text:
    Melbourne F. Middleton, administrator, appellant, v. William D. Carter, substituted administrator, respondent.
    [Argued November 6th, 1907.
    Decided December 20th, 1907.]
    The decree relating to the accounts of the appellant in this case is affirmed, for the reasons stated in Middleton v. Garter, ante p. 624.

    On appeal from the Camden county orphans court.

      Mr. John J. Crandall, for the appellant.

      Mr. Lewis Starr, for the respondent.
   Magie, Ordinary.

The matter brought up by this appeal relates to the account of appellant as administrator of the estate of Ida Mildred Carter, deceased. Appellant had been appointed her administrator, and had been removed from his office, and respondent had then been appointed substituted administrator.

The account of appellant, filed under the order of removal, had been excepted to upon substantially the same grounds as were taken in the matter of the administration of the estate of William L. Carter, deceased. They presented the same questions, and were decided by the orphans court upon the same grounds as were those interposed to the other proceeding. The examination of that case has led to the affirmance of the decree therein upon the exceptions there interposed, and for like reasons the decree of the orphans court in this case is also affirmed.


source: Caselaw Access Project

author: Pitney, Chancellor.

license: Public Domain

text:
    Phineas B. Marr, appellant, v. William A. Marr et al., respondents.
    [Argued December 13th, 1907.
    Decided June 15th, 1908.]
    1. As a general rule, if a trustee becomes the purchaser of the trust property, such purchase is voidable at the instance of the cestui que trust.

    2. This rule applies notwithstanding the trustee purchase at a public sale.
    3. The director of a corporation occupies a position of trust or agency for his company of such a character that dealings between him and the company, where his interest is opposed to that of the company, will be subject to close scrutiny and not sustained against the stockholders unless consistent with good faith and fair dealing on the part of the director.

      4. A director, who is at the same time a creditor of his corporation, may, for the purpose of collecting his debt, assume a position antagonistic to his company and its stockholders by bringing action and proceeding to judgment and execution for the recovery of the debt.
    5. But a director, who is also creditor of his company, must, on taking legal proceedings for collection of his debt, relinquish his trust pro hao vice, not covertly, but openly, and with fair notice to his company. Whether such notice should be given to the stockholders or to the directors may depend on circumstances.
    6. Under the circumstances of the present case — Held, that the defendant director, who purchased at sheriff’s sale all the property of the company under executions issued at his suit, and for a consideration not exceeding one-half the value of the property, took the title subject to an option on the part of his oestm que trust to have the benefit of the purchase.
    7. Relief, under the circumstances, granted to a single stockholder who by reason of infancy was not chargeable with laches, notwithstanding that the other stockholders might be debarred on the ground of their acquiescence or laches.
    On appeal from a decree of the former chancellor, advised by Vice-Chancellor Learning, whose opinion is reported in 72 N. J. Bq. (2 Buck,.) 797.

      Messrs. Bleakly & Btockwell, for the appellant.

      Mr. Thomas B. Hall and Mr. Dwight M. Lowrey (of the Philadelphia bar), for the respondents.
   The opinion of the court was delivered by

Pitney, Chancellor.

The bill of complaint herein is in form a bill filed by the complainant as a stockholder of the Beacon Land Company, in behalf of himself and other stockholders, for the purpose of either setting aside certain sheriff’s sales of the real estate and personal property of the company made to the defendant William A. Marr under executions issued upon a judgment held by the latter against the company, or else to impress a trust upon his title in favor of the complainant and other stockholders. William A. Marr and the Beacon Land Company were named as defendants. It appears, however, by the averments of the bill, that in the year 1902, and long prior to the commencement of this suit, the charter of the company was forfeited by reason of its failure to pay the state taxes assessed against it. P. L. W02 p. &36. This fact was admitted at the hearing. It further appears from the answer of William A. Marr that there is no acting board of directors of the land company, and that from the time of the sheriff's sales in question, which took place in November and December, 1898, the organization of the company has been abandoned. Therefore the bill is in effect filed for the benefit of the complainant and other stockholders as upon a liquidation of the company.

It is argued that since, under sections 53 and 54 of the General Corporation act (P. L. 1\8&6 p. 29\5), a corporation, when dissolved, is continued for the purpose of winding up its affairs and dividing its capital, and the directors are made trustees for the purposes of the winding up, it was incumbent upon the complainant to notify the board of directors of his claim and request them to take action in the matter. No such application having been made, it is insisted, upon the authority of Siegman v. Maloney, 65 N. J. Eq. (20 Dick.) 372, that his action cannot be maintained. If this objection had been interposed by demurrer to the bill (as was done in Siegman v. Maloney), or otherwise before the hearing of tlie cause upon -its merits, it might have required consideration. Since the case, however, has been fully heard upon the merits, no good purpose would now be accomplished by turning the complainant about and requiring him to ask the board of directors to do for him that which he has been able to do for himself, viz., produce the evidence necessary for a determination of his case upon the merits. It should be observed, also, that the point that the board of directors ought to be entrusted with control of the litigation is not raised by or in behalf of the corporation.

The bill was dismissed on the- ground that the complainant had no equity. We will, therefore, upon this appeal, pass upon the merits.

The facts that give rise to the controversy are briefly as follows: The Beacon Land Company was incorporated in the year 1892 for the purpose of acquiring and operating a seaside hotel at Point Pleasant, in Ocean county. The company was a sort of “close corporation,” the principal stockholders being at the outset James H. Marr (father of the complainant), and his brothers, William A. Marr and George A. Marr, together with a personal friend of theirs, a physician by profession, named McWilliams. The outstanding capital stock (all of which was fully paid, so far as appears), amounted to $24,000 in par value, divided into forty-eight shares of $500 each, of which James H. Marr held twenty-one, William A. Marr ten, George A. Marr three, Dr. McWilliams ten, J. W. Felty three, Charles Lewis one and Mrs. Helen M. Crawford (a sister of the Marrs) one share. The directors at the beginning were William A. Marr, J ames H. Marr, George A. Marr and Dr. McWilliams (all residents of Pennsylvania), and Mr. Lewis, who resided at Asbury Park, in this state. William A. Marr was, from the beginning and at all times, the president. James H. Marr (father of the complainant) died in the year 1895, whereupon his sister, Mrs. Crawford, was elected a director in his stead. Upon the settlement of his estate, fourteen of his shares passed to a Philadelphia trust company, as guardian of the complainant, the latter being then but eleven years of age, and seven shares passed to Rebecca G. Marr, widow of the deceased and mother of the complainant. Except as mentioned, there appears to have been no change at any time in the stockholding interest, nor in the personnel of the board of directors.

At the death of James H. Marr the company was somewhat in debt, and during the next two years the indebtedness was considerably increased, either because the operations of the hotel were unprofitable or because the profits were expended in improvements upon the property. Both before and after the death of James H. Marr, the defendant William A. Marr had advanced to the company considerable sums of money from time to time, and by the close of the year 1897 he had become its sole creditor. In the year 1896 Rebecca G. Marr sued the company in the supreme court of this state and recovered a judgment for $2,057 and costs, and, upon her pressing for payment, William A. Marr paid to her the amount of the judgment and costs and took an assignment thereof in January, 1897. At the same time the company owed him other moneys, aggregating upwards of $8,500, besides interest. In the month of September, 1898, he brought action against the company in the supreme court upon this claim, and recovered judgment a month later for $10,287.90, besides costs. Upon execution issued upon this judgment he caused the entire visible assets of the company (and the whole assets, so far as appears), to be sold by the sheriff and became himself the purchaser. The real estate was struck off to him at the price of $3,000 and the personal property at the price $850. There was no advertisement beyond such as is required by the statute, and there were no bidders in attendance at either sale besides William A. Marr. So far as the amount of the purchase price is concerned, we agree with the learned vice-chancellor that, since the corporation had no other assets, the bids are to be deemed, as between William A. Marr and the company, as in effect equivalent to the aggregate amount due upon the two judgments held by him, which, with interest, amounted to approximately $12,500.

It was deliberately admitted at the hearing, and is therefore bejrond controversy upon this appeal, that the property, real and personal, at the time of the sheriff’s sales, was fairly worth $25,000.

The complainant and appellant claims that, under the circumstances existing at the time of the sale, William A. Marr was a trustee for the stockholders of the company, and obliged either to protect their interest by preventing a sale, or to give them fair notice that the execution sale was in contemplation, so that they might take measures for their own protection; and that since such notice was not given, and since William A. Marr bought in the property at much less than its value, he must be deemed to have purchased, as a trustee, for his stockholders. The learned vice-chancellor entertained the view that the complainant was not entitled to relief, because, although no notice of the sale was given to the several stockholders other than the statutory notice, it would have been futile to give such notice, and that since defendant Marr had at a previous time earnestly tried to get the stockholders to interest themselves in raising the money due to him, and had found this impossible, he was warranted in putting his claim into judgment and bringing-the property to sale without further notice to them.

