetwood v. Brittan. Here there never could have been any pretence, for reasons already stated, that the property conveyed was worth for any purposes, at that time or any time subsequent, any such money as the nominal price fixed for it.

One other case decided in our records should be noted, viz., Van Syckel v. Dalrymple, 32 N. J. Eq. (5 Stew.) 233. That was a bill to foreclose, and the defence, which was set up by answer only, was that the terms of the mortgage did not correspond with the actual contract between the parties. It, in effect, charged a mistake in the preparation of the writings. Vice-Chancellor Van Fleet held that this defence was not admissible on the answer, but should have been put forward by way of cross-bill to reform the writings. He bases his conclusion upon the doctrine that parol evidence is not admissible to vary or alter a written instrument, and that the defences of that class cannot be set up by answer in foreclosure suits. The reason of this is that such suits are really, in their nature, not equity suits. They are not framed to enforce an original equity, but simply to give the defendant an opportunity to pay his debts or be foreclosed of his equity of redemption. They are in fact suits to destroy an equity, not to enforce one. The language of the learned judge is this: “Oral evidence is admissible to reform a written instrument or to subvert or overthrow it entirely, but not to vary or alter" it.”

The distinction between that case and this is that here the complainant occupies the very position in the cause which the vice-chancellor held he must possess in order to have relief, and which the defendant in that case did not occupy.

It is quite competent to prove these facts .by parol evidence, and those facts, in connection with the parol agreement, show a case which renders it inequitable and unjust for the payee of the note to enforce it at law, in the same manner and to the same extent that absolute deeds are shown to be mere mortgages, and that promissory notes made without consideration are shown to have been given as an accommodation.

But, if I am wrong in this view, then I am of the opinion that if, as the defendant contends, the actual intention of Mr. Ger-ken, its agent, was at the start to obtain a note, the payment of which was to be enforced under all circumstances, then he practiced an actual fraud-upon, complainant, and complainant is entitled to relief on that ground.

I have said that I think that complainant, in offering to pay the defendant what the fixtures were worth, performed all that equity required of him, but lest there should be the least danger of doing the defendant injustice in that respect, I will, if the defendant asks it, refer it to a master to inquire what was the real value of the fixtures to the defendant for use in that building. And if it appears that they were worth for that purpose more than $500, I will give the complainant relief upon condition that he pay the defendant the excess over $500. But such inquiry must be at the risk of the defendant as to costs. If the defendant chooses not to take such an inquiry, I will advise a decree for a perpetual injunction, with the delivery up' of the note to be canceled.


source: Caselaw Access Project

author: Pitney, V. 0.

license: Public Domain

text:
    Sarah A. D. Hess v. James Kenney and John F. Morris.
    [Decided May 10th, 1905.]
    1. "Where a deed conveyed to complainant a lot fronting on a highway, it included all land in front of the lot to the centre of the street, in the absence of a reservation to the contrary, though the description did not in precise terms include any part of the street.
    2. "Where, at the time of a conveyance of a house and lot to complainant, there was a drain leading therefrom on to an adjoining lot, owned by complainant’s grantor, which passed from thence into the street in front of complainant’s property before connecting with the public sewer, the conveyance to complainant carried with it as an appurtenant the right to maintain the drain as it then existed in such adjoining lot.
    3. Where complainant owned the right to maintain a tile drain through defendants’ property and thence across complainant’s property and into the street sewer, complainant was entitled to -an injunction to restrain defendant from connecting his drain therewith in such a manner as to create an obstruction in the pipe and prevent the sewage from complainant’s premises from being carried off freely.
    On final bearing on bill, answer and cross-bill.

      Mr. John I. Weller, for the complainant.

      Mr. Frederick N. Fberhard, for the defendants.
   Pitney, V. 0.

The complainant, Mrs. Hess, is the owner of a house and lot, twenty-five feet front by one hundred feet deep, on the southeasterly side, or, as treated throughout the evidence, the easterly side3 of Palisade avenue, in the town of Union, in Hudson county.

It was conveyed to her and her husband by Frederick C. Hansen, by deed dated June 12th, 1895, and by the death of her husband the title has become vested in her. It has been occupied by her ever since the conveyance.

The description of the deed, by its precise terms, does not include any part of Palisade avenue, but by the well-settled rule of law in this state it includes all the land in front of it to the centre of the street, unless there is something in the deed itself to show a contrary intention, and I find nothing in this deed to prevent the application of that rule.

At the time of its purchase there was on it a small dwelling-house, the northerly side of which was situate about twelve inches south of the northerly line of the lot.

It contained, in the basement, an ordinary sink and stationary wash-tubs, and, on the upper floors, a bath-tub and stationary wash-basins, from all of which the water was discharged into the end of a six-inch tile pipe, which passed through the north wall of the foundation of the house about twelve feet from its front, which was about ten feet from the street line and about eighteen feet from the curb line.

