author: LeajicnGj V. C.

text:
    Mordecai T. Endicott et al. v. Philip I. Marvel et al.
    [Heard November 1st, 1912.
    Decided May 16th, 1913.]
    1. Where directors of a corporation, being five of the seven members of the board, make loans of money to it upon collateral notes in the usual form executed by it to them for the money so loaned, thereby pledging as security certain shares of its stock then held in trust for it, and afterwards when the notes fell due an engagement was entered into at a meeting of the board of directors between the corporation and these same five directors to the effect that the corporation should have one year’s time in which to redeem the collateral by paying back the money, failing in which the collateral should thereby become the absolute property of the directors who made the loans and the indebtedness of the corporation should be discharged, and said collaterals were applied accordingly, said directors will be compelled to account by returning the stock to the- trustee from whom they received it, and to the treasury of the corporation the dividends they have received thereon, and upon doing so the money they loaned with interest will be decreed to be paid to them.
    2. A contract between a pledgor and pledgee of the nature stated, without a new or separate consideration, is void on grounds of public policy and inoperative to terminate the equity -of redemption.
    3. But assuming that no legal obstacle exists to prevent a pledgor from contracting with his pledgee that in consideration of an extended time for payment the pledge shall automatically become the property of the pledgee in the event of failure to pay at the time agreed upon, providing the contract be found fair, open and intelligent, yet such a transaction necessarily demands the closest possible scrutiny of a court of equity whose especial duty it is to guard and preserve equities of redemption against harsh or unconscionable conduct of creditors toward their debtors.
    4. The law denies to directors of a corporation who are its creditors-holding collateral security the right in effect to foreclose the equity of redemption of the corporation in the collateral without adequate notice to the corporation which they represent.
    5. Eaches is a defence only when the stockholder with a full knowledge of the facts has delayed an unreasonable length of time in bringing Ms action. These two elements, knowledge and delay, are the essential elements of the defence. Until the stockholder has full and complete knowledge of all the essential facts which would be likely to induce him to institute the action, the beginning of the time from which laches will run cannot be said to commence.
    6. The fact that some of the complainants who have joined in the bill are found to own stock the title to which has passed through former owners to whom laches may be attributed can afford no bar to the assertion of the rights of the corporation by the other complainants to whom no laches can be attributed.
    The amended bill herein has been' filed by certain stockholders of the St. Leonard’s Land Company'for the benefit of that corporation. The relief sought is against five of . its seven directors. The corporation is joined as a defendant because the board has refused to authorize the suit.
    The controversy arises through loans of money made to the corporation by the five defendant members of its board of directors. The directors who made the loans each received from .the company to secure the loans certain collaterals, which col-laterals have since been applied in satisfaction of the loans. The amended bill seeks to enforce the restoration of these col-laterals and an accounting.
    In May, 1898, the corporation was in pressing need of money. At that time certain capital stock of the corporation (which stock is conceded to have been fully paid) was held by an individual in trust for the corporation for purposes of sale by the corporation for its use. May 19th, 1898, a resolution of the board was adopted authorizing the president and treasurer to borrow for the corporation $10,000 and to cause double that amount of the trust stock above referred to to be pledged as security for the loan. The resolution is vaguely worded, but its meaning has been made reasonably clear. Railing to find any person outside the board willing to malee the loan, five members of the board — defendants herein — each loaned the corporation $1,500 and received therefor collateral notes of the corporation pledging thirty shares (par $3,000) • of the trust stock already referred to. The other two members of the board refused to malee similar loans. The money so borrowed was used to pay debts of the corporation. The minutes of the board disclose no resolution specifically authorizing these loans and pledges, but the testimony indicates that such a resolution may have been adopted at about the time the loans were made. The minutes are, iu fact, so inadequately kept that they afford little light touching the transactions of the board. The notes were severally dated June 20th, 1898. To one of the directors who made a loan no note appears to have been given, but stock was issued to him to secure his loan. Under date of October 15th, 1898, shortly before the notes matured, the minutes of the board disclose the following resolution as having been adopted :
    “Resolved that each director borrow the sum of fifteen hundred dollars for the period of one year, and to receive fifty per cent, excess of the company’s stock as collateral to said loan, to meet the obligation of Alvin P. Risley, contractor. The company to have the privilege of redeeming said stock in one year from date with interest at six per cent, otherwise to revert to the borrower.”
    This minute, like many others found in the minute book, is almost unintelligible, standing alone. It appears to authorize an original loan for one year, whereas the loan had been already made by five members of the board and the remaining two members, who were not present at that meeting, had positively refused to loan. The amount of collateral referred to in the resolution is fifty per cent, excess, whereas the amount which had been already given was one hundred per cent, excess. The resolution is also silent touching the amount to be credited to the company for the collateral in the event of the company failing to redeem it. The testimony of the directors who made the loans, and who were all present at this meeting, is that the resolution which was adopted was to enable the company to have one year in which to redeem the stock which had already been pledged, failing in which the stock should then become the absolute property of the pledgees and the indebtedness of the company became thereby discharged. The testimony of one of the directors who made no loan is to the effect that he never knew of any action of the board limiting the period of redemption until shortly before the bill was filed, and that he had, from time to time, urged at board meetings the redemption of the stock. The earliest date at which he could positively- state he so urged at a board meeting was in the year 1902. Uo further action touching these loans appears to have been taken by the board before February, 1904, and a dispute exists touching the action which it is claimed was taken by the board at that time. It is claimed that at that timé a redemp-. tion of the stock of the company was urged by the tujo “dissenting” members of the board and resisted by the five members who had made the loans, and that one of 'the- dissenting members then offered a compromise resolution to the effect that one-half of the pledged stock should be surrendered and the remaining portion retained by the pledgees, to the end that the amounts paid by the several pledgees should be the par value of the stock by them retained. The testimony touching the compromise resolution is in hopeless conflict. The two dissenting members of the board testify that the resolution passed with one of them voting against it. The other members of the board testify that no such resolution was ever adopted. It is probably impossible to state, with entire certainty, what the truth may be touching this resolution. Its' absence from the minute book is of little or no probative force in view of the way the minutes were kept. Uone of the transactions herein referred to have at any time been brought to the attention of a stockholders’ meeting of the corporation. At a meeting of the board August 17th, 1909, a further demand for the return of the pledged stock was peremptorily refused and permission to permit suit to be brought by the company was also denied. This suit is therefore brought by stockholders in behalf of the corporation to enforce the rights of the corporation.

      Mr. Allen II. Endicott and Mr. Joseph II. Gasldll, for the complainants.
    ' Messrs. Bourgeois & Coulomb and -Mr. Robert H. McCarter, for the defendants.
   LeajicnGj V. C.

It will be observed that present conditions have arisen from two several transactions authorized by the board of direcors of the corporation in which complainants are stockholders. . The. first transaction was a loan to the corporation by five of the seven members of its board. The notes of the corporation which were executed for the money so loaned were collateral notes in the usual form pledging as security the stock here in question. No objections to that transaction have been urged by complainants. The corporation was in urgent need of the money and efforts to procure the loan from others, with the same collateral, had failed. The second transaction occurred when these notes fell due. That transaction was an engagement entered into at a meeting of the board - between the corporation and these five directors to the effect that the corporation should have one year’s time in which to redeem the Collateral by paying back the money, failing in which the collateral should then become the absolute property of the directors who made the loans, and the indebtedness of the corporation should be thereby discharged.

It will be perceived that this was an engagement made by the corporation, through the medium of its board of directors, with members of its board, touching property of the corporation. The infirmities of such a contract which arise from the circumstance that it is made by the board with members of the board have been repeatedly defined in this state. Such contracts are not void by reason of the circumstance stated; they are voidable. They cannot be enforced, as such, against the will of the corporation, promptly asserted. Enforceable obligations of the corporation may arise from the transaction — such as an obligation to repay money loaned — but cannot arise from the convention as against the-promptly asserted will of the corporation.

There willtbe found in reported cases statements to the effect that a contract voidable because made between a corporation and its directors may be avoided or repudiated by the corporation at the instance of a stockholder; the suggestion being that upon a bill being promptly filed by a stockholder in behalf of the corporation the voidable contract becomes thereby void and its contractual force destroyed. It seems clear that this view, if it can be said to have at any time been entertained in this state, cannot be longer accepted consistently with the principles defined by our court of errors and appeals in United States Steel Corporation v. Hodge, 64 N. J. Eq. (19 Dick.) 807. It is there pointed cxxt that where the only infirmity of a contract is the single circumstance that it has been made by a board of directors acting in behalf of the corporation, with members of the board, the power to sanction such a contract belongs to the stockholders in stockholders’ meeting assembled. Indeed, that power is everywhere recognized, even to the extent of holding that the failure of stockholders’ meetings to promptly repudiate the contract on the groxxnd stated after adequate notice at such meetings is operative to affirm the -contract. If the option to affirm or disaffirm a contract which is voidable because made by the corporation, through the medium of its board of directors, with or for the benefit of members of the board, resides in the body of stockholders, it seems obvious that a single stockholder cannot exercise that option and render the contract void by the mere act of filing a bill for that purpose; if the option resides in the stockholders, clearly it cannot be exercised by less than all the stockholders except in a stockholders’ meeting. In the present case the corporation has not asserted- its option to either sanction or repudiate this engagement touching the collateral here in question; the transaction has at no time been brought to the attention of a stockholders’ meeting. Any presxxmption of ratification by the corporation ¿rising from mere lapse of time becomes impotent when it affirmatively appears that no stockholders’ meeting has ever been apprised of the transaction. It may therefore be here ássumed that the power of affirmance or disaffirmance still resides in the body of stockholders so far as that power is dependent upon the mere circumstance that the engagement in question was with directors instead of with disinterested third parties.

