author: Howell, V. C.

text:
    Leon F. Blanchard et al. v. The Prudential Insurance Company of America et al.
    [Submitted November 3d, 1910.
    Decided February 25th, 1911.]
    1. A life insurance company may reduce its rates for future business, if the enterprise is not thereby endangered, by actual reduction or by increasing the amount of insurance purchasable for the same amount.
    2. A life insurance company which under the election required by JP. L. 1907 p. 138 § 12, elected to conduct a non-participating policy business, cannot give retroactive benefits to existing policyholders by a reduction in rates.
    3. Life insurance being affected with public interest, the attorney-general can sue to enjoin ultra vires acts by a company engaged in -that business, and that without a relator, but of his own motion.
    4. A life insurance company will not be enjoined from engaging in ultra vires acts at the suit of a shareholder, where the pleadings do not present any issue on the facts relied upon.
    ñ. A life insurance company is properly compelled to declare a dividend among its stockholders where funds held as a surplus appear to be unnecessarily and unreasonably held.
    O. General Corporation act April 21st, 1896 (P. L. 1896 p, 293 § 1/7), as amended by act March 21st, 1901 (P. B. 1901 p. 21/6), governing declaration of corporate, dividends, does not apply to life insurance companies.
    7. Equity can compel a corporation to declare dividends where there is a sufficient surplus above the necessities of the corporate business, and dividends cannot be withheld fraudulently, arbitrarily, or unreasonably.
    On final hearing. On bill, answer, replication and proofs.

      Mr. John R. Hardin and Mr. Robert H. McCarter, for the complainants.

      Mr. Edward D. Duffield, Mr. Richard V. Lindabury, and Mr. John C. Spooner (of the New York bar), for the defendants.
   Howell, V. C.

The bill in this case was originally filed by Leon E. Blanchard for himself and other stockholders of the Prudential Insurance Company of America, who were similarly situated with him, to enjoin the company from carrying out a scheme whereby certain benefits were given to the holders of certain of its non-participating industrial policies, and to compel the company to pay to its stockholders such dividend out of its surplus as would be sanctioned by a judicial inquiry into the affairs and assets of the company. There are other forms of relief sought touching the payment of. salaries and the expenditure of moneys in building operations, but the two grounds above mentioned are the only ones which were seriously litigated. The facts are voluminous and intricate and largely of a technical character, but as to those which are material to the decision of the points litigated there is but little variance.

After the cause was at issue, other stockholders were admitted, so that now the complainants are eighteen in number, holding somewhat more than twenty per cent, of the total share capital of the company. These additional complainants join in the prayer of the bill.

The company was organized under the name of. “The Widows and Orphans Friendly Society,” by a special act of the legislature of this state approved April 3d, 1873. Its name was changed to “The Prudential Friendly Society,” by another special act in 1875, and again by a. certificate pursuant to a statute then in force on March 30th, 1877, to “The Prudential Insurance Company of America.”. It began business with a very small capital, which has been increased from time to time by the declaration of stock dividends from its accumulated surplus until at the time of the filing of the bill it had a capital of $2,000,000, divided into forty thousand shares of the par value of $50 each. It has paid to its stockholders a dividend at the rate of ten per cent, per annum for many years. At the beginning, and until 1886, it issued what is known as non-participating industrial policies only. These were policies issued for a definite and specified amount upon payment of definite and specified premiums, and the policyholders were not entitled by the terms of their contracts to any rebates, dividends or other participation in such profits as the company might make in the transaction of the business. By 1886 the financial standing of the company had become so well established that it began issuing what is called.ordinary policies, the great majority of which by their terms entitled the holders to such dividends or participation in the company’s profits as the directors might determine upon. There was a class of these policies by which the holder was entitled to participation in the profits at the end of certain periods of years, as, for instance, policies were issued which entitled the holder to a dividend not annually but at the end of each period of five years from the date of the policy, provided he was living at the end of the term. These are called deferred dividend policies.

In November, 1896, at a meeting of the executive committee, the president of the company explained and outlined a scheme for granting concessions, as they were called, to the holders of industrial policies by giving to them a post-mortem dividend after five years, a cash dividend after fifteen years, and establishing a surrender value for the policies after twenty years; whereupon a resolution was passed directing the officers to perfect and modify the plan in their discretion; and they were authorized to extend it to old policies as far as they considered it wise to do so. This committee appears to have made a report at a meeting of the board of directors on January 6th, 1897, and while the record (page 738) does not state that it was adopted, it appears to have been acted upon in such a manner as to make all the industrial policies outstanding at that time participants in the profits of the company. This action then put nearly all the policies of the company on a participating basis, and they remained so for a period of ten years. By section 12 of chapter 72 of the laws of 1907 (P. L. 1907 p. 133) every domestic stock life insurance company was put to its election whether it would carry on its business in the form of participating or non-participating business. This election was required to be made by a resolution of the board of directors to be filed with the commissioner of banking and insurance on or before September 1st, 1907, and it was provided that after December 31st, 1907, such companies should conduct only the kind of life insurance which they severally had so elected to cany on, and should not thereafter conduct both the participating and non-participating branches of the business. In pursuance of this legislation, the company passed a resolution on July 8th, 1907, electing to carry on its business in the form of nonparticipating business, and providing that it should cease the issuing of participating policies on August 1st, 1907. At the time this election went into effect, the company had outstanding three classes of policies, to which frequent reference will hereafter be made — (1) industrial policies; (2) ordinary policies; (3) deferred dividend policies. By the term “ordinary policies,” I refer to the various forms of policies issued from what has been called the ordinary branch of the business, and exclude industrial policies. These throe classes of policies must, of course, remain participating policies, and their holders cannot be deprived of their right to participation so long as the present contracts are outstanding.

During the life of the company it has in several instances granted to its policyholders what it has denominated increased benefits under their policies, which are not called for by the terms of the contracts. These increased benefits consisted in enlarging the amount , payable to the policyholder at maturity. The result was reached by an addition to the face of the policy rather than a reduction of the premiums, for the reason that a reduction of the premiums would run into fractions of a cent, which would be inconvenient, if not impossible, to handle and calculate in practice. Such concessions, as they have likewise been called, were made in 1880, 1885, 1891, 1897, 1899, 1906 and 1907. The officers of the company declare that the giving of such concessions or benefits is now and always has been the policy of the company; that when the company started business it was without accurate life tables as to industrial lives; that it fixed upon a table of rates which eventually turned out to be too high, and that inasmuch as the policyholder’s money had created a fund that was larger than was deemed necessary to protect the company’s obligations, they should be entitled to the benefit thereof by an increase in the face value of their policies: With this series of acts in mind, the board of directors, on June 14th, 1909, passed a resolution, the result of which was another concession or benefit to the industrial policyholders, beginning with all industrial policies issued on and after July 5th, 1909, not by reducing the premium, but by adding about ten per cent, to the amount of insurance that the same premium would thereafter purchase. This particular concession or benefit was likewise extended to all industrial policies which were issued after the beginning of the year 1907, which should be in force on July 1st, 1909. Complaint is made of this by the bill (page 32) in these words:

“That methods and policies are devised by said directors and enforced by them, instituted and continued for the purpose of keeping down so far as possible additions to the profits of said corporation distributable to the stockholders thereof, and that such distributable profits have been distributed, and it is the avowed intention of the said directors to hereafter make further distribution thereof, to policyholders of said corporation not entitled thereto by their policy contracts, in large amounts, at the direct expense and to the direct injury of the stockholders of said corporation.”

The reply of the answer to this charge is (page 13) :

“Defendants also admit that the directors expect to make further distributions from the earnings on the non-participating policies that were issued prior to 1897 to the holders of such policies and say that this course is not only just and fair to the policyholders concerned and the stockholders as well but is essential to the continued prosperity of the company.”

The complainants urge that the action of the company in conferring the benefit proposed by the resolution of 1909 is wholly void, for the reason that it contravenes the legislation of 1907, already referred to, under whose authority the company elected to do only a non-participating business, and that the granting of the benefit proposed is in effect permitting the future policyholders to participate in the profits contrary to the statute. It is obvious that there are two classes of policyholders dealt with; the one class comprise all the industrial policies which the company might issue after July 5th, 1909. The other class consists of those policies issued between January 1st, 1907, and July 1st, 1909, to which a retroactive benefit of the same character is given.