That six-inch tile pipe, after passing through the foundation of the house, turned abruptly toward the street, but passed on to Hie adjoining land of Mr. Hansen, complainant’s grantor, and continued on his land, on a course nearly parallel with the northerly line of complainant’s lot, until it passed the curb line, when it turned to the left and crossed the northerly line of her lot projected, diagonally, and emptied into the public sewer, in the middle of Palisade avenue, about three feet southerly from the point where her northerly line projected reached the centre of the street.

The result is, as shown by a map produced by complainant, as well as by one produced by defendant, that the six-inch sewer connection or conduit from complainant’s house, when she purchased it, was located at its commencement on complainant’s land, passed immediately on to Mr. Hansen’s lot adjoining on the north, continued on that for a distance of about thirty-five feet, then passed on to the complainant’s land, and continued thereon for a distance of about seven feet, until it reached the public sewer.

Complainant’s lot was numbered 128 on a dedicatory plot of land. The lot next north of it was numbered 129 and was owned by complainant’s grantor, Mr. Hansen.

Fo mention is made in complainant’s deed of this drain or sewer connection, but the conveyance contains the usual clause— “ways, waters, profits, privileges and advantages, with the appurtenances,” &c.

Lot 129 is vacant; but at the date of the conveyance to the complainant there, was standing upon it a small one-story office building, twelve feet front and about fifteen feet deep, close to the street and on the northerly side of the lot, so that it was about twelve feet distant from complainant’s house.

The deed contains no reservations on the part of the grantor, Hansen. At some time, whether prior or subsequent to complainant’s conveyance does not appear, the defendants, Kenney and Morris, became the owners of lot 130, facing on Palisade avenue, being the lot next but one to complainant’s on the north, upon which is and has for several 3rears been erected a two-family dwelling-house. This house at one time had a sewage connection with the public sewer in Columbia street, which crosses Palisade avenue at right angles twenty-five feet north of lot Fo. 130, owned by. defendants.

This sewer connection became unserviceable, and the defendants, with a view of making a connection with what ma3r be properly termed complainant’s sewer conduit, purchased of Mr. Hansen lot 129, from which the small office building had been removed.

Defendants then proceeded to lay a four-inch tile drain from their house on lot 130 across lot 129, and connected the same with the ■ complainant’s sewer at the point where it left complainant’s house.

This fact was disputed at the hearing, and it was asserted by the defendants, and evidence was adduced to support that assertion, that a connection had been previously made by Mr. Hansen from the rear of the small office building to the complainant’s sewer at the point just mentioned, but the counter-evidence of the complainant clearly disproved this assertion, and the very map produced by the defendants showed a sewer pipe running directly from their building diagonally across the intervening lot to complainant’s sewer, and so located as to disprove the notion that it ever was used in connection with the small office building before referred to.

(At the hearing, I gave my reasons orally for finding this question of fact in favor of the complainant.)

Complainant then called in her sons, grown men, and they, or one of them, with the assistance of workmen, working from the inside, dug a hole through the foundation of her house, disconnected defendants’ pipe, which was of four-inch diameter, from her pipe, effectually stopped the end of it, repaired the hole which defendants had made in her pipe and replaced the mason work of her foundation which had been removed.

Defendants then made a second aperture in complainant’s pipe a few feet farther towards the street from the first aperture, and entirely on their own land, and inserted the end of their pipe therein. Complainant thereon promptly filed her bill for relief, setting up the facts and praying an injunction against the defendants continuing the connection they have made, and continuing to drain sewage from their house into the complainant’s sewer.

One other matter of fact should be stated. Complainant alleges, and the weight of the evidence sustains her allegation, that since these disturbances of her sewer conduit the water from her appliances does not run off so freely as it did before. This result I attribute, not to an overworking of the sewer, which, in my judgment, is ample in size, if it has proper declivity, to carry the sewage from many houses, but to the circumstance that the connection was improperly made by making an aperture in the side of the pipe and inserting the end of the connecting pipe, thereby creating an obstruction. The connection should have been made by inserting in the main line a Y branch piece, which produces no obstruction.

The question presented by these facts is, to what remedy, if any, is the complainant entitled.

There can be no doubt, under the authorities (several of which are collected in Toothe v. Bryce, 50 N. J. Eq. (5 Dick.) 589, and especially Nicholas v. Chamberlain, Cro. Jac. 121 (1606), and Pyer v. Carter, 1 Hurlst. & N. 916 (1857); Thayer v. Payne, 2 Cush. 327), that the conveyance by Hansen, who was then the owner of lot 129, to complainant of her lot, carried with it, as an appurtenant, the right to use the. tile drain in question for the conveyance of sewage from her house to the main sewer in the centre of the street.

The question argued at the hearing was whether that use was exclusive.

Complainant’s counsel contended, upon the authority of two cases in this court (Brakely v. Sharp, 9 N. J. Eq. (1 Stock.) 9, and the same case, 10 N. J. Eq. (2 Stock.) 206; Seymour v. Lewis, 13 N. J. Eq. (2 Beas.) 439), and other such eases, that it was .exclusive. But I am unable to adopt that view.