But there are engagements which may be made by directors of a corporation with themselves in behalf of the corporation which ratification or even express sanction of the majority of stockholders at a stockholders’ meeting cannot support against the will of a single dissenting stockholder. In cases of that nature (as well as in cases of voidable contracts which have been promptly repudialed by the stockholders) a single stockholder may maintain a bill for relief in behalf of his corporation similar to the present bill, in the event of his inability to procure the corporation to faithfully prosecute such a suit in its own behalf. While the business management gf a corporation primarily belongs to its directors, and while, unless specially restrained, their powers necessarily include the exercise of a broad fifeld of business discretion, yet that discretion must be lawfully and honestly exercised; they cannot give corporate property to themselves or to others, nor can the majority of stockholders sanction such an act. The transactions of a board which cannot be sustained .against the will of a single stockholder, either with or without the sanction of the remaining stockholders, are acts which are- either ultra vires, fraudulent or illegal. United States Steel Corporation v. Hodge, supra.

The transaction which is here challenged is the result of a resolution passed at a meeting of the board of directors in which five of the seven members of the board were present; these five directors were the five persons who had theretofore made the loans to their corporation. At the time the resolution was passed by them these five directors severally held notes which they had theretofore caused the corporation to execute to them for the money which they had loaned, and these notes were about to mature. These several notes pledged the stock here in question as collateral security for their payment: By the resolution which was then adopted the corporation was given one year in which to pay these notes, failing in which the collateral which secured the ' notes was to become the absolute property of these directors. It has been held that a contract between a pledgor and pledgee of the nature stated is void on grounds of public policy and inoperative to terminate the equity of redemption. 2 Kent Com. *583; Story Com. Bailm. § 345; 22 Am. & Eng. Encycl. L. (2d ed.) 877. But assuming that no legal obstacle exists to prevent a pledgor from contracting with his pledgee that in consideration of an extended time for payment, the pledge shall automatically become the property of the pledgee in the event of failure to pay at the time agreed upon, providing the contract be found fair, open and intelligent,- yet such a transaction necessarily demands the closest possible scrutiny of a court of equity whose especial duty it is to guard and preserve equities of redemption against harsh or unconscionable conduct of creditors toward their debtors. See 81 Qyo. 838, 859. The claim is made, in this case that at the time this resolution was passed, and also at the time the period of redemption expired, the collateral here in question was worth about double the amount that it was pledged to secure. I incline to the view that this claim is well founded, but before reviewing the testimony on that subject, another concurrent element of the transaction will be here considered.

It will be .observed that at the time the resolution which lim-5^ ited the period of redemption was adopted the individual interests of the five directors who passed the resolution were essentially hostile to the corporation in any effort made or to be made by them looking to the enforcement of the indebtedness. They could have sued the corporation for the recovery of the-money due them. They could have sued to foreclose the equity of redemption of the corporation in the collateral. They could, possibly, have sold the collateral under the specific power contained in the instrument of pledge. But in any of these proceedings an absolutely essential prerequisite, would have been such notice to the corporation as' the circumstances demanded to fully, and adequately disclose the fact of hostile proceedings against the corporation by those with whom the management and guardianship of the business interests of the corporation were for the time being primarily intrusted. This I understand to be the underlying principle upon which our court of errors and appeals bases its decision in Marr v. Marr, 73 N. J. Eq. (3 Buch.) 643. The proceedings which were in fact taken can scarcely be regarded as less hostile in their inherent nature than either of the three proceedings above suggested. Instead of pursuing either of the open remedies referred to an arbitrary date for forfeiture of title to the collateral was fixed, and that at a meeting of the board at which no director was present except those sustaining the relations of hostile interest-. So far as the evidence discloses .this resolution of forfeiture — it seems impossible to otherwise characterize it — was unknown to any other director or stockholder of the corporation until years after the period of redemption had expired; so far as practical notice to,the corporation is concerned, the resolution may be said to have remained wholly in the breast of the men who adopted it until long after its terms became operative to vest absolute title in them. At the expiration of the period named for redemption there was no one other than these interested directors to even consider in behalf of the coloration the propriety of a redemption. At the expiration of the year no action was taken by the board in the nature of a consideration in behalf of the corporation of the propriety of redemption, and no thought appears to have been seriously given to that subject by anyone.

It is not intended by these observations to attribute bad faith to these five directors. On the contrary, it may well be doubted whether at the time referred to either of them really wanted the stock at the price. What is here made the basis of this decision is the principle of law which denies to directors of a corporation, who are its creditors holding collateral security, the right to in effect foreclose the equity of redemption of the corporation in the collateral without adequate notice to the corporation which they represent. If it be found that the value of the collateral was far in excess of the amount of the debt, the illegality of the transaction as against the will of a single dissenting stockholder becomes the more apparent.

After so long a period of time it is not easy to determine with accuracy what a fair market price for its capital stock máy have been at the time here in question. The corporation was organized in the year 1896 with an authorized capital stock of the exact amount of the value of the land which it was proposed that the corporation should purchase. The land was then conveyed to the corporation, subject to a mortgage. Stock was issued .to the vendors of the land to’the amount of the purchase price less the amount of the mortgage. Stock to the amount of the mortgage was unissued; the plan being to retain that stock to meet the mortgage. The evidence is in harmony to the effect that the par value of the stock issued in payment for the land represented the real value of the land, in excess of the mortgage, at that time. The vendors of the land thereafter transferred a large percentage of the stock which had been issued to them to a trustee for the corporation under a trust enabling the corporation to sell the trust stock to raise money for the purchase of additional land and for development purposes. It is a part of ■ this trustee stock which is now the subject of dispute. Purchasers for this trustee stock were found from time to time at prices ranging from ninety-two to ninety-five dollars per share (par $100 per share), until.the early part of the year 1898. The resolution here in. question was adopted October 5th, 1898, and if deemed operative to vest title to the stock in defendant directors in October, 1899, will confer title upon them at $50 per share. Ho sale of either the trustee stock or of other stock of the corporation appears to have ever been made at less than in excess of ninety per cent, of its par value. In September, 1899, Judge Endicott — one of the directors who was not present at the time the resolution in question was adopted and who testifies that he did not know of its adoption until shortly before this suit was brought — purchased of Charles E. Davis ’stock of the corporation for $150 per share. In 1900 he sold stock at $120 per share. In 1903, and also in 1904, for $200 per share. His testimony is to the effect that the value of the. stock of the corporation steadily increased from the beginning. Judge Thompson, the other absent director, sold stock in 1899 at par and also above par, and testifies that it has at no time been worth less than par. There is testimony to the effect that in 1898 or 1899 stock was offered “on the street” for $50 per share, but no specific instances were given and no sales at less than $92 per share appear to have been made at any time. A resolution of the directors was adopted May 6th, 1897, to the effect that no company stock should be thereafter sold at less than par. Whether this resolution refers to the trustee stock is not certain. That resolution has at no time been rescinded. While it is difficult, as alreadjr suggested, to at this time determine with accuracy what the market value of the stock in question may have been in 1898 and 1899, the evidence would seem to demand a finding that it was in excess of $90 per share, or approximately double the amount at which- defendant directors took over the stock here in question.

It is strenuously urged in behalf of defendant directors that such laches is to be attributed to complainants as should be opera-Live to afford a bar to relief under the present bill. It seems clear that this defence cannot prevail. The rule, as stated in Gook on Slock. § 685, is as.follows: ■

“Laches is a defence only when the stockholder with a full knowledge of the facts has delayed an unreasonable length of time in bringing his action. These two elements, knowledge and delay, are the essential elements of the defence. Until the stockholder has full and complete knowledge of all the essential facts which would be likely to induce him to institute the action, the beginning of the time from which laches will run cannot be said to commence. * * * But it is not incumbent on the stockholder to keep himself informed as to the various acts of the corporation. He is not chargeable with knowledge merely because he might have ascertained the facts by an examination of the corporate books. Moreover, it is the well-established rule that lapse of time alone cannot support the defence of laches. There must be both knowledge and delay.”