I have no hesitation in saying that it is entirely competent for the company, acting through its board of directors, at any time to reduce its rates of premiums for future business, and that its discretion therein is uncontrolled, except that it would not be permitted to reduce the rates so low as to endanger the whole enterprise. If, after long experience, the company finds that its rates are excessive, it is not only its right but its duty to reduce them to a reasonable basis. And this may be done either by an actual reduction of the whole table of rates of premium or by increasing the amount of insurance which the old rates will thereafter purchase. The new rate, or the increased amount of insurance, so far as this class of policies is concerned, would then become a part of the insurance contract and would operate to the extent to which the benefit is conferred as a reduction in the premium rates.

But as to the policies which receive the retroactive benefit the situation is different. A portion of these policies, that is to say, those issued between January 1st, 1907, and August 1st, 1907, are participating policies, all issued before the company elected to carry on a non-participating business only. There is another class, viz., those issued between August 1st, 1907, and July 1st, 1909, which were issued after the company’s election, and are therefore non-participating policies. The question is then whether this class of policies can be granted the benefits proposed to be given to them. The argument is that no such benefit can lawfully be conferred upon them, for the reason that it gives them a benefit which they did not contract for and to the extent of such benefit makes them participate in the profits of the company’s business, in the face of the fact that it was not lawful for the company to conduct a participating business.

Whether the complainants are in a position to succeed on this point or not is difficult of solution. It was argued on behalf of the defendants that concessions of this sort had been so frequent and so much money had been paid away in pursuance of them (about $12,000,000 in all), without any complaint on the part of the stockholders, that the directors might assume that the stockholders would be estopped from objecting in the present case. The stockholders filed their bill on June 23d, 1909, before the plan went into operation, and the record shows that they applied by an interlocutory petition for an injunction to prevent its consummation, which was denied; hence it cannot be said that there was any delay which would defeat their suit. The statute which compelled the election and forbids participating business to be thereafter done does not give to stockholders, as such, any right of action growing out of its violation; neither does it provide any penalty therefor. The bill does not present any sharp issue on the facts out of which the point is developed, and the answer as to its allegations respecting the same refers only to the expectation of the directors to carry out the promises of the company touching the non-participating policies issued prior to 1897. The action of the company concerning the class of policies now under consideration cannot be said to be fraudulent or inimical to the interests of the company or its business as a whole, and in the absence of the statute, the discretion of the directors to do the act complained of would probably not be inquired into or interfered with, and therefore it may well be that the question is one that can be best dealt with on information filed by the attorney-general to restrain the violation of a statute for which no other remedy exists which is so appropriate and adequate.

That the business in which the defendants are engaged is affected with a public interest, and that the attorney-general may move the court in his official capacity to enjoin ultra vires acts is plainly decided by the case of McCarter v. Firemen's Insurance Co., 74 N. J. Eq. (4 Buch.) 372; and it is quite as clear that he may proceed on his own mere motion without a relator. Attorney-General v. Delaware, &c., Railroad Co., 27 N. J. Eq. (12 C. E. Gr.) 631. An injunction may likewise be awarded to shareholders to prevent a company from engaging in ultra vires acts when the pleadings are so framed as to raise the issue properly. In this case, however, there is no allegation in the bill of the precise fact relied upon nor any issue touching the same made up by the 'answer. In this state of the pleadings a court ought not by its decree to affect or disturb a series of insurance contracts extending over a period of nearly two years and aggregating possibly many hundreds of thousands of dollars.

The next question is whether the company shall be compelled by the decree of this court to pay a dividend to the stockholders, and, if so, at what rate. The decision of this question does not compel an investigation into the affairs of the company prior to the legislation of 1907, at which time it had outstanding a considerable amount of insurance represented by deferred dividend policies. By chapter 71 of the laws of 1907 it became the duty of the company annually to ascertain the amount of surplus to which all such policies as a separate class were entitled and annually to apportion to such policies as a class the amount of the surplus so ascertained and carry this amount plus actual interest earnings and accretions as a distinct and separate liability to such class of policies on and for which the same was accumulated; and the company was not permitted to use any part thereof for any purpose other than the purpose for which it was accumulated. This act went into effect on April 15th, 1907, and therefore became operative upon the company’s business for that year. On February 10th, 1908, the directors passed a resolution reciting that whereas the actuary of the company had reported to the board that the total undivided profits or surplus derived from deferred dividend policies amounted on December 31st, 1907, to the sum of $15,616,716.53, and that in the opinion of the board it was necessary that there should be retained from the said surplus or profits the sum of $7,600,000 to be held by the company as a cohtingency surplus for the protection of its obligations and the security of its business, and that said sum should not be at that time assigned, and that the balance of said surplus or profits amounting to $8,016,716.53 should be assigned and apportioned between the deferred dividend policyholders and the stockholders, it was resolvéd that this last named sum of $8,016,716.53 be apportioned between the deferred dividend policyholders and the stockholders as follows:

“To the policyholders 90 per cent., amounting to the sum of $7,215,-044.87, and to the stockholders 10 per cent., amounting to the sum of $801,671.65; and the board does hereby ascertain and apportion to such deferred dividend policies as a class the said sum of $7,215,044.87, to which sum the said policies as a class are in the opinion of the hoard now entitled, said sum to be carried to the credit of said policies as a class as provided by law.”
‘‘And he it further resolved, That the said sum of $801,671.65 hereby apportioned and assigned to the stockholders be held and added to the contingency surplus of the company and be not paid out to the stockholders in the form of dividends or otherwise except by the future action of the board.”

I may say that the division of the surplus derived from the deferred dividend policies into the three amounts above mentioned is wholly arbitrary. The actuary of the company stated that the first division whereby $7,600,000 was retained as a “contingency surplus” was recommended by him on what he considered to be an equitable basis, and the division of the remainder between the deferred dividend policyholders and the stockholders was fixed at ninety per cent, and ten per cent, respectively because a company which dealt in industrial insurance in London had with apparent success adopted those proportions for the same or similar purposes. Eesolutions in like form, but with differing amounts, were passed with relation to this subject covering the business of the company for 1908 and 1909, so that out of the earnings of the deferred dividend policies for the three years mentioned there was assigned to what was called “contingency surplus” $10,512,065.23; to deferred dividend policies the sum of $21,866,879.82, from which should be deducted a difference between interest on the fund and payments out of it, leaving the sum of $20,605,119.08, and to the stockholders the sum of $2,429,655.95, which was increased by interest on the investments of the fund to $2,536,722.69; this last ■amount being the aggregate amount assigned to the stockholders during those three years, but concerning which it was resolved that the same be added to the contingency surplus and not paid to the stockholders except by- future action of the board.

In my view the decision of the point now under consideration depends upon the effect which shall be given to that portion of the three annual resolutions which assign specific and certain sums to the stockholders. In one paragraph of the resolution there is a complete and perfect transfer, “to the stockholders ten per cent., amounting to the sum of,” &c. If the resolution had stopped there 1 have no doubt but that those words would be sufficient to justify the officers of the company, without further .action of the board, in dividing that sum as a dividend among the stockholders. It is an assignment and transfer of a fund not needed in the business of the company and therefore set apart as profits to the owners of the stock. The paragraph following directs that this sum be added to the contingency surplus of the company and be not paid to the stockholders in the form of dividends or otherwise except by the future action of the board; and now the question is, whether having declared the ownership of this large sum of money to be in the stockholders, there exists or ever did exist any valid reason for withholding it from them or any valid reason why it should be paid into the fund called contingency surplus and retained there to await the future action of the board. If such good reason exists the fund must continue to be held in the contingency surplus. If it does not exist the money must be divided among the shareholders. I am unable to see that the words “contingency surplus” have any particular meaning. I do not understand that any separate account has been opened on the books of the company which contains entries touching this surplus. It is simply surplus, and nothing less or more, and the giving to it of this name neither adds to nor takes from its real character as part of the company’s surplus. It may be said that the general surplus of the company, as reported to the various insurance departments at the end of 1909, was upwards of $16,000,000, and while an attempt was made on the part of the company to show that the actual free and unassigned surplus .was $6,000,000 or thereabouts, I shall assume that it is what the company has stated it to be in its official reports. Of this amount upwards of eleven millions of dollars consist of cash in hand or in bank.