I was and am of the opinion that if the sewer, as it existed at the time the conveyance was made by Hansen to the complainant, had continued on the land of Hansen all the way to the main sewer, the complainant would have had no right to complain if Hansen, or his grantee of the land on the north, had connected with that sewer drain for the use of those lands, so long as such use did not overwork it to such an extent as to diminish materially its beneficial use by complainant.

But counsel for complainant points out another fact which cannot be disposed of so readily, and that is that the conduit in question passes for several feet, before reaching the public sewer, over the land conveyed to her by the said Hansen, and that to permit the defendants to use it would be to permit Hansen to derogate from his own grant, and amount to 'establishing in the defendants’ favor an easement on complainant’s land which was not reserved, either directly or by implication, in the conveyance to her by Hansen.

Now, in determining this question, we must bear in mind that I have found, as a matter of fact, that neither at that time or later had Hansen ever made any connection with this sewer drain for purposes connected with either of the lots lying to the north.

There was at the time of the conveyance no apparent easement exercised by him as owner of lot 129 over lot 128.

Undoubtedly the drain was originally laid near the line between the two lots with a view of using it for both, but such use had never been put in practical operation in behalf of lot 129.

I say there was no apparent easement in use by Hansen because there was nothing on the ground visible to the eye to indicate that any use was being made by Hansen of this pipe for the lot lying to the north of the lot conveyed to the complainant, and in fact, as we have seen, no such use was being made.

On the other hand, the use being made by the occupants of complainant’s house was apparent in the proper sense of that word. The water flowing from the domestic appliances actually escaped and flowed into the end of the drain. Just where it went from that point was not apparent. But it was not necessary, in order to make up the element of “apparency,” that the further and ultimate course of the escaping sewage should be visible. It was enough that it actually escaped. And as the complainant was aware that her house stood one foot away from the line, she might reasonably assume that the conduit was wholly on her land.

Further, it must be presumed that the actual location of the conduit was known to Hansen. He was chargeable with knowledge that it passed on to his land and recrossed to the land conveyed by him to complainant before reaching the public sewer.

It is probable that Hansen was ignorant of the rule of law that declared that the title to the middle of the street passed by his deed to complainant, and supposed that the location of the conduit, after it reached the street, was a matter of no consequence. But this supposed ignorance does not excuse him. He should have reserved the right to use the conduit where it crossed complainant’s land in the street.

But the question still remains, did a reservation of a right appurtenant to lot 129 to use the conduit, as laid across complainant’s land, result by implication, there being nothing to indicate to the eye that it existed.

This question was discussed by me in Toothe v. Bryce, supra,, and I came to the conclusion that, according to the later and best English authorities, which were founded in reason, such a right could not be reserved by mere implication, except in a case of actual necessity as distinguished from mere convenience, in the face of the language found in this deed, which conveyed “all the right, title and interest of the party of the first part in and to” the land conveyed.

The reasoning of Lord Westbury, in Suffield v. Brown, 4 De G. J. & S. 185; 33 L. J. Ch. 249; 10 Jur. (N. S.) 111, seems to me unanswerable, and was adopted in the later English cases.

But I also found that by the clear weight of authority in this court and in this state the other rule laid down by Mr. Gale prevails, and that a right to the continuance of an apparent gMosi-easement would be reserved by implication wherever it would pass by a conveyance as an appurtenant. And it is proper to add that one of the cases cited by me in Toothe v. Bryce, namely, Kelly v. Dunning, 43 N. J. Eq. (16 Stew.) 62, was afterwards affirmed by tire court of errors and appeals (46 N. J. Eq. (1 Dick.) 605), and I was later informed by counsel that I was mistaken in supposing it was a case of implied grant, and that it was in fact a case of implied reservation.

However, the abstract question is of no importance here, since the quasi use was not apparent. But the question remains, is this right of complainant of such a character as to warrant the interference of this court by its strong arm of injunction. I mean the exclusive right of the complainant to the use of the drain or conduit, where it crosses the corner of her land near the centre of the street.

It is apparent that the use by the defendants of that part of the conduit will inflict no present pecuniary injury on complainant. Her title to the land in the street is so smothered by the paramount right of the public as to be of little or no value, except in the highly improbable event of the vacation of the street. In fact, the only conceivable injury which will result from refusing an injunction is that defendants may acquire a right by long user.

On the other hand, the result of an injunction will be simply to compel the defendants to lay down less than ten feet of new tile on their own land in the middle of the street, a very slight matter, so that the interests on either side are of little importance. . •

But I deem it unnecessary to decide this question at this stage of the cause.

' Complainant is clearly entitled to a certain measure of relief on the other part of the case. She is entitled to an injunction, unless defendants can satisfy me—which they have not done so far—that their use of the conduit will work complainant no practical injury.