The bill' of complaint charges that some of the promissory notes upon which William A. Marr’s judgment against the company was based were paid and satisfied before suit brought, and that the remaining notes were without consideration and fraudulently made by the defendant, as president, to himself. It is proper to say that the proofs wholly fail to support these allegations, and, on the contrary, affirmatively show that both the assigned judgment of Rebecca G. Marr and the judgment recovered by William A. Marr himself were based upon honest indebtednesses of the company owing for monej^s advanced to it in order to enable it to carry on its proper business.

Nor do the proofs, as we think, support the charge that there was intentional fraud on the part of William A. Marr about bringing the property of the company to sale under his judgments.

Tt remains to be considered whether, under the circumstances obtaining at the time, and in view of the defendant’s trust relation to his stockholders, and the fact that neither the directors nor the stockholders had notice of the sale, the defendant must be deemed to have taken title as trustee for his stockholders.

The learned vice-chancellor, of course, recognized the general principle of equity, that if a trustee becomes the purchaser of the trust property, such act is voidable at the instance of the cestui que trust. In Staats v. Bergen, 17 N. J. Eq. (2 C. E. Gr.) 554, 559, this principle was applied by this court in a case where the property sold did not belong to the cestui que trust. The property consisted of certain real estate subject to several mortgages, the second of which was held by the trustee, and the purchase was made by him at a public sale under foreclosure of the first mortgage. In that case it was expressly laid down in the court of chancery (Staats v. Bergen, 17 N. J. Eq. (2 C. E. Gr.) 297, 307), that the rule that where a trustee or any person as agent for others buys the trust property, the cestui que trust is entitled, as a matter of course, to an election whether to acquiesce in the sale ox to have the property again exposed for sale, applies, notwithstanding the sale to the trustee was made at public auction, bona fide or for a fair price. This statement of the rule was taken for granted in this court. 17 N. J. Eq. (2 C. E. Gr.) 557, 558.

Another decision of this court to the same effect is Marshall v. Carson, 38 N. J. Eq. (11 Stew.) 250, where Mr. Justice Knapp said (at p. £52) : “The rule that one clothed in a fiduciary character cannot, either directly or indirectly, become the purchaser of the trust property at his own sale and hold such property against the dissent of the cestui que trust, is of such universal prevalence, and so grounded in the demands of public policy that no one ventures to question its existence or seeks now to overthrow it. * * * It (the rule) recognizes the difficulty, if not impossibility, of tracing actual fraud in every case, and the frequent failure of justice and success of wrong that must be consequent thereon, and it attempts to apply a method that will remove all temptation from the mind of the trustee to profit by infidelity in the discharge of trust duties of every sort, and which will remove all inducement to act otherwise than faithfully toward the beneficiary, by utterly refusing to consider the question of good or bad faith, and holding the trustee who attempts to deal with the trust property as an individual to all the chances of loss and denying to him all possible gain. This rule, although perhaps most frequently found applied in the decided cases where the existing fact is a sale by or under the direction of the trustee, is by no means limited to that circumstance, as reference to decided cases will show.”

But how far is the rule modified when the trust or agency arises out of the fact that one is president or director of a corporation, and he at the same time is a creditor of the company, and the company’s property is brought to judicial sale for the purpose of satisfying such debt?

It is settled that a director has not complete freedom to contract with his corporation. In Stewart v. Lehigh Valley Railroad Co., 38 N. J. Law (9 Vr.) 505, 522, Justice Dixon, speaking for this court, said: “After an examination of all the cases cited, and such others as I have found, and a careful consideration of the principle and the results of regarding it and of disregarding it, I have come to the conviction that the true legal rule is that such a contract is not void, but voidable, to be avoided at the option of the cestui que trust exercised within a reasonable time. I can see no further safe modification or relaxation of the principle than this. A director of a corporation may have rights not arising out of express contract — such as the right to pass over its railroad, or to transport his goods over its canal, on paying reasonable tolls, or to have money which he had loaned it repaid to him; but where the right is one which must stand, if at all, upon an express contract, and which does not arise by operation or implication of law, then he shall not hold it against the will of his cesiui que trust; for in the very bargain which gave rise to it, in which he should have kept in view the interest of that cestui que trust, there intervened before his eyes the opposing interest of himself.” See, also, Gardner v. Butler, 30 N. J. Eq. (3 Stew.) 702, 721.

We cite the last two cases because they show that a director occupies a position of trust, or agencjq for his company of .such a character that all dealings between him and the company, where Ms interest is opposed to that of the company, will be regarded with jealousy and suspicion and subjected to the closest scrutiny, and not sustained against the stockholders unless they are consistent with the utmost good faith and fair dealing on the part of the director.

Conceding, as we do, that a director may, under such circumstances as are presented in the case before us, become a creditor of his corporation, it follows ex necessilate that he may, for the purpose of collecting his debt, assume a position antagonistic to his company and its stockholders. He may, undoubtedly, bring action against the company and proceed to judgment and execution for the recovery of his debt.

But we deem it clear that the director, who is also creditor, must, on taking legal proceedings for collection of Ms debt, relinquish his trust pro hac vice, not covertly, but openly, and with fair notice to his company. Whether such notice should be given to the stockholders or to the directors may depend upon circumstances. If the company is equipped with other officers and directors who are actively representing the interests of the stockholders, it may well be that notice to such officers or directors would be deemed sufficient. But it is, as we think, inconsistent with the duty of a director (at least under circumstances such as are here presented) that he should assume an attitude antagonistic to his company, unless he sees to it that the interests of the stockholders, which he, by reason of his personal interest, is for the time disqualified from protecting, are in the charge of other officers and directors able and willing to protect them, and to whom his notice may be given, or else sees to it that fair notice of his contemplated action is given to the stockholders, so that they may take measures to protect themselves.

In the present case it appears, as already mentioned, that the defendant Marr was the sole creditor, so that the only other interest in the company was that of the stockholders, who were few in number and easily reached. It appears that the board of directors had practically ceased to act in the affairs of the company, their last meeting having been held in July of 1897; and no meeting having been called after that date, nor any new board of directors chosen.- It appears that the defendant Marr was not only the president, but was practically in sole charge of the current business of the company during the year 1897, and also during the year 1898.

In the year 1897 the financial difficulties of the company became serious. What was done at the last meeting of the board of directors does not appear. A meeting of the stockholders was held in Philadelphia on December 29th, 1897, at which the defendant Marr, George A. Marr, Mrs. Crawford and Dr. Eelty were present, and also a Mr. Glenn, who was the trust officer of the trust company that was guardian of the complainant. Mr. Glenn was at the same time acting as attorney for Mrs. Rebecca G. Marr, the mother of the complainant, who was herself a stockholder. At this meeting Mrs. Marr’s judgment against the company and the assignment thereof to William A. Marr were reported and spread upon the minutes as a debt due to William A. Marr. The other indebtednesses due to William A. Marr were likewise mentioned and recognized. Another meeting of the stockholders was held in Philadelphia on February 16th, 1898,. at which William A. Marr, Dr. McWilliams, Mrs. Crawford, George A. Marr and Mr. Glenn were present. After a general discussion of the indebtedness of the company and of its prospects, Mr. George A. Marr and Mr. Glenn were appointed a committee to make arrangements with an auctioneer for the sale of the property. This sale was' appointed to be held in Philadelphia on a date in April. An upset price of $18,000 was agreed upon by the committee, but no bid was received for an amount approaching that sum. At the two stockholders’ meetings just mentioned, William A. Marr stated to Glenn and to the others present that, unless a sale of the property of the company could be effected, defendant would put his claims into judgment and sell the property. It appears, indeed, that none of the stockholders was at this time willing to come forward to contribute towards the payment of the debts. But Mr. Glenn had no information respecting the prospects of the company or the value of its property except that which he received from William A. Marr, and this information gave him the impression that there was no equity in the property over and above William A. Marr’s claims.

The hotel was operated by the company during the summer of 1898, and reports of its operations were made to the defendant Marr, as president, who advanced small sums to Mrs. Crawford, the manager, for expenses during that season. The defendant made no report to the stockholders or directors of the operations of the hotel for the season, and called no meeting of stockholders or directors after February, 1898. The indifference of the directors to the concerns of the company seems to have been his reason for pursuing this course; at least, that is the reason that is most favorable to him.

In September, as already mentioned, he brought his action, without notice to anybody representing the company, except, as it may be.inferred, that some agent of the company received service of the process; in October he recovered the judgment and in November brought on the property for sale — all without notice to anybody concerned.