There does not appear to be any statutory provision either in the charter or in any general statute which controls the question of the declaration of dividends by this company. The forty-seventh section of our General Corporation act does not apply. As it stood at the time of the organization of the company (P. L. 1866 p. 1034) it applied only to manufacturing corporations, and in its present form it applies only to corporations organized under the General Corporation law. We are therefore remitted to the general principles which underlie corporate action in this regard, having in mind all the circumstances surrounding the case as presented. The cases in our oavu state to which the attention of the court has been called are cases involving the construction of the statutes referred to, the ones prior to the statute failing to exhibit the point now before us. In the cases construing the statute there is a large discussion of the general principles, and therefrom we may deduce a trend of judicial and professional thought which may lead us to the true principle. I gather from the Avhole discussion the rule that a court of equity may entertain a bill to compel a corporation to declare dividends in cases where there is a sufficient surplus OA’er and above the necessities of the corporate business and that dividends may not be withheld cither fraudulently, improperly, arbitrarily or unreasonably. In Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. (5 Dick.) 756, the court of errors and appeals held that the power of the court of chancery to order the directors of a trading corporation to make a dividend of unused profits Avion they improperly refused to do so is undoubted. In Stevens v. United States Steel Corporation, 68 N. J. Eq. (2 Robb.) 373, this court (Vice-Chancellor Stevenson) held that the subject Avas one concerning which the corporations are invested Avith a Avide discretionary power, but that this discretionary power was not absolute, and that when the directors improperly refuse to make a division of unused profits a court of equity Avill interfere on behalf of any stockholder who may complain. And again in Griffing v. Grijjing Iron Co. the same doctrine Avas approved by Chancellor Magie; and in Murray v. Beattie Manufacturing Co. (MS. opinion by Vice-Chancellor Stevenson), it is stated that while the distribution of the profits of the corporation in dividends is largely Avithin the discretion of the directors, a court of equity will interfere to compel a distribution of profits which have been unreasonably and improperly withheld, and that this Avas substantially a statement of the original equitable rule in regard to the power of this court to compel a corporation to distribute profits unreasonably withheld. One of the replies to this position is that the by-laws of the company adopted on August 12th, 1907, exonerate the company from obedience to any such rule. One of these by-laws provides that the directors shall not be required, in January of each year or at any other'time alter reserving over and above its capital 'stock paid in as a working capital for the corporation such sum, if any, as shall have been, fixed by the stockholders, to declare a dividend among the stockholders of the whole or any portion of its accumulated profits exceeding the amount so reserved and pay the same to such stockholders; but that the board may from time to time declare and pay to the stockholders, from the surplus or net profits of the corporation, such dividends; if any, as they in their absolute judgment and discretion may determine. If this by-law is a reasonable and proper exercise of the power of the company and is in all respects a valid regulation, does it apply to the case in hand? My judgment is that it does not, for the reason that the directors in the exercise of their undoubted control have already assigned to the stockholders a large sum of money which they withhold from-the stockholders upon the ground that this amount is needed, not so much for the prosecution of the company’s business as for the security of its contract obligations. It has in hand for this purpose — (1) its capital of $2,000,000; (2) the reserve required by law, calculated according to the most rigorous requirements of any of the states and aggregating on December 31st, 1909, upwards of one hundred and fiftjr-six millions of dollars; (3) an additional sum of $1,000,000 put up as a special reserve for the like secuiEy of its contracts; (4) the amount placed in what is called contingency surplus, aggregating upwards of ten millions of dollars; (5) the amount assigned for the protection of the deferred dividend policyholders, aggregating over twenty millions of dollars; and finally, (6) $2,536,722.69 assigned to the stockholders and by the same resolution, placed in the contingency surplus fund. The reason given by the officers for this great accumulation is that the company may be able to meet contingencies that may arise from earthquake, pestilence and other unforeseen and fortuitous circumstances, and so provide for the remotest contingent liability that the most lively imagination can conceive of. The actuary, whose testimony struck me as that of a careful, practical and conscientious man, declined to go as far as did some of the other officers. I gather from his testimony that if the two millions and a half and upwards which was assigned to the stockholders were distributed among them, there would still be a sufficient surplus, in his opinion, to take care of all the ordinary contingencies, and at the same time provide for the expense of the new business which is being canvassed in the northwestern states and Canada.

I am of the opinion that the case made by the complainants therefore puts it upon the defendants to satisfy the court that after having made this assignment to the stockholders it was still necessary that the fund so assigned should be taken from them and added to the general surplus. If the money was needed there, why go through the operation of assigning it to stockholders at all? Why give with one hand and take away with the other ? Why not make a single division of the fund earned by the deferred dividend policies between them and the general surplus, leaving the stockholders out of the calculation entirely? The assignment to them cannot be a mere idle motion; it must have been done for some purpose which the theory of the defendants’ case does not explain. If they were to have no part or lot in the fund, why should they have been mentioned? No reason or excuse is given for placing this fund in the contingency surplus and withholding it from the stockholders except that the money may be needed at some time in the future to meet a line of contingencies which never yet has happened and which appear as contingencies to be very remote. Such action on the part of the company seems to amount to an arbitrary and improper withholding of profits from the stockholders, not for any illegal or immoral purpose, because I think the case exonerates the management from any charge of dishonesty or personal aggrandizement, but in order to retain possession of the fund and quiet a groundless fear that the money may some day be needed.

I do not see why the surplus cannot be divided among the stockholders to the extent of $2,500,000. A distribution of this amount would not, in my opinion, injuriously affect the company’s actual assets or its credit as a sound financial institution, nor its current business.

The result is that the injunction prayed for will be denied and that the.company will be ordered io divide the said sum of $2,500,000 among its stockholders.


source: Caselaw Access Project

license: Public Domain

text:
    Jules S. Bache et al. v. Central Leather Company et al.
    [Submitted February 28th, 1911.
    Decided March 3d, 1911.]
    1. A preliminary injunction will not be granted restraining the defendants from voting at the annual stockholders’ meeting for the election of directors proxies upon fifty-two thousand four hundred and thirty out of seven hundred and twenty-nine thousand nine hundred and eighty outstanding shares of stock, upon the ground that there had been a severance of the right to vote from the vested title to and ownership of the stock, where it appeared that if the questioned shares be deducted from the four hundred and seventy-six thousand five hundred shares for which the defendants had proxies, there would still be left to them proxies for four hundred and twenty-four thousand and seventy shares against which nothing was alleged, or nearly sixty thousand shares more than a majority.
    2. The nature and characteristics of a proxy explained.
    3. A master of this court will not be appointed to supervise such election on the ground that inspectors of election had been appointed by the present board of directors and were mere employes of the company, -subject to the direction of its officers and without independent judgment in deciding upon the admission or rejection of a challenged vote.
    4. The powers and duties of such inspectors of election defined.
    On motion for a preliminary injunction.

      Mr. Robert H. McCarter and Mr. Henry Wollman (of the New York bar), for the complainants.

      Mr. Richard V. Lindabury and Mr. Edward M. Shepard (of the New York bar), for the defendants.
   Howell, V. C.