I am clearly of the opinion that they must make a proper connection, namely, by a Y joint, with the six-inch conduit, and then I must be satisfied by evidence that the fall in the conduit between complainant’s house and the public sewer is so great and the condition of the conduit is such that complainant’s sewage will at all times flow off freely.

It is easy to ascertain the declivity of the conduit by taking a level with a proper engineer’s instrument from complainant’s house to its outlet in the public sewer, which is accessible through a manhole. The Y joint is easily made and the capacity of the conduit is easily tested. If the parties cannot agree upon the details of these measures, I will refer the matter to a master.


author: Eiceky, V. C.

text:
    Helen E. DuBois v. Elizabeth A. Nugent et al.
    [Decided March 17th, 1905.]
    1. In a suit in equity for the rescission of a contract for the exchange of real estate induced by false representations, proof of defendant’s knowledge of the falsity of such representations when made is not required.
    2. Generally, a rescission before action brought is necessary in an action at law, but in equity a bill for rescission may be sustained although no rescission or offer to rescind has been previously made or attempted. But where the rescission depends solely on judicial action to be taken on a bill, it can be decreed only on the substantial proof of the false representations charged in the bill, and not on any other alleged false representations.
    3. Where no rescission of a contract of exchange was made or attempted before the filing of the bill, and the bill was filed to obtain a rescission of the contract on the ground of alleged false representations that the orchards on the property conveyed to complainant were not affected with the “San José scale'” (which allegations of the bill were untrue), and complainant, after filing of the bill, took no steps to protect the trees on the property conveyed, to her from further injury by such disease, though with proper attention a large part of them could then have been saved, and defendant being under no equitable duty to rescind at the time the bill was filed because the alleged representations had not been in fact made, complainant was barred, by her negligence in failing to protect the trees, from obtaining a rescission on account of misrepresentations other than those alleged in the bill.
    Heard bn bill, answer, replication and proofs.
    On September 8th, 1902, the complainant, Mrs. DuBois, and the defendant Mr. John A. Nugent, entered into a written contract for the exchange of lands, which was carried out on October 1st, 1902, by deeds of that date. The land conveyed to the complainant in the exchange was a farm owned by Nugent near Clyde, in Somerset county, on which were extensive orchards, and which was valuable mainly as a fruit farm, and the lands conveyed to Nugent were houses and lote in Jersey City. The bill is filed to rescind the contract of exchange and for a reconveyance of the properties, on the ground of alleged false representations made by Nugent during the negotiations as to the condition of the trees, which representations were relied on by complainant and induced the contract. These representations were made by circulars offering the property for sale, in which the trees, over eight thousand in number, were described as “fine, healthy and mostly, bearing,” and also by personal statements of Nugent to the husband of complainant, who acted for her in the negotiations, that the trees were all in sound and healthy condition and increasing in value. There was, as the bill alleges, a further representation made by Nugent, in answer to a special inquiry by DuBois, that he had never had the San José scale upon his trees. All of these representations are alleged to be false, and it is claimed that, at the time of the contract and conveyance, seven-eighths of the trees were and had been for a long time badly infested by the San José scale, and were therefore practically worthless. The bill further charges that Nugent, at the time of making the representations, knew that his fruit trees were and had been for several months infested by this scale, and that the representations were made with the fraudulent purpose and intention of inducing the contract of exchange. There is a further allegation of misrepresentation as to the number of trees, but relief on this ground was not insisted on at the hearing.
    In reference to the representations, the defendants .allege that the circulars describing the trees and their condition were issued in the summer of 1901, and at the time were in all respects correct; but deny that any of these circulars came to the complainant’s notice until after the negotiations for the exchange were practically consummated, and deny that during tírese negotiations Nugent stated at all that the trees were all in sound and healthy condition and increasing in value, and that in answer to an inquiry he said to DuBois that he had never had the San José scale upon his trees. They further allege that the scale (although not easily distinguishable on the trees, as alleged in the bill) was in fact seen on the trees by DuBois before the agreement of exchange was entered into, and that the existence of the scale on the trees on the farm was known to complainant at the time of the exchange. In reference to the existence of the scale on his trees, the defendant says that in the early part of 1902 he learned from Professor Smith, the entomologist of the State Agricultural College, that some of his trees were infested with the scale, and that he also learned of the existence of scale on his trees, and the method of treatment, from a neighbor, Mr. Mortimer Whitehead, owning the adjoining farm and an expert in such matters. As to communication of his information to DuBois, the defendant says that durihg all of the negotiations he gave to DuBois all the information and knowledge he had respecting the existence of San José scale on the trees, and especially his information from Professor Smith and Mr. Whitehead that it was on the trees; that the subject of the scale and its treatment was discussed between defendant and DuBois, and the necessity of treating the trees by spraying during the winter was particularly discussed; that DuBois claimed to be familiar with the San José scale; that he had read about it and knew that if taken in time they could be doctored all right with oil, and that defendant and DuBois both believed that the scale could be exterminated in the winter following the exchange. The lands conveyed to Nugent were subsequently combed to his wife, as was also a mortgage for $8,000, given by complainant to Nugent upon the farm, to equalize the values of the properties exchanged and secure part of the consideration. These transfers to the defendant Mrs. Nugent are, however, admitted by the answer and on the hearing to have been purely voluntary, and the case is to be considered as if Nugent still held title to the lands and mortgage.