See, also, £ Goolc Oorp. § 781. No ladies can be attributed to some of the complainants. The fact that other complainants who have joined in the bill are found to own stock tbe.title to which has passed through former owners to whom laches may be attributed can afford no bar to the assertion of the rights of the corporation by complainants to whom no laches can he attributed. The objection of laches of the individual stockholder goes to his right to assert the property rights of the corporation; that right cannot be impaired by the laches of another stockholder who may have joined'in the bill. The right of action is in no sense joint. Marr v. Marr, supra, cannot he regarded as adverse to this view. In Marr v. Marr the corporation was a defunct body and could not for that reason he appropriately made the recipient of the recovery.

The delay in this ease lias, in fact caused no real injury to defendants. The stock in question is still held by them except as to one of them; as to that one, it is held by his grantee who holds indemnity against the result of this suit. The recovery will restore to defendant directors the money they loaned, with interest, upon their returning the stock to the trustee from whom they received it and returning to the treasury of the corporation the dividends they have received on the stock. f

I will advise a decree pursuant to the prayer of the bill.


source: Caselaw Access Project

author: Howell, Y. C.

license: Public Domain

text:
    Adela J. Smith et al. v. Bird W. Spencer.
    [Decided February 14th, 1913.]
    1. Where the complainant and defendant are owners of two adjoining lots of land and hold title subject to restrictive covenants running with the land, to the effect that the respective owners in the erection of dwelling-houses thereon should each keep away from the boundary line and not approach it nearer than ten feet, and the complainants’ house was erected first, so that the third floor therepf and the eaves of the roof overhang the restricted space two feet and two inches, but the overhang is twenty-four feet and eight inches above the level of the ground, and the eaves of the defendant’s house overhang the restricted space two feet and two inches, and there is a cellarway extending three feet or thereabouts farther into the restricted space, which cellarway is covered with inclined doors and does not extend upwards beyond the level of the foundation, and it. appeared from the proofs that the violations of the covenant in question by both the complainants and defendant were not intentional, but arose from mistake or sheer carelessness in the location of their respective buildings — Held, that the encroachment by each party while it may violate the letter of the restriction, does not in any sense violate its spirit and general intention.
    2. What the parties contracted for and what each intended to receive was the benefit which would accrue to their respective properties by reason of the twenty-foot open space between their houses.
    3. These violations are so unimportant in their features and so little violative of the spirit of the covenant in question, that they ought not to be considered, and they ought not to be relied upon as the foundation of a decree to compel such extensive alterations in both houses as will be necessary to make them conform exactly to the covenant.
    4. If, however, the violation by the defendant should be considered to be material and vital, then the complainants cannot urge the said violation of which they complain as- the basis for a decree against the defendant, for the reason that tikey themselves are guilty of the same kind of violation of the covenant, and that long before the erection of the defendant’s house had been begun. It is well settled that one who violates a mutual covenant cannot complain in a court of equity of a similar violation by his neighbor.

      5. With respect to a certain other projection to the defendant’s house 'extending over the restricted line and which is a material violation of the covenant, the complainants are guilty of laches because they delayed to take legal proceedings until the defendant’s building was half constructed, after a serious expenditure of money, when they should have taken such legal proceedings as soon as they had ascertained the facts.
    On final hearing on bill, answer, replication and proofs.

      Mr. Andrew Foulds, Jr., for the complainants.

      Mr. Henry O. Whitehead, for the defendant.
   Howell, Y. C.

In 1901 the VanNordt Land Company owned the two tracts of land which are now owned by the complainants and the defendant, respectively, lying in one plot, and undivided. The plot now owned by the defendant was conveyed by it on June 29th, 1901, and by mesne conveyances the title became vested in the defendant. It conveyed the complainants’ land on April 3d, 1902. In the conveyance which it made of the complainants’ tract a covenant was inserted, the portion of which now in dispute reads as follows:

“Only one house shall be built upon said plot, which house shall cost not less than $3,500, and shall be set back at least thirty-five feet from Paulison avenue and at least ten feet from the southeast line of said plot.”

There was also a covenant in the same deed by the grantor that when it should convey the adjoining plot which is now owned by the complainants, it would insert therein a covenant as follows:

“Only one house shall be built upon the said plot, which house shall cost not less than three thousand five hundred dollars and shall be set back at least thirty-five feet from Paulison avenue and at least ten feet from the above-described premises which are conveyed by this instrument to the aforesaid party of the second part.”

When the VanNordt Land Company conveyed the tract now owned by the complainants the covenant agreed upon was inserted in the deed. It was conceded that the covenants run with the land and that the respective owners in the erection of dwelling-houses thereon should each keep away from the boundary line and should each not approach it nearer than ten feet. The complainants’ house was erected first; the third floor thereof and the eaves of the roof overhang the restricted space two 'feet and two indies, but the overhang is twenty-four feet and eight inches above the level of the ground.

The defendant began the erection of a house on his plot in August of 1911. After the foundation had been laid out the complainants suspected that some portion thereof was within the restricted area, and so notified the defendant. The defendant, however, continued his building operations and finished the house as contemplated. The eaves of the defendant’s house overhang the restricted space two feet and two inches, and there is a cellar-way which extends three feet or thereabouts further into the restricted space. This cellarway is covered with inclined doors and does not extend upwards beyond the level of the foundation.

Before the defendant’s house had been finally completed, and on December 18th, 1911, the complainants filed their bill praying for an injunction to prevent the defendant from locating any building upon his said plot of land which should not be at least-ten feet from the said boundary line, and that he be compelled to remove any portion of his building which might be found to be Avithin ten feet of such boundary line, and that he might be enjoined and restrained from 'maintaining a kitchen on the avenue front of his building, and further restrained from operating or conducting his building in such a manner as to constitute a nuisance, or as to injure the property 'of the complainants, with a prayer for further relief.

The ansAver admits the covenants and the locations of the two buildings and the amounts of the encroachments substantially as they are herein above set out, and on the hearing there was very little, if any, dispute about the facts.

That portion of 'the bill which prays that the defendant may be restrained from using his kitchen and maintaining a nuisance must be disregarded. The defendant’s house has never yet been occupied, and the kitchen has never been used; no nuisance has yet been committed or threatened, and on this issue the decision must be for the defendant.

It is quite plain from the proofs that the violation of the covenant in question by both the complainants and the defendant were not intentional, but arose from mistake or sheer carelessness in the location of their respective buildings. I do not think there was any intention on the part of either to aggressively and wantonly violate the covenant. Evidently, the location of the two buildings was made by someone who either did not know of the covenant or did not take pains to regard it; but in my opinion the encroachment by each party while it may violate the letter of the restriction, does not in any sense violate its spirit and general intention. What the parties contracted for and what each intended to receive was the benefit which would accrue to their respective properties by reason of the twenty-fool open space between their houses. Each desired to have light and air perpetually insured to his or her dwelling-house. So long as this object is attained the violations of the covenant w.ould seem to ■be immaterial. The overhang of two feet and two inches of the complainants’ house, beingj as it is, upwards of twenty-four feet above the surface of the ground, does not in any sense deprive the defendant of the general benefit above referred to which he contracted for, and the same remark may be made concerning the overhang of the defendant’s house, which, beginning upwards of fifteen feet above the surface of the ground, does not seem to me to interfere with the general object of the covenant. The cellarway, covered with its inclined doors, seems to disturb the situation quite as little as the overhanging parts of the houses.

1, therefore, am of the opinion that these violations are so unimportant in their features and so little violative of the spirit of the covenant in question, that they ought not to be considered, and they ought not to be relied upon as the foundation of a de•cree to compel such extensive alterations in both houses as will be necessary to make them conform exactly to the covenant. The doctrine of immaterial violations is discussed in Morrow v. Hasselman, 69 N. J. Eq. (3 Robb.) 612; Barton v. Slifer, 72 N. J. Eq. (2 Buch.) 812, and Newbery v. Barkalow, 75 N. J. Eq. (5 Buch.) 128. If, however, the foregoing should be an erroneous view of the case, and the'violation by the defendant should be considered to be material and vital, then it is quite apparent that the complainants could not urge the violation as the basis for a decree against the defendant, for .the reason that they are guilty of the same kind of violation of the covenant, and that long before the erection of the defendant’s house had been begun. It is well settled that one who violates a mutual covenant cannot complain in a court of equity of a similar violation by his neighbor. Roberts v. Scull, 58 N. J. Eq. (13 Dick.) 405; Ocean City. v. Headley, 62 N. J. Eq. (17 Dick.) 322. On this branch of the case, therefore, and on either of the grounds mentioned, the judgment must be for the defendant.