Directors’ meetings having been abandoned since July, 1897, and meetings of the stockholders substituted in December of that year, and in February, 1898, and Mr. Glenn, representing the trust company, which was guardian for the complainant, having appeared and taken an interest in the Compaq’s affairs, it seems to us that the scrupulous care which the defendant Marr owed to his cestui que trust required, under the circumstances, that at least the trust company, or Mr. Glenn, should have been notified when steps were actually taken to put the defendant’s claim into judgment and sell the property thereunder. It is true Mr. Glenn testifies that, with the information he had at his command, he would not have felt warranted in expending the complainant’s money in protecting the property at the sale. But if he had been informed that there was an equity in the property worth as much as $12,500, it is not to be presumed that he would have omitted reasonable efforts to secure competition in bidding at the sale.

The general notice given by defendant Marr at the meetings of December and February, that unless something was done about his claims he would have to press them — the notice given hardly amounted even to a threat — did not, we think, dispense in fairness with the more specific notice that might, and, in our view, ought to have been given when steps were actually imminent to sell the property of the company for the payment of his claim.

The property of the company, having an admitted value of $25,000, and its total indebtedness being only half that amount (all held by the defendant Marr), it would seem that a sacrifice of the property might have been prevented by the expedient of a mortgage loan. Yet, so far as appears, this was not attempted, nor even suggested. Nor was any statement of the assets of the company, or of their value, submitted by the defendant, either to the directors or to the stockholders.

It thus clearly appears that the defendant Marr did not, upon bringing action against the company, openly relinquish his trust, nor give notice to the company that he had done so. If the directors were indifferent to the affairs of the company, he should have given such notice as would have brought home to them their responsibility. At least, he could have called them in meeting and informed them of his action. If they had abandoned the duties of their office, there was all the more reason for him to give his notice to the stockholders direct.

An important and perhaps controlling circumstance is that in the outcome the property sold for only half its value. We cannot agree with the learned vice-chancellor that it is a sufficient answer to this to say that the law court from which an execution issues can set the sale aside for inadequacy of price. He cites Palladino v. Hilpert 72 N. J. Eq. (2 Buch.) 270. In that case application was made to the court of chancery to restrain the sheriff from delivering the deed. In that juncture the application might have been made to the court out of which the execution had issued. After the 'delivery of the deed it is, of course, too late to do this. Where the law court sets aside a sale made under its process, it does so in the exercise of its equitable, not of its common, law powers. See Miller v. Barber, 73 N. J. Law (44 Vr.) 38, and cases cited. But these equitable powers are only incidental to the control which the court has over its own process of execution, and do not survive after the writ is fully executed. After the deed has been delivered to the purchaser, any application to set it aside for inadequacy of price must necessarily be made to the court of chancery, which court, in the exercise of its independent equitable powers, may either set aside the deed or treat the grantee as a trustee for others to the extent that he has reaped an undue profit from the transaction at their expense.

We hold that, under the circumstances disclosed by the evidence, the defendant Marr took title at the sheriff’s sale subject to an option on the part of his cestui que trust to have the benefit of the purchase. Treating the company as a going concern, the option would have resided in it and would have had to be exercised within a reasonable time. But it is asserted by the defendant himself in his answer, and is abundantly clear from the evidence, that since the sheriff’s sales the organization of the company has been abandoned. In 1902, as already observed, the •charter of the company was forfeited. As there were no other creditors, the individual stockholders were the actual cestuis que trustent. But none of the stockholders, other than complainant, has asked relief, and it may well be that the others are debarred from having any remedy against the defendant on the ground •either of acquiescence or of laches. The present decision will therefore determine only the rights of the complainant.

Although complainant’s bill was not filed until seven years after the sale, it was filed very promptly after he arrived at his majority, and laches is not attributable to him. Such notice as was given to his guardian was that already referred to, and was merely to the effect that unless the defendant M’arr’s claim was paid he would probably take legal proceedings. The guardian had no specific notice that legal proceedings had been commenced, nor was it placed in possession of such information ■concerning the value of the property as should have put it upon guard to protect the infant’s interest. It is therefore unnecessary to decide whether, under other circumstances, the non-action of the guardian would bar the infant’s claim in equity.

The remaining question is, just what measure of relief ought to be accorded to the complainant under the circumstances. Defendant has been in possession of the property since the sheriff’s ■sales, and the evidence indicates that he has placed some improvements upon it; whether these have increased the value ■of the propert}1', and if so to what extent, does not appear.

Under the peculiar circumstances of this case we think the ■complainant is entitled to an option whether he will affirm the sale to the defendant Marr and treat the latter as a trustee for the complainant to the extent that he profited by the purchase, or whether he will insist upon setting the sale aside.

If he accepts the first alternative, then upon ascertaining the ■difference between the market value at the time of the sheriff’s ■sale, which was $25,000, and the amount of the claims held by the defendant Marr against the property, with interest to the firne of sale, the defendant Marr should be required to pay to the complainant his share of the difference, that is, fourteen forty-eighths, or seven twenty-fourths, with interest thereon from the time of filing the bill of complaint herein.

If complainant' accepts the second alternative, an account should be taken of the amount due at the time of the sheriff’s sale to the defendant Marr upon his judgments, and he should be credited likewise with the present value of any betterments placed by him upon the property since his purchase, and charged with a proper rental for the property since the sheriff’s sales, and with a proper amount for depreciation and damage to the personal property, if any, during his possession thereof. In this accounting interest should be allowed with proper rests.

Upon ascertaining the amount now due to defendant Marr upon such accounting, the property should be subjected to judicial sale and out of the proceeds he should be first paid the amount due to him, and out of the residue seven twenty-fourths should be paid to the complainant and the remainder to the defendant Marr.

In either case, the complainant is entitled to his costs in the court of chancery and in this court, to be paid by the defendant Marr.

Let the decree under review be reversed, and the record remitted to the court of chancery for further proceedings in accordance with the views above expressed.

For affirmance — None.

For reversal — The Chancellor, Swathe, Trenchard, Parker, Bergen, Bogert, Yredenburgh, Yroom, Green, Gray, Dill — 11.


text:
    Northeastern Telephone and Telegraph Company, complainant and respondent, v. Daniel Hepburn, defendant and appellant. Northeastern Telephone and Telegraph Company, complainant and respondent, v. William B. Hepburn and Robert Hepburn, appellants. Northeastern Telephone and Telegraph Company, complainant and respondent, v. Henry Hepburn, appellant.
    [Argued December 2d, 1907.
    Decided March 2d, 1908.]
    1. Though, in construing deeds, the question is not what interest did the grantor intend to pass, but what interest did he pass by apt and proper words, and though extrinsic evidence, except such as throws light upon the circumstances and subject-matter, is to be disregarded, still the construction of a deed should be in conformity with the intention of the parties whenever the law will permit.
    2. A deed to a water company having no right in its corporate capacity to operate a telegraph or telephone line except as it might be incidental to the purposes of a water company granted a right of way for the laying of water pipes, “with the right to set up, operate and maintain a telegraph or telephone line or lines thereon and with the right of ingress and egress to and from such right of way for all purposes.” — Meld, that the clauses relating to the telegraph or telephone lines, and to the right of ingress and egress, were consistent with and incidental to the principal object of the grant for the construction and maintenance of the water plant, and imposed upon the land in question only the burden resulting from such telegraph and telephone lines as might be reasonably adequate for the purpose of constructing and maintaining the pipe lines authorized by the grant, and hence was not broad enough to confer on a telephone company holding under an assignment from the water company the right to use such right of way for the maintenance of a commercial telephone line.
    3. The word “with,” preceding the grant of the right to set up, operate and maintain a telegraph or telephone line and also preceding the grant of the right of ingress and egress, imports a close and inseparable union between those rights and the right to maintain the pipe lines, and indicates that the rights granted by the clauses following it were incidental to the pipe-line right.
    4. The right to maintain “a telegraph or telephone line or lines,” when construed as a right appurtenant to the right to maintain the pipe lines, does not import an unlimited number of wires, but only such as may be reasonably necessary for the maintenance and operation of the pipe line.
    5. The words “for all purposes,” in the appurtenant grant of the right of “ingress and egress to and from said right of way for all purposes,” did not enlarge the grant with i-espect to the maintenance of the telegraph or telephone lines, so as to make it independent of the grant of the right to maintain the pipe lines.
    G. Where a water company contracted for a right of way for the maintenance of its pipe lines with the right to maintain telegraph or telephone lines thereon, and with the right of ingress and egress to and from the right of way, it would be presumed where the company had no authority under its charter to maintain the telegraph and telephone lines as commercial lines, but only as incidental to the maintenance of the pipe lines, that the latter was the intention of the parties to the grant.
    7. Where, by the terms of a grant of a right of way to a water company for the construction of such telegraph and telephone lines as might be incidentally necessary to the operation of its water plant, the possession and use of the right of way was reserved to the grantors subject only to the grant, the entrance on the right of way by a telephone company for the purpose of constructing new and additional lines for the maintenance and operation of a commercial telephone system was a violation of the legal rights of the grantors, and constituted a trespass.
    8. The fact that the practical burden of an existing easement to erect telephone lines incidental to the maintenance of a water plant will be but slightly increased by permitting the erection of additional lines on the same right of way for the maintenance of a commercial telephone will not justify the interference of equity to enjoin the owners of the right of way from intei'fering with the construction of the additional lines, where the rights of the owners to the possession and use of the land were expressly reserved by the grant to the water company, subject only to that grant.
    9. Where a telephone company violated the property rights of owners of land by going thereon and constructing telephone lines without any right whatever, an injunction restraining the property owners from interfering with the construction of the lines will not be continued until compensation to such owners may be ascertained and made by the telephone company, in the absence of laches or acquiescence on the part of the property owners.
    On appeal from a final decree of tire former chancellor, advised by Vice-Chancellor Pitney, whose opinion is reported in 72 N. J. Eq. (2 Buck.) 7.