      Mr. Alan II. Strong, for the complainant.

      Mr. Randolph Perkins and Mr. Gilbert Gollms, for the defendants.
   Eiceky, V. C.

(after statement of issues).

The points to which the arguments were principally directed at the hearing were—first, the representations made as to the condition of the trees and the existence of the scale on them during the treaty for purchase or exchange, and whether the charges of the bill in this respect were proved; second, the truth or falsit3r of the representations made; and third, whether the complainant has not by his action -and conduct since the exchange and since the time of his alleged discovery of the falsity of defendant’s representations deprived himself of the equitable xemed}’’ of rescission of the contract, not only by an election to ratify and stand by the exchange, but by such neglect of proper treatment of the trees and orchards as to make rescission of the contracts now inequitable and unjust.

The extent to which the trees were actually infected by the scale at the time the exchange was made and when complainant took possession under the agreement (October 15th, 190&), was another point to which considerable evidence (expert and other) was directed. The dispute between the parties on this evidence, however, is whether (as complainant claims) at that time the condition of the orchards was such that a large part of them was practically worthless, by reason of the existence of the scale, or whether (as defendant claims) the orchards, although infected by the scale to an extent requiring thorough treatment as soon as practicable, could have been freed from the pest by proper treatment and at a comparatively small expense. But there can be no doubt, I think, that the existence of the scale in the ‘orchards, even to the extent shown by defendant’s evidence, so affected the value of the orchards as to make any representation that they were free from it material as well as false.

Certain principles controlling courts of equity in relation to the rescission of contracts which have been entered into and executed in reliance upon representations of fact which are material and which are subsequently found by the complaining party to be untrue, seem to be entirely settled. In these eases the mere falsity of a material representation entitles the injured party to the equitable remedy of rescission, if applied for with the promptness required by all the circumstances of the case. Proof of the defendant’s knowledge of the falsity of tire representation is not considered as essential to the right of rescission, nor is the honest belief of the defendant in making the representation a bar to this relief, as it may be in a common law action for deceit. At law, fraudulent intent, or, as is sometimes said, moral fraud, must be shown to have existed, while in a court of equity the complainant may succeed although the representation was innocent. Cowley v. Smyth, 46 N. J. Law (17 Vr.) 380, 393 (Supreme Court, 1884); Eibel v. Von Fell, 55 N. J. Eq. (10 Dick.) 670 (1897). In Cowley v. Smyth, supra, it was decided that in an action for deceit for false representations as to the solvency of a bank, of which the defendant was a director, fraudulent intent must be proved, and it should be left to the jury to say whether the defendant made the representations with a fraudulent purpose or whether he made them in good faith and in the honest belief that they were time. This decision has since been considered as establishing the broad, rule that in such common law actions the fraudulent intent to deceive must be proved. Eibel v. Von Fell, 63 N. J. Law (34 Vr.) 3 (Supreme Court, 1899); affirmed on writ of error, in 64 N. J. Law (35 Vr.) 364 (1899), for the reasons given in the supreme court.

In the early case of Snyder v. Findley, 1 N. J. Law (Coxe) 48, 51 (1791), Chief-Justice Kinsey, at nisi prius, ruled that at law a false representation inducing the contract in that case (taking the note of a third person in payment for goods sold on the representation that the note was good) was fraudulent, whether innocent or not, but this ruling, if inconsistent with the later cases, must be considered as overruled, and as important only for its bearing on the question debated (in Derry v. Peek, infra, and elsewhere) as to the original doctrine of the common law. Newbigging v. Adam, 34 Ch. Div. 582, 594 (Lord Bowen, 1886); Sir F. A. Pollock, in 5 Law Qu. Rev. 410, and cases cited; 2 Pom. Eq. Jur. (2d ad.) § 884, cases cited in note; 15 Cent. L. J. 327. The rule settled in Cowley v. Smyth, supra, is that of the leading case, Derry v. Peek, 14 App. Cas. 337 (1889), decided in the house of lords, in which, after great consideration, it was finally settled, in England, that in a common law action for deceit an honest belief of the defendant in the statements made was a defence, and that the fact that the belief was not, in the opinion of a court or jury, founded on reasonable grounds, did not of itself make the representation actionable, although the reasonableness of the grounds of belief might be considered on the question of honesty in entertaining it. The rule that in equity the complainant may rescind, although the representation was innocent, was stated and applied by Vice-Chancellor Stevens, in Eibel v. Von Fell, supra, in a ease where the representation of a vendor (assumed to be innocent) was that the house was as good as new, but in fact contained rotten timbers. The reasons given for extending the equitable. remedy of rescission to cases of innocent misrepresentations, which have induced a sale, has been best stated by Sir George Jessel, in Redgrave v. Hurd, 20 Ch. Div. 1; 51 L. J. Ch. 117 (1881) : “It was put in two ways, either of which was sufficient to induce a court of equity to rescind. It was said, ‘A man is not to be allowed to get a benefit from a statement which, he now admits to be false/ That is one way of putting- it. The other way of putting it was this: ‘Even assuming that you want moral fraud in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement he now knows to be false, insists upon keeping that contract/ That, of course, is a moral delinquency; no man ought to seek to take advantage of his own falsity. It does not matter which way it was put, but that was the rule in equity.” This equitable rule had been previously declared in Rawlins v. Wickham, 3 De G. & J. 304 (1858), and In re Reese Silver Mining Co., L. R. 2 Ch. App. 604 (1866), and was approved in Redgrave v. Hurd, 20 Ch. Div. 1 (1882), and where, in the opinion of the court, the representation was made without reasonable grounds for believing it true, the right to rescind was considered to be based on even stronger grounds. Reese Silver Mining Co., supra; Kountze v. Kennedy, 147 N. Y. 124, 133 (1895).