There is, however, a projection to the defendant’s house which is one story high and about twenty feet long, which does extend over the restricted line about fifteen inches almost, in fhe form of a bay window. It is much the same construction as was dealt with by this court in Kirkpatrick v. Peshine, 24 N. J. Eq. (9 C. E. Gr.) 206, and in Righter v. Winters, 68 N. J. Eq. (2 Robb.) 252, and is material, -for the reason that it extends fifteen inches into the restricted space. The complainants informed themselves of the situation, directly after the foundations therefor had been laid, and on October 31st, 1911, or the day following, their counsel wrote a letter to the defendant calling his attention to the erroneous location of his building, and a considerable correspondence ensued between that time and the filing of the bill on December ISth following. In the meantime the construction was going forward, and until the date of the filing of the bill no proceedings were taken to enjoin the construction. It was the duty of the complainants under this state of facts to act immediately after they had ascertained ydiat. the situation was. Sutcliffe v. Eisele, 62 N. J. Eq. (77 Dick.) 222; Zelman v. Kaufherr, 76 N. J. Eq. (6 Buch.) 52; Meaney v. Stork, 80 N. J. Eq. (10 Buch.) 60. The complainants cannot, in a situation like this, protect their rights by claiming such rights, however persistently, by mere correspondence. Legal proceedings must be taken before there has been a serious expenditure of money. They waited until the defendant’s building was half finished, and not until then did they seek the relief which they should have sought as soon as they had ascertained the facts. On this branch of the case I must hold that the complainants are guilty of laches.

The complainants, therefore, can have no relief against the defendant, and the bill must- be dismissed, with costs.


author: Howell, Y. C. ■

text:
    William Bliss et al. v. Linden Cemetery Association et al.
    [Decided February 24th, 1913.]
    1. It seems to be well settled in New Jersey that a trust forHhe establishment and maintenance of a cemetery or public burying ground is a charitable use within the meaning of that term, as it is commonly used.
    2. If a trust for the establishment and maintenance of a cemetery is a charitable use, then a remedy must be sought in this court for such evils and irregularities as may arise in the administration of the trust by the corporation holding the legal title.
    3. Proceedings to correct abuses may be instituted either by the attorney-general, or by the parties in interest.
    4. The attorney-general ought to be brought into the suit, and, in case he should choose to do so, be given the right to take charge and ■ control of that portion of the litigation which relates to the public right.
    5. In suits for establishing, regulating, controlling or correcting charitable trusts, courts disregard all technicalities; if the case is brought before the court by bill or information, it takes jurisdiction over the administration of the charity, and makes the proper orders and decrees for the right administration of the fund, whether the pleadings are formal or informal, and whether the proper relief is prayed for or not.
    6. Upon a motion for an injunction and the appointment of a receiver for a cemetery association organized under the Rural Cemetery act of this state, upon the ground of its insolvency, that it has been guilty of a large' number of ultra vires acts, and for the general regulation of its affairs and the sale of its property, the answer of the association admitted that the association is insolvent and has not funds to carry on its ordinary business, and that there is great danger of its income being sequestered at the suit of creditors and its property sold, and consented to the appointment of a receiver in accordance with the prayer of the bill. It was thereupon urged on the part of the complainants that this state’of facts would justify the court in appointing a receiver of the association property, and so remove the present trustees or deprive them of their control. — Held, there are two objections to this course, (1) that the present trustees are not parties to the suit, and have had no opportunity to present their side of the case, and (2) that this proceeding is not under our Insolvent Corporation act, and its provisions for summary investigation and action do not apply.

      7. The Insolvent Corporation act contemplates the winding up of all the concerns of an insolvent corporation and the distributing among its creditors and shareholders of all its assets or the proceeds of the sale thereof. The insolvency of a charitable corporation produces entirely different results. It has no shareholders among whom the surplus after payment of debts can be divided. If the trust fails for lack of objects, or for any other cause, the fund, if any be left, will yet be administered by this court if necessary under the oy pres doctrine, and if there is no trustee to hold the fund this court will appoint one and give directions for the perpetuation of the charity.
    8. Under a covenant contained in the deed of conveyance to the cemetery association comprising the lands in question, parties in interest having been created called “land purchase shareholders,-’ only a small number of whom have been included as defendants in the bill, the rights of this class cannot be adjudicated until all the members- of this class have been made parties.
    9. The bill being defective for lack of parties, viz., (1) the atrorneygeneral, (2) the present board of trustees, and (3) the holders of the land purchase shares, leave will be given to complainants to amend their bill by bringing them in, and to renew the motion, upon notice to all parties.
    On motion for an injunction and the appointment of a receiver.

      Mr. Abram, H. Cornish, for the complainants.

      Mr. Robert D. Reynolds and Mr. Hugh B. Reed, for the cemetery association.

      Mr. Ernest Quackenbush, for L. T. Dyer and others.

      Mr. Terry Parker, for Henry C. Boehl and others.

      Air. William W. Welch, for George T. Welch.

      Mr. James DeWitt Andrews (of the New York bar), for C. O. Smith.
   Howell, Y. C. ■

This is a motion for an injunction and the appointment of a receiver for a cemetery association organized under the Rural Cemetery act of this state, upon the ground of its insolvency, and upon the further ground that it has been guilty of a large number of ultra vires acts, which are set out in the bill at length, for the general regulation of the affairs of the association, and the sale of its property. The injunction prayed for relates to its financial transactions. The bill is voluminous, the questions to be considered are complicated, and the number of people interested and the manner in which their interests have accrued renders the case important.

It may be well before going into the facts to examine some of the questions of law which must necessarily be appealed to. Notwithstanding the great contrariety of opinion held by the courts of the various states, it seems to be well settled in New Jersey that a trust for the establishment and maintenance of a cemetery or public burying grounds is a charitable use within the meaning of that term as it is commonly used. It was so held by Chancellor Runyon in Stockton v. Newark, 42 N. J. Eq. (15 Stew.) 531, and by Chief-Justice Beasley in the same case on appeal, Newark v. Stockton, 44 N. J. Eq. (17 Stew.) 179. The question there was what relation a plot of land called “The Old Burying Ground” was in with reference to the city of Newark, which held the legal title thereto. The chief-justice said: “The city holds the fee of the land as a public burying place; the same being a charitable use.” In the case in hand the corporation created under the general law of the state took title to the fee-simple of the Ends in question with a habendum, “to the party of the second part (the corporation) for the purpose of a cemetery;” the situation does not vary from that unanimously announced in Newark v. Stockton. Eollowing this is the opinion of Vice-Chancellor Stevens in Corin v. Glenwood Cemetery, 69 Atl. Rep. 1083, holding to a similar conclusion.

If a trust for the establishment and maintenance of a cemetery is a charitable use, then the question arises in what jurisdiction must a remedy be sought for' such evils and irregularities as may arise in the administration of the trust by the corporation holding the legal title. Undoubtedly, that jurisdiction is committed to this court. It was so held in Norris v. Thomson, 19 N. J. Eq. (4 C. E. Gr.) 307; affirmed in 20 N. J. Eq. (5 C. E. Gr.) 489; in Attorney-General v. Moore, 19 N. J. Eq. (4 C. E. Gr.) 503; DeCamp v. Dobbins, 29 N. J. Eq. (2 Stew.) 36; Tay lor v. Bryn Mawr College, 34 N. J. Eq. (7 Stew.) 101 Hesketh v. Murphy, 35 N. J. Eq. (8 Stew.) 23; Mills v. Davison, 54 N. J. Eq. (9 Dick.) 659; MacKenzie v. Trustees, 67 N. J. Eq. (1 Robb.) 652. In Attorney-General v. Moore, supra, Mr. Justice Depue, speaking for the court of errors and appeals, says: “The court of chancery has an extensive jurisdiction over the subject of charitable uses, to uphold, protect and enforce their execution; but this jurisdiction is not so universal as to include the execution by the court of all trusts, or to authorize its interference in all cases of bequests to charitable uses. Its authority can only be invoked in exceptional cases, where no trustee is interposed, ox where there is no person in esse capable of taking, or where the charity is of an indefinite nature, or its execution, according to the original purpose, is or has become impracticable. * * * In all such cases, however, if there be any abuse or misuse of the funds by the trustees, the court of chancery will interpose, at the instance of the attorney-general, or the parties in interest, to correct such abuse or misuse of the funds. But in such cases, the interposition of the court is properly referable to its general jurisdiction as a court of equity to prevent abuse of a trust, and not to anjr original right to direct the management of a charity or the conduct of the trustees.”

Having ascertained the forum in which proceedings to correct abuses may be exhibited, we may next inquire who has the right to bring a suit for the purpose. As was well said by Mr. Justice Depue in the case last quoted, such proceedings may be instituted either by the attorney-general or by the parties in interest. In this case a proceeding is instituted by one lotholder and three ■ creditors of the cemetery company on behalf of themselves and all other lotholders and creditors who shall come in and contribute to the expense of the suit. Ho serious question was made on the argument about the right of the complainants to institute proceedings as they have clone; but, in my opinion, the attorney-general ought to be brought into the suit, and, in case he should choose to do so, be given the right to take charge and control of that portion of the litigation which relates to the public right. Green v. Blackwell, 35 Atl. Rep. 375. .

There remains but one other consideration, and that relates to ihe practice and procedure in cases of this character :

“In suits for establishing, regulating, controlling, or correcting charitable trusts, courts disregard all technicalities; if the case is brought before the court by bill or information, it takes jurisdiction over the administration of the charity, and makes the proper orders and decrees for the right administration of the fund, whether the pleadings are formal or informal, and whether the proper relief is prayed for or not. In charity cases, the most expeditious and least expensive methods should be adopted; and a proper decree for relief will be made, although ■ relief of an entirely different character is prayed for. Courts are not bound by the strict rules of practice in granting injunctions or stay of proceedings at law in such cases. It cannot be objected to a proceeding by the attorney-general in equity, in the matter of a charity, that there is an adequate remedy at law. But if there are any such informalities in the record as will be prejudicial to the defendants, the court will not proceed until such informalities are corrected.” Perry Trusts § 71/6.