The complainants are stockholders of the Central Leather Company; they seek by their bill to interfere with the annual meeting of the stockholders originally called for February 23d, 1911, by enjoining the defendants from voting thereat upon certain shares of stock, and .to have the election of directors supervised by a master in chancery. The company was organized under the New Jersey General Corporation law with an authorized capital of $80,000,000, divided equally between common stock and preferred cumulative stock carrying a dividend of seven per cent, annually. Of this authorized issue there are now outstanding seven hundred and twenty-nine thousand nine”7 hundred and eighty shares, of which the complainants own and represent about one hundred and eighty thousand shares. As the time for the annual meeting approached, the officers and directors for the current year sought proxies from the other stockholders to be voted on at the annual meeting; they have succeeded in securing proxies for voting four hundred and seventy-six thousand five hundred shares, which, it will be observed, is an amount largely in excess of one-half of the stock issued and outstanding. I assume that these figures are correct, because they are stated substantially in the same way in a circular letter addressed by the proxy committee to the stockholders of the company which is copied and included in the complainants’ affidavits, and therefore relied upon by them, and stated also unequivocally in the affidavits filed on behalf of the defendants. If these facts were all the facts in the case, it would be difficult to see how any injunction could lawfully issue to prevent the voting of any or all of the shares for which the present administration holds the proxies. The complainants, however, allege that there are fifty-two thousand four hundred and thirty shares for which the proxy committee holds proxies which have no right to be voted by proxy for the reason that there has been a severance of the right to vote from the_ vested title to and ownership of the stock. It is said that the defendants, or some of them, borrowed shares from other shareholders and had them transferred on the company’s books in the names’"oí persons who were friendly to the management who then gave proxies to vote upon these shares, and that immediately thereafter the certificates for shares were returned to the true owners. In the meantime the directors, by resolution, closed the transfer books so that it became impossible to have the stock retransferred into the names of the owners, and so the proxy committee are enabled to vote upon this stock at the annual meeting without regard to the wishes of the true owner. And the position is aggravated, the complainants say, by the fact that they have become the purchasers in the meantime of four hundred and sixty shares of this very stock which now belongs to them and which they allege will be voted against them at the annual meeting, and that they have no recourse whatever. I am of the opinion that it is unlawful, and a gross violation of the public policy of this state to permit or contract for a separation of the voting power of corporate stock from its ownership. If a stockholder executes a proxy, the person" to whom it runs is the stockholder’s agent, and ho must vote in accordance with the instructions given either openly or tacitly to him by the real owner of the shares. The agency is of such a character that it may be abrogated by the appearance of the shareholder in person at the meeting, or by the execution of a subsequent proxy which would cancel the former one, the whole' situation being entirely under the control of the stockholder himself. The situation as to the stock complained of in this case is very different. Here the stockholder has divested himself of the right to vote at stockholders’ meetings and has sold -the right or given it away to persons who may vote it wholly in opposition to his wishes, and thus thejDojver to appoint a proxy degenerates from a scheme for the best method of conducting the business of the company into a mere device for maintaining the control. The real stockholder, at the stockholders’ meetings, has a right to have the other real stockholders present in person or by proxy for the purpose of considering the well being of the company. This result is not reached when the contest is one which is waged merely for control without regard to the best interests of the corporation. The authorities are Cone v. Russell, 48 N. J. Eq. (3 Dick.) 208; Guernsey v. Cook, 120 Mass. 501; Woodruff v. Wentworth, 133 Mass. 309; Warren v. Pim, 66 N. J. Eq. (21 Dick.) 382; White v. Thomas Inflatable Tire Co., 52 N. J. Eq. (7 Dick.) 178; Loewenthal v. Rubber Reclaiming Co., 52 N. J. Eq. (7 Dick.) 440. If the case turned upon this point, I think it would have to be decided in favor of the complainant, but it does""hot. If you deduct the fifty-two thousand four hundred and thirty shares complained of from the four hundred and seventy-six thousand five hundred shares for which the management have proxies there will be left proxies against which nothing is alleged for four hundred and twenty-four thousand and seventy, which is nearly sixty thousand shares more than a mere majority. If, therefore, an injunction should run against the voting of the fifty-two thousand four hundred ami thirty shares, it will cut no possible figure in the election for the reason above stated.

" Tt is quite apparent that if these figures are correct, there is nothing for an injunction to protect. There is no charge of fraud or collusion on the part of the present management, and there does not appear to be any irreparable injury growing out of the situation. It is said that the board of directors, by means of a proxy committee, have canvassed the whole field of stockholder s for proxies running in the name of three of the officers and directors of the company to vote for the present management, and that at the same time the same board has appointed three inspectors of election who are mere employes of the company and subject to the direction of the officers, and who therefore can have no independent judgment in making a decision upon the admission or rejection of a challenged vote, and that this amounts in law and in equiiy to appointing the present management to be judges in their own case. The practice referred to stands upon the ground of inveterate usage. It is sustainable only upon the ground that they hold the election fairly and honestly and neither commit or permit any fraud to be perpetrated upon the minority stockholders. Ordinarily speaking, the tellers or inspectors of the election at a corporation meeting perform only ministerial duties, and notwithstanding the elaborate by-law on the subject in this caso, I do not see how they can be given judicial duties; they certainly cannot be given judicial duties which will override or in any way interfere with an inquiry by the supreme court into the regularity of the company’s action.

This view of the ease makes it unnecessary for me to discuss the question of the appointment of a master in chancery to superintend the meeting as was done by Judge Caldwell in Bartlett v. Gates, 118 Fed. Rep. 66, and as was approved of by the supreme court of Pennsylvania in Tunis v. Hestonville Railroad Co., 24 Atl. Rep. 88; but I am constrained to say that in my opinion the cases called to my attention on behalf of the complainants in this connection do not go to the extent claimed. Chancellor McGill, in Archer v. Amercian Water Works Co., 50 N. J. Eq. (5 Dick.) 33, evidently meant to say that the power of the court of chancery to protect corporate elections would be exercised by means of injunctions, and such is undoubtedly the meaning of the opinion of Chancellor Pitney in Warren v. Pim, 66 N. J. Eq. (21 Dick.) 382. The statement made by Chancellor Runyon in Lehigh Coal and Navigation Co. v. Central Railroad Company of New Jersey, 35 N. J. Eq. (8 Stew.) 353, as to the ex-ercisé of the power of the court to provide for corporate elections, refers to the affairs of a railroad company which were being administered by the court of chancery by a receivership, which gave the court such control over the affairs of the company that it had power to order an election as part and parcel of its plan of management.

The motion will therefore be denied.


text:
    Percy S. Straus v. Anne Norris et al.
    [Submitted February 28th, 1911.
    Decided March 30th, 1911.]
    1. Au owner of land, who took the benefit of the efforts of a broker seeking to procure a purchaser of the land, and who signed documents relating thereto, thereby ratified the acts of the broker.
    2. Where through-innocent mistake a grantor represented that a tract, described by metes and bounds, containing but sixty-nine and seventy-one hundredths acres contained eighty-two acres more or less, the grantee, purchasing by the acre and paying the price in ignorance of the deficieney, could sue in equity for tlie deficiency in the acreage; the words “more or less” not including a considerable variance, and the mistake being sufficient to induce the court to believe that if the truth had been known the purchase would not have been made.
    On final hearing on bill, answer, replication and proofs.
    On July 22d, 1908, the Shrewsbury Heights Improvement Company, a New Jersey corporation, was the owner of a farm in Monmouth county, which was known as the Joseph C. Patterson farm. The beneficial ownership of all the capital stock of the company was vested in the defendant Anne Norris. On the day above named she made a contract with the complainant, in her own name, by which she .agreed in consideration of $31,500 to convey to him that portion of the farm lying north of the Nave-sink road described as
    “containing eighty-two acres more or less, bounded .on the north by the Chapel Hill road and lands of Holmes, Tilton and Corcoran, on the east by lands of Parmly, on the south by the Navesink road, and on the west by the public road and the New Jersey Southern railroad.”
    The transaction was completed on August 11th, 1908, by the delivery of a deed of conveyance by the company to the complainant, in which deed the land is described by-metes and bounds, at the end of which description occurs these words, “containing eighty-two acres more or less.” The land is likewise described in the same deed as a portion of a tract of one hundred and fifteen and thirty-one hundredths acres described in a deed made by John A. Miller to the Shrewsbury Heights Improvement Company in 1906, which lies northerly of the centre line of the road leading from Middletown turnpike to Navesink. The deed also contains this parag’raph:
    “This deed is intended to convey all that portion (and no more) of the farm now owned by the Shrewsbury Heights Improvement Company as lies north of the Navesink road, and bounded as follows: On the north by the Chapel 1-Iill road and land of Holmes, Tilton and Corcoran, on the east by lands of Parmly, on the south by the Navesink road, and on the west by a public road and the right of way of the New Jersey Southern Railroad Company.”