In Derry v. Peek, supra, the equitable rule in cases of rescission is recognized as settled, and the question mainly examined in the elaborate opinions of the judges is whether the justices of the court of appeal rightly applied to a claim, which was substantially an action for deceit, the equitable rules in cases of rescission. This equitable right to rescind for false representations innocently made is recognized, also, by other courts, which hold fraudulent intent neeessar3r in actions for deceit. Kountze v. Kennedy, 147 N. Y. 124, 129 (1895).

On the authority of these cases, therefore, I conclude that if the representations as to the condition of the trees and the absence of the scale alleged in the bill are proved to have been made, and to have been the representations which induced the contract, and they are false, the complainants, on the discovery of the untruth of the representations, had then an equitable right to rescind the contract, whether the representations were innocent or fraudulent. If the representations and their falsity are satisfactorily proved, the allegations, as to their willful and fraudulent character, may, so far as any right to rescind is concerned, be considered as superfluous or unnecessary.

The first and the principal question of fact to be determined is what representations were made by Nugent during the negotiations in relation to the condition of the trees and the scale, and what information had DuBois in reference to the scale on the trees at the time of the contract or exchange. (The evidence on this subject was voluminous and is stated .and considered in detail in a separate memorandum filed for the information of the parties, and the opinion proceeds.)

Upon the whole evidence, my conclusion as to the representations made by Nugent to DuBois is, that during the treaty for exchange, and both by circulars which came to DuBois’ attention and in the personal interviews, Nugent represented that the trees were sound and healthy and fruitful, but that during the negotiations, and before the contract of exchange was made, Nugent also disclosed to DuBois the existence of scale in one of the large orchards and in the small kitchen orchard, and that! he actually showed DuBois the scale on a few trees in those orchards. And I find, further, that DuBois concluded the exchange actually knowing of the existence of scale upon a few trees, and, supposing that to some extent it infected other trees, and that some treatment of the orchards was necessary for their protection from the scale. So far, therefore, as the right to rescind the contract or to relief under the bill depends upon the charge of a false representation by Nugent that there was no scale in the orchards, the complainant’s claim is not sustained by the proofs. It was, however, insisted by. complainant’s counsel at the hearing that on the disclosures made by Nugent, taking his evidence to be true, the complainant is now entitled to relief upon the ground that Nugent, during the whole negotiation, certainly represented the trees to be sound and healthy trees; that this representation charged in the bill was false by reason of the extent of the scale; that Nugent, by his words and conduct, misrepresented the extent to which the scale existed on the trees and its clanger, and misrepresented, also, the statements made to him by Mr. Whitehead in relation to the extent of the scale and its danger.