If the complainants have made a case of misuse or abuse, or destruction, or threatened impairment of the trust fund in this case, it must come within the rules of law above recited, which seem to be so well settled.

There are no papers before me excepting the bill and affidavits and the answer of the cemetery association. This answer admits that the association is insolvent and has not funds to carry on its ordinary business, and that there is great danger of its income being sequestered at the suit of creditors and its property sold; and it consents to the appointment of a receiver in accordance with the prayer of the bill.

All the parties now before the court admit.that the corporation is iii financial straits and has been obliged to suspend its ordinary business for want of funds to carry on the same. The bill alleges, and it is proved by the affidavits, that the corporation is indebted in the sum of upwards of $135,000, that it has owing to it about $20,000, over $15,000 of which is due from the Eosedale Cemetery Company, a corporation which is likewise alleged to be insolvent; besides this is the real, estate, the value of which is wholly unknown. The whole tract of land, consisting of approximately one hundred and'thirty acres, appears to have been devoted to burial purposes; interments have been made in almost every part of it, the aggregate being nearly two thousand, and it is thus rendered entirely useless throughout for any purpose other than a cemetery. The sale of lots may go on in the present condition of affairs if purchasers therefor can be found, but the ordinary work of caring for the grounds and the preservation and development of the property must come to an end for lack of funds. The situation seems to be one which involves the liability not only to great loss and inconvenience to the lotholders and creditors, but also, in time, to the obliteration of the cemetery enterprise, with an unknown and unascertainable future for the tract of land and the' burials already made in it.

It is iirged on the part of the complainants that this state of facts would justify the court in appointing a receiver of the association property, and so remove the present trustees .or deprive them of their control. There are two objections to this course; one is that the present trustees are not parties to the suit, and hare had no opportunity to present their side of the case. The other is that this proceeding is not under our Insolvent Corporation act, and its provisions for summary investigation and action do not apply. In my opinion that act does not apply to the ease of an insolvent or decayed corporation administering a charitable use. It contemplates the winding up of all the concerns of an insolvent corporation and the distributing among its creditors and' shareholders of all its assets or the proceeds of the sale thereof. The insolvency of a charitable corporation produces entirely different results. It has no shareholders among whom the surplus after payment of debts can be divided. If the trust fails for lack of objects, or for any other cause, the fund, if any be left, will jret be administered by this court, if necessary, under the cy pres doctrine, and if there is no trustee to hold the fund, this court will appoint one and give directions for the perpetuation of the charity. It ma3r be that in administering the affairs of an insolvent charitable corporation some of the procedure which applies to insolvent business corporations might profitably be used, but when the obligations are paid, and there remains a fund, such fund cannot be disposed of or used for any purpose except the purpose of the charity- to which it was originally devoted. This makes the inapplicability of the Insolvent Corporation act to the present situation quite obvious.

There is one other feature of the bill which deserves mention. It is alleged that many acts ultra vires of the corporation were committed at the time of its organization, and that by means of manipulation a much larger sum has been taken and is being taken by the promoter and his assigns for the purchase-money of the land in question than the land was worth at the time of the purchase. The land was conveyed to the cemetery association by one William E. Smith. In the deed-of conveyance from him appear, among other things, covenants that the cemetery association should pay over to him and his associates one-half the amounts received by it from the sale of lots, that this amount should be divided into nine thousand shares, transferable like-shares in the capital stock of a corporation, and that Smith was likewise to receive a further ten per cent, of the amount realized from the sale of lots, to be paid to him semi-annually, leaving forty per cent, for the support of the cemetery, which amount now turns out to be insufficient. The complainants desire to open up this transaction in order to reduce the purchase-money to what they claim it should have been originally, and to disturb the relations of these land purchase shareholders accordingly. Only a small number of this class of persons has been included as defendants in the bill. I do not see how the rights of the class can be adjudicated upon until all the members-of tire class shall have been made parties. Besides the small number of land purchase shareholders who are included as defendants there is added the holders of the ten per cent, interest, as it is called.

The bill, therefore, appears to be defective for lack of parties —(1) the attorney-general, (2) the present board of trustees, and (3) the holders of the land purchase shares. In my opinion, they are necessary parties to the litigation. Without them no decree could be- made on the present bill which would be of any material value to the complainants. Notwithstanding the consent of the association to the appointment of a receiver . of its property, I am unwilling, to grant such extraordinary and drastic relief on a bill which appears to be so defective. If the complainants desire to 'do so, leave will be given to them to amend their bill by bringing in the parties suggested, and to renew the motion, upon notice to all parties.


text:
    Emmy Borstelman et al. v. Amelia Brohan et al.
    [Submitted April 15th, 1913.
    Decided May 6th, 1913.]
    1. Whether a complainant seeks to establish a lost instrument such as a deed of conveyance or a will, or seeks to recover upon a lost instrument such as a mortgage or a promissory note, the burden is on him in the first instance to prove that a document of the sort alleged in the bill once existed, and that it was properly executed and delivered and so became a valid instrument as between the- parties.
    2. This rule manifestly casts the burden of proof on the party claiming under the lost instrument, and it is quite consonant with reason that the burden of proof should not only be sustained by him, but that the evidence as to the existence, execution and delivery of the lost instrument should be clear and cogent.
    3. The rule, therefore, rests not only upon authority but upon reason. It would he outrageous to permit a defendant in possession under -a valid paper title to be ousted by oral testimony concerning which there was any large element of doubt. If there is doubt about the existence at a previous time of the document which is claimed to have been lost, the inquiry ought to stop there. The prior existence of the "document is a preliminary question which ought to be settled in the mind of the court in favor of its existence before testimony is considered as to the details of its contents.
    4. In this suit in which the complainants are seeking to establish a lost deed under which they claim title, evidence examined and held, that the evidence does not show that any person ever saw a deed of the character and description required to make title in this suit.
    On final hearing on bill, answer, replication and proofs.
    Mr.. Spaulding Frazer and Mr. Louis Ziegler, for the complainants. • •

      Mr. Gilbert Gollins, for the defendants.
   Howell, Y. C.

The bill alleges that Peter Brohan in his lifetime became the owner of three tracts of land in Hudson county which, on January 28th, 1878, he conveyed to Thomas P. Nugent, who, on the same day, conveyed the same to Henrietta -E. C. Brohan, the wife of Peter Brohan, thus vesting the title thereto in the said' Henrietta, who is still living.. ^On April 18th, 1885, the said Peter Brohan, by the name of Peter G. Brohan and Henrietta, his wife, conveyed the premises to one Priedrich Guldner, who held the title thereto until his death. Peter Brohan remained in possession of the premises until his death on June 5th, 1912.

Peter. Brohan left him surviving his widow, Henrietta E. C. Brohan, and the complainants, his heirs-at-law.

Priedrich Guldner subsequently died, the title to the said tract still remaining in him, and on June 5th, 1912, his heirs-at-law conveyed the premises in question to the defendants, who were the children of Mrs. Henrietta E. C. Brohan by her first marriage, and a few days later Henrietta E. C. Brohan released to the defendants an}r right that she might have in the premises.

The complainants, heirs-at-law of Peter Brohan, claim title to the lands in question upon the ground that at the time of the conveyance to Guldner' a deed was executed by Guldner to Brohan which was never recqrded and which is now lost, and that upon the death of Peter Brohan intestate the title devolved upon them; the prayer of the bill is that the defendants should hold the said lands in trust for the complainants, that they should convey the same to the complainants, and should account for mesne profits, and for general relief.

It is apparent that the complainants are seeking to establish a lost instrument under which they claim title as heirs-at-law of the grantor. The defence set up in the answer is that when the conveyance was made to Guldner it was agreed that Guldner should hold the title until the death either of Mr. or Mrs. Brohan, and then should convey the lands to the survivor or to such persons as the survivor might name; that the survivor was the widow, Henrietta E. C. Brohan, and that she directed the title to be conveyed to the defendants, and at the same time released to them whatever right she had therein, and that they were then placed in possession of the land itself and that they hold the same under a proper and valid paper title.