      Messrs. Biker Biker, for the appellants.

      Messrs. Collins & Corbin, for the respondents.
   The opinion of the court was delivered by

Pitney, Chancellor.

These three cases are identical in their circumstances, were heard together in the court of chancery, and argued together before this court. In each case a temporary injunction was granted by the court below, and by the final decree this injunction was made .permanent, and the defendants were thereby perpetually enjoined from interfering with the complainant in the erection, construction, maintenance and operation of a certain line of telephone poles, or with any cross-arms that had been or might be placed upon the poles, or with any wires that had been or might be strung upon the cross-arms.

The circumstances are as follows: In the year 1889 the East Jersey Water Company was incorporated under the “Act concerning corporations,” approved April 7th, 1875. In the articles of association the objects of the company were declared to be

“the storage, sale and delivery of water, and tlie construction and maintenance of the necessary reservoirs, pipe lines and other works therefor, the acquisition of the necessary and appropriate property, real and personal, with the power to lease, sell, mortgage and convey the same or any part thereof.”

This company made a contract with the municipal authorities of the city of Newark that provided for the construction of a system of water works for the supply of the city, including storage reservoirs in the Pequannock watershed and a water pipe line, or aqueduct, extending thence to the city of Newark. The pipe line was laid out and constructed across certain farm lands situate in the counties of Essex and Passaic, now owned by the defendants respectively. In the year 1891 certain deeds of conveyance were made by the defendants, and other deeds by their predecessors in title, granting to the East Jersey Water Company certain rights over and upon these farms. For brevity, we may call these instruments the “Hepburn deeds.” They were alike in form, and their essential clauses were as follows: The grantors

“do hereby grant and convey to the East Jersey Water Company * * * its successors and assigns, the right of way over, through and across the lands hereinafter described, situate, etc., * * * in and upon which to lay, operate and maintain a. water pipe or water pipes for the transportation of water to the city of Newark in said state and other places; such pipe or pipes to be laid within a space not exceeding the width (99 feet) particularly described in the description hereinafter set forth, with the right to set up, operate and maintain a telegraph or telephone line or lines thereon, and with right of ingress and egress to and from said right of way for all purposes.”

Then follows a description by metes and bounds of the land affected, showing a width of ninetj-nme feet. Following this is an habendum clause, and after it the following language:

“The possession and use of the said premises are to be and remain in the said grantors, their heirs, executors, administrators and assigns, subject to the grant herein made, as fully as if this conveyance had not been executed.”

The East Jersey Water Company, by deed dated May 2d, 1892, and which recited the contract of 1889 for construction of a water-supply system, conveyed to the city of Newark all the works in the meantime erected by the water company,

“with nil and singular their appurtenances, adjuncts and appliances of whatever nature, kind or description soever.” * * * “and also all and every the lands and rights of way over which the conduit or conduits, pipe line or pipe lines have been laid or constructed, and all and- singular the lands and rights of way acquired,” &c., “together with all and singular the ways, profits, privileges and advantages,” &c.

By a further deed, dated December 21st, 1900, the water company conveyed to the city all its right, title and interest in the telephone line theretofore constructed by it, partly on said pipe line right of way and partly on other lands, reserving to the company the right to maintain two wires for its own use from Belleville to Little Falls upon the poles of said'telephone line.

The city of Newark, by deed of August 24.-th, 1905, assumed to grant to the New York and Néw Jersey Telephone Company

“the right, permission and authority to construct and reconstruct,1 operate and maintain a line of telephone and telegraph, including the necessary poles, wires, cables and fixtures upon and along the property of the city of Newark, known as the pipe-line or aqueduct to the Pequannock watershed, between Belleville, Essex county, and the Macopin intake, Passaic county, New Jersey, with -the right to trim any trees along said line so as to keep the wires clear at least eighteen (38) inches; to erect the necessary guy and brace poles and anchors, and to attach thereto and to trees the necessary guy wires, with the right to permit the attachment of the wires of other associate telephone companies to the poles erected in accordance with this grant.”

The telephone company agreed to maintain upon its poles two wires for the city’s telephone service, to be used in connection with the maintenance of the pipe line or aqueduct, and two wires for the East Jersey Water .Company.

By deed, dated November 29th, 1905, the New York and New Jersey Telephone Company assigned and transferred to the present complainant, the line of' telephone and telegraph above referred to, with the right to reconstruct, operate and maintain the same.

At the time of this grant to the complainant there was a line of telephone poles upon the right of way of the pipe line. The telephone line had been constructed by the East Jersey Water Company and carried four wires, which it is admitted were adequate for the purposes of the city, of Newark.

In the year 1906 the complainant determined to. establish a public telephone line along the so-called "right of way,” ineluding those portions thereof that cross the Hepburn lands. It proceeded to replace most of the poles that existed at the time of the making of the deeds of 1905, just referred to (including all the poles that stood upon the Hepburn lands), with larger poles carrying a greater number of cross-arms and wires. At this point their operations were interfered with by the appellants, who removed all the wires of the complainant, leaving those that belonged to the city of Newark or the East Jersey Water Company. It would seem (although the state of the case leaves this point in obscurity) that after the allowance of the temporary injunction the complainant re-established its telephone poles, cross-arms and wires. And, as already shown, the final decree grants an injunction restraining the appellants from interfering at all with the telephone poles or any cross-arms or wires that have been or may be placed thereon.

Since we have reached the conclusion that the grants made by the Hepburns and their predecessors in title to the East Jersey Water Company are not broad enough to confer the rights that are asserted by the complainant and respondent, we need spend no time upon the question whether the right to construct and maintain a telephone and telegraph line or lines, so far as conferred by the original grants, was capable of assignment to the complainant, or to its immediate predecessor in title.

Our opinion is based upon the written language of the original grants, and we have excluded from consideration the parol evidence admitted by the learned vice-chancellor at the instance of the defendants.

No doubt, in construing deeds, the question is, not what interest did the grantor intend to pass, but what did he pass by apt and proper words. Adams v. Ross, 30 N. J. Law (1 Vr.) 505, 510. Therefore extrinsic evidence, except such as throw's light upon the circumstances and the subject-matter, is to be disregarded. But language is used in a deed because it expresses a purpose, and the general rule of construction applicable to conveyances, as to other written instruments, is, in the language of Sheppard’s Touchstone, that it “be favorable, and as near the minds and apparent intents of the parties as it possibly may be and the law will permit.” Shep. Touch, ch. 6 p. 85. In commenting upon this rule, Chief-Justice Beasley, speaking for this court in Sisson v. Donnelly, 36 N. J. Law (7 Vr.) 432 (at p. 440), said: “It will be observed that by the limitations of the rule itself the intention is to be enforced whenever the law will permit. I take that to mean that 'the intention will prevail whenever such intention is unmistakably manifested, having regard to all parts of the instrument, unless the law requires the use of technical terms to effectuate such intention, or unless such intent is contrary to legal rules.”