But this is not a case where, either on the pleadings or proofs, the charges of misrepresentation in reference to the condition of the trees can be separated from those in regard to the scale. No other disease or source of unsoundness than the scale is alleged in the bill or shown by the proofs, and if I have rightly apprehended the present case, as it now stands on the pleadings and proofs, it is one where the ultimate substantial question is whether Nugent disclosed to DuBois the existence of the scale in the orchards as a disease or pest, for which the orchards (otherwise sound and healthy) must be treated, and whether the exchange was made by DuBois with that understanding, or whether Nugent denied its existence in the orchards, .and the exchange was made on that basis. Treated as a question of formal pleading or procedure, relief to the complainant on the ground that, although the existence of the scale as a disease was disclosed, the extent of it was misrepresented or was not disclosed would be, I think, a substantially different claim from that set up in the bill. This charge, and the contention also made at the hearing that Nugent misrepresented Whitehead’s statements, and that his own statements about the danger from the scale were dishonest, or such as he had no reasonable ground to entertain, are issues substantially different from the one now raised on the pleadings, viz., that no disclosure of this disease or unsoundness was made, and it would not be safe to assume that the evidence in this case contains all the evidence on either side which would have been produced had these been the issues on the record. But the question of the character of the misrepresentations charged by the bill has a more important aspect than that of mere form or pleading. The bill is one for the rescission of executed contracts and deeds, on the ground of alleged false representations, and the bill itself is the first and only act of the complainant indicating her election to avoid the contract. The equity to have the contracts and deeds rescinded arises against the defendant, because of the substantial truth of the charges of misrepresentation made in the bill, and if these charges are untrue as made, defendant is under no equitable obligation to rescind, and is not guilty of any fraud, either legal or moral, in not offering to rescind the contract upon this bill containing these unfounded charges being filed. The formal charges of misrepresentation first made in the bill for rescissiSn, and upon which the election to avoid the contract is based, become, therefore, matters which reach to the substantial equity of complainant’s suit, viz., his right to insist that the defendant’s retention of the property conveyed to him is in equity a fraud, because he knows now, by the charges of the bill, that the representations, upon the faith of which the exchange was made, are false, and that in equity he should, knowing or learning their falsity, offer to rescind. It appears in this case that from the time, or shortly after the time, when DuBois discovered the extent of the scale, he has charged Nugent (falsely, I think) with having told him the place had no scale on it, and has, up to the time of filing the bill, insisted on this claim of false representation on Nugent’s part, and now by his bill claims to rescind on this account. So long as the bill takes this false position as to what took place between DuBois and Nugent in regard to the disclosures, no equity arises against Nugent which would require him to rescind the contract and return the property, nor can there be said to be any fraud, moral or legal, in retaining property whose return is demanded on a charge of misrepresentation which is false.

Eor these reasons I conclude that relief cannot be granted to the complainant on this bill, if the conclusions I have reached as to the actual disclosures made by Nugent as to the scale are correct, and that the misrepresentations'charged in the bill have not been proved.

This conclusion disposes of the question of the representations made and their falsity, and, if correct, determines the case against the complainant. But the further question of DuBois’ conduct after his discovery of the existence and extent of the scale should be considered briefly, because it has a direct bearing on the right of rescission claimed in the bill, either as showing his election to stand bjr the contract after the discovery of the alleged fraud or as so long delaying the claim to a rescission that it would now be inequitable. The discovery of the extent of the scale was made by DuBois certainly not later than the visit of Professor Smith, November 16th, 1902, and probably somewhat earlier. Although DuBois, after this time, complained frequently in his letters and interviews about the destruction of the orchards, he did not, in any of them, indicate that he desired to rescind the contract, but did, in some of them, expressly ask some compensation or new arrangement in reference to the $8,000 purchase-money mortgage, which he could not now carry or pay off by reason of the reduced income of the farm, resulting from the condition of the trees. And on this basis of continuing to stand by the exchange, leaving open the question as to a claim for compensation, he carried out, after the discovery of the falsity of the alleged representations, several of the provisions of the contract of exchange relating to the personal property, which were not completed when the deeds for the real estate were exchanged. He also disposed of the crops on the farm, and in all of his letters to Nugent indicates his intention to keep the farm. There was no actual rescission nor any attempt or offer to rescind the contract before the filing of the bill, and the bill is based not on any previous rescission, but is itself the procedure for rescission by judicial action. Generally, a rescission before action brought is necessary in an action at law (Conlan v. Roemer, 52 N. J. Law (23 Vr.) 53, 58), but in equity a bill for rescission may be sustained, although no rescission or offer to rescind has been previously made or attempted. The distinction between the two classes of remedies is, that the action brought at law is generally based on the theory that the rescission has already been legally completed by the action. of the injured party, while the equitable remedy reaches also to a rescission by-judicial action, based on the right to rescind for the reasons charged in the bill. Gould v. Cayuga Bank, 86 N. Y. 75, 83 (1881). But where the rescission depends solely on judicial action to be taken on a bill, it can be decreed, I think, only on the substantial proof of the false representations charged in the bill, which complainant has elected to set out, and not on any other alleged false representations.