Whether a complainant seeks to establish a lost instrument, such as a deed of conveyance, or a will, or seeks to recover upon a lost instrument, such as a mortgage or a promissory note, the burden is on him in the first instance to prove that a document of the sort alleged in the bill once existed, and that it was properly executed and delivered ‘and so became a valid instrument as between the parties. This rule manifestly casts tire burden of proof on the party claiming under the lost instrument, and it is quite consonant with reason that the burden of proof should not only be sustained by him, but that the evidence aa to the existence, execution and delivery of the lost instrument should be clear and cogent. Swaine v. Maryott, 28 N. J. Eq. (1 Stew.) 589. The authorities on the point in this state are very meagre, but it has received attention from the courts of other jurisdictions, to the opinions of some of which I shall now refer. In Connar v. Pushar, 86 Me. 300, the court dealt with the question. The action was for the recovery of a tract of land. The defence was the existence of a deed which had been lost; the trial judge instructed the jury as follows: “When parties seek to supply the place of a lost deed in view, as I say, of’the importance of having a degree of certainty and stability in titles to real estate, the evidence to satisfy you that there has been a' deed, and that it has been lost, should be clear and convincing, and as to the character of the instrument, it should be clear and convincing. There should be evidence, in other words, that should give you a clear preponderance in favor of the proposition that there has been a deed, aud that it has been lost; and -the contents of that deed should be given with that degree of satisfaction that you feel that there must have been a conveyance of real estate. I do not mean to say, of course, that there is any different burden of proof on this proposition than in any other case of civil investigations. It is a preponderance of all the evidence in the case. But the evidence, I should say, should be clear and satisfactory within the limits of the preponderance of evidence.” This instraction was upheld by the court of last resort in an opinion from which I quote: “The plaintiffs had an unbroken record title extending back over half a century; and the presumption in favor of record’titles is so strong that it requires strong, clear and convincing proof to overcome it. This requirement does not ■militate against the rule that in civil suit's a preponderance of evidence is all that is necessary. When an attempt is made to batter down recorded deeds by oral evidence of non-existing and unrecorded deeds, the oral evidence must be clear and strong, satisfactory and convincing, or it will not preponderate. It mast be plenary.” Citing Moses v. Morse, 74 Me. 472. A similar ruling was made in Day v. Philbrook, 89 Mc. 462.

The court of appeals in New York, in Edwards v. Noyes, 65 N. Y. 125, said: “Parol evidence to establish the contents of a lost deed should be clear and certain; it should show that the deed was properly executed, with the formalities required by law, and should show all the contents of the deed, not literally, but substantially. If anything less than these requirements would suffice, evil practices, which it was the object of the statute of frauds to prevent, would be encouraged.” In that ease the plaintiff had no copy of the deed, but attempted to prove its contents by witnesses who had never read it, but who claimed that they had heard it read many years before the trial. They could give but a small fraction of what the deed appeared to contain.

In Scurry v. Seattle, 56 Wash. 1, the following declaration was made on this subject: “To prove the contents of the lost instrument, there was only one witness, the husband of one of the appellants, and his memory of the language in which the agreement was stated — although he testified that he prepared it himself — was so indistinct as to scarcely rise to the dignity of proof. While he stated with clearness his understanding of the legal effect of the instrument, he did not relate even the substance of the contents of the writing itself. In order to establish a lost instrument on behalf of the party asserting rights under it, the case must be clear and positive, and of such a character as to leave no reasonable doubt as to terms and conditions of the instrument. It is not enough that it be established that an instrument containing some form of limitation at some time existed, nor is it enough that some witness is able to state his understanding of the legal effect of the instrument; the contents of the instrument must be substantially proven, and with such clearness that the court can determine its legal effect from the language used therein.” Citing Tayloe v. Riggs, 1 Pet. 591; 7 L. Ed. 275, and Nicholson v. Tarpey, 89 Cal. 617, and United States v. Britton, Fed. Cas. No. 14650; Rankin v. Crow, 19 Ill. 626. The .case of Tayloe v. Riggs, supra, wak a case in which there was an attempt to recover upon a lost instrument. Chief-Justice Marshall applied the doctrine now contended for in the following words: “When a written contract is to be proved, not by itself but by parol testimony, no vague, uncertain recollection concerning its stipulations ought to supply the place of the written instrument itself. The substance of the agreement ought to be proven satisfactorily, and if that cannot be done, the party is in the condition of every other suitor in court who makes a claim that he cannot support. When parties reduce their contract to writing the obligations and rights of which are described and limited by the instrument itself, the safety which is expected from them will be much impaired if they could be established upon uncertain and vague impressions made by conversation antecedent to the reduction of the agreement.”

The rule, therefore, rests not only upon authority but upon' reason. It would be outrageous to permit a defendant in possession under a valid paper title to be ousted by oral testimony concerning which there was any large element of doubt. If there is doubt about the existence at a previous time, of the document which-is claimed to have been lost, the inquiry ought to stop there. The prior existence of the document is a preliminary question which ought to be settled in the mind of the court in favor of its existence before testimony is considered as to the details of its contents.

The evidence does not show that any person ever saw a deed of the character and description required to malee title in this ease. The principal witness is a Mrs. Livorani, who attempted to prove that there was such a. deed seen by her in Brohan’s tin box, in which he kept, his valuable papers, just before his death. The deed which sire describes does not fit into the situation at all. She says that she remembers seeing in the tin box a certain deed by which Mr. Brohan sold his property to a certain Minnie and Friedrich Guldner in 1885, and then that she had seen a deed ■by which Minnie and Friedrich Guldner sold the property back to Peter Brohan. There was no Minnie Guldner, nor is it claimed by any one in the case that there was any grantee except Friedrich Guldner. Nor does she state the contents of the supposed deed in such detail as to identify it. The testimony of this woman is so extraordinary that I am constrained to say that I cannot believe it. She claims to have read all the deeds that were in the tin box, although she remembers the contents of none of them except the one to Minnie and Friedrich Guldner. She was in search of a deed for a cemetery lot belonging to Brohan, and for nothing else, and why she should open every paper that was contained in the box and read it is totally unexplained. Her husband, 'called also as a witness, stated, that he had seen a deed from Peter (meaning Peter Brohan) to Gulden (meaning Guldner) and from Gulden to Peter, but he had forgotten the contents and was unable to tell what they were. I do not think that the complainants have even made out a prima facie case, and when the degree of proof which is required in a case of this sort is considered, it must be quite apparent that there is no evidence upon which the court can rely to establish the fact that there ever existed a deed of the kind claimed by the bill of complaint.

This conclusion malees it unnecessary to examine the defence at any length. I have, however, examined it carefully, and must say this about it: If the testimony on both sides is credible, the whole matter rests in such doubt as to prevent the complainants from having a recovery.


text:
    Nelson Z. Graves v. Edwin Fancher et al.
    [Submitted April 9th, 1912.
    Decided May 23d, 1912.]
    On April 2d, 1871, John Kutherford and wife granted and conveyed to the Thomas Iron Company, their heirs, successors and assigns forever “the right and privilege of flowing with water all the lands lying on the southwest side of the road leading from the Wawayanda Furnace to Vernon covered by the waters of the Wawayanda Lake [tihe land in dispute] at any height of said waters from lojv to high-water mark, said high-water mark being a straight line cut- into the rock near the southern end of the main dam of the Wawayanda Lake, and above said line is cut the letters H. W., and also the right and privilege of flowing with water from low-water to high-water mark the lands lying on the northeasterly side of the road leading to Vernon as aforesaid, said lands being part of the farm known as the Banta farm with the appurtenances and all the estate, title and interest of the said parties of the first part therein.” Then follows a covenant that the grantors at the time of the delivery of the deed were “the lawful owners of the premises above granted and seized thereof in fee-simple absolute.” There was also a covenant that the grantors would warrant and defend “the above-granted premises” in the quiet and peaceful possession of the grantees and their successors. The instrument contained no habendum clause nor any covenants except those above mentioned, and the controversy between the parties is over the question whether the deed conveyed a fee-simple title or merely a right of flowage. .There was no evidence in the case to show when the lands embraced in the deed in question were flowed with water, or whether the lake was' a natural lake or an artificial one caused by the building and subsequent raising of a dam. — Seld, that the deed instead of conveying a mere right of flowage, conveyed at the date of its execution and delivery a fee-simple .estate in the lands described therein.
    On final hearing on bill, answer, replication and proofs.

      Mr. Alfred F. Skinner and Mr. Addison H. Hazeltine, for the complainant.

      Mr, Henry Huston, for the defendant.
   Howell, Y. C.

The bill in this case is filed to quiet title to lands covered by a small portion of the waters of Wawayanda lake and lying within the boundaries of a farm known as the Banta farm, which is now owned by the defendants. The land in dispute lies at the north end of the lake and at the south end of the Banta farm and embraces about seven or seven and a half acres of land; it is wholly covered by the waters of the lake and is divided by a highway into two portions, the larger one lying to the south of the highway.

On April 2d, 1871, John Rutherford and his wife> in consideration of “one dollar and exchange of lands * * * bargained and sold * * * and did grant and convey” to the Thomas Iron Company, their heirs, successors and assigns forever

“the right and privilege of flowing with water all the lands lying on the southwest side of the road leading from the Wawayanda Furnace to Vernon covered by the waters of the Wawayanda Lake [the land in dispute] at any height'of said waters from low to high-water mark, said high-water mark being a straight line cut into the rook near the southern end of the main dam of the Wawayanda Lake, and above said line is cut the letters H. W., and also the right and privilege of flowing with water from low-water to high-water mark the lands lying on the northeasterly side of the road leading to Vernon as aforesaid, said lands being part of the farm known as the Banta farm with the appurtenances and all the estate, title and interest of the said parties of the first part therein.”