      Straus entered into possession of the lands so conveyed to 'aim, and in October, 1908, had a topographical map made by an engineer for the purpose of preparing the land for a country residence. The engineer discovered in his preliminary work that there was considerable less than eighty-two acres in the tract, and upon making a survey, which he did by direction of the complainant, found that the plot contained sixty-nine and seventy-one hundredths acres. The complainant now brings his siut against Miss Norris and the Shrewsbury Heights Improvement Company to compel a restitution of a proportionate part of the purchase price paid by him because of the deficiency in acreage. . In addition to the representation of the acreage of the tract in the contract and in the deed, the complainant claims that there were other representations of a similar character made to him in the negotiations which led up to the contract, by Mr. Allaire, who was said to be the agent of Miss Norris. There was put in evidence a draft of an unexecuted agreement which was intended to have been signed by the complainant and the defendant as early as July 22d, 1908, in which the land is described as “containing eighty-two acres more or less.” This contract appears to have been drawn by the complainant’s broker from information derived from Mr. Allaire. The same acreage is mentioned in some correspondence between the parties. About a week before the contract of sale was made, Mr. Straus and his broker met Mr. Allaire, at the Polo Club, at which the price was finally fixed at $37,500, and there is evidence showing that on several occasions the complainant stated in the presence of Mr. Allaire that at that rate he was paying about $450 an acre for the land, and that j;his was about the same price per acre as he would have to pay for land in Westchester county, New York, where he had been to make inquiries about land and its value.

      Mr. John M. Enright and Mr. Frank P. McDermott, for the complainant.

      Mr. Edmund Wilson, attorney-general, for the defendants.
   Howell, V. C.

Tlie first question to be disposed of is the agency of Mr. Allaire He is a real estate broker having an office at Red Bank, near the property in question. Somehow he had the Patterson farm “on his books,” as property that was for sale, but in the beginning of his negotiations with Mr. Straus and his broker he had no special or definite authority from Miss Norris to represent her in the transaction in question. The evidence shows that when he received an offer from the complainant he submitted it to Miss Norris, and I gather from the circumstances that she, either expressly or tacitly at that time, authorized Mr. Allaire to represent her in the sale to the complainant. At any rate, if she did not expressly so authorize him, she took the benefit of his labor and effort, and to the extent to which she subsequently signed documents must be held to have ratified his authority.

There is no doubt but that Mr. Allaire represented that the farm contained eighty-two acres, or that the complainant went upon the land before the deed was delivered and was there shown the boundaries and extent of it. It is quite plain that everybody understood that he was purchasing eighty-two acres of land at a price of about $450 per acre. The facts resemble those in Paine v. Upton, 87 N. Y. 327, concerning which Chief-Justice Andrews says: “The facts affirmatively show a mutual mistake of the parties, in respect to the quantity of land, which commenced with the commencement of the negotiation for the sale of the farm, and pervaded the whole dealing from that time until the transaction was consummated, by the giving of the deed and the execution of the mortgage. This mistake, moreover, was as to an essential and material element of the contract. In the absence of any finding of special facts, and circumstances, the natural presumption is, that in a sale of agricultural land, the element of quantity enters into the transaction and affects the consideration agreed to be paid. But in this case it is plain that the representation of quantity was deemed material by the parties. The sale was, perhaps, not technically a sale by the acre. But the starting point of the negotiation was an inquiry by the purchaser as to the quantity of land in the farm, and the gross sum originally asked was fixed by the sellers by reckoning the land at $150 an acre. The price finally agreed upon was also fixed upon the supposition that the farm contained at least two hundred and twenty acres.” This is a fair epitome of the facts in the case at bar. In Couse v. Boyles, 4 N. J. Eq. (3 Gr. Ch.) 212, the chancellor says that there is a presumption that in fixing the price of land regard is had to the quantity.

I find, however, that the representations were not fraudulent, but were the result of an innocent mistake on the part of Miss Norris, which she was probably led into by a sort of general understanding in the neighborhood of the acreage of the tract, and particularly by a copy of a map of the Patterson farm, which came into her possession and which she showed to the complainant during the negotiations and produced at the hearing, on which the tract in question is marked “82 acres.” It must be kept in mind thát this suit is not a suit for the rescission or cancellation of the contract on the ground of misrepresentation, but is brought to recover back a portion of the purchase-money paid by the vendee upon the ground that he overpaid the vendor by reason of her misrepresentation of a then present fact. There appears to be no express authority in this state for such a proceeding. There are, however, many cases in which this court and the court of errors and appeals, in foreclosure suits, have ordered an abatement to be made in the amount secured by purchase-money mortgages which were the result of conveyances of land as to which the mortgagee misrepresented the number of acres in the tract combed and covered by the mortgage. These cases, to a large number of which reference will be made, are analogous in principle to the case at bar. The earliest one is Couse v. Boyles, 4 N. J. Eq. (3 Gr. Ch.) 212, in which there was a large deficiency of acreage, one surveyor making it twenty-two acres and another thirty-four acres out of a total of one hundred and twelve acres as represented. Chancellor Pennington says in that case: “The plain and sensible rule, as it appears to me, is this: When land is sold as containing so many acres 'more or less,’ if the quantity on an actual survey and estimation either overrunning or falling short of the contents named be small, no compensation should be recovered bjr either party. The words 'more or less’ must be intended to meet such a result, but if the variance be considerable, the party sustaining the loss should be allowed for it, and this rule should prevail where it arises from mistake only, without fraud or deception. * * * The rule is stated to apply generally, although the land is not bought or sold professedly by the acre, the presumption being that in fixing the price regard was had to the quantity. If the purchaser knows the true quantity at the time of his purchase, or there are words used' clearly indicating the intention of both parties not to be governed in the sale by the amount of land the purchaser will not be entitled to any relief.” The ground of this decision is mistake. There was no fraud. The mistake was that of the grantor. The mistaken idea was conveyed to the grantee in the form of a misrepresentation of a fact. He relied on that misrepresentation, paid his money in consequence thereof, and then urged that the amount overpaid by him should be deducted from the amount claimed on the purchase-money mortgage. A decree was made in his favor; the deduction was allowed. The case stands approved by all the judges who have had to deal with the question.

In Weart v. Rose (1863), 16 N. J. Eq. (1 C. E. Gr.) 290, the mortgagee, who was the vendee, brought suit to redeem the mortgage after deducting therefrom the price of the deficiency ascertained to exist in the quantity of acres as described in the deed. The relief was sought — first, on the ground of fraud; second, on the ground of mutual mistake. The court held that the charge of fraud was not sustained by the testimony, and that the deficiency in acreage was too small to warrant the interference of the court on the ground of gross mistake. It followed the doctrine of Couse v. Boyles, but refused relief because of the insignificance of the cause of complaint. In White v. Stretch (1871), 22 N. J. Eq. (7 C. E. Gr.) 76, this court, upon the same principle and upon the authority of Couse v. Boyles, deducted from the purchase-money mortgage the amount of assessments on the mortgaged premises which the mortgagor had paid. In Melick v. Dayton (1881), 34 N. J. Eq. (7 Stew.) 245, the court of errors and appeals, in a foreclosure suit, declared that the mortgagor might have relief if the mortgagee had fraudulently represented the number of acres to be greater than the actual number conveyed, and that abatement would also be made where there is a gross mistake; gross mistake was said to occur where the difference between the actual and the estimated quantity of land represented is so great as to clearly warrant the conclusion that the parties would not have contracted had they known the truth. In Frenche v. The Chancellor (1893), 51 N. J. Eq. (6 Dick.) 624, the court of errors and appeals reaffirmed the doctrine of Melide v. Dayton, saying: “The words ‘more or less’ must be intended to meet such a result, but if the variance be considerable the party sustaining the loss should be allowed for it, and this rule should prevail when it arises from mistake onty, without fraud or deception.” See, also, Kuhnen v. Parker (1897), 56 N. J. Eq. (11 Dick.) 286; McMichael v. Webster (1898), 57 N. J. Eq. (12 Dick.) 296; Van Blarcom v. Hopkins (1902), 63 N. J. Eq. (18 Dick.) 466. In Capstick v. Crane (1903), 66 N. J. Eq. (21 Dick.) 341, the rule in the cases of Couse v. Boyles, Dayton v. Melick and Van Blarcom v. Hopkins was again announced and affirmed by the court of errors and appeals. I take it that while some of the judges have stated that relief would be granted in case of mistake, and others have stated that it would be granted in case of gross mistake, there is substantially no difference between the two expressions. The mistake must be sufficient to induce the court to believe if the truth had been known at the time, the parties would not have contracted; in view of this idea, mistake and gross mistake are interchangeable.