Examining the granting clauses, together with all other- parts of the Hepburn deeds, with a view of determining the intent of the parties as expressed therein, it seoms to us plain that the principal object of the grants has reference to the proposed construction, maintenance and operation of an aqueduct -upon the strip of land in question. The clauses relating to the telegraph or telephone lines, and to the right of ingress and egress, must either be construed ‘ as consistent with and incidental to this principal object, or else as conveying distinct and independent rights. Biit it strikes the mind at once that if these rights are distinct and independent, they are for this reason quite incongruous with the pipe-line grant, and would naturally be made the subject either of a separate deed, or at least of a distinct granting clause. It is also worthy of remark that unless the telegraph and telephone rights and the right of ingress and egress are limited by force of their relation to the grant of the pipe-line rights, they are wholly unlimited, and, indeed, hardly defined. The learned vice-chancellor construed them as unlimited. The fact that such a construction seems compelled, if they be treated as independent grants, is an additional reason for holding that they were not intended to be independent, grants; for it is not to be presumed that a grant is intended to be wholly unlimited and undefined.

■ Our consideration of the deeds convinces us that, by the most reasonable construction to be placed thereon, the grant of the right to maintain and operate a telegraph or telephone line or lines, as well- as of the right of ingress and egress, is but incidental to the main object of the deeds, which is to convey the right to maintain and operate water-pipe lines upon the strips of land described. With, respect to the telephone rights and the right of ingress and egress, there is no separate granting clause. These rights are inserted in the deed immediately after the grant of the pipe-line rights, to which they are coupled by the word “with.” This word in the context is, we think, as significant as the words “together with,” which, as remarked by this court in Mitchell v. D’Olier, 68 N. J. Law (39 Vr.) 375, 382, import a close and inseparable union. The construction we place upon the deeds, however, does not rest upon this single word “with,” but upon the entire language and apparent purpose of the deeds.

We, of course, cannot agree that the right to maintain “a telegraph or telephone line or lines” imports an unlimited number of wires. Construing the right as appurtenant to the right to maintain the pipe lines, it is limited to such number of wires as is or may be reasonably necessary for the maintenance and operation of the pipe line. We are not at present concerned with the precise limitations of' the other appurtenant right — of -“ingress and egress to and from said right of way for all purposes”— beyond saying that the last three words cannot, in our Opinion, be reasonably held to enlarge the grant with respect to the maintenance of the telegraph or telephone lines.

It is, we think, no argument against the construction that we place upon the- Hepburn deeds to say that the use of -an aqueduct is different from that of a telephone line, and that one may be used without the other. It is fairly to be gathered from the terms of the;Hepburn deeds -that the purpose of the telephone line was to subserve the convenience of the proprietor of the aqueduct in conveying messages between the reservoirs and the city of Newark, including intermediate points along the line. Such a use is, of course, quite incidental to the operation of the aqueduct, and furnishes a sufficient reason for making the grant of the telephone rights appurtenant to the grant of the pipe-line rights. • ■ •

A.circumstance not to be ignored, as we think, in reaching a correct construction of the deeds in question, is the fact that the East Jersey Water Company did not possess the corporate capacity. to operate a telegraph or telephone line; except as it might be incidental to the purposes expressed in its articles of association as above quoted. We do not dissent from the view entertained by the learned vice-chancellor to the effect that where a corporation is incompetent by its charter to take a title to real estate, a conveyance to it is not void, but voidable,- and that only the public authorities can object. Fritts v. Palmer, 132 U. S. 282, 291. But here the very question is whether, by the true construction of the Hepburn deeds, they, do convey an interest such as the East Jersey Water. Company was not competent by its charter to take, or whether they convey only such an interest as it was competent to take. We think it is reasonable to presume that the company was intending to act, and was understood by the grantors to be acting, within the scope of its corporate authority, and that it was not expending the money of its stockholders in the purchase of rights for the establishment of a commercial line of telephone, when it had no grant of authority from the state to either establish or operate such a line.

Our view upon the .whole matter is that the Hepburn deeds imposed upon the lands in question only the burden resulting from such a telephone line or lines as are or may be reasonably adequate to the main purpose of constructing, maintaining and operating the pipe lines authorized by the deeds. We are not now concerned with the question whether four wires or only two wires are reasonably necessary for this purpose, although it does not seem to be disputed that four wires are necessary. It is admitted in the case that four wires were sufficient, and that the poles that stood upon the lands of the appellants at the time the respondent entered were sufficient for the support of four wires. This being so-, the entry of the respondent for the purpose of cutting down the former poles and establishing larger and taller poles, with more numerous cross-arms than would be required for the support of four wires, constituted a violation of the legal rights of the appellants and a trespass upon their land; for by the terms of the deeds in question, the possession and use of the lands were reserved to-the grantors, subject only to the grant, as fully as if the deeds had -not been made.

This being so, we are little concerned with the question how much the practical burden of the easement is increased by the acts of the respondent, except as the point may bear upon the request made upon the argument by respondent’s counsel, that notwithstanding respondent’s title be bad, the injunctions should be retained. We are, however, unable to concur in the view of the learned vice-chancellor that the increased burden is not perceptible. The right and interest of the owners of the fee were not treated as of little practical value when the deeds in question were given; on the contrary, those deeds reserved the right of possession and use as a right presumably of substantial value to the grantors.

If the excessive use consisted simply of the sending of additional messages, without increase in the number of wires or increase in the size or number of poles and cross-arms, it would indeed be difficult to measure the additional damage done to the owner of the fee. In Slingerland v. Newark, 54 N. J. Law (25 Vr.) 26, Mr. Justice Dixon, speaking for the supreme court, and treating of the alleged purpose of the city to draw water through the pipe line beneath Slingerland’s land for purposes other than the public use of tire city, said: “It is not apparent how the prosecutor can have any legal concern with the quantity of water drawn through the aqueduct, or with the use made of so much of it as the public does not need.” This remark, of course, touched upon the propriety of allowing a private prosecutor in certiorari to stay condemnation proceedings undertaken against him for a public purpose, because of his objection that the proposed public work was to bo used also in part for other purposes. But in an opinion delivered by the same learned justice in this court in French v. Robb, 67 N. J. Law (38 Vr.) 260, which was an action of ejectment brought to compel the removal of a pole and wires maintained by Robb in the street for the purpose of electric lighting, and where it appeared that some of the wires were used for public lighting and some for private lighting, it was said (at ¶. £¡6J/.) : “No color of right is shown for maintaining apparatus for private lighting, and as to the wire strung for that purpose the defendant was clearly guilty. The plaintiff urges that the wrongful use of the pole to sustain this wire should be visited with the forfeiture of the entire right; but we find no ground for such contention. Such a judgment would inflict a loss upon the public for the private fault of one of its instruments. The plaintiff does not need such rigor for his protection. So far as the appliances are not used for public purposes this suit will result in abating them; so far as those required for public purposes have been wrongfully used, the plaintiff can be compensated by an action on the case for damages, and equity will restrain their misuse in the future.”

But, aside entirely from any question of increased burden in the present case by reason of transmitting messages through the city's wires for other purposes than those incident to the maintenance and operation of the water works, it is quite clear, we think, that the substitution of larger and taller poles, and the addition of cross-arms and wires, constitute not merely a theoretical but a practical increase in the burden upon the land. The larger pole occupies more space; the taller pole and the additional cross-arms and wires not only occupy space, but in other respects additionally burden the soil. Not to speak of other matters, and referring only to the rights assumed to be granted by the pity of Newark to the New York and New Jersey Telephone Company by the deed of August 24th, 1905, above referred to, it is plain that the enlargement of the telephone line may require the further trimming of trees and the establishment of larger and more numerous guy and brace poles and anchors, and more numerous attachments of guy wires to trees.

But the appellants are not coming into the court of equity appealing to its discretion or invoking any extraordinary exercise of power by injunction or otherwise. They are not therefore required in this proceeding to show serious practical detriment to their propert}r, irreparable or otherwise. They stand simply upon their lawful right as owners and possessors of the soil to remove from it any nuisance which may be placed thereon without their consent. And since, so far as the case shows, they have not interfered, nor threatened to interfere, with any lawful right of the respondent, no ground of injunction is shown against them.

The learned counsel for the respondent urge, indeed, that, although we hold respondent's title to be bad, we should direct the injunctions to be continued in force until compensation can be ascertained and made, either in condemnation proceedings at law* pursuant to P. L. 1900 p. 76 § S and P. L. 19W p. 79, or (preferably) that the amount of compensation should be ascertained by the court of chancery. If the respondent had taken possession with the consent or acquiescence of the appellants, under an express or implied agreement for compensation, or if the appellants'were appealing to the equity power for affirmative relief, terms might be imposed upon them that would require them to submit to condemnation proceedings, or even to abide by the determination of the court of equity.with respect to the amount, of compensation. See Paterson v. Kamlah, 42 N. J. Eq. (15 Stew.) 93; 47 N. J. Eq. (2 Dick.) 331; Sparks Manufacturing Co. v. Newton, 57 N. J. Eq.. (12 Dick.) 367, 393; 60 N. J. Eq. (15 Dick.) 399, and Simmons v. Paterson, 60 N. J. Eq. (15 Dick.) 385, 393.