Then follows a covenant that the grantors at the time of the delivery of the deed were “the lawful owners of the premises above granted and seized thereof in fee-simple absolute.”

There was also a covenant that the grantors would warrant and defend “the above-granted premises” in the quiet and peaceful possession of the grantees and their successors. The instrument contained no habendum clause nor any covenants except those above mentioned.

The bill alleges that the complainant is in the peaceful possession of the lands and premises described in the above-mentioned deed, claiming to own the same in fee-simple; that the complainant’s title is denied and disputed by the defendants who claim to own the same or some interest therein, and that no suit or action of any kind whatever was then pending to enforce or test the validity of such title or claim, and it prays for a determination and quieting of the title in the usual form, and complies fully with the statutory requirements.

The answer does not deny the allegations of the bill touching the question of complainant's possession or any of the statutory requirements alleged, but is confined to an exposition of the title deeds subsequent to the Rutherford convej'unce under which both complainants and defendants claim, and denies the complainant's title. It admits, however, that the complainant has a right of flowage over the lands in question, and that defendant’s title is subject to such right.

It may be said at this point that the validity of a deed must be determined by facts which exist at the time of its execution and delivery. It was so held by Vice-Chancellor Van Fleet in Ogden v. Thornton, 30 N. J. Eq. (3 Stew.) 569. If a deed is valid when delivered it must always remain so, and nothing can affect the title created by such a valid instrument except another instrument equally valid. We, therefore, must come to a- consideration of this conveyance as of its date and the date of its delivery. Subsequent deeds may affect the title but cannot affect the deed in question. In the same manner and for the same reason the deed must receive its construction as of its date and the date of its delivery. Events occurring subsequently can have no bearing upon the meaning of the deed.

The controversy between the parties is over the question whether the deed conveyed a fee-simple title or whether it conveyed merely a right of flowage. There is no evidence in the case to show when the lands embraced in the deed in question were flowed with water, or whether the lake was a natural lake or an artificial one caused by the building and subsequent raising of a dam. Evidence on this point might have contributed toward the clearing up of the dispute, but without it I am inclined to assume that the waters of the lake at the time the deed was made flowed over the land in question just as they do to-day, and the deed will be construed with reference to that assumption.

A. deed similarly worded was construed by this court in the case of New Jersey Zinc Co. v. New Jersey Franklinite Co., 13 N. J. Eq. (2 Beas.) 322. The deed then in dispute was made in 1852 by the Sussex Company to the New Jersey Zinc Company. it- contained a conveyance to the grantee of “all the zinc and other ores except franklinite and iron ores” found or to be found in or upon the premises therein described; after which description the deed contains this clause,

“together with all and singular the tenements, hereditaments and appurtenances thereunto belonging, &e., and also all the estate, right, interest, property, claim and demand whatsoever as well at law as in equity of the said parties of the first part in and to the above described premises, and. every part and parcel thereof with the appurtenances.”

It was argued that this language included all the estate and interest of the grantors in the premises described and operated to pass to the grantees, not only all the franklinite and iron ores, but to pass the absolute fee in the land itself. Chancellor Green declined to adopt this construction, and held that the words in question, including the word “premises,” should be limited to the ores which were the things granted.

On appeal (16 N. J. Bq. (2 McCart.) 418) this ruling was reversed by a nearly equally divided court, and in the opinion of Mr. Justice Yredenburgh, who wrote for the majority, it was held that the words “above described premises” referred to the lands described by metes and bounds as the lands in which the zinc and other ores were to be found, and were not confined to a mere reference to the'ores. He says: “The language used here has precisely the same legal effect as if the description had read call the zinc and other ores found in, also all the estate of the parties of the first part of, in and to the following, described premises, that is to say/ ” &c., and then describing it by metes and bounds. The deed upon the face, of it was evidently, intended to convey not ’only the zinc ores, but also the estate the grantors had in the premises described, clearly as much so as if the deed had omitted the words “zinc ores” and had merely said “we convey all bur right and title to the premises abutted and bounded as follows.” The court of errors and appeals, in 1893, in the case of Lehigh Zinc and Iron Co. v. New Jersey Zinc and Iron Co., 55 N. J. Law (26 Vr.) 350, followed that construction of the same deed. A similar construction was given to similar words in the case of Golden v. Coonan, 107 Iowa 209.

In view of these authorities, it is my .judgment that the deed . instead of conveying a mere right of flowage, conveyed at the date of its execution and delivery a fee-simple estate in the lands described in it.

I do not find in the subsequent events any conveyance which can change the result. The lands in dispute belonged at one time to a larger tract known as the Banta farm, containing about one hundred and sixtjr-six acres of land. The tract in question contains about seven and a half acres. In 1880 Charlotte L. Rutherford, as executrix of the will of John Rutherford, conveyed the Banta farm to Andrew Layton by a deed describing it particularly, which contained this provision:

“It being mutually agreed that this conveyance is made subject to all the conditions and provisions of a. certain deed to the Thomas Iron Company dated April 22d, 1871, from John Rutherford and wife.”

It will be observed that this exception amounts to a reservation from the conveyance of the tract of land previously conveyed to the Thomas Iron Company; and Layton must be charged with knowledge of the fact that the land had been conveyed to the Thomas Iron Company seventeen years before the date of his deed. This took the land in question out of all the conveyances of the Banta farm which followed. In 1891 the Thomas Iron Company conveyed its Wawayanda tract to Victor A. Wilder, but there is excepted from the conveyance the Banta farm which had been previously conveyed, to Layton. It will be remembered that the tract in question was originally part of the Banta farm, and that farm; including the tract in question, is excepted from the conveyance to Wilder. The effect of that deed is therefore to reserve the lands in question from the conveyance and leave the title in the Thomas Iron Company. Wilder conveyed the tract to Searles in 1892 with the same exception and reservation. In 1902 Searles. and Wilder reconveyed to the Thomas Iron Com-. pany without making mention of the conveyance to the company of any rights acquired by it under the original Rutherford deed. This would seem to have left the title to the land in question in the Thomas Iron Companjq so that when the Thomas Iron Com-, pany conveyed to the complainant in 1905 it conld and did include in the conveyance all the rights acquired by the Thomas Iron Company under the Rutherford deed in lSIl. This seems clear, and, in my judgment, places the paper title to the lands in question in the complainant.

I will therefore advise the usual decree confirming the title of the complainant.


text:
    The Oscar Barnett Foundry Company v. The Ironworks Company and Paul L. Crowe. The Oscar Barnett Foundry Company v. The Ironworks Company and Battelle & Renwick.
    [Submitted October 18th, 1912.
    Decided November 11th, 1912.]
    The case of the Oscar Barnett Foundry Go. v. Crowe, SO E. J. Eq. (10 Buck.) 112; affirmed, 80 E. J. Eq. (10 Buck.) 258, followed in these two suits against assigns of an alleged inventor or who took whatever rights they had in an invention with notice of complainant’s prior contractual rights.
    On final hearing on hill, answer, replication and proofs.

      Mi\ Egbert J. T'amblyn, for the compláinant.

      Mr. Bóyd McLean, Mr. Charles Young, Mr. Charles W. Fuller and Mr. W. D. Preble (of the New York, bar), for the defendants. .
   Howell, Y. C.

These two eases were heard upon the same proofs. The hills were filed for the purpose of making effectual the terms of an agreement entered into between the complainant and Paul L. Crowe, dated January 29th, 1908, by which Crowe gave to the complainant the right to -use and vend mechanical chain grate stokers made in accordance with certain inventions of the said Crowe mentioned in the agreement.

The suit against the Ironworks Company and Crowe prays for an injunction to restrain the defendants from representing the stokers manufactured and sold by the complainant as stokers manufactured by the Ironworks Company and from carrying on any business either in the name of the Ironworks Company or otherwise in violation of the said agreement, and for an accounting of profits unlawfully made by the two defendants in violation of the terms of the said agreement.

The other suit prays for an injunction against the Ironworks Company from manufacturing for and selling to Battelle & Ben wick any mechanical chain grate stokers embodying the features set forth in the applications for patents mentioned in the said agreement, and that Battelle & Ben wick may be enjoined from installing and operating any such stokers purchased from the Ironworks Company embodying the said features, together with a prayer for an accounting for profits.

In May, 1909, the complainant brought suit in this court against Paul L. Crowe alleging the existence of this same agreement which is set out in the present cases and praying that Crowe might be enjoined from manufacturing and selling to the Commercial Trust Company of Jersey City a mechanical chain grate stoker embodying the features set forth in the said agreement, and for an accounting for profits. This cause was heard and a decree entered in 'April, 1911, adjudicating that the defendant Crowe in building the mechanical chain grate stoker mentioned in the bill of complaint violated his contract with the complainant and directing the defendant to pay the sum of $188.04 as profits derived by him from the violation of the said contract. This decree was affirmed on appeal upon the ground taken below, viz., that the defendant Crowe having represented that the inventions for -which he had applied for patents were valid, and having made a transfer to the complainant of the right to manufacture mechanical chain grate stokers in accordance with the claims set out in the applications, had no right to violate his contract, without regard to the United States patent laws, and that while under the circumstances of the particular case an injunction could not issue, yet that he was liable for all the profits arising out of his violation of the said agreement.