It will be observed that this suit was not brought until after the transaction liad been consummated by the delivery of the deed and the payment of the purchase-money. It is undoubtedly the rule in England, and the defendants in this case rely upon it, that after the contract has been performed by the delivery of the deed and the satisfaction of the purchase-money, no action or suit will lie either at law or in equity to recover compensation or obtain the return of a proportionate amount of the purchase-money unless there is some covenant or agreement on which the suit or action can be based; that the vendee having chosen to accept his deed without making a survey of the property, and without having insisted upon protective covenants, he is entirely without remedy and must suffer the consequences of his folly^ and that the remedy by way of compensation is not an independent remedy but is merely ancillary to that of specific performance. Jolliffe v. Baker, 11 Q. B. D. 255; 52 L. J. Q. B. 609; Palmer v. Johnson (C. A.), 13 Q. B. D. 351; 53 L. J. Q. B. 348. The point has been much mooted in the English courts, but has not yet been discussed or decided by the house of lords. The question was evidently started in Couse v. Boyles. Chancellor Pennington says: “Whether a court of equity will entertain jurisdiction for the sole purpose of giving compensation or damages to a complainant for any deficiency in the quantity of land coRvej^ed after a conveyance actually made, Is a very different question from making such an allowance to a party who comes into court and asks a specific performance of an unexecuted agreement," although he had just written that he did not think it was a sufficient objection to allowing an abatement of the price that the contract had been consummated. He said it was true that the cases cited referred to contracts remaining in fieri, but that the principle was the same whether the contract only be executed or has been consummated by giving the deed. The point seems to have been argued in Clark v. Carpenter, 19 N. J. Eq. (4 C. E. Gr.) 328. The reason alleged on the part of the defendants in support of the English rule is stated by Mr. Williams as follows:

“The purchaser should also carefully inspect the whole of the property sold and have it surveyed prior to completion and should make inquiry of the tenants or occupiers with respect to the boundaries or other matters regarding the physical condition of the property, for if by reason of any material defect of the quantity or otherwise the property sold do not correspond with the description of it given in the contract, or in any representation which induced the purchaser to make the contract, and the error be caused by the innocent misrepresentation of the vendor, and not by fraud, the purchaser will be entitled to resist the specific performance of or to rescind the contract while it remains uncompleted; but when the contract has been fully performed the purchaser will not be entitled to any relief in respect thereof except — first, by virtue of an express agreement contained in the contract to make compensation for such errors, or second, if the defect be really a defect of title and compensation be recoverable under the covenants of title contained in the conveyance, or third, if the representation amounted to a warranty collateral to the contract for sale of the truth of the fact stated. Here it may be mentioned that if a man buy land without inspecting it he does so at his own risk, and must accept without compensation any defects in the physical condition of the property which are patent to any one who views it, and are not inconsistent with the description contained in the contract for sale.” 1 Wms. V. & P. 539.

This doctrine would relieve the vendor from the consequences of bis misrepresentation, and is quite at variance with the case of Redgrave v. Hurd, 20 C. D. 1; 51 L. J. Ch. 113, which was expressly approved by the judicial committee of the privy counsel in Aaron’s Reefs v. Twiss (1896), A. C. 273; 65 L. J. P. C. 54, and sanctioned by the supreme court of this state in Cowley v. Smythe, 46 N. J. Law (17 Vr.) 380, and by this court in Powell v. Cash, 54 N. J. Eq. (9 Dick.) 218; Eibel v. Von Fell, 55 N. J. Eq. (10 Dick.) 670, and Du Bois v. Nugent, 69 N. J. Eq. (3 Robb.) 145. In that case a solicitor agreed to sell an interest in an established law practice, and representations were made by him as to the amount of the net income of the business, and the purchaser examined for himself the vendor’s books. Eeliance in support of the contract was placed upon the fact that the party attempting to evade it had made a personal examination of the books, but the court held to the doctrine that where untrue representations are made by a vendor to a vendee, the vendee has a right to rely upon them, and the fact that he has had an opportunity to examine and did examine for himself will not avail the vendor, unless it appears affirmatively that the vendee did rely upon his own examination and not upon the statement of the vendor. Master of Eolls Jessel says: “If a man is induced to enter into a contract by a false representation, it is not a sufficient answer to him to say ‘if you had used due diligence you would have found out that the report was untrue; you had the means afforded you of discovering its falsity, which you did not choose to avail yourself of.’ * * * It has also been held that those who accejot those false statements as true are not deprived of their remedy merely because they neglected to go and look at the contracts themselves, though they were told the contracts were in writing and might be inspected if they asked to see them. Another instance with which we are familiar is a false statement as to the contents of a lease, such'a case as a man saying there was no covenant or provision in the lease to prevent the carrying on in the house to be sold the trade which the purchaser was known by the vendor to be desirous of carrying on, although the lease itself might be produced at the sale or might have been opened to the inspection of the purchaser long previous to the sale, it was held the vendor could not be allowed to say ‘you were not entitled to give credit to nay statement/ It is not sufficient therefore to say that a man has had the opportunity of investigating the real state of the case, but has not availed himself of that opportunity.” And that appears to be the result of the cases in this court. Eibell v. Von Fell, 55 N. J. Eq. (10 Dick.) 670, and Du Bois v. Nugent, 69 N. J. Eq. (3 Robb.) 145.

At common law it must be conceded that after the delivery of the deed to the grantee and the payment by him of the purchase-money for the conveyance, no right of action remains except upon some covenant or agreement which still subsists as a separate and independent cause of action; and while none of the New Jersey cases above cited reaches to the question of liability after the consummation of the contract, the reasoning of Chancellor Pennington in Couse v. Boyles, supra, seems to establish the jurisdiction of equity, provided the complainant has done nothing which would interfere with his equities accruing from the transaction. Chief-Justice Beasley in Davis v. Clark, 33 N. J. Eq. (6 Stew.) 579, argues that the defendant’s obligation is a separate and independent one from the complainant’s obligation to pay the purchase-money, and that the ground of action exists wherever the vendor is liable to the vendee for damages in consequence of the failure of the land to come up to the represented acreage. He considered the claim as a set off to be allowed in equity by way of recoupment in order to avoid a multiplicity of suits and prevent undue litigation.

The decree will therefore be in favor of the complainant.

The complainant assumed the payment of a mortgage covering the lands in question and other lands. The defendant has applied for leave to amend his bill so as to offset the amount of Iris claim against the amount which he has assumed to pay. I will hear counsel further on this application at the time of the settlement of the decree.


author: Walker, V. C.

text:
    Josiah White et al. v. Young's Pier and Hotel Company et al.
    [Decided March 13th, 1911.]
    1. In the grant to Atlantic City, by divers owners of premises abutting on the Atlantic ocean, of a sixty-foot wide strip of land between high and low-water mark for the purpose of a public street and a steel, board or plank walk, with a covenant on the part of the grantors not to put or erect or allow to be placed or erected on the lands thereby granted or on the ocean side thereof, any building or structure, except as provided by ordinance, the covenants to run with the land granted and those on the ocean side thereof, a general scheme was entered into between the co-grantors and Atlantic City, by express covenant with the municipal corporation and by implied covenant with each other — Atlantic City being trustee for all of the grantors — for the purpose’ of maintaining an open and unobstructed beach front with right of light, air and view over and across the oceanward land from the boardwalk.
    2. Atlantic City, as grantee in the easement deeds, and as trustee for the public with reference to its rights under the grants and the general scheme of improvement, may sue to enforce its and the public’s rights; so, also, may any co-grantor who joined in the gift of the easement, especially when the city has been requested to bring suit to vindicate any right under the easement deeds and has refused to do so.
    3. An order denying a motion for an interlocutory injunction, without any answer being filed in the cause and no issue between the parties being adjudicated upon final hearing, is not res jiidicata, of the issue tendered by the bill but not joined by the defendant, and, not being res judicata as to the parties or privies to the suit, it is without force stare decisis as to strangers.
    4. The defendant, Young’s Pier and Hotel Company, having a structure on its lands oceanward of the boardwalk at the time of the execution or the easement deed by its predecessor in title, namely, a wooden pier extending from the boardwalk into the ocean, has the absolute right to use the old pier on the land in question, including such parts of it as have been repaired and reconstructed, as fully to all intents and purposes as its then owner enjoyed the right to use it at and before the time of the execution of the particular easement deed; and the restrictive covenant in that deed does not operate upon the situation, because the defendant had a property right in the pier existing upon the premises at the time the deed was made, which was not in any respect surrendered, and neither the city nor any of the co-grantors may interfere with the defendant’s enjoyment of that right; and, as the owner of the pier prior to the execution of the easement deed might have turned a pavilion on it into stores, equally so may that alteration now be made, or, having been made, may now be maintained.
    On final hearing on pleadings and proofs.