But the respondent has violated the property-rights of appellants without the least justification. The appellants are asking for no aifirmative relief. ■ There has been, so far as appears, not the least laches or acquiescence on their part. The case therefore shows no ground for the imposition of terms upon them.

It results that the decrees under review should be reversed and the bills of complaint dismissed, with costs.

For affirmance. — None.

For reversal — The Chancellor, Chiee-J cotice, Garrison, Swayze, Reed, Trenchaed, Parker, Bergen, Bogert, Vroom, Green, Gray, Dill — 13.


author: Gummere, Chief-Justice.

text:
    Paul Starrett, respondent, v. Harriet G. Boynton et al., appellants.
    [Argued December 3d and 4th, 1907.
    Decided June 15th, 1908.]
    1. Complainant entered into a verbal contract with the authorized agent of the defendants for the purchase and sale of a house and lot. The deed delivered in execution of this contract did not include a strip of land which was a part of the property bargained for. Complainant, after receiving the deed and paying the purchase-money, entered into possession of the whole tract with the acquiescence of the defendants. At the end of two months the defendants disputed the complainant’s ownership of the strip of land not included in the deed. — Held, that under the facts recited there had been such a part performance of the verbal contract for the sale of the strip in controversy as to entitle the complainant to a decree for the specific performance thereof.
    2. Protest of vendors against a retention by the vendee of a disputed strip of land, included in the contract of sale, but not in the description in the conveyance, not made until two months after the vendee has entered into possession thereof with the acquiescence of the vendors, constitutes no defence to a suit to compel specific performance.
    On appeal from a decree of the court of chancery, advised by Vice-Chancellor Stevens.

      Mr. Edward M. Qolie, for the appellants.

      Messrs. Guild & Martin, for the respondent.
   The opinion of the court was delivered by

Gummere, Chief-Justice.

The defendants, .Harriet G. Boynton and her. husband, conveyed to Starrett, the complainant, a house and lot in East Orange, known as No. 73 Harrison street. The negotiations leading up to the transfer were conducted on the part of the Boyntons by one Bruen, a real estate agent who was employed by them to sell the property and who prepared the deed for the same from a description furnished to him by his principals. The price agreed upon and paid by Starrett for the property was $22,500. About two months after receiving his deed and entering into possession Starrett was informed by his grantors that the description of the property contained in the conveyance stopped ten feet short of a privet hedge which apparently separated No.. 73 Harrison street from other property of the Boyntons. Claiming that, by the terms of his contract with Bruen, he was to have a conveyance of all the land within the privet hedge, he demanded of the Boyntons a conveyance of the omitted parcel. This they refused to give him, asserting that the land described in his deed was all that Bruen was authorized to sell to him, and all that he had purchased. He thereupon filed his bill for relief, and, at the hearing, the learned vice-chancellor before whom the cause was tried concluded, from the evidence submitted, that “Bruen offered to the complainant and that the complainant agreed to buy the property extended to the privet hedge;” and, further, that “Bruen had been originally authorized [by the Boyntons] to sell up to the hedge and that in this respect his instructions were never varied.” Finding these facts he advised a decree compelling the Boyntons to execute to Starrett a conveyance of the strip of land in dispute. A decree so directing was accordingly entered, and from it this appeal is taken by the defendants.

Two grounds of reversal are insisted upon before us: 1. That the conclusion reached by the learned vice-chancellor that Bruen was authorized by the defendants to make sale of all the land up to the privet hedge was not justified by the evidence. 2. That if he was so authorized, and contracted to that effect, the contract is unenforceable under the statute of frauds, for the reason that it was not in writing, which is the fact.

Our examination of the proofs entirely satisfies us that the conclusion reached by the vice-chancellor on the facts was justified; that the property which Bruen was authorized by the defendants to sell included the strip of land in dispute, and that the contract which Bruen, on behalf of his principals, made with the complainant embraced the whole tract up to the privet hedge. The question of the effect of the statute of frauds upon the right of the complainant to enforce the performance of the contract was not considered by the learned vice-chancellor. It apparently was not even raised before him and the proofs bearing upon the respective rights of the parties under the statute are of the most meager description. It wras in evidence, however, that the complainant after entering into possession of No. 73 Harrison street assumed charge of the disputed strip and had taken care of it thereafter until the time of the hearing, although Mr. Boynton had twice protested by letter against his action.

Although the statute of frauds declares, that no action shall be brought upon any contract or sale of lands unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith, equity will intervene to enforce ¡a verbal contract for such sale, notwithstanding the statute, when there has been a part performance thereof by the payment, of the purchase-money by the vendee and entry into possession of the land by him-, in pursuance of the contract and with the consent of the vendor. So universally is this principle recognized that a citation of authority in support of it would be out of place. Not attempting to dispute the principle, counsel for the appellants contends that the present case is not within it. . His contention seems to us to be unsound. The payment of the purchase-money by the complainant and his entry into possession of No. 73 Harrison street, are uncontroverted. His assumption of the charge of the disputed strip, and of its care is not denied, and constitutes prima facie proof of possession thereof. His entry into the possession of 73 Harrison street, and of the disputed strip, as a single parcel of land, under the belief that it constituted the property purchased by him, is proof that such entry was in pursuance of the contract if it was acquiesced in by the defendants. That his entry was with their consent may be deduced with reasonable certainty from the fact that they waited for two months after he had gone into possession before notifying him that his deed did not cover the disputed tract — and in this way: If the delay in the notification was due to the fact that the misdescription in the deed was the result of an honest mistake, the defendants supposing, at the time of its delivery, that the description contained in it covered all of the property -which they had agreed to sell to him, and not discovering the mistake, or conceiving the idea of taking advantage of it to defraud the complainant, until after the latter had entered into possession, that entry was demonstrably with their consent. If, on the other hand, the disputed strip was intentionally omitted by the defendants from the description contained in the deed, as a step in a scheme to defraud the complainant, then the only reasonable explanation of their delay, in notifying him of its omission, until after he had entered into possession, is that they desired the whole transaction to be completed, so far as the complainant was concerned, before he should learn of the fraud which they were attempting to perpetrate upon him, and so prevent him from refusing to complete the purchase and pay the purchase-money. Such a scheme contains as a necessary ingredient the consent of the vendors to the entry into possession by the vendee.

We conclude for the reasons we have expressed that the statute of frauds affords no bar to the complainants right to specific performance.

The protest of the defendants, against the retention of the disputed tract by the complainant, not having been made until after entry into possession thereof by the latter, affords no reason for the refusal by a court of equity to compel the specific performance of the contract of sale.

The decree appealed from will be affirmed.

For affirmance — The Chancellor, Chiee-Justioe, Garrison, Swayze, Reed, Trenohard, Parker, Bergen, Bogert, Vredenburgh, Vroom, Green, Gray — 13.

For reversal — None.


text:
    Harrison H. Voorhees, receiver, &c., v. Lillie M. Malott et al.
    [Submitted December 10th, 1907.
    Decided April 3d, 1908.]
    M., two and one-half months after purchasing certain property for $450, conveyed it to a corporation formed for the construction and operation of a hotel, of which her husband was president and she was secretary, for $3,000, $1,000 of which was paid by the issuance of corporate stock to her at par, the other $2,000 being secured by a mortgage on the property. The husband was in fact the real actor in the transaction. Immediately thereafter the corporation erected a hotel building on the land, and subsequently passed into the hands of a receiver.. — Held, that the sale was unconscionable, and that the receiver was entitled to a decree crediting on the mortgage the difference between the cost of the land to M. and the price received by her from the corporation.
    On appeal of the defendant Horace E. Nixon from a decree advised by Vice-Chancellor Learning, whose opinion is reported in 72 N. J. Bq. (2 Buch.) 791.

      Mr. Curtis T. Baker and Mr. Herbert F. Harris, for the appellant.

      Mr. Lewis Starr, for the respondent.
   The opinion of the court was delivered by

Gummere, Chief-Justice.