After the filing of the bill in the original case the defendant Crowe and others interested with him in the exploitation of his supposed invention organized the Ironworks Company and transferred certain of his rights to the company. In my opinion this company was organized under such circumstances as- to charge it with notice of Mr. Crowe’s violation, of his agreement with the complainant and the bringing of the suit of 1909 therefor. I am likewise of opinion, notwithstanding the strong assertions to the contraiy, that whatever rights were transferred to the Ironworks Company, included all the rights which -had previously been transferred to the complainant. The testimony of Mr. Everett, a witness for the complainant, is full and complete on this point, and satisfies me of the correctness of the complainant’s contention that the manufacture of mechanical chain grate stokers by tbe Ironworks Company is a violation of the complainant’s rights. In short, the very moment I became satisfied of the identity of the stokers manufactured by the Ironworks Company with those manufactured by the complainant, it became evident that under the prior decision of the court of errors and appeals there was a violation of the original agreement, notice of which I have already charged up against the Ironworks Company. It is perfectly manifest that the stokers which have been and are being made by the Ironworks Company are identical with those made by the complainant. In fact, the defendant in its advertisements presents photographs of stokers that were actually made and installed by the complainant. There can be no doubt whatever about the identity of the two machines, nor is there in my mind any .doubt whatever of tbe result of the action of these defendants. It is a clear effort to get rid of the obligation of the original contract, and an impudent attempt on the part of Crowe to avoid liability thereunder. It ivas argued for the defendants that inasmuch as patents were not granted on all the claims made in the applications mentioned in the original agreement, it was open to everybody to manufacture in accordance with the claims thus ignored; that is entirely true so far as non-contractors are concerned, but it is not true so far as Crowe and his assign, the Ironworks Company, are concerned. They are bound by a contract which has been sustained as to Crowe to its fullest extent, and which may not now be violated by him or his assigns with impunity. Again it is said that the defendants to these suits are not liable to account to the complainant for the profits accruing from the manufacture and use of these appliances. It has already been held by the court of errors and-appeals that Crowe is liable to an accounting, and I do not see how he can evade the same result in this case; and upon the same footing I do not see how the Ironworks Company can escape, upon the ground that that company is an assign of Crorve with full notice of his duties and liabilities; and upon the same theory the Battelle & Renwick Company would be liable from the time when they first had notice of the complainant’s rights. Vulcan Detinning Co. v. American Can Co., 75 N. J. Eq. (5 Buch.) 542.

There remains the question of enjoining these parties from further violation of the complainant’s rights, and I see no reason why they should not be so enjoined. If the parties defendant to this litigation can by the mere manipulation of documents escape all liability under contracts made by them or of which they have knoAvledge, we might as well abolish the law of contracts or abrogate all .remedies for breach thereof. This case is a peculiar and specific instance of the necessity of rules of law upholding contracts and protecting people in the enjoyment thereof, and I know of no way by which the complainant may be protected in this matter except by enjoining Crowe and the Ironworks Company from further violation of the fundamental agreement in accordance Avith the prayer of the bill in that behalf.

Battelle & Renwick made their contract for the stoker which is mentioned in the bill with full knowledge of the right claimed by the complainant, and that the complainant had brought suit to enforce the same.. They, therefore, took thoir chances with Crowe and the Ironworks Company, and in my opinion it would be violative of every principle of honesty, equity and good morals to allow them to reap any advantage whatever from the situation. The prayer of the bill as against them is that they may be enjoined from operating this chain grate stoker. I think that they should be so enjoined. There seems to me .to be no other way of enforcing the complainant’s right.

I will advise a decree in accordance with these views. The defendants should be required to pay costs; in so far as any of the proceedings were taken for the benefit of both causes, the taxable costs in relation thereto will be equally divided between them.


author: Howell, V. O.

text:
    William Sheehan v. Frank L. Humphreys et al.
    [Submitted January 25th, 1912.
    Decided April 3d, 1912.]
    1. In specific performance suits this court is debarred from granting relief where there is doubt éither concerning the facts or the law.
    2. Evidence examined and held to create so much doubt about the matter that relief must be denied to the complainant.
    On final hearing on bill, answer, replication and proofs.

      Mr. Charlton A. Reed and Mr. Elmer King, for the complainant.
    Mr. Willard W. Cutter and Mr. Richard V. Lindabury, for the defendants.
   Howell, V. O.

The controversy in this case arises out of an alleged agreement between the-complainant and Humphreys for the sale and transfer of certain shares of the capital stock of the Morris and Somerset Electric Company. At the time the alleged bargain was made Humphreys owned eighty shares of the stock, thirty of which stood in his name on the books of the company; the other fifty stood in the name of the defendant Gillespie and had not been transferred on the books. Humphreys, however, held the certificate properly endorsed and was the real owner. In January of 1911 the complainant and Humphreys had some conversation respecting the sale of Humphreys’ stock, but at that time there was no definite number of shares spoken of. It was, however, distinctly mentioned by Humphre}^ that he would not care to dispose of all his stock and that he would like to remain a member of the board of directors for the reason that he had been connected with the company since its organization. Plainly this early conversation contemplated that Humphreys should retain some portion of his stock.

The next step in the transaction was a letter written by the complainant to Humphreys under date of February 11th, 1911, in which the complainant asks the defendant Humphreys to procure options on the stock of his friends, without letting them know who was seeking the option, and enclosing copies of forms of option and proxy to be executed by the voting stockholders. He says:

“We would ask you in this case also to sign a copy of this [form of option] covering your own holdings, and we feel sure that several of your friends [naming them] would sign them if you requested them to do so. We leave the matter in your hands and trust that you can aid us in bringing- the necessary conditions about to secure for us control of the maximum amount of stock among your friends * * * You must realize of course that we would like to secure options upon the stock at eighty-five, as you have offered yours for, but leave that entirely in your hands to say if you see fit to take this matter up for us then whether it shall be eighty-five or some other figure.”

At the time this letter was written Humphreys was in Florida, and he did not receive it until he arrived home on February 21st. On that day he wrote a letter in reply to W. M. Sheehan & Company, the complainant’s firm, in which, among other, things, he said:

“I shall go ahead and see what I can do for you. While X am willing to sell my stock at the figure I gave you, I can give no positive assurance that anyone else will do so. I can hardly go to friends to whom I sold stock at par and ask them to sell at any figure much under par, but I will see what I can do and let 3’ou know.”

There is very grave doubt in my mind about the meaning and effect of this correspondence. When the motion for an injunction was made I was of the opinion that it did not constitute an option which could be made a binding agreement by any acceptance thereof. Now having heard all the evidence and examined all the exhibits, the same doubt remains in my mind that, I expressed on-that occasion. It is very evident that tlie complainant, either individually or on behalf of a firm of brokers in New York, desired to secure the control of the company by the purchase of a majority of its stock. Neither he nor they cared particularly about the stock of Humphreys unless they could secure enough shares to give them control. Beading the correspondence with this in mind it is quite apparent that what the complainant was bargaining for was the control of the company, and this is what Humphreys was endeavoring to aid him in procuring. Again, there is doubt as to the number of shares which the defendant Humphreys intended to contribute to the complainant’s scheme of control. The correspondence does not mention the number of shares. It refers to a previous conversation in which it was specifically stated that Humphreys should retain an interest and remain in the directorate. How can the court determine how many shares were in the contemplation of the parties at the time of the correspondence? The only statement on the subject appears in the January conversation, and that left it entirely indeterminate. This court is debarred from granting relief in specific performance cases where there is doubt concerning either the facts or the law. This has been determined by the court of last resort in a long line of cases. McKibbin v. Brown, 14 N. J. Eq. (1 McCart.) 13; affirmed, 15 N. J. Eq. (2 McCart.) 498; Potter v. Hollister, 45 N. J. Eq. (18 Stew.) 508; affirmed, 46 N. J. Eq. (1 Dick.) 609; Myers v. Metzger, 63 N. J. Eq. (18 Dick.) 779; Doutney v. Lambie, 78 N. J. Eq. (8 Buch.) 277; Van Riper v. Wickersham, 77 N. J. Eq. (7 Buch.) 232.

Again, it is not clear that the parties intended that the correspondence in question should operate either as au option or as a contract. The letter of 'February 11th enclosed several forms of option and proxy, one of -which the complainant asked Humphreys to sign. This points to the conclusion that the complainant did not think that Humphreys "would he hound unless he signed one of those documents; besides, from a careful examination of the form of so-called option, it is not entirely clear that it is not an agreement for the sale of shares in prassenti "with paj’ment and delivery postponed.

There is so much doubt about the matter that I am constrained to deny relief to the complainant. The hill must therefore he dismissed.