      Mr. George A. Bourgeois and Mr. Robert H. McCarter, for the complainants.

      Mr. Harry Wootton, Mr. Clarence L. Cole, Mr. Richard V. Lindabury and Mr. William J. Magie, for the defendants.
   Walker, V. C.

The bill of complaint was filed by certain owners of lands situate on the landward side of the boardwalk in Atlantic City, in this state, to enjoin the conducting of, or permitting to be conducted, a mercantile business on the lands of the defendant, Young’s Pier and Hotel Company (hereinafter to be called the Pier Company), on the oceanward side of the boardwalk, and from erecting and maintaining stores on the pier thereon, and also commanding the Pier Company to remove the stores by it already erected on the pier. Such facts as are necessary for the elucidation of the question at issue will be hereafter stated.

■ Atlantic City, as is well known, is a large seaside resort, with a very extensive ocean frontage.

The complainants’ contention is that a general scheme was entered into between the various property owners fronting upon the Atlantic ocean by written covenant with Atlantic City and by implied covenant with each other — Atlantic City being trustee for all of the grantors — for the purpose of maintaining an open and unobstructed beach front. There is no claim that the Pier Company has entered into any express contract with the complainants. Complainants’ principal reliance is upon the covenants contained in what is called the “boardwalk easement deed of April 30th, 1896.” It appears that the Pier Company’s predecessors in title to the land whereon the pier in question is erected, executed one of the boardwalk easement deeds, which deed was recorded, and, therefore, the Pier Companjr took with notice. The series of boardwalk easement deeds, and there were many of them, Atlantic City accepted. They contain the following covenant and proviso:

“And the said parties of the first part, for themselves, their heirs, executors, administrators and assigns, do hereby covenant, promise and agree to and with the said party of the second part, its successors and assigns, that they and each of them, the said parties of the first part, their heirs, executors, administrators and assigns, shall not and will not put or erect or allow to be placed or erected on the lands hereby granted or on the ocean side thereof any building or structure, except as provided by ordinance, and the party of the second part hereby covenants and agrees that it will not place or erect or allow to be placed or erected any buildings or structure of any kind or description on the lands above described except as above provided, and that these covenants shall attach to and run with the lands and premises hereby granted and the lands on the ocean side thereof. so long as the same shall be used for the purpose of a street and a public steel, board or plank walk, and that the same may be enforced or its breach or nonobservance may be restrained or enjoined at any time by the said party of the second part, its successors and assigns.
* * * * *
“Provided, however, that the within grantors shall not be prohibited from building a pier in front of their property and connecting the same to the new walk about to be erected, and ux>on the further condition that the said pier shall bo of at least one thousand feet in length, extending into the ocean beyond the present sixty feet wide strip, and constructed of iron or steel, and shall not permit the sale of any commodity upon the same and be confined to charging- only an entrance fee; and provided further, that the Oity Council of Atlantic City shall not grant a right of way to any railroad company or street railway company now incorporated or to be hereafter incorporated, over and along the same.”

On a bill bled by Atlantic City against the Young-McShea Amusement Company (one of the Pier Company’s predecessors in title) to restrain the defendant from selling commodities on its pier (the very pier in question), and from charging a fee for witnessing entertainments upon the pier, other than a fee for entrance to the structure, Vice-Chancellor Reed advised a decree for the complainant (Atlantic City v. Young-McShea Amusement Co., 62 N. J. Eq. (17 Dick.) 147) and an injunction issued. On appeal, the court of errors and appeals reversed the decree advised by the vice-chancellor upon the ground that the case rested upon the proviso in the easement deed, and held that the proviso related exclusively to a pier to be erected in the future, and that it did not inhibit the using and maintaining of one already built; that the defendant had a property right in the pier existing upon the premises at the time the easement deed was blade which had not in anjr respect been surrendered to the city, and that the complainant had shown no -right to interfere with the defendant in the use of the old pier as fully as that right had been enjoyed before the execution of the easement deed. Atlantic City v. Young-McShea Amusement Co., 63 N. J. Eq. (18 Dick.) 831, 833.

The Pier Company contends that the case just cited, and also the unreported case of Atlantic City v. Young-McShea Amusement Co. (bill filed April 28th, 1902, docket 25, page 13), the files of which were offered in evidence, are absolutely dispositive of the case at bar, the question at issue being res judicata if the complainants claim in the right of Atlantic City, or, if they claim as individuals and not as privies to the suit mentioned (for they were not parties), the question is at rest under the doctrine of stare decisis. The bill in the unreported case showed that at the time of the execution and delivery of the easement deed of 1896 by the Young-McShea Amusement Company to Atlantic City there existed upon and across the land owned by the company, extending into the ocean on the ocean side of the sixty-foot-wide strip of land conveyed for a highway (the boardwalk), a wooden structure or pier upwards of one thousand feet in length, extending into the ocean, and that on April 3d, 1902, upwards of three hundred feet of that wooden structure or pier was burned to the water’s edge and entirely destroyed; that the Young-McShea Amusement Company had then recently begun to construct and rebuild entirely of wood that portion of the pier which was destroyed by fire, and intended to erect a large wooden superstructure with lofty roof for a dancing hall and for other similar purposes; that the structure, when completed, would obstruct and interfere with the view of the ocean from the boardwalk, and would be in every respect a violation of the covenants and conditions of the easement deeds; that under the proviso mentioned there existed authority to build, construct and maintain only a pier of steel or iron upon and across the grantor’s lands on the beach front; and prayed an injunction against such reconstruction. This bill was verified by affidavits, and upon its being filed, an order to show cause, with an ad interim stay, was made and served. On the return of the order the defendant filed affidavits, and an order was made and filed April 18th, 1902, discharging the order to show' cause and denying the injunction prayed for. Here the case ended, no answer being filed. No issue was raised between the parties which was adjudicated upon final hearing. No opinion or memorandum was filed by Vice-Chancellor Reecl, who advised the order denying the interlocutory injunction asked for, and it may well be that the denial went upon the ground that the case in the preliminary stage was doubtful on the law of the facts, or both, or that irreparable injury was not shown. In any event, there is no such adjudication in the case as makes the question at issue in the cause now being considered res judicata, or gives it force stare decisis. The merits were not decided, and it is only a decision on the merits of a cause of action that is conclusive upon the parties and their privies. Buckingham v. Ludlam, 37 N. J. Eq. (10 Stew.) 137. The judgment must be final to be res judicata. 24 Am. & Eng. Encycl. L. (2d ed.) 793. For the same reason that the unreported case has no application res judicata to the cause sub judice, it has no application stare decisis.

As already remarked, the very pier concerning which the controversy arose in Atlantic City v. Young-McShea Amusement Company, is the same pier which is the subject of the controversy in the case at bar. That case (Atlantic City v. Young-McShea Amusement Co., 62 N. J. Eq. (17 Dick.) 147), in this court, was decided upon a mere memorandum which referred to the opinion of Vice-Chancellor Reed in Atlantic City v. Atlantic City Steel Pier Co., 62 N. J. Eq. (17 Dick.) 139, as deciding all the points raised in the former. Now, in Atlantic City v. Atlantic City Steel Pier Company, the learned vice-chancellor had before him the same question of general scheme for the improvement of the beach front at Atlantic City as is here involved, and, as I understand it, that scheme was found to exist, and to be operative upon the land in question. Said Vice-Chancellor Reed — 62 N. J. Eq. (17 Dick.) (at p. 143):

“Then, again, this covenant is one of many similar covenants entered into by a body of covenantors as part of a common scheme for the mutual advantage of each and all such covenantors. This feature, in my judgment, brings it within the exceptional class of cases discussed by Chief-Justice Beasley in Brewer v. Marshall, 18 N. J. Eq. (3 C. E. Gr.) 337; S. C. on appeal, 19 N. J. Eq. (4 C. E. Gr.) 537.”