The bill in this case is filed by the complainant as receiver of the Ocean Orest Hotel Company for the purpose of setting aside or reducing the amount of a $2,000 mortgage upon the hotel property, given by the company to the defendant Mrs. Lillie M. Malott, and assigned by her to Horace E. Nixon, the appellant. The lands covered by the mortgage were conveyed by Mrs. Malott to the ■ corporation for the sum of $3,000, in pursuance of an agreement for that purpose made at the time of the organization of the company, the purchase price being paid by the mortgage in question, and the delivery to her of $1,000 of the stock of the company at par. Mrs. Malott had been the owner of the lands for only two and a half months before conveying them to the company, and the price paid by her for them was $450. At the time of the sale to the company Mrs. Malott was its secretary, and her husband, Horace J. Malott, was its president. The theory upon which the bill is filed, as stated in the opinion of the learned vice-chancellor, is that, by reason of the fiduciary relations which existed between the Malotts and the corporation, the contract of sale being for a grossly excessive price was in violation of established principles controlling trusteeships, and that it should be set aside, or, if not, then that the difference between what Mrs. Malott paid for the- property, and the amount for which she sold it, should be credited upon the mortgage. At the hearing the learned vice-chancellor reached the conclusion that on the proofs submitted, the receiver was entitled to a decree reducing the amount of the mortgage to the sum ¡oaid by Mrs. Malott for the property, namely, $450, with interest, and it was so decreed accordingly. From this decree the defendant Nixon appeals.

The vice-chancellor, in his opinion, after premising that a contract for the sale of lands to a corporation by one of its directors is voidable at the option of the corporation, even after it is executed, considers whether the principle which underlies this rule is not equally applicable to a contract of a similar kind made between the corporation and the wife of one of its directors, and solves the proposition in the affirmative. He does not, however, rest his conclusion that the receiver is entitled to the relief granted solely upon this ground. He finds, substantially, that the proofs show that Malott, the husband, and not his wife, was the real actor in the whole transaction, the wife being merely the agency through which he acted, and makes this finding also the basis of his decree.

We do not find it necessary to accede to or dissent from the view that a contract for the sale of property by the wife of a director of a corporation to the corporation may be set aside by the corporation at its option, after the contract is executed, for we concur in the conclusion of the vice-chancellor that the proofs show Mr. Malott, and not his wife, to have been the real party in the transaction under investigation, and, for that reason, we think the receiver is entitled to relief against the unconscionable sale. It appeared in the proofs that immediately after the purchase of the mortgaged lands, the hotel company erected a hotel building thereon. This fact made it impossible to restore the parties to the transaction to their original positions, and we agree with the vice-chancellor that, under the circumstances, the proper relief to be granted was to compel the crediting upon the mortgage of the difference between the cost of the lands to Mrs. Malott, and the price received by her from the company. We note, in passing, that in the making of that credit the decree fails to take into consideration the $1,000 of stock received by Mrs. Malott, but, as the receiver makes no complaint, this fact calls for no consideration here.

The conclusion of the vice-chancellor that the appellant, Nixon, took the assignment of the mortgage with full knowledge of its infirmities, we find to be entirely justified by the proofs, and we agree with him that the receiver is entitled to the same relief against it in the hands of the assignee as if it had remained in the hands of the original holder.

The decree below will be affirmed. -

For affirmance — Ti-ie Chancellor, Chiee-Justicb, Garrison, Swayze, Reed, Trenchard, Parker. Bergen, Bogert, Vroom, Green, Gray, Dill — 13.

For reversal — None.


author: Garrison, J.

text:
    Mary J. Sked et al., respondents, v. Pennington Spring Water Company, appellant.
    [Submitted November 25th, 1907.
    Decided March 2d, 1908.]
    A grant of “the right to enter upon lands to dig and build a reservoir, the said reservoir not to occupy or cover more than one-half acre of ground” is not a grant of a right to occupy one-half acre of ground with reservoirs but of the right to build a single reservoir whose dimensions should not exceed such prescribed area.
    On appeal from a decree of the court of chancery advised by Vice-Chancellor Bergen, whose opinion is reported in 72 N. J. Bq. (2 Buck.) 599.

      Mr. J. Lefferis Gonard, for the appellant.

      Mr. Frederic B. Brace, Jr., and Mr. Frank 8. Katzenbach, Jr., for the respondents.
   The opinion of the court was delivered by

Garrison, J.

Philip S. Sked, in his lifetime, granted to the Pennington Spring Water Company “the right to enter upon his lands to dig and build a reservoir at what is known as the ‘Middle Spring,’ the said reservoir not to occupy or cover more than one-half acre of ground.” The spring company upon receiving this grant at once entered upon the lands of Sked and dug and built a reservoir that did not occupy or cover more than one-half acre of ground. Ten years later the spring company without any additional grant commenced to bore another well on the lands of Sked outside the ground covered by its reservoir but so related to it that both the land occupied by the old reservoir and that on which the new well was being sunk could be brought within the area of a half an acre. The right to sink the new well is claimed under the old grant.

Upon a bill filed by Mrs. Sked (Philip having died) the court of chancery, by its decree, perpetually enjoined the spring company from boring wells upon complainant’s lands, upon the ground, as stated in the conclusions of the learned vice-chancellor who heard the cause, that the terms of the grant being original^ indefinite and having been mutually fixed and made definite by a practical location by the parties cannot now be altered or extended in invitum, the grantor.

Our conclusion is that this decree should be affirmed, but we see no occasion for invoking the doctrine of practical location inasmuch as the grant itself is at once concrete and determinate. The grant was not of a right to occupy a half acre of land with reservoirs, but to build a single reservoir whose dimensions should not exceed a prescribed area. This prescription was a limitation upon the thing granted and not an affirmative grant either in presentí or m futuro. A reservoir of the prescribed character having been built that part of the grant was fully enjoyed, and all that remained to the grantee was an implied right of entry for the maintenance of its said reservoir and an express right to maintain pipes to draw oil the water contained in it. In the face of this plain import of its grant the claim of right by the spring company is without foundation.

The objection that the case is not one for equitable relief is met by the consideration that the appellant is putting a permanent structure upon the complainant’s land under a color of right that would apply equally to the entire area that could be covered by a half acre of land of any desired shape extended in any desired direction from the existing reservoir. The right thus set up by the appellant being based wholly upon the misconstruction of a grant, the meaning of which is entirely clear, a court of equity is justified in interfering by injunction to prevent a succession of vexatious suits productive of no definitive results. Kerr Inj. 200; 22 Cyc. 768; Shimer v. Morris Canal Co., 27 N. J. Eq. (12 C. E. Gr.) 364; Western Union Telegraph Co. v. Rogers, 42 N. J. Eq. (15 Stew.) 311; Hodge v. Giese, 43 N. J. Eq. (16 Stew.) 342.

The decree of the court of chancery is affirmed.

For affirmance — The Chancellor, Chief-Justice, Garrison, Swayze, Reed, Trenchard, Parker, Bogert, Vroom, Green, Gray, Dill — 12.

For reversal — None.


text:
    James A. Clampitt et al., respondents, v. John Doyle, appellant.
    [Argued January 9th, 1908.
    Decided June 15th, 1908.]
    A purchaser who has been led into a contract of sale by false representations that entitled him to rescind the contract has but one election to rescind which, he must exercise with reasonable promptitude after his discovery of the falsity of the representations that induced his purchase; beyond this mere delay in the rescission of the contract may amount to satisfactory evidence of an election to abide by the contract notwithstanding the fraud.
    On appeal from a decree of the court of chancery advised by Vice-Chancellor Bergen.

      Mr. Thomas B. Hamed, for the appellant.

      Mr. Lewis Starr and Mr. Harrison H. Yoorhees, for the respondents.
   The opinion of the court was delivered by

Garrison, J.

The complainants’ bill was filed to set aside an executed contract of sale by which John Doyle, the defendant, had turned over to the complainants the steamboat “Major Reybold” and certain wharf properties in Salem county for the consideration of $31,500. The details of the sale involved the transfer of Doyle’s stock in a corporation that owned the “Reybold,” but in its' equitable aspect the transaction may be treated as a sale by Doyle to the individual complainants who constituted a purchasing syndicate. The equitable ground of the bill is that the sale in question was brought about by the false representation of Doyle that the yearly gross receipts of the “Major Reybold” were $35,000 and that her net annual income was $10,000. The learned vice-chancellor who heard the cause, upon reaching the conclusion that such representations had been made on behalf of Doyle and that they were false and had induced the purchase, advised a decree setting aside the sale and relegating the parties to their original status by the reconveyance of the property to Doyle and the repayment of the purchase price by Doyle to the complainants. From this decree Doyle has appealed.

In the view that we take of the case it is unnecessary for us to determine whether the conclusions of fact reached by the learned vice-chancellor are justified by the proofs. For if it be assumed that the representations of Doyle as to the receipts and profits of the boat were proven so that the purchasers upon the discovery of their falsity were entitled to elect to rescind the contract of sale on that account, still such election to have weight in equity must have been made promptly and unequivocally upon the discovery of the fraud, i. e., it must have been an unqualified election to repudiate the entire bargain made with reasonable promptness after its fraudulent nature became apparent. Assuming fraud in a vendor and its discovery by the vendee an election by the latter to rescind the contract of sale cannot follow an election not to rescind; and mere delay, i. e., lack of reasonable promptness in rescission after the discovery of the fraud is evidence from which an election not to rescind may be inferred. There is, in fine, in equitable contemplation, but one juncture at which a purchaser who has been induced by fraud to enter into a contract of sale may elect on that account to rescind the contract, and that is upon his discovery of the fraud or within a reasonable time thereafter; beyond this period mere delay in rescission may be satisfactory evidence of a waiver of the right to rescind. That such, election if made or when made is final is also established law. Dennis v. Jones, 44 N. J. Eq. (17 Stew.) 513.

The application of these general rules to the case in hand will be apparent upon a brief resumé of the facts and dates established by the testimony. In the summer of 1905 John Doyle, as owner of the boat “Reybold,” is said to have made the representations as to the earnings of the boat to a broker who was not at that time negotiating with the complainants. Nearly a year later these representations were communicated by the broker to the complainants and induced their purchase of the boat. On March 1st, 1906, the sale was executed and the property turned over by Doyle to one Sproule, the representative of the purchasers. On March 5th, two weeks before the complainants began running the boat, Doyle, according to the complainants, informed Sproule, then their trustee, that the boat was worn out, that no one would ride in her and that the complainants would be unable to make both ends meet. At this same time Doyle exhibited his check for $1,500, stating that it was the amount of the commission he was to pay to two members of the purchasing syndicate, whose personal interest in effecting the sale was a surprise to the other purchasers and threw light upon an advance of $1,500 on the purchase price made pending negotiations. On March 19th the complainants began operating the “Reybold” between Philadelphia and Salem, New Jersey, and early in April, according to the complainants, Doyle told the president.of the company that the boat would not make the amount that he had said she would, a fact' that was indeed otherwise self-evident. Notwithstanding these circumstances and disclosures which constitute the proof of the falsity of Doyle’s representations, the complainants continued to operate the boat during the spring, summer and fall of that year, and not until December 16th, 1906, was the election'to rescind the contract communicated to Doyle by a written tender to him of the property, after he had refused to entertain an offer to repurchase it made to him a short time previously. That this delay of several months was with the purchasers’ knowledge of the fraud that had been practiced upon them is frankly admitted on the witness stand by Mr. Sproule, who throughout the transaction had been the representative and trustee of the purchasers. In. response to the question of his counsel: "After you had conversed with Captain Doyle subsequent to the time the transfer was made when did you consult counsel relative to the matter?” The answer was, “We went along for some time after discovering the representations that had been made and we consulted counsel the first of September of last year.” Inasmuch as the conversation with Doyle referred to in this question was that of March 5th, already cited, a delay of six months is admitted to have occurred before even consulting counsel, and after that no election to rescind was made until nearly four months later, viz., on December 16th, 1906. That so long a period was reasonably necessary in order to ascertain whether the receipts would in fact amount to $35,000 and the net profits to $10,000 is totally inconsistent both with the proofs and with the whole framework of the complainants’ case, which was that the disparity between the receipts of the boat and the representations of Doyle was so great as to shock the conscience. The more likely explanation of the delay is that the margin of profit to the purchasers on their investment of $31,500 was so great that-business prudence suggested that the bargain might be a good one notwithstanding the annual profit was less than $10,000. At that rate of profit the sum invested would have yielded an annual dividend of over thirty-one per cent. It may well be therefore that if the boat showed earnings of one-half or even of one-third of the sum represented by Doyle the purchasers would still prefer to hold on to so profitable a bargain. This, however, while sound =as a business proposition, would be fatal as a basis for equitable relief; it would be, in fine, one of those elections not to rescind that are inferable from mere delay in rescission.

The facts that were before this court in the case of Dennis v. Jones, already cited, are in their essential features so nearly identical with the facts now before us that the equitable rule then applied is obviously applicable to the present case.

In Dennis v. Jones the essential facts were that on February 14th, 1885, Jones agreed to sell his skating rink to Dennis and Woglom for $10,000, of which sum the purchasers paid $5,000 upon entering into possession and secxxred the remaining $5,000 by a mortgage on the rink. On the foreclosure of this mortgage in September of the same year the purchasers set up the defencethat Jones had represented to them that his net profit in operating the rink had been $1,000 per month, and that the rink was patronized by numbers of the most respectable people in the town. Assuming these representations to have been proven it was further established by proof that within a week from the-time the purchasers took possession of the rink they discovered that the conduct of some of the former employes with disreputable characters who had been allowed to frequent the place had driven away many of the better class of patrons, and they also-speedily found out from the receipts of the rink that the net profits to be derived from its operation were inconsiderable in comparison with a net profit of $1,000 per month. “So great indeed,” to quote from the opinion, “was the disparity between the appellants’ receipts and the profits which they allege the respondent claimed to have received that it was plainly impossible for his representations to have been true.” Notwithstanding that this discovery was made early in April the purchasers did not make their election to rescind the sale until some time in September following when, according to the opinion, “it became plainly apparent that the popular furore for roller skating was waning and that the business they had entered upon must soon collapse.” “Under this condition of affairs,” the opinion continues, “they now seek to rescind their contract because of the fraud they allege to -have been practiced upon them. It is unnecessary for us to determine whether the proofs establish the fraud, for it is apparent that, if there was in fact the fraud complained of, it in substance became manifest to the appellants months before the foreclosure suit was commenced. When it was discovered, it was the appellants’ duty, with all reasonable diligence, to disaffirm the contract. They could not derive all possible benefit from the transaction and then be relieved from their obligation by a rescission or refusal to perform on their part. It would be most inequitable to permit them to hold the rink and its business, in apparent acquiescence in the fraud, until the collapse of the business was assured, and then rescind their contract.”

“It is the rule that the defrauded party to a contract has but one election to rescind, that he must exercise that election with reasonable promptitude after discovery of the fraud, and that when he once elects he must abide by his decision. Big. Fraud 1/86. Delay in the rescission of the contract is evidence of a waiver of the fraud, and an election to treat the contract as valid. Williamson v. New Jersey Southern Railroad Co., 29 N. J. Eq. (2 Stew.) 311, 319; Brown v. Mutual Benefit Life Insurance Co., 32 N. J. Eq. (5 Stew.) 809; Oakey v. Cook, 41 N. J. Eq. (14 Stew.) 350; Big. Fraud 438; 2 Pom. Eq. Jur. 817; Baird v. New York, 96 N. Y. 567; Farlow v. Ellis, 15 Gray 229.

“I think,” the opinion concludes, “that in "the case now considered it is plain that after the appellants had knowledge of all the substantial features of the alleged fraud and were fully aware of the deceit which had been practiced upon them, they so acted as to afford plenary evidence of an election to abide by their contract. Their election thus made was irrevocable.”

The case now before us is even stronger upon its facts than that just cited for the reason that the nature of the enterprise and the relative situation of the parties more imperatively called for promptness in the restoration of the original status. Dojde was a South Jerseyman, a resident of Salem county, with a lifelong acquaintance among the shippers of that farming community. He had worked on the “Major Reybold” first as a deck-hand, afterward as fireman, then as second engineer, and finally as chief engineer, and in 1893 purchased the boat and became her captain. It is fair therefore to assume that Doyle was a well-known character in Salem county and that the local business he controlled was largely due to his personality and wide acquaintance. The complainants, on the other hand, were strangers to Salem county, and were not steamboat men at all. During the period, therefore, that the boat was being operated by these novices in the business it was naturally to be anticipated that the trade previously held together by Doyle would slip away or be diverted into other channels, and also that active and permanent opposition would be invited and developed. Such was actually the case. When, therefore, in December, 1906, the purchasers made their belated election to return the boat to Doyle and to demand back the purchase price the status of the parties had widely altered from what it had been at the time of the purchase of the boat or from what it would have been had the purchasers elected to rescind their contract with reasonable promptness upon their discovery of the falsity of Doyle”s representations. In fine, as was said by this court in Dennis v. Jones, “They so acted as to afford plenary evidence of an election to abide by their contract and their election thus made was irrevocable.”

Other cases illustrative of this rule are Arnold v. Hagerman, 45 N. J. Eq. (18 Stew.) 186; Norfolk, &c., Hosiery Co. v. Arnold, 49 N. J. Eq. (4 Dick.) 390; Conlan v. Roemer, 52 N. J. Law (23 Vr.) 53.

The decree of the court of chancery is reversed, and the record remitted that the complainants’ bill may be dismissed.

For affirmance — -None.

For reversal — The Chancellor, Chiee-Justice, Garrison, Swayze, Trenchard, Parker, Bogert, Yroom, Green, Gray, Dill — 11.