If DuBois had in fact satisfactorily made out the claim set up in his letter of November 16th, 1902, and in his bill, that Nugent had told him the scale was not on the place, I am not prepared to say that his acts in subsequently carrying out the exchange would indicate an election, for it will be observed that Nugent never replied to this charge in DuBois’ letters or answered his inquiries, and the time consumed in waiting for a reply (which DuBois was entitled to if there had never been any disclosure), or the acts done during this interval, would not be sufficient to prove an election. But, on the other hand, if the charge was false, and known to be false, then DuBois’ delay in rescinding, or offering to rescind, the contract, until he could get some answer to the false charge, must be taken against him, rather than in his favor, and in connection with his carrying out of the incomplete parts of the contract, and continuing the complete control of the farm must be considered, I think, as sufficient evidence that before filing the bill he had elected to stand by the contract, hoping, however, to procure an abatement in the price by reason of the great extent of the scale. By the last letter written by DuBois, on January 31st, after the bill had been filed (January 13th) and subpoena served, and in reply to Nugent’s long letter of January 4th, it appears, I think, that one object of DuBois in filing the bill to rescind was to procure an abatement of the price. In this letter, after charging Nugent with misleading statements as to the trees in his circulars (omitting, however, any reference to Nugent’s statement about the scále), he justifies an appeal to the courts, and concludes his letter by asking, “Don’t you think that you should reconvey her city property, or at least make her some reasonable allowance for the diseased condition of the trees ?” ’ An election to stand by the bargain, once made, is final and cannot be recalled. Dennis v. Jones, 44 N. J. Eq. (17 Stew.) 513 (Court of Errors and Appeals, 1888); Arnold v. Hagerman, 45 N. J. Eq. (18 Stew.) 186, 196 (Court of Errors and Appeals, 1888).

The other question whether a rescission of the exchange, first asked by the filing of the bill on January 13th, 1903, is applied for too late, even if there had been no election, is not raised by the answer, but was raised at the hearing and argued. The evidence, considered on all sides, gives rise to some doubt whether, if Nugent had, on filing the bill, consented to the rescission (supposing it to be established on the proofs that the contract should be rescinded, and that equitably, therefore, he should have consented to it on the filing of the bill), his situation in reference to the treatment and care of the orchards would have been substantially different from what it was at the middle of November, when DuBois received from Professor Smith reliable information as to their condition and the extent of the scale. While most of the expert fruit-growers think the spraying, if done with oil, is best applied as late as February and March, yet I think the evidence shows that as soon as the leaves are off— that is, from November—the treatment o’f the orchards is often taken in hand. Mr. Whitehead seems to have commenced on his.own orchard as soon as the leaves were off. But Nugent himself, as appears by his letters, both to Chrysler and DuBois, and by his evidence, thought February or March early enough to undertake the complete and- thorough treatment of the orchards, and the weight of the expert evidence favors this view. If, therefore, the situation as it existed at the date of filing the bill is the standard or criterion to which the equities of the parties, as to change in the situation, are to be referred, there was no' substantial change in the condition of the orchards up to that time.

It appeared by the evidence that subsequent to the filing of the bill, and in the spring of 1903, DuBois made no effort, by spraying or otherwise, to protect the orchards, and that at the time of the hearing, in 1904, most of the orchards were practically dead, and the farm, as a fruit farm, practically worthless. It is clear, by all of the evidence, that unless attended to in the fall and winter of 1903-1904, at the latest, there was no hope of saving the orchards. Two of Mr. Nugent’s witnesses— expert fruit-growers—who have had large experience with orchards infected by scale, and who examined the orchards in June, 1903, say that the larger portion of the orchards could then have been saved by- treatment in the winter of 1904, but their examination of the orchards was somewhat hasty, and as to the extent of the scale in the spring of 1903 the evidence of Chrysler, who had charge of the orchards under Nugent, and afterwards under DuBois, seems to be more reliable. I-Ie says that in the spring of 1903 there were two or three hundred of the plum and peach trees which were entirely dead, and that about a third of the trees needed to be “headed back” in order to save them; that the other two-thirds could have been saved, he thinks, by spraying. There is no doubt that by the neglect to treat the orchards after the filing of the bill they were, at the time of tire hearing, destroyed beyond any hope of restoration, and the question is whether this neglect of the orchards since the filing of the bill is to have weight in affecting the equitableness of a rescission. It is insisted, on behalf of DuBois, that after his election to rescind, made by filing" the bill for that purpose, the risk of any subsequent change in the condition of the property affected is upon the defendant, if a decree for rescission go eventually for the complainant. Generally speaking, this position is a sound one, and the reason is that if the claim for rescission set up in the bill is well founded, the defendant acts inequitably in refusing to rescind at once. If the charge in the bill that Nugent denied the existence of scale in the orchards is satisfactorily proved, then the result is that on the filing of the bill making this false representation the ground of rescission, it was Nugent’s equitable duty to have consented to the rescission at once, and the subsequent change in the condition of the trees will not relieve him from this duty, even if it is due to DuBois’ failure to care for the trees. But, if my conclusion as to the facts at issue in the cause is correct, that this charge of the bill, on which the claim to rescind has been based, has not been made out, then, of course, no equitable duty to rescind has at any time been imposed on Nugent by reason of the claim for rescission made in the bill, and if relief at the hearing on the proofs is asked for on account of misrepresentation or conduct substantially different from that relied on in the bill, then the change in the condition of the trees pending the suit, and up to the time of hearing, should be considered as at the risk of the complainant, and I think would make any rescission now inequitable. I will advise a decree dismissing the bill.