Furthermore, in this same case of Atlantic City v. Atlantic City Steel Pier Company, Vice-Chancellor Reed observed (at p. 142):

“Now, the agreement, as I construe it, contains a grant to the public of a right in the nature of an easement. It, indirectly by a negative covenant, grants a right of light, air and view over and across the oceanward land from the boardwalk. This right is limited by a reservation to the donors of the privilege of placing thereon a certain kind of structure. And the uses to which those structures shall be confined is defined, for the purpose of regulating the kind of structure and the number of structures which could be, and would likely be, erected. The owners have themselves limited the uses to which such structures may be put. Such a restricted grant, in my judgment, the city may accept, and, as the representative and trustee of the public, may invoke the judicial arm of the government to protect.”

Then, too, the court of errors and appeals seems to have expressly decided in the two cases of Atlantic City v. Associated Realties Corporation, 73 N. J. Eq. (3 Buch.) 721, and Atlantic City v. Associated Realties Corporation, 75 N. J. Eq. (5 Buch.) 568, that these boardwalk easement deeds created a general scheme for the benefit of the grantors and of the public in the preservation of an open view oceanward of the boardwalk.

The boardwalk easement deeds of 1896 were founded upon a sufficient consideration. This was expressly held by Vice-Chancellor Grey in Evans v. New Auditorium Pier Co., 67 N. J. Eq. (1 Robb.) 315 (at p. 318), where he said:

“Each of these co-grantors gave up that part of his own land which was covered by the boardwalk strip in consideration of a like gift made by his co-grantors. The attending covenants, securing light, air and view, were obtained for a like consideration. It was a general scheme of public improvement in which all participated. Its form was a covenant with Atlantic City, but in fact it was a gift by the co-grantors to the public and to each other. Atlantic City paid nothing to the grantors, but it spent large sums in building the boardwalk.

“All the values wore given by the grantors. No one grantor, nor anyone claiming under him, having accepted the benefits of the others’ gifts, can be permitted to destroy its value in an essential particular, as the defendant company now seeks to do.”

All of the complainants, or their predecessors in title, were owners of laud abutting on the Atlantic ocean in Atlantic City and executed the boardwalk easement deed; likewise as to the defendant Pier Company, in reference to the lands whereon the pier in question was and is erected, and, therefore, these covenants are effective and operative between the parties to this suit on the issue here presented, if the complainants have capacity to sue in respect to the matters charged in the bill, and if, further, the facts in the case at bar'bring the defendants’ land, whereon its pier is erected, within the terms of the covenant.

As to the standing of tlie complainants to maintain this suit.

That Atlantic City, as grantee in the easement deeds and as trustee for the public with reference to its rights under the grant and the general scheme of improvement, may sue to enforce its own and the rights of the public, is, I think, undoubted. It was expressly so decided by Vice-Chancellor Reed in Atlantic City Steel Pier Co., ubi supra, and is conceded by the defendants.

The complainants, or some of them, requested the city to bring this particular .suit, but the city, upon the advice of counsel that the owner of the pier has a right to have stores upon it on the ocean side of the boardwalk, so long as they axe kept within the limits of the pier as it existed when-the boardwalk easement deed was executed, refused to bring the suit.

The defendants contend that the complainants themselves have no standing to maintain this suit. But this question was decided otherwise by Vice-Chancellor Grey in Evans v. New Auditorium Pier Co., 67 N. J. Eq. (1 Robb.) 315, in which case he considered the very same easement deed of April 30th, 1896, and said (at p. 319):

“Any co-grantor who joined in the gift of the easement has a status to enforce the general scheme arranged and perfected by it. This was a case brought by one of the grantors individually, and not by the city.”

Although this case was reversed (Evans v. New Auditoritm Pier Co., 67 N. J. Eq. (1 Robb.) 620) for the reasons given for the reversal of Atlantic City v. New Auditorium Pier Co., Ibid. 610, the reversal proceeded upon grounds other than the capacity of the complainant Evans to sue. Therefore, I conclude, that the complainants in this case have a right to maintain this suit, especially in view of the fact that Atlantic City was requested to bring it and refused.

The question is, therefore, squarely presented, as to whether the Pier Company shall be restrained from erecting stores upon its pier, and from conducting mercantile business in those already erected, and be commanded to remove from off the pier the stores already thereon.

As to complainants’ right to an injunction — •

The complainants contend that the covenant in the boardwalk easement deed operates to prevent any building or structure being put or erected on the land thereby-granted (the boardwalk strip), or on the ocean side thereof, except as provided by ordinance (and no ordinance has authorized their construction), and, as covenants in a deed are construed most strongly against the grantor, that, therefore, it should be held in this case, that the stores in question may not be erected, or being erected, should be decreed to be removed. The argument is that, although under the decision of the court of errors and appeals in Atlantic City v. Young-McShea Amusement Co., 63 N. J. Eq. (18 Dick.) 831, the building erected upon the lands of the Pier Company ocean-ward of the boardwalk at the time the easement deed was executed, may be maintained as a then existing structure, nevertheless, the covenant referred to is operative so as not to permit of any erections being made upon the pier subsequent to the execution of the deed; in other words, that only the pier as it then existed may be continued in existence, and they say that the case just mentioned went no further than to hold that the defendant had the right to sell commodities and to charge fees other than for admission to the pier, because it was an. existing structure. This view, in my judgment, is untenable. It. is true that the precise facts here involved were not present in the former ease, but I think the opinion of the court of errors and appeals that the pier owner had a property right in the existing pier which had not in any respect been surrendered to the city and that the defendant might use the pier as fully as its right to do so had been enjoj’ed before the execution of the easement deed, is equally applicable to the facts present in the case at bar. With the language of this very covenant before him, Mr. Justice Van Syckel, speaking for the court of errors and appeals, in Atlantic City v. Young-McShea Amusement Co., 63 N. J. Eq. (18 Dick.) (at p. 833), made in effect, as I read it, an unqualified declaration that the amusement company had a right to use the old pier already erected as fully after the execution of the easement deed of 1896 as before. True it is that the exact language of the learned justice Was that “the complainant has shown no right to interfere with the defendants in the use of tlie old pier as fully as they enjoyed it before the execution of the agreement of 1896;” but, in deciding the question presented to me in the case at bar, I have no hesitation, in view of the facts in this case, and the law pronounced by the court of errors and appeals in that case, to hold that the defendant Pier Company, in this case, has the absolute right to use the old pier on the land in question, including such parts of it as have been repaired and reconstructed, as fully to all intents and purposes as its then owner enjoyed the right to use it at and before the time of the execution of the easement deed of 1896. “Maintenance,” of course, includes repairs; and “use,” without restriction, must mean “lawful use,” which at least inchides such alterations and reconstruction as might have been made for any purpose for which the pier might lawfully have been used before the execution of the easement deed. In other words, if the owner of the pier, prior to the execution of the. easement deed of 1896, might have turned a pavilion on it into stores, then equally so may that alteration now be made, or, having been made, may now be maintained.

In my judgment, the restrictive covenant in the easement deed of 1896 does not operate at all upon the facts of this ease. The Pier Company, as to its existing pier, does not come within the proviso of the covenant, as it has not erected a new steel pier, which sort of erection is permitted by the proviso j and it is not bound by the covenant with reference to the old pier because that structure existed at and. before the time the covenant, which operates in future, was made, and which pier, therefore, it is entitled to use and enjoy as fully as the right to use and enjoy it inhered in its predecessor in title prior to the execution of the easement deed, which right was then unlimited, and is so now as far as the easement deed is concerned.

These views lead to a denial of the injunction sought and the dismissal of the bill. The defendants are entitled to